|
|
AGIC International & Premium Strategy
Fund
|
Notes to Financial Statements
|
August 31, 2010 (unaudited)
|
|
|
|
1. Organization and
Significant Accounting Policies
(continued)
rate on the
respective dates of such transactions. The resulting net foreign currency gain
(loss) is included in the Funds Statement of Operations.
The Fund does not
generally isolate that portion of the results of operations arising as a result
of changes in the foreign currency exchange rates from the fluctuations arising
from changes in the market prices of securities. Accordingly, such foreign
currency gain (loss) is included in net realized and unrealized gain (loss) on
investments.
Net foreign currency
gain (loss) from valuing foreign currency denominated assets and liabilities at
period-end exchange rates is reflected as a component of net unrealized
appreciation (depreciation) of investments, options written and foreign
currency transactions. Net realized foreign currency gain (loss) is treated as
ordinary income (loss) for income tax reporting purposes.
(g)
Repurchase Agreements
The Fund enters into
transactions with its custodian bank or securities brokerage firms whereby it
purchases securities under agreements to resell such securities at an agreed
upon price and date (repurchase agreements). The Fund, through its custodian,
takes possession of securities collateralizing the repurchase agreement. Such
agreements are carried at the contract amount in the financial statements,
which is considered to represent fair-value. Collateral pledged (the securities
received), which consists primarily of U.S. government obligations and
asset-backed securities, are held by the custodian bank for the benefit of the
Fund until maturity of the repurchase agreement. Provisions of the repurchase
agreements and the procedures adopted by the Fund require that the market value
of the collateral, including accrued interest thereon, be sufficient in the
event of default by the counterparty. If the counterparty defaults and the
value of the collateral declines or if the counterparty enters an insolvency
proceeding, realization of the collateral by the Fund may be delayed or
limited.
(h) Custody Credits
on Cash Balances
The Fund benefits
from an expense offset arrangement with its custodian bank, whereby uninvested
cash balances earn credits which reduce monthly custodian and accounting agent
expenses. Had these cash balances been invested in income-producing securities,
they would have generated income for the Fund.
2. Principal Risks
In the normal course
of business, the Fund trades financial instruments and enters into financial
transactions where risk of potential loss exists due to, among other things,
changes in the market (market risk) or failure of the other party to a
transaction to perform (counterparty risk). The Fund also is exposed to various
risks such as, but not limited to, foreign currency and credit risks.
To the extent the
Fund invests directly in foreign currencies or in securities that trade in, and
receive revenues in, foreign currencies, or in derivatives that provide
exposure to foreign currencies, it will be subject to the risk that those
currencies will decline in value relative to the U.S. dollar, or, in the case
of hedging positions, that the U.S. dollar will decline in value relative to
the currency being hedged. Currency rates in foreign countries may fluctuate
significantly over short periods of time for a number of reasons, including
economic growth, inflation, changes in interest rates, intervention (or the
failure to intervene) by U.S. or foreign governments, central banks or
supranational entities such as the International Monetary Fund, or by the
imposition of currency controls or other political developments in the United
States or abroad. As a result, the Funds investments in foreign
currency-denominated securities may reduce the returns of the Fund.
The Fund is subject
to elements of risk not typically associated with investments in the U.S., due
to concentrated investments in specific industries or investments in foreign
issuers located in a specific country or region. Such concentrations will
subject the Fund to additional risks resulting from future political or
economic conditions in such country or region and the possible imposition of
adverse governmental laws or currency exchange restrictions affecting such
country or region, which could cause the securities and their markets to be
less liquid and prices more volatile than those of comparable U.S. companies.
The market values of
equity securities, such as common and preferred stock, or equity-related
investments, such as options, may decline due to general market conditions
which are not specifically related to a particular company, such as real or
perceived adverse economic conditions, changes in the general outlook for
corporate earnings, changes in interest or currency rates or adverse investor
sentiment. They may also decline due to factors which affect a particular
industry or industries, such as labor shortages or increased production costs
and competitive conditions within an industry. Equity securities and equity
related investments generally have greater market price volatility than fixed
income securities.
The Fund is exposed
to credit risk which is the risk of losing money if the issuer or guarantor of
a fixed income security is unable or unwilling, or is perceived (whether by
market participants, rating agencies, pricing services or otherwise) as
18
AGIC International & Premium Strategy Fund Semi-Annual Report
|
8.31.10
|
|
|
AGIC International & Premium Strategy
Fund
|
Notes to Financial Statements
|
August 31, 2010 (unaudited)
|
|
|
2. Principal Risks
(continued)
unable
or unwilling, to make timely principal and/or interest payments, or to
otherwise honor its obligations. Securities are subject to varying degrees of
credit risk, which are often reflected in credit ratings.
