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 811-21338
---------
Nicholas-Applegate Convertible & Income Fund II
(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
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Date of fiscal year end: June 30
-------
Date of reporting period: December 31, 2003
-----------------
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
12.31.03
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II
--------------------------------------------------------------------------------
[NCZ LOGO OMITTED]
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 ................. 12-14
Financial Highlights .......................... 15
Privacy Policy ................................ 16
PIMCO
--------
ADVISORS
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II LETTER TO SHAREHOLDERS
February 6, 2004
Dear Shareholder:
We are pleased to provide you with the initial financial report of the
Nicholas-Applegate Convertible & Income Fund II (the "Fund") for the period July
31, 2003 (commencement of operations) through December 31, 2003.
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
|12.31.03| Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report 1
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II PERFORMANCE AND STATISTICS
December 31, 2003 (unaudited)
--------------------------------------------------------------------------------
SYMBOL:
NCZ
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:
July 31, 2003
TOTAL NET ASSETS(1):
$1,376.2 million
PORTFOLIO MANAGER:
Douglas Forsyth
TOTAL RETURN(2): Market Price NAV
--------------------------------------------------------------------------------
Commencement of Operations (7/31/03) to 12/31/03 6.79% 12.35%
COMMON SHARE PRICE PERFORMANCE:
Commencement of Operations (7/31/03) to 12/31/03
[The following data represents a line graph in the printed piece]
7/31/03 14.3 15
14.96 15.01
14.17 15.01
14.1 15
14.4 15
14.61 15
14.7 15.01
14.73 14.39
14.84 14.61
14.59 14.3
14.75 14.7
14.87 14.56
14.9 14.73
14.76 14.7
14.97 14.87
15.11 15
14.92 14.94
14.81 14.89
15.15 14.85
15.24 15.23
15.19 15.27
15.33 15.13
15.37 15.22
12/31/03 15.49 15.42
MARKET PRICE/NET ASSET VALUE
----------------------------------------
Market Price $15.42
----------------------------------------
Net Asset Value $15.49
----------------------------------------
Market Price Yield(3) 9.00%
----------------------------------------
Discount to Net Asset Value 0.45%
----------------------------------------
(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 redeemable 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 investment 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 monthly
per share dividend to common shareholders by the market price per common share
at December 31, 2003.
2 Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report |12.31.03|
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II SCHEDULE OF INVESTMENTS
December 31, 2003 (unaudited)
Principal
Amount Credit Rating
(000) (Moody's/S&P) Value*
=======================================================================================================
CORPORATE BONDS & NOTES--44.1%
-------------------------------------------------------------------------------------------------------
AGRICULTURE--0.3%
$ 4,000 Hines Nurseries Inc., 10.25%, 10/1/11
(acquired 10/21/03, cost-$4,270,000) (a) B3/B $ 4,360,000
===========
AIRLINES--1.7%
10,000 Continental Airlines, Inc., 8.00%, 12/15/05 Caa2/CCC+ 9,725,000
10,000 Delta Airlines, Inc., 7.90%, 12/15/09 B3/B- 8,087,500
4,065 Northwest Airlines Corp., 6.625%, 5/15/23 Caa1/B- 4,766,213
-----------
22,578,713
===========
APPAREL--0.5%
