UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21284
Nicholas-Applegate Convertible & Income Fund
--------------------------------------------
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
-----------------------------------------------------
(Address of principal executive offices) (Zip code)
Lawrence G. Altadonna - 1345 Avenue of the Americas, New York, New York 10105
-------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-739-3371
------------
Date of fiscal year end: February 29
-----------
Date of reporting period: August 31
---------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO SHAREHOLDERS
--------------------------------------------------------------------------------
Semi-Annual Report
8.31.04
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND
--------------------------------------------------------------------------------
NCV
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LISTED
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NYSE
THE NEW YORK STOCK EXCHANGE
CONTENTS
Letter to Shareholders ............................... 1
Performance and Statistics ........................... 2
Schedule of Investments .............................. 3-8
Statement of Assets and Liabilities .................. 9
Statement of Operations .............................. 10
Statement of Changes in Net Assets ................... 11
Notes to Financial Statements ........................ 12-15
Financial Highlights ................................. 16
Annual Shareholders Meeting Results .................. 17
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND LETTER TO SHAREHOLDERS
================================================================================
October 8, 2004
Dear Shareholder:
We are pleased to provide you with the semi-annual report of the
Nicholas-Applegate Convertible & Income Fund (the "Fund") for the six months
ended August 31, 2004.
Please refer to the following page for specific Fund information. If you have
any questions regarding the information provided, please contact your financial
advisor or call our shareholder services area at 1-800-331-1710. Please note
that a wide range of information and resources can be accessed through our Web
site, www.pimcoadvisors.com.
Together with PA Fund Management LLC (formerly, PIMCO Advisors Fund Management
LLC), the Fund's investment manager and Nicholas-Applegate Capital Management
LLC, the Fund's sub-adviser, I thank you for investing with us. We remain
dedicated to serving your investment needs.
Sincerely,
/s/ Brian S. Shlissel
Brian S. Shlissel
PRESIDENT, CHIEF EXECUTIVE OFFICER
| 8.31.04 | Nicholas-Applegate Convertible & Income Fund Semi-Annual Report 1
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND PERFORMANCE AND STATISTICS
August 31, 2004 (unaudited)
================================================================================
SYMBOL: PRIMARY INVESTMENTS: INCEPTION DATE:
NCV At least 50% of total assets March 31, 2003
in convertible securities.
OBJECTIVE: TOTAL NET ASSETS(1):
To provide total return $1,567.1 million
through a combination of
capital appreciation and PORTFOLIO MANAGER:
high current income. Douglas Forsyth
TOTAL RETURN(2): Market Price NAV
--------------------------------------------------------------------------------
Six Months 3.09% (1.21)%
--------------------------------------------------------------------------------
1 year 20.97% 12.82%
--------------------------------------------------------------------------------
Commencement of Operations (3/31/03) to 8/31/04 15.43% 17.18%
COMMON SHARE PRICE PERFORMANCE: MARKET PRICE/NET ASSET VALUE:
Commencement of Operations (3/31/03) -----------------------------------------
to 8/31/04 Market Price $16.11
-----------------------------------------
o NAV Net Asset Value $15.72
-----------------------------------------
o Market Price Market Price Yield(3) 9.31%
-----------------------------------------
Premium to Net Asset Value 2.48%
-----------------------------------------
[The data below represent a line chart in the printed report.]
NAV Market Price
------------ -----
3/31/03 14.31 15.01
14.33 15.05
14.21 15.06
14.39 15.1
14.58 15.02
14.78 15.1
14.79 14.99
14.89 15.15
14.63 14.99
14.89 15
15.24 15.34
15.18 15.3
15.23 15.1
15.11 14.99
15.16 15.15
15.33 15.34
15.24 15.1
15.31 15.15
14.96 14.95
14.67 14.75
14.64 14.58
15.06 14.69
15.39 14.71
15.62 14.98
15.5 14.95
15.77 15.05
15.42 14.92
15.81 15.1
15.97 15.33
16.02 15.6
15.84 15.66
16.03 15.73
16.15 15.99
15.96 15.96
15.86 15.63
16.19 16.09
16.3 16.32
16.25 16.27
16.41 16.44
16.46 16.36
16.55 16.69
17.03 16.75
17.07 16.78
17.14 16.98
16.84 16.69
16.75 16.88
16.77 16.9
16.66 16.39
16.67 16.38
16.88 16.61
16.51 16.35
16.38 16.34
16.37 16.43
16.76 16.71
16.82 16.48
16.54 15.5
16.72 15.38
16.35 15.41
16.1 14.61
15.6 14.82
15.74 15.02
16.06 15.3
16.04 15.18
16.06 15.45
16.14 15.1
16.29 15.11
16.22 15.74
16.1 15.88
16.01 15.92
15.85 15.65
15.92 15.84
15.57 15.9
15.39 15.89
15.69 15.95
15.75 15.97
8/31/04 15.72 16.11
(1) Inclusive of net assets attributable to Preferred Shares outstanding.
(2) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Total return is
determined by subtracting the initial investment from the value at the end of
the period and dividing the remainder by the initial investment and expressing
the result as a percentage. The calculation assumes that all income dividends
and capital gain distributions have been reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total return does not reflect broker
commissions or sales charges. Total return for a period of less than one year is
not annualized. Total return for a period more than one year represents the
average annual return.
An investment in the Fund involves risk, including the loss of principal.
Investment return, price, yield and net asset value will fluctuate with changes
in market conditions. This data is provided for information only and is not
intended for trading purposes. Closed-end funds, unlike open-end funds, are not
continuously offered. There is a one-time public offering and once issued,
shares of closed-end funds are sold in the open market through a stock exchange.
Net asset value is total assets applicable to common shareholders less total
liabilities divided by the number of common shares outstanding. Holdings are
subject to change daily.
(3) Market Price Yield is determined by dividing the annualized current per
share dividend to common shareholders by the market price per common share at
August 31, 2004.
2 Nicholas-Applegate Convertible & Income Fund Semi-Annual Report | 8.31.04 |
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
August 31, 2004 (unaudited)
==================================================================================================================
Principal
Amount Credit Rating
(000) (Moody's/S&P) Value
==================================================================================================================
CORPORATE BONDS & NOTES--45.5%
------------------------------------------------------------------------------------------------------------------
ADVERTISING--0.8%
$10,000 RH Donnelley Financial Corp., 10.875%, 12/15/12 B2/B+ $ 11,825,000
-------------
APPAREL--0.4%
3,260 Oxford Industries, Inc., 8.875%, 6/1/11 (a) B2/B 3,488,200
1,575 Phillips-Van Heusen Corp., 8.125%, 5/1/13 B2/BB- 1,673,437
580 Warnaco, Inc., 8.875%, 6/15/13 B2/B 640,900
-------------
5,802,537
-------------
AUTOMOTIVE--1.8%
7,845 Collins & Aikman Products Corp., 11.50%-12.875%,
4/15/06-8/15/12 (a) B3/B- 7,869,397
8,830 Collins & Aikman Products Corp., 10.75%, 12/31/11 B2/B- 9,094,900
9,473 HLI Operating Co. Inc., 10.50%, 6/15/10 B1/B+ 10,799,220
-------------
27,763,517
-------------
BUILDING/CONSTRUCTION--0.3%
5,000 US Concrete Inc., 8.375%, 4/1/14 B3/B- 5,125,000
-------------
CONTAINERS--0.0%
170 Stone Container Corp., 8.375%, 7/1/12 B2/B 187,000
-------------
CHEMICALS--2.5%
2,700 Huntsman LLC., 11.50%, 7/15/12 (a) B3/CCC+ 2,767,500
8,800 Huntsman LLC., 11.625%, 10/15/10 B2/B 9,856,000
8,555 Lyondell Chemical Co., 9.625%, 5/1/07, Ser A B1/B+ 9,143,156
5,115 Lyondell Chemical Co., 10.875%, 5/1/09, Ser A B3/B- 5,377,144
10,545 PolyOne Corp., 10.625%, 5/15/10 B3/B+ 11,467,688
-------------
38,611,488
-------------
COMMERCIAL SERVICES--1.8%
9,230 Integrated Electrical Services Inc., 9.375%, 2/1/09, Ser. C B2/B 8,976,175
3,000 Memberworks Inc., 9.25%, 4/1/14 (a) B2/B 3,000,000
3,335 United Rentals North America Inc., 7.00%, 2/15/14 B2/B+ 2,951,475
171 URS Corp., 12.25%, 5/1/09, Ser. B B1/B+ 182,970
11,000 Xerox Corp., 9.75%, 1/15/09 Ba2/B+ 12,787,500
-------------
27,898,120
-------------
ELECTRONICS--1.3%
3,160 Imax Corp., 9.625%, 12/1/10 (a) B3/B- 3,116,550
9,015 Sanmina-SCI Corp., 10.375%, 1/15/10 Ba2/BB- 10,232,025
4,500 Seitel Inc., 11.75%, 7/15/11 (a) B3/B- 4,590,000
2,275 Stoneridge, Inc., 11.50%, 5/01/12 B1/B+ 2,650,375
-------------
20,588,950
-------------
ENERGY--1.2%
11,000 Reliant Resources Inc., 9.50%, 7/15/13 B1/B 12,155,000
6,000 Sierra Pacific Resources, Inc., 8.625%, 3/15/14 (a) B2/B- 6,300,000
-------------
18,455,000
-------------
ENTERTAINMENT--1.0%
8,835 Alliance Atlantis Communications, Inc., 13.00%, 12/15/09 B1/B 9,630,150
245 Intrawest Corp., 10.50%, 2/1/10 B1/B+ 263,681
4,460 Penn National Gaming, Inc., 8.875%, 3/15/10 B2/B 4,883,700
-------------
14,777,531
-------------
| 8.31.04 | Nicholas-Applegate Convertible & Income Fund Semi-Annual Report 3
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
August 31, 2004 (unaudited)
==================================================================================================================
Principal
Amount Credit Rating
(000) (Moody's/S&P) Value
==================================================================================================================
FINANCIAL SERVICES--0.6%
$ 5,750 Alamosa Delaware Inc., 11.00%, 7/31/10 Caa1/CCC $ 6,382,500
6,480 Finova Group, Inc., 7.50%, 11/15/09 NR/NR 3,231,900
-------------
9,614,400
-------------
FOOD PRODUCTS--0.8%
8,820 Pilgrim's Pride Corp., 9.625%, 9/15/11 B1/BB- 9,856,350
2,370 Pilgrim's Pride Corp., 9.25%, 11/15/13 B2/B+ 2,583,300
-------------
12,439,650
-------------
HEALTHCARE--0.9%
1,290 Genesis Healthcare Corp., 8.00%, 10/15/13 B3/B- 1,377,075
2,316 Hanger Orthopedic Group, Inc., 11.25%, 6/15/09 WR/B- 2,408,640
7,005 Select Medical Corp., 9.50%, 6/15/09 B2/B 7,617,938
2,365 Vicar Operating, Inc., 9.875%, 12/1/09 B2/B 2,613,325
-------------
14,016,978
-------------
HOME BUILDERS--1.2%
12,325 Ryland Group, Inc., 9.125%, 6/15/11 Ba2/BB+ 13,804,000
3,865 Standard-Pacific Corp., 9.50%, 9/15/10 Ba2/BB 4,275,656
-------------
18,079,656
-------------
HOME FURNISHINGS--1.0%
10,290 Central Garden & Pet Co., 9.125%, 2/1/13 B2/B+ 11,216,100
3,710 Jarden Corp., 9.75%, 5/1/12 B2/B- 4,062,450
-------------
15,278,550
-------------
HOTELS/GAMING--2.1%
10,500 Mandalay Resort Group, Inc., 10.25%, 8/1/07 Ba3/BB- 11,773,125
10,785 Penn National Gaming, Inc., 11.125%, 3/1/08 B2/B 11,755,650
7,338 Wynn Resorts Ltd., 12.00%, 11/1/10 B3/CCC+ 9,025,740
-------------
32,554,515
-------------
LEISURE--1.8%
12,580 Bally Total Fitness Holdings Corp., 9.875%, 10/15/07, Ser. D Caa1/CCC+ 9,875,300
8,000 Equinox Holding Inc., 9.00%, 12/15/09 (a) B3/B- 8,200,000
8,320 Royal Caribbean Cruises, Inc., 8.75%, 02/2/11 Ba2/BB+ 9,578,400
-------------
27,653,700
-------------
MACHINERY--0.9%
12,970 Case New Holland Inc., 9.25%, 8/1/11 (a) Ba3/BB- 14,331,850
-------------
MANUFACTURING--0.4%
5,650 Jacuzzi Brands Inc., 9.625%, 7/1/10 B3/B 6,257,375
-------------
METALS & MINING--0.7%
11,800 AK Steel Corp., 7.875%, 2/15/09 B3/B+ 11,387,000
-------------
MISCELLANEOUS--2.6%
40,520 Dow Jones CDX High Yield, 10.50%, 12/29/09 (a) (b) NR/NR 39,228,425
-------------
MULTI-MEDIA--3.9%
4,675 Cablevision Systems Corp., 8.00%, 4/15/12 (a) B3/B+ 4,791,875
875 CCO Holdings LLC., 8.75%, 11/15/13 B3/CCC- 866,250
12,250 Charter Communications, Inc., 10.75%, 10/1/09 Ca/CCC- 10,290,000
17,120 Echostar DBS Corp., 9.125%-10.375%, 10/1/07-1/15/09 Ba3/BB- 18,211,500
5,430 Lodgenet Entertainment Corp., 9.50%, 6/15/13 B3/B- 5,932,275
1,800 Salem Communications Holding Corp., 9.00%, 7/1/11, Ser B B3/B- 1,962,000
10,000 Spanish Broadcasting System., 9.625%, 11/1/09 Caa1/CCC+ 10,562,500
6,581 XM Satellite Radio Inc., 12.00%, 6/15/10 Caa1/CCC+ 7,551,698
-------------
60,168,098
-------------
4 Nicholas-Applegate Convertible & Income Fund Semi-Annual Report | 8.31.04 |
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
August 31, 2004 (unaudited)
==================================================================================================================
Principal
Amount Credit Rating
(000) (Moody's/S&P) Value
==================================================================================================================
OIL & GAS--1.6%
$ 330 Energy Partners Ltd., 8.75%, 8/1/10 B2/B+ $ 351,450
10,000 Petroleum Geo-Services ASA., 10.00%, 11/5/10 NR/NR 10,750,000
13,330 Sonat, Inc., 7.625%, 7/15/11 Caa1/CCC+ 12,696,825
-------------
23,798,275
-------------
OFFICE FURNISHINGS--0.6%
5,375 Interface Inc., 9.50%, 2/1/14 (a) Caa3/CCC 5,536,250
3,246 Tempur-Pedic Inc., 10.25%, 8/15/10 B2/B 3,651,750
-------------
9,188,000
-------------
PAPER PRODUCTS--1.5%
7,840 Buckeye Technologies, Inc., 9.25%, 9/15/08 Caa1/B 7,840,000
12,650 Georgia-Pacific Corp., 9.375%, 2/1/13 Ba2/BB+ 14,895,375
-------------
22,735,375
-------------
PHARMACEUTICALS--0.3%
4,185 Leiner Health Products Inc., 11.00%, 6/1/12 (a) B3/CCC+ 4,373,325
-------------
REAL ESTATE--0.0%
470 La Quinta Properties Inc., 8.875%, 3/15/11 Ba3/BB- 521,700
-------------
RECYCLING--0.5%
6,700 Imco Recycling Inc., 10.375%, 10/15/10 (a) B3/B- 7,169,000
-------------
RETAIL--3.3%
8,620 Friendly Ice Cream Corp., 8.375%, 6/15/12 B2/B- 8,318,300
6,055 Hollywood Entertainment Corp., 9.625%, 3/15/11 B3/B- 6,418,300
9,110 Michaels Stores, Inc., 9.25%, 7/1/09 Ba1/BB+ 9,918,512
4,240 Mothers Work Inc., 11.25%, 8/1/10 B3/B+ 4,218,800
15,445 Rite Aid Corp., 11.25%, 7/1/08 Caa1/B- 17,066,725
4,000 United Auto Group, Inc., 9.625%, 3/15/12 B3/B 4,440,000
-------------
50,380,637
-------------
SEMICONDUCTORS--0.8%
5,725 Amkor Technology, Inc., 10.50%, 5/1/09 B3/CCC+ 5,181,125
7,195 Fairchild Semiconductor International, Inc., 10.50%, 2/1/09 B2/B 7,770,600
