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
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Nicholas-Applegate Convertible & Income Fund
------------------------------------------------
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
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(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
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Date of fiscal year end: February 29
-----------
Date of reporting period: February 29
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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
Annual Report
2.29.04
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 ................. 3-9
Statement of Assets and Liabilities ..... 10
Statement of Operations ................. 11
Statement of Changes in Net Assets ...... 12
Notes to Financial Statements ........... 13-16
Financial Highlights .................... 17
Report of Independent Auditors .......... 18
Privacy Policy, Proxy Voting Policies
and Procedures, Other Information ..... 19
Dividend Reinvestment Plan .............. 20
Board of Trustees ....................... 21
[PIMCO ADVISORS LOGO]
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND LETTER TO SHAREHOLDERS
April 12, 2004
Dear Shareholder:
We are pleased to provide you with the initial annual report of the
Nicholas-Applegate Convertible & Income Fund (the "Fund") for the period March
31, 2003 (commencement of operations) through February 29, 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.
We at the Fund, together with PIMCO Advisors Fund Management LLC, the Fund's
investment manager and Nicholas-Applegate Capital Management LLC, the Fund's
sub-adviser, thank you for investing with us. We remain dedicated to serving
your investment needs.
Sincerely,
/s/ Stephen Treadway /s/ Brian S. Shlissel
Stephen Treadway Brian S. Shlissel
CHAIRMAN PRESIDENT, CHIEF EXECUTIVE OFFICER
2.29.04 | Nicholas-Applegate Convertible & Income Fund Annual Report 1
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND PERFORMANCE AND STATISTICS
February 29, 2004 (unaudited)
================================================================================
SYMBOL:
NCV
OBJECTIVE:
To provide total return through a combination of capital appreciation and high
current income.
PRIMARY INVESTMENTS:
At least 50% of total assets in convertible securities.
INCEPTION DATE:
3/31/03
TOTAL NET ASSETS(1):
$1,626.8 million
PORTFOLIO MANAGER:
Douglas Forsyth
TOTAL RETURN(2): Market Price NAV
--------------------------------------------------------------------------------
Commencement of Operations (3/31/03) TO 2/29/04 18.98% 26.81%
--------------------------------------------------------------------------------
COMMON SHARE PRICE PERFORMANCE:
Commencement of Operations (3/31/03) to 2/29/04
o NAV
o Market Price
MARKET PRICE/NET ASSET VALUE:
----------------------------------------
Market Price $16.38
----------------------------------------
Net Asset Value $16.67
----------------------------------------
Market Price Yield(3) 9.16%
----------------------------------------
Discount to Net Asset Value 1.74%
----------------------------------------
[The data below represents a line chart in the printed report.]
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
2/29/04 16.67 16.38
(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.
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
February 29, 2004.
2 Nicholas-Applegate Convertible & Income Fund Annual Report | 2.29.04
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
February 29, 2004
Principal
Amount Credit Rating
(000) (Moody's/S&P)* Value
===================================================================================================================
CORPORATE BONDS & NOTES--44.8%
-------------------------------------------------------------------------------------------------------------------
AGRICULTURE--0.5%
$ 6,750 Hines Nurseries, Inc., 10.25%, 10/1/11 B3/B $ 7,357,500
------------
AIRLINES--1.0%
9,970 Continental Airlines, Inc., 8.00%, 12/15/05 Caa2/CCC+ 9,670,900
7,500 Delta Airlines, Inc., 7.90%, 12/15/09 Caa2/B- 5,512,500
670 Northwest Airlines Corp., 9.875%, 3/15/07 Caa1/B- 626,450
------------
15,809,850
============
APPAREL--0.3%
3,260 Oxford Industries, Inc., 8.875%, 6/1/11
(acquired 5/6/03, cost-$3,362,463) (a) B2/B 3,471,900
175 Phillips-Van Heusen Corp., 8.125%, 5/1/13 B2/BB- 184,625
580 Warnaco, Inc., 8.875%, 6/15/13 B2/B 617,700
------------
4,274,225
============
AUTOMOTIVE--0.5%
2,325 Collins & Aikman Products Corp., 11.50%, 4/15/06 B3/B- 2,220,375
4,950 Collins & Aikman Products Corp., 10.75%, 12/31/11 B2/B- 4,875,750
385 HLI Operating Co. Inc., 10.50%, 6/15/10 B1/B+ 439,862
------------
7,535,987
============
CHEMICALS--2.8%
8,680 Applied Extrusion Technologies Inc., 10.75%, 7/1/11, Ser. B Caa1/CCC 7,595,000
11,500 Huntsman LLC., 11.625%, 10/15/10
(acquired 12/11/03, cost-$12,020,000) (a) B2/B 12,017,500
13,555 Lyondell Chemical Co., 9.625%, 5/1/07, Ser. A B1/B+ 14,232,750
115 Lyondell Chemical Co., 10.875%, 5/1/09, Ser. A B3/B- 115,287
560 Om Group Inc., 9.25%, 12/15/11 Caa1/B- 589,400
9,545 PolyOne Corp., 10.625%, 5/15/10 B3/BB- 9,831,350
------------
44,381,287
============
COMMERCIAL SERVICES--1.4%
505 Integrated Electrical Services Inc., 9.375%, 2/1/09, Ser. C B2/B+ 530,250
12,610 United Rentals, Inc., 9.00%, 4/1/09 B2/B+ 13,229,151
3,335 United Rentals North America Inc., 7.00%, 2/15/14
(acquired 1/23/04, cost-$3,328,342) (a) B2/B+ 3,184,925
1,725 URS Corp., 12.25%, 5/1/09, Ser. B B2/B 1,845,750
3,500 Xerox Corp., 9.75%, 1/15/09 B1/B+ 4,077,500
------------
22,867,576
============
CONTAINERS--0.3%
5,070 Owens-Illinois, Inc., 8.10%, 5/15/07 Caa1/B 5,247,450
170 Stone Container Corp., 8.375%, 7/1/12 B2/B 184,663
------------
5,432,113
============
ELECTRONICS--1.0%
160 Imax Corp., 9.625%, 12/1/10
(acquired 2/3/04, cost-$172,900) (a) B3/B- 171,200
5,350 Salton, Inc., 10.75%, 12/15/05 B3/CCC+ 5,403,500
7,150 Sanmina-SCI Corp., 10.375%, 1/15/10 Ba2/BB- 8,329,750
1,525 Stoneridge, Inc., 11.50%, 5/01/12 B2/B+ 1,799,500
------------
15,703,950
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
| 2.29.04 | Nicholas-Applegate Convertible & Income Fund Annual Report 3
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
February 29, 2004
Principal
Amount Credit Rating
(000) (Moody's/S&P)* Value
===================================================================================================================
ENERGY--1.4%
$ 215 Calpine Corp., 8.50%, 7/15/10
(acquired 2/3/04, cost-$207,676) (a) NR/B $ 197,800
13,500 Calpine Corp., 8.50%, 2/15/11 Caa1/CCC+ 10,327,500
11,000 Reliant Resources Inc., 9.50%, 7/15/13 B1/B 11,935,000
------------
22,460,300
============
ENTERTAINMENT--0.9%
8,105 Alliance Atlantis Communications, Inc., 13.00%, 12/15/09 B1/B 9,118,125
430 Gaylord Entertainment Co., 8.00%, 11/15/13
(acquired 2/3/04, cost-$454,994) (a) B3/B- 455,262
245 Intrawest Corp., 10.50%, 2/1/10 B1/B+ 269,500
4,460 Penn National Gaming, Inc., 8.875%, 3/15/10 B3/B 4,794,500
------------
14,637,387
============
FINANCIAL SERVICES--2.4%
5,000 Finova Group, Inc., 7.50%, 11/15/09 NR/NR 3,137,500
190 New ASAT Finance Ltd., 9.25%, 2/1/11
(acquired 2/3/04, cost-$200,094) (a) B3/B 202,825
35,520 TRAC-X North America, 10.125%, 3/25/09
(acquired 1/26/04, cost-$37,039,600) (a) (b) NR/NR 35,564,400
------------
38,904,725
============
FOOD PRODUCTS--0.7%
7,820 Pilgrim's Pride Corp., 9.625%, 9/15/11 B1/BB- 8,484,700
2,370 PPC Escrow Corp., 9.25%, 11/15/13
(acquired 2/3/04, cost-$2,523,425) (a) B2/B+ 2,500,350
------------
10,985,050
============
HEALTHCARE--2.5%
10,035 Extendicare Health Services, Inc., 9.35%, 12/15/07 B3/B- 10,386,225
1,290 Genesis Healthcare Corp., 8.00%, 10/15/13
(acquired 2/3/04, cost-$1,359,894) (a) B3/B- 1,373,850
4,410 Hanger Orthopedic Group, Inc., 10.375%, 2/15/09 B2/B- 4,983,300
265 Hanger Orthopedic Group, Inc., 11.25%, 6/15/09 NR/B- 285,206
12,000 Mariner Health Care, Inc., 8.25%, 12/15/13
(acquired 12/12/03, cost-$12,000,000) (a) B3/B- 12,240,000
7,005 Select Medical Corp., 9.50%, 6/15/09 B2/B 7,784,306
2,365 Vicar Operating, Inc., 9.875%, 12/1/09 B3/B- 2,625,150
------------
39,678,037
============
HOME BUILDERS--1.1%
12,325 Ryland Group, Inc., 9.125%, 6/15/11 Ba2/BB+ 13,958,063
3,865 Standard-Pacific Corp., 9.50%, 9/15/10 Ba2/BB 4,328,800
------------
18,286,863
============
HOME FURNISHINGS--0.6%
4,690 Central Garden & Pet Co., 9.125%, 2/1/13 B2/B+ 5,205,900
3,460 Jarden Corp., 9.75%, 5/1/12 B2/B- 3,840,600
300 Salton, Inc., 12.25%, 4/15/08 B3/CCC+ 297,000
------------
9,343,500
============
HOTELS/GAMING--1.7%
8,500 Mandalay Resort Group, Inc., 10.25%, 8/1/07 Ba3/BB- 9,923,750
4,025 Penn National Gaming, Inc., 11.125%, 3/1/08 B3/BB- 4,518,063
10,970 Wynn Resorts Ltd., 12.00%, 11/1/10 B3/CCC+ 13,164,000
------------
27,605,813
============
4 Nicholas-Applegate Convertible & Income Fund Annual Report | 2.29.04
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
February 29, 2004
Principal
Amount Credit Rating
(000) (Moody's/S&P)* Value
===================================================================================================================
LEISURE--1.8%
Bally Total Fitness Holdings Corp.,
$ 14,930 9.875%, 10/15/07, Ser. D B3/B- $ 12,093,300
2,500 10.50%, 7/15/11 B2/B 2,312,500
2,500 Equinox Holding Inc., 9.00%, 12/15/09
(acquired 2/3/04, cost-$2,612,813) (a) B3/B- 2,612,500
10,320 Royal Caribbean Cruises, Inc., 8.75%, 02/2/11 Ba2/BB+ 11,893,800
-------------
28,912,100
=============
MACHINERY--0.4%
5,470 Case New Holland Inc., 9.25%, 8/1/11
(acquired 9/5/03, cost-$5,791,919) (a) Ba3/BB- 6,153,750
=============
METALS/MINING--0.6%
10,800 AK Steel Corp., 7.875%, 2/15/09 B3/B+ 9,558,000
=============
MULTI-MEDIA--4.1%
875 CCO Holdings LLC., 8.75%, 11/15/13
(acquired 2/3/04, cost-$906,172) (a) B3/CCC- 899,062
12,250 Charter Communications, Inc., 10.75%, 10/1/09 Ca/CCC- 10,780,000
485 CSC Holdings, Inc., 7.25%, 7/15/08 B1/BB- 516,525
8,460 CSC Holdings, Inc., 9.875%, 2/15/13 B2/B+ 8,787,825
14,770 Echostar DBS Corp., 9.125%-10.375%, 10/1/07-1/15/09 Ba3/BB- 16,161,275
2,430 Lodgenet Entertainment Corp., 9.50%, 6/15/13 B3/B- 2,715,525
440 Salem Communications Holding Corp., 9.00%, 7/1/11, Ser. B B3/B- 480,150
1,365 Sinclair Broadcast Group, Inc., 8.75%, 12/15/11 B2/B 1,498,088
6,705 Spanish Broadcasting System, 9.625%, 11/1/09 Caa1/CCC+ 7,090,538
4,000 Vivendi Universal 9.25%, 4/15/10 Ba3/BB 4,710,000
10,600 XM Satellite Radio Inc., 12.00%, 6/15/10 Caa1/CCC+ 11,872,000
-------------
65,510,988
=============
OFFICE FURNISHINGS--0.6%
5,375 Interface, Inc., 9.50%, 2/1/14
(acquired 1/26/04, cost-$5,375,000) (a) Caa3/CCC 5,348,125
3,246 Tempur-Pedic Inc., 10.25%, 8/15/10
(acquired 8/8/03, cost-$3,246,000) (a) B3/B- 3,643,635
-------------
8,991,760
=============
OIL & GAS--2.1%
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 10,850,000
14,830 Sonat, Inc., 7.625%, 7/15/11 Caa1/CCC+ 13,050,400
10,000 Williams Cos., Inc., 9.25%, 3/15/04 B3/B+ 10,000,000
-------------
34,251,850
=============
PAPER PRODUCTS--0.9%
565 Buckeye Technologies, Inc., 9.25%, 9/15/08 Caa1/B 570,650
12,650 Georgia-Pacific Corp., 9.375%, 2/1/13 Ba2/BB+ 14,579,125
-------------
15,149,775
=============
PHARMACEUTICALS--0.6%
9,150 aaiPharma Inc., 11.00%, 4/1/10 Caa1/B- 9,927,750
=============
REAL ESTATE--0.0%
470 La Quinta Properties Inc., 8.875%, 3/15/11 Ba3/BB- 525,812
=============
2.29.04 | Nicholas-Applegate Convertible & Income Fund Annual Report 5
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
February 29, 2004
Principal
Amount Credit Rating
(000) (Moody's/S&P)* Value
===================================================================================================================
RECYCLING--0.4%
$ 6,700 Imco Recycling Inc., 10.375%, 10/15/10
(acquired 10/2/03, cost-$6,691,112) (a) B3/B- $ 7,001,500
=============
RETAIL--2.4%
790 CSK Auto Inc., 7.00%, 1/15/14
(acquired 2/3/04, cost-$786,568) (a) B2/B- 790,000
10,410 Hollywood Entertainment Corp., 9.625%, 3/15/11 B3/B- 10,566,150
4,170 Michaels Stores, Inc., 9.25%, 7/1/09 Ba1/BB+ 4,613,062
310 Mothers Work Inc., 11.25%, 8/1/10 B3/B+ 334,800
15,445 Rite Aid Corp., 11.25%, 7/1/08 Caa1/B- 16,950,888
4,000 United Auto Group, Inc., 9.625%, 3/15/12 B3/B 4,420,000
-------------
37,674,900
=============
SEMICONDUCTORS--1.4%
13,155 Amkor Technology, Inc., 10.50%, 5/1/09 B3/CCC+ 13,911,412
7,195 Fairchild Semiconductor International, Inc., 10.50%, 2/1/09 B2/B 7,986,450
-------------
21,897,862
=============
TELECOMMUNICATIONS--7.6%
12,000 American Tower Corp., 9.375%, 2/1/09 Caa1/CCC 12,720,000
15,185 Crown Castle International, Inc., 9.00%-10.75%, 5/15/11-8/1/11 B3/CCC 16,852,200
8,085 Millicom International Cellular S.A., 10.00%, 12/1/13
(acquired 11/19/03, cost-$8,574,191) (a) B3/B- 8,489,250
8,805 Nextel Communications Inc., 6.00%-9.50%, 11/15/09- 6/1/11 B2/B+ 9,753,744
13,120 Nextel Partners Inc., 11.00%, 3/15/10 Caa1/CCC+ 14,530,400
9,320 Nortel Networks Ltd., 6.125%, 2/15/06 B3/B 9,646,200
3,460 Primus Telecommunications Group., 8.00%, 1/15/14
(acquired 1/14/04, cost-$3,499,020) (a) B3/CCC 3,299,975
4,500 Primus Telecommunications Group., 12.75%, 10/15/09 Caa2/CCC 4,950,000
13,000 SBA Communications Corp., 10.25%, 2/1/09 Caa2/CC 13,032,500
15,825 Time Warner Telecom, Inc., 9.75%-10.125%, 7/15/08-2/1/11 B3/CCC+ 14,913,775
13,495 Triton PCS, Inc., 9.375%, 2/1/11 B3/B- 13,764,900
-------------
121,952,944
=============
TEXTILES--0.9%
7,491 Interface, Inc., 9.50%, 11/15/05 Caa3/CCC 7,491,000
6,490 Interface, Inc., 10.375%, 2/01/10 Caa1/B- 7,268,800
-------------
14,759,800
=============
UTILITIES--0.9%
13,025 AES Corp., 9.50%, 6/1/09 B3/B- 14,197,250
=============
WASTE DISPOSAL--0.9%
12,715 Allied Waste, Inc., 10.00%, 8/1/09, Ser. B B2/B+ 13,652,731
=============
WIRE & CABLE PRODUCTS--0.1%
140 General Cable Corp., 9.50%, 11/15/10
(acquired 2/3/04, cost-$153,037) (a) B2/B 154,700
-------------
Total Corporate Bonds & Notes (cost-$688,924,505) 715,537,635
=============
6 Nicholas-Applegate Convertible & Income Fund Annual Report | 2.29.04
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
February 29, 2004
Principal
Amount Credit Rating
(000) (Moody's/S&P)* Value
===================================================================================================================
CONVERTIBLE BONDS & NOTES--29.5%
-------------------------------------------------------------------------------------------------------------------
AEROSPACE--1.7%
$ 8,568 GenCorp, Inc., 5.75%, 4/15/07 B3/B $ 8,782,200
16,200 L-3 Communications Holdings Inc., 4.00%, 9/15/11 Ba3/BB- 17,860,500
-------------
26,642,700
=============
AIRLINES--2.6%
20,572 Continental Airlines, Inc., 4.50%, 2/1/07 Caa2/CCC+ 18,360,510
23,380 Northwest Airlines Corp., 6.625%-10.00%, 2/1/09-5/15/23 Caa1/B- 23,709,788
-------------
42,070,298
