UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number 811-21284

Nicholas-Applegate Convertible & Income Fund
(Exact name of registrant as specified in charter)

1345 Avenue of the Americas, New York, New York 10105
          (Address of principal executive offices)     (Zip code)

Lawrence G. Altadonna - 1345 Avenue of the Americas, New York, New York 10105
(Name and address of agent for service)

Registrant's telephone number, including area code: 212-739-3371

Date of fiscal year end: February 28, 2006

Date of reporting period: February 28, 2006

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. § 3507.


ITEM 1. REPORT TO SHAREHOLDERS


Nicholas-Applegate Convertible & Income Fund
Nicholas-Applegate Convertible & Income Fund II

 

A n n u a l   R e p o r t
F e b r u a r y  2 8,  2 0 0 6

 

Contents   
Letter to Shareholders  1 
Performance & Statistics  2-3 
Schedules of Investments  4-15 
Statements of Assets and Liabilities  16 
Statements of Operations  17 
Statements of Changes in Net Assets  18-19 
Notes to Financial Statements  20-24 
Financial Highlights  25-26 
Report of Independent Registered   
Public Accounting Firm  27 
  Tax Information  28 
  Privacy Policy and Proxy Voting   
  Policies & Procedures  29 
  Dividend Reinvestment Plan  30 
  Board of Trustees  31 
  Principal Officers  32 



Nicholas-Applegate Convertible & Income Funds Letter to Shareholders


April 17, 2006

Dear Shareholder:

We are pleased to provide you with the annual report for Nicholas-Applegate Convertible & Income Fund and Nicholas-Applegate Convertible & Income Fund II (the “Funds”) for the fiscal periods ended February 28, 2006. Please note that Nicholas-Applegate Convertible & Income Fund II changed its fiscal year-end from June 30 to February 28. Accordingly, the accompanying financial statements cover the eight-month period from July 1, 2005 to February 28, 2006.

The convertible market finished the twelve-month period ended February 28, 2006 on a positive note, as the Merrill Lynch All-Convertible Index increased 11.60% . For this period, the convertible market outperformed the Dow Jones Industrial Average but lagged both the S&P 500 Index and NASDAQ Composite Index. U.S. debt markets, as represented by the Lehman Brothers Aggregate Bond Index, produced positive, though modest, returns during the twelve-month period.

In this environment, Nicholas-Applegate Convertible & Income had a net asset value and market price return of 5.44% and 14.30%, respectively, for the reporting period. Nicholas-Applegate Convertible & Income II had a net asset value and market price return of 9.90% and 12.10%, respectively, for the eight-month period. Careful security selection was a key driver of the Funds’ performance. In the convertible portion of the portfolios, top performers were companies with improving operating statistics and those exceeding expectations, while exposure to automotive and transport issues proved to be a drag on performance. In the high-yield portion of the portfolios, upgrades exceeded downgrades across many industries, which was a positive for performance. Some of the more duration-sensitive holdings, however, detracted from performance as interest rates rose slightly over the reporting period.

Please review the following pages for more information on the Funds. If you have any questions regarding the information provided, we encourage you to contact your financial advisor or call the Funds’ shareholder servicing agent at (800) 331-1710. You will also find a wide range of information and resources on our Web site, www.allianzinvestors.com/closedendfunds.

Together with Allianz Global Investors Fund Management LLC, the Funds’ investment manager, and Nicholas-Applegate Capital Management, the Funds’ sub-adviser, we thank you for investing with us.

We remain dedicated to serving your financial needs.


 
Robert E. Connor    Brian S. Shlissel 
Chairman    President & Chief Executive Officer

 


2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 1

Nicholas-Applegate Convertible & Income Fund Performance & Statistics
February 28, 2006 (unaudited)
Symbol:    Primary Investments:    Inception Date: 
NCV    At least 50% of total assets    March 31, 2003 
    in convertible securities.     
Objective:        Net Assets(1) : 
Seeks to provide total return        $1,542.8 million 
through a combination of         
capital appreciation and        Portfolio Manager: 
high current income.        Douglas Forsyth 

Total Return(2) :  Market Price Net Asset Value (“NAV”)  




1 year  14.30 5.44 % 




Commencement of Operations (3/31/03) to 2/28/06  15.35 14.55 % 




 
 
Common Share Market Price/NAV Performance: 
Market Price/NAV:
 



Commencement of Operations (3/31/03) to 2/28/06  Market Price $15.69  



  NAV $14.69  



 
Premium to NAV
6.81 % 



 
Market Price Yield(3)
9.56 % 



(1) Inclusive of net assets attributable to Preferred Shares outstanding.

(2) Past performance is no guarantee of future results. Total return is calculated by subtracting the value of an investment in the Fund at the beginning of each specified period from the value at the end of the period and dividing the remainder by the value of the investment at the beginning of the period and expressing the result as a percentage. The calculation assumes that all income dividends and capital gain distributions have been reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total return does not reflect broker commissions or sales charges. Total return for a period of less than one year is not annualized. Total return for a period of more than one year represents the average annual return.

An investment in the Fund involves risk, including the loss of principal. Total 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 28, 2006.

2 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06


Nicholas-Applegate Convertible & Income Fund II Performance & Statistics
February 28, 2006 (unaudited)
Symbol:    Primary Investments:   
Inception Date:
NCZ    At least 50% of total assets    July 31, 2003
    in convertible securities.   
Objective:       
Total Net Assets(1):
Seeks to provide total return       
$1,355.8 million
through a combination of         
capital appreciation and high       
Portfolio Manager:
current income.       
Douglas Forsyth

Total Return(2) :  Market Price Net Asset Value (“NAV”)  




8 months ended February 28, 2006  12.10 9.90 % 




Commencement of Operations (7/31/03) to 2/28/06  10.26 12.40 % 




 
Common Share Market Price/NAV Performance: 
Market Price/NAV:
 



Commencement of Operations (7/31/03) to 2/28/06 
Market Price
$15.14  



 
NAV
$14.70  



 
 
 
Premium to NAV
2.99 % 



 
Market Price Yield(3)
9.16 % 




(1) Inclusive of net assets attributable to Preferred Shares outstanding.

(2) Past performance is no guarantee of future results. Total return is calculated by subtracting the value of an investment in the Fund at the begining of each specified period from the value at the end of the period and dividing the remainder by the value of the investment at the begining of the period and expressing the result as a percentage. The calculation assumes that all of the Fund’s income dividends and capital gain distributions have been reinvested at prices obtained under the dividend reinvestment plan. Total return does not reflect broker commissions or sales charges. Total return for a period of less than one year is not annualized. Total return for a period of more than one year represents the average annual return.

An investment in the Fund involves risk, including the loss of principal. Total return, market price, market 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 onetime 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 28, 2006.

2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 3


Nicholas-Applegate Convertible & Income Fund Schedule of Investments
February 28, 2006
Principal
         
Amount
    Credit Rating    
(000)
    (Moody’s/S&P)*   Value 








CORPORATE BONDS & NOTES—40.7%       

  Apparel—1.5% 
   
  Levi Strauss & Co. 
   
$    2,000      9.75%, 1/15/15 
B3/B- 
$ 2,140,000 
10,295      12.25%, 12/15/12 
B3/B- 
  11,762,038 
2,890   Oxford Industries, Inc., 8.875%, 6/1/11 
B2/B 
  2,976,700 
2,005   Phillips-Van Heusen Corp., 8.125%, 5/1/13 
B1/BB 
  2,140,337 
2,965   Warnaco, Inc., 8.875%, 6/15/13 
B1/B+ 
  3,172,550 

   
  22,191,625 

  Automotive—0.6% 
   
11,543   HLI Operating Co., Inc., 10.50%, 6/15/10 
Caa3/B-
  9,811,550 

  Chemicals—4.0% 
   
5,713   Huntsman LLC, 11.625%, 10/15/10 
Ba3/BB- 
  6,512,820 
13,590   IMC Global, Inc., 11.25%, 6/1/11 
Ba/BB 
  14,575,275 
  Lyondell Chemical Co., 
   
3,120      9.625%, 5/1/07, Ser. A 
B1/BB- 
  3,229,200 
5,115      10.875%, 5/1/09 
B3/B 
  5,217,300 
5,435      11.125%, 7/15/12 
B1/BB- 
  6,005,675 
5,125   PolyOne Corp., 10.625%, 5/15/10 
B3/B+ 
  5,496,563 
12,450   Resolution Performance Products, Inc., 13.50%, 11/15/10 
Caa2/B-
  13,321,500 
4,830   Rhodia S.A., 10.25%, 6/1/10 
B3/CCC+
  5,457,900 

   
  59,816,233 

  Commercial Services—1.1% 
   
5,400   Hertz Corp., 10.50%, 1/1/16 (a) 
B3/B 
  5,818,500 
10,005   Vertrue, Inc., 9.25%, 4/1/14 
B2/B 
  10,255,125 

   
  16,073,625 

  Computers—0.0% 
   
600   Unisys Corp., 8.00%, 10/15/12 
Ba3/BB- 
  585,000 

  Electric—2.8% 
   
13,025   AES Corp., 9.50%, 6/1/09 
B1/B- 
  14,083,281 
12,750   Mission Energy Holdings Co., 13.50%, 7/15/08 
B2/CCC+
  14,694,375 
11,755   PSEG Energy Holdings LLC, 10.00%, 10/1/09 
Ba3 /BB- 
  13,165,600 

   
  41,943,256 

  Electronics—1.6% 
   
11,795   IMAX Corp., 9.625, 12/1/10 
B3/B- 
  12,178,337 
12,170   Stoneridge, Inc., 11.50%, 5/1/12 
B2/B+ 
  12,139,575 

   
  24,317,912 

  Environmental Control—0.8% 
   
10,495   Aleris International, Inc., 10.375%, 10/15/10 
B2/B+ 
  11,544,500 

  Financial Services—2.0% 
   
11,080   Alamosa Delaware, Inc., 11.00%, 7/31/10 
Caa1/A-
  12,354,200 
7,095   AMR Holdings Co., 10.00%, 2/15/15 
Caa1/B-
  7,591,650 
10,795   Ford Motor Credit Co., 7.00%, 10/1/13 
Ba2/BB- 
  9,486,959 
1,000   MedCath Holdings Corp., 9.875%, 7/15/12 
Caa1/B-
  1,038,750 

   
  30,471,559 

  Food Products—0.8% 
   
11,645   Pilgrim’s Pride Corp., 9.625%, 9/15/11 
Ba2/BB- 
  12,329,144 


4 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06


Nicholas-Applegate Convertible & Income Fund Schedule of Investments
February 28, 2006

Principal              
Amount       Credit Rating      
(000)
      (Moody’s/S&P)*     Value 

  Healthcare—0.7%   
     
$     7,425   Alliance Imaging, Inc., 7.25%, 12/15/12   
B3/B- 
 
$ 
6,218,437 
3,941   Hanger Orthopedic Group, Inc., 11.25%, 6/15/09   
NR/CCC+
    3,916,369 


     
    10,134,806 


  Home Builders—1.6%   
     
12,325   Ryland Group, Inc., 9.125%, 6/15/11   
Ba2/BB+ 
    12,973,714 
11,620   William Lyon Homes, Inc., 10.75%, 4/1/13   
B2/B 
    11,881,450 


     
    24,855,164 


  Home Furnishings—1.7%   
     
11,370   Central Garden & Pet Co., 9.125%, 2/1/13   
B2/B 
    11,995,350 
14,100   Jarden Corp., 9.75%, 5/1/12   
B3/B- 
    14,452,500 


     
    26,447,850 


  Hotels/Gaming—0.7%   
     
10,500   Mandalay Resort Group, Inc., 10.25%, 8/1/07, Ser. B   
Ba3/B+ 
    11,143,125 


  Machinery—0.9%   
     
12,940   Case New Holland, Inc., 9.25%, 8/1/11   
Ba3/BB- 
    13,878,150 


  Manufacturing—0.5%   
     
6,875   Clarke American Corp., 11.75%, 12/15/13 (a)   
B2/B- 
    6,926,562 


  Metals & Mining—2.7%   
B1/B+ 
     
7,710   AK Steel Corp., 7.875%, 2/15/09        7,497,975 
11,665   Freeport-McMoRan Copper & Gold, Inc., 10.125%, 2/1/10   
B1/B+ 
    12,569,038 
6,040   Oregon Steel Mills, Inc., 10.00%, 7/15/09   
Ba3/B+ 
    6,417,500 
13,420   United States Steel LLC, 10.75%, 8/1/08   
Ba2/BB 
    14,829,100 


     
    41,313,613 


  Miscellaneous—2.2%   
     
32,825   Dow Jones CDX High Yield, 10.50%, 12/29/09 (a) (b)   
NR/NR
    32,948,417 


  Multi-Media—3.8%   
     
12,870   CCH I LLC, 11.00%, 10/1/15 (a)   
Caa3/CCC-
    10,826,888 
2,715   CSC Holdings Inc., 10.50%, 5/15/16   
B3/B+ 
    2,891,475 
5,700   Lodgenet Entertainment Corp., 9.50%, 6/15/13   
B3/B- 
    6,156,000 
9,340   Mediacom Broadband LLC, 11.00%, 7/15/13   
B2/B 
    9,993,800 
6,665   Salem Communications Holding Corp., 9.00%, 7/1/11, Ser. B   
B2/B- 
    6,998,250 
8,140   Sirius Satellite Radio, Inc., 9.625%, 8/1/13   
Caa1/CCC
    8,017,900 
11,911   XM Satellite Radio, Inc., 12.00%, 6/15/10   
Caa1/CCC+
    13,310,543 


     
    58,194,856 


  Office/Business Equipment—0.4%   
     
5,565   Xerox Corp., 9.75%, 1/15/09   
Ba2/BB+ 
    6,107,587 


  Office Furnishings—1.1%   
     
  Interface, Inc.,   
     
5,375      9.50%, 2/1/14   
Caa1/CCC
    5,536,250 
6,490      10.375%, 2/1/10   
B2/B- 
    7,090,325 
3,791   Tempur-Pedic, Inc., 10.25%, 8/15/10   
B2/B 
    4,056,370 


     
    16,682,945 


  Oil & Gas—0.4%   
     
5,000   Seitel, Inc., 11.75%, 7/15/11   
B3/NR 
    5,662,500 



2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 5


Nicholas-Applegate Convertible & Income Fund Schedule of Investments
February 28, 2006
Principal            
Amount    
Credit Rating
     
(000) 
   
(Moody’s/S&P)*
    Value 

  Paper Products—0.6% 
     
$     5,096   Buckeye Technologies, Inc., 9.25%, 9/15/08 
Caa1/B
 
$ 
5,096,000 
3,240   Exopack Holdings Corp., 11.25%, 2/1/14 (a) 
B2/B- 
    3,256,200 


   
    8,352,200 


  Pharmaceuticals—0.7% 
     
10,955   Leiner Health Products, Inc., 11.00%, 6/1/12 
Caa1/CCC+
    10,763,288 


  Pipelines—1.2% 
     
4,275   Dynegy Holdings, Inc., 10.125%, 7/15/13 (a) 
B1/B- 
    4,809,375 
13,330   Sonat, Inc., 7.625%, 7/15/11 
Caa1/B-
    13,863,200 


   
    18,672,575 


  Real Estate—0.2% 
     
2,715   Host Marriot L.P., 9.50%, 1/15/07, Ser. I, REIT 
Ba2/BB- 
    2,799,844 


  Retail—3.1% 
     
5,420   EPL Finance Corp., 11.75%, 11/15/13 (a) 
Caa1/CCC+
    5,609,700 
5,590   Mothers Work, Inc., 11.25%, 8/1/10 
Caa1/B-
    5,701,800 
9,710   Neiman-Marcus Group, Inc., 10.375%, 10/15/15 (a) 
B3/B- 
    10,219,775 
10,000   R.H. Donnelley, Inc., 10.875%, 12/15/12 
B2/B 
    11,250,000 
13,575   Rite Aid Corp., 12.50%, 9/15/06 
NR/B+
    14,016,187 


   
    46,797,462 


  Semi-Conductors—1.0% 
     
11,265   Amkor Technology, Inc., 10.50%, 5/1/09 
Caa3/CCC
    11,208,675 
3,795   Avago Technologies Finance, 10.125%, 12/1/13 (a) 
B3 /B 
    4,032,187 


   
    15,240,862 


  Telecommunications—2.0% 
     
7,395   Hawaiian Telcom Communications, Inc., 12.50%, 5/1/15 (a) 
Caa1/CCC+
    7,006,762 
12,180   Millicom International Cellular S.A., 10.00%, 12/1/13 
B3/B- 
    13,413,225 
8,860   Time Warner Telecom, Inc., 10.125%, 2/1/11 
Caa1/CCC+
    9,303,000 


   
    29,722,987 


 
  Total Corporate Bonds & Notes (cost-$611,209,801) 
    615,729,197 
         


CONVERTIBLE BONDS & NOTES—31.5% 
     

  Airlines—1.3% 
     
20,572   Continental Airlines, Inc., 4.50%, 2/1/07 
Caa2/CCC+
    20,160,560 


  Automotive—1.9% 
     
  Goodyear Tire & Rubber Co., 
     
10,890      11.25%, 3/1/11 
B3/NR 
    12,169,575 
11,900      4.00%, 6/15/34 (a) 
B3/B- 
    15,946,000 


   
    28,115,575 


  Chemicals—0.7% 
     
6,760   Millennium Chemicals, Inc., 4.00%, 11/15/23 
B1/BB- 
    11,272,300 


  Commercial Services—3.1% 
     
9,100   Bowne & Co., Inc., 5.00%, 10/1/33 
B2/B- 
    9,786,140 
20,614   Quebecor World USA, Inc., 6.00%, 10/1/07 
B2/B 
    20,227,487 
13,440   Memberworks, Inc., 5.50%, 10/1/10 
NR/B-
    16,497,600 


   
    46,511,227 


  Computers—1.2% 
     
16,400   Maxtor Corp., 6.80%, 4/30/10 
B2/NR 
    18,839,500 


 
         
6 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06 

Nicholas-Applegate Convertible & Income Fund Schedule of Investments
February 28, 2006

Principal              
Amount       Credit Rating      
(000)
      (Moody’s/S&P)*     Value 

  Electric—1.2%   
     
$     6,075   PG&E Corp., 9.50%, 6/30/10   
NR/NR
 
$ 
17,382,094 


  Electrical Components & Equipment—0.6%   
     
7,250   Artesyn Technologies, Inc., 5.50%, 8/15/10   
NR/NR
    9,823,750 


  Financial Services—1.1%   
     
100   Citigroup Funding, Inc., 5.18%, 9/27/08 (c)   
Aa1/AA- 
    3,199,000 
11,800   E*Trade Financial Corp., 6.00%, 2/1/07   
NR/B-
    13,083,250 


     
    16,282,250 


  Household Products—0.7%   
     
7,300   American Greetings Corp., 7.00%, 7/15/06   
Ba2/BB+ 
    11,205,500 


  Insurance—0.2%   
     
2,250   American Equity Investment Life Holding Co., 5.25%, 12/6/24   
NR/BB+
    2,700,000 


  Metals & Mining—1.4%   
     
12,600   Freeport-McMoRan Copper & Gold, Inc., 7.00%, 2/11/11   
NR/B+
    21,656,250 


  Multi-Media—1.4%   
     
20,995   EchoStar Communications Corp., 5.75%, 5/15/08   
B2/B 
    20,732,562 


  Oil & Gas—1.1%   
     
14,100   Devon Energy Corp., 4.95%, 8/15/08   
Baa2/BBB
    16,179,750 


  Pharmaceuticals—2.7%   
     
9,650   Ligand Pharmaceuticals, Inc., 6.00%, 11/16/07   
NR/NR
    19,517,125 
20,950   Sepracor, Inc., 5.00%, 2/15/07   
NR/B-
    20,897,625 


     
    40,414,750 


  Retail—2.3%   
     
4,790   GSC Holdings Corp., 8.00%, 10/1/12 (a)   
Ba3/B+ 
    4,778,028 
6,101   Guitar Center, Inc., 4.00%, 7/15/13   
B1/BB- 
    9,304,025 
21,008   Sonic Automotive, Inc., 5.25%, 5/7/09   
B3/B 
    20,771,660 


     
    34,853,713 


  Semi-Conductors—2.4%   
     
  Amkor Technology, Inc.   
     
2,363      5.00%, 3/15/07   
Caa3/CCC
    2,312,786 
17,379      5.75%, 6/1/06   
Caa3/CCC
    17,422,447 
16,750   Fairchild Semiconductor Corp., 5.00%, 11/1/08   
NR/B
    16,687,187 


     
    36,422,420 


  Telecommunications—5.8%   
     
19,000   American Tower Corp., 5.00%, 2/15/10   
B1/BB- 
    18,881,250 
15,900   CenturyTel, Inc., 4.75%, 8/1/32   
Baa2/BBB+
    16,396,875 
19,800   Lucent Technologies, Inc., 8.00%, 8/1/31   
B3/CCC+
    20,121,750 
20,500   Nextel Communications, Inc., 5.25%, 1/15/10   
Baa2/A-
    20,602,500 
12,345   Nortel Networks Corp., 4.25%, 9/1/08   
B3 /B- 
    11,712,318 


     
    87,714,693 


  Transportation—0.9%   
     
9,150   YRC Worldwide, Inc., 5.00%, 8/8/23   
Ba1/BBB- 
    13,439,062 


  Trucking/Leasing—1.5%   
     
18,500   GATX Corp., 7.50%, 2/1/07   
Baa3/BBB
    22,893,750 


 
  Total Convertible Bonds & Notes (cost-$475,544,545)          476,599,706 



2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 7


Nicholas-Applegate Convertible & Income Fund Schedule of Investments
February 28, 2006
Shares
      Credit Rating      
(000)
      (Moody’s/S&P)*     Value 










CONVERTIBLE PREFERRED STOCK—22.7%           

  Automotive—0.5%   
     
244   Ford Motor Co., Capital Trust II, 6.50%, 1/15/32   
B2/B- 
 
$ 
7,393,291 


  Banking—1.2%   
     
322   Washington Mutual Capital Trust, 5.375%, 5/3/41   
Baa1/BBB
    17,490,253 


  Commercial Services—1.5%   
     
495   United Rentals, Inc., 6.50%, 8/1/28   
Caa2/B-
    23,141,250 


  Electric—2.3%   
     
447   AES Trust III, 6.75%, 10/15/29   
B3/CCC+
    20,709,180 
62   NRG Energy, Inc., 5.75%, 3/16/09   
B3/CCC+
    14,344,875 


     
    35,054,055 


  Financial Services—3.7%   
     
255   E Trade Financial Corp., 6.125%, 11/18/08   
B3/NA 
    8,510,625 
560   Lehman Brothers Holdings, Inc., 6.25%, 10/15/07   
A1/A+ 
    14,772,800 
  Morgan Stanley,   
     
215      20.00%, 12/14/06   
Aa3/A+ 
    15,965,900 
280      20.00%, 12/22/06   
Aa3/A+ 
    16,561,772 


     
    55,811,097 


  Food—0.7%   
     
442   Albertson’s, Inc., 7.25%, 5/16/07   
Baa3/BBB-
    10,953,824 


  Holding Companies—0.5%   
     
79   Williams Holdings of Delaware, Inc., 5.50%, 6/1/33   
NR/B-
    8,048,425 


  Insurance—5.4%   
     
460   Genworth Financial, Inc., 6.00%, 5/16/07   
A2/A 
    16,100,000 
760   Metlife, Inc., 6.375%, 8/15/08   
NR/BBB+
    20,899,347 
240   Platinum Underwriters Holdings Ltd., 6.00%, 2/15/09   
NR/BB+
    7,350,000 
765   PMI Group, Inc., 5.875, 11/15/06   
A1/A 
    19,507,500 
782   XL Capital Ltd., 6.50%, 5/15/07   
A3/A- 
    17,704,480 


     
    81,561,327 


  Iron/Steel—0.5%   
     
46   U.S. Steel Corp., 7.00%, 6/15/06, Ser. B   
NR/B
    8,006,788 


  Office/Business Equipment—1.1%   
     
137   Xerox Corp., 6.25%, 7/1/06   
B1/B+ 
    16,935,840 


  Oil & Gas—2.2%   
     
133   Amerada Hess Corp., 7.00%, 12/01/06   
Ba3/BB 
    15,451,940 
100   Chesapeake Energy Corp., 5.00%, 12/31/49   
B2/B 
    18,335,600 


     
    33,787,540 


  Pharmaceuticals—0.9%   
     
274   Schering-Plough Corp., 6.00%, 9/14/07   
Baa3/BBB
    13,658,670 


  Real Estate—0.6%   
     
336   FelCor Lodging Trust, Inc., 1.95%, 12/31/49, Ser. A, REIT   
B3/CCC+
    8,494,100 


  Telecommunications—1.1%   
     
300   Crown Castle International Corp., 6.25%, 8/15/12   
NR/NR
    16,500,000 



8 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06


Nicholas-Applegate Convertible & Income Fund Schedule of Investments
February 28, 2006
Shares
     
Credit Rating
     
(000)
     
(Moody’s/S&P)* 
    Value 

  Waste Disposal—0.5%           
138   Allied Waste Industries, Inc., 6.25%, 4/1/06   
Caa3/B 
 
$ 
7,374,125 


  Total Convertible Preferred Stock (cost-$325,771,406)          344,210,585 
       


U.S. GOVERNMENT SECURITIES—2.4%           

Principal
             
Amount
             
(000)
             

 
  United States Treasury Notes,           
$16,275      10.375%, 11/15/12          17,773,455 
16,275      12.00%, 8/15/13          19,030,309 


  Total U.S. Government Securities (cost-$38,317,453)          36,803,764 
       


SHORT-TERM INVESTMENT—2.7%           

  Time Deposit—2.7%           
40,408   Bank of America – London, 3.88%, 3/1/06           
     (cost-$40,408,127)          40,408,127 


 
  Total Investments (cost-$1,491,251,332)-100.0%        $ 1,513,751,379 



2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 9


Nicholas-Applegate Convertible & Income Fund II Schedule of Investments
February 28, 2006
Principal
           
Amount
    Credit Rating      
(000)
    (Moody’s/S&P)*     Value 









CORPORATE BONDS & NOTES—41.0%         






  Apparel—1.4%         
  Levi Strauss & Co. 
     
$    2,000      9.75%, 1/15/15 
B3/B- 
 
$ 
2,140,000 
8,705      12.25%, 12/15/12 
B3/B- 
    9,945,463 
2,610   Oxford Industries, Inc., 8.875%, 6/1/11 
B2/B 
    2,688,300 
1,920   Phillips-Van Heusen Corp., 8.125%, 5/1/13 
B1/BB 
    2,049,600 
2,030   Warnaco, Inc., 8.875%, 6/15/13 
B1/B+ 
    2,172,100 


   
    18,995,463 


  Automotive—1.4% 
     
9,260   Goodyear Tire & Rubber Co., 11.25%, 3/1/11 
B3/NR 
    10,348,050 
10,030   HLI Operating Co., Inc., 10.50%, 6/15/10 
Caa3/B-
    8,525,500 


   
    18,873,550 


  Chemicals—4.0% 
     
4,988   Huntsman LLC, 11.625%, 10/15/10 
Ba3/BB- 
    5,686,320 
11,410   IMC Global, Inc., 11.25%, 6/1/11 
Ba/BB 
    12,237,225 
  Lyondell Chemical Co., 
     
4,435      9.625%, 5/1/07, Ser. A 
B1/BB- 
    4,590,225 
4,315      10.875%, 5/1/09 
B3/B 
    4,401,300 
4,565      11.125%, 7/15/12 
B1/BB- 
    5,044,325 
4,765   PolyOne Corp., 10.625%, 5/15/10 
B3/B+ 
    5,110,463 
10,950   Resolution Performance Products, Inc., 13.50%, 11/15/10 
Caa2/B-
    11,716,500 
3,609   Rhodia S.A., 10.25%, 6/1/10 
B3/CCC+
    4,078,170 


   
    52,864,528 


  Commercial Services—1.0% 
     
4,600   Hertz Corp., 10.50%, 1/1/16 (a) 
B3/B 
    4,956,500 
8,595   Vertrue, Inc., 9.25%, 4/1/14 
B2/B 
    8,809,875 


   
    13,766,375 


  Computers—0.0% 
     
600   Unisys Corp., 8.00%, 10/15/12 
Ba3/BB- 
    585,000 


  Electric—2.7% 
     
12,000   AES Corp., 9.50%, 6/1/09 
B1/B- 
    12,975,000 
10,250   Mission Energy Holdings Co., 13.50%, 7/15/08 
B2/CCC+
    11,813,125 
9,820   PSEG Energy Holdings LLC, 10.00%, 10/1/09 
Ba3/BB- 
    10,998,400 


   
    35,786,525 


  Electronics—1.5% 
     
9,510   IMAX Corp., 9.625, 12/1/10 
B3/B- 
    9,819,075 
10,335   Stoneridge, Inc., 11.50%, 5/1/12 
B2/B+ 
    10,309,162 


   
    20,128,237 


  Environmental Control—0.8% 
     
9,060   Aleris International, Inc., 10.375%, 10/15/10 
B2/B+ 
    9,966,000 


  Financial Services—1.9% 
     
9,400   Alamosa Delaware, Inc., 11.00%, 7/31/10 
Caa1/A-
    10,481,000 
5,835   AMR Holdings Co., 10.00%, 2/15/15 
Caa1/B-
    6,243,450 
9,205   Ford Motor Credit Co., 7.00%, 10/1/13 
Ba2/BB- 
    8,089,621 
1,000   MedCath Holdings Corp., 9.875%, 7/15/12 
Caa1/B-
    1,038,750 


   
    25,852,821 



10 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06


Nicholas-Applegate Convertible & Income Fund II Schedule of Investments
February 28, 2006

Principal              
Amount       Credit Rating      
(000)
      (Moody’s/S&P)*     Value 

  Food Products—0.8%   
     
$     9,815   Pilgrim’s Pride Corp., 9.625%, 9/15/11   
Ba2/BB- 
 
$ 
10,391,631 


  Healthcare—0.7%   
     
6,325   Alliance Imaging, Inc., 7.25%, 12/15/12   
B3/B- 
    5,297,188 
3,550   Hanger Orthopedic Group, Inc., 11.25%, 6/15/09   
NR/CCC+
    3,527,813 


     
    8,825,001 


  Home Builders—1.7%   
     
11,500   Ryland Group, Inc., 9.125%, 6/15/11   
Ba2/BB+ 
    12,105,291 
9,800   William Lyon Homes, Inc., 10.75%, 4/1/13   
B2/B 
    10,020,500 


     
    22,125,791 


  Home Furnishings—1.7%   
     
9,670   Central Garden & Pet Co., 9.125%, 2/1/13   
B2/B 
    10,201,850 
11,900   Jarden Corp., 9.75%, 5/1/12   
B3/B- 
    12,197,500 


     
    22,399,350 


  Hotels/Gaming—0.9%   
     
11,080   Mandalay Resort Group, Inc., 10.25%, 8/1/07, Ser. B   
Ba3/B+ 
    11,758,650 


  Machinery—0.9%   
     
10,730   Case New Holland, Inc., 9.25%, 8/1/11   
Ba3/BB- 
    11,507,925 


  Manufacturing—0.4%   
     
5,825   Clarke American Corp., 11.75%, 12/15/13 (a)   
B2/B- 
    5,868,688 


  Metals & Mining—2.7%   
     
6,490   AK Steel Corp., 7.875%, 2/15/09   
B1/B+ 
    6,311,525 
9,835   Freeport-McMoRan Copper & Gold, Inc., 10.125%, 2/1/10   
B1/B+ 
    10,597,212 
5,710   Oregon Steel Mills, Inc., 10.00%, 7/15/09   
Ba3/B+ 
    6,066,875 
11,450   United States Steel LLC, 10.75%, 8/1/08   
Ba2/BB 
    12,652,250 


     
    35,627,862 


  Miscellaneous—2.0%   
     
25,975   Dow Jones CDX High Yield, 10.50%, 12/29/09 (a) (b)   
NR/NR
    26,072,062 


  Multi-Media—3.6%   
     
12,291   CCH I LLC, 11.00%, 10/1/15 (a)   
Caa3/CCC-
    10,339,804 
2,285   CSC Holdings Inc., 10.50%, 5/15/16   
B3/B+ 
    2,433,525 
2,975   Lodgenet Entertainment Corp., 9.50%, 6/15/13   
B3/B- 
    3,213,000 
7,860   Mediacom Broadband LLC, 11.00%, 7/15/13   
B2/B 
    8,410,200 
5,735   Salem Communications Holding Corp., 9.00%, 7/1/11, Ser. B   
B2/B- 
    6,021,750 
6,860   Sirius Satellite Radio, Inc., 9.625%, 8/1/13   
Caa1/CCC
    6,757,100 
10,055   XM Satellite Radio, Inc., 12.00%, 6/15/10   
Caa1/CCC+
    11,236,462 


     
    48,411,841 


  Office/Business Equipment—0.4%   
     
5,195   Xerox Corp., 9.75%, 1/15/09   
Ba2/BB+ 
    5,701,512 


  Office Furnishings—1.1%   
     
  Interface, Inc.,   
     
4,625      9.50%, 2/1/14   
Caa1/CCC
    4,763,750 
5,625      10.375%, 2/1/10   
B2/B- 
    6,145,313 
3,199   Tempur-Pedic, Inc., 10.25%, 8/15/10   
B2/B 
    3,422,930 


            14,331,993 



2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 11


Nicholas-Applegate Convertible & Income Fund II Schedule of Investments
February 28, 2006

Principal
     
     
Amount
     
Credit Rating
     
(000)
     
(Moody’s/S&P)*
    Value 

  Oil & Gas—0.4%   
     
$    5,000   Seitel, Inc., 11.75%, 7/15/11   
B3/NR 
 
$ 
5,662,500 


  Paper Products—0.5%   
     
4,013   Buckeye Technologies, Inc., 9.25%, 9/15/08   
Caa1/B
    4,013,000 
2,760   Exopac Holdings Corp., 11.25%, 2/1/14 (a)   
B2/B- 
    2,773,800 


     
    6,786,800 


  Pharmaceuticals—0.7%   
     
9,310   Leiner Health Products, Inc., 11.00%, 6/1/12   
Caa1/CCC+
    9,147,075 


  Pipelines—1.3%   
     
4,025   Dynegy Holdings, Inc., 10.125%, 7/15/13 (a)   
B1/B- 
    4,528,125 
12,240   Sonat, Inc., 7.625%, 7/15/11   
Caa1/B-
    12,729,600 


     
    17,257,725 


  Real Estate—0.2%   
     
2,285   Host Marriot L.P., 9.50%, 1/15/07, Ser. I, REIT   
Ba2/BB- 
    2,356,406 


  Retail—3.4%   
     
4,580   EPL Finance Corp., 11.75%, 11/15/13 (a)   
Caa1/CCC+
    4,740,300 
4,210   GSC Holdings Corp., 8.00%, 10/1/12 (a)   
Ba3/B+ 
    4,199,475 
4,495   Mothers Work, Inc., 11.25%, 8/1/10   
Caa1/B-
    4,584,900 
8,290   Neiman-Marcus Group, Inc., 10.375%, 10/15/15 (a)   
B3/B- 
    8,725,225 
10,000   R.H. Donnelley, Inc., 10.875%, 12/15/12   
B2/B 
    11,250,000 
11,460   Rite Aid Corp., 12.50%, 9/15/06   
NR/B+
    11,832,450 


     
    45,332,350 


  Semi-Conductors—1.0%   
     
9,660   Amkor Technology, Inc., 10.50%, 5/1/09   
Caa3/CCC
    9,611,700 
3,205   Avago Technologies Finance, 10.125%, 12/1/13 (a)   
B3/B 
    3,405,313 


     
    13,017,013 


  Telecommunications—1.9%   
     
6,305   Hawaiian Telcom Communications, Inc., 12.50%, 5/1/15 (a)   
Caa1/CCC+
    5,973,987 
10,380   Millicom International Cellular S.A., 10.00%, 12/1/13   
B3/B- 
    11,430,975 
7,510   Time Warner Telecom, Inc., 10.125%, 2/1/11   
Caa1/CCC+
    7,885,500 


     
    25,290,462 


 
  Total Corporate Bonds & Notes (cost-$543,945,532)   
    544,691,136 
     



CONVERTIBLE BONDS & NOTES—30.5%   
     

  Airlines—1.2%   
     
16,300   Continental Airlines, Inc., 4.50%, 2/1/07   
Caa2/CCC+
    15,974,000 


  Automotive—1.2%   
     
11,700   Goodyear Tire & Rubber Co., 4.00%, 6/15/34 (a)   
B3/B- 
    15,678,000 


  Chemicals—0.7%   
     
5,950   Millennium Chemicals, Inc., 4.00%, 11/15/23   
B1/BB- 
    9,921,625 


  Commercial Services—3.1%   
     
10,125   Bowne & Co., Inc., 5.00%, 10/1/33   
B2/B- 
    10,888,425 
17,985   Quebecor World USA, Inc., 6.00%, 10/1/07   
B2/B 
    17,647,781 
11,000   Memberworks, Inc., 5.50%, 10/1/10   
NR/B-
    13,502,500 


     
    42,038,706 



12 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06


Nicholas-Applegate Convertible & Income Fund II Schedule of Investments
February 28, 2006


Principal
       
     
Amount
       
Credit Rating
     
(000)
       
(Moody’s/S&P)*
    Value 

    Computers—1.2%   
     
$     14,400     Maxtor Corp., 6.80%, 4/30/10   
B2/NR 
 
$ 
16,542,000 


    Electric—1.2%   
     
5,425     PG&E Corp., 9.50%, 6/30/10   
NR/NR
    15,522,281 


    Electrical Components & Equipment—0.8%   
     
8,150     Artesyn Technologies, Inc., 5.50%, 8/15/10   
NR/NR
    11,043,250 


    Financial Services—0.9%   
     
100     Citigroup Funding, Inc., 5.18%, 9/27/08 (c)   
Aa1/AA- 
    3,199,000 
8,758     E*Trade Financial Corp., 6.00%, 2/1/07   
NR/B-
    9,710,433 


       
    12,909,433 


    Household Products—0.8%   
     
7,050     American Greetings Corp., 7.00%, 7/15/06   
Ba2/BB+ 
    10,821,750 


    Insurance—0.2%   
     
2,150     American Equity Investment Life Holding Co., 5.25%, 12/6/24   
NR/BB+
    2,580,000 


    Metals & Mining—1.5%   
     
11,200     Freeport-McMoRan Copper & Gold, Inc., 7.00%, 2/11/11   
NR/B+
    19,250,000 


    Multi-Media—1.4%   
     
18,500     EchoStar Communications Corp., 5.75%, 5/15/08   
B2/B 
    18,268,750 


    Oil & Gas—1.1%   
     
12,500     Devon Energy Corp., 4.95%, 8/15/08   
Baa2/BBB
    14,343,750 


    Pharmaceuticals—2.7%   
     
8,490     Ligand Pharmaceuticals, Inc., 6.00%, 11/16/07   
NR/NR
    17,171,025 
18,550     Sepracor, Inc., 5.00%, 2/15/07   
NR/B-
    18,503,625 


       
    35,674,650 


    Retail—2.0%   
     
5,200     Guitar Center, Inc., 4.00%, 7/15/13   
B1/BB- 
    7,930,000 
18,535     Sonic Automotive, Inc., 5.25%, 5/7/09   
B3/B 
    18,326,481 


       
    26,256,481 


    Semi-Conductors—2.4%   
     
    Amkor Technology, Inc.   
     
14,300        5.00%, 3/15/07   
Caa3/CCC
    13,996,125 
3,000        5.75%, 6/1/06   
Caa3/CCC
    3,007,500 
15,000     Fairchild Semiconductor Corp., 5.00%, 11/1/08   
NR/B
    14,943,750 


       
    31,947,375 


    Telecommunications—5.7%   
     
16,250     American Tower Corp., 5.00%, 2/15/10   
B1/BB- 
    16,148,438 
13,600     CenturyTel, Inc., 4.75%, 8/1/32   
Baa2/BBB+
    14,025,000 
17,500     Lucent Technologies, Inc., 8.00%, 8/1/31   
B3/CCC+
    17,784,375 
18,500     Nextel Communications, Inc., 5.25%, 1/15/10   
Baa2/A-
    18,592,500 
9,940     Nortel Networks Corp., 4.25%, 9/1/08   
B3/B- 
    9,430,575 


       
    75,980,888 


    Transportation—0.9%   
     
8,100     YRC Worldwide, Inc., 5.00%, 8/8/23   
Ba1/BBB- 
    11,896,875 


    Trucking/Leasing—1.5%   
     
15,900     GATX Corp., 7.50%, 2/1/07   
Baa3/BBB
    19,676,250 


 
    Total Convertible Bonds & Notes (cost-$405,143,636)   
    406,326,064 



2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 13


Nicholas-Applegate Convertible & Income Fund II Schedule of Investments
February 28, 2006
Shares
     
Credit Rating
     
(000)
     
(Moody’s/S&P)*
    Value 


CONVERTIBLE PREFERRED STOCK—23.3%   
     

  Automotive—0.5%   
     
209   Ford Motor Co., Capital Trust II, 6.50%, 1/15/32   
B2/B- 
 
$ 
 6,338,760 


  Banking—1.1%   
     
275   Washington Mutual Capital Trust, 5.375%, 5/3/41   
Baa1/BBB
    14,960,000 


  Commercial Services—1.7%   
     
469   United Rentals, Inc., 6.50%, 8/1/28   
Caa2/B-
    21,902,375 


  Electric—2.2%   
     
344   AES Trust III, 6.75%, 10/15/29   
B3/CCC+
    15,962,940 
58   NRG Energy, Inc., 5.75%, 3/16/09   
B3/CCC+
    13,411,875 


     
    29,374,815 


  Financial Services—3.8%   
     
250   E Trade Financial Corp., 6.125%, 11/18/08   
B3/NA 
    8,343,750 
500   Lehman Brothers Holdings, Inc., 6.25%, 10/15/07   
A1/A+ 
    13,190,000 
  Morgan Stanley,   
     
190      20.00%, 12/14/06   
Aa3/A+ 
    14,109,400 
250      20.00%, 12/22/06   
Aa3/A+ 
    14,837,452 


     
    50,480,602 


  Food—0.7%   
     
371   Albertson’s, Inc., 7.25%, 5/16/07   
Baa3/BBB-
    9,176,056 


  Holding Companies—0.6%   
     
73   Williams Holdings of Delaware, Inc., 5.50%, 6/1/33   
NR/B-
    7,376,875 


  Insurance—5.5%   
     
408   Genworth Financial, Inc., 6.00%, 5/16/07   
A2/A 
    14,262,500 
674   Metlife, Inc., 6.375%, 8/15/08   
NR/BBB+
    18,527,985 
220   Platinum Underwriters Holdings Ltd., 6.00%, 2/15/09   
NR/BB+
    6,737,500 
665   PMI Group, Inc., 5.875, 11/15/06   
A1/A 
    16,957,500 
732   XL Capital Ltd., 6.50%, 5/15/07   
A3/A- 
    16,572,480 


     
    73,057,965 


  Iron/Steel—0.6%   
     
43   U.S. Steel Corp., 7.00%, 6/15/06, Ser. B   
NR/B
    7,431,762 


  Office/Business Equipment—1.1%   
     
123   Xerox Corp., 6.25%, 7/1/06   
B1/B+ 
    15,227,400 


  Oil & Gas—2.2%   
     
119   Amerada Hess Corp., 7.00%, 12/01/06   
Ba3/BB 
    13,825,420 
86   Chesapeake Energy Corp., 5.00%, 12/31/49   
B2/B 
    15,860,800 


     
    29,686,220 


  Pharmaceuticals—1.0%   
     
276   Schering-Plough Corp., 6.00%, 9/14/07   
Baa3/BBB
    13,795,124 


  Real Estate—0.6%   
     
315   FelCor Lodging Trust, Inc., 1.95%, 12/31/49, Ser. A, REIT   
B3/CCC+
    7,953,750 


  Telecommunications—1.1%   
     
270   Crown Castle International Corp., 6.25%, 8/15/12   
NR/NR
    14,850,000 



14 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06


Nicholas-Applegate Convertible & Income Fund II Schedule of Investments
February 28, 2006
Shares
     
Credit Rating
     
(000)
     
(Moody’s/S&P)* 
    Value 

  Waste Disposal—0.6%   
     
138   Allied Waste Industries, Inc., 6.25%, 4/1/06   
Caa3/B 
  $  7,374,125 


  Total Convertible Preferred Stock (cost-$296,514,355)          308,985,829 
     


U.S. GOVERNMENT SECURITIES—2.3%           

Principal              
Amount              
(000)
             

  United States Treasury Notes,           
$    13,725      10.375%, 11/15/12          14,988,675 
13,725      12.00%, 8/15/13          16,048,601 


  Total U.S. Government Securities (cost-$32,313,797)          31,037,276 
     


SHORT-TERM INVESTMENT—2.9%           
  Time Deposit—2.9%           
37,765   Bank of America - London, 3.88%, 3/1/06           
     (cost-$37,764,599)          37,764,599 


 
  Total Investments (cost-$1,315,681,919)—100.0%        $  1,328,804,904 
     



Notes to Schedules of Investments
   
* Unaudited
   
(a)      144A-security - Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated these securities are not considered to be illiquid.
 
(b)      Credit-linked trust certificate.
 
(c)      Variable rate security. Interest rate disclosed reflects the rate in effect on February 28, 2006.

Glossary:
NR — Not Rated
REIT — Real Estate Investment Trust

See accompanying Notes to Financial Statements | 2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 15


Nicholas-Applegate Convertible & Income Funds Statements of Assets and Liabilities
February 28, 2006 

    Convertible &     Convertible & 
    Income     Income II 




Assets:         
Investments, at value (cost—$1,491,251,332 and         
   $1,315,681,919, respectively)   
$
1,513,751,379   $  1,328,804,904 





Cash    271     240 





Interest and dividends receivable    20,910,256     18,316,431 





Interest rate cap premium paid    14,101,172     13,563,985 





Unrealized appreciation on interest rate cap    4,926,827     4,739,015 





Receivable for investments sold    2,690,549     2,690,549 





Prepaid expenses    86,967     79,941 





   Total Assets    1,556,467,421     1,368,195,065 





 
Liabilities:         
Dividends payable to common and preferred shareholders    8,920,460     6,945,012 





Payable for investments purchased    3,711,438     4,515,370 





Investment management fees payable    830,414     729,769 





Accrued expenses    226,531     235,506 





   Total Liabilities    13,688,843     12,425,657 





Preferred Shares ($0.00001 par value; $25,000 net asset and         
   liquidation value per share applicable to 21,000 and 20,200 shares 
       
   issued and outstanding, respectively)    525,000,000     505,000,000 





Net Assets Applicable to Common Shareholders   
$
1,017,778,578   $  850,769,408 





 
Composition of Net Assets Applicable to Common Shareholders:         
Common Stock:         
   Par value ($0.00001 per share applicable to 69,270,294 and 57,873,575 
       
       shares issued and outstanding, respectively)      $693     $579 





   Paid-in-capital in excess of par    988,775,082     822,399,390 





Undistributed (Dividends in excess of) net investment income    (2,256,453 )   2,759,510 





Accumulated net realized gain on investments    3,832,382     7,747,929 





Net unrealized appreciation of investments and interest rate caps    27,426,874     17,862,000 





Net Assets Applicable to Common Shareholders   
$
1,017,778,578   $  850,769,408 





Net Asset Value Per Common Share      $14.69     $14.70 






16 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06 | See accompanying Notes to Financial Statements


Nicholas-Applegate Convertible & Income Funds Statements of Operations
For the year periods indicated

   
Convertible &
   
   
 
   
Income
   
Convertible & Income II*  






   
Year ended
Period ended
Year ended
 
   
February 28,
February 28,
June 30,
 
   
2006
2006
2005
 









Investment Income:   
   
   
 
Interest   
$
90,793,722    
$
52,476,084    
$
74,025,820  










Dividends   
22,128,388    
13,533,783    
20,320,746  










Other Income   
3,286,339    
1,920,765    
 










   Total Investment Income   
116,208,449    
67,930,632    
94,346,566  










 
Expenses:   
   
   
 
Investment management fees   
10,861,374    
6,338,386    
9,463,365  










Auction agent fees and commissions   
1,338,727    
856,211    
1,289,158  










Excise tax expense   
225,616    
90,868    
 










Custodian and accounting agent fees   
206,029    
77,280    
205,026  










Shareholder reports and notices   
199,326    
175,883    
157,375  










Trustees’ fees and expenses   
84,672    
51,470    
66,362  










Audit and tax services   
69,350    
62,170    
67,584  










New York Stock Exchange listing fees   
55,239    
27,880    
61,051  










Legal fees   
42,716    
27,194    
35,290  










Transfer agent fees   
42,085    
30,370    
33,264  










Insurance expense   
30,464    
19,692    
23,478  










Investor relations   
20,243    
10,731    
19,615  










Miscellaneous   
14,840    
16,010    
21,335  










   Total expenses   
13,190,681    
7,784,145    
11,442,903  










 
Net Investment Income   
103,017,768    
60,146,487    
82,903,663  










 
Realized and Change in Unrealized Gain (Loss):   
   
   
 
Net realized gain on:   
   
   
 
   Investments   
22,377,128    
33,371,780    
20,820,061  










   Interest rate caps   
1,662,562    
141,793    
1,875,812  










   
24,039,690    
33,513,573    
22,695,873  










Net change in unrealized appreciation/depreciation of:   
   
   
 
   Investments   
(58,446,125 )   
(4,144,908 )   
(36,307,517 ) 










   Interest rate caps   
2,610,058    
3,282,003    
(1,076,152 ) 










   
(55,836,067 )   
(862,905 )   
(37,383,669 ) 










Net realized and change in unrealized gain (loss)   
   
   
 
   on investments and interest rate caps   
(31,796,377 )   
32,650,668    
(14,687,796 ) 










Net Increase in Net Assets Resulting from   
   
   
 
   Investment Operations   
71,221,391    
92,797,155    
68,215,867  










 
Dividends and Distributions on Preferred   
   
   
 
   Shares from:   
   
   
 
Net investment income   
(17,331,721 )   
(10,113,694 )   
(11,768,307 ) 










Net realized gains   
(1,272,471 )   
(2,619,976 )   
(75,399 ) 










Total dividends and distributions on preferred shares   
(18,604,192 )   
(12,733,670 )   
(11,843,706 ) 










Net Increase in Net Assets Applicable to   
   
   
 
   Common Shareholders Resulting from   
   
   
 
   Investment Operations   
$
52,617,199    
$
80,063,485    
$
56,372,161  










 
* Fiscal year-end was changed to February 28 from June 30 during the period.    
   
 

See accompanying Notes to Financial Statements | 2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 17


Nicholas-Applegate Convertible & Income Funds Statements of Changes in Net Assets Applicable to Common Shareholders

    Convertible & Income  



 
    Year ended  
    February 28,  



    2006     2005  






Investment Operations:         
Net investment income   
$
103,017,768    
$
98,689,848  







Net realized gain on investments and interest rate caps    24,039,690     76,587,151  







Net change in unrealized appreciation/depreciation of         
   investments and interest rate caps    (55,836,067 )    (51,322,836 ) 







Net increase in net assets resulting from investment operations    71,221,391     123,954,163  







 
Dividends and Distributions on Preferred Shares from:         
Net investment income    (17,331,721 )    (8,047,820 ) 







Net realized gains    (1,272,471 )    (1,139,514 ) 







Total dividends and distributions on preferred shares    (18,604,192 )    (9,187,334 ) 







Net increase in net assets applicable to common shareholders         
   resulting from investment operations    52,617,199     114,766,829  







 
Dividends and Distributions to Common Shareholders from:         
Net investment income    (130,588,596 )    (99,815,537 ) 







Net realized gains    (15,782,779 )    (54,342,014 ) 







Total dividends and distributions to common shareholders    (146,371,375 )    (154,157,551 ) 







 
Capital Share Transactions:         
Net proceeds from the sale of common stock         







Preferred shares underwriting discount charged to paid-in-capital         
   in excess of par         







Common stock and preffered shares offering costs charged to         
   paid-in-capital in excess of par         







Reinvestment of dividends and distributions    25,531,435     23,559,496  







Net increase from capital share transactions    25,531,435     23,559,496  







Total increase (decrease) in net assets applicable to common shareholders    (68,222,741 )    (15,831,226 ) 







 
Net Assets Applicable to Common Shareholders:         
Beginning of period    1,086,001,319     1,101,832,545  







End of period (including undistributed (dividends in excess of) net         
   investment income of $(2,256,453), $10,772,076;         
   $2,759,510, $7,077,799 and $2,968,466 respectively)    $ 1,017,778,578     $ 1,086,001,319  







 
Common Shares Issued in Reinvested:         
Issued         







Issued in reinvestment of dividends and distributions    1,705,242     1,480,665  







Net Increase    1,705,242     1,480,665  








*      Represents the eight months ended February 28, 2006. During the period, the Fund’s fiscal year-end was changed to February 28 from June 30.
 
**      Commencement of operations
 

18 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06 | See accompanying Notes to Financial Statements




Convertible & Income II

For the period
For the period
 
July 1, 2005
July 31, 2003**
 
through
Year ended
through
 
February 28, 2006*
June 30, 2005
June 30, 2004
 









 
$
60,146,487    
$
82,903,663    
$
69,176,349  









33,513,573     22,695,873     6,708,496  









 
(862,905 )    (37,383,669 )    55,595,157  









92,797,155     68,215,867     131,480,002  









 
 
(10,113,694 )    (11,768,307 )    (4,538,086 ) 









(2,619,976 )    (75,399 )     









(12,733,670 )    (11,843,706 )    (4,538,086 ) 









 
80,063,485     56,372,161     126,941,916  









 
 
(60,083,257 )    (81,000,846 )    (69,866,227 ) 









(15,188,931 )    (7,680,066 )    (1,815,413 ) 









(75,272,188 )    (88,680,912 )    (71,681,640 ) 









 
 
        805,781,250  









 
        (5,050,000 ) 









 
        (1,977,092 ) 









11,068,696     11,434,945     1,668,784  









11,068,696     11,434,945     800,422,942  









15,859,993     (20,873,806 )    855,683,218  









 
 
834,909,415     855,783,221     100,003  









 
 
$
850,769,408     $ 834,909,415    
$
855,783,221  









 
 
        56,250,000  









744,597     764,611     107,386  









744,597     764,611     56,357,386  










| 2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 19


Nicholas-Applegate Convertible & Income Funds Notes to Financial Statements
February 28, 2006

1. Organization and Significant Accounting Policies

Nicholas-Applegate Convertible & Income Fund (“Convertible & Income”) and Nicholas-Applegate Convertible & Income Fund II (“Convertible & Income II”), collectively referred to as the “Funds”, were organized as Massachusetts business trusts on January 17, 2003 and April 22, 2003, respectively. In December 2005, Convertible & Income II changed its fiscal year end from June 30 to February 28. Accordingly, the financial statements of this Fund cover the eight-month period from July 1, 2005 through February 28, 2006. Prior to commencing operations on March 31, 2003, and July 31, 2003, respectively, the Funds had no operations other than matters relating to their organization and registration as diversified, closed-end management investment companies under the Investment Company Act of 1940 and the rules and regulations there under, as amended. Allianz Global Investors Fund Management LLC (the “Investment Manager”), serves as the Funds’ Investment Manager and is an indirect wholly-owned subsidiary of Allianz Global Investors of America L.P. (“Allianz Global”). Allianz Global is an indirect, majority-owned subsidiary of Allianz AG. The Funds have an unlimited amount of $0.00001 par value common stock authorized.

The Funds’ investment objective is to provide total return through a combination of capital appreciation and high current income. The Funds attempt to achieve this objective by investing in a portfolio of convertible securities and non-convertible income-producing securities.

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 Funds enter into contracts that contain a variety of representations which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet been asserted. However, the Funds expect the risk of any loss to be remote.

The following is a summary of significant accounting policies followed by the Funds.

(a) Valuation of Investments

Portfolio securities and other financial instruments for which market quotations are readily available are stated at market value. Portfolio securities and other financial instruments for which market quotations are not readily available or if a development/event occurs that may significantly impact the value of a security, may be fair-valued, in good faith, pursuant to guidelines established by the Board of Trustees. The Funds’ investments are valued daily by an independent pricing service or dealer quotations, using the last sale price on the exchange that is the primary market for such securities, or the last quoted bid price on corporate bonds and notes or the last quoted mean price on convertible securities for which the over-the-counter market is the primary market or for listed securities in which there were no sales. Independent pricing services 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 term to 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. The prices used by the Funds to value securities may differ from the value that would be realized if the securities were sold and the differences could be material to the financial statements. The Funds’ net asset values are determined daily as of the close of regular trading (normally, 4:00 p.m. Eastern time) on the New York Stock Exchange (“NYSE”) on each day the NYSE is open for business.

(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 corporate bonds and notes 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 Funds intend 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

(d) Dividends and Distributions-Common Stock

The Funds declare dividends from net investment income monthly to common shareholders. Distributions of net realized capital gains, if any, are paid at least annually. The Funds record 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

20 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06


Nicholas-Applegate Convertible & Income Funds Notes to Financial Statements
February 28, 2006


1. Organization and Significant Accounting Policies (continued)

(d) Dividends and Distributions-Common Stock (continued) are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. These “book-tax” differences are considered either 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. With respect to Convertible & Income, for the fiscal year ended February 28, 2006, permanent differences are primarily attributable to the differing treatment of convertible preferred securities, interest rate cap premium amortization and periodic payments, consent payments, premium amortization and non-deductible excise tax. These adjustments were a decrease to dividends in excess of net investment income of $31,874,020, a decrease to paid-in capital of $218,991 and a decrease to net realized gains of $31,655,029. For Convertible & Income II, for the fiscal period July 1, 2005 through February 28, 2006, permanent differences are primarily attributable to the differing treatment of convertible preferred securities, interest rate cap premium amortization and periodic payments, consent payments, premium amortization and non-deductible excise tax. These adjustments were to an increase to undistributed net investment income of $5,732,175, a decrease to paid-in capital of $88,200 and a decrease to net realized gains of $5,643,975. To the extent 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 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 trusts’ receipt of payments from, and the trusts’ potential obligations to, the counterparties to the derivative instruments and other securities in which the trusts invest in.

(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 Funds’ exposure to changes in short-term interest rates and hedge the Auction Preferred Shares. Owning interest rate caps reduces the Funds’ 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 Funds experience primarily in the form of leverage. The Funds are exposed to credit loss in the event of non-performance by the other party to the interest rate cap. Premiums paid by the Funds are recognized as an asset and amortized into realized loss over the life of the interest rate cap. Changes in the value of the interest rate cap is recognized as unrealized appreciation or depreciation. Periodic payments received during periods the floating rate exceeds the specified fixed rate are recognized into realized gain.

(g) Concentration of Risk

It is the Funds’ 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 Funds’ investments include features which render them more sensitive to price changes in their underlying securities. Consequently, this exposes the Funds to greater downside risk than traditional convertible securities, but still less than that of the underlying common stock.

2. Investment Manager/Sub-Adviser

The Funds have entered into Investment Management Agreements (the “Agreements”) with the Investment Manager. Subject to the supervision of the Funds’ Boards of Trustees, the Investment Manager is responsible for managing, either directly or through others selected by it, the Funds’ investment activities, business affairs and administrative matters. Pursuant to the Agreements, the Funds pay the Investment Manager an annual fee, payable monthly, at the annual rate of 0.70% of the Funds’ average daily total managed assets. Total managed assets refer to the total assets of each Fund’s (including assets attributable to any Preferred Shares and borrowings that may be outstanding) minus accrued liabilities (other than liabilities representing borrowings).

2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 21


Nicholas-Applegate Convertible & Income Funds Notes to Financial Statements
February 28, 2006

2. Investment Manager/Sub-Adviser (continued)

The Investment Manager has retained its affiliate, Nicholas-Applegate Capital Management LLC (the “Sub-Adviser”), to manage the Funds’ investments. Subject to the supervision of the Investment Manager, the Sub-Adviser is responsible for making all of the Funds’ investment decisions. For its services pursuant to Sub-Advisory agreements, the Investment Manager and not the Funds, pay the Sub-Adviser a monthly fee.

3. Investment in Securities

For the fiscal periods ended February 28, 2006, purchases and sales of investments, other than short-term securities and U.S. government obligations were:

      Convertible & Income      Convertible & Income II 









Purchases        $748,270,905        $397,701,841 
Sales      815,698,180      465,038,411 

For the fiscal periods ended February 28, 2006, purchases and sales of U.S. government obligations were:

    Convertible & Income 
Convertible & Income II 






Purchases       
$38,317,453 
$32,313,797
Sales     
 18,000,000 
  10,000,000 
(a) Interest rate cap agreements outstanding at February 28, 2006     
Convertible & Income:         
  Notional  Termination    Payment received 
Unrealized 
Counterparty  Amount  Date 
Premium 
by Fund 
Appreciation 










UBS AG    $525,000,000  1/15/08   
$14,101,172 
1 month LIBOR-BBA   
$4,926,827 
     
over 3% strike price 
Convertible & Income II:   
 
  Notional  Termination 
Payment received 
Unrealized 
Counterparty  Amount  Date 
Premium 
by Fund 
Appreciation 










UBS AG    $505,000,000  1/15/08   
$13,563,985 
1 month LIBOR-BBA   
$4,739,015 
     
over 3% strike price   

LIBOR-London Interbank Offered Rate         
 
4. Income Tax Information         
The tax character of dividends and distributions paid were:     
Convertible & Income:         
      Year ended                           Year ended 
      February 28, 2006                       February 28, 2005 








Ordinary Income        $147,920,317                             $146,636,384 
Long-Term Capital Gains       17,055,250                              16,708,501 

At February 28, 2006, the tax character of distributable earnings was comprised of $15,393,964 of long-term capital gains.

The cost basis of portfolio securities for federal income tax purposes is $1,503,828,439. Aggregated gross unrealized appreciation for securities in which there is an excess value over tax cost is $48,374,258; aggregate gross unrealized depreciation for securities in which there is an excess of tax cost over value is $38,451,318; net unrealized appreciation for federal income tax purposes is $9,922,940. The difference between book and the tax basis unrealized appreciation is attributable to wash sales, amortization of premium and the differing treatment of convertible preferred securities.

22 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06


Nicholas-Applegate Convertible & Income Funds Notes to Financial Statements
February 28, 2006

4. Income Tax Information (continued)
The tax character of dividends and distributions paid were:
Convertible & Income II:
      Eight Months ended     
Year ended 
      February 28, 2006     
June 30, 2005 









Ordinary Income        $71,532,886       
$99,600,485 
Long-Term Capital Gains      16,472,972     
      924,133 

At February 28, 2006, the tax character of distributable earnings of $21,657,890 was comprised $4,885,448 of ordinary income and $16,772,442 of long-term capital gains.

The cost basis of portfolio securities for federal income tax purposes is $1,325,941,761. Aggregated gross unrealized appreciation for securities in which there is an excess value over tax cost is $39,985,732; aggregate gross unrealized depreciation for securities in which there is an excess of tax cost over value is $37,122,589; net unrealized appreciation for federal income tax purposes is $2,863,143. The difference between book and tax basis unrealized appreciation is attributable to wash sales, amortization of premium and the differing treatment of convertible preferred securities.

Convertible & Income and Convertible & Income II paid excise taxes of $225,616 and $90,868, respectively, in connection with an underdistribution of ordinary income resulting from book/tax differences for convertible preferred securities from the prior excise tax period.

5. Auction Preferred Shares

Convertible & Income 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.

Convertible & Income II 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 long-term capital gains, if any, are paid annually.

Convertible & Income:

For the year ended February 28, 2006, the annualized dividend rate ranged from:

    High     Low    
At 2/28/06
 










Series A    4.40 %    2.57 %    4.37 % 
Series B    4.40 %    2.54 %    4.40 % 
Series C    4.45 %    2.55 %    4.20 % 
Series D    4.45 %    2.55 %    4.37 % 
Series E    4.40 %    2.60 %    4.37 % 
 
Convertible & Income II:             
 
For the eight months ended February 28, 2006, the annualized dividend rate ranged from:      
 
    High     Low    
At 2/28/06
 










Series A    4.44 %    3.08 %    4.37 % 
Series B    4.40 %    3.20 %    4.40 % 
Series C    4.45 %    3.18 %    4.30 % 
Series D    4.45 %    3.01 %    4.37 % 
Series E    4.40 %    3.10 %    4.37 % 

The Funds are subject to certain limitations and restrictions while preferred shares are outstanding. Failure to comply with these limitations and restrictions could preclude the Funds 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.

2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 23


Nicholas-Applegate Convertible & Income Funds Notes to Financial Statements
February 28, 2006

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, 2006, the following dividends were declared to common shareholders payable April 3, 2006 to shareholders of record on March 10, 2006:

Convertible & Income
Convertible & Income II
$0.125 per common share
$0.115625 per common share

On April 3, 2006, the following dividends were declared to common shareholders payable May 1, 2006 to shareholders of record on April 13, 2006:

Convertible & Income
Convertible & Income II

$0.125 per common share
$0.115625 per common share

7. Legal Proceedings

In June and September 2004, the Investment Manager, certain of its affiliates (Allianz Global Investors Distributors LLC and PEA Capital LLC) and Allianz Global, agreed to settle, without admitting or denying the allegations, claims brought by the Securities and Exchange Commission (the “Commission”), the New Jersey Attorney General and the California Attorney General alleging violations of federal and state securities laws with respect to certain open-end funds for which the Investment Manager serves as investment adviser. Two settlements (with the Commission and New Jersey) related to an alleged “market timing” arrangement in certain open-end funds sub-advised by PEA Capital. Two settlements (with the Commission and California) related to the alleged use of cash and fund portfolio commissions to finance “shelf-space” arrangements with broker-dealers for open-end funds. The Investment Manager and its affiliates agreed to pay a total of $68 million to settle the claims related to market timing and $20.6 million to settle the claims related to shelf space. The settling parties also agreed to make certain corporate governance changes. None of the settlements allege that any inappropriate activity took place with respect to the Funds.

Since February 2004, the Investment Manager and certain of its affiliates and their employees have been named as defendants in a number of pending lawsuits concerning “market timing,” and “revenue sharing/shelf space/directed brokerage,” which allege the same or similar conduct underlying the regulatory settlements discussed above. The market timing lawsuits have been consolidated in a Multi-District Litigation in the United States District Court for the District of Maryland, and the revenue sharing/shelf space/directed brokerage lawsuits have been consolidated in the United States District Court for the District of Connecticut. An additional market timing lawsuit filed by the Attorney General of West Virginia against a number of fund companies, including the Investment Manager and two of its affiliates, has also been transferred to the Multi-District Litigation in Maryland. Any potential resolution of these matters may include, but not be limited to, judgments or settlements for damages against the Investment Manager or its affiliates or related injunctions. The Investment Manager believes that other similar lawsuits may be filed in federal or state courts in the future.

Under Section 9(a) of the Investment Company Act of 1940, if any of the various regulatory proceedings or lawsuits were to result in a court injunction against the Investment Manager, Allianz Global and/or their affiliates, they and their affiliates would, in the absence of exemptive relief granted by the Commission, be barred from serving as an investment adviser/sub-adviser or principal underwriter for any registered investment company, including the Funds. In connection with an inquiry from the Commission concerning the status of the New Jersey settlement referenced above with regard to any implications under Section 9(a), the Investment Manager and certain of its affiliates, including the Investment Adviser, (together, the ‘’Applicants’’) have sought exemptive relief from the Commission under Section 9(c) of the 1940 Act. The Commission has granted the Applicants a temporary exemption from the provisions of Section 9(a) with respect to the New Jersey settlement until the earlier of (i) September 13, 2006 and (ii) the date on which the Commission takes final action on their application for a permanent exemptive order. There is no assurance that the Commission will issue a permanent order. If a court injunction were to be issued against the Investment Manager or the Affiliates with respect to any of the other matters referenced above, the Investment Manager or the affiliates would, in turn, seek similar exemptive relief under Section 9(c) with respect to that matter, although there is no assurance that such exemptive relief would be granted.

The foregoing speaks only as of the date hereof.

24 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06


Nicholas-Applegate Convertible & Income Fund Financial Highlights

For a share of common stock outstanding throughout each period

               
           
For the Period
 
    Year ended    
March 31, 2003*
 



through
   
February 28,
February 28,
   
February 29,
 
   
2006
2005
   
2004
 









Net asset value, beginning of period      $16.07       $16.67       $14.33 ** 










Income from Investment Operations:             
Net investment income    1.51     1.48     1.28  










Net realized and unrealized gain (loss) on investments    (0.48 )    0.38     2.61  










Total from investment operations    1.03     1.86     3.89  










Dividends and Distributions on Preferred Shares from:             
Net investment income    (0.25 )    (0.12 )    (0.07 ) 










Net realized gains    (0.02 )    (0.02 )     










Total dividends and distributions on preferred shares    (0.27 )    (0.14 )    (0.07 ) 










Net increase in net assets applicable to common shareholders             
   resulting from investment operations    0.76     1.72     3.82  










Dividends and Distributions to Common Shareholders             
   from:             
Net investment income    (1.91 )    (1.50 )    (1.33 ) 










Net realized gains    (0.23 )    (0.82 )    (0.03 ) 










Total dividends and distributions to common shareholders    (2.14 )    (2.32 )    (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      $14.69       $16.07       $16.67  










Market price, end of period      $15.69       $15.82       $16.38  










Total Investment Return (1)    14.30 %    11.53 %    18.98 % 










RATIOS/SUPPLEMENTAL DATA:             
Net assets applicable to common shareholders,             
   end of period (000)      $1,017,779       $1,086,001       $1,101,833  










Ratio of expenses to average net assets (2)    1.28 %    1.24 %    1.17% (3)  










Ratio of expenses, excluding excise tax, to average             
   net assets (2)    1.26 %    1.24 %    1.17% (3)  










Ratio of net investment income to average net assets (2)    10.03 %    9.20 %    8.97% (3)  










Preferred shares asset coverage per share      $73,442       $76,698       $77,460  










Portfolio turnover    52 %    70 %    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 a share of common stock at the current market price on the first day of the period and a sale of a share of common stock at the current market price on the last day of each period reported. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges. Total investment return for a period of less than one year is not annualized.
(2) Calculated on the basis of income and expenses applicable to both common shares and preferred shares relative to the average net assets of common shareholders.
(3) Annualized.

2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 25


Nicholas-Applegate Convertible & Income Fund II Financial Highlights
For a share of common stock outstanding throughout each period


 

   
For the Period
For the Period
 
   
July 1, 2005
July 31, 2003*
 
   
through
Year ended
through
 
   
February 28,
June 30,
June 30,
 
   
2006
 
2005
2004
 









Net asset value, beginning of period      $14.61       $15.18       $14.33 ** 










Income from Investment Operations:             
Net investment income    1.04     1.59     1.23  










Net realized and unrealized gain on investments    0.58     (0.39 )    1.10  










Total from investment operations    1.62     1.20     2.33  










Dividends and Distributions on Preferred Shares from:             
Net investment income    (0.17 )    (0.21 )    (0.08 ) 










Net realized gains    (0.05 )    (0.00 )††     










Total dividends and distributions on preferred shares    (0.22 )    (0.21 )    (0.08 ) 










Net increase in net assets applicable to common shareholders             
   resulting from investment operations    1.40     0.99     2.25  










Dividends and Distributions to Common Shareholders             
   from:             
Net investment income    (1.05 )    (1.42 )    (1.24 ) 










Net realized gains    (0.26 )    (0.14 )    (0.03 ) 










Total dividends and distributions to common shareholders    (1.31 )    (1.56 )    (1.27 ) 










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            (0.10 ) 










Total capital share transactions            (0.13 ) 










Net asset value, end of period      $14.70       $14.61       $15.18  










Market price, end of period      $15.14       $14.74       $14.05  










Total Investment Return (1)    12.10 %    16.44 %    1.88 % 










RATIOS/SUPPLEMENTAL DATA:             
Net assets applicable to common shareholders,             
   end of period (000)      $850,769       $834,909       $855,783  










Ratio of expenses to average net assets (2)    1.37% (3)   1.35 %    1.23% (3)










Ratio of expenses, excluding excise tax, to average             
   net assets (2)    1.35% (3)   1.35 %    1.23% (3)










Ratio of net investment income to average net assets (2)    10.57% (3)   9.79 %    8.87% (3)










Preferred shares asset coverage per share      $    67,096       $   66,319       $   67,359  










Portfolio turnover    33 %    67 %    73 % 











* Commencement of operations
 
   
** Initial public offering price of $15.00 per share less underwriting discount of $0.675 per share.
 
During the period, the Fund’s fiscal year-end changed from June 30 to February 28.
   
Less than $0.005 per share.
   
(1)      Total investment return is calculated assuming a purchase of a share of common stock at the current market price on the first day of the period and a sale of a share at the current market price on the last day of each period reported.
 
  Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the 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 shares and preferred shares relative to the average net assets of common shareholders.
 
(3) Annualized.
 

26 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06


Nicholas-Applegate Convertible & Income Funds
Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees of

Nicholas-Applegate Convertible & Income Fund
Nicholas-Applegate Convertible & Income Fund II

In our opinion, the accompanying statements of assets and liabilities, including the schedules 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 the Nicholas-Applegate Convertible & Income Fund and Nicholas-Applegate Convertible & Income Fund II (the “Funds”) at February 28, 2006, and the results of each of their operations, changes in net assets applicable to common shareholders and the financial highlights for each of the periods presented, 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 Funds’ management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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 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 audits, which included confirmation of securities at February 28, 2006, by correspondence with the custodian and brokers provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
New York, New York
April 26, 2006

2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 27


Nicholas-Applegate Convertible & Income Funds Tax Information (unaudited)

Subchapter M of the Internal Revenue Code of 1986, as amended, requires the Funds to advise shareholders within 60 days of the Funds’ tax year-end (February 28, 2006) as to the federal tax status of dividends and distributions received by shareholders during such tax year. Per share dividends for the tax year ended February 28, 2006 were as follows:

Convertible & Income:       
Dividends to common shareholders from ordinary income        $1.91 
Dividends to preferred shareholders from ordinary income        $825.32005 
 
Distributions to common shareholders from net long-term capital gains        $0.23090 
Distributions to preferred shareholders from net long-term capital gains        $60.59386 

Pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003, the percentage of ordinary dividends paid by the Fund that the Fund designates as qualified dividend income is 4.19% or the maximum allowable amount.

The percentage of ordinary dividends paid by the Fund during the period ended February 28, 2006, which qualified for the Dividends Received Deduction available to corporate shareholders is 4.13% or the maximum allowable amount.

Convertible & Income II:       
Dividends to common shareholders from ordinary income        $1.045 
Dividends to preferred shareholders from ordinary income        $500.67792 
 
Distributions to common shareholders from net long-term capital gains        $0.264 
Distributions to preferred shareholders from net long-term capital gains        $129.70178 

Pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003, the percentage of ordinary dividends paid by the Fund that the Fund designates as qualified dividend income is 5.73% or the maximum allowable amount.

The percentage of ordinary dividends paid by the Fund during the period ended February 28, 2006, which qualified for the Dividends Received Deduction available to corporate shareholders is 6.24% or the maximum allowable amount.

Since the Funds’ tax year is not the calendar year, another notification will be sent with respect to calendar year 2007. In January 2007, shareholders will be advised on IRS Form 1099 DIV as to the federal tax status of the dividends and distributions received during calendar 2006. The amount that will be reported, will be the amount to use on your 2006 federal income tax return and may differ from the amount which must be reported in connection with each Fund’s tax year ended February 28, 2006. Shareholders are advised to consult their tax advisers as to the federal, state and local tax status of the dividend income received from the Funds.

28 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06


Nicholas-Applegate Convertible & Income Funds Privacy Policy/Proxy Voting Policies & Procedures (unaudited)


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 with the consent or 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 & Procedures:

A description of the policies and procedures that the Funds have adopted to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities held during the twelve months ended June 30, 2005 is available (i) without charge, upon request, by calling the Funds’ shareholder servicing agent at (800) 331-1710; (ii) on the Funds’ website at www.allianzinvestors.com/closedendfunds; and (iii) on the Securities and Exchange Commission’s website at www.sec.gov.

2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 29


Nicholas-Applegate Convertible & Income Funds Dividend Reinvestment Plan (unaudited)


Pursuant to the Funds’ 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 Funds 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 Funds reserve 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 Funds’ shareholder servicing agent, PFPC Inc., P.O. Box 43027, Providence, RI 02940-3027, telephone number (800) 331-1710.

30 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06


Nicholas-Applegate Convertible & Income Funds Principal Officers (unaudited)


Name, Date of Birth, Position(s) Held with   
the Funds, Length of Service, Other   
Trusteeships/Directorships Held by   
Trustee; Number of Portfolios in Fund   
Complex/Outside Fund Complexes   
Currently Overseen by Trustee  Principal Occupation(s) During Past 5 years: 



The address of each trustee is 1345 Avenue of   
the Americas, New York, NY 10105   
 
Robert E. Connor  Corporate Affairs Consultant; Formerly, Senior Vice President, Corporate 
Date of Birth: 9/17/34  Office, Smith Barney Inc. 
Chairman of the Board of Trustees since: 2004   
Trustee since: 2003   
Term of office: Expected to stand for re-election   
at 2007 annual meetings of shareholders.   
Trustee/Director of 24 funds in Fund Complex   
Trustee/Director of no funds outside of Fund   
   Complex   
 
Paul Belica  Former Director, Student Loan Finance Corp., Education Loans, Inc., Goal 
Date of Birth: 9/27/21  Funding, Inc., Goal Funding II, Inc. and Surety Loan Funding, Inc.; 
Trustee since: 2003  Formerly, Manager of Stratigos Fund LLC, Whistler Fund LLC; and 
Term of Office: Expected to stand for re-election  Xanthus Fund LLC & Wynstone Fund LLC; and Formerly, senior executive 
   at 2006 (Convertible & Income)/2007 
and member of the Board of Smith Barney, Harris Upham & Co. 
   (Convertible & Income II) annual meetings 
 
   of shareholders   
Director/Trustee of 24 funds in Fund Complex   
Director/Trustee of no funds outside of Fund   
   Complex   
 
John J. Dalessandro II  Formerly, President and Director, J.J. Dalessandro II Ltd., registered 
Date of Birth: 7/26/37  broker-dealer and member of the New York Stock Exchange. 
Trustee since: 2003   
Term of office: Expected to stand for re-election   
   at 2008 annual meetings of shareholders. 
 
Trustee of 24 funds in Fund Complex   
Trustee of no funds outside of Fund complex   
 
David C. Flattum †  Managing Director, Chief Operating Officer, General Consel and member 
Date of Birth: 8/27/64  of Management Board, Allianz Global Investors of America, L.P.; 
Trustee since: 2004  Member of Management board, Allianz Global Investors Fund 
Term of office: Expected to stand for re-election  Management LLC,; Formerly, Head of Corporate Functions of Allianz 
   at 2008 annual meetings of shareholders. 
Global Investors of America L.P.; Formerly, Partner, Latham & Watkins 
Trustee of 52 funds in Fund Complex    LLP (1998-2001). 
Trustee of no funds outside of Fund Complex   
 
Hans W. Kertess  President, H Kertess & Co. L.P. Formerly, Managing Director, Royal 
Date of Birth: 7/12/39  Bank of Canada Capital Markets. 
Trustee since: 2004   
Term of office: Expected to stand for re-election   
   at 2006 (Convertible & Income)/ 2007 
 
   (Convertible & Income II) annual meetings 
 
   of shareholders.   
Trustee of 24 Funds in Fund Complex;   
Trustee of no funds outside of Fund Complex   
 
R. Peter Sullivan III  Formerly, Managing Partner, Bear Wagner Specialists LLC, specialist 
Date of Birth: 9/4/41  firm on the New York Stock Exchange. 
Trustee since: 2004 (Convertible & Income)   
Trustee since: 2005 (Convertible & Income II)   
Term of office: Expected to stand for re-election   
at 2008 annual meetings of shareholders.   
Trustee of 21 funds in Fund Complex   
Trustee of no funds outside of Fund Complex   

†     
Mr. Flattum is an “interested person” of the Funds due to his affiliation with Allianz Global Investors of America L.P. and the Investment Manager. In addition to Mr. Flattum’s positions with affiliated persons of the Funds set forth in the table above, he holds the following positions with affiliated persons: Director, PIMCO Global Advisors (Resources) Limited; Managing Director, Allianz Dresdner Asset Management U.S. Equities LLC, Allianz Hedge Fund Partners Holdings L.P., Allianz Pac-Life Partners LLC, PA Holdings LLC; Director and Chief Executive Officer. Oppenheimer Group, Inc.

Further information about Funds’ Trustees is available in the Funds’ Statements of Additional Information, dated May 21, 2003 and September 25, 2003 for Convertible & Income and Convertible & Income II, respectively, which can be obtained upon request, without charge, by calling the Funds’ shareholder servicing agent at (800) 331-1710.

2.28.06 | Nicholas-Applegate Convertible & Income Funds Annual Report 31


Nicholas-Applegate Convertible & Income Funds Principal Officers (unaudited)


Name, Date of Birth, Position(s) Held with   
the Funds  Principal Occupation(s) During Past 5 years: 


  Executive Vice President, Allianz Global Investors Fund Management 
Brian S. Shlissel  LLC; President and Chief Executive Officer of 32 funds in the Fund 
Date of Birth: 11/14/64  Complex; Treasurer; Principal Financial and Accounting Officer of 33 funds 
President & Chief Executive Officer since: 2003  in the Fund Complex; Trustee of 8 funds in the Fund Complex. 
1345 Avenue of the Americas   
47th Floor   
New York, NY 10105   
 
Lawrence G. Altadonna  Senior Vice President, Allianz Global Investors Fund Management LLC; 
Date of Birth: 3/10/66  Treasurer, Principal Financial and Accounting officer of 24 funds in the 
Treasurer, Principal/Financial and Accounting  Fund Complex; Assistant Treasurer of 33 funds in the Fund Complex. 
   Officer since: 2003  Treasurer of 8 funds in the Fund Complex. 
1345 Avenue of the Americas   
47th Floor   
New York, NY 10105   
 
Thomas J. Fuccillo  Senior Vice President, Senior Counsel, Allianz Global Investors of 
Date of Birth: 3/22/68  America L.P., Secretary and Chief Legal Officer of 32 funds in the Fund 
Secretary & Chief Legal Officer since: 2004  Complex. Formerly, Vice President and Associate General Counsel, 
1345 Avenue of the Americas  Neuberger Berman, LLC (1991-2004). 
50th Floor   
New York, NY 10105   
 
Youse Guia  Senior Vice President, Group Compliance Manager, Allianz Global 
Date of Birth: 9/3/72  Investors of America L.P., Chief Compliance Officer of 65 funds in the 
Chief Compliance Officer since: 2004  Fund Complex; Formerly, Vice President, Group Compliance Manager, 
600 Newport Center Drive  Allianz Global Investors of America L.P. (2002-2004). Audit Manager, 
Suite 250  PricewaterhouseCoopers LLP (1996-2002). 
Newport Beach, CA 92660   

Officers hold office at the pleasure of the Boards and until their successors are appointed and qualified or until their earlier resignation or removal.

32 Nicholas-Applegate Convertible & Income Funds Annual Report | 2.28.06

 


Trustees and Principal Officers
Robert E. Connor
     Trustee, Chairman of the Board of Trustees
Paul Belica
     Trustee
John J. Dalessandro II
     Trustee
David C. Flattum
     Trustee
Hans W. Kertess
     Trustee
R. Peter Sullivan III
     Trustee
Brian S. Shlissel
     President & Chief Executive Officer
Lawrence G. Altadonna
     Treasurer, Principal Financial & Accounting Officer
Thomas J. Fuccillo
     Secretary & Chief Legal Officer
Youse Guia
     Chief Compliance Officer

Investment Manager
Allianz Global Investors Fund Management LLC
1345 Avenue of the Americas
New York, NY 10105

Sub-Advisers
Nicholas-Applegate Capital Management LLC
600 West Broadway, 30th Fl
San Diego, California 92101

Custodian & Accounting Agent
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109

Transfer Agent, Dividend Paying Agent and Registrar
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027

Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017

Legal Counsel
Ropes & Gray LLP
One International Place
Boston, MA 02210-2624

This report, including the financial information herein, is transmitted to the shareholders of Nicholas Applegate Convertible & Income Fund and 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 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 the Funds may purchase shares of its common stock in the open market.

The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of their fiscal years on Form N-Q. The Funds’ Form N-Q is available on the SEC’s website at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The information on Form N-Q is also available on the Funds’ website at www.allianzinvestors.com/closedendfunds.

On November 7, 2005 each Fund submitted a CEO annual certification to the New York Stock Exchange (“NYSE”) on which the Funds’ principal executive officer certified that he was not aware, as of the date, of any violation by the Funds of the NYSE’s Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Funds’ principal executive and principal financial officer made quarterly certifications, included in filings with the SEC on Forms N-CSR and N-Q relating to, among other things, the Funds’ disclosure controls and procedures and internal control over financial reporting, as applicable.

Additional information on the Funds are available at www.allianzinvestors.com/closedendfunds or by calling the Funds’ shareholder servicing agent at (800) 331-1710.




ITEM 2. CODE OF ETHICS

      (a)      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. The Investment Managers code of ethics are included as an Exhibit 99.CODE ETH hereto.
 
  (b) During the period covered by this report, there were not any amendments to a provision of the code of ethics adopted in 2(a) above.
 
  (c) During the period covered by this report, there were not any waivers or implicit waivers to a provision of the code of ethics adopted in 2(a) above.
 

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 $47,274. in 2005 and $48,000 in 2006.
 
  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 $8,000 in 2005 and $10,000 in 2006. 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 $8,800 in 2005 and $15,000 in 2006. 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 related directly to the operations and financial reporting of the Registrant. The Registrant’s policy is stated below.


    Nicholas-Applegate Convertible & Income Fund (THE “FUND”)
 

AUDIT OVERSIGHT COMMITTEE POLICY FOR PRE-APPROVAL OF SERVICES PROVIDED BY THE INDEPENDENT ACCOUNTANTS

The Funds’ Audit Oversight Committee (“Committee”) is charged with the oversight of the Funds’ financial reporting policies and practices and their internal controls. 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 provided, 
   
  the fees to be charged in connection with the 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 FUNDS

On an annual basis, the Funds’ Committee will review and pre-approve the scope of the audits of the Funds and proposed audit fees and permitted non-audit (including audit-related) services that may be performed by the Funds’ 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 addition to the Committee’s pre-approval of services pursuant to this Policy, the engagement of the independent accounting firm for any permitted non-audit service provided to the Funds will also require the separate written pre-approval of the President of the Funds, who will confirm, independently, that the accounting firm’s engagement 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 
Semiannual financial statement reviews 

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 quarterly review of Basic Maintenance testing associated
with issuance of Preferred Shares and semiannual report review) 
Other 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 who is a disinterested trustee under the Investment Company Act to whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $100,000. Any such pre-approval shall be reported to the full Committee at its next regularly scheduled meeting.

TAX SERVICES

The following categories of tax services are considered to be consistent with the role of the Funds’ 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 service 
     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 Chairman (or any other Committee member who is a disinterested trustee under the Investment Company Act to whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $100,000. Any such pre-approval shall be reported to the full Committee at its next regularly scheduled meeting.

PROSCRIBED SERVICES

The Funds’ 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 Funds 
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 pre-approve annually any permitted non-audit services to be provided to Allianz Global Investors Fund Management LLC (Formerly, PA Fund Management LLC) or any other investment manager to the Funds (but not including any sub-adviser whose role is primarily portfolio management and is sub-contracted by the investment manager) (the “Investment Manager”) and any entity controlling, controlled by, or under common control with the Investment Manager that provides ongoing services to the Funds (including affiliated sub-advisers to the Funds), provided, in each case, that the engagement relates


directly to the operations and financial reporting of the Funds (such entities, including the Investment Manager, shall be referred to herein as the “Accounting Affiliates”). Individual projects that are not presented to the Committee as part of the annual pre-approval process, may be pre-approved, if deemed consistent with the accounting firm’s independence, by the Committee Chairman (or any other Committee member who is a disinterested trustee under the Investment Company Act to whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $100,000. Any such pre-approval shall be reported to the full Committee at its next regularly scheduled meeting.

Although the Committee will not pre-approve all services provided to the Investment Manager and its affiliates, the Committee will receive an annual report from the Funds’ independent accounting firm showing the aggregate fees for all services provided to the Investment Manager and its affiliates.

DE MINIMUS EXCEPTION TO REQUIREMENT OF PRE-APPROVAL OF NON-AUDIT SERVICES

With respect to the provision of permitted non-audit services to a Fund or Accounting Affiliates, the pre-approval requirement is waived if:

           (1)      The aggregate amount of all such permitted non-audit services provided constitutes no more than (i) with respect to such services provided to the Fund, five percent (5%) of the total amount of revenues paid by the Fund to its independent accountant during the fiscal year in which the services are provided, and (ii) with respect to such services provided to Accounting Affiliates, five percent (5%) of the total amount of revenues paid to the Fund’s independent accountant by the Fund and the Accounting Affiliates during the fiscal year in which the services are provided;
 
  (2) Such services were not recognized by the Fund at the time of the engagement for such services to be non-audit services; and
 
  (3) Such services are promptly brought to the attention of the Committee and approved prior to the completion of the audit by the Committee or by the Committee Chairman (or any other Committee member who is a disinterested trustee under the Investment Company Act to whom this Committee Chairman or other delegate shall be reported to the full Committee at its next regularly scheduled meeting.
 
 

       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 2005 Reporting Period was $2,386,636 and the 2006 Reporting Period was $2,778,225.

       h) Auditor Independence. The Registrant’s Audit Oversight 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 REGISTRANT

The Fund has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The audit committee of the Fund is comprised of Robert E. Connor, Paul Belica, John J. Dalessandro II, Hans W. Kertess and R. Peter Sullivan III.

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.

Allianz Global Investors and Nicholas-Applegate

Description of Proxy Voting Policy and Procedures

The Registrants and its Board of Trustees have delegated to Allianz Global Investors Fund Management LLC (“Allianz Global Investors”), and Allianz Global Investors has in turn delegated to the sub-adviser, responsibility for voting any proxies relating to portfolio securities held by the Registrants in accordance with the sub-advisers’ proxy voting policies and procedures.

Each of Allianz Global Investors and Nicholas-Applegate Capital Management LLC (“Nicholas Applegate”) (for purposes of this description, each a “Company”) typically votes proxies as part of its discretionary authority to manage accounts (except as provided below with respect to Allianz Global Investors’ registered investment company clients), unless the client has explicitly reserved the authority for itself. When voting proxies, each Company’s primary objective is to make voting decisions solely in the best economic interests of its clients. Each Company will act in a manner that it deems prudent and diligent and which is intended to enhance the economic value of the underlying portfolio securities held in its clients’ accounts.

Each Company has adopted written Proxy Voting Policies and Procedures (the “Proxy Guidelines”) that are reasonably designed to ensure that such Company is voting in the best interest of its clients. The Proxy Guidelines reflect each Company’s general voting positions on specific corporate governance issues and corporate actions. Some issues may require a case by case analysis prior to voting and may result in a vote being cast that will deviate from the Proxy Guidelines. Upon receipt of a client’s written request, a Company may also vote proxies for that client’s account in a particular manner that may differ from the Proxy Guidelines. Deviation from a Company’s Proxy Guidelines will be documented and maintained in accordance with Rule 204-2 under the Investment Advisers Act of 1940.

In accordance with the Proxy Guidelines, a Company may review additional criteria associated with voting proxies and evaluate the expected benefit to its clients when making an overall determination on how or whether to vote the proxy. A Company may vote proxies individually for an account or aggregate and record votes across a group of accounts, strategy or product. In addition, a Company may refrain from voting a proxy on behalf of its clients’ accounts due to de-minimis holdings, impact on the portfolio, items relating to foreign issuers, timing issues related to the opening/closing of accounts and contractual arrangements with clients and/or their authorized delegate. For example, a Company may refrain from voting a proxy of a foreign issuer due to logistical considerations that may have a detrimental effect on a Company’s ability to vote the proxy. These issues may include, but are not limited to: (i) proxy statements and ballots being written in a foreign language, (ii) untimely notice of a shareholder meeting, (iii) requirements to vote proxies in person, (iv) restrictions on a foreigner’s ability to exercise votes, (v) restrictions on the sale of securities for a period of time in proximity to the shareholder meeting, or (vi) requirements to provide local agents with power of attorney to facilitate the voting instructions. Such proxies are voted on a best-efforts basis.

To assist in the proxy voting process, a Company may retain an independent third party service provider to assist in providing research, analysis and voting recommendations on corporate governance issues and corporate actions as well as assist in the administrative process. The services provided offer a variety of proxy-related services to assist in a Company’s handling of proxy voting responsibilities.


Conflicts of Interest. A Company may have conflicts of interest that can affect how it votes its clients’ proxies. For example, a Company or an affiliate may manage a pension plan whose management is sponsoring a proxy proposal. The Proxy Guidelines are designed to prevent material conflicts of interest from affecting the manner in which a Company votes its clients’ proxies. In order to ensure that all material conflicts of interest are addressed appropriately while carrying out its obligation to vote proxies, the Chief Investment Officer of the relevant Company may designate an employee or a proxy committee to be responsible for addressing how the Company resolves such material conflicts of interest with its clients.

Registered Investment Companies for which Allianz Global Investors Serves as Adviser. With respect to registered investment companies (“funds”) for which Allianz Global Investors serves as investment adviser, it is the policy of Allianz Global Investors that proxies should be voted in the interest of the shareholders of the applicable fund, as determined by those who are in the best position to make this determination. Allianz Global Investors believes that the firms and/or persons purchasing and selling securities for the funds and analyzing the performance of the funds’ securities are in the best position and have the information necessary to vote proxies in the best interests of the funds and their shareholders, including in situations where conflicts of interest may arise between the interests of shareholders, on one hand, and the interests of the investment adviser, a sub-adviser and/or any other affiliated person of the fund, on the other. Accordingly, Allianz Global Investor’s policy is to delegate proxy voting responsibility to those entities with portfolio management responsibility for the funds.

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

(a)(1)      As of May 8, 2006, [PLEASE INSERT DATE OF FILING] the following individuals constitute the team that has primary responsibility for the day-to-day implementation of the Nicholas-Applegate Convertible & Income Fund (NCV) and Nicholas-Applegate Convertible & Income Fund II (NCZ), with Mr. Forsyth serving as head of the team:

Douglas G. Forsyth, CFA
Managing Director, Portfolio Manager, US High Yield Bond/Convertibles
Doug Forsyth oversees Nicholas-Applegate's US High Yield Bond and US Convertibles portfolio management and research teams and is a member of the firm’s Executive Committee. Prior to joining Nicholas-Applegate in 1994, Doug was a securities analyst at AEGON USA, where he was responsible for financial and strategic analysis of high yield securities. Doug was previously a research assistant at the University of Iowa, where he earned his B.B.A. in finance. He has fourteen years of investment industry experience.

William (Brit) L. Stickney
Managing Director, Portfolio Manager, US High Yield Bond/Convertibles
Brit Stickney has portfolio management and research responsibilities as a member of the firm’s US High Yield Bond/Convertibles team. Prior to joining the firm in 1999, he was a vice president of Institutional Fixed Income Sales with ABN AMRO, Inc., where his primary focus was on high yield corporate securities. Brit’s previous experience was in institutional fixed income with Cowen & Company and Wayne Hummer & Company. He holds an M.B.A. from the J.L. Kellogg School of Management at Northwestern University and a B.S. in finance from Miami University of Ohio. He has seventeen years of investment industry experience.

Justin Kass, CFA
Senior Vice President, Portfolio Manager, US High Yield Bond/Convertibles
Justin Kass joined the firm in 2000 with responsibilities for portfolio management and research on our US High Yield Bond/Convertibles team. He was previously an analyst and interned on the team, where he added significant depth to our proprietary Upgrade Alert Model. He earned his M.B.A. in finance from the Anderson School at University of California, Los Angeles and his B.S. from the University of California, Davis. He has eight years of investment industry experience.


Michael E. Yee
Senior Vice President, Portfolio Manager, US High Yield Bond/Convertibles
As a member of the US High Yield Bond/Convertibles team since 1999, Michael Yee has responsibilities in portfolio management, trading and research for the US Convertible Arbitrage Fund. Michael was previously an Analyst for the Global/Systematic team, held positions in global and domestic portfolio administration areas, and in client services. Prior to joining the firm in 1995, he worked as a financial consultant for Priority One Financial/Liberty Foundation. Michael holds an M.B.A. from San Diego State University and a B.S. from the University of California at San Diego. He has eleven years of investment industry experience.

(a)(2)      The following summarizes information regarding each of the accounts, excluding portfolios of the Nicholas-Applegate Convertible & Income Fund (NCV) and Nicholas-Applegate Convertible & Income Fund II (NCZ) Fund that were managed by Portfolio Managers as of February 28, 2006, including accounts managed by a team, committee, or other group that includes the Portfolio Managers.


  Other RICs  Other Accounts  Other Pooled 




PM  #  AUM($million)  #  AUM($million)  #  AUM($million) 




Douglas G.  2  685.9  15  1590.0  5  551.9 
Forsythe,             
CFA             







Justin Kass,  2  685.9  15  1590.0  5  551.9 
CFA             







William  2  685.9  15  1590.0  5  551.9 
(Brit) L.             
Stickney             







Michael E.  2  685.9  15  1590.0  5  551.9 
Yee             







 
Accounts and Assets for which Advisory Fee is Based on Performance 
     



  Other RICs  Other Accounts  Other Pooled 




PM  #  AUM($million)  #  AUM($million)  #  AUM($million) 







Douglas G.  -  -  -  -  1  5.0 
Forsythe,             
CFA             







Justin Kass,  -  -  -  -  1  5.0 
CFA             







William  -  -  -  -  1  5.0 
(Brit) L.             
Stickney             







Michael E.  -  -  -  -  1  5.0 
Yee             



Like other investment professionals with multiple clients, a Portfolio Manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Investment Adviser believes are faced by investment professionals at most major financial firms.

The Investment Adviser and the Trustees have adopted compliance policies and procedures that attempt to address certain of these potential conflicts. The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance (“performance fee accounts”), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:

• The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.

• The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.

• The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.

A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a Portfolio Manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Investment Adviser’s trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold—for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.

“Cross trades,” in which one Investment Adviser account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Investment Adviser and the Board of Trustees have adopted compliance procedures that provide that any transactions between the Funds and another Investment Adviser-advised account are to be made at an independent current market price, as required by law.

Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account’s objectives or other factors, a Portfolio Manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a Portfolio Manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.


A Fund’s Portfolio Manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the Portfolio Manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular Portfolio Manager have different investment strategies. A Fund’s Portfolio Manager(s) may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Funds. In addition to executing trades, some brokers and dealers provide Portfolio Managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the Portfolio Manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the Fund, a Portfolio Manager’s decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the Funds and/or accounts that he or she manages. See “Portfolio Transactions and Brokerage”.

A Fund’s Portfolio Manager(s) may also face other potential conflicts of interest in managing a Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both the Funds and other accounts. In addition, a Fund’s Portfolio Manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. The Investment Adviser’s investment personnel, including each Fund’s Portfolio Manager, are subject to restrictions on engaging in personal securities transactions pursuant to the Codes of Ethics adopted by the Investment Adviser and the Funds, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of the Funds.

(a) (3)      As of February 28, 2006, the following explains the compensation structure of each individual that shares primary responsibility for day-to-day portfolio management of the Funds (for the purposes of this section, “Portfolio Managers”):

Base Salary. Each Portfolio Manager is paid a fixed base salary set at a competitive level, taking into consideration the Portfolio Manager’s experience and responsibilities, as determined by the Investment Adviser.

Annual Bonus, Profit Sharing Opportunity, and Long-Term Cash Bonus Plan . Each Portfolio Manager’s compensation is directly affected by the performance, on a pre-tax basis, of the individual portfolios he or she manages, including each Fund; as well as the performance of the individual’s portfolio management team and the overall success of the firm.

Approximately 75% of an investment professional’s performance bonus is based on one- and three-year annualized performance of client accounts, with greater weight placed on three-year performance. Relative performance to the benchmark is approximately half of the calculation and the product’s peