Washington, D.C. 20549
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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a)
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Audit fees. The aggregate fees billed for each of the
last two fiscal years (the “Reporting Periods”) for professional services rendered by the Registrant’s principal
accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are
normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods,
were $64,192 in 2019 and $64,192 in 2020.
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b)
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Audit-Related Fees. There were no audit related fees
billed for each of the last two fiscal years.
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c)
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Tax Fees. The aggregate fees billed in the Reporting
Periods for professional services rendered by the Auditor for tax compliance, tax service and tax planning (“Tax Services”)
were $16,167 in 2019 and $16,652 in 2020. These services consisted of review or preparation of U.S. federal, state, local and
excise tax returns and calculation of excise tax distributions.
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d)
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All Other Fees. There were no other fees billed in the
Reporting Periods for products and services provided by the Auditor to the Registrant.
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e)
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1. Audit Committee Pre-Approval Policies and Procedures.
The Registrant’s Audit Oversight Committee has established policies and procedures for pre-approval of all audit and permissible
non-audit services by the Auditor for the Registrant, as well as the Auditor’s engagements related directly to the operations
and financial reporting of the Registrant. The Registrant’s policy is stated below.
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AUDIT OVERSIGHT COMMITTEE POLICY FOR PRE-APPROVAL
OF SERVICES PROVIDED BY THE INDEPENDENT ACCOUNTANTS
The Fund’s Audit Oversight Committee (“Committee”)
is charged with the oversight of the Fund’s financial reporting policies and practices and their internal controls. As part
of this responsibility, the Committee must pre-approve any independent accounting firm’s engagement to render audit and/or
permissible non-audit services, to the Fund as well as to the Fund’s investment manager or any entity controlling, controlled
by or under common control with the investment adviser that provides ongoing services to the Fund (“Applicable Service Providers”),
if the engagement relates directly to operations and financial reporting of the Fund. In evaluating a proposed engagement by the
independent accountants, the Committee will assess the effect that the engagement might reasonably be expected to have on the accountant’s
independence. The Committee’s evaluation will be based on:
a review of the nature of the professional services
expected to provided, the fees to be charged in connection with the services expected to be provided, a review of the safeguards
put into place by the accounting firm to safeguard independence, and periodic meetings with the accounting firm.
POLICY FOR AUDIT AND NON-AUDIT SERVICES TO BE PROVIDED
TO THE FUND
On an annual basis, the Fund’s Committee will
review and pre-approve the scope of the audits of the Fund and proposed audit fees and permitted non-audit (including audit-related)
services that may be performed by the Fund’s independent accountants. At least annually, the Committee will receive a report
of all audit and non-audit services that were rendered in the previous calendar year pursuant to this Policy. In addition to the
Committee’s pre-approval of services pursuant to this Policy, the engagement of the independent accounting firm for any
permitted non-audit service provided to the Fund will also require the separate written pre-approval of the President of the Fund,
who will confirm, independently, that the accounting firm’s engagement will not adversely affect the firm’s independence.
All non-audit services performed by the independent accounting firm will be disclosed, as required, in filings with the Securities
and Exchange Commission.
AUDIT SERVICES
The categories of audit services and related fees
to be reviewed and pre-approved annually by the Committee are:
Annual Fund financial statement audits
Seed audits (related to new product filings, as required)
SEC and regulatory filings and consents
AUDIT-RELATED SERVICES
The following categories of audit-related services
are considered to be consistent with the role of the Fund’s independent accountants and services falling under one of these
categories will be pre-approved by the Committee on an annual basis if the Committee deems those services to be consistent with
the accounting firm’s independence:
Accounting consultations
Fund merger support services
Agreed upon procedure reports
Other attestation reports
Comfort letters
Other internal control reports
Individual audit-related services that fall within
one of these categories and are not presented to the Committee as part of the annual pre-approval process described above, may
be pre-approved, if deemed consistent with the accounting firm’s independence, by the Committee Chair (or any other Committee
member who is a disinterested trustee under the Investment Company Act to whom this responsibility has been delegated) so long
as the estimated fee for those services does not exceed $500,000. Any such pre-approval shall be reported to the full Committee
at its next regularly scheduled meeting.