=============
COMMERCIAL SERVICES--1.3%
5,000 Bowne & Co., Inc., 5.00%, 10/1/33 Caa1/B- 5,731,250
14,824 Quebecor World Color Press, Inc., 6.00%, 10/1/07 Ba1/BB+ 15,268,720
-------------
20,999,970
=============
ELECTRONICS--1.3%
15,923 Cymer, Inc., 3.50%, 2/15/09 NR/B- 17,236,647
4,500 Solectron Corp., .50%, 2/15/34
(acquired 2/9/04, cost-$4,500,000) (a) B1/B+ 4,308,750
-------------
21,545,397
=============
ENERGY--1.1%
17,256 Calpine Corp., 4.00%, 12/26/06 Caa1/CCC+ 17,299,140
=============
HEALTHCARE--0.7%
7,750 Advanced Medical Optics Inc., 3.50%, 4/15/23 NR/B 10,404,375
=============
INTERNET--2.5%
18,000 E*Trade Group, Inc., 6.00%, 2/1/07 NR/B- 18,472,500
8,755 Symantec Corp., 3.00%, 11/1/06 NR/B 21,154,269
-------------
39,626,769
=============
MANUFACTURING--1.1%
12,236 Tyco International Group S.A., 3.125%, 1/15/23 Ba2/BBB- 17,818,675
=============
METALS/MINING--1.1%
10,300 Freeport-McMoRan Cooper & Gold Inc., 7.00%, 2/11/11 NR/B- 17,522,875
=============
MULTI-MEDIA--3.3%
22,489 Charter Communications, Inc., 5.75%, 10/15/05 Ca/CCC- 21,167,771
14,245 Echostar Communications Corp., 5.75%, 5/15/08 B2/B 15,010,669
16,796 Liberty Media Corp., 3.25%, 3/15/31 Baa3/BBB- 16,103,165
-------------
52,281,605
=============
OIL & GAS--0.7%
7,339 St. Mary Land & Exploration Corp., 5.75%, 3/15/22 NR/NR 10,421,380
=============
REAL ESTATE--1.0%
14,828 EOP Operating LP, 7.25%, 11/15/08 Baa1/BBB+ 15,495,260
=============
RETAIL--2.6%
12,159 Gap, Inc., 5.75%, 3/15/09 Ba3/BB+ 17,068,196
7,100 Guitar Center, Inc., 4.00%, 7/15/13 B1/B+ 9,105,750
15,708 Sonic Automotive, Inc., 5.25%, 5/7/09 B3/B+ 15,550,920
-------------
41,724,866
=============
2.29.04 | Nicholas-Applegate Convertible & Income Fund Annual Report 7
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
February 29, 2004
Principal
Amount Credit Rating
(000) (Moody's/S&P)* Value
===================================================================================================================
SEMICONDUCTORS--1.1%
$ 17,742 Amkor Technology, Inc., 5.00%-5.75%, 6/1/06-3/15/07 B3/CCC+ $ 17,619,346
SOFTWARE--3.1%
12,100 Computer Associates International, Inc., 5.00%, 3/15/07 Baa3/BBB+ 15,200,625
14,043 HNC Software, Inc., 5.25%, 9/1/08 NR/NR 16,465,417
16,325 Network Associates, Inc., 5.25%, 8/15/06 NR/NR 18,630,906
-------------
50,296,948
=============
TELECOMMUNICATIONS--3.4%
17,000 American Tower Corp., 5.00%, 2/15/10 Caa1/CCC 16,851,250
13,240 Crown Castle International, Inc., 4.00%, 7/15/10 NR/CCC 18,900,100
16,330 Nortel Networks Corp., 4.25%, 9/1/08 B3/B 17,820,113
-------------
53,571,463
=============
WASTE DISPOSAL--0.9%
14,063 Waste Connections, Inc., 5.50%, 4/15/06 B1/BB- 14,836,465
=============
Total Convertible Bonds & Notes (cost-$427,095,782) 470,177,532
=============
-------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK--24.2%
-------------------------------------------------------------------------------------------------------------------
Shares
(000)
------
AEROSPACE--1.8%
137 Northrop Grumman Corp., 7.25%, 11/16/04 NR/NR 14,474,532
272 Raytheon, Co., 8.25%, 5/15/04 NR/BB 13,762,741
-------------
28,237,273
=============
AUTOMOTIVE--2.5%
326 Ford Motor Co Capital Trust II, 6.50%, 1/15/32 Baa2/BB 17,402,930
728 General Motors Corp., 6.25%, 7/15/33, Ser. C Baa1/BBB 22,318,176
-------------
39,721,106
=============
BANKING--1.1%
296 Washington Mutual, Inc., 5.375%, 5/1/41 Baa1/BBB- 17,816,418
=============
COMMERCIAL SERVICES--3.3%
361 Cendant Corp., 7.75%, 8/17/04 Baa1/BBB 18,131,708
412 United Rentals, Inc., 6.50%, 8/1/28 B3/B 17,973,500
197 Xerox Corp., 7.50%, 11/27/21
(acquired 3/31/03, cost-$12,452,023) (a) B3/B- 16,167,119
-------------
52,272,327
=============
ELECTRONICS--1.1%
972 Solectron Corp., 7.25%, 11/15/04 B3/B- 17,009,300
=============
FINANCIAL SERVICES--2.4%
376 Capital One Financial Corp., 6.25%, 5/17/05 Baa3/BB+ 19,595,050
273 Prudential Financial, Inc., 6.75%, 11/15/04 A3/A- 19,280,698
-------------
38,875,748
=============
HEALTHCARE--1.0%
161 Anthem, Inc., 6.00%, 11/15/04 NR/BBB- 16,231,515
=============
INSURANCE--2.1%
512 Platinum Underwriters Holdings, Ltd., 7.00%, 11/16/05 NR/NR 16,744,350
660 The PMI Group Inc., 5.875%, 11/15/06 A1/A+ 17,358,000
-------------
34,102,350
=============
OIL & GAS--1.2%
260 Chesapeake Energy Corp., 6.00%, 12/31/49 B3/B- 18,770,622
=============
8 Nicholas-Applegate Convertible & Income Fund Annual Report | 2.29.04
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND SCHEDULE OF INVESTMENTS
February 29, 2004
Shares Credit Rating
(000) (Moody's/S&P)* Value
===================================================================================================================
METALS/MINING--2.1%
228 Arch Coal, 5.00%, 12/31/49 B2/B+ $ 18,435,052
123 U.S. Steel Corp., 7.00%, 6/15/06, Ser. B NR/B- 15,089,582
--------------
33,524,634
==============
MULTI-MEDIA--1.0%
580 Equity Securities Trust I, 6.50%, 11/15/04 NR/NR 15,478,402
** Radio One, Inc., 6.50%, 7/15/05 B3/CCC+ 156,220
--------------
15,634,622
==============
TELECOMMUNICATIONS--2.4%
27 Corning, Inc., 7.00%, 8/16/05, Ser. C B1/BB- 17,652,793
** Nortel Networks Corp., 7.00%, 8/15/05 NR/NR 137,562
2,050 Sprint Corp. (FON Group), 7.125%, 8/17/04 NR/NR 20,484,705
--------------
38,275,060
==============
UTILITIES--2.2%
92 AES Trust III, 6.75%, 10/15/29 Ca/CCC+ 3,861,300
260 FPL Group, Inc., 8.00%, 02/16/06 NR/A- 14,933,309
462 TXU Corp., 8.75%, 11/16/05, Ser. C NR/NR 17,327,004
--------------
36,121,613
==============
Total Convertible Preferred Stock (cost-$320,241,254) 386,592,588
-------------------------------------------------------------------------------------------------------------------
COMMON STOCK--0.2%
-------------------------------------------------------------------------------------------------------------------
AEROSPACE--0.0%
** L-3 Communications Holdings, Inc. 54
==============
BUSINESS SERVICES--0.2%
74 Affiliated Computer Services, Inc. (c) 3,590,158
--------------
Total Common Stock (cost-$3,845,969) 3,590,212
==============
-------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--1.3%
-------------------------------------------------------------------------------------------------------------------
Principal
Amount
(000)
---------
$ 18,000 United States Treasury Notes,
10.75%, 8/15/05, (cost-$20,358,403) 20,441,970
--------------
TOTAL INVESTMENTS (cost-$1,460,465,913+)--100% $1,596,339,937
==============
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS:
* Unaudited.
** Represents less than 500 shares.
+ The cost basis of portfolio securities for federal income tax purposes is
$1,466,122,644. Aggregate gross unrealized appreciation for securities in
which there is an excess of value over tax cost is $148,693,713; aggregate
gross unrealized depreciation for securities in which there is an excess of
tax over value is $18,476,420; net unrealized appreciation for federal
income tax purposes is $130,217,293.
(a) 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. At February
29, 2004, these securities amounted to $130,248,378 or 8.2% of investments.
Private Placement. Restricted as to resale and may not have a readily
available market; the aggregate cost and value of such securities is
$130,248,378 or 8.2% of investments.
(b) Credit-linked trust certificate.
(c) Non-income producing security.
GLOSSARY:
NR -- Not Rated
================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