The
Fund is exposed to counterparty risk, or the risk that an institution or other
entity with which the Fund has unsettled or open transactions will default. The
potential loss to the Fund could exceed the value of the financial assets
recorded in the Funds financial statements. Financial assets, which
potentially expose the Fund to counterparty risk, consist principally of cash
due from counterparties and investments. The Funds sub-adviser, Allianz Global
Investors Capital LLC (AGIC or the Sub-Adviser), an affiliate of the
Investment Manager, seeks to minimize the Funds counterparty risk by
performing reviews of each counterparty and by minimizing concentration of
counterparty risk by undertaking transactions with multiple customers and
counterparties on recognized and reputable exchanges. Delivery of securities
sold is only made once the Fund has received payment. Payment is made on a
purchase once the securities have been delivered by the counterparty. The trade
will fail if either party fails to meet its obligation.
The
Fund is party to International Swaps and Derivatives Association, Inc. Master
Agreements (ISDA Master Agreements) with select counterparties that govern
transactions, over-the-counter derivative and foreign exchange contracts,
entered into by the Fund and those counterparties. The ISDA Master Agreements
contain provisions for general obligations, representations, agreements, collateral
and events of default or termination. Events of termination include conditions
that may entitle counterparties to elect to terminate early and cause
settlement of all outstanding transactions under the applicable ISDA Master
Agreement. Any election to terminate early could be material to the financial
statements of the Fund.
3. Financial Derivative Instruments
Disclosure
about derivative instruments and hedging activities requires qualitative
disclosure regarding objectives and strategies for using derivatives,
quantitative disclosure about fair value amounts of gains and losses on
derivative instruments, and disclosure about credit-risk-related contingent
features in derivative agreements. The disclosure requirements distinguish
between derivatives which are accounted for as hedges and those that do not
qualify for such accounting. Although the Fund sometimes uses derivatives for
hedging purposes, the Fund reflects derivatives at fair value and recognizes
changes in fair value through the Funds Statement of Operations, and such
derivatives do not qualify for hedge accounting treatment. Derivative contract
amounts and values as of August 31, 2010, which are disclosed in the
accompanying Notes to Financial Statements, are indicative of the volume of the
Funds derivatives activities during the reporting period.
|
(a) Option Transactions
|
The
Fund purchases and writes (sells) put and call options on securities and
indices to earn premiums, for hedging purposes, risk management purposes or
otherwise as part of its investment strategies. The risk associated with
purchasing an option is that the Fund pays a premium whether or not the
option is exercised. Additionally, the Fund bears the risk of loss of
premiums and changes in market value should the counterparty not perform
under the contract. Put and call options purchased are accounted for in the
same manner as portfolio securities. The cost of securities acquired through
the exercise of call options is increased by the premiums paid. The proceeds
from securities sold through the exercise of put options are decreased by the
premiums paid.
|
When
an option is written, the premium received is recorded as an asset with an
equal liability which is subsequently marked to market to reflect the market
value of the option written. These liabilities are reflected as options written
in the Funds Statement of Assets and Liabilities. Premiums received from
writing options which expire unexercised are recorded on the expiration date as
a realized gain. The difference between the premium received and the amount
paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or if the premium is less than
the amount paid for the closing purchased transactions, as a realized loss. If
a call option written is exercised, the premium is added to the proceeds from
the sale of the underlying security in determining whether there has been a
realized gain or loss. If a put option written is exercised, the premium
reduces the cost basis of the security. In writing an option, the Fund bears
the market risk of an unfavorable change in the price of the security
underlying the written option. Exercise of a written option could result in the
Fund purchasing a security at a price different from its current market value.
Fair Value of Derivative Instruments at August 31, 2010
The
following is a summary of the fair valuation of the Funds derivative
instruments categorized by risk exposure.
|
8.31.10
|
AGIC International & Premium Strategy Fund Semi-Annual Report
19
|
|
AGIC International & Premium Strategy
Fund
|
Notes to Financial Statements
|
August 31, 2010 (unaudited)
|
|
|
3. Financial Derivative Instruments
(continued)
The
effect of derivative instruments on the Funds Statement of Assets and
Liabilities at August 31, 2010:
|
|
|
|
|
|
Location
|
|
Market
Price
|
|
|
|
|
|
Liability
derivatives:
|
|
|
|
|
|
Call options written, at
value
|
|
$
|
(167,136
|
)
|
|
|
|
|
|
|
|
The effect of derivative
instruments on the Funds Statement of Operations for the six months ended
August 31, 2010:
|
|
|
|
|
|
Location
|
|
Market
Price
|
|
|
|
|
|
Net
realized loss on:
|
|
|
|
|
|
Call options written
|
|
$
|
(163,576
|
)
|
|
|
|
|
|
|
|
Net change
in unrealized appreciation/depreciation of:
|
|
|
|
|
|
Call options written
|
|
|
$(77,309
|
)
|
|
|
|
|
|
|
|
|
4.
Investment Manager/Sub-Adviser
|
The
Fund has an Investment Management Agreement (the Agreement) with the
Investment Manager. Subject to the supervision of the Funds Board of
Trustees, the Investment Manager is responsible for managing, either directly
or through others selected by it, the Funds investment activities, business
affairs and administrative matters. Pursuant to the Agreement, the Investment
Manager receives an annual fee, payable monthly, at the annual rate of 1.00%
of the Funds average daily total managed assets. Total managed assets refer
to the total assets of the Fund (including assets attributable to any
borrowings that may be outstanding) minus accrued liabilities (other than
liabilities representing borrowings).
|
|
The
Investment Manager has retained the Sub-Adviser to manage the Funds
investments. Subject to the supervision of the Investment Manager, the
Sub-Adviser is responsible for making all of the Funds investment decisions.
The Investment Manager, and not the Fund, pays a portion of the fees it
receives as Investment Manager to the Sub-Adviser in return for its services.
|
|
Effective
August 25, 2010, the Sub-Advisory Agreement between the Investment Manager
and Nicholas-Applegate Capital Management LLC (NACM) was novated from NACM
to AGIC, the indirect parent of NACM.
|
|
The
novation coincided with a larger corporate reorganization transferring the
advisory business of NACM and Oppenheimer Capital LLC (OCC) to AGIC. Since
2009, AGIC has assumed a number of non-advisory functions from both NACM and
OCC, and the transaction in August 2010 marked the last step in the full
integration of these business under a single name and corporate entity.
|
|
5. Investments in Securities
|
Purchases
and sales of investments, other than short-term securities for the six months
ended August 31, 2010, were $16,725,472 and $26,941,471, respectively.
|
|
(a)
Transactions in options written for the six months ended August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts
|
|
Premiums
|
|
|
|
|
|
|
|
Options outstanding,
February 28, 2010
|
|
|
239,390
|
|
|
$
|
333,292
|
|
|
Options written
|
|
|
597,185
|
|
|
|
1,422,470
|
|
|
Options terminated in
closing purchase transactions
|
|
|
(87,175
|
)
|
|
|
(856,106
|
)
|
|
Options expired
|
|
|
(550,045
|
)
|
|
|
(551,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, August
31, 2010
|
|
|
199,355
|
|
|
$
|
348,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Income
Tax Information
|
The cost basis of portfolio
securities of $218,503,995 is substantially the same for both federal income
tax purposes and financial reporting purposes. Aggregate gross unrealized
appreciation for securities in which there is an excess of value over tax
cost is $6,919; aggregate gross unrealized depreciation for securities in
which there is an excess of tax cost over value is $91,594,655; and net
unrealized depreciation for federal income tax purposes is $91,587,736.
|
20
AGIC International & Premium Strategy Fund Semi-Annual Report
|
8.31.10
|
|
|
AGIC International & Premium Strategy
Fund
|
Notes to Financial Statements/
|
August 31, 2010 (unaudited)
|
Changes to Investment Policy
|
|
|
7. Legal
Proceedings
|
In June and September 2004,
the Investment Manager and certain of its affiliates (including PEA Capital
LLC (PEA), Allianz Global Investors Distributors LLC and Allianz Global
Investors of America, L.P.), agreed to settle, without admitting or denying
the allegations, claims brought by the Securities and Exchange Commission
(SEC) and the New Jersey Attorney General alleging violations of federal
and state securities laws with respect to certain open-end funds for which
the Investment Manager serves as investment adviser. The settlements related
to an alleged market timing arrangement in certain open-end funds formerly
sub-advised by PEA. The Investment Manager and its affiliates agreed to pay a
total of $68 million to settle the claims. In addition to monetary payments,
the settling parties agreed to undertake certain corporate governance,
compliance and disclosure reforms related to market timing, and consented to
cease and desist orders and censures. Subsequent to these events, PEA
deregistered as an investment adviser and dissolved. None of the settlements
alleged that any inappropriate activity took place with respect to the Fund.
|
|
Since February 2004, the
Investment Manager and certain of its affiliates and their employees have
been named as defendants in a number of pending lawsuits concerning market
timing, which allege the same or similar conduct underlying the regulatory
settlements discussed above. The market timing lawsuits have been
consolidated in a multi-district litigation proceeding in the U.S. District
Court for the District of Maryland (the MDL Court). After a number of
claims in the lawsuits were dismissed by the MDL Court, the parties entered
into a stipulation of settlement, which was publicly filed with the MDL Court
in April 2010, resolving all remaining claims, but the settlement remains
subject to the approval of the MDL Court.
|
|
The Investment Manager and
the Sub Adviser believe that these matters are not likely to have a material
adverse effect on the Fund or on their ability to perform their respective
investment advisory activities relating to the Fund.
|
|
8.