4,890 Phillips-Van Heusen Corp., 9.50%, 5/1/08 B3/B+ 5,085,600
2,000 Russell Corp., 9.25%, 5/1/10 B1/BB 2,072,500
-----------
7,158,100
===========
AUTOMOTIVE--1.3%
9,320 CSK Auto, Inc., 12.00%, 6/15/06 B2/NR 10,694,700
7,000 Group One Automotive Inc., 10.875%, 3/1/09 B1/B+ 7,455,000
-----------
18,149,700
===========
CHEMICALS--0.3%
3,505 Polyone Corp., 10.625%, 5/15/10 B3/BB- 3,505,000
===========
COMMERCIAL SERVICES--2.0%
14,000 United Rentals North America, Inc., 10.75%, 4/15/08, Ser. B B1/BB- 15,750,000
9,500 Xerox Corp., 9.75%, 1/15/09 B1/B+ 11,115,000
-----------
26,865,000
===========
ELECTRONICS--0.6%
7,000 Sanmina-SCI Corp., 10.375%, 1/15/10 Ba2/BB- 8,190,000
===========
ENERGY--1.5%
4,000 Calpine Corp., 8.50%, 2/15/11 Caa1/CCC+ 3,165,000
9,500 Calpine Corp., 8.50%, 7/15/10
(acquired 11/4/03, cost-$8,754,679) (a) NR/B 9,262,500
7,000 Reliant Resources, Inc., 9.50%, 7/15/13
(acquired 11/18/03, cost-$6,929,260) (a) B1/B 7,490,000
-----------
19,917,500
===========
ENTERTAINMENT--1.6%
7,320 Alliance Atlantis Communications, Inc., 13.00%, 12/15/09 B1/B 8,344,800
11,510 Argosy Gaming Corp., 10.75%, 6/1/09 B2/B+ 12,430,800
-----------
20,775,600
===========
FINANCIAL SERVICES--3.6%
2,040 Thornburg Mortgage Inc., 8.00%, 5/15/13 Ba2/BB- 2,142,000
30,000 TRAC-X North America, 7.375%, 3/25/09
(acquired 12/3/03, cost-$30,000,000) (a)(b) B3/NR 31,275,000
13,980 TRAC-X North America, 10.125%, 3/25/09
(acquired 12/3/03, cost-$14,137,275) (a)(b) NR/NR 14,679,000
-----------
48,096,000
===========
FOOD SERVICES--0.3%
4,000 Pilgrim's Pride Corp., 9.625%, 9/15/11 B1/BB- 4,400,000
===========
|12.31.03| Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report 3
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II SCHEDULE OF INVESTMENTS
December 31, 2003 (unaudited)
Principal
Amount Credit Rating
(000) (Moody's/S&P) Value*
=======================================================================================================
HEALTHCARE--0.3%
$ 2,380 Extendicare Health Services, Inc., 9.35%, 12/15/07 B3/B- $ 2,451,400
2,000 Mariner Health Care, Inc., 8.25%, 12/15/13
(acquired 12/12/03, cost-$2,000,000) (a) B3/B- 2,020,000
-----------
4,471,400
===========
HOME BUILDERS--1.4%
11,500 Ryland Group, Inc., 9.125%, 6/15/11 Ba2/BB+ 13,138,750
5,000 Standard-Pacific Corp., 9.50%, 9/15/10 Ba2/BB 5,575,000
-----------
18,713,750
===========
HOTELS/GAMING--2.4%
11,080 Mandalay Resort Group, Inc., 10.25%, 8/1/07 Ba3/BB- 12,797,400
7,000 Penn National Gaming, Inc., 11.125%, 3/1/08 B3/B 7,857,500
10,000 Wynn Resorts Ltd., 12.00%, 11/1/10 B3/CCC+ 11,775,000
-----------
32,429,900
===========
LEISURE--1.7%
12,335 Bally Total Fitness Holdings Corp., 9.875%, 10/15/07, Ser. D B3/B- 11,224,850
1,500 Bally Total Fitness Holdings Corp., 10.50%, 7/15/11
(acquired 8/7/03, cost-$1,507,500) (a) B2/B 1,507,500
8,825 Royal Caribbean Cruises, Inc., 8.75%, 2/2/11 Ba2/BB+ 9,972,250
-----------
22,704,600
===========
MANUFACTURING--1.8%
5,000 Case New Holland Inc., 9.25%, 8/1/11
(acquired 9/29/03, cost-$5,387,500) (a) Ba3/BB- 5,600,000
4,500 Huntsman LLC., 11.625%, 10/15/10
(acquired 12/11/03, cost-$4,620,000) (a) B2/B 4,590,000
13,000 Lyondell Chemical Co., 9.625%, 5/1/07, Ser. A B1/BB- 13,780,000
-----------
23,970,000
===========
METALS/MINING--0.2%
3,000 AK Steel Corp., 7.875%, 2/15/09 B3/B+ 2,632,500
===========
MULTI-MEDIA--5.3%
12,000 Charter Communications, Inc., 10.75%, 10/1/09 Ca/CCC- 11,010,000
9,600 CSC Holdings, Inc., 9.875%, 2/15/13 B2/B+ 10,032,000
4,000 Dex Media Inc., 8.00%, 11/15/13
(acquired 11/03/03, cost-$4,000,000) (a) Caa1/B 4,200,000
8,085 Dex Media West LLC, 9.875%, 8/15/13
(acquired 8/15/03, cost-$8,900,413) (a) B3/B 9,398,813
3,000 DirecTV Holdings, Inc., 8.375%, 3/15/13 B1/B- 3,480,000