| 2.29.04 | Nicholas-Applegate Convertible & Income Fund Annual Report 9
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND STATEMENT OF ASSETS AND LIABILITIES
February 29, 2004
ASSETS:
----------------------------------------------------------------- --------------
Investments, at value (cost-$1,460,465,913) $1,596,339,937
----------------------------------------------------------------- --------------
Cash 23,161,475
----------------------------------------------------------------- --------------
Interest and dividends receivable 22,663,396
----------------------------------------------------------------- --------------
Receivable for investments sold 20,137,372
----------------------------------------------------------------- --------------
Interest rate cap premium paid 5,131,875
----------------------------------------------------------------- --------------
Prepaid expenses 15,170
----------------------------------------------------------------- --------------
Total Assets 1,667,449,225
================================================================= ==============
LIABILITIES:
Payable for investments purchased 29,637,740
----------------------------------------------------------------- --------------
Dividends payable to common and preferred shareholders 8,339,942
----------------------------------------------------------------- --------------
Unrealized depreciation on interest rate cap 1,537,768
----------------------------------------------------------------- --------------
Investment management fees payable 906,364
----------------------------------------------------------------- --------------
Accrued expenses 194,866
----------------------------------------------------------------- --------------
Total Liabilities 40,616,680
----------------------------------------------------------------- --------------
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 $1,101,832,545
================================================================= ==============
COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Common Stock:
Par value ($0.00001 per share applicable to 66,084,387 shares
issued and outstanding) $ 661
---------------------------------------------------------------- --------------
Paid-in-capital in excess of par 940,152,695
---------------------------------------------------------------- --------------
Undistributed net investment income 3,151,554
---------------------------------------------------------------- --------------
Net realized gain on investments 24,191,379
---------------------------------------------------------------- --------------
Net unrealized appreciation of investments and
interest rate cap 134,336,256
---------------------------------------------------------------- --------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $1,101,832,545
================================================================ ==============
NET ASSET VALUE PER COMMON SHARE $16.67
================================================================ ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
10 Nicholas-Applegate Convertible & Income Fund Annual Report | 2.29.04 |
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND STATEMENT OF OPERATIONS
For the period March 31, 2003* through February 29, 2004
================================================================= ==============
INVESTMENT INCOME:
Interest $ 70,748,121
----------------------------------------------------------------- --------------
Dividends 24,325,253
----------------------------------------------------------------- --------------
Total Investment Income 95,073,374
----------------------------------------------------------------- --------------
EXPENSES:
Investment management fees 9,418,786
----------------------------------------------------------------- --------------
Auction agent fees and commissions 1,032,199
----------------------------------------------------------------- --------------
Custodian and accounting agent fees 165,040
----------------------------------------------------------------- --------------
Shareholder reports 83,763
----------------------------------------------------------------- --------------
Audit and tax services 72,504
----------------------------------------------------------------- --------------
Trustees' fees and expenses 36,150
----------------------------------------------------------------- --------------
New York Stock Exchange listing fee 35,356
----------------------------------------------------------------- --------------
Investor relations 26,393
----------------------------------------------------------------- --------------
Transfer agent fees 25,908
----------------------------------------------------------------- --------------
Insurance expense 20,495
----------------------------------------------------------------- --------------
Legal fees 20,182
----------------------------------------------------------------- --------------
Miscellaneous 1,224
----------------------------------------------------------------- --------------
Total expenses 10,938,000
----------------------------------------------------------------- --------------
NET INVESTMENT INCOME 84,135,374
================================================================= ==============
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 37,441,739
----------------------------------------------------------------- --------------
Net unrealized appreciation of investments and interest rate cap 134,336,256
----------------------------------------------------------------- --------------
Net realized and unrealized gain on investments 171,777,995
----------------------------------------------------------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS 255,913,369
================================================================= ==============
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (4,746,936)
----------------------------------------------------------------- --------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM INVESTMENT OPERATIONS $251,166,433
================================================================= ==============
* Commencement of operations
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS |
2.29.04 | Nicholas-Applegate Convertible & Income Fund Annual Report 11
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND STATEMENT OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
For the period March 31, 2003* through February 29, 2004
INVESTMENT OPERATIONS:
Net investment income $ 84,135,374
--------------------------------------------------------------- ----------------
Net realized gain on investments 37,441,739
--------------------------------------------------------------- ----------------
Net unrealized appreciation on investments and
interest rate cap 134,336,256
--------------------------------------------------------------- ----------------
Net increase in net assets resulting from investment operations 255,913,369
=============================================================== ================
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (4,746,936)
--------------------------------------------------------------- ----------------
Net increase in net assets applicable to common shareholders
resulting from investment operations 251,166,433
--------------------------------------------------------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (87,505,712)