Subsequent Events
|
On September 10, 2010, a
quarterly dividend of $0.40 per share was declared to shareholders, payable
on September 29, 2010 to shareholders of record on September 20, 2010.
|
|
|
Changes to Investment Policy
On
June 29, 2010 the Fund announced certain changes with respect to the Funds
option writing strategy (the Option Strategy). Specifically, in implementing
the Funds option writing strategies, the Sub-Adviser will sell or write
call options on stocks held in the Funds international equity portfolio and on
equity indexes. When the Fund writes a call option on an individual stock held
in the international equity portfolio, it will generally do so with respect to
approximately 70% of the value of the position, and when it writes a call
option on an equity index, the face or notional amount of the index subject to
the option will generally be equal to approximately 70% of the value of the
corresponding securities in the international equity portfolio. Therefore, if
the Fund determines to write call options on all or substantially all of the
securities held in the international equity portfolio, it is expected that the
Fund will have written call options positions with respect to approximately 70%
of the aggregate value of the international equity portfolio. However, the
extent of the Funds use of the Option Strategy will vary depending on market
conditions and other factors, and the Fund may determine from time to time to
write call options (whether they be on individual stocks and/or or on equity
indexes) with respect to only a portion, or none, of the securities held in the
international equity portfolio.
The
Funds Option Strategy, to the extent utilized, is designed to generate gains
from option premiums in an attempt to enhance distributions payable to the
Funds shareholders and to reduce overall portfolio risk. However, there is no
assurance that the Funds Option Strategy will achieve its objectives.
There
are various risks associated with the Option Strategy, including that the Fund
forgoes, during the life of a written call option, the opportunity to profit
from increases in the market value of the underlying security or securities
held by the Fund (in the case of an index option, to the extent the perfo
r
mance of the index is correlated with the corresponding securities held
by the Fund) with respect to which the option was written above the sum of the
premium and the strike price of the call. Therefore, the Option Strategy
generally limits the Funds ability to benefit from the full upside potential
of its equity holdings, while the Fund retains the risk of loss (net of
premiums received) should the price of the Funds portfolio securities decline.
The use of written call options by the Fund also potentially involves
correlation, liquidity, valuation, tax and other risks.
|
8.31.10
|
AGIC International & Premium Strategy Fund Semi-Annual Report
21
|
|
AGIC International & Premium Strategy
Fund
|
Fin
ancial Highlights
|
For a share outstanding
throughout each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
ended
August 31, 2010
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
April 29, 2005*
through
February 28, 2006
|
|
|
|
Year ended
|
|
|
|
|
|
February 28,
2010
|
|
February 28,
2009
|
|
February 29,
2008
|
|
February 28,
2007
|
|
|
|
|
|
|
|
|
Net asset
value, beginning of period
|
|
|
$14.26
|
|
|
|
$11.23
|
|
|
|
$21.75
|
|
|
|
$28.52
|
|
|
|
$27.35
|
|
|
|
$23.88
|
**
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
0.20
|
|
|
|
0.31
|
|
|
|
0.48
|
|
|
|
0.49
|
|
|
|
0.33
|
|
|
|
0.16
|
|
Net
realized and change in unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gain (loss)
on investments, call options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
written and
foreign currency transactions
|
|
|
(0.69
|
)
|
|
|
4.56
|
|
|
|
(8.93
|
)
|
|
|
(1.48
|
)
|
|
|
4.77
|
|
|
|
4.81
|
|
Total from
investment operations
|
|
|
(0.49
|
)
|
|
|
4.87
|
|
|
|
(8.45
|
)
|
|
|
(0.99
|
)
|
|
|
5.10
|
|
|
|
4.97
|
|
Dividends
and Distributions to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
(0.92
|
)
|
|
|
(0.31
|
)
|
|
|
(0.46
|
)
|
|
|
(0.48
|
)
|
|
|
(1.11
|
)
|
|
|
(0.12
|
)
|
Net
realized gains
|
|
|
|
|
|
|
(0.62
|
)
|
|
|
(1.61
|
)
|
|
|
(5.29
|
)
|
|
|
(2.82
|
)
|
|
|
(1.33
|
)
|
Return of
capital
|
|
|
|
|
|
|
(0.91
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Total
dividends and distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
shareholders
|
|
|
(0.92
|
)
|
|
|
(1.84
|
)
|
|
|
(2.07
|
)
|
|
|
(5.78
|
)
|
|
|
(3.93
|
)
|
|
|
(1.45
|
)
|
Common
Share Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering
costs charged to paid-in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
capital in
excess of par
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.05
|
)
|
Net asset
value, end of period
|
|
|
$12.85
|
|
|
|
$14.26
|
|
|
|
$11.23
|
|
|
|
$21.75
|
|
|
|
$28.52
|
|
|
|
$27.35
|
|
Market
price, end of period
|
|
|
$13.48
|
|
|
|
$14.89
|
|
|
|
$9.48
|
|
|
|
$20.81
|
|
|
|
$30.45
|
|
|
|
$24.64
|
|
Total Investment Return(1)
|
|
|
(3.30
|
)%
|
|
|
80.96
|
%
|
|
|
(48.14
|
)%
|
|
|
(14.25
|
)%
|
|
|
42.23
|
%
|
|
|
4.66
|
%
|
RATIOS/SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets,
end of period (000s)
|
|
|
$127,310
|
|
|
|
$140,359
|
|
|
|
$109,823
|
|
|
|
$212,627
|
|
|
|
$277,930
|
|
|
|
$262,668
|
|
Ratio of
expenses to average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net assets
(2)
|
|
|
1.29
|
%(3)
|
|
|
1.32
|
%
|
|
|
1.32
|
%
|
|
|
1.25
|
%
|
|
|
1.22
|
%
|
|
|
1.19
|
%(3)
|
Ratio of
net investment income to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average net
assets
|
|
|
2.93
|
%(3)
|
|
|
2.11
|
%
|
|
|
2.70
|
%
|
|
|
1.78
|
%
|
|
|
1.12
|
%
|
|
|
0.79
|
%(3)
|
Portfolio
turnover
|
|
|
13
|
%
|
|
|
36
|
%
|
|
|
152
|
%
|
|
|
179
|
%
|
|
|
203
|
%
|
|
|
192
|
%
|
|
|
*
|
Commencement of operations.
