AllianzGI Convertible & Income Fund II

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-Q

 

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS

OF REGISTERED MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-21338

 

 

AllianzGI Convertible & Income Fund II

(Exact name of registrant as specified in charter)

 

 

1633 Broadway, New York, NY 10019

(Address of principal executive offices) (Zip code)

 

 

Lawrence G. Altadonna

1633 Broadway,

New York, NY 10019

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 212-739-3371

Date of fiscal year end: February 28, 2015

Date of reporting period: November 30, 2014

 

 

 

Item 1. Schedule of Investments

AllianzGI Convertible & Income Fund II

November 30, 2014 (unaudited)

 

 

Shares

           Value*  

 

CONVERTIBLE PREFERRED STOCK—42.8%

   
  

Aerospace & Defense—1.3%

   
  181,200      

United Technologies Corp., 7.50%, 8/1/15

    $ 10,873,812   
     

 

 

  
  

Automobiles—1.4%

   
  378,190      

The Goldman Sachs Group, Inc., 8.50%, 12/16/14 (General Motors) (a)

      11,356,289   
     

 

 

  
  

Banks—5.8%

   
  7,455      

Huntington Bancshares, Inc., 8.50% (b)

      9,989,700   
  805,310      

JPMorgan Chase & Co., 8.00%, 9/18/15 (Bank of America) (a)

      13,279,562   
  283,055      

The Goldman Sachs Group, Inc., 8.00%, 1/14/15 (Citigroup Inc.) (a)

      13,895,170   
  9,900      

Wells Fargo & Co., 7.50%, Ser. L (b)

      12,152,497   
     

 

 

  
        49,316,929   
     

 

 

  
  

Diversified Financial Services—1.4%

   
  10,100      

Bank of America Corp., 7.25%, Ser. L (b)

      12,002,840   
     

 

 

  
  

Electric Utilities—0.8%

   
  134,610      

Exelon Corp., 6.50%, 6/1/17

      7,025,296   
     

 

 

  
  

Energy Equipment & Services—1.5%

   
  240,590      

Credit Suisse, 8.00%, 3/5/15 (Baker Hughes) (a)

      12,936,524   
     

 

 

  
  

Food Products—1.8%

   
  43,975      

Tyson Foods, Inc., 4.75%, 7/15/17

      2,308,688   
  246,900      

Wells Fargo & Co., 8.00%, 8/28/15 (Archer-Daniels-Midland Co.) (a)

      12,461,043   
     

 

 

  
        14,769,731   
     

 

 

  
  

Health Care Equipment & Supplies—1.7%

   
  210,000      

Credit Suisse AG, 8.00%, 6/23/15 (Medtronic, Inc.) (a)

      14,391,300   
     

 

 

  
  

Health Care Providers & Services—1.8%

   
  257,800      

JPMorgan Chase & Co., 8.00%, 5/5/15 (HCA Holdings, Inc.) (a)

      15,390,660   
     

 

 

  
  

Household Durables—1.8%

   
  128,815      

Stanley Black & Decker, Inc., 6.25%, 11/17/16

      14,863,963   
     

 

 

  
  

Independent Power & Renewable Electricity Producers—0.9%

   
  72,035      

Dynegy, Inc., 5.375%, 11/1/17

      7,746,644   
     

 

 

  
  

Internet Software & Services—1.4%

   
  264,285      

Barclays Bank PLC, 8.00%, 10/28/15 (Twitter, Inc.) (a)

      12,117,467   
     

 

 

  
  

Metals & Mining—1.5%

   
  19,385      

Alcoa, Inc., 5.375%, 10/1/17

      1,033,221   
  604,670      

ArcelorMittal, 6.00%, 1/15/16

      11,951,665   
     

 

 

  
        12,984,886   
     

 

 

  
  

Multiline Retail—1.7%

   
  247,500      

The Goldman Sachs Group, Inc., 8.00%, 1/12/15 (Macy’s) (a)

      13,993,403   
     

 

 

  
  

Multi-Utilities—1.1%

   
  186,560      

AES Trust III, 6.75%, 10/15/29

      9,488,442   
     

 

 

  
  

Oil, Gas & Consumable Fuels—2.1%

   
  146,765      

Credit Suisse, 8.00%, 3/5/15 (Occidental Petroleum Corp.) (a)

      11,403,640   
  10,900      

Energy XXI Bermuda Ltd., 5.625% (b)