--------------------------------------------------------------- ----------------
Net realized gains (1,981,532)
--------------------------------------------------------------- ----------------
Total dividends and distributions to common shareholders (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 11,380,273
--------------------------------------------------------------- ----------------
Net increase from capital share transactions 940,053,353
--------------------------------------------------------------- ----------------
Total increase in net assets applicable to common shareholders 1,101,732,542
=============================================================== ================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 100,003
--------------------------------------------------------------- ----------------
End of period (including undistributed net investment
income of $3,151,554) $1,101,832,545
=============================================================== ================
COMMON SHARES ISSUED AND REINVESTED:
Issued 65,345,000
--------------------------------------------------------------- ----------------
Issued in reinvestment of dividends and distributions 732,406
--------------------------------------------------------------- ----------------
NET INCREASE 66,077,406
=============================================================== ================
* Commencement of operations
| SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
12 Nicholas-Applegate Convertible & Income Fund Annual Report | 2.29.04
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND NOTES TO FINANCIAL STATEMENTS
February 29, 2004
================================================================================
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.
2.29.04 | Nicholas-Applegate Convertible & Income Fund Annual Report 13
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND NOTES TO FINANCIAL STATEMENTS
February 29, 2004
(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.
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
Pursuant to the Investment Management Agreement, the Fund pays the Investment
Manager an annual management fee, payable monthly, 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
("NACM"or the "Sub-Adviser"), to manage the Fund's investments.
3. INVESTMENT IN SECURITIES
For the period ended February 29, 2004, purchases and sales of investments,
other than short-term securities, were $2,497,777,272 and $1,057,481,418,
respectively. (a) Interest rate cap agreements outstanding at February 29, 2004
was as follows:
Notional Termination Payments received Unrealized
Counterparty Amount Date Premium by Fund Depreciation
--------------------------------------------------------------------------------
UBS AG $525,000,000 1/15/2006 $5,131,875 1 month LIBOR-BBA $1,537,768
over 2% strike price ----------
4. INCOME TAX INFORMATION
The tax character of dividends and distributions paid for the period March 31,
2003 (commencement of operations) through February 29, 2004 of $94,234,180 was
comprised entirely of ordinary income.
At February 29, 2004, the tax character of distributable earnings of $41,031,578
was comprised entirely of ordinary income.
14 Nicholas-Applegate Convertible & Income Fund Annual Report | 2.29.04
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND NOTES TO FINANCIAL STATEMENTS
February 29, 2004
================================================================================
5. 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 period ended February 29, 2004, the annualized dividend rate ranged
from:
High Low At 2/29/04
--------------------------------------------------------------------------------
Series A 1.50% 1.05% 1.10%
Series B 1.52% 1.03% 1.10%
Series C 1.49% 0.95% 1.10%
Series D 1.49% 1.00% 1.13%
Series E 1.50% 1.05% 1.10%
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.
6. SUBSEQUENT COMMON DIVIDEND DECLARATIONS
On March 1, 2004, a dividend of $0.125 per share was declared to common
shareholders payable April 1, 2004 to shareholders of record on March 12, 2004.
On April 1, 2004, a dividend of $0.125 per share was declared to common
shareholders payable May 3, 2004 to shareholders of record on April 16, 2004.
7. LEGAL PROCEEDINGS
On February 12, 2004, the staff of the Securities and Exchange Commission (the
"Commission") informed the Investment Manager that it intended to recommend that
the Commission bring civil and administrative actions against the Investment
Manager and one of its investment advisory affiliates seeking a permanent
injunction against violations of certain provisions of the federal securities
laws, disgorgement plus prejudgment interest and civil penalties in connection
with the Commission staff's investigation of "market timing" and related trading
activities in certain open-end investment companies advised by the Investment
Manager (the "Subject Funds").
On February 17, 2004, the Attorney General of New Jersey filed a complaint
alleging, among other things, that
certain affiliates of the Investment Manager and the Sub-Adviser had failed to
disclose that they improperly allowed certain hedge funds to engage in "market
timing" in the Subject Funds and certain other affiliated mutual funds. The
complaint seeks injunctive relief, civil monetary penalties, restitution and
disgorgement of profits.
The proceedings described above do not allege that any inappropriate activity
took place in the Fund and the Fund is not named in the proceedings.
If the New Jersey Attorney General or the Commission were to obtain a court
injunction against the Investment Manager or certain of its affiliates, they and
their affiliates (including the Sub-Adviser) 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 such a case, the Investment Manager and the
Sub-Adviser would in turn seek exemptive relief from the Commission, as
contemplated by the Investment Company Act, although there is no assurance that
such exemptive relief would be granted. The Commission also has the power by
order to prohibit the Investment Manager, the Sub-Adviser and certain of their
affiliates from serving as investment advisers and underwriters, although to
date it has not exercised such powers with respect to market timing arrangements
involving other mutual fund complexes.
2.29.04 | Nicholas-Applegate Convertible & Income Fund Annual Report 15
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND NOTES TO FINANCIAL STATEMENTS
February 29, 2004
================================================================================
Since February 2004, the Investment Manager, the Sub-Adviser and certain of
their affiliates, various investment companies advised by the Investment Manager
and the Sub-Adviser and their boards of trustees have been named as defendants
in multiple 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. The lawsuits have been commenced as putative class actions on
behalf of investors who purchased, held or redeemed shares of the specified
funds during specified periods or as derivative actions on behalf of the
specified funds. The lawsuits generally relate to the same facts that are the
subject of the regulatory proceedings discussed above. The lawsuits seek
unspecified compensatory damages plus interest and, in some cases, punitive
damages, the rescission of investment advisory contracts and/or the return of
fees paid under those contracts and restitution.