TAX SERVICES
The following categories of tax services are considered
to be consistent with the role of the Fund’s independent accountants and services falling under one of these categories will
be pre-approved by the Committee on an annual basis if the Committee deems those services to be consistent with the accounting
firm’s independence:
Tax compliance services related to the filing or
amendment of the following:
Federal, state and local income tax compliance; and,
sales and use tax compliance
Timely RIC qualification reviews
Tax distribution analysis and planning
Tax authority examination services
Tax appeals support services
Accounting methods studies
Fund merger support service
Other tax consulting services and related projects
Individual tax services that fall within one of these
categories and are not presented to the Committee as part of the annual pre-approval process described above, may be pre-approved,
if deemed consistent with the accounting firm’s independence, by the Committee Chairman (or any other Committee member who
is a disinterested trustee under the Investment Company Act to whom this responsibility has been delegated) so long as the estimated
fee for those services does not exceed $500,000. Any such pre-approval shall be reported to the full Committee at its next regularly
scheduled meeting.
PROHIBITED SERVICES
The Fund’s independent accountants will not
render services in the following categories of non-audit services:
Bookkeeping or other services related to the accounting
records or financial statements of the Fund
Financial information systems design and implementation
Appraisal or valuation services, fairness opinions,
or contribution-in-kind reports
Actuarial services
Internal audit outsourcing services
Management functions or human resources
Broker or dealer, investment adviser or investment
banking services
Legal services and expert services unrelated to the
audit
Any other service that the Public Company Accounting
Oversight Board determines, by regulation, is impermissible
PRE-APPROVAL OF NON-AUDIT SERVICES PROVIDED TO OTHER
ENTITIES WITHIN THE FUND COMPLEX
The Committee will pre-approve annually any permitted
non-audit services to be provided to Allianz Global Investors U.S. LLC or any other investment manager to the Fund (but not including
any sub-adviser whose role is primarily portfolio management and is sub-contracted by the investment manager) (the “Investment
Manager”) and any entity controlling, controlled by, or under common control with the Investment Manager that provides ongoing
services to the Fund (including affiliated sub-advisers to the Fund), provided, in each case, that the engagement relates directly
to the operations and financial reporting of the Fund (such entities, including the Investment Manager, shall be referred to herein
as the “Accounting Affiliates”). Individual projects that are not presented to the Committee as part of the annual
pre-approval process, may be pre-approved, if deemed consistent with the accounting firm’s independence, by the Committee
Chairman (or any other Committee member who is a disinterested trustee under the Investment Company Act to whom this responsibility
has been delegated) so long as the estimated fee for those services does not exceed $500,000. Any such pre-approval shall be reported
to the full Committee at its next regularly scheduled meeting.
Although the Committee will not pre-approve all services
provided to the Investment Manager and its affiliates, the Committee will receive an annual report from the Fund’s independent
accounting firm showing the aggregate fees for all services provided to the Investment Manager and its affiliates.
DE MINIMUS EXCEPTION TO REQUIREMENT OF PRE-APPROVAL
OF NON-AUDIT SERVICES
With respect to the provision of permitted non-audit
services to a Fund or Accounting Affiliates, the pre-approval requirement is waived if:
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(1)
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The aggregate amount of all such permitted non-audit
services provided constitutes no more than (i) with respect to such services provided to the Fund, five percent (5%) of the
total amount of revenues paid by the Fund to its independent accountant during the fiscal year in which the services are provided,
and (ii) with respect to such services provided to Accounting Affiliates, five percent (5%) of the total amount of revenues
paid to the Fund’s independent accountant by the Fund and the Accounting Affiliates during the fiscal year in which the
services are provided;
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(2)
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Such services were not recognized by the Fund at the
time of the engagement for such services to be non-audit services; and
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(3)
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Such services are promptly brought to the attention of
the Committee and approved prior to the completion of the audit by the Committee or by the Committee Chairman (or any other Committee
member who is a disinterested trustee under the Investment Company Act to whom this Committee Chairman or other delegate shall
be reported to the full Committee at its next regularly scheduled meeting.