      1,170,047   
  94,905      

PetroQuest Energy, Inc., 6.875% (b)

      3,867,379   
  25,840      

Sanchez Energy Corp., 6.50%, 4/6/18 (b)

      1,088,846   
     

 

 

  
        17,529,912   
     

 

 

  
  

Pharmaceuticals—3.7%

   
  110,990      

Bank of America Corp., 8.00%, 2/10/15 (Allergan, Inc.) (a)

      18,320,009   
  253,015      

JPMorgan Chase & Co., 8.00%, 4/30/15 (Mylan, Inc.) (a)

      12,853,162   
     

 

 

  
        31,173,171   
     

 

 

  
  

Real Estate Investment Trust—4.2%

   
  335,200      

Alexandria Real Estate Equities, Inc., 7.00% (b)

      9,268,280   
  610,095      

FelCor Lodging Trust, Inc., 1.95%, Ser. A (b)

      16,228,527   
  159,235      

Health Care REIT, Inc., 6.50%, 4/20/18, Ser. I (b)

      10,402,823   
     

 

 

  
        35,899,630   
     

 

 

  
  

Semiconductors & Semiconductor Equipment—3.4%

   
  186,000      

Barclays Bank PLC, 8.00%, 11/9/15 (Lam Research Corp.) (a)

      14,937,660   
  420,000      

Wells Fargo & Co., 8.00%, 6/18/15 (Micron Technology, Inc.) (a)

      13,885,200   
     

 

 

  
        28,822,860   
     

 

 

  

 

AllianzGI Convertible & Income Fund II

November 30, 2014 (unaudited) (continued)

 

 

Shares

           Value*  
  

Specialty Retail—1.7%

   
  10,000      

Barnes & Noble, Inc., 7.75%, 8/18/21 (c)(d)

    $ 14,615,625   
     

 

 

  
  

Technology Hardware, Storage & Peripherals—1.8%

   
  21,135      

Bank of America Corp., 8.00%, 5/12/15 (Apple, Inc.) (a)

      15,362,820   
     

 

 

  
  

Total Convertible Preferred Stock (cost-$338,242,839)

      362,662,204   
     

 

 

  

Principal

Amount

(000s)

              

 

CORPORATE BONDS & NOTES—41.1%

  

  

Advertising—0.4%

   
  $4,350      

Affinion Group, Inc., 7.875%, 12/15/18

      3,316,875   
     

 

 

  
  

Aerospace & Defense—0.5%

   
  250      

Bombardier, Inc., 6.00%, 10/15/22 (c)(d)

      254,425   
  4,430      

Erickson, Inc., 8.25%, 5/1/20

      4,186,350   
     

 

 

  
        4,440,775   
     

 

 

  
  

Air Freight & Logistics—0.7%

   
  5,230      

XPO Logistics, Inc., 7.875%, 9/1/19 (c)(d)

      5,583,025   
     

 

 

  
  

Auto Components—0.8%

   
  3,320      

Chassix, Inc., 9.25%, 8/1/18 (c)(d)

      2,249,300   
  3,970      

Goodyear Tire & Rubber Co., 8.25%, 8/15/20

      4,277,675   
     

 

 

  
        6,526,975   
     

 

 

  
  

Auto Manufacturers—0.7%

   
  5,590      

Chrysler Group LLC, 8.25%, 6/15/21

      6,260,800   
     

 

 

  
  

Commercial Services—2.5%

   
  3,000      

Avis Budget Car Rental LLC/Avis Budget Finance, Inc., 9.75%, 3/15/20

      3,300,000   
  8,535      

Cenveo Corp., 11.50%, 5/15/17

      8,065,575   
  4,295      

DynCorp International, Inc., 10.375%, 7/1/17

      3,674,372   
  5,925      

Monitronics International, Inc., 9.125%, 4/1/20

      5,895,375   
     

 

 

  
        20,935,322   
     

 

 

  
  

Commercial Services & Supplies—0.6%

   
  4,355      

United Rentals North America, Inc., 8.375%, 9/15/20

      4,703,400   
     

 

 

  
  

Construction Materials—0.7%

   
  5,690      

US Concrete, Inc., 8.50%, 12/1/18

      6,116,750   
     

 

 

  
  

Consumer Finance—0.9%

   
  2,605      

Navient Corp., 8.45%, 6/15/18

      2,950,162   
  3,865      

Springleaf Finance Corp., 8.25%, 10/1/23

      4,425,425   
     

 

 

  
        7,375,587   
     

 

 

  
  

Distribution/Wholesale—0.9%

   
  6,430      

HD Supply, Inc., 11.00%, 4/15/20

      7,394,500   
     

 

 

  
  

Diversified Consumer Services—0.6%

   
  5,270      

Cambium Learning Group, Inc., 9.75%, 2/15/17

      5,217,300   
     

 

 

  
  

Diversified Financial Services—1.9%

   
  6,462      

Affinion Investments LLC, 13.50%, 8/15/18 (c)(d)

      5,233,977   
  

Community Choice Financial, Inc.,

   
  7,465      

10.75%, 5/1/19

      5,300,150   
  5,370      

12.75%, 5/1/20 (c)(d)

      3,839,550   
  2,000      

Nationstar Mortgage LLC / Nationstar Capital Corp., 7.875%, 10/1/20

      1,935,000   
     

 

 

  
        16,308,677   
     

 

 

  
  

Diversified Telecommunications—0.5%

   
  3,692      

Cincinnati Bell, Inc., 8.75%, 3/15/18

      3,826,758   
     

 

 

  
  

Electrical Components & Equipment—1.2%

   
  10,275      

WireCo WorldGroup, Inc., 9.50%, 5/15/17

      10,506,188   
     

 

 

  
  

Electronic Equipment, Instruments & Components—1.4%

   
  5,815      

Kemet Corp., 10.50%, 5/1/18

      6,018,525   
  5,500      

Viasystems, Inc., 7.875%, 5/1/19 (c)(d)

      5,830,000   
     

 

 

  
        11,848,525   
     

 

 

  

 

AllianzGI Convertible & Income Fund II

November 30, 2014 (unaudited) (continued)

 

 

Principal
Amount

(000s)

           Value*  
  

Energy Equipment & Services—0.1%

   
  $2,170      

Hercules Offshore, Inc., 8.75%, 7/15/21 (c)(d)

    $ 1,009,050   
     

 

 

  
  

Food & Staples Retailing—0.6%

   
  5,000      

US Foods, Inc., 8.50%, 6/30/19

      5,317,500   
     

 

 

  
  

Health Care Providers & Services—1.6%

   
  6,585      

ExamWorks Group, Inc., 9.00%, 7/15/19

      7,045,950   
  

Tenet Healthcare Corp.,

   
  2,750      

5.00%, 3/1/19 (c)(d)

      2,715,625   
  3,470      

8.125%, 4/1/22

      3,886,400   
     

 

 

  
        13,647,975   
     

 

 

  
  

Healthcare-Products—0.9%

   
  6,785      

Kinetic Concepts, Inc./KCI USA, Inc., 10.50%, 11/1/18

      7,531,350   
     

 

 

  
  

Hotels, Restaurants & Leisure—0.9%

   
  6,395      

MGM Resorts International, 11.375%, 3/1/18

      7,705,975   
     

 

 

  
  

Household Durables—0.9%

   
  

Beazer Homes USA, Inc.,

   
  2,245      

7.25%, 2/1/23

      2,239,387   
  3,920      

9.125%, 5/15/19

      4,106,200   
  1,390      

Jarden Corp., 7.50%, 5/1/17

      1,532,475   
     

 

 

  
        7,878,062   
     

 

 

  
  

Household Products/Wares—0.7%

   
  5,725      

Reynolds Group Issuer, Inc., 9.875%, 8/15/19

      6,197,313   
     

 

 

  
   Internet Software & Services—1.2%   
  

EarthLink, Inc.,

   
  2,200      

7.375%, 6/1/20

      2,299,000   
  7,590      

8.875%, 5/15/19

      7,770,263   
     

 

 

  
        10,069,263   
     

 

 

  
  

Iron/Steel—0.6%

   
  5,600      

AK Steel Corp., 8.375%, 4/1/22

      5,404,000   
     

 

 

  
  

Lodging—0.2%

   
  9,455      

Caesars Entertainment Operating Co., Inc., 12.75%, 4/15/18

      1,323,700   
     

 

 

  
  

Machinery—1.2%

   
  4,225      

BlueLine Rental Finance Corp., 7.00%, 2/1/19 (c)(d)

      4,394,000   
  5,495      

Navistar International Corp., 8.25%, 11/1/21

      5,680,456   
     

 

 

  
        10,074,456   
     

 

 

  
  

Media—3.0%

   
  5,500      

AMC Entertainment, Inc., 9.75%, 12/1/20

      6,118,750   
  6,645      

McClatchy Co., 9.00%, 12/15/22

      7,400,869   
  6,280      

McGraw-Hill Global Education Holdings LLC / McGraw-Hill Global Education Finance, 9.75%, 4/1/21

      7,080,700   
  2,850      

Mood Media Corp., 9.25%, 10/15/20 (c)(d)

      2,408,250   
  2,979      

SFX Entertainment, Inc., 9.625%, 2/1/19 (c)(d)

      2,718,337   
     

 

 

  
        25,726,906   
     

 

 

  
  

Metals & Mining—2.0%

   
  5,050      

ArcelorMittal, 10.35%, 6/1/19

      6,167,312   
  2,820      

HudBay Minerals, Inc., 9.50%, 10/1/20

      2,932,800   
  

Thompson Creek Metals Co., Inc.,

   
  6,145      

7.375%, 6/1/18

      5,638,038   
  2,170      

12.50%, 5/1/19

      2,311,050   
     

 

 

  
        17,049,200   
     

 

 

  
  

Miscellaneous Manufacturing—0.7%

   
  5,650      

Harland Clarke Holdings Corp., 9.25%, 3/1/21 (c)(d)

      5,671,188   
     

 

 

  

 

AllianzGI Convertible & Income Fund II

November 30, 2014 (unaudited) (continued)

 

 

Principal
Amount

(000s)

           Value*  
  

Oil & Gas—1.3%

   
  $7,000      

Energy XXI Gulf Coast, Inc., 9.25%, 12/15/17

    $ 6,300,000   
  4,306      

United Refining Co., 10.50%, 2/28/18

      4,607,420   
     

 

 

  
        10,907,420   
     

 

 

  
  

Oil, Gas & Consumable Fuels—1.7%

   
  2,160      

Arch Coal, Inc., 9.875%, 6/15/19

      961,200   
  4,550      

EP Energy LLC / Everest Acquisition Finance, Inc., 9.375%, 5/1/20

      4,993,625   
  4,200      

Laredo Petroleum, Inc., 9.50%, 2/15/19

      4,389,000   
  4,305      

Linn Energy LLC / Linn Energy Finance Corp., 6.50%, 5/15/19

      3,890,644   
  $560      

Ultra Petroleum Corp., 6.125%, 10/1/24 (c)(d)

      512,400   
     

 

 

  
        14,746,869   
     

 

 

  
  

Packaging & Containers—0.8%

   
  5,903      

Tekni-Plex, Inc., 9.75%, 6/1/19 (c)(d)

      6,493,300   
     

 

 

  
  

Paper & Forest Products—0.3%

   
  2,000      

Louisiana-Pacific Corp., 7.50%, 6/1/20

      2,160,000   
     

 

 

  
  

Pharmaceuticals—0.2%

   
  1,755      

Endo Finance LLC & Endo Finco, Inc., 5.375%, 1/15/23 (c)(d)

      1,718,794   
     

 

 

  
  

Real Estate Investment Trust—0.3%

   
  2,345      

Kennedy-Wilson, Inc., 5.875%, 4/1/24

      2,356,725   
     

 

 

  
  

Retail—0.7%

   
  5,785      

Neiman Marcus Group LTD LLC, 8.00%, 10/15/21 (c)(d)

      6,189,950   
     

 

 

  
  

Semiconductors & Semiconductor Equipment—1.1%

   
  2,875      

Amkor Technology, Inc., 6.375%, 10/1/22

      2,846,250   
  5,545      

Freescale Semiconductor, Inc., 10.75%, 8/1/20

      6,113,363   
     

 

 

  
        8,959,613   
     

 

 

  
  

Software—1.7%

   
  

First Data Corp.,

   
  4,355      

8.25%, 1/15/21 (c)(d)

      4,681,625   
  1,465      

10.625%, 6/15/21

      1,677,425   
  6,955      

12.625%, 1/15/21

      8,293,837   
     

 

 

  
        14,652,887   
     

 

 

  
  