|
**
|
Initial public offering price of $25.00 per share less
underwriting discount of $1.125 per share.
|
(1)
|
Total investment return is calculated assuming a purchase
of a common share at the current market price on the first day and a sale of
a common share at the current market price on the last day of each period
reported. Dividends and distributions are assumed, for purposes of this
calculation, to be reinvested at prices obtained under the Funds dividend
reinvestment plan. Total investment return does not reflect brokerage
commissions or sales charges. Total investment return for a period of less
than one year is not annualized.
|
(2)
|
Inclusive of expenses offset by custody credits earned on
cash balances at the custodian bank. (See note 1(h) in Notes to Financial
Statements).
|
(3)
|
Annualized.
|
22
AGIC International & Premium Strategy Fund Semi-Annual Report
|
8.31.10
|
See accompanying Notes to Financial
Statements
|
|
AGIC International & Premium Strategy
Fund
|
A
nnual Shareholder Meeting
Results/Changes to Board of
Trustees/Proxy Voting Policies
& Procedures
(unaudited)
|
Annual
Shareholder Meeting Results:
The Fund held its annual meeting of
shareholders on July 21, 2010. Shareholders voted as indicated below:
|
|
|
|
|
|
|
|
|
|
Affirmative
|
|
Withheld
Authority
|
|
|
Election of James A.
Jacobson - Class II to serve until 2013
|
|
|
8,600,899
|
|
|
104,752
|
|
Re-election of R. Peter
Sullivan III* - Class II to serve until 2013
|
|
|
8,594,306
|
|
|
111,345
|
|
Election of Alan Rappaport
- Class III to serve until 2011
|
|
|
8,595,662
|
|
|
109,989
|
|
Messrs. Paul Belica, Hans E.
Kertess, John C. Maney and William B. Ogden, IV continue to serve as Trustees
of the Fund.
|
|
|
*
|
R. Peter Sullivan III retired from the Funds Board of
Trustees effective July 31, 2010.
|
|
Interested Trustee.
|
|
|
Changes to Board of Trustees:
|
Robert E. Connor served as a Trustee of the Fund until his
death on April 8, 2010.
|
|
Effective June 22, 2010, the Funds Board of Trustees
appointed Alan Rappaport as a Trustee.
|
|
R. Peter Sullivan, III retired from the Funds Board of
Trustees effective July 31, 2010.
|
|
Effective September 21, 2010, the Funds Board of Trustees
appointed Bradford K. Gallagher as a Class II Trustee to serve until 2011.
|
|
Proxy Voting Policies & Procedures:
A description of the policies and
procedures that the Fund has adopted to determine how to vote proxies relating
to portfolio securities and information about how the Fund voted proxies
relating to portfolio securities held during the most recent twelve month
period ended June 30 is available (i) without charge, upon request, by calling
the Funds shareholder servicing agent at (800) 254-5197; (ii) on the Funds
website at www.allianzinvestors.com/closedendfunds; and (iii) on the Securities
and Exchange Commission website at www.sec.gov
|
8.31.10
|
AGIC International & Premium Strategy Fund Semi-Annual Report
23
|
|
AGIC International & Premium Strategy
Fund
|
Ma
tters
Relating to the Trustees
Consideration of the Investment
Management & Portfolio Management
Agreements
(unaudited)
|
The Investment
Company Act of 1940 requires that both the full Board of Trustees (the
Trustees) and a majority of the non-interested Trustees (the Independent
Trustees), voting separately, annually approve the continuance of the Funds
Management Agreements with the Investment Manager (the Advisory Agreement)
and Portfolio Management Agreement (the Sub-Advisory Agreement, and together
with the Advisory Agreement, the Agreements) between the Investment in
Manager and the Sub-Adviser. The Trustees met in person on June 22-23, 2010
(the contract review meeting) for the specific purpose of considering whether
to approve the continuation of the Advisory Agreement and the Sub-Advisory
Agreement. The Independent Trustees were assisted in their evaluation of the
Agreements by independent legal counsel, from whom they received separate legal
advice and with whom they met separately from Fund management during the
contract review meeting.