-------------
12,951,725
-------------
TELECOMMUNICATIONS--6.8%
12,000 American Tower Corp., 9.375%, 2/1/09 Caa1/CCC 12,810,000
15,395 Crown Castle International, Inc., 9.00%-10.75%, 5/15/11-8/1/11 B3/CCC 17,125,888
13,255 Millicom International Cellular S.A., 10.00%, 12/1/13 (a) B3/B- 13,122,450
12,755 Nextel Communications Inc., 6.00%-9.50%, 11/15/09- 6/1/11 Ba3/BB 13,520,300
6,710 Primus Telecommunications Group., 8.00%, 1/15/14 B3/CCC 5,233,800
10,500 Primus Telecommunications Group., 12.75%, 10/15/09 Caa2/CCC 9,345,000
13,500 SBA Communications Corp., 10.25%, 2/1/09 Caa2/CCC- 14,208,750
10,170 Time Warner Telecom, Inc., 10.125%, 2/1/11 B3/CCC+ 9,559,800
12,065 Triton PCS, Inc., 9.375%, 2/1/11 B3/CCC 8,566,150
-------------
103,492,138
-------------
TEXTILES--0.5%
6,490 Interface, Inc., 10.375%, 2/01/10 Caa1/B- 7,301,250
-------------
UTILITIES--0.9%
13,025 AES Corp., 9.50%, 6/1/09 B2/B- 14,490,313
-------------
| 8.31.04 | Nicholas-Applegate Convertible & Income Fund Semi-Annual Report 5
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
August 31, 2004 (unaudited)
==================================================================================================================
Principal
Amount Credit Rating
(000) (Moody's/S&P) Value
==================================================================================================================
WASTE DISPOSAL--0.7%
$ 9,952 Allied Waste, Inc., 10.00%, 8/1/09, Ser. B B3/B+ $ 10,499,360
-------------
Total Corporate Bonds & Notes (cost--$686,376,032) 698,945,438
-------------
-----------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS & NOTES--29.2%
-----------------------------------------------------------------------------------------------------------------
AIRLINES--2.0%
20,572 Continental Airlines, Inc., 4.50%, 2/1/07 Caa2/CCC+ 14,451,830
21,235 Northwest Airlines Corp., 6.625%-10.00%, 2/1/09-5/15/23 Caa1/CCC+ 16,832,619
-------------
31,284,449
-------------
AEROSPACE--2.4%
16,568 GenCorp, Inc., 5.75%, 4/15/07 B3/B 16,712,970
16,200 L-3 Communications Holdings Inc., 4.00%, 9/15/11 Ba3/BB- 19,359,000
-------------
36,071,970
-------------
COMMERCIAL SERVICES--2.5%
11,150 Acxiom Corp., 3.75%, 2/15/09 Ba3/BB- 14,216,250
7,100 Bowne & Co., Inc., 5.00%, 10/1/33 Caa1/B- 7,463,875
16,564 Quebecor World Color Press, Inc., 6.00%, 10/1/07 Ba1/BB+ 16,978,100
-------------
38,658,225
-------------
ELECTRONICS--1.6%
8,500 Agilent Technologies, Inc., 3.00%, 12/1/21 Ba2/BB 8,595,625
15,923 Cymer, Inc., 3.50%, 2/15/09 NR/B- 15,266,176
-------------
23,861,801
-------------
FINANCING--0.7%
9,250 GATX Corp., 7.50%, 2/1/07 Baa3/BBB- 10,649,063
-------------
INTERNET--2.4%
16,600 E*Trade Group, Inc., 6.00%, 2/1/07 NR/B- 17,056,500
6,755 Symantec Corp., 3.00%, 11/1/06 NR/B 19,074,431
-------------
36,130,931
-------------
MANUFACTURING--2.1%
8,800 The Goodyear Tire & Rubber Co., 4.00%, 6/15/34 (a) B3/B- 10,483,000
2,500 The Goodyear Tire & Rubber Co., 7.857%, 8/15/11 B3/B- 2,350,000
12,300 Tyco International Group S.A., 3.125%, 1/15/23 Baa3/BBB 18,942,000
-------------
31,775,000
-------------
MULTI-MEDIA--3.2%
17,989 Charter Communications, Inc., 5.75%, 10/15/05 Ca/CCC- 16,932,146
16,995 Echostar Communications Corp., 5.75%, 5/15/08 B2/B 17,334,900
16,796 Liberty Media Corp., 3.25%, 3/15/31 Baa3/BBB- 14,927,445
-------------
49,194,491
OIL & GAS--0.7%
7,339 St. Mary Land & Exploration Corp., 5.75%, 3/15/22 NR/NR 11,191,975
-------------
PHARMACEUTICALS--0.3%
2,350 Ligand Pharmaceutical Inc., 6.00%, 11/16/07 NR/NR 4,086,062
-------------
REAL ESTATE--1.0%
14,828 EOP Operating LP, 7.25%, 11/15/08 Baa2/BBB+ 15,050,420
-------------
6 Nicholas-Applegate Convertible & Income Fund Semi-Annual Report | 8.31.04 |
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
August 31, 2004 (unaudited)
==================================================================================================================
Principal
Amount Credit Rating
(000) (Moody's/S&P) Value
==================================================================================================================
RETAIL--4.3%
$ 12,159 Gap, Inc., 5.75%, 3/15/09 Ba1/BB+ $ 15,137,955
6,300 Guitar Center, Inc., 4.00%, 7/15/13 B1/B+ 8,552,250
14,800 J.C. Penney Corp., 5.00%, 10/15/08 B1/BB- 20,054,000
7,300 The Pep Boys Inc., 4.25%, 6/1/07 B1/BB- 7,436,875
15,708 Sonic Automotive, Inc., 5.25%, 5/7/09 B3/B+ 15,550,920
-------------
66,732,000
-------------
SEMICONDUCTORS--1.0%
17,742 Amkor Technology, Inc., 5.00%-5.75%, 6/1/06-3/15/07 B3/CCC+ 16,383,412
-------------
SOFTWARE--2.0%
14,500 Computer Associates International, Inc., 5.00%, 3/15/07 Ba1/BBB- 16,385,000
14,043 HNC Software, Inc., 5.25%, 9/1/08 NR/NR 14,639,827
-------------
31,024,827
-------------
TELECOMMUNICATIONS--3.0%
17,000 American Tower Corp., 5.00%, 2/15/10 Caa1/CCC 16,787,500
13,240 Crown Castle International, Inc., 4.00%, 7/15/10 NR/CCC 21,250,200
9,245 Nortel Networks Corp., 4.25%, 9/1/08 B3/B- 8,956,094
-------------
46,993,794
-------------
Total Convertible Bonds & Notes (cost--$437,339,730) 449,088,420
-------------
-----------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK--24.0%
-----------------------------------------------------------------------------------------------------------------
Shares
(000)
------
AEROSPACE--0.9%
137 Northrop Grumman Corp., 7.25%, 11/16/04 NR/NR 14,100,606
-------------
AUTOMOTIVE--2.4%
326 Ford Motor Co Capital Trust II., 6.50%, 1/15/32 Baa2/BB 17,262,663
698 General Motors Corp., Ser. C, 6.25%, 7/15/33 Baa1/BBB 19,443,456
-------------
36,706,119
-------------
BANKING--1.1%
296 Washington Mutual, Inc., 5.375%, 5/1/41 Baa1/BBB 16,120,179
-------------
COMMERCIAL SERVICES--2.0%
412 United Rentals, Inc., 6.50%, 8/1/28 B3/B 16,222,500
197 Xerox Corp., 7.50%, 11/27/21 (a) Ba3/B- 14,809,575
-------------
31,032,075
-------------
FINANCIAL SERVICES--2.4%
367 Capital One Financial Corp., 6.25%, 5/17/05 Baa3/BBB- 18,337,518
266 Prudential Financial, Inc., 6.75%, 11/15/04 A3/A- 18,233,280
-------------
36,570,798
-------------
HEALTHCARE--1.0%
161 Anthem, Inc., 6.00%, 11/15/04 NR/NR 14,953,900
-------------
INSURANCE--3.1%
512 Platinum Underwriters Holdings, Ltd., 7.00%, 11/16/05 NR/NR 14,730,724
660 The PMI Group Inc., 5.875%, 11/15/06 A1/A 17,523,000
665 XL Capital Ltd., 6.50%, 5/15/07 A2/A 15,813,700
-------------
48,067,424
-------------
| 8.31.04 | Nicholas-Applegate Convertible & Income Fund Semi-Annual Report 7
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
August 31, 2004 (unaudited)
==================================================================================================================
Shares Credit Rating
(000) (Moody's/S&P) Value
==================================================================================================================
OIL & GAS--2.4%
248 Amerada Hess, 7.00%, 12/1/06 Ba3/BB $ 18,014,165
252 Chesapeake Energy Corp., 6.00%, 12/31/49 B3/B- 19,188,936
--------------
37,203,101
--------------
METALS & MINING--2.4%
218 Arch Coal, 5.00%, 12/31/49 B2/B+ 18,239,272
153 U.S. Steel Corp., 7.00%, 6/15/06, Ser. B NR/B- 18,586,631
--------------
36,825,903
--------------
MULTI-MEDIA--0.7%
580 Equity Securities Trust I, 6.50%, 11/15/04 NR/NR 11,034,453
Radio One, Inc., 6.50%, 7/15/05 B3/CCC+ 150,015
--------------
11,184,468
--------------
RETAIL--1.1%
635 Albertson's Inc., 7.25%, 5/16/07 Baa2/BBB 16,643,350
--------------
TELECOMMUNICATIONS--1.6%
25 Corning, Inc., 7.00%, 8/16/05, Ser. C B1/BB- 12,882,658
11,500 Nextel Communications Corp., 5.25%, 1/15/10 Ba3/BB 11,514,375
--------------
24,397,033
--------------
UTILITIES--2.9%
102 AES Trust III, 6.75%, 10/15/29 Ca2/CCC+ 4,470,510
338 FPL Group, Inc., 8.00%, 02/16/06 NR/A- 19,066,023
462 TXU Corp., 8.75%, 11/16/05, Ser. C NR/NR 21,108,618
--------------
44,645,151
--------------