Specialty Retail—1.3%

   
  3,140      

Brown Shoe Co., Inc., 7.125%, 5/15/19

      3,289,150   
  4,500      

Claire’s Stores, Inc., 9.00%, 3/15/19 (c)(d)

      4,578,750   
  3,500      

Conn’s, Inc., 7.25%, 7/15/22 (c)(d)

      3,053,750   
     

 

 

  
        10,921,650   
     

 

 

  
  

Telecommunications—1.3%

   
  6,085      

Consolidated Communications, Inc., 10.875%, 6/1/20

      6,929,294   
  4,340      

Windstream Corp., 7.50%, 4/1/23

      4,437,650   
     

 

 

  
        11,366,944   
     

 

 

  
  

Transportation—0.7%

   
  5,340      

Quality Distribution LLC, 9.875%, 11/1/18

      5,647,050   
     

 

 

  
  

Wireless Telecommunication Services—0.8%

   
  5,545      

Sprint Communications, Inc., 11.50%, 11/15/21

      6,917,388   
     

 

 

  
  

Total Corporate Bonds & Notes (cost-$358,232,285)

      348,005,985   
     

 

 

  

 

AllianzGI Convertible & Income Fund II

November 30, 2014 (unaudited) (continued)

 

 

Principal
Amount

(000s)

             Value*  

 

CONVERTIBLE BONDS & NOTES—14.5%

   
     Capital Markets—2.6%   
  $5,880        

Ares Capital Corp., 5.75%, 2/1/16

    $ 6,122,550   
  10,075        

BGC Partners, Inc., 4.50%, 7/15/16

      10,799,141   
  6,370        

Walter Investment Management Corp., 4.50%, 11/1/19

      4,972,581   
       

 

 

  
          21,894,272   
       

 

 

  
     Commercial Services—1.8%   
  15,600        

Cenveo Corp., 7.00%, 5/15/17

      15,161,250   
       

 

 

  
     Construction Materials—0.8%   
  5,850        

Cemex S.A.B. de C.V., 4.875%, 3/15/15

      6,705,562   
       

 

 

  
     Diversified Consumer Services—0.4%   
  4,445        

Ascent Capital Group, Inc., 4.00%, 7/15/20

      3,703,241   
       

 

 

  
     Hotels, Restaurants & Leisure—0.5%   
  3,240        

MGM Resorts International, 4.25%, 4/15/15

      4,076,325   
       

 

 

  
     Insurance—0.3%   
  3,035        

HCI Group, Inc., 3.875%, 3/15/19 (c)(d)

      2,875,663   
       

 

 

  
     Life Sciences Tools & Services—0.4%   
  3,470        

Sequenom, Inc., 5.00%, 10/1/17

      3,283,488   
       

 

 

  
     Machinery—2.1%   
    

Meritor, Inc.,

   
  9,545        

4.625%, 3/1/26 (e)

      9,592,725   
  4,755        

7.875%, 3/1/26

      7,670,409   
  475        

Wabash National Corp., 3.375%, 5/1/18

      551,891   
       

 

 

  
          17,815,025   
       

 

 

  
     Oil, Gas & Consumable Fuels—0.6%   
  7,540        

Goodrich Petroleum Corp., 5.00%, 10/1/32

      5,108,350   
       

 

 

  
     Personal Products—1.1%   
  11,615        

Herbalife Ltd., 2.00%, 8/15/19 (c)(d)

      9,125,092   
       

 

 

  
     Real Estate Investment Trust—0.3%   
  2,430        

IAS Operating Partnership LP, 5.00%, 3/15/18 (c)(d)

      2,320,650   
       

 

 

  
     Software—0.9%   
  7,890        

TeleCommunication Systems, Inc., 7.75%, 6/30/18

      7,495,500   
       

 

 

  
     Thrifts & Mortgage Finance—0.6%   
  4,965        

MGIC Investment Corp., 5.00%, 5/1/17

      5,616,656   
       

 

 

  
     Tobacco—2.0%   
    

Vector Group Ltd., (f)

   
  4,335        

1.75%, 4/15/20

      4,624,903   
  9,035        

2.50%, 1/15/19

      12,820,710   
       

 

 

  
          17,445,613   
       

 

 

  
     Trading Companies & Distribution—0.1%   
  910        

Titan Machinery, Inc., 3.75%, 5/1/19

      700,131   
       

 

 

  
    

Total Convertible Bonds & Notes (cost-$113,704,106)