In November 2003, the Commission settled an enforcement action against an
unaffiliated broker-dealer relating to the undisclosed receipt of fees from
certain mutual fund companies in return for preferred marketing of their funds
and announced that it would be investigating mutual funds and their distributors
generally with respect to compensation arrangements relating to the sale of
mutual fund shares. In that connection, the Investment Manager, the Sub-Adviser
and certain of their affiliates are under investigation by the Commission
relating to revenue-sharing arrangements and the use of brokerage commissions to
recognize brokers effecting sales of the open-end investment companies advised
by the Investment Manager, the Sub-Adviser and their affiliates. In addition,
the Attorney General of the State of California has publicly announced an
investigation into the brokerage recognition and revenue-sharing arrangements of
these open-end investment companies.
The Investment Manager and the Sub-Adviser believe that other similar lawsuits
may be filed in federal or state courts naming the Investment Manager, the
Sub-Adviser, various investment companies they advise (which may include the
Fund), their boards of trustees and/or their affiliates.
Although it is not possible to predict what, if any, effect the foregoing will
have on the market for the Fund's shares, the Investment Manager and the
Sub-Adviser believe that these matters are not likely to have a material adverse
effect on the operations of the Fund or on the Investment Manager's, or
Sub-Adviser's ability to perform their respective investment advisory services
to the Fund.
16 Nicholas-Applegate Convertible & Income Fund Annual Report | 2.29.04
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND FINANCIAL HIGHLIGHTS
For a share of common stock outstanding for the period March 31, 2003* through
February 29, 2004
================================================================================
Net asset value, beginning of period $14.33**
------------------------------------------------------------------ -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 1.28
------------------------------------------------------------------ -------------
Net realized and unrealized gain on investments and
interest rate cap 2.61
------------------------------------------------------------------ -------------
Total from investment operations 3.89
------------------------------------------------------------------ -------------
Dividends on Preferred Shares from Net investment income (0.07)
------------------------------------------------------------------ -------------
Net increase in net assets applicable to common shareholders
resulting from investment operations 3.82
------------------------------------------------------------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (1.33)
------------------------------------------------------------------ -------------
Net realized gains (0.03)
------------------------------------------------------------------ -------------
Total dividends and distributions to common shareholders (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 $16.67
------------------------------------------------------------------ -------------
Market price, end of period $16.38
------------------------------------------------------------------ -------------
TOTAL INVESTMENT RETURN (1) 18.98%
------------------------------------------------------------------ -------------
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders, end of period (000) $1,101,833
------------------------------------------------------------------ -------------
Ratio of expenses to average net assets (2)(3) 1.17%
------------------------------------------------------------------ -------------
Ratio of net investment income to average net assets (2)(3) 8.97%
------------------------------------------------------------------ -------------
Preferred shares asset coverage per share $77,460
------------------------------------------------------------------ -------------
Portfolio turnover 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 the 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
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS |
2.29.04 | Nicholas-Applegate Convertible & Income Fund Annual Report 17
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND REPORT OF INDEPENDENT AUDITORS
================================================================================
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets applicable to common shareholders and the financial
highlights present fairly, in all material respects, the financial position of
Nicholas-Applegate Convertible & Income Fund (the "Fund") at February 29, 2004,
and the results of its operations, the changes in its net assets applicable to
common shareholders and the financial highlights for the period March 31, 2003
(commencement of operations) through February 29, 2004, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
April 19, 2004
18 Nicholas-Applegate Convertible & Income Fund Annual Report | 2.29.04
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND PRIVACY POLICY, PROXY VOTING
POLICIES AND PROCEDURES, OTHER INFORMATION
================================================================================
PRIVACY POLICY:
OUR COMMITMENT TO YOU
We consider customer privacy to be a fundamental aspect of our relationship with
clients. We are committed to maintaining the confidentiality, integrity, and
security of our current, prospective and former clients' personal information.
We have developed policies designed to protect this confidentiality, while
allowing client needs to be served.
OBTAINING PERSONAL INFORMATION
In the course of providing you with products and services, we may obtain
non-public personal information about you. This information may come from
sources such as account applications and other forms, from other written,
electronic or verbal correspondence, from your transactions, from your brokerage
or financial advisory firm, financial adviser or consultant, and/or from
information captured on our internet web sites.
RESPECTING YOUR PRIVACY
We do not disclose any personal or account information provided by you or
gathered by us to non-affiliated third parties, except as required or permitted
by law. As is common in the industry, non-affiliated companies may from time to
time be used to provide certain services, such as preparing and mailing
prospectuses, reports, account statements and other information, conducting
research on client satisfaction, and gathering shareholder proxies. We may also
retain non-affiliated companies to market our products and enter in joint
marketing agreements with other companies. These companies may have access to
your personal and account information, but are permitted to use the information
solely to provide the specific service or as otherwise permitted by law. We may
also provide your personal and account information to your brokerage or
financial advisory firm and/or to your financial adviser or consultant.
SHARING INFORMATION WITH THIRD PARTIES
We do reserve the right to disclose or report personal information to
non-affiliated third parties in limited circumstances where we believe in good
faith that disclosure is required under law, to cooperate with regulators or law
enforcement authorities, to protect our rights or property, or upon reasonable
request by any mutual fund in which you have chosen to invest. In addition, we
may disclose information about you or your accounts to a non-affiliated third
party at your request or if you consent in writing to the disclosure.
SHARING INFORMATION WITH AFFILIATES
We may share client information with our affiliates in connection with servicing
your account or to provide you with information about products and services that
we believe may be of interest to you. The information we share may include, for
example, your participation in our mutual funds or other investment programs,
your ownership of certain types of accounts (such as IRAs), or other data about
your accounts. Our affiliates, in turn, are not permitted to share your
information with non-affiliated entities, except as required or permitted by
law.
IMPLEMENTATION OF PROCEDURES
We take seriously the obligation to safeguard your non-public personal
information. We have implemented procedures designed to restrict access to your
non-public personal information to our personnel who need to know that
information to provide products or services to you. To guard your non-public
personal information, physical, electronic, and procedural safeguards are in
place.
================================================================================
PROXY VOTING POLICIES AND PROCEDURES:
A description of the policies and procedures that the Fund has adopted to
determine how to vote proxies relating to portfolio securities is available (i)
without charge, upon request, by calling the Fund at (800) 331-1710 (ii) on the
Fund's website at www.pimcoadvisors.com, and (iii) on the Securities and
Exchange Commission's website at www.sec.gov.
================================================================================
OTHER INFORMATION:
Since March 31, 2003, there have been no: (i) material changes in the Fund's
investment objectives or policies; (ii) changes to the Fund's charter or
by-laws; (iii) material changes in the principal risk factors associated with
investment in the Fund; or (iv) change in the person primarily responsible for
the day-to-day management of the Fund's portfolio.