Total Convertible Preferred Stock (cost--$333,912,131) 368,450,107
-----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--1.3%
-----------------------------------------------------------------------------------------------------------------
Principal
Amount
(000)
-----------------------------------------------------------------------------------------------------------------
$18,000 United States Treasury Notes, 10.75%, 8/15/05 (cost--$19,542,534) 19,494,144
--------------
TOTAL INVESTMENTS (cost--$1,477,170,427+)--100% $1,535,978,109
--------------
-----------------------------------------------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS:
+ The cost basis of portfolio securities for federal income tax purposes is
$1,477,170,427. Aggregate gross unrealized appreciation for securities in
which there is an excess of value over tax cost is $99,258,623; aggregate
gross unrealized depreciation for securities in which there is an excess of
tax over value is $40,450,941; net unrealized appreciation for federal
income tax purposes is $58,807,682.
(a) 144A-Security--Security exempt from registration under Rule 144a of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, typically to qualified institutional investors.
(b) Credit-linked trust certificate
GLOSSARY:
NR--Not Rated
WR--Withdrawn Rating
8 Nicholas-Applegate Convertible & Income Fund Semi-Annual Report | 8.31.04 |
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND STATEMENT OF ASSETS AND LIABILITIES
August 31, 2004 (unaudited)
================================================================================
ASSETS:
Investments, at value (cost-$1,477,170,427) $1,535,978,109
---------------------------------------------------------------- ---------------
Cash 25,390,523
---------------------------------------------------------------- ---------------
Interest and dividends receivable 21,266,310
---------------------------------------------------------------- ---------------
Receivable for investments sold 827,785
---------------------------------------------------------------- ---------------
Interest rate cap premium paid 5,131,875
---------------------------------------------------------------- ---------------
Prepaid expenses 85,798
---------------------------------------------------------------- ---------------
Total Assets 1,588,680,400
================================================================ ===============
LIABILITIES:
Payable for investments purchased 10,947,624
---------------------------------------------------------------- ---------------
Dividends payable to common and preferred shareholders 8,385,055
---------------------------------------------------------------- ---------------
Unrealized depreciation on interest rate cap 1,243,896
---------------------------------------------------------------- ---------------
Investment management fees payable 928,806
---------------------------------------------------------------- ---------------
Accrued expenses 103,963
---------------------------------------------------------------- ---------------
Total Liabilities 21,609,344
---------------------------------------------------------------- ---------------
PREFERRED SHARES ($0.00001 PAR VALUE; $25,000 NET ASSET
AND LIQUIDATION VALUE PER SHARE APPLICABLE TO
21,000 SHARES ISSUED AND OUTSTANDING) 525,000,000
---------------------------------------------------------------- ---------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $1,042,071,056
================================================================ ===============
COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Common Stock:
Par value ($0.00001 per share applicable to
66,308,468 shares issued and outstanding) $ 663
---------------------------------------------------------------- ---------------
Paid-in-capital in excess of par 943,816,568
---------------------------------------------------------------- ---------------
Dividends in excess of net investment income (6,063,244)
---------------------------------------------------------------- ---------------
Net realized gain on investments 46,753,283
---------------------------------------------------------------- ---------------
Net unrealized appreciation of investments
and interest rate cap 57,563,786
---------------------------------------------------------------- ---------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $1,042,071,056
================================================================ ===============
NET ASSET VALUE PER COMMON SHARE $15.72
================================================================ ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
| 8.31.04 | Nicholas-Applegate Convertible & Income Fund Semi-Annual Report 9
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND STATEMENT OF OPERATIONS
For the six months ended August 31, 2004 (unaudited)
================================================================================
INVESTMENT INCOME:
Interest $ 38,093,846
------------------------------------------------------------------ -------------
Dividends 12,623,803
------------------------------------------------------------------ -------------
Total Investment Income 50,717,649
------------------------------------------------------------------ -------------
EXPENSES:
Investment management fees 5,628,185
------------------------------------------------------------------ -------------
Auction agent fees and commissions 673,305
------------------------------------------------------------------ -------------
Custodian and accounting agent fees 109,317
------------------------------------------------------------------ -------------
Shareholder reports 102,334
------------------------------------------------------------------ -------------
Trustees' fees and expenses 36,015
------------------------------------------------------------------ -------------
New York Stock Exchange listing fee 33,726
------------------------------------------------------------------ -------------
Audit and tax services 28,876
------------------------------------------------------------------ -------------
Transfer agent fees 17,223
------------------------------------------------------------------ -------------
Legal fees 16,971
------------------------------------------------------------------ -------------
Insurance expense 16,721
------------------------------------------------------------------ -------------
Investor relations 9,261
------------------------------------------------------------------ -------------
Miscellaneous 4,746
------------------------------------------------------------------ -------------
Total expenses 6,676,680
------------------------------------------------------------------ -------------
NET INVESTMENT INCOME 44,040,969
================================================================== =============
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 22,561,904
------------------------------------------------------------------ -------------
Net change in unrealized appreciation/depreciation of:
Investments (77,066,342)
------------------------------------------------------------------ -------------
Interest rate cap 293,872
------------------------------------------------------------------ -------------
Net realized and unrealized loss on investments
and interest rate cap (54,210,566)
------------------------------------------------------------------ -------------
NET DECREASE IN NET ASSETS RESULTING FROM
INVESTMENT OPERATIONS (10,169,597)
================================================================== =============
DIVIDENDS ON PREFERRED SHARES FROM NET
INVESTMENT INCOME (3,596,004)
------------------------------------------------------------------ -------------
NET DECREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM INVESTMENT OPERATIONS $(13,765,601)
================================================================== =============
10 Nicholas-Applegate Convertible & Income Fund Semi-Annual Report | 8.31.04 |
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
[Tables below represents a pie chart in the printed piece]
PORTFOLIO COMPOSITION
(as a % of total investments)
U.S. Government Securities 1.3%
Corporate Bonds & Notes 45.5%
Convertible Bonds & Notes 29.2%
Convertible Preferred Stock 24.0%
CREDIT QUALITY
MOODY'S RATINGS
(as a % of total investments)
Aaa 1.3%
A 3.4%
Baa 9.6%
Ba 17.5%
Caa 11.5%
Ca 2.1%
NR 17.5%
WR 0.1%
B 37.0%
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND STATEMENT OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
Six months For the period
ended March 31, 2003*
August 31, 2004 through
(unaudited) February 29, 2004
----------------- ----------------
INVESTMENT OPERATIONS:
Net investment income $ 44,040,969 $ 84,135,374
-------------------------------------------------------------------------------------------------------- ----------------
Net realized gain on investments 22,561,904 37,441,739
-------------------------------------------------------------------------------------------------------- ----------------
Net change in unrealized appreciation/depreciation of investments
and interest rate cap (76,772,470) 134,336,256
-------------------------------------------------------------------------------------------------------- ----------------
Net increase (decrease) in net assets resulting from investment operations (10,169,597) 255,913,369
======================================================================================================== ================
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (3,596,004) (4,746,936)
-------------------------------------------------------------------------------------------------------- ----------------
Net increase (decrease) in net assets applicable to common shareholders
resulting from investment operations (13,765,601) 251,166,433
-------------------------------------------------------------------------------------------------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (49,659,763) (87,505,712)
-------------------------------------------------------------------------------------------------------- ----------------
Net realized gains -- (1,981,532)
-------------------------------------------------------------------------------------------------------- ----------------
Total dividends and distributions to common shareholders (49,659,763) (89,487,244)
-------------------------------------------------------------------------------------------------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from the sale of common stock -- 936,067,125
-------------------------------------------------------------------------------------------------------- ----------------
Preferred shares underwriting discount charged to paid-in capital in excess of par -- (5,250,000)
-------------------------------------------------------------------------------------------------------- ----------------
Common stock and preferred shares offering costs charged to paid-in capital
in excess of par -- (2,144,045)
-------------------------------------------------------------------------------------------------------- ----------------
Reinvestment of dividends and distributions 3,663,875 11,380,273
-------------------------------------------------------------------------------------------------------- ----------------
Net increase from capital share transactions 3,663,875 940,053,353
-------------------------------------------------------------------------------------------------------- ----------------
Total increase (decrease) in net assets applicable to common shareholders (59,761,489) 1,101,732,542
======================================================================================================== ================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 1,101,832,545 100,003
-------------------------------------------------------------------------------------------------------- ----------------
End of period (including dividends in excess of net investment income and
undistributed net investment income of $(6,063,244)
and $3,151,554, respectively) $1,042,071,056 $1,101,832,545
-------------------------------------------------------------------------------------------------------- ----------------
COMMON SHARES ISSUED AND REINVESTED:
Issued -- 65,345,000
-------------------------------------------------------------------------------------------------------- ----------------
Issued in reinvestment of dividends and distributions 224,081 732,406
-------------------------------------------------------------------------------------------------------- ----------------
NET INCREASE 224,081 66,077,406
======================================================================================================== ================
* Commencement of operations
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
| 8.31.04 | Nicholas-Applegate Convertible & Income Fund Semi-Annual Report 11
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND NOTES TO FINANCIAL STATEMENTS
August 31, 2004 (unaudited)
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Nicholas-Applegate Convertible & Income Fund (the "Fund") was organized as a
Massachusetts business trust on January 17, 2003. Prior to commencing operations
on March 31, 2003, the Fund had no operations other than matters relating to its
organization and registration as a diversified, closed-end management investment
company under the Investment Company Act of 1940, as amended, and the sale and
issuance of 6,981 shares of beneficial interest at an aggregate purchase price
of $100,003 to Allianz Dresdner Asset Management of America, L.P. ("ADAM").
PIMCO Advisors Fund Management LLC (the "Investment Manager") serves as the
Fund's investment manager and is an indirect wholly-owned subsidiary of ADAM
which is an indirect, majority-owned subsidiary of Allianz AG. The Fund has an
unlimited amount of $0.00001 par value common stock authorized.
The Fund's investment objective is to provide total return through a combination
of capital appreciation and high current income. The Fund attempts to achieve
this objective by investing in a portfolio of convertible securities and
non-convertible income-producing securities.
The Fund issued 60,000,000 shares of common stock, in its initial public
offering. An additional 5,345,000 shares were issued in connection with the
exercise of the underwriters' over-allotment option. These shares were all
issued at $15.00 per share before an underwriting discount of $0.675 per share.
Common offering costs of $1,642,062 (representing $0.025 per share) were offset
against the proceeds of the offering and have been charged to paid-in capital in
excess of par. The Investment Manager agreed to pay all common offering costs
(other than the sales load) exceeding $0.03 per share. Because common offering
costs were less than $0.03 per share, the Investment Manager did not reimburse
any of these costs. In addition, the underwriters commission and offering costs
associated with the issuance of Preferred Shares in the amounts of $5,250,000
and $501,983, respectively, have been charged to paid-in-capital in excess of
par.
The preparation of the financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
these estimates.
In the normal course of business, the Fund enters into contracts that contain a
variety of representations which provide general indemnifications. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet been asserted.
However, the Fund expects the risk of any loss to be remote.
The following is a summary of significant accounting policies followed by the
Fund.