Based on their
evaluation of factors that they deemed to be material, including those factors
described below, the Board of Trustees, including a majority of the Independent
Trustees, concluded that the continuation of the Funds Advisory Agreement and
the Sub-Advisory Agreement should be approved for a one-year period commencing
July 1, 2010.
In connection with
their deliberations regarding the continuation of the Agreements, the Trustees,
including the Independent Trustees, considered such information and factors as
they believed, in light of the legal advice furnished to them and their own
business judgment, to be relevant. As described below, the Trustees considered
the nature, quality, and extent of the various investment management,
administrative and other services performed by the Investment Manager or the
Sub-Adviser under the applicable Agreements.
In connection with
the contract review meeting, the Trustees received and relied upon materials
provided by the Investment Manager which included, among other items: (i)
information provided by Lipper Inc. (Lipper) on the total return investment
performance (based on net assets) of the Fund for various time periods, the
investment performance of a group of funds with substantially similar
investment classifications/objectives as the Fund identified by Lipper and the
performance of applicable benchmark indices, (ii) information provided by
Lipper on the Funds management fees and other expenses and the management fees
and other expenses of comparable funds identified by Lipper, (iii) information
regarding the investment performance and management fees of comparable
portfolios of other clients of the Sub-Advisers, including institutional
separate accounts and other clients, (iv) the profitability to the Investment
Manager and the Sub-Adviser from their relationship with the Fund for the one
year period ended March 31, 2010, (v) descriptions of various functions
performed by the Investment Manager and the Sub-Adviser for the Fund, such as
portfolio management, compliance monitoring and portfolio trading practices,
and (vi) information regarding the overall organization of the Investment
Manager and the Sub-Adviser, including information regarding senior management,
portfolio managers and other personnel providing investment management,
administrative and other services to the Fund.
The Trustees
conclusions as to the continuation of the Agreements were based on a
comprehensive consideration of all information provided to the Trustees and
were not the result of any single factor. Some of the factors that figured
particularly in the Trustees deliberations are described below, although
individual Trustees may have evaluated the information presented differently
from one another, giving different weights to various factors.
As part of their
review, the Trustees examined the Investment Managers and the Sub-Advisers
abilities to provide high quality investment management and other services to
the Fund. The Trustees considered the investment philosophy and research and
decision-making processes of the Sub-Adviser; the experience of key advisory
personnel of the Sub-Adviser responsible for portfolio management of the Fund;
the ability of the Investment Manager and the Sub-Adviser to attract and retain
capable personnel; the capability and integrity of the senior management and
staff of the Investment Manager and the Sub-Adviser; and the level of skill
required to manage the Fund. In addition, the Trustees reviewed the quality of
the Investment Managers and the Sub-Advisers services with respect to regulatory
compliance and compliance with the investment policies of the Fund; the nature
and quality of certain administrative services the Investment Manager is
responsible for providing to the Fund; and conditions that might affect the
Investment Managers or the Sub-Advisers ability to provide high quality
services to the Fund in the future under the Agreements, including each
organizations respective business reputation, financial condition and
operational stability. Based on the foregoing, the Trustees concluded that the
Sub-Advisers investment process, research capabilities and philosophy were
well suited to the Fund given its investment objective and policies, and that
the Investment Manager and the Sub-Adviser would be able to continue to meet
any reasonably foreseeable obligations under the Agreements.
Based on information
provided by Lipper, the Trustees also reviewed the Funds total return
investment performance as well as the performance of comparable funds
identified by Lipper. In the course of their deliberations, the Trustees took
24
AGIC International & Premium Strategy Fund Semi-Annual Report
|
8.31.10
|
|
|
AGIC International & Premium Strategy
Fund
|
Matters
Relating to the Trustees
Consideration of the Investment
Management & Portfolio Management
Agreements
(unaudited)
(continued)
|
into account
information provided by the Investment Manager in connection with the contract
review meeting, as well as during investment review meetings conducted with
portfolio management personnel during the course of the year regarding the
Funds performance.
In assessing the
reasonableness of the Funds fees under the Agreements, the Trustees
considered, among other information, the Funds management fee and the total
expense ratio as a percentage of average net assets attributable to common
shares and the management fee and total expense ratios of comparable funds
identified by Lipper.