      123,326,818   
       

 

 

  

 

SHORT-TERM INVESTMENT—1.6%

   
     Time Deposit—1.6%   
  13,382        

JPMorgan Chase & Co.-Nassau, 0.03%, 12/1/14 (cost-$13,382,047)

      13,382,047   
       

 

 

  
    

Total Investments (cost-$823,561,277)(g)—100.0%

    $ 847,377,054   
       

 

 

  

AllianzGI Convertible & Income Fund II

November 30, 2014 (unaudited) (continued)

 

Notes to Schedule of Investments:

* Portfolio securities and other financial instruments for which market quotations are readily available are stated at market value. Market value is generally determined on the basis of official closing prices, last reported sales prices, or if no sales or closing prices are reported, on the basis of quotes obtained from a quotation reporting system, established market makers, or independent pricing services. The Fund’s investments are valued daily using prices supplied by an independent pricing service or broker/dealer quotations, or by using the last sale or settlement price on the exchange that is the primary market for such securities, or the mean between the last bid and ask quotations. Independent pricing services use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics.

The Board of Trustees (the “Board”) has adopted procedures for valuing portfolio securities and other financial instruments in circumstances where market quotations are not readily available, and has delegated primary responsibility for applying the valuation methods to Allianz Global Investors Fund Management LLC (the “Investment Manager”) and Allianz Global Investors U.S. LLC (the “Sub-Adviser”), affiliate of the Investment Manager. The Fund’s Valuation Committee was established by the Board to oversee the implementation of the Fund’s valuation methods and to make fair value determinations on behalf of the Board, as instructed by the Board. The Sub-Adviser monitors the continued appropriateness of methods applied and determines if adjustments should be made in light of market changes, events affecting the issuer or other factors. If the Sub-Adviser determines that a valuation method may no longer be appropriate, another valuation method may be selected or the Valuation Committee will be convened to consider the matter and take any appropriate action in accordance with procedures set forth by the Board. The Board shall review and ratify the appropriateness of the valuation methods and these methods may be amended or supplemented from time to time by the Valuation Committee.

Synthetic convertible securities are valued based on quotations obtained from unaffiliated brokers who are the principal market-makers in such securities. Such valuations are derived by the brokers from proprietary models which are generally based on readily available market information including valuations of the common stock underlying the synthetic security.

Short-term debt instruments maturing in 60 days or less are value at amortized cost, if their original term to maturity was 60 days or less, or by amortizing premium or discount based on their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days.

The prices used by the Fund to value investments may differ from the value that would be realized if the investments were sold, and these differences could be material. The Fund’s net asset value (“NAV”) is normally determined as of the close of regular trading (normally, 4:00 p.m. Eastern time) on the New York Stock Exchange (“NYSE”) on each day the NYSE is open for business.

 

(a) Securities exchangeable or convertible into securities of an entity different than the issuer or structured by the issuer to provide exposure to securities of an entity different than the issuer (synthetic convertible securities). Such entity is identified in the parenthetical.

 

(b) Perpetual maturity. The date shown, if any, is the next call date.

 

(c) Private Placement—Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $98,072,326, representing 11.6% of total investments.

 

(d) 144A—Exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid.

 

(e) Step Bond—Coupon is a fixed rate for an initial period then resets at a specific date and rate.

 

(f) In addition to the coupon rate shown, the issuer is expected to pay additional interest based on the actual dividends paid on its common stock.

 

(g) At November 30, 2014, the cost basis of portfolio securities for federal income tax purposes was $829,118,387. Gross unrealized appreciation was $61,116,266, gross unrealized depreciation was $42,857,599 and net unrealized appreciation was $18,258,667. Differences between book and tax cost basis were attributable to wash sale loss deferrals and the differing treatment of bond premium amortization.

 

AllianzGI Convertible & Income Fund II

November 30, 2014 (unaudited) (continued)

 

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. The three levels of the fair value hierarchy are described below:

 

  •  

Level 1 – quoted prices in active markets for identical investments that the Fund has the ability to access

 

  •  

Level 2 – valuations based on other significant observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates or other market corroborated inputs

 

  •  

Level 3 – valuations based on significant unobservable inputs (including the Sub-Adviser’s or Valuation Committee’s own assumptions and single broker’s quote)

The valuation techniques used by the Fund to measure fair value during the nine months ended November 30, 2014 were intended to maximize the use of observable inputs and to minimize the use of unobservable inputs.