(A) VALUATION OF INVESTMENTS
Portfolio securities and other financial instruments for which market quotations
are readily available are stated at market value. The Fund's investments are
valued daily by an independent pricing service approved by the Board of
Trustees, dealer quotations, or are valued at the last sale price on the
exchange that is the primary market for such securities, or the last quoted bid
price for those securities for which the over-the-counter market is the primary
market or for listed securities in which there were no sales. Prices obtained
from an independent pricing service use information provided by market makers or
estimates of market values obtained from yield data relating to investments or
securities with similar characteristics. Short-term investments maturing in 60
days or less are valued at amortized cost, if their original maturity was 60
days or less, or by amortizing their value on the 61st day prior to maturity, if
the original term to maturity exceeded 60 days. Securities for which market
quotations are not readily available or if a development/event occurs that may
significantly impact the value of the security, may be fair valued pursuant to
guidelines established by the Board of Trustees. The prices used by the Fund to
value securities may differ from the value that would be realized if the
securities were sold. The Fund's net asset value is determined daily at the
close of regular trading (normally, 4:00 p.m. Eastern time) on the New York
Stock Exchange.
(B) INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Realized gains and
losses on investments are determined on the identified cost basis. Interest
income is recorded on an accrual basis. Discounts or premiums on debt securities
purchased are accreted or amortized to interest income over the lives of the
respective securities using the effective interest method. Dividend income is
recorded on the ex-dividend date.
(C) FEDERAL INCOME TAXES
The Fund intends to comply with the requirements of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies. Accordingly, no
provision for U.S. federal income taxes is required. In addition, by
distributing substantially all of its ordinary income and long-term capital
gains, if any, during each calendar year, the Fund intends not to be subject to
U.S. federal excise tax.
12 Nicholas-Applegate Convertible & Income Fund Semi-Annual Report | 8.31.04 |
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND NOTES TO FINANCIAL STATEMENTS
August 31, 2004 (unaudited)
================================================================================
(D) DIVIDENDS AND DISTRIBUTIONS--COMMON STOCK
The Fund declares dividends from net investment income monthly to common
shareholders. Distributions of net realized capital gains, if any, are paid at
least annually. The Fund records dividends and distributions to its shareholders
on the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal income tax treatment; temporary differences do not require
reclassification. To the extent these dividends and/or distributions exceed
current and accumulated earnings and profits for federal income tax purposes
they are reported as dividends and/or distributions of paid-in capital in excess
of par.
(E) CREDIT-LINKED TRUST CERTIFICATES
Credit-linked trust certificates are investments in a limited purpose trust or
other vehicle formed under state law which, in turn, invests in a basket of
derivative instruments, such as credit default swaps, interest rate swaps and
other securities, in order to provide exposure to the high yield or another
fixed income market.
Similar to an investment in a bond, investments in credit-linked trust
certificates represent the right to receive periodic income payments (in the
form of distributions) and payment of principal at the end of the term of the
certificate. However, these payments are conditioned on the trust's receipt of
payments from, and the trust's potential obligations to, the counterparties to
the derivative instruments and other securities in which the trust invests.
(F) INTEREST RATE CAPS
In an interest rate cap, one party pays a fee while the other party pays the
excess, if any, of a floating rate over a specified fixed rate. Interest rate
caps are intended to manage the Fund's exposure to changes in short-term rates
and hedge the Auction Preferred Shares. Owning interest rate caps reduces the
Fund's duration, making it less sensitive to changes in interest rates from a
market value perspective. The effect on income involves protection from rising
short-term rates, which the Fund experiences primarily in the form of leverage.
The Fund is exposed to credit loss in the event of non-performance by the other
party to the interest rate cap.
(G) CONCENTRATION OF RISK
It is the Fund's policy to invest a significant portion of its assets in
convertible securities. Although convertible securities do derive part of their
value from that of the securities into which they are convertible, they are not
considered derivative financial instruments. However, certain of the Fund's
investments include features which render them more sensitive to price changes
in their underlying securities. Consequently, this exposes the Fund to greater
downside risk than traditional convertible securities, but still less than that
of the underlying common stock.
2. INVESTMENT MANAGER AND SUB-ADVISER
The Fund has entered into an Investment Management Agreement (the "Agreement")
with the Investment Manager to serve as the Fund's Investment Manager. Subject
to the supervision of the Fund's Board of Trustees, the Investment Manager is
responsible for managing, either directly or through other selected by it, the
Fund's investment activities and its business affairs and administrative
matters. Pursuant to the Agreement, the Fund pays the Investment Manager an
annual fee, payable at the annual rate of 0.70% of the Fund's average daily
total managed assets. Total managed assets refer to the total assets of the Fund
(including assets attributable to any Preferred Shares or other forms of
leverage that may be outstanding) minus accrued liabilities (other than
liabilities representing leverage). The Investment Manager has retained its
affiliate, Nicholas-Applegate Capital Management LLC (the "Sub-Adviser"), to
manage the Fund's investments. Subject to the supervision of the Investment
Manager, the Sub-Adviser makes all the Fund's investment decisions.
3. INVESTMENT IN SECURITIES
For the six months ended August 31, 2004, purchases and sales of investments,
other than short-term securities, were $497,568,437 and $495,583,806,
respectively.
(a) Interest rate cap agreements outstanding at August 31, 2004 was as follows:
Counter- Notional Termination Payments received Unrealized
party Amount Date Premium by Fund Depreciation
--------------------------------------------------------------------------------
UBS AG $525,000,000 1/15/2006 $5,131,875 1 month LIBOR-BBA $1,243,896
over 2% strike price ----------
--LIBOR--London Interbank Offered Rate
| 8.31.04 | Nicholas-Applegate Convertible & Income Fund Semi-Annual Report 13
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND NOTES TO FINANCIAL STATEMENTS
August 31, 2004 (unaudited)
================================================================================
4. AUCTION PREFERRED SHARES
The Fund has issued 4,200 shares of Preferred Shares Series A, 4,200 shares of
Preferred Shares Series B, 4,200 shares of Preferred Shares Series C, 4,200
shares of Preferred Shares Series D, and 4,200 shares of Preferred Shares Series
E each with a net asset and liquidation value of $25,000 per share plus accrued
dividends.
Dividends are accumulated daily at an annual rate set through auction
procedures. Distributions of net realized capital gains, if any, are paid
annually.
For the six months ended August 31, 2004, the annualized dividend rate ranged
from:
High Low At 8/31/04
--------------------------------------------------------------------------------
Series A 1.70% 1.02% 1.65%
Series B 1.70% 1.04% 1.54%
Series C 1.70% 1.05% 1.60%
Series D 1.68% 1.05% 1.60%
Series E 1.70% 1.05% 1.54%
The Fund is subject to certain limitations and restrictions while preferred
shares are outstanding. Failure to comply with these limitations and
restrictions could preclude the Fund from declaring any dividends or
distributions to common shareholders or repurchasing common shares and/or could
trigger the mandatory redemption of Preferred Shares at their liquidation value.
Preferred Shares, which are entitled to one vote per share, generally vote with
the common stock but vote separately as a class to elect two Trustees and on any
matters affecting the rights of the Preferred Shares.
5. SUBSEQUENT COMMON DIVIDEND DECLARATIONS
On September 1, 2004, a dividend of $0.125 per share was declared to common
shareholders payable October 1, 2004 to shareholders of record on September 10,
2004.
On October 1, 2004, a dividend of $0.125 per share was declared to common
shareholders payable November 1, 2004 to shareholders of record on October 15,
2004.
6. LEGAL PROCEEDINGS
On June 1, 2004, the Attorney General of the State of New Jersey announced that
it had entered into a settlement agreement with ADAM and certain other
affiliates of the Investment Manager, in connection with a complaint filed by
the New Jersey Attorney General ("NJAG"). In the settlement, ADAM and other
named affiliates neither admitted nor denied the allegations or conclusions of
law, but did agree to pay New Jersey a civil fine of $15 million and $3 million
for investigative costs and further potential enforcement initiatives against
unrelated parties. They also undertook to implement certain governance changes.