The Trustees
specifically took note of how the Fund compared to its Lipper peers as to
performance, management fee expense and total expenses. The Trustees noted that
the Investment Manager had provided a memorandum containing comparative
information on the performance and expenses information of the Fund compared to
the its Lipper peer categories. The Trustees noted that while the Fund is not
charged a separate administration fee, it was not clear whether the peer funds
in the Lipper categories were charged such a fee by their investment managers.
The Trustees noted
that the expense group for the Fund provided by Lipper is small, consisting of
a total of four non-leveraged closed-end funds, not including the Fund. The
Trustees also noted that average net assets of the common shares of the funds
in the peer group ranged from $71 million to $137.8 million, and that all of
the funds are smaller in asset size than the Fund. The Trustees also noted that
the Fund was ranked third out of four funds in the expense peer group for
actual management fees and fourth out of four funds for actual total expenses
(with funds ranked first having the lowest fees/expenses and ranked fourth
having the highest fees/expenses in the peer group).
With respect to
performance, the Trustees also noted that the Fund outperformed its benchmark
and had second quintile performance for the one-year period ended March 31,
2010 against a peer group of thirty seven funds. The Trustees also noted that
the Fund had fifth quintile performance for the three-year period ended March
31, 2010 against a peer group of thirty one funds.
At the request of
the Trustees, the Investment Manager and Sub-Adviser agreed to provide
performance information related to the Fund on a monthly basis.
After reviewing
these and related factors, the Trustees concluded, within the context of their
overall conclusions regarding the Agreement, that they were satisfied with the
Investment Managers and the Sub-Advisers responses and efforts to continue to
improve the Funds investment performance. The Trustees agreed to reassess the
services provided by the Investment Manager and Sub-Adviser under the Agreements
in light of the Funds ongoing performance at each quarterly Board meeting.
The Trustees also
considered the management fees charged by the Sub-Adviser to other clients,
including institutional separate accounts with investment strategies similar to
those of the Funds. Regarding the institutional separate accounts, they noted
that the management fees paid by the Fund are generally higher than the fees
paid by these clients of the Sub-Adviser, but the Trustees were advised by the
Sub-Adviser that the administrative burden for the Investment Manager and the
Sub-Adviser with respect to the Fund is also relatively higher, due in part to
the more extensive regulatory regime to which the Fund is subject in comparison
to institutional separate accounts. The Trustees noted that the management fees
paid by the Fund is generally higher than the fees paid by the open-end funds
offered for comparison but were advised that there are additional portfolio
management challenges in managing the Fund, such as meeting a regular dividend.
Based on a
profitability analysis provided by the Investment Manager, the Trustees also
considered the profitability of the Investment Manager and the Sub-Adviser from
their relationship with the Fund and determined that such profitability was not
excessive.
The Trustees also
took into account that, as a closed-end investment company, the Fund does not
currently intend to raise additional assets, so the assets of the Fund will
grow (if at all) only through the investment performance of the Fund.
Therefore, the Trustees did not consider potential economies of scale as a
principal factor in assessing the fee rates payable under the Agreements.
Additionally, the
Trustees considered so-called fall-out benefits to the Investment Manager and
the Sub-Adviser, such as reputational value derived from serving as Investment
Manager and Sub-Adviser to the Fund.
|
8.31.10
|
AGIC International & Premium Strategy Fund Semi-Annual
Report
25
|
|
AGIC
International & Premium Strategy Fund
|
Matters
Relating to the Trustees
Consideration of the Investment
Management & Portfolio Management
Agreements
(unaudited) (continued)
|
|
|
After reviewing these and other factors described herein, the Trustees
concluded with respect to the Fund, within the context of their overall
conclusions regarding the Agreements that the fees payable under the Agreements
represent reasonable compensation in light of the nature and quality of the
services being provided by the Investment Manager and Sub-Adviser to the Fund.
26
AGIC International & Premium Strategy Fund Semi-Annual Report
|
8.31.10
|
(This Page Intentionally Left Blank)
(This Page Intentionally Left Blank)
|
|
Trustees
|
Fund
Officers
|
Hans W. Kertess
|
Brian S. Shlissel
|
Chairman of the Board of Trustees
|
President & Chief Executive Officer
|
Paul Belica
|
Lawrence G. Altadonna
|
Bradford K. Gallagher
|
Treasurer, Principal Financial & Accounting Officer
|
James A. Jacobson
|
Thomas J. Fuccillo
|
John C. Maney
|
Vice President, Secretary & Chief Legal Officer
|
William B. Ogden, IV
|
Scott Whisten
|
Alan Rappaport
|
Assistant Treasurer
|
|
Richard J. Cochran
|
|
Assistant Treasurer
|
|
Youse E. Guia
|
|
Chief Compliance Officer
|
|
Kathleen A. Chapman
|
|
Assistant Secretary
|
|
Lagan Srivastava
|
|
Assistant Secretary
|
|
Investment
Manager
|
Allianz Global Investors Fund
Management LLC
1345 Avenue of the Americas
New York, NY 10105
|
|
Sub-Adviser
|
Allianz Global Investors Capital
LLC
600 West Broadway, 30th Floor
San Diego, CA 92101
|
|
Custodian
& Accounting Agent
|
State Street Bank & Trust Co.