10,525 Echostar DBS Corp., 9.375%-10.375%, 10/1/07-2/1/09 Ba3/BB- 11,514,405
5,500 Spanish Broadcasting System, 9.625%, 11/1/09 Caa1/CCC+ 5,871,250
5,000 Vivendi Universal SA., 9.25%, 4/15/10
(acquired 8/6/03, cost-$5,452,500) (a) B1/BB 5,925,000
8,000 XM Satellite Radio Holdings, Inc., 12.00%, 6/15/10 Caa1/CCC+ 9,040,000
-----------
70,471,468
===========
4 Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report |12.31.03|
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II SCHEDULE OF INVESTMENTS
December 31, 2003 (unaudited)
Principal
Amount Credit Rating
(000) (Moody's/S&P) Value*
=======================================================================================================
OFFICE FURNISHINGS--0.5%
$ 6,000 Tempur-Pedic Inc., 10.25%, 8/15/10
(acquired 8/8/03, cost-$6,016,250) (a) B3/B- $ 6,690,000
===========
OIL & GAS--2.6%
4,000 Paramount Resources Ltd., 7.875%, 11/1/10 B2/B 3,980,000
7,500 Petroleum Geo-Services ASA, 10.00%, 11/5/10 NR/NR 8,025,000
14,000 Sonat, Inc., 7.625%, 7/15/11 Caa1/B- 12,967,500
9,650 Williams Cos. Inc., 9.25%, 3/15/04 B3/B+ 9,770,625
-----------
34,743,125
===========
PAPER PRODUCTS--1.0%
11,250 Georgia-Pacific Corp., 9.375%, 2/1/13 Ba2/BB+ 12,937,500
===========
PHARMACEUTICALS--0.5%
5,960 aaiPharma Inc., 11.00%, 4/1/10 Caa1/B- 6,764,600
===========
RECYCLING--0.4%
5,855 Imco Recycling Inc., 10.375%, 10/15/10
(acquired 10/2/03, cost-$5,850,013) (a) B3/B- 6,016,013
===========
RETAIL--1.8%
7,200 Hollywood Entertainment Corp., 9.625%, 3/15/11 B3/B- 7,740,000
1,200 Michaels Stores, Inc., 9.25%, 7/1/09 Ba1/BB+ 1,324,500
13,000 Rite Aid Corp., 11.25%, 7/1/08 Caa2/B- 14,495,000
-----------
23,559,500
===========
SEMICONDUCTORS--1.2%
12,970 Amkor Technology, Inc., 10.50%, 5/1/09 B3/CCC+ 13,845,475
2,000 Fairchild Semiconductor International, Inc., 10.50%, 2/1/09 B2/B 2,230,000
-----------
16,075,475
===========
TELECOMMUNICATIONS--6.8%
13,610 American Tower Corp., 9.375%, 2/1/09 Caa1/CCC 14,494,650
11,760 Crown Castle International, Inc., 10.75%, 8/1/11 B3/CCC 13,230,000
2,500 Millicom International Cellular S.A., 10.00%, 12/1/13
(acquired 11/19/03, cost-$2,500,000) (a) B3/B- 2,637,500
5,625 Nextel Communications, Inc., 9.375%, 11/15/09 B2/B+ 6,131,250
10,470 Nextel Partners, Inc., 11.00%, 3/15/10 Caa1/CCC+ 11,569,350
10,250 Nortel Networks Ltd., 6.125%, 2/15/06 B3/B 10,378,125
10,500 Primus Telecommunications Group, Inc., 11.25%-12.75%,
1/15/09-10/15/09 Caa2/CCC- 11,250,000
12,200 Time Warner Telecom, Inc., 10.125%, 2/1/11 B3/CCC+ 12,993,000
8,140 Triton PCS, Inc., 9.375%, 2/1/11 B3/B- 8,302,800
-----------
90,986,675
===========
TEXTILES--0.6%
6,500 Interface, Inc., 9.50%, 11/15/05 Caa3/CCC 6,305,000
2,000 Interface, Inc., 10.375%, 2/01/10 Caa1/B- 2,115,000
-----------
8,420,000
===========
UTILITIES--0.9%
12,000 AES Corp., 9.50%, 6/1/09 B3/B- 13,305,000
===========
WASTE DISPOSAL--1.0%
12,000 Allied Waste, Inc., 10.00%, 8/1/09, Ser. B B2/B+ 12,960,000
===========
Total Corporate Bonds & Notes (cost-$570,415,280) 591,847,119
===========
|12.31.03| Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report 5
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II SCHEDULE OF INVESTMENTS
December 31, 2003 (unaudited)
Principal
Amount Credit Rating
(000) (Moody's/S&P) Value*
=======================================================================================================
CONVERTIBLE BONDS & NOTES--30.3%
-------------------------------------------------------------------------------------------------------
AEROSPACE--2.2%
$14,425 GenCorp Inc., 5.75%, 4/15/07 B3/B+ $14,515,156
12,000 L-3 Communications Holdings, Inc., 5.25%, 6/1/09 Ba3/BB- 15,210,000
-----------
29,725,156
===========