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e)
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2. No services were approved pursuant to the procedures
contained in paragraph (C) (7) (i) (C) of Rule 2-01 of Registration S-X.
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g)
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Non-audit fees. The aggregate non-audit fees billed by
the Auditor for services rendered to the Registrant, and rendered to the Adviser, for the 2019 Reporting Period was $1,956,546
and the 2020 Reporting Period was $979,870.
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h)
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Auditor Independence. The Registrant’s Audit Oversight
Committee has considered whether the provision of non-audit services that were rendered to the Adviser which were not pre-approved
is compatible with maintaining the Auditor’s independence.
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ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES
FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
ALLIANZGI EQUITY & CONVERTIBLE
INCOME FUND
(the “Trust”)
PROXY VOTING POLICY
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1.
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It is the policy of each Trust that proxies should be
voted in the interest of its shareholders, as determined by those who are in the best position to make this determination.
Each Trust believes that the firms and/or persons purchasing and selling securities for the Trust and analyzing the performance
of the Trust’s securities are in the best position and have the information necessary to vote proxies in the best interests
of the Trust and its shareholders, including in situations where conflicts of interest may arise between the interests of shareholders,
on one hand, and the interests of the investment adviser, a sub-adviser and/or any other affiliated person of the Trust, on the
other. Accordingly, each Trust’s policy shall be to delegate proxy voting responsibility to the entity with portfolio
management responsibility for the Trust.
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2.
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Each Trust delegates the responsibility for voting proxies
to Allianz Global Investors U.S. LLC (“AllianzGI US”). A summary of the detailed proxy voting policy of AllianzGI
US is attached as Appendix A hereto. Such summary may be revised from time to time to reflect changes to AllianzGI
US’s detailed proxy voting policy.
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3.
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The party voting the proxy (i.e., AllianzGI US) shall
vote such proxies in accordance with such party’s proxy voting policy and, to the extent consistent with such policy, may
rely on information and/or recommendations supplied by others.
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4.
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AllianzGI US shall deliver a copy of its proxy voting
policy and any material amendments thereto to the applicable Board of the Trust promptly after the adoption or amendment of any
such policy.
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5.
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The party voting the proxy shall: (i) maintain such
records and provide such voting information as is required for the Trust’s regulatory filings including, without limitation,
Form N-PX and the required disclosure of policy called for by Item 18 of Form N-2 and Item 7 of Form N-CSR; and
(ii) shall provide such additional information as may be requested, from time to time, by the Board or the Trust’s
Chief Compliance Officer.
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6.
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This Proxy Voting Policy Statement, a summary of the
detailed proxy voting policy of AllianzGI US, and how each Trust voted proxies relating to portfolio securities held during the
most recent twelve month period ending June 30, shall be made available (i) without charge, upon request, by calling
1-800-254-5197; (ii) on the Trusts’ website at us.allianzgi.com; and (iii) on the U.S. Securities and Exchange
Commission’s (“SEC’s”) website at www.sec.gov. In addition, to the extent required by applicable
law or determined by the Trust’s Chief Compliance Officer or Board of Trustees, a summary of the detailed proxy voting policy
of AllianzGI US shall also be included in the Trust’s Registration Statement or Form N-CSR filings.
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Appendix A
Allianz Global Investors U.S. LLC
(“AllianzGI US”)
Description of Proxy Voting Policy
and Procedures
AllianzGI US typically votes proxies as part of its discretionary
authority to manage accounts, unless the client has explicitly reserved the authority for itself. When voting proxies, AllianzGI
US seeks to make voting decisions solely in the best interests of its clients and to enhance the economic value of the underlying
portfolio securities held in its clients’ accounts.
AllianzGI US has adopted the Allianz Global Investors Global
Corporate Governance Guidelines and Proxy Voting Policy (the “Proxy Guidelines”), which are reasonably designed to
ensure that the firm is voting in the best interest of its clients. For the purpose of voting proxies for all accounts of AllianzGI
US, AllianzGI US uses the services of its affiliate, Allianz Global Investors GmbH (“AllianzGI GmbH”). The employees
of AllianzGI GmbH who provide proxy voting services to AllianzGI US are considered “associated persons” as that term
is defined in the Advisers Act.