225 Franklin Street
Boston, MA 02110
|
|
Transfer
Agent, Dividend Paying Agent and Registrar
|
BNY Mellon
P.O. Box 43027
Providence, RI 02940-3027
|
|
Independent
Registered Public Accounting Firm
|
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017
|
|
Legal
Counsel
|
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199
|
This report, including the financial information herein, is transmitted
to the shareholders of AGIC International & Premium Strategy Fund for their
information. It is not a prospectus, circular or representation intended for
use in the purchase of shares of the Fund or any securities mentioned in this
report.
The financial information included herein is taken from the records of
the Fund without examination by an independent registered public accounting
firm, who did not express an opinion herein.
Notice is hereby given in accordance with Section 23(c) of the
Investment Company Act of 1940, as amended, that from time to time the Fund may
purchase its common shares in the open market.
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (SEC) for the first and third quarters of
its fiscal year on Form N-Q. The Funds Form N-Q is available on the SECs
website at www.sec.gov and may be reviewed and copied at the SECs Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling (800) SEC-0330. The information on
Form N-Q is also available on the Funds website at
www.allianzinvestors.com/closedendfunds.
Information on the Fund is available at
www.allianzinvestors.com/closedendfunds or by calling the Funds shareholder
servicing agent at (800) 254-5197.
Receive this report electronically and eliminate paper mailings. To
enroll, go to
www.allianzinvestors.com/edelivery
.
AZ604SA_083110
Table of Contents
ITEM 2. CODE OF ETHICS
(A) N/A
(B) The CODE
OF ETHICS PURUANT TO SECTION 406 OF THE SARBANES-OXLEY ACT OF 2002 FOR
PRINICIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS (THE Code) was updated to
remove interested trustees from being subject to the Code, which is not
required under Section 406 of the Sarbanes-Oxley Act of 2002. The Code also was
updated to remove examples of specific conflict of interest situations and to
add an annual certification requirement for Covered Officers. In addition, the
approval or ratification process for material amendments to the Code was
clarified to include approval by a majority of the independent trustees. The
registrant undertakes to provide a copy of such code of ethics to any person
upon request, without charge, by calling 1-800-254-5197. The Investment
Managers code of ethics is included as an exhibit Exhibit 99.CODE ETH hereto.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Not required
in this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
Not required
in this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT
Not required
in this filing.
ITEM 6. SCHEDULE OF INVESTMENTS
(a) The registrants Schedule of
Investments is included as part of the report to Shareholders filed under Item
1 of this form.
(b) Not Applicable due to no such divestments during the semi-annual
period covered since the previous Form N-CSR filing.
|
|
ITEM 7.
|
DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
|
Not required
in this filing.
|
|
ITEM 8.
|
PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT
COMPANIES
|
Not required
in this filing.
Table of Contents
|
|
ITEM 9.
|
PURCHASE 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 Funds Board of Trustees since the Fund last provided
disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES
(a) The
registrants President and Chief Executive Officer and Treasurer, Principal
Financial and Accounting Officer have concluded that the registrants
disclosure controls and procedures (as defined in Rule 30a-2(c) under the Act
(17 CFR 270.30a-3(c))), as amended 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 over financial reporting (as defined in Rule 30a-3(d)
under the Act (17 CFR 270.30a-3(d))) that occurred during the second fiscal
quarter of the period covered by this report that has materially affected, or
is reasonably likely to materially affect, the registrants control over
financial reporting.
ITEM 12. EXHIBITS
(a) (1)
Exhibit 99.CODE ETH Code of Ethics
(a) (2)
Exhibit 99.302 Cert. Certification pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
(a) (3)
Not Applicable
(b) Exhibit
99.906 Cert. Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
Signature
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)
AGIC International & Premium Strategy Fund
|
|
|
By
|
/s/ Brian S.
Shlissel
|
|
|
President
and Chief Executive Officer
|
|
|
Date October
29, 2010
|
|
|
|
By
|
/s/ Lawrence
G. Altadonna
|
|
|
Treasurer,
Principal Financial & Accounting Officer
|
|
|
Date October
29, 2010
|
|
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/ Brian S.
Shlissel
|
|
|
President
and Chief Executive Officer
|
|
|
Date October
29, 2010
|
|
|
|
By
|
/s/ Lawrence
G. Altadonna
|
|
|
Treasurer,
Principal Financial & Accounting Officer
|
|
|
Date October
29, 2010
|
|
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