AIRLINES--1.1%
16,300 Continental Airlines Inc., 4.50%, 2/1/07 Caa2/CCC+ 14,486,625
===========
BUSINESS SERVICES--1.3%
11,400 Affiliated Computer Services, Inc., 3.50%, 2/15/06 Baa2/BBB- 14,478,000
3,000 Bowne & Co., Inc., 5.00%, 10/1/33
(acquired 9/18/03, cost-$3,000,000) (a) Caa1/B- 3,157,500
-----------
17,635,500
===========
COMMERCIAL SERVICES--0.7%
8,640 Quebecor World Color Press, Inc., 6.00%, 10/1/07 Baa3/BB+ 9,018,000
===========
COMPUTERS--0.8%
3,300 Sandisk Corp., 4.50%, 11/15/06 NR/CCC+ 11,257,125
===========
DIVERSIFIED MANUFACTURING--1.2%
11,565 Tyco International Group SA, 3.125%, 1/15/23 Ba2/BBB- 15,872,962
===========
ELECTRONICS--1.9%
8,500 Artesyn Technologies, Inc., 5.50%, 8/15/10 NA/NA 11,581,250
12,300 Cymer, Inc., 3.50%, 2/15/09 NR/B- 14,252,625
-----------
25,833,875
===========
ENERGY--1.0%
14,380 Calpine Corp., 4.00%, 12/26/06 Caa1/CCC+ 14,128,350
===========
FOOD SERVICES--0.9%
10,100 Performance Food Group, Co., 5.50%, 10/16/08 NR/NR 12,195,750
===========
HEALTHCARE--0.4%
4,745 Advanced Medical Optics, Inc., 3.50%, 4/15/03 NR/B 5,723,656
===========
INTERNET--2.1%
13,116 E*Trade Group Inc., 6.00%, 2/1/07 NR/B- 13,476,690
6,840 Symantec Corp., 3.00%, 11/1/06 NR/B 14,064,750
-----------
27,541,440
===========
MULTI-MEDIA--3.0%
14,500 Charter Communications, Inc., 5.75%, 10/15/05 Ca/CCC- 13,775,000
12,000 Echostar Communications Corp., 5.75%, 5/15/08 B2/B 12,690,000
13,000 Liberty Media Corp., 3.25%, 3/15/31 Baa3/BBB- 13,585,000
-----------
40,050,000
===========
OIL & GAS--0.8%
7,585 St. Mary Land & Exploration Corp., 5.75%, 3/15/22 NR/NR 10,211,306
===========
REAL ESTATE--1.0%
13,000 EOP Operating LP, 7.25%, 11/15/08 Baa1/BBB+ 13,812,500
===========
RETAIL--1.7%
10,500 Gap, Inc., 5.75%, 3/15/09 Ba3/BB+ 16,156,875
5,200 Guitar Center, Inc., 4.00%, 7/15/13 B1/B+ 6,246,500
-----------
22,403,375
===========
SEMICONDUCTORS--1.1%
14,300 Amkor Technology, Inc., 5.00%, 3/15/07 B3/CCC+ 14,139,125
===========
6 Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report |12.31.03|
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II SCHEDULE OF INVESTMENTS
December 31, 2003 (unaudited)
Principal
Amount Credit Rating
(000) (Moody's/S&P) Value*
=======================================================================================================
SOFTWARE--2.9%
$10,300 Computer Associates International, Inc., 5.00%, 3/15/07 Baa3/BBB+ $13,338,500
11,500 HNC Software, Inc., 5.25%, 9/1/08 NR/NR 12,535,000
12,500 Network Associates, Inc., 5.25%, 8/15/06 NR/NR 13,625,000
-----------
39,498,500
===========
TELECOMMUNICATIONS--5.0%
14,250 American Tower Corp., 5.00%, 2/15/10 Caa1/CCC 13,644,375
9,500 Crown Castle International, Inc., 4.00%, 7/15/10 NR/CCC 12,789,375
12,000 Nextel Communications, Inc., 6.00%, 6/1/11 B2/B+ 14,940,000
14,500 Nortel Networks Corp., 4.25%, 9/1/08. B3/B 13,793,125
8,750 Primus Telecommunications Group, Inc., 3.75%, 9/15/10
(acquired 10/03/03, cost-$12,648,460) (a) NR/CCC 12,403,125
-----------
67,570,000
===========
WASTE DISPOSAL--1.2%
14,600 Waste Connections, Inc., 5.50%, 4/15/06 B1/BB- 15,822,750
===========
Total Convertible Bonds & Notes (cost-$383,682,075) 406,925,995
===========
-------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK--19.8%
-------------------------------------------------------------------------------------------------------
Shares
(000)
------ AEROSPACE--2.0%
130 Northrop Grumman Corp., 7.25%, 11/16/04 NR/NR 13,481,000
257 Raytheon, Co., 8.25%, 5/15/04 NR/BB 13,922,820
-----------
27,403,820
===========
AUTOMOTIVE--1.6%
295 Ford Motor Co. Capital Trust II., 6.50%, 1/15/32 Baa2/BB 16,475,750
169 General Motors Corp., 6.25%, 7/15/33, Ser. C Baa1/BBB 5,464,676
-----------