The Fund’s policy is to recognize transfers between levels at the end of the reporting period. An investment asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input, individually or in aggregate, that is significant to fair value measurement. The objective of fair value measurement remains the same even when there is a significant decrease in the volume and level of activity for an asset or liability and regardless of the valuation techniques used. Assets categorized as Level 1 or 2 as of period end may have been transferred between Levels 1 and 2 since the prior period due to changes in the valuation method utilized in valuing the investments.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following are certain inputs and techniques that the Fund generally uses to evaluate how to classify each major category of assets and liabilities for Level 2 and Level 3, in accordance with U.S. Generally Accepted Accounting Principles.

Equity Securities (Common and Preferred Stock)—Equity securities traded in inactive markets are valued using inputs which include broker-dealer quotes, recently executed transactions adjusted for changes in the benchmark index, or evaluated price quotes received from independent pricing services that take into account the integrity of the market sector and issuer, the individual characteristics of the security, and information received from broker-dealers and other market sources pertaining to the issuer or security. To the extent that these inputs are observable, the values of equity securities are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

Convertible Bonds & Notes—Convertible bonds & notes are valued by independent pricing services using various inputs and techniques, which include broker-dealer quotations from relevant market makers and recently executed transactions in securities of the issuer or comparable issuers. The broker-dealer quotations received are supported by credit analysis of the issuer that takes into consideration credit quality assessments, daily trading activity, and the activity of the underlying equities, listed bonds and sector-specific trends. To the extent that these inputs are observable, the values of convertible bonds & notes are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

Corporate Bonds & Notes—Corporate bonds & notes are generally comprised of two main categories: investment grade bonds and high yield bond. Investment grade bonds are valued by independent pricing services using various inputs and techniques, which include broker-dealer quotations, live trading levels, recently executed transactions in securities of the issuer or comparable issuers, and option adjusted spread models that include base curve and spread curve inputs. Adjustments to individual bonds can be applied to recognize trading differences compared to other bonds issued by the same issuer. High yield bonds are valued by independent pricing services based primarily on broker-dealer quotations from relevant market makers and recently are supported by credit analysis of the issuer that takes into consideration credit quality assessments, daily trading activity, and the activity of the underlying equities, listed bonds and sector-specific trends. To the extent that these inputs are observable, the values of corporate bonds & notes are categorized as Level 2. To the extent that these are unobservable, the values are categorized as Level 3.

 

Schedule of Investments

AllianzGI Convertible & Income Fund II

November 30, 2014 (unaudited) (continued)

 

A summary of the inputs used at November 30, 2014 in valuing the Fund’s assets and liabilities is listed below (refer to the Schedule of Investments for more detailed information on Investments in Securities):

 

     Level 1 -
Quoted Prices		      Level 2 -
Other Significant
Observable
Inputs		      Level 3 -
Significant
Unobservable
Inputs		      Value at
11/30/14		  

Investments in Securities - Assets

            

Convertible Preferred Stock:

            

Automobiles

    $ —         $ —         $ 11,356,289       $ 11,356,289   

Banks

      22,142,197         —           27,174,732         49,316,929   

Energy Equipment & Services

      —           —           12,936,524         12,936,524   

Food Products

      2,308,688         —           12,461,043         14,769,731   

Health Care Equipment & Supplies

      —           —           14,391,300         14,391,300   

Health Care Providers & Services

      —           —           15,390,660         15,390,660   

Internet Software & Services

      —           —           12,117,467         12,117,467   

Metals & Mining

      1,033,221         11,951,665         —           12,984,886   

Multiline Retail

      —           —           13,993,403         13,993,403   

Oil, Gas & Consumable Fuels

      —           6,126,272         11,403,640         17,529,912   

Pharmaceuticals

      —           —           31,173,171         31,173,171   

Semiconductors & Semiconductor Equipment

      —           —           28,822,860         28,822,860   

Technology Hardware, Storage & Peripherals

      —           —           15,362,820         15,362,820   

All Other

      112,516,252         —           —           112,516,252   

Corporate Bonds & Notes

      —           348,005,985         —           348,005,985   

Convertible Bonds & Notes

      —           123,326,818         —           123,326,818   

Short-Term Investment

      —           13,382,047         —           13,382,047   
  

 

 

     

 

 

     

 

 

     

 

 

  

Totals

   $ 138,000,358       $ 502,792,787       $ 206,583,909       $ 847,377,054   
  

 

 

     

 

 

     

 

 

     

 

 

  

At November 30, 2014, the Fund had no transfers between Levels 1 and 2.