The complaint relating to the settlement alleged, among other things, that ADAM
and the other affiliates had failed to disclose that they improperly allowed
certain hedge funds to engage in "market timing" in various open-end investment
companies ("open-end funds") advised or distributed by the Investment Manager
and certain of its affiliates. The complaint sought injunctive relief, civil
monetary penalties, restitution and disgorgement of profits.
On September 13, 2004, the Securities and Exchange Commission (the "Commission")
announced that the Investment Manager and certain of its affiliates had agreed
to a settlement of charges that they and certain of their officers had, among
other things, violated various antifraud provisions of the federal securities
laws in connection with an alleged market-timing arrangement involving trading
of shares of various open-end funds advised and/or distributed by the Investment
Manager and its affiliates. In the settlement, the Investment Manager and their
affiliates consented to the entry of an order by the Commission and, without
admitting or denying the findings contained in the order, agreed to implement
certain compliance and governance changes and consented to cease-and-desist
orders and censures. In addition, the Investment Manager and its affiliates
agreed to pay civil money penalties aggregating $40 million and to pay jointly
disgorgement in the amount of $10 million, for an aggregate payment of $50
million. In connection with the settlement, the Commission has indicated that it
will seek to dismiss the Investment Manager and its affiliates from the related
complaint it filed on May 6, 2004 in the U.S. District Court in the Southern
District of New York. Neither the complaint nor the order alleges any
inappropriate activity took place with respect to the Fund.
14 Nicholas-Applegate Convertible & Income Fund Semi-Annual Report | 8.31.04 |
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND NOTES TO FINANCIAL STATEMENTS
August 31, 2004 (unaudited)
================================================================================
On September 15, 2004, the Commission announced that the Investment Manager and
certain of its affiliates agreed to settle an enforcement action in connection
with charges that they violated various antifraud and other provisions of
federal securities laws as a result of, among other things, their failure to
disclose to the board of trustees and shareholders of various open-end funds
advised or distributed by the Investment Manager and its affiliates material
facts and conflicts of interest that arose from their use of brokerage
commissions on portfolio transactions to pay for so-called "shelf space"
arrangements with certain broker-dealers. In the settlement, the Investment
Manager and its affiliates consented to the entry of an order by the Commission
without admitting or denying the findings contained in the order. In connection
with the settlement, the Investment Manager and its affiliates agreed to
undertake certain compliance and disclosure reforms and consented to
cease-and-desist orders and censures. In addition, the Investment Manager and
one of its affiliates agreed to jointly pay a civil monetary penalty of $4
million and another affiliate agreed to pay a civil monetary penalty of $1
million and the Investment Manager and its affiliates agreed to jointly pay
disgorgement of $6.6 million based upon the amount of brokerage commissions
alleged to have been paid by such open-end funds in connection with these
arrangements (and related interest). In a related action, the California
Attorney General announced on September 15, 2004 that it had entered an
agreement with an affiliate of the Investment Manager in resolution of an
investigation into matters that are similar to those discussed in the
Commission's order. The settlement agreement resolves matters described in the
compliant filed by the California Attorney General in the Superior Court of the
State of California alleging, among other things, that this affiliate violated
certain antifraud provisions of California law by failing to disclose matters
related to the shelf-space arrangements described above. In the settlement
agreement, the affiliate did not admit to any liability but agreed to pay $5
million in civil penalties and $4 million in recognition of the California
Attorney General's fees and costs associated with the investigation and related
matters. Neither the Commission's order nor the California Attorney General's
complaint alleges any inappropriate activity took place with respect to the
Fund.
Since February 2004, the Investment Manager, the Sub-Adviser and certain of
their affiliates have been named as defendants in 14 lawsuits filed in U.S.
District Court in the Southern District of New York, the Central District of
California and the Districts of New Jersey and Connecticut. Ten of those
lawsuits concern "market timing," and they have been transferred to and
consolidated for pre-trial proceedings in the U.S. District Court for the
District of Maryland; four of those lawsuits concern "revenue sharing" with
brokers offering "shelf space" and have been consolidated into a single action
in the U.S. District Court for the District of Connecticut. The lawsuits have
been commenced as putative class actions on behalf of investors who purchased,
held or redeemed shares of affiliated funds during specified periods or as
derivative actions on behalf of the funds. The lawsuits generally relate to the
same facts that are the subject of the regulatory proceedings discussed above.
The lawsuits seek, among other things, unspecified compensatory damages plus
interest and, in some cases, punitive damages, the rescission of investment
advisory contracts, the return of fees paid under those contracts and
restitution. The Fund has been named in three of the lawsuits concerning market
timing. The Investment Manager and the Sub-Adviser believe that other similar
lawsuits may be filed in U.S. federal or state courts naming as defendants the
Investment Manager, the Sub-Adviser, ADAM, the Fund, other open- and closed-end
funds advised or distributed by the Investment Manager, the SubAdviser and/or
their affiliates, the boards of trustees of those funds, and/or other affiliates
as defendants.
Under Section 9(a) of the Investment Company Act of 1940, if any of the various
regulatory proceedings or lawsuits were to result in a court injunction against
the Investment Manager, the Sub-Adviser, ADAM and/or their affiliates, they and
their affiliates would, in the absence of exemptive relief granted by the
Commission, be barred from serving as an investment adviser/sub-adviser or
principal underwriter for any registered investment company, including the Fund.
In connection with an inquiry from the Commission concerning the status of the
New Jersey settlement described above under Section 9(a), the Investment
Manager, the Sub-Adviser, and certain of their affiliates (together, the
"Applicants") have sought exemptive relief from the Commission under Section
9(c) of the Investment Company Act of 1940. The Commission has granted the
Applicants a temporary exemption from the provisions of Section 9(a) with
respect to the New Jersey settlement until the earlier of (i) September 13, 2006
and (ii) the date on which the Commission takes final action on their
application for a permanent order. There is no assurance that the Commission
will issue a permanent order.
It is possible that these matters and/or other developments resulting from these
matters could lead to a decrease in the market price of the Fund's shares or
other adverse consequences to the Fund and its shareholders. However, 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 the Investment Manager's or
the Sub-Adviser's ability to perform its respective investment advisory services
relating to the Fund.
7. CORPORATE CHANGES
On July 29, 2004, Stephen Treadway resigned as the Fund's Chairman. On September
14, 2004, David C. Flattum was appointed to the Board of Trustees. On October 5,
2004, the Board of Trustees elected Robert E. Connor as Chairman.
| 8.31.04 | Nicholas-Applegate Convertible & Income Fund Semi-Annual Report 15
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND FINANCIAL HIGHLIGHTS
For a share of common stock outstanding throughout each period:
===========================================================================================
Six months For the period
ended March 31, 2003*
August 31, 2004 through
(unaudited) February 2004
--------------------------------------------------------------------------- ---------------
Net asset value, beginning of period $16.67 $14.33**
--------------------------------------------------------------------------- ---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.66 1.28
--------------------------------------------------------------------------- ---------------
Net realized and unrealized gain on investments
and interest rate cap (0.81) 2.61
--------------------------------------------------------------------------- ---------------
Total from investment operations (0.15) 3.89
--------------------------------------------------------------------------- ---------------
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (0.05) (0.07)
--------------------------------------------------------------------------- ---------------
Net increase in net assets applicable to common
shareholders resulting from investment operations (0.20) 3.82
--------------------------------------------------------------------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (0.75) (1.33)
--------------------------------------------------------------------------- ---------------
Net realized gains -- (0.03)
--------------------------------------------------------------------------- ---------------
Total dividends and distributions to common shareholders (0.75) (1.36)
--------------------------------------------------------------------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Common stock offering costs charged to paid-in capital
in excess of par -- (0.03)
--------------------------------------------------------------------------- ---------------
Preferred shares offering costs/underwriting discounts
charged to paid-in capital in excess of par -- (0.09)
--------------------------------------------------------------------------- ---------------
Total capital share transactions -- (0.12)
--------------------------------------------------------------------------- ---------------
Net asset value, end of period $15.72 $16.67
--------------------------------------------------------------------------- ---------------
Market price, end of period $16.11 $16.38
--------------------------------------------------------------------------- ---------------
TOTAL INVESTMENT RETURN (1) 3.09% 18.98%
--------------------------------------------------------------------------- ---------------
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders, end of
period (000) $1,042,071 $1,101,833
--------------------------------------------------------------------------- ---------------
Ratio of expenses to average net assets (2)(3) 1.24% 1.17%
--------------------------------------------------------------------------- ---------------
Ratio of net investment income to average
net assets (2)(3) 8.17% 8.97%
--------------------------------------------------------------------------- ---------------
Preferred shares asset coverage per share $74,613 $77,460
--------------------------------------------------------------------------- ---------------
Portfolio turnover 32% 86%
-------------------------------------------------------------------------------------------
* Commencement of operations
** Initial public offering price of $15.00 per share less underwriting discount
of $0.675 per share.
(1) Total investment return is calculated assuming a purchase of common stock at
the current market price on the first day of the period and a sale 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 Fund's 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) Calculated on the basis of income and expenses applicable to both common and
preferred shares relative to the average net assets of common shareholders.
(3) Annualized
16 Nicholas-Applegate Convertible & Income Fund Semi-Annual Report | 8.31.04 |
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND ANNUAL SHAREHOLDER MEETING
================================================================================
The Fund held its annual meeting of shareholders on June 29, 2004. Common and
Preferred shareholders voted to elect Hans W. Kertess and R. Peter Sullivan as
trustees to serve until 2007, and 2005, respectively. Preferred shareholders
voted to elect Robert E. Connor as a trustee to serve until 2007. Mr. Paul
Belica and Mr. John J. Dallesandro II*, continue to serve as trustees of the
Fund.
Withhold
Affirmative Authority
--------------------------------------------------------------------------------
Election of Hans W. Kertess 69,032,884 678,184
Election of R. Peter Sullivan 69,027,706 683,362
Election of Robert E. Connor 17,608 25
----------
* Preferred Shares trustee
| 8.31.04 | Nicholas-Applegate Convertible & Income Fund Semi-Annual Report 17
(THIS PAGE INTENTIONALLY LEFT BLANK)
(THIS PAGE INTENTIONALLY LEFT BLANK)
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TRUSTEES AND PRINCIPAL OFFICERS
Robert E. Connor
Chairman of the Board of Trustees
Paul Belica
Trustee
John J. Dalessandro II
Trustee
David C. Flattum
Trustee
Hans W. Kertess
Trustee
R. Peter Sullivan III
Trustee
Brian S. Shlissel
President & Chief Executive Officer
Newton B. Schott, Jr.
Vice President & Secretary
Douglas Forsyth
Vice President
Lawrence G. Altadonna
Treasurer, Principal Financial & Accounting Officer
Jennifer A. Patula
Assistant Secretary
INVESTMENT MANAGER
PA Fund Management LLC
1345 Avenue of the Americas
New York, NY 10105
SUB-ADVISER
Nicholas-Applegate Capital Management LLC
600 West Broadway, 30th Flr
San Diego, California 92101
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
PFPC Inc.
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
One International Place
Boston, MA 02210-2624
THIS REPORT, INCLUDING THE FINANCIAL INFORMATION HEREIN, IS TRANSMITTED TO THE
SHAREHOLDERS OF NICHOLAS APPLEGATE CONVERTIBLE & INCOME FUND FOR THEIR
INFORMATION. IT IS NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR USE
IN THE PURCHASE OF SHARES OF THE FUNDS OR ANY SECURITIES MENTIONED IN THIS
REPORT.
COMMENCING WITH THE FUND'S FISCAL QUARTER ENDING NOVEMBER 30, 2004, THE FUND
WILL FILE IT'S COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") ON FORM N-Q. FORM N-Q WILL BE AVAILABLE
(i) ON THE FUND'S WEBSITE AT WWW.PIMCOADVISORS.COM (ii) ON THE COMMISSION'S
WEBSITE AT WWW.SEC.GOV, AND (iii) AT THE COMMISSION'S PUBLIC REFERENCE ROOM
WHICH IS LOCATED AT THE COMMISSION'S HEADQUARTER'S OFFICE AT 450 5TH STREET N.W.
ROOM 1200, WASHINGTON, D.C. 20549, TELEPHONE NUMBER (202) 942-8090.
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT FROM TIME TO TIME EACH FUND MAY PURCHASE
SHARES OF ITS COMMON STOCK IN THE OPEN MARKET.
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 HEREON.
INFORMATION ON THE FUND IS AVAILABLE AT WWW.PIMCOADVISORS.COM OR BY CALLING
1-800-331-1710.
ITEM 2. CODE OF ETHICS Not required in this filing.
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 Schedule of Investments is included as part of
the report to shareholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES Not required in this filing.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED COMPANIES
TOTAL NUMBER
OF SHARES PURCHASED MAXIMUM NUMBER OF
TOTAL NUMBER AVERAGE AS PART OF PUBLICLY SHARES THAT MAY YET BE
OF SHARES PRICE PAID ANNOUNCED PLANS OR PURCHASED UNDER THE PLANS
PERIOD PURCHASED PER SHARE PROGRAMS OR PROGRAMS
------ --------- --------- -------- -----------
March 2004 N/A 16.78 109,539.9260 N/A
April 2004 N/A N/A N/A N/A
May 2004 N/A N/A N/A N/A
June 2004 N/A N/A N/A N/A
July 2004 N/A N/A N/A N/A
August 2004 N/A 15.94 114,540.7554 N/A
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In January 2004, the Registrant's Board of Trustees adopted a Nominating
Committee Charter governing the affairs of the Nominating Committee of the
Board, which is posted on the PIMCO Funds website at WWW.PIMCOADVISORS.COM.
Appendix B to the Nominating Committee Charter includes "Procedures for
Shareholders to Submit Nominee Candidates, "which sets forth the procedures by
which shareholders may recommend nominees to the Registrant's Board of Trustees.
Among other requirements, the procedures provide that the recommending
shareholder must submit any recommendation in writing to the Registrant to the
attention of the Registrant's Secretary, at the address of the principal
executive offices of the Registrant and that such submission must be received at
such offices not less than 45 days nor more than 75 days prior to the date of
the Board or shareholder meeting at which the nominee would be elected. Any
recommendation must include certain biographical and other information regarding
the candidate and the recommending shareholder, and must include a written and
signed consent of the candidate to be named as a nominee and to serve as a
Trustee if elected. The foregoing description of the requirements is only a
summary and is qualified in its entirety by reference to Appendix B of the
Nominating Committee Charter.
ITEM 10. CONTROLS AND PROCEDURES
(a) The registrant's President and Chief Executive Officer and Principal
Financial Officer have concluded that the registrant's disclosure controls
and procedures (as defined in Rule 30a-2(c) under the Investment Company
Act of 1940, 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 in the registrant's internal controls or
in factors that could affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 11. EXHIBITS
(a) Exhibit 99.Cert. - Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(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) Nicholas-Applegate Convertible & Income Fund
By /s/ Brian S. Shlissel
------------------------
President and Chief Executive Officer
Date November 3, 2004
---------------------
By /s/ Lawrence G. Altadonna
----------------------------
Treasurer, Principal Financial & Accounting Officer
Date November 3, 2004
---------------------
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 November 3, 2004
---------------------
By /s/ Lawrence G. Altadonna
----------------------------
Treasurer, Principal Financial & Accounting Officer
Date November 3, 2004
---------------------