The Proxy Guidelines provide a general framework for our proxy
voting analysis and are intended to address the most significant and frequent voting issues that arise at our investee companies’
shareholder meetings. However, the Proxy Guidelines are not intended to be rigid rules, and AllianzGI’s consideration of
the merits of a particular proposal may cause AllianzGI to vote in a manner that deviates from the approach set forth in the Proxy
Guidelines.
AllianzGI has retained an unaffiliated third party proxy research
and voting service provider (“Proxy Voting Service”), to assist it in researching and voting proxies. With respect
to each proxy received, the Proxy Voting Service researches the ballot proposals and provides a recommendation to AllianzGI as
to how to vote on each proposal based on the Proxy Voting Service’s research of the individual facts and circumstances and
the Proxy Voting Service’s application of its research findings to the Proxy Guidelines.
In some cases a portfolio manager, research analyst or proxy
analyst from the Global Environmental, Social and Governance (“ESG”) team may propose to override a policy recommendation
made by the Proxy Voting Service. In such cases, AllianzGI will review the proxy to determine whether there is a material conflict
between the interests of AllianzGI (including the employee proposing the vote) and the interests of AllianzGI’s clients.
If a material conflict does exist, AllianzGI will seek to address the conflict in good faith and in the best interests of the applicable
client accounts, as described more fully below. In the absence of a material conflict, the proxy will be reviewed by a proxy
analyst and the relevant portfolio managers and/or research analysts and, from time to time as may be necessary, the Head of ESG
Research (or equivalent), to determine how the proxy will be voted. Any deviations from the Proxy Guidelines will be
documented and maintained in accordance with Rule 204-2 under the Advisers Act.
AllianzGI has adopted and implemented policies and procedures,
including the procedures described in this document, which are reasonably designed to ensure that client account proxies are voted
in the best interest of clients. Such policies and procedures are in part designed to identify and address material conflicts
of interest that may arise between the interests of AllianzGI and its clients, as well as identify material conflicts of interest
that portfolio managers, proxy analysts and research analysts may have, to ensure any such conflicted individuals refrain from
participating in the proxy voting process or that the conflicts are otherwise mitigated. With respect to personal conflicts
of interest, AllianzGI’s Code of Ethics requires all employees to conduct themselves with integrity and distinction, to put
first the interests of the firm’s clients, and to take care to avoid even the appearance of impropriety. Portfolio
managers, research analysts, proxy analysts, or Proxy Committee members with a personal conflict of interest regarding a particular
proxy vote must recuse themselves and not participate in the voting decisions with respect to that proxy.
With respect to the voting process, as described above, most
votes are based on the independent recommendation of the unaffiliated, third party Proxy Voting Service, which recommendations
are in turn based on the Proxy Voting Service’s independent review and research of each proxy and its independent application
of the Proxy Guidelines.
In those cases in which a proxy analyst, portfolio manager or
research analyst proposes to override a policy recommendation made by the Proxy Voting Service or the Proxy Voting Service has
not provided a recommendation, the proxy analyst and relevant portfolio managers and/or research analysts will review the proxy
to ensure any recommendation appears based on a sound investment rationale and assess whether any business or other relationship,
or any other potential conflict of interest, may be influencing the proposed vote on that company’s proxy. In the event a
material conflict is identified, AllianzGI will convene the Proxy Committee to review the proxy and make a decision how to vote.
Proposed votes that raise potential material conflicts of interest are promptly resolved by the Proxy Committee prior to the time
AllianzGI casts its vote.
As a further safeguard, while AllianzGI includes members from
different parts of the organization on the Proxy Committee, AllianzGI does not include individuals whose primary duties relate
to client relationship management, marketing, or sales. Finally, any voting decision by the Proxy Committee must include
a vote from a member of at least one of the Risk, Legal, or Compliance functions.
AllianzGI US may vote proxies in accordance with other relevant
procedures that have been approved and implemented to address specific types of conflicts. For example, when a material conflict
between the interests of AllianzGI US and its clients have been identified AllianzGI US may abstain from voting.
In certain circumstances, a client may request in writing that
AllianzGI US vote proxies for its account in accordance with a set of guidelines which differs from the Proxy Guidelines. For
example, a client may wish to have proxies voted for its account in accordance with the Taft-Hartley proxy voting guidelines.
In that case, AllianzGI US will vote the shares held by such client accounts in accordance with their direction, which may be
different from the vote cast for shares held on behalf of other client accounts that vote in accordance with the Proxy Guidelines.
AllianzGI may abstain from voting client proxies if, based on
its evaluation of relevant criteria, it determines that the costs associated with voting a proxy exceed the expected benefits to
affected clients. The primary aim of this cost-benefit analysis is to determine whether it is in a client’s best economic
interest to vote its proxies. If the costs associated with voting a proxy outweigh the expected benefit to the client, AllianzGI
may refrain from voting that proxy.
The circumstances under which AllianzGI may refrain from voting
may include, but are not limited to, the following: (1) proxy statements and ballots being written in a foreign language,
(2) untimely notice of a shareholder meeting, (3) requirements to vote proxies in person, (4) restrictions on a
foreigner’s ability to exercise votes, and (5) requirements to provide local agents with power of attorney to execute
the voting instructions. Such proxies are voted on a best-efforts basis.
Proxy voting in certain countries requires “share blocking.”
To vote proxies in such countries, shareholders must deposit their shares shortly before the date of the meeting with a designated
depositary and the shares are then restricted from being sold until the meeting has taken place and the shares are returned to
the shareholders’ custodian banks. Absent compelling reasons, AllianzGI believes the benefit to its clients of exercising
voting rights does not outweigh the effects of not being able to sell the shares. Therefore, if share blocking is required
AllianzGI generally abstains from voting.
AllianzGI will be unable to vote securities on loan under
securities lending arrangements into which AllianzGI’s clients have entered. However, under rare circumstances such as
voting issues that may have a significant impact on the investment, if the client holds a sufficient number of shares to have
a material impact on the vote, AllianzGI may request that the client recall securities that are on loan if it determines that
the benefit of voting outweighs the costs and potential lost revenue to the client and the administrative burden of
retrieving the securities.
The ability to timely identify material events and recommend
recall of shares for proxy voting purposes is not within the control of AllianzGI US and requires the cooperation of the client
and its other service providers. Efforts to recall loaned securities are not always effective and there can be no guarantee that
any such securities can be retrieved in a timely manner for purposes of voting the securities.
ITEM 8. PORTFOLIO MANAGERS
OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
(a)(1)
As of April 3, 2020, the following individuals
have primary responsibility for the day-to-day implementation of the AllianzGI Equity & Convertible Income Fund (“NIE”
or the “Fund”):
Douglas Forsyth, CFA
Managing Director, CIO, US Income & Growth Strategies
Mr. Forsyth is a portfolio manager, a managing director and
CIO US Income & Growth Strategies with Allianz Global Investors, which he joined in 1994. He is the head of the firm’s
Income and Growth Strategies team and a member of the firm’s US Executive Committee. Mr. Forsyth has portfolio management,
trading and research responsibilities, and oversees all aspects of the Income and Growth platform’s business, including product
development and implementation. He has been the lead portfolio manager for the firm’s US High Yield Bond strategy since its
inception in 1994 and assumed lead portfolio management responsibility for the firm’s US Convertible strategy in 1998. Mr.
Forsyth has been managing collateralized loan obligation (CLO) portfolios since 2006 and has been the lead portfolio manager on
the Income & Growth strategy since its inception in 2007. In addition to management responsibility for institutional clients
worldwide, he supervises multiple open-end and closed-end mutual funds and provides oversight for the US Short Duration High Income
strategy. He has 28 years of investment industry experience. Mr. Forsyth was previously an analyst at AEGON USA. He has a B.B.A.
from The University of Iowa. Mr. Forsyth is a CFA charterholder.