21,940,426
===========
BANKING--1.0%
231 Washington Mutual, Inc., 5.375%, 5/3/41 Baa1/BBB- 12,857,460
===========
COMMERCIAL SERVICES--3.3%
287 Cendant Corp., 7.75%, 8/17/04 Baa1/BBB 14,382,238
310 United Rentals, Inc., 6.50%, 8/1/28 B3/B 13,833,750
205 Xerox Corp., 7.50%, 11/27/21
(acquired 10/03/03, cost-$13,562,163) (a) B3/B- 16,392,000
-----------
44,607,988
===========
ELECTRONICS--1.1%
846 Solectron Corp., 7.25%, 11/15/04 B3/B- 14,114,616
===========
FINANCIAL SERVICES--2.2%
293 Capital One Financial Corp., 6.25%, 5/17/05 Baa3/BB+ 14,054,809
225 Prudential Financial, Inc., 6.75%, 11/15/04 A3/A- 14,647,500
-----------
28,702,309
===========
HEALTHCARE--1.0%
158 Anthem, Inc., 6.00%, 11/15/04 NR/BBB- 13,896,225
===========
INSURANCE--2.0%
472 Platinum Underwriters Holdings, Ltd., 7.00%, 11/16/05 NR/NR 14,614,884
250 PMI Group, Inc., 5.875%, 11/15/06 A1/A+ 11,583,000
-----------
26,197,884
===========
|12.31.03| Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report 7
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II SCHEDULE OF INVESTMENTS
December 31, 2003 (unaudited)
Shares Credit Rating
(000) (Moody's/S&P) Value*
=======================================================================================================
METALS/MINING--0.1%
13 U.S. Steel Corp., 7.00%, 6/15/06, Ser. B NR/B- $ 1,477,688
==============
MULTI-MEDIA--1.0%
518 Equity Securities Trust I, 6.50%, 11/15/04 NR/NR 12,945,447
==============
OIL & GAS--1.2%
219 Chesapeake Energy Corp., 6.00%, 12/31/49 B3/B- 16,551,375
==============
TELECOMMUNICATIONS--1.9%
23 Corning, Inc., 7.00%, 8/16/05 B1/BB- 12,306,748
1,800 Sprint Corp. (FON Group), 7.125%, 8/17/04 NR/NR 12,780,000
--------------
25,086,748
==============
UTILITIES--1.4%
132 AES Trust III, 6.75%, 10/15/29 Ca/CCC+ 5,696,025
244 FPL Group Inc., 8.00%, 2/16/06 NR/A- 13,755,315
--------------
19,451,340
==============
Total Convertible Preferred Stock (cost-$243,475,600) 265,233,326
==============
-------------------------------------------------------------------------------------------------------
COMMON STOCK--1.8%
-------------------------------------------------------------------------------------------------------
METALS/MINING--1.1%
343 Freeport-McMoRan Copper & Gold, Inc 14,465,588
==============
OIL & GAS--0.7%
1,153 El Paso Corp 9,442,235
==============
Total Common Stock (cost-$20,318,868) 23,907,823
==============
-------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--4.0%
-------------------------------------------------------------------------------------------------------
Principal
Amount
(000)
--------- UNITED STATES TREASURY NOTES,
$47,000 9.375%-10.75%, 8/15/05-2/15/06, (cost-$53,964,890) 54,079,869
==============
TOTAL INVESTMENTS (cost-$1,271,856,713+)--100% $1,341,994,132
==============
=======================================================================================================
NOTES TO SCHEDULE OF INVESTMENTS:
* Long-term debt securities are valued by an independent pricing service
authorized by the Board of Trustees.
(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 December
31, 2003, these securities amounted to $147,603,951 or 11.0% 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
$147,603,951 or 11.0% of investments.
(b) Credit-linked trust certificate.
+ The cost basis of portfolio securities for federal income tax purposes is
$1,271,856,713. Aggregate gross unrealized appreciation for securities in
which there is an excess of value over tax cost is $76,416,090; aggregate
gross unrealized depreciation for securities in which there is an excess of
tax over value is $6,278,671; net unrealized appreciation for federal
income tax purposes is $70,137,419.
