AllianzGI NFJ Dividend, Interest & Premium Strategy Fund Announces New Option Strategy and Related Portfolio Manager Changes
October 17 2017 - 4:58PM
Business Wire
Allianz Global Investors U.S. LLC (“AllianzGI U.S.” or the
“Manager”), the investment manager of AllianzGI NFJ Dividend,
Interest and Premium Strategy Fund (the “Fund”) (NYSE:NFJ),
announced today that the Fund’s Board of Trustees approved a new
Fund strategy of writing (selling) covered call options on
individual stocks held in the Fund’s Equity Component (the “New
Option Strategy”), which replaces the Fund’s previous strategy of
writing call options on equity indexes (the “Index Option
Strategy”). AllianzGI U.S. intends to implement the transition to
the New Option Strategy in a prudent manner over the coming weeks.
In addition, AllianzGI U.S. announced that the Dallas-based
investment team, that currently manages the Fund’s Equity
Component, will also manage the New Option Strategy, in place of
the current New York-based team that has managed the Index Option
Strategy.
The following provides disclosure describing the New Option
Strategy and related risks:
Option Strategy. The Fund normally employs a strategy of
writing (selling) covered call options on the stocks held in the
Fund’s Equity Component (the “Option Strategy”). It is expected
that the Fund ordinarily will write call options on some or all of
the individual stocks held in the Equity Component, depending on
market conditions and other factors, and with respect to generally
70% or less of the value of each position. As the Fund writes
covered call options over more of its equity portfolio, its ability
to benefit from capital appreciation of its common stock holdings
in the Equity Component becomes more limited. The extent of the
Fund’s use of the Option Strategy may vary from time to time,
depending on market conditions and other factors. The Option
Strategy is designed to generate gains from option premiums in an
attempt to enhance amounts available for distributions payable to
the Fund’s shareholders. However, there is no assurance that the
Option Strategy will achieve its objective.
Call options on individual securities are contracts representing
the right to purchase the underlying equity security at a specified
price (the “strike price”) at or before a specified future date
(the “expiration date”). The price of the option is determined by
trading activity in the broad options market and generally reflects
the relationship between factors including the current value of the
underlying equity security and the strike price, the volatility of
the underlying equity security and the time remaining until the
expiration date. As the writer (seller) of a call option, the Fund
would receive cash (the premium) from the purchaser of the option,
and the purchaser would have the right to receive from the Fund
either the underlying security or any appreciation in the value of
the underlying security above the strike price upon exercise. In
effect, the Fund would forgo the potential appreciation in the
underlying security above the strike price in exchange for the
premium, although it would retain the risk of loss should the price
of the underlying security decline. Therefore, the Fund’s use of
the Option Strategy will generally limit the Fund’s ability to
benefit from the full upside potential of its Equity Component.
As part of the Option Strategy, the Fund will generally write
call options with a strike price that is above (“out-of-the-money”)
the market value of the underlying security at the time the option
is written. In addition to providing possible gains through
premiums, out-of-the-money call options allow the Fund to
potentially benefit from appreciation in the underlying security
held by the Fund up to the strike price, but the Fund forgoes any
appreciation above the strike price. The Fund also reserves the
flexibility to write “at-the-money” (i.e., with a strike price
equal to the market value of the underlying security) and
“in-the-money” call options (i.e., with a strike price below the
market value of the underlying security). The Fund will typically
only write call options on individual securities if those options
are “covered.” The Fund’s written call options on individual
securities will ordinarily be covered by the Fund holding the
underlying security in its portfolio throughout the term of the
option. The Fund will generally not write options with respect to
individual equity securities (other than ETFs, as described below)
that are not held in the Fund’s portfolio (i.e., “naked” options).
The Fund may also write call options on equity indexes and ETFs.
The Fund will normally cover any options on equity indexes and ETFs
either by segregating liquid assets in an amount equal to its net
obligations under the contract or by entering into offsetting
positions.
The Fund generally will write “listed” call options that are
originated and standardized by the Options Clearing Corporation and
trade on a major exchange, although it also may write unlisted (or
“over-the-counter”) call options and so-called “flex” options
(options that are traded on an exchange, but with customized strike
prices and expiration dates). The Fund’s Option Strategy could
cause the Fund to recognize larger amounts of net short-term
capital gains, which are taxable at the higher ordinary income tax
rates when distributed to shareholders, than it otherwise would in
the absence of such strategy. The Fund’s Option Strategy also could
terminate or suspend the Fund’s holding period in the underlying
securities, and, as a result, any dividends received by the Fund on
those securities may not qualify for treatment as “qualified
dividend income” (which generally is taxable to individual
shareholders at the lower rates applicable to long-term capital
gain).
Risks Associated with the Fund’s Option Strategy. The
ability of the Fund to achieve current gains to support Fund
dividends is partially dependent on the successful implementation
of its Option Strategy. There are several risks associated with
transactions in options on securities. For example, there are
significant differences between the securities and options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objective.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market
behavior or unexpected events. The Fund’s ability to use options
successfully will depend on the Investment Manager’s ability to
predict pertinent market movements, which cannot be assured. As the
writer of a covered call option, the Fund forgoes, during the
option’s life, the opportunity to profit from increases in the
market value of the security covering the call option above the sum
of the premium and the strike price of the call, but has retained
the risk of loss should the price of the underlying security
decline. In other words, as the Fund writes covered calls over more
of its Equity Component, the Fund’s ability to benefit from capital
appreciation of its common stock holdings becomes more limited.
About Allianz Global Investors
Allianz Global Investors is a diversified active investment
manager with a strong parent company and a culture of risk
management. With 25 offices worldwide, we provide global investment
and research capabilities with consultative local delivery. We have
more than $524 billion in AUM for individuals, families and
institutions worldwide and employ over 600 investment
professionals.
At Allianz Global Investors, we follow a two-word philosophy:
Understand. Act. It describes how we look at the world and
how we behave. We aim to stand out as the investment partner our
clients trust by listening closely to understand their challenges,
then acting decisively to provide them with solutions that meet
their needs.
Data as of March 31, 2017 (excluding AUM of entities held for
sale); investment professionals as of December 31, 2016
Disclosures
AllianzGI U.S., an indirect, wholly-owned subsidiary of Allianz
Asset Management of America L.P. serves as the Fund's investment
manager and is a member of Munich-based Allianz Group.
The Fund’s daily New York Stock Exchange closing market prices
and net asset values per share as well as other information,
including portfolio statistics and performance is available at
us.allianzgi.com/closedendfunds.com or by calling the Fund’s
shareholder servicing agent at 800-254-5197.
Statements made in this release that look forward in time
involve risks and uncertainties and are forward looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. Such risks and uncertainties include, without limitation,
the adverse effect from a decline in the securities markets or a
decline in a Fund’s performance, a general downturn in the economy,
competition from other companies, changes in government policy or
regulation, inability to attract or retain key employees, inability
to implement its operating strategy and/or acquisition strategy,
and unforeseen costs and effects related to legal proceedings or
investigations of governmental and self-regulatory
organizations.
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For Allianz Global Investors U.S. LLCFinancial Advisors:
800-926-4456orShareholders: 800-254-5197orMedia
Relations:Kelly Smith,
212-739-3505Kelly.Smith@allianzgi.com
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