Justin Kass, CFA
Managing Director, Portfolio Manager
Mr. Kass is a portfolio manager and managing director with Allianz
Global Investors, which he joined in 2000. He has portfolio management, research and trading responsibilities for the Income and
Growth Strategies team. In 2003, Mr. Kass was promoted to portfolio management and began handling day-to-day portfolio manager
responsibilities for the firm’s US Convertible strategy in 2005. He is also a lead portfolio manager for the firm’s
Income and Growth strategy since its inception in 2007. In addition to management responsibility for institutional clients, Mr.
Kass is responsible for managing multiple closed-end and open-end mutual funds. Previous to joining the firm, Mr. Kass interned
on the Income and Growth Strategies team, adding significant depth to its proprietary Upgrade Alert Model. He has 22 years of investment
industry experience. Mr. Kass has a B.S. from the University of California, Davis, and an M.B.A. from the UCLA Anderson School
of Management. He is a CFA charterholder.
Michael E. Yee
Managing Director, Portfolio Manager
Mr. Yee is a portfolio manager and a managing director with
Allianz Global Investors, which he joined in 1995. He has portfolio-management, research and trading responsibilities for the Income
and Growth Strategies team. He is also a lead portfolio manager for the firm’s Income and Growth strategy since its inception
in 2007. In addition, Mr. Yee is responsible for managing multiple closed-end and open-end mutual funds. Mr. Yee was previously
an analyst for the Global and Systematic team with responsibilities focused on US large cap equity strategies. In addition, he
also worked in global portfolio administration and in client service. He has 26 years of investment-industry experience. Mr. Yee
was previously a financial consultant for Priority One Financial/Liberty Foundation. He has a B.S. from the University of California,
San Diego, and an M.B.A. from San Diego State University.
(a) (2) AllianzGI US
The following summarizes information regarding each of the accounts,
excluding the Fund, that were managed by the Portfolio Managers as of January 31, 2020 including accounts managed by a team,
committee, or other group that includes the Portfolio Managers.
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Portfolio
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Other Registered
Investment
Companies
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Other Accounts
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Other Pooled Investment
Vehicles
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Managers
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#
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AUM
($million)
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#
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AUM ($million)
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#
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AUM ($million)
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Douglas Forsyth, CFA
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10
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10,159
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3
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1,152
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18
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32,047*
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Justin Kass, CFA
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7
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7,902
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3
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1,152
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18
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32,047*
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Michael E. Yee
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2
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4,914
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3
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1,152
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18
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32,047*
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*Of the Other Pooled Investment Vehicles, five accounts totaling
$1,117 million pays an advisory fee that is based in part on the performance of the account.
AllianzGI US
Potential Conflicts of Interest
Like other investment professionals with multiple clients, a
portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Portfolio and
other accounts at the same time. The paragraphs below describe some of these potential conflicts, which AllianzGI US believes are
faced by investment professionals at most major financial firms.
AllianzGI US has adopted compliance policies and procedures
that address certain of these potential conflicts. The management of accounts with different advisory fee rates and/or fee structures,
including accounts that pay advisory fees based on account performance (“performance fee accounts”), may raise potential
conflicts of interest by creating an incentive to favor higher- fee accounts. These potential conflicts may include, among others:
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·
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The most attractive investments could be allocated to higher-fee accounts
or performance fee accounts.
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·
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The trading of higher-fee accounts could be favored as to timing and/or
execution price. For example, higher -fee accounts could be permitted to sell securities earlier than other accounts when a prompt
sale is desirable or to buy securities at an earlier and more opportune time.
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·
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The investment management team could focus their time and efforts primarily
on higher-fee accounts due to a personal stake in compensation.
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When AllianzGI US considers the purchase or sale of a security
to be in the best interests of a Fund as well as other accounts, AllianzGI US’s trading desk may, to the extent permitted
by applicable laws and regulations, aggregate the securities to be sold or purchased. Aggregation of trades may create the potential
for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold—for
example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account. AllianzGI
US considers many factors when allocating securities among accounts, including the account’s investment style, applicable
investment restrictions, availability of securities, available cash and other current holdings. AllianzGI US attempts to allocate
investment opportunities among accounts in a fair and equitable manner. However, accounts are not assured of participating equally
or at all in particular investment allocations due to such factors as noted above.