GLOSSARY:
NR -- Not Rated
================================================================================
8 Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report |12.31.03|
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003 (unaudited)
================================================================================
ASSETS:
Investments, at value (cost-$1,271,856,713) $1,341,994,132
-------------------------------------------------------------- ---------------
Cash 25,809,841
-------------------------------------------------------------- ---------------
Receivable for investments sold 25,466,175
-------------------------------------------------------------- ---------------
Interest and dividends receivable 20,810,815
-------------------------------------------------------------- ---------------
Prepaid expenses 23,237
-------------------------------------------------------------- ---------------
Total Assets 1,414,104,200
============================================================== ===============
LIABILITIES:
Payable for investments purchased 28,212,554
-------------------------------------------------------------- ---------------
Dividends and distributions payable to common and
preferred shareholders 8,533,539
-------------------------------------------------------------- ---------------
Investment management fees payable 811,202
-------------------------------------------------------------- ---------------
Common stock and preferred shares offering costs payable 236,040
-------------------------------------------------------------- ---------------
Accrued expenses 135,506
-------------------------------------------------------------- ---------------
Total Liabilities 37,928,841
-------------------------------------------------------------- ---------------
PREFERRED SHARES ($0.00001 PAR VALUE; $25,000 NET
ASSET AND LIQUIDATION VALUE PER SHARE APPLICABLE
TO 20,200 SHARES ISSUED AND OUTSTANDING) 505,000,000
-------------------------------------------------------------- ---------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 871,175,359
============================================================== ===============
COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Common Stock:
Par value ($0.00001 per share applicable to 56,256,981
shares issued and outstanding) $563
-------------------------------------------------------------- ---------------
Paid-in-capital in excess of par 798,880,690
-------------------------------------------------------------- ---------------
Dividends in excess of net investment income (4,495,442)
-------------------------------------------------------------- ---------------
Net realized gain on investments 6,652,129
-------------------------------------------------------------- ---------------
Net unrealized appreciation of investments 70,137,419
-------------------------------------------------------------- ---------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 871,175,359
============================================================== ===============
NET ASSET VALUE PER COMMON SHARE $ 15.49
============================================================== ===============
Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report |12.31.03|
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 9
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II STATEMENT OF OPERATIONS
For the period July 31, 2003* through December 31, 2003 (unaudited)
================================================================================
INVESTMENT INCOME:
Interest $ 24,711,344
-------------------------------------------------------------- ---------------
Dividends 7,062,505
-------------------------------------------------------------- ---------------
Total Investment Income 31,773,849
============================================================== ===============
EXPENSES:
Investment management fees 3,346,893
-------------------------------------------------------------- ---------------
Auction agent fees and commissions 329,986
-------------------------------------------------------------- ---------------
Custodian and accounting agent fees 72,400
-------------------------------------------------------------- ---------------
Shareholder reports 35,790
-------------------------------------------------------------- ---------------
Audit and tax services 28,490
-------------------------------------------------------------- ---------------
Organizational expenses 25,000
-------------------------------------------------------------- ---------------
New York Stock Exchange listing fees 18,512
-------------------------------------------------------------- ---------------
Transfer agent fees 12,628
-------------------------------------------------------------- ---------------
Trustees' fees and expenses 11,550
-------------------------------------------------------------- ---------------
Legal fees 9,240
-------------------------------------------------------------- ---------------
Investor relations 5,000
-------------------------------------------------------------- ---------------
Insurance expense 1,149
-------------------------------------------------------------- ---------------
Miscellaneous 4,620
-------------------------------------------------------------- ---------------
Total expenses 3,901,258
-------------------------------------------------------------- ---------------
NET INVESTMENT INCOME 27,872,591
============================================================== ===============
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 8,467,542
-------------------------------------------------------------- ---------------
Net unrealized appreciation of investments 70,137,419
-------------------------------------------------------------- ---------------
Net realized and unrealized gain on investments 78,604,961
-------------------------------------------------------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS 106,477,552
============================================================== ===============
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (1,567,336)
-------------------------------------------------------------- ---------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM INVESTMENT OPERATIONS $ 104,910,216
============================================================== ===============
* Commencement of operations
10 Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report |12.31.03|
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II
STATEMENT OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
For the period July 31, 2003* through December 31, 2003 (unaudited)
================================================================================
INVESTMENT OPERATIONS:
Net investment income $ 27,872,591
-------------------------------------------------------------- ---------------
Net realized gain on investments 8,467,542
-------------------------------------------------------------- ---------------
NET UNREALIZED APPRECIATION ON INVESTMENTS 70,137,419
-------------------------------------------------------------- ---------------
Net increase in net assets resulting from investment operations 106,477,552
============================================================== ===============
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (1,567,336)
-------------------------------------------------------------- ---------------
Net increase in net assets applicable to common shareholders
resulting from investment operations 104,910,216
-------------------------------------------------------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (30,800,697)
-------------------------------------------------------------- ---------------
Net realized gains (1,815,413)
-------------------------------------------------------------- ---------------
Total dividends and distributions to common shareholders (32,616,110)
============================================================== ===============
CAPITAL SHARE TRANSACTIONS:
Net proceeds from the sale of common stock 805,781,250
-------------------------------------------------------------- ---------------
Preferred shares underwriting discount charged to paid-in
capital in excess of par (5,050,000)
-------------------------------------------------------------- ---------------
Common stock and preferred shares offering costs charged to
paid-in capital in excess of par (1,950,000)
-------------------------------------------------------------- ---------------
Net increase from capital share transactions 798,781,250
-------------------------------------------------------------- ---------------
Total increase in net assets applicable to common shareholders 871,075,356
============================================================== ===============
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 100,003
-------------------------------------------------------------- ---------------
End of period (including dividends in excess of net investment
income of $4,495,442) $ 871,175,359
============================================================== ===============
COMMON SHARES ISSUED: 56,250,000
============================================================== ===============
* Commencement of operations
Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report |12.31.03|
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 11
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II NOTES TO FINANCIAL STATEMENTS
December 31, 2003 (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Nicholas-Applegate Convertible & Income Fund II (the "Fund") was organized as a
Massachusetts business trust on April 22, 2003. Prior to commencing operations
on July 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.