2.29.04 | Nicholas-Applegate Convertible & Income Fund Annual Report 19
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND DIVIDEND REINVESTMENT PLAN
(unaudited)
================================================================================
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all Common
Shareholders whose shares are registered in their own names will have all
dividends, including any capital gain dividends, reinvested automatically in
additional Common Shares by PFPC Inc., as agent for the Common Shareholders (the
"Plan Agent"), unless the shareholder elects to receive cash. An election to
receive cash may be revoked or reinstated at the option of the shareholder. In
the case of record shareholders such as banks, brokers or other nominees that
hold Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record shareholder as representing the total amount
registered in such shareholder's name and held for the account of beneficial
owners who are to participate in the Plan. Shareholders whose shares are held in
the name of a bank, broker or nominee should contact the bank, broker or nominee
for details. All distributions to investors who elect not to participate in the
Plan (or whose broker or nominee elects not to participate on the investor's
behalf), will be paid cash by check mailed, in the case of direct shareholder,
to the record holder by PFPC Inc., as the Fund's dividend disbursement agent.
Unless you (or your broker or nominee) elects not to participate in the Plan,
the number of Common Shares you will receive will be determined as follows:
(1) If common Shares are trading at or above net asset value on the payment
date, the Fund will issue new shares at the greater of (i) the net asset
value per Common Share on the payment date or (ii) 95% of the market price
per Common Share on the payment date; or
(2) If Common Shares are trading below net asset value (minus estimated
brokerage commissions that would be incurred upon the purchase of Common
Shares on the open market) on the payment date, the Plan Agent will receive
the dividend or distribution in cash and will purchase Common Shares in the
open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts. It is possible that the market price for the Common
Shares may increase before the Plan Agent has completed its purchases.
Therefore, the average purchase price per share paid by the Plan Agent may
exceed the market price on the payment date, resulting in the purchase of
fewer shares than if the dividend or distribution had been paid in Common
Shares issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open market
on or shortly after the payment date, but in no event later than the
ex-dividend date for the next distribution. Interest will not be paid on
any uninvested cash payments.
You may withdraw from the Plan at any time by giving notice to the Plan Agent.
If you withdraw or the Plan is terminated, you will receive a certificate for
each whole share in your account under the Plan and you will receive a cash
payment for any fraction of a share in your account. If you wish, the Plan Agent
will sell your shares and send you the proceeds, minus brokerage commissions.
The Plan Agent maintains all shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. The Plan Agent will also furnish each person who
buys Common Shares with written instructions detailing the procedures for
electing not to participate in the Plan and to instead receive distributions in
cash. Common Shares in your account will be held by the Plan Agent in
non-certificated form. Any proxy you receive will include all Common Shares you
have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvested dividends and distributions are taxed in the same
manner as cash dividends and distributions.
The Fund and the Plan Agent reserve the right to amend or terminate the Plan.
There is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the
participants. Additional information about the Plan may be obtained from the
Fund's transfer agent, PFPC Inc., P.O. Box 43027, Providence, RI 02940-3027,
telephone number 1-800-331-1710.
20 Nicholas-Applegate Convertible & Income Fund Annual Report | 2.29.04
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND BOARD OF TRUSTEES
================================================================================
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
--------------------------------------------------------------------------------
PAUL BELICA Director, Student Loan Finance Corp.,
1345 Avenue of the Americas Education Loans, Inc., Goal Funding I,
New York, NY 10105 Inc., Goal Funding II, Inc., and Surety
Age: 82 Loan Funding, Inc.; Formerly senior
TRUSTEE SINCE: 2003 executive and member of the board of Smith
TERM OF OFFICE: EXPECTED TO STAND Barney, Harris Upham & Co.; and the CEO of
FOR RE-ELECTION AT 2006 ANNUAL five State of New York agencies.
MEETING OF SHAREHOLDERS.
TRUSTEE OF 18 FUNDS IN FUND COMPLEX
TRUSTEE OF NO FUNDS OUTSIDE
OF FUND COMPLEX
ROBERT E. CONNOR Corporate Affairs Consultant; Formerly,
1345 Avenue of the Americas Senior Vice President, Corporate Office,
New York, NY 10105 Smith Barney, Inc.
Age: 69
TRUSTEE SINCE: 2003
TERM OF OFFICE: EXPECTED TO STAND
FOR RE-ELECTION AT 2004 ANNUAL
MEETING OF SHAREHOLDERS.
TRUSTEE/DIRECTOR OF 18 FUNDS
IN FUND COMPLEX
TRUSTEE OF NO FUNDS OUTSIDE
OF FUND COMPLEX
JOHN J. DALESSANDRO II President and Director, J.J. Dalessandro II
1345 Avenue of the Americas Ltd. registered broker-dealer and member of
New York, NY 10105 the New York Stock Exchange.
Age: 66
TRUSTEE SINCE: 2003
TERM OF OFFICE: EXPECTED TO STAND
FOR RE-ELECTION AT 2005 ANNUAL
MEETING OF SHAREHOLDERS.
TRUSTEE OF 15 FUNDS IN FUND COMPLEX
TRUSTEE OF NO FUNDS OUTSIDE
OF FUND COMPLEX
HANS W. KERTESS President, H Kertess & Co.; Formerly,
1345 Avenue of the Americas Managing Director, Royal Bank of Canada
New York, NY 10105 Capital Markets.
Age: 64
TRUSTEE SINCE: 2004
TERM OF OFFICE: EXPECTED TO STAND
FOR RE-ELECTION AT 2004 ANNUAL
MEETING OF SHAREHOLDERS.
TRUSTEE OF 15 FUNDS IN FUND COMPLEX
TRUSTEE OF NO FUNDS OUTSIDE
OF FUND COMPLEX
2.29.04 | Nicholas-Applegate Convertible & Income Fund Annual Report 21
(THIS PAGE INTENTIONALLY LEFT BLANK)
(THIS PAGE INTENTIONALLY LEFT BLANK)
(THIS PAGE INTENTIONALLY LEFT BLANK)
TRUSTEES AND PRINCIPAL OFFICERS
Stephen Treadway
Chairman
Paul Belica
Trustee
Robert E. Connor
Trustee
John J. Dalessandro II
Trustee
Hans W. Kertess
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
PIMCO Advisors 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 AUDITORS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
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.
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.
Daily information on the Fund is available at www.pimcoadvisors.com or by
calling 1-800-331-1710.
[PIMCO ADVISORS LOGO]
ITEM 2. CODE OF ETHICS
As of the end of the period covered by this report, the registrant has adopted a
code of ethics (the "Section 406 Standards for Investment Companies -- Ethical
Standards for Principal Executive and Financial Officers") that applies to the
registrant's Principal Executive Officer and Principal Financial Officer; the
registrant's Principal Financial Officer also serves as the Principal Accounting
Officer. The registrant undertakes to provide a copy of such code of ethics to
any person upon request, without charge, by calling 1-800-331-1710.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The registrant's Board has determined that Mr. Paul Belica, a member of the
Board's Audit Oversight Committee is an "audit committee financial expert," and
that he is "independent," for purposes of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
a) Audit fees. The aggregate fees billed for each of the last two
fiscal years (the "Reporting Periods") for professional services
rendered by the Registrant's principal accountant (the
"Auditor") for the audit of the Registrant's annual financial
statements, or services that are normally provided by the
Auditor in connection with the statutory and regulatory filings
or engagements for the Reporting Periods, were $0 in 2003 and
$51,000 in 2004.
b) Audit-Related Fees. The aggregate fees billed in the Reporting
Periods for assurance and related services by the principal
accountant that are reasonably related to the performance of the
audit registrant's financial statements and are not reported
under paragraph (e) of this Item were 0 in 2003 and $48,000 in
2004. These services consist of accounting consultations, agreed
upon procedure reports (inclusive of annual review of basic
maintenance testing associated with the Preferred Shares),
attestation reports and comfort letters.
c) Tax Fees. The aggregate fees billed in the Reporting Periods for
professional services rendered by the Auditor for tax
compliance, tax service and tax planning ("Tax Services") were
$0 in 2003 and $2,600 in 2004. These services consisted of
review or preparation of U.S. federal, state, local and excise
tax returns.
d) All Other Fees. There were no other fees billed in the Reporting
Periods for products and services provided by the Auditor to the
Registrant.
e) 1. Audit Committee Pre-Approval Policies and Procedures. The
Registrant's Audit Committee has established policies and
procedures for pre-approval of all audit and permissible
non-audit services by the Auditor for the Registrant, as well as
the Auditor's engagements for non-audit services to the when the
engagement relates directly to the operations and financial
reporting of the Registrant. The Registrant's policy is stated
below.