“Cross trades,” in which one AllianzGI US account
sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential
conflict of interest when cross trades are effected in a manner perceived to favor one client over another. For example, AllianzGI
US may cross a trade between performance fee account and a fixed fee account that results in a benefit to the performance fee account
and a detriment to the fixed fee account. AllianzGI US has adopted compliance procedures that provide that all cross trades are
to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise from the different
investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment
horizon or different investment objectives, policies or restrictions than a Portfolio. Depending on another account’s objectives
or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature
of decisions made, with respect to a Fund. In addition, investment decisions are subject to suitability for the particular account
involved. Thus, a particular security may not be bought or sold for certain accounts even though it was bought or sold for other
accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager
when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or
sales of portfolio securities for one or more accounts may have an adverse effect on other accounts. AllianzGI US maintains trading
policies designed to provide portfolio managers an opportunity to minimize the effect that short sales in one portfolio may have
on holdings in other portfolios.
A portfolio manager who is responsible for managing multiple
funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the
portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for
each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single
fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio
manager have different investment strategies.
A Portfolio’s portfolio manager(s) may be able to
select or influence the selection of the broker/dealers that are used to execute securities transactions for the Fund. In addition
to executing trades, some brokers and dealers provide AllianzGI US with brokerage and research services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than
might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. In order
to be assured of continuing to receive services considered of value to its clients, AllianzGI US has adopted a brokerage allocation
policy embodying the concepts of Section 28(e) of the Securities Exchange Act of 1934. Although the payment of brokerage
commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable
in relation to the value of the brokerage and research services provided to the Fund and the Sub-Adviser’s other clients,
a portfolio manager’s decision as to the selection of brokers and dealers could yield disproportionate costs and benefits
among the funds and/or accounts that he or she manages.
A Fund’s portfolio manager(s) may also face other
potential conflicts of interest in managing a Portfolio, and the description above is not a complete description of every conflict
that could be deemed to exist in managing both the Portfolios and other accounts. In addition, a Fund’s portfolio manager
may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity.
AllianzGI US’s investment personnel, including each Fund’s
portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to AllianzGI US’s
Code of Business Conduct and Code of Ethics (the “Code”), which contain provisions and requirements designed to identify
and address conflicts of interest between personal investment activities and the interests of the Fund. The Code is designed to
ensure that the personal securities transactions, activities and interests of the employees of AllianzGI US will not interfere
with (i) making decisions in the best interest of advisory clients (including the Portfolios) or (ii) implementing such
decisions while, at the same time, allowing employees to invest for their own accounts.
(a)(3)
Compensation Structure for AllianzGI US
As of January 31, 2020 the following explains the compensation
structure of each individual who shares primary responsibility for day-to-day portfolio management of the Fund:
The compensation system is designed to support the organization’s
corporate values and culture. While acknowledging the importance of financial incentives and seeking to pay top quartile compensation
for top quartile performance, AllianzGI US also believes that compensation is only one of a number of critically important elements
that allow the emergence of a strong, winning culture that attracts, retains and motivates talented investors and teams. AllianzGI
US’s compensation system supports its belief that investment professionals are a key element of the company’s success
in meeting clients’ objectives. To the extent that there are regional experts located in other AllianzGI US-affiliated offices
worldwide who are “associated persons” of AllianzGI US and who serve as portfolio managers for certain of the Funds,
this compensation strategy is applied independently by the AllianzGI US-affiliated company that employs such a portfolio manager.
In such cases, AllianzGI US compensates the employing company through an affiliated transfer pricing arrangement that takes into
account the value placed by AllianzGI US on the shared service of the portfolio manager.
The primary components of compensation are the base salary and
an annual variable compensation payment. Base salary typically reflects scope, responsibilities and experience required in a particular
role, be it on the investment side or any other function in the company. Base compensation is regularly reviewed against peers
with the help of compensation survey data. Base compensation is typically a greater percentage of total compensation for more junior
positions, while for the most senior roles it is typically a comparatively small component, often capped and only adjusted every
few years.
The variable compensation component typically comprises a cash
bonus that pays out immediately after the performance year as well as a deferred component, for members of staff whose variable
compensation exceeds a certain threshold. Except for certain specialist investment teams as noted below, variable compensation
is determined on a discretionary basis and is primarily designed to reflect the achievements of an individual against set goals,
over a certain time period. For an investment professional these goals will typically be 70% quantitative and 30% qualitative.
The former will reflect a weighted average of investment performance over a three-year rolling time period (one-year (25%) and
three year (75%) results) and the latter reflects contributions to broader team goals, contributions made to client review
meetings, product development or product refinement initiatives. Portfolio managers have their performance metric aligned with
the benchmarks of the client portfolios they manage.
Variable compensation for certain specialist investment teams
including AllianzGI US Income & Growth and Structured Products is determined on a formulaic basis. These teams share a
percentage of advisory fee revenue including performance fee revenue, if applicable, generated by the investment strategy.
After consultation and oversight from the firm’s compensation
committee, the lead portfolio manager allocates the team’s share of the shared revenue to the individual team members. Allocation
to individual team members is determined based on individual performance and contribution to the team and client success. All team
members have agreed upon performance objectives to serve as a basis for performance evaluation during the year. These objectives
are both quantitative and qualitative in nature. Quantitative objectives typically align to investment performance and client-stated
objectives. Qualitative objectives reflect contributions to broader team goals, such as idea sharing, contributions made to client
review meetings, product development or product refinement initiatives, and the way behaviors reflect AllianzGI US’s core
values of excellence, passion, integrity and respect. For all investment professionals, a 360 degree feedback evaluation forms
part of the qualitative input. Achievement against these goals as measured by the lead portfolio manager and Chief Investment Officer
serve to link performance to compensation. Notwithstanding the basis for determining variable compensation, all compensation principles,
including the deferral rules and deferred instruments described below, apply.
As noted above, variable compensation includes a deferral component.
The deferred component for most recipients would be a notional award of the Long Term Incentive Plan Award (“LTIPA”);
for members of staff whose variable compensation exceeds an additional threshold, the deferred compensation is itself split 50%/50%
between the LTIPA and a Deferral into Funds program (“DIF”). Deferral rates increase in line with the overall variable
compensation and can reach up to 42%. Overall awards, splits, components and deferral percentages are regularly reviewed to ensure
they are competitive and, where applicable, comply with regulatory standards.
The LTIPA element of the variable compensation cliff vests three
years after each (typically annual) award. Its value is directly tied to the operating profit of Allianz Global Investors.
The DIF element of the variable compensation cliff vests three
years after each (typically annual) award and enables qualifying members of staff to invest in a range of Allianz Global Investors’
funds. Investment professionals are encouraged to invest into their own funds or funds of a similar nature to those that they manage.
The value of the DIF award is determined by the performance of the fund over the three-year period covering each award.
Assuming an annual deferral of 33% over a three year period,
a typical member of staff will have roughly one year’s variable compensation (3x33%) as a deferred component ‘in
the bank’. Three years after the first award, and for as long as deferred components were awarded without break, cash payments
in each year will consist of the annual cash bonus for that current year’s performance as well as a payout from LTIPA/DIF
commensurate with the prior cumulative three-year performance.
In addition to competitive compensation, the firm’s approach
to retention includes providing a challenging career path for each professional, a supportive culture to ensure each employee’s
progress and a full benefits package.
The following summarizes the dollar range
of securities each portfolio manager for the Fund beneficially owned of the Fund that he managed as of January 31, 2020.
AllianzGI Equity &
Convertible Income Fund
|
|
|
PM Ownership
|
|
Douglas Forsyth, CFA
|
|
$100,001-$500,000
|
|
Justin Kass, CFA
|
|
None
|
|
Michael E. Yee
|
|
$50,001-$100,000
|
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED COMPANIES
None
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no material changes to the procedures by which
shareholders may recommend nominees to the Fund’s Board of Trustees since the Fund last provided disclosure in response to
this item.