ADAM 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 55,000,000 shares of common stock, in its initial public
offering. An additional 1,250,000 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 $1,325,000 (representing $0.024 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) and organizational expenses exceeding $0.03 per
share. Because aggregate offering costs and organizational expenses were less
than $0.03 per common share, organizational expenses of $25,000 were expensed in
the current period. In addition, the underwriters commission and offering costs
associated with the issuance of Preferred Shares in the amounts of $5,050,000
and $625,000, 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. Debt securities are valued
daily by an independent pricing service approved by the Board of Trustees.
Prices may be obtained from independent pricing services which use information
provided by market makers or estimates of market values obtained from yield data
relating to investments or securities with similar characteristics. The value of
the Fund's investments is determined at the close of regular trading (normally,
4:00 p.m., Eastern Time) on the New York Stock Exchange ("NYSE") on each day the
NYSEis open or if no sales are reported, as is the case for most securities
traded over-the-counter, the mean between representative bid and asked
quotations obtained from a quotation reporting system or from established market
makers. Fixed income securities, including those to be purchased under firm
commitment agreements, are normally valued on the basis of quotes obtained from
brokers and dealers or pricing services. Short-term investments maturing in 60
days or less are valued at amortized cost, which approximates market value.
Certain fixed income securities for which daily market quotations are not
readily available may be valued, pursuant to guidelines established by the Board
of Trustees, which may include reference to fixed income securities whose prices
are more readily obtainable. The prices used by the Fund to value securities may
differ from the value that would be realized if the securities were sold.
(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.
12 Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report |12.31.03|
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II NOTES TO FINANCIAL STATEMENTS
December 31, 2003 (unaudited)
(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.
(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.
Like an investment in a bond, investments in these 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) CONCENTRATION OF RISK
It is the Fund's policy to invest the majority 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, they expose 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"), to manage the Fund's investments.
3. INVESTMENT IN SECURITIES
For the period ended December 31, 2003, purchases and sales of investments,
other than short-term securities, were $1,628,596,549 and $324,378,513,
respectively.
4. AUCTION PREFERRED SHARES
The Fund has issued 4,040 shares of Preferred Shares Series A, 4,040 shares of
Preferred Shares Series B, 4,040 shares of Preferred Shares Series C, 4,040
shares of Preferred Shares Series D, and 4,040 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.
|12.31.03| Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report 13
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II NOTES TO FINANCIAL STATEMENTS
December 31, 2003 (unaudited)
For the period ended December 31, 2003, the annualized dividend rate ranged
from:
High Low At 12/31/03
--------------------------------------------------------------------------------
Series A 1.50% 1.08% 1.25%
Series B 1.51% 1.10% 1.25%
Series C 1.49% 0.95% 1.49%
Series D 1.49% 1.09% 1.49%
Series E 1.50% 1.08% 1.49%
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 January 2, 2004, a dividend of $0.115625 per share was declared to common
shareholders payable February 2, 2004 to shareholders of record on January 16,
2004.
On February 2, 2004, a dividend of $0.115625 per share was declared to common
shareholders payable March 1, 2004 to shareholders of record on February 13,
2004.
6. SUBSEQUENT EVENT
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 a civil administrative action against the Investment
Manager and an affiliate of the Investment Manager seeking a permanent
injunction, disgorgement plus prejudgment interest and civil penalties in
connection with the Commission's investigation of "market timing" and related
trading activities in certain open-end investment companies advised by the
Investment Manager. There is a substantial likelihood that the Commission will
bring this action. The action described above does not allege any inappropriate
activity took place in the Fund and the Fund is not named in the action.