PIMCO ADVISORS VIT (THE "FUND")
AUDIT OVERSIGHT COMMITTEE POLICY
FOR
PRE-APPROVAL OF SERVICES PROVIDED BY THE INDEPENDENT ACCOUNTANTS
The Fund's Audit Oversight Committee ("Committee") is charged with the
responsibility of monitoring the independence of the Fund's accountants. As part
of this responsibility, the Committee must pre-approve any independent
accounting firm's engagement to render audit and/or permissible non-audit
services, as required by law. In evaluating a proposed engagement by the
independent accountants, the Committee will assess the effect that the
engagement might reasonably be expected to have on the accountant's
independence. The Committee's evaluation will be based on:
a review of the nature of the professional services expected to be
provided,
a review of the safeguards put into place by the accounting firm to
safeguard independence, and
periodic meetings with the accounting firm.
POLICY FOR AUDIT AND NON-AUDIT SERVICES TO BE PROVIDED TO THE FUND
On an annual basis, the Committee of the Fund will review and pre-approve the
scope of the audits of the Fund and proposed audit fees, as well as the
audit-related and non-audit services that may be performed by the Fund's
independent accountants. At least annually, the Committee will receive a report
of all audit and non-audit services that were rendered in the previous calendar
year pursuant to this Policy.
In connection with the Committee's pre-approval of services pursuant to this
Policy, the President or Treasurer of the Fund will confirm in writing that the
engagement of the independent accounting firm for any non-audit service provided
to the Fund for which the Committee's pre-approval is being sought will not
adversely affect the firm's independence. All non-audit services performed by
the independent accounting firm will be disclosed, as required, in filings with
the Securities and Exchange Commission.
AUDIT SERVICES
The categories of audit services and related fees to be reviewed and
pre-approved annually by the Committee are:
Annual Fund financial statement audits
Seed audits (related to new product filings, as required)
SEC and regulatory filings and consents
AUDIT-RELATED SERVICES
The following categories of audit-related services are considered to be
consistent with the role of the Fund's independent accountants and services
falling under one of these categories will be pre-approved by the Committee on
an annual basis if the Committee deems those services to be consistent with the
accounting firm's independence:
Accounting consultations
Fund merger support services
Agreed upon procedure reports (inclusive of semiannual report review)
Attestation reports
Comfort letters
Other internal control reports
Individual audit-related services that fall within one of these categories and
are not presented to the Committee as part of the annual pre-approval process
described above, may be pre-approved, if deemed consistent with the accounting
firm's independence, by the Committee Chair (or any other Committee member on
whom this responsibility has been delegated) without a meeting of the Committee
so long as the estimated fee for those services does not exceed $75,000.
TAX SERVICES
The following categories of tax services are considered to be consistent with
the role of the Fund's independent accountants and services falling under one of
these categories will be pre-approved by the Committee on an annual basis if the
Committee deems those services to be consistent with the accounting firm's
independence:
Tax compliance services related to the filing or amendment of the
following: Federal, state and local income tax compliance; and, Sales and
use tax compliance
Timely RIC qualification reviews
Tax distribution analysis and planning
Tax authority examination services
Tax appeals support services
Accounting methods studies
Fund merger support services
Other tax consulting services and related projects
Individual tax services that fall within one of these categories and are not
presented to the Committee as part of the annual pre-approval process described
above, may be pre-approved, if deemed consistent with the accounting firm's
independence, by the Committee Chair (or any other Committee member on whom this
responsibility has been delegated) without a meeting of the Committee so long as
the estimated fee for those services does not exceed $75,000.
PROSCRIBED SERVICES
The Fund's independent accountants will not render services in the following
categories of non-audit services:
Bookkeeping or other services related to the accounting records or
financial statements of the Fund
Financial information systems design and implementation
Appraisal or valuation services, fairness opinions, or contribution-in-kind
reports
Actuarial services
Internal audit outsourcing services
Management functions or human resources
Broker or dealer, investment adviser or investment banking services
Legal services and expert services unrelated to the audit
Any other service that the Public Company Accounting Oversight Board
determines, by regulation, is impermissible.
PRE-APPROVAL OF NON-AUDIT SERVICES PROVIDED TO OTHER ENTITIES WITHIN THE FUND
COMPLEX
The Committee will review at least annually non-audit services provided to the
Adviser and any of its affiliates that also provide ongoing services to the
Fund. The only non-audit services provided to these entities that will require
pre-approval are those related directly to the operations and financial
reporting of the Fund. Although the Committee will not pre-approve all services
provided to the Adviser and its affiliates, the Committee will receive an annual
report from the Fund's independent accounting firm showing the aggregate fees
for all services provided to the Adviser and its affiliates. Individual projects
that are not presented to the Committee as part of the annual review for
pre-approval for the ensuing year, may be individually pre-approved, if deemed
consistent with the accounting firm's independence, by the Committee Chairman
(or any other Committee member on whom this responsibility has been delegated)
without a meeting of the Committee so long as the estimated fee for those
services does not exceed $100,000.
e) 2. No services were approved pursuant to the procedures
contained in paragraph (C) (7) (i) (C) of Rule 2-01 of
Registration S-X.
f) Not applicable
g) Non-audit fees. The aggregate non-audit fees billed by the
Auditor for services rendered to the Registrant, and rendered to
the Adviser, for the Reporting Periods were $0 in 2003 and
$3,698,180 in 2004.
h) Auditor Independence. The Registrant's Audit Committee has
considered whether the provision of non-audit services that were
rendered to the Adviser which were not pre-approved is
compatible with maintaining the Auditor's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Disclosure requirement not currently effective.
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
The registrant has delegated the voting of proxies relating to its voting
securities to its sub-adviser, Nicholas Applegate Capital Management LLC (the
"Sub-Adviser"). The Proxy Voting Policies and Procedures of the Sub-Adviser are
included as an Exhibit 99.PROXYPOL hereto.
ITEM 8. DISCLOSURE REQUIREMENT CURRENTLY NOT EFFECTIVE
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.
The Registrant has not yet held its first annual shareholders' meeting, so these
procedures have yet to be disclosed in response to the requirements of Item
7(d)(2)(ii)(G) of Schedule 14A, and this is the first Form N-CSR filing made by
the Registrant after Item 9 was added to the Form. 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-3(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)(1) Exhibit 99.CODE ETH - Code of Ethics
(a)(2) Exhibit 99.CERT. - Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(b) Exhibit 99.906CERT. - 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 Capital Management LLC
By /s/ Brian S. Shlissel
------------------------
President and Chief Executive Officer
Date May 10, 2004
-----------------
By /s/ Lawrence G. Altadonna
----------------------------
Treasurer, Principal Financial & Accounting Officer
Date May 10, 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 May 10, 2004
-----------------
By /s/ Lawrence G. Altadonna
----------------------------
Treasurer, Principal Financial & Accounting Officer
Date May 10, 2004
-----------------