 

Schedule of Investments

AllianzGI Convertible & Income Fund II

November 30, 2014 (unaudited) (continued)

 

A roll forward of fair value measurements using significant unobservable inputs (Level 3) for the nine months ended November 30, 2014, was as follows:

 

    Beginning
Balance
2/28/14		     Purchases     Sales     Accrued
Discounts
(Premiums)		     Net
Realized
Gain
(Loss)		     Net
Change in
Unrealized
Appreciation/
Depreciation		     Transfers
into
Level 3		     Transfers
out of
Level 3		     Ending
Balance
11/30/14		  

Investments in Securities - Assets

                  

Convertible Preferred Stock:

                  

Automobiles

   $ 10,665,088      $ 3,291,221      $ —        $ —        $ —        $ (2,600,020 )    $ —        $ —        $ 11,356,289   

Banks

     12,419,982        15,196,336        —          —          —          (441,586 )      —          —          27,174,732   

Computers & Peripherals

     9,953,184        —          (9,979,317 )†      —          —          26,133        —          —          —     

Energy Equipment & Services

     30,527,518        —          (17,234,994 )      —          2,742,995        (3,098,995 )      —          —          12,936,524   

Food Products

     —          12,393,244        —          —          —          67,799        —          —          12,461,043   

Health Care Equipment & Supplies

     —          13,622,700        —          —          —          768,600        —          —          14,391,300   

Health Care Providers & Services

     —          13,692,995        —          —          —          1,697,665        —          —          15,390,660   

Household Durables

     11,014,697        —          (10,642,786 )†      —          —          (371,911 )      —          —          —     

Insurance

     11,203,425        —          (11,413,579 )      —          1,009,973        (799,819 )      —          —          —     

Internet Software & Services

     —          13,639,749        —          —          —          (1,522,282 )      —          —          12,117,467   

Multiline Retail

     13,804,312        —          —          —          —          189,091        —          —          13,993,403   

Oil, Gas & Consumable Fuels

     13,964,690        —          —          —          —          (2,561,050 )      —          —          11,403,640   

Pharmaceuticals

     13,436,449        12,679,088        —          —          —          5,057,634        —          —          31,173,171   

Semiconductors & Semiconductor Equipment

     —          28,511,508        —          —          —          311,352        —          —          28,822,860   

Technology Hardware, Storage & Peripherals

     —          12,677,337        —          —          —          2,685,483        —          —          15,362,820   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Totals

   $ 126,989,345      $ 125,704,178      $ (49,270,676 )    $ —        $ 3,752,968      $ (591,906 )    $ —        $ —        $ 206,583,909   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 at November 30, 2014:

 

     Ending Balance
at 11/30/14		      Valuation
Technique Used		    Unobservable
Inputs		    Input Values  

Investments in Securities - Assets

            

Convertible Preferred Stock

    $ 206,583,909       Third-Party Pricing Vendor    Single Broker Quote    $ 16.49 - $726.89   

 

† Conversion

The net change in unrealized appreciation/depreciation of Level 3 investments held at November 30, 2014 was $1,571,954.

Glossary:

REIT — Real Estate Investment Trust

Item 2. Controls and Procedures

(a) The registrant’s President & Chief Executive Officer and Treasurer, Principal Financial & Accounting Officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c))) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.

(b) There were no significant changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d))) that occurred during the registrant’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 3. Exhibits

(a) Exhibit 99.302 Cert. — Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Registrant: AllianzGI Convertible & Income Fund II

  
By   /s/ Julian Sluyters
 

     Julian Sluyters,

     President & Chief Executive Officer

Date: January 26, 2015
By   /s/ Lawrence G. Altadonna
 

     Lawrence G. Altadonna,

     Treasurer, Principal Financial & Accounting Officer

Date: January 26, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By   /s/ Julian Sluyters
 

     Julian Sluyters,

     President & Chief Executive Officer

Date: January 26, 2015
By   /s/ Lawrence G. Altadonna
 

     Lawrence G. Altadonna,

     Treasurer, Principal Financial & Accounting Officer

Date: January 26, 2015