On February 17, 2004, the Attorney General of New Jersey filed a complaint
alleging, among other things, that certain affiliates of the Investment Manager
had failed to disclose that they improperly allowed certain hedge funds to
engage in "market timing" in certain open-end investment companies. On February
20, 2004, the Investment Manager, the Sub-Adviser, the Fund and certain of their
affiliates were named as defendants in a putative class action lawsuit filed in
the U.S District Court, District of New Jersey, relating to the same facts that
are the subject of these regulatory proceedings. The lawsuit seeks unspecified
compensatory damages.
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 directed brokerage and revenue-sharing arrangements involving
open-end investment companies they advise. The Investment Manager, the
Sub-Adviser and certain of their affiliates also have been named as defendants
in a putative class action lawsuit that challenges the brokerage and
distribution arrangements of open-end investment companies advised by the
Investment Manager and its affiliates, including revenue sharing arrangements.
The complaint, filed in U.S. District Court, District of Connecticut, on
February 17, 2004, generally alleges that the investment adviser to these funds
inappropriately used assets of these open-end investment companies to pay
brokers to promote the investment companies by directing brokerage transactions
to such brokers, and did not fully disclose such arrangements to shareholders.
The lawsuit seeks unspecified compensatory damages. In addition, the Attorney
General of the State of California has publicly announced an investigation into
the matters referenced above. The Fund has not been named in any of the matters
described above.
Additional lawsuits and regulatory actions arising out of these circumstances
and presenting similar allegations may be filed against the Investment Manager,
the Sub-Adviser and their affiliates, including the Fund.
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 Sub-Adviser
have notified the Fund that they do not believe that these developments will
have a material adverse effect on the Investment Manager's or Sub-Adviser's
ability to perform their respective advisory services to the Fund.
14 Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report |12.31.03|
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II FINANCIAL HIGHLIGHTS
For a share of common stock outstanding for the period July 31, 2003* through
December 31, 2003 (unaudited)
================================================================================
Net asset value, beginning of period $14.33**
-------------------------------------------------------------- ---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.50
-------------------------------------------------------------- ---------------
Net realized and unrealized gain on investments 1.39
-------------------------------------------------------------- ---------------
Total from investment operations 1.89
-------------------------------------------------------------- ---------------
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (0.03)
-------------------------------------------------------------- ---------------
Net increase in net assets applicable to common shareholders
resulting from investment operations 1.86
-------------------------------------------------------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (0.55)
-------------------------------------------------------------- ---------------
Net realized gains (0.03)
-------------------------------------------------------------- ---------------
Total dividends and distributions to common shareholders (0.58)
-------------------------------------------------------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Common stock offering costs charged to paid-in capital in
excess of par (0.02)
-------------------------------------------------------------- ---------------
Preferred shares offering costs/underwriting discounts charged
to paid-in capital in excess of par (0.10)
-------------------------------------------------------------- ---------------
Total capital share transactions (0.12)
-------------------------------------------------------------- ---------------
Net asset value, end of period $15.49
-------------------------------------------------------------- ---------------
Market price, end of period $15.42
-------------------------------------------------------------- ---------------
TOTAL INVESTMENT RETURN (1) 6.79%
-------------------------------------------------------------- ---------------
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders, end of period
(000) $871,175
-------------------------------------------------------------- ---------------
Ratio of expenses to average net assets (2)(3) 1.12%
-------------------------------------------------------------- ---------------
Ratio of net investment income to average net assets (2)(3) 8.01%
-------------------------------------------------------------- ---------------
Preferred shares asset coverage per share $68,121
-------------------------------------------------------------- ---------------
Portfolio turnover 33%
-------------------------------------------------------------- ---------------
* 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
|12.31.03| Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report 15
NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND II 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.
16 Nicholas-Applegate Convertible & Income Fund II Semi-Annual Report |12.31.03|
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
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 Fl
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 II for their
information. It is not a prospectus, circular or representation intended for use
in the purchase of shares of the Fund or any securities mentioned in this
report.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
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 independent auditors, who did not express an opinion
hereon.
Daily information on the Fund is available at www.pimcoadvisors.com or by
calling 1-800-331-1710.
PIMCO
--------
ADVISORS
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. Not required in this Filing
ITEM 6. [RESERVED]
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 PURCHASERS - Disclosure requirement not currently
effective.
ITEM 9. 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 10. 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 II
By /s/ Brian S. Shlissel
------------------------
President and Chief Executive Officer
Date March 10, 2004
-------------------
By /s/ Lawrence G. Altadonna
----------------------------
Treasurer
Date March 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 March 10, 2004
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By /s/ Lawrence G. Altadonna
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Treasurer
Date March 10, 2004
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