Edgar Filing: AllianzGI Convertible & Income Fund II

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)

Scott Whisten

1633 Broadway,

New York, NY 10019

(Name and address of agent for service)

Registrant’s telephone number, including area code: 212-739-3367

Date of fiscal year end: February 28

Date of reporting period: November 30, 2018

Item 1. Schedule of Investments

Schedule of Investments

AllianzGI Convertible & Income Fund II

November 30, 2018 (unaudited)


Principal Amount (000s)			Value*
	CORPORATE BONDS & NOTES—37.3%
		Aerospace & Defense—1.0%
	$5,750	TransDigm, Inc., 6.50%, 5/15/25	$	5,742,812
	1,080	Triumph Group, Inc., 7.75%, 8/15/25		996,300

				6,739,112

		Auto Manufacturers—0.7%
	4,685	Navistar International Corp., 6.625%, 11/1/25 (a)(b)		4,655,766

		Chemicals—2.9%
	5,500	Chemours Co., 6.625%, 5/15/23		5,596,250
	3,640	Kraton Polymers LLC, 7.00%, 4/15/25 (a)(b)		3,321,500
	1,465	Olin Corp., 5.00%, 2/1/30		1,309,344
	4,330	Platform Specialty Products Corp., 6.50%, 2/1/22 (a)(b)		4,427,425
	810	Tronox Finance PLC, 5.75%, 10/1/25 (a)(b)		690,525
	4,180	Tronox, Inc., 6.50%, 4/15/26 (a)(b)		3,626,150

				18,971,194

		Commercial Services—0.7%
	5,974	Cenveo Corp., 6.00%, 5/15/24, (cost-$7,623,154; purchased 3/22/12) (a)(b)(c)(d)(f)(h)		328,570
	1,810	Laureate Education, Inc., 8.25%, 5/1/25 (a)(b)		1,941,225
	2,500	United Rentals North America, Inc., 5.50%, 7/15/25		2,443,750

				4,713,545

		Computers—1.4%
	3,976	DynCorp International, Inc., PIK 1.50%, 11.875%, 11/30/20		4,144,807
	5,650	Harland Clarke Holdings Corp., 9.25%, 3/1/21 (a)(b)		5,240,375

				9,385,182

		Distribution/Wholesale—0.6%
	4,110	H&E Equipment Services, Inc., 5.625%, 9/1/25		3,847,987

		Diversified Financial Services—2.9%
	6,000	Community Choice Financial Issuer LLC, 9.00%, 9/6/20 (a)(b)		5,997,210
		Community Choice Financial, Inc. (d)(f),
	7,465	10.75%, 5/1/19		3,433,900
	5,370	12.75%, 5/1/20 (a)(b)		1,530,450
	1,200	Navient Corp., 7.25%, 9/25/23		1,210,500
	3,865	Springleaf Finance Corp., 8.25%, 10/1/23		4,077,575
	2,730	Travelport Corporate Finance PLC, 6.00%, 3/15/26 (a)(b)		2,702,700

				18,952,335

		Electric Utilities—0.7%
	4,265	NRG Energy, Inc., 6.25%, 5/1/24		4,376,956

		Electronic Equipment, Instruments & Components—0.2%
	1,225	Energizer Holdings, Inc., 5.50%, 6/15/25 (a)(b)		1,127,766

		Engineering & Construction—0.9%
	2,165	AECOM, 5.125%, 3/15/27		1,977,186
	3,900	Tutor Perini Corp., 6.875%, 5/1/25 (a)(b)		3,753,750

				5,730,936

		Entertainment—1.2%
	3,810	AMC Entertainment Holdings, Inc., 6.125%, 5/15/27		3,390,900
	3,045	Cedar Fair L.P., 5.375%, 6/1/24		3,045,000
	1,515	International Game Technology PLC, 6.25%, 1/15/27 (a)(b)		1,518,787

				7,954,687

		Healthcare-Products—0.4%
	2,755	Mallinckrodt International Finance S.A., 5.75%, 8/1/22 (a)(b)		2,513,938

		Healthcare-Services—2.3%
	1,880	Centene Corp., 5.375%, 6/1/26 (a)(b)		1,896,450
	2,165	Community Health Systems, Inc., 6.25%, 3/31/23		2,016,156
	4,125	DaVita, Inc., 5.125%, 7/15/24		3,980,625
	1,325	Encompass Health Corp., 5.75%, 11/1/24		1,331,625
	2,950	HCA, Inc., 7.50%, 2/15/22		3,193,375
	2,750	Tenet Healthcare Corp., 7.00%, 8/1/25		2,691,563

				15,109,794

Schedule of Investments

AllianzGI Convertible & Income Fund II

November 30, 2018 (unaudited) (continued)


Principal Amount (000s)			Value*
		Home Builders—0.3%
	$1,745	Beazer Homes USA, Inc., 8.75%, 3/15/22	$	1,776,934

		Insurance—0.5%
	3,320	Prudential Financial, Inc., 5.70%, 9/15/48 (converts to FRN on 9/15/28) (g)		3,139,475

		Internet—0.3%
	2,200	Netflix, Inc., 5.875%, 2/15/25		2,249,500

		Iron/Steel—0.7%
		AK Steel Corp.,
	1,550	7.00%, 3/15/27		1,294,250
	1,005	7.50%, 7/15/23		1,017,563
	2,165	United States Steel Corp., 6.875%, 8/15/25		2,062,162

				4,373,975

		Lodging—0.4%
	1,000	Wyndham Hotels & Resorts, Inc., 5.375%, 4/15/26 (a)(b)		967,500
	2,165	Wynn Las Vegas LLC, 5.50%, 3/1/25 (a)(b)		2,067,575

				3,035,075

		Machinery-Construction & Mining—0.5%
	3,585	Terex Corp., 5.625%, 2/1/25 (a)(b)		3,303,757

		Media—1.5%
	5,630	Cablevision Systems Corp., 8.00%, 4/15/20		5,869,275
	2,850	Gray Television, Inc., 5.875%, 7/15/26 (a)(b)		2,778,750
	3,589	LiveStyle, Inc., 9.625%, 2/1/19, (cost-$3,593,544; purchased 5/7/14-2/26/15) (a)(b)(c)(d)(f)(h)(j)		72
	1,330	Meredith Corp., 6.875%, 2/1/26 (a)(b)		1,363,250

				10,011,347

		Metal Fabricate/Hardware—0.4%
	2,920	Park-Ohio Industries, Inc., 6.625%, 4/15/27		2,897,188

		Mining—1.9%
	3,900	Alcoa Nederland Holding BV, 7.00%, 9/30/26 (a)(b)		4,065,750
	3,365	Constellium NV, 6.625%, 3/1/25 (a)(b)		3,230,400
	2,135	Hudbay Minerals, Inc., 7.625%, 1/15/25 (a)(b)		2,129,662
	3,050	Joseph T. Ryerson & Son, Inc., 11.00%, 5/15/22 (a)(b)		3,255,875

				12,681,687

		Miscellaneous Manufacturing—0.3%
	2,255	Koppers, Inc., 6.00%, 2/15/25 (a)(b)		2,029,500

		Oil, Gas & Consumable Fuels—3.8%
	2,300	Calumet Specialty Products Partners L.P., 6.50%, 4/15/21		2,072,875
	1,420	Carrizo Oil & Gas, Inc., 6.25%, 4/15/23		1,359,650
	2,500	Chesapeake Energy Corp., 8.00%, 1/15/25		2,415,625
		Ensco PLC,
	450	5.20%, 3/15/25		338,904
	3,565	7.75%, 2/1/26		2,954,494
	6,180	EP Energy LLC, 9.375%, 5/1/20		5,809,200
	2,165	NGL Energy Partners L.P., 7.50%, 11/1/23		2,123,865
	2,095	Noble Holding International Ltd., 7.75%, 1/15/24		1,840,981
	3,745	Oasis Petroleum, Inc., 6.875%, 3/15/22		3,712,231
	2,580	Transocean, Inc., 7.50%, 1/15/26 (a)(b)		2,412,300

				25,040,125

		Pharmaceuticals—1.5%
		Bausch Health Cos., Inc. (a)(b),
	2,605	6.125%, 4/15/25		2,451,826
	1,280	7.00%, 3/15/24		1,342,400
	1,755	Endo Finance LLC, 5.375%, 1/15/23 (a)(b)		1,452,263
	4,425	Horizon Pharma USA, Inc., 6.625%, 5/1/23		4,413,937

				9,660,426

		Pipelines—0.4%
	2,715	Energy Transfer L.P., 5.50%, 6/1/27		2,715,000

Schedule of Investments

AllianzGI Convertible & Income Fund II

November 30, 2018 (unaudited) (continued)


Principal Amount (000s)			Value*
		Real Estate—1.2%
	$4,205	Kennedy-Wilson, Inc., 5.875%, 4/1/24	$	4,010,056
	4,090	Uniti Group L.P., 8.25%, 10/15/23		3,808,813

				7,818,869

		Retail—0.8%
	4,370	Conn’s, Inc., 7.25%, 7/15/22		4,293,525
	1,170	L Brands, Inc., 6.875%, 11/1/35		1,002,912

				5,296,437

		Semiconductors—1.1%
	4,090	Advanced Micro Devices, Inc., 7.00%, 7/1/24		4,320,062
	2,875	Amkor Technology, Inc., 6.375%, 10/1/22		2,896,505

				7,216,567

		Software—0.7%
	3,850	Camelot Finance S.A., 7.875%, 10/15/24 (a)(b)		3,821,125
	685	Rackspace Hosting, Inc., 8.625%, 11/15/24 (a)(b)		582,250

				4,403,375

		Telecommunications—4.7%
	865	CenturyLink, Inc., 7.50%, 4/1/24, Ser. Y		889,869
	3,125	Cincinnati Bell, Inc., 7.00%, 7/15/24 (a)(b)		2,755,859
	7,130	Consolidated Communications, Inc., 6.50%, 10/1/22		6,684,375
	4,045	Frontier Communications Corp., 10.50%, 9/15/22		3,256,225
	2,050	GTT Communications, Inc., 7.875%, 12/31/24 (a)(b)		1,891,125
		Hughes Satellite Systems Corp.,
	1,130	6.625%, 8/1/26		1,055,138
	3,500	7.625%, 6/15/21		3,669,575
	5,545	Sprint Communications, Inc., 11.50%, 11/15/21		6,434,972
	1,425	Sprint Corp., 7.625%, 3/1/26		1,464,188
	6,283	Windstream Services LLC, 6.375%, 8/1/23 (a)(b)		2,905,887

				31,007,213

		Transportation—0.4%
	2,940	XPO Logistics, Inc., 6.50%, 6/15/22 (a)(b)		3,002,475

		Total Corporate Bonds & Notes (cost-$274,813,805)		245,738,123

	CONVERTIBLE BONDS & NOTES—30.7%
		Agriculture—1.4%
		Vector Group Ltd. (g),
	4,335	3 mo. Cash Dividends on Common Stock + 1.75%, 2.15%, 4/15/20		4,438,082
	4,685	3 mo. Cash Dividends on Common Stock + 2.50%, 2.90%, 1/15/19		4,828,741

				9,266,823

		Apparel & Textiles—0.7%
	11,020	Iconix Brand Group, Inc., 5.75%, 8/15/23		4,835,576

		Auto Manufacturers—1.0%
	4,675	Navistar International Corp., 4.75%, 4/15/19		4,675,052
	1,785	Tesla, Inc., 0.25%, 3/1/19		1,917,759

				6,592,811

		Biotechnology—1.5%
	7,260	Intercept Pharmaceuticals, Inc., 3.25%, 7/1/23		6,986,196
	1,750	Omeros Corp., 6.25%, 11/15/23 (a)(b)		1,689,970
	1,355	Verastem, Inc., 5.00%, 11/1/48		1,299,106

				9,975,272

		Building Materials—0.7%
	3,225	Cemex S.A.B de C.V., 3.72%, 3/15/20		3,172,390
	1,725	Patrick Industries, Inc., 1.00%, 2/1/23 (a)(b)		1,398,675

				4,571,065

		Chemicals—1.0%
	8,615	Aceto Corp., 2.00%, 11/1/20		6,547,400

		Commercial Services—1.2%
	7,960	Huron Consulting Group, Inc., 1.25%, 10/1/19		7,912,240

		Distribution/Wholesale—0.8%
	4,975	Titan Machinery, Inc., 3.75%, 5/1/19		4,937,558

Schedule of Investments

AllianzGI Convertible & Income Fund II

November 30, 2018 (unaudited) (continued)


Principal Amount (000s)			Value*
		Diversified Financial Services—2.3%
	$7,030	Encore Capital Group, Inc., 3.00%, 7/1/20	$	6,531,643
	9,160	PRA Group, Inc., 3.00%, 8/1/20		8,622,885

				15,154,528

		Electrical Equipment—1.2%
		SunPower Corp.,
	2,365	0.875%, 6/1/21		1,874,262
	7,095	4.00%, 1/15/23		5,837,759

				7,712,021

		Electronics—0.8%
	5,955	OSI Systems, Inc., 1.25%, 9/1/22		5,528,455

		Energy-Alternate Sources—2.9%
	2,150	Green Plains, Inc., 4.125%, 9/1/22		1,998,382
	5,160	Pattern Energy Group, Inc., 4.00%, 7/15/20		5,113,168
	12,690	Tesla Energy Operations, Inc., 1.625%, 11/1/19		11,935,161

				19,046,711

		Equity Real Estate Investment Trusts (REITs)—1.3%
	3,025	Two Harbors Investment Corp., 6.25%, 1/15/22		3,053,166
	5,810	Western Asset Mortgage Capital Corp., 6.75%, 10/1/22		5,659,695

				8,712,861

		Insurance—2.5%
	8,400	AmTrust Financial Services, Inc., 2.75%, 12/15/44		7,912,800
	8,605	AXA S.A., 7.25%, 5/15/21 (a)(b)		8,642,182

				16,554,982

		Oil, Gas & Consumable Fuels—1.9%
	4,905	Chesapeake Energy Corp., 5.50%, 9/15/26		4,257,314
	1,720	Nabors Industries, Inc., 0.75%, 1/15/24		1,151,325
	7,525	Whiting Petroleum Corp., 1.25%, 4/1/20		7,143,498

				12,552,137

		Pharmaceuticals—2.4%
	9,210	Dermira, Inc., 3.00%, 5/15/22		7,662,775
	2,460	Horizon Pharma Investment Ltd., 2.50%, 3/15/22		2,457,985
	6,370	Tilray, Inc., 5.00%, 10/1/23 (a)(b)		5,405,124

				15,525,884

		Pipelines—2.1%
	18,700	Cheniere Energy, Inc., 4.25%, 3/15/45		14,052,695

		Semiconductors—0.4%
	2,970	Veeco Instruments, Inc., 2.70%, 1/15/23		2,339,095

		Software—2.6%
	1,725	Avaya Holdings Corp., 2.25%, 6/15/23 (a)(b)		1,499,934
	11,915	Avid Technology, Inc., 2.00%, 6/15/20		10,842,579
	2,130	DocuSign, Inc., 0.50%, 9/15/23 (a)(b)		1,997,060
	3,015	Synchronoss Technologies, Inc., 0.75%, 8/15/19		2,914,926

				17,254,499

		Telecommunications—1.0%
	5,735	GDS Holdings Ltd., 2.00%, 6/1/25 (a)(b)		4,729,775
	2,585	Infinera Corp., 2.125%, 9/1/24		1,985,893

				6,715,668

		Transportation—1.0%
	3,440	Echo Global Logistics, Inc., 2.50%, 5/1/20		3,442,150
	3,555	Teekay Corp., 5.00%, 1/15/23 (a)(b)		2,841,750

				6,283,900

		Total Convertible Bonds & Notes (cost-$207,575,722)		202,072,181

Schedule of Investments

AllianzGI Convertible & Income Fund II

November 30, 2018 (unaudited) (continued)


Shares			Value*
	CONVERTIBLE PREFERRED STOCK—28.2%
		Banks—4.2%
	9,140	Bank of America Corp., 7.25%, Ser. L (e)	$	11,699,200
	12,835	Wells Fargo & Co., 7.50%, Ser. L (e)		16,220,231

				27,919,431

		Chemicals—1.4%
	63,645	International Flavors & Fragrances, Inc., 6.00%, 9/15/21		3,591,487
	51,505	Rayonier Advanced Materials, Inc., 8.00%, 8/15/19, Ser. A		5,457,470

				9,048,957

		Diversified Financial Services—0.2%
	30,145	AMG Capital Trust II, 5.15%, 10/15/37		1,590,330

		Electric Utilities—5.2%
	83,335	CenterPoint Energy, Inc., 7.00%, 9/1/21, Ser. B		4,183,417
	228,650	Dominion Energy, Inc., 6.75%, 8/15/19, Ser. A		11,078,092
	111,635	NextEra Energy, Inc., 6.123%, 9/1/19		6,631,119
	121,195	Sempra Energy, 6.00%, 1/15/21, Ser. A		12,292,809

				34,185,437

		Electronic Equipment, Instruments & Components—0.9%
	76,780	Belden, Inc., 6.75%, 7/15/19		5,911,292

		Electronics—1.1%
	7,625	Fortive Corp., 5.00%, 7/1/21, Ser. A		7,493,469

		Equity Real Estate Investment Trusts (REITs)—5.3%
	7,795	Crown Castle International Corp., 6.875%, 8/1/20, Ser. A		8,445,618
	43,045	QTS Realty Trust, Inc., 6.50%, Ser. B (e)		4,368,637
	476,235	RLJ Lodging Trust, 1.95%, Ser. A (e)		12,072,558
	149,485	Welltower, Inc., 6.50%, Ser. I (e)		9,753,896

				34,640,709

		Gas Utilities—1.4%
	184,475	South Jersey Industries, Inc., 7.25%, 4/15/21		9,422,983

		Hand/Machine Tools—1.6%
	104,940	Stanley Black & Decker, Inc., 5.375%, 5/15/20		10,256,280

		Healthcare-Products—2.1%
	214,580	Becton Dickinson and Co., 6.125%, 5/1/20, Ser. A		13,601,389

		Insurance—1.9%
	120,100	Assurant, Inc., 6.50%, 3/15/21, Ser. D		12,600,892

		Oil, Gas & Consumable Fuels—0.3%
	51,395	Nabors Industries Ltd., 6.00%, 5/1/21		1,336,270
	173,845	Sanchez Energy Corp., 6.50%, Ser. B (e)		625,842

				1,962,112

		Pharmaceuticals—1.4%
	23,315	Teva Pharmaceutical Industries Ltd., 7.00%, 12/15/18		9,478,713

		Real Estate—1.2%
	309,935	Ready Capital Corp., 7.00%, 8/15/23		7,774,720

		Total Convertible Preferred Stock (cost-$187,256,463)		185,886,714

	PREFERRED STOCK (a)(d)(f)(j)—1.3%
		Media—1.3%
	3,554	LiveStyle, Inc., Ser. A		483,522
	76,572	LiveStyle, Inc., Ser. B (i)		7,657,200
	5,000	LiveStyle, Inc., Ser. B (i)		50

		Total Preferred Stock (cost-$12,855,447)		8,140,772

	COMMON STOCK (a)(d)(f)(i)—0.2%
		Advertising—0.2%
	133,715	Affinion Group Holdings, Inc., Class A, (cost-$2,371,020; purchased 11/9/15-11/12/15) (h)		1,353,196

Schedule of Investments

AllianzGI Convertible & Income Fund II

November 30, 2018 (unaudited) (continued)


Shares			Value*
		Aerospace & Defense—0.0%
	6,354	Erickson, Inc.	$	176,196

		Media—0.0%
	90,407	LiveStyle, Inc.(j)		9

		Total Common Stock (cost-$7,842,203)		1,529,401


Units
	WARRANTS (d)(f)(i)—0.0%
		Commercial Services—0.0%
	1,562,241	Cenveo, Inc., strike price $12.00, expires 6/10/24 (b)		15

		Media—0.0%
	19,500	LiveStyle, Inc., expires 11/30/21, Ser. C (a)(j)		2

		Total Warrants (cost-$183,305)		17


Principal Amount (000s)
		Repurchase Agreements—2.3%
	$15,018	State Street Bank and Trust Co., dated 11/30/18, 0.42%, due 12/3/18, proceeds $15,018,526; collateralized by U.S. Treasury Bonds, 3.375%, due 5/15/44, valued at $15,321,290 including accrued interest (cost-$15,018,000)		15,018,000

		Total Investments (cost-$705,544,945) (k)—100.0%		658,385,208

		Liabilities in excess of other assets		(3,963,625	)
		Preferred Shares		(271,525,000	)

		Net Assets Applicable to Common Shareholders	$	382,896,583

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 (including in cases where available market quotations are deemed to be unreliable), and has delegated primary responsibility for applying the valuation methods to the investment manager, Allianz Global Investors U.S. LLC (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 necessary. The Investment Manager monitors the continued appropriateness of methods applied and identifies circumstances and events that may require fair valuation. The Investment Manager determines if adjustments should be made in light of market changes, events affecting the issuer, or other factors. If the Investment Manager determines that a valuation method may no longer be appropriate, another valuation method previously approved by the Fund’s Valuation Committee may be selected or the Fund’s Valuation Committee will be convened to consider the matter and take any appropriate action in accordance with procedures adopted 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 Fund’s Valuation Committee.

Short-term debt instruments maturing in 60 days or less are valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing premiums or discounts 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. In unusual circumstances, the Board or the Valuation Committee may in good faith determine the NAV as of 4:00 p.m., Eastern Time, notwithstanding an earlier, unscheduled close or halt of trading on the NYSE.

(a)	Private Placement—Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $130,956,833, representing 19.9% of total investments.

(b)	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. Securities with an aggregate value of $121,286,673, representing 18.4% of total investments.

(c)	In default.

(d)	Fair-Valued—Securities with an aggregate value of $14,963,182, representing 2.3% of total investments.

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

(f)	Level 3 security.

(g)	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.

(h)	Restricted. The aggregate cost of such securities is $13,587,718. The aggregate value is $1,681,838, representing 0.3% of total investments.

(i)	Non-income producing.

(j)	A member of the Fund’s portfolio management team is a member of the board of directors of LiveStyle, Inc. The Fund’s aggregate value of investments in LiveStyle, Inc. represents 1.3% of total investments.

(k)

At November 30, 2018, the cost basis of portfolio securities for federal income tax purposes was $710,111,608. Gross unrealized appreciation was $24,685,464; gross unrealized depreciation was $76,411,864; and net unrealized depreciation was $51,726,400. The difference between book and tax cost was attributable to wash sale loss deferrals and the differing treatment of bond premium amortization.

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 Funds 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 Investment Manager’s or Valuation Committee’s own assumptions and securities whose price was determined by using a single broker’s quote)

The valuation techniques used by the Fund to measure fair value during the nine months ended November 30, 2018 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 input, individually or in aggregate, that is significant to the 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. Investments 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 within Level 2 and Level 3, in accordance with accounting principles generally accepted in the United States of America.

Equity Securities (Common and Preferred Stock and Warrants) — 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 based on 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 bonds. 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 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 corporate bonds & notes are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

A summary of the inputs used at November 30, 2018 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 11/30/18
Investments in Securities—Assets
Corporate Bonds & Notes:
Commercial Services		—	$	4,384,975	$	328,570	$	4,713,545
Diversified Financial Services		—		13,987,985		4,964,350		18,952,335
Media		—		10,011,275		72		10,011,347
All Other		—		212,060,896		—		212,060,896
Convertible Bonds & Notes		—		202,072,181		—		202,072,181
Convertible Preferred Stock:
Chemicals		—		9,048,957		—		9,048,957
Diversified Financial Services		—		1,590,330		—		1,590,330
Electronics		—		7,493,469		—		7,493,469
Equity Real Estate Investment Trusts (REITs)	$	26,195,091		8,445,618		—		34,640,709
Hand/Machine Tools		—		10,256,280		—		10,256,280
Healthcare-Products		—		13,601,389		—		13,601,389
Oil, Gas & Consumable Fuels		1,336,270		625,842		—		1,962,112
Pharmaceuticals		—		9,478,713		—		9,478,713
Real Estate		—		7,774,720		—		7,774,720
All Other		90,040,035		—		—		90,040,035
Preferred Stock		—		—		8,140,772		8,140,772
Common Stock		—		—		1,529,401		1,529,401
Warrants		—		—		17		17
Repurchase Agreements		—		15,018,000		—		15,018,000

Totals	$	117,571,396	$	525,850,630	$	14,963,182	$	658,385,208

At November 30, 2018, securities valued at $18,701,898 were transferred from Level 1 to Level 2. The transfer was the result of the securities having used an exchange-traded closing price on February 28, 2018, and then using an evaluated price from a third-party independent pricing vendor on November 30, 2018.

A roll forward of fair value measurements using significant unobservable inputs (Level 3) for the nine months ended November 30, 2018, was as follows:


	Beginning Balance 2/28/18		Purchases		Sales			Accrued Discount (Premiums)		Net Realized Gain (Loss)		Net Change in Unrealized Appreciation/ Depreciation			Transfers into Level 3			Transfers out of Level 3		Ending Balance 11/30/18
Investments in Securities—Assets
Corporate Bonds & Notes:
Commercial Services	$	—	$	—	$	—		$	—	$	—	$	—		$	328,570	*	$	—	$	328,570
Diversified Financial Services		—		—		—			—		—		—			4,964,350	*		—		4,964,350
Media		—		—		—			—		—		—			72	**		—		72
Preferred Stock:
Media		8,491,150		—		(650,957	)		—		181,840		118,739			—			—		8,140,772
Common Stock:
Advertising		2,024,445		—		—			—		—		(671,249	)		—			—		1,353,196
Aerospace & Defense		199,452		—		—			—		—		(23,256	)		—			—		176,196
Media		9		—		—			—		—		—			—			—		9
Warrants:
Commercial Services		273		—		—			—		—		(258	)		—			—		15
Media		2		—		—			—		—		—			—			—		2

Totals	$	10,715,331	$	—	$	(650,957	)	$	—	$	181,840	$	(576,024	)	$	5,292,992		$	—	$	14,963,182

The table above includes Level 3 investments that are valued by brokers or independent pricing services.

*	At November 30, 2018, securities valued at $5,292,920 were transferred from Level 2 to Level 3. The transfer resulted from the lack of a current evaluated price from an independent pricing service at November 30, 2018 for the securities.

**	At November 30, 2018, a security valued at $72 was transferred from Level 2 to Level 3. The transfer was due to uncertainty regarding the receipt of updated financial statements and data related to a current evaluated price.

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, 2018:

Ending
Balance
at 11/30/18

Valuation
Technique Used

Unobservable
Inputs

Input Values (Range)

Investments in Securities—Assets

Preferred Stock

$483,522

Market and Company Comparables

EV Multiples

0.74x (0.38x - 1.26x)

Applicable Liquidity Multiple

1.60

Illiquidity Discount

25%

$7,567,200

Market and Company Comparables

EV Multiples

0.74x (0.38x - 1.26x)

Illiquidity Discount

25%

Common Stock

$1,353,196

Market and Company Comparables

EV Multiples

5.18x (2.14x - 9.61x)

Illiquidity Discount

20%

$176,196

Market and Company Comparables

EV Multiples

0.65x (0.44x - 0.91x)

M&A Transaction Multiples

0.87x(0.32x - 2.12x)

Illiquidity Discount

40%

The table above does not include Level 3 investments that are valued by brokers or independent pricing services.

The net change in unrealized appreciation/depreciation of Level 3 investments held at November 30, 2018 was $(7,581,526).

Glossary:

FRN - Floating Rate Note

PIK - Payment-in-Kind

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 Investment Company Act of 1940 Act (the “1940 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 1940 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

Certifications pursuant to Rule 30a-2(a) under the 1940 Act are filed and attached here to as Exhibit 99_CERT:

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/ Thomas J. Fuccillo
		Thomas J. Fuccillo President & Chief Executive Officer

Date: January 24, 2019

By		/s/ Scott Whisten
		Scott Whisten Treasurer, Principal Financial & Accounting Officer

Date: January 24, 2019

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/ Thomas J. Fuccillo
		Thomas J. Fuccillo President & Chief Executive Officer

Date: January 24, 2019

By		/s/ Scott Whisten
		Scott Whisten Treasurer, Principal Financial & Accounting Officer

Date: January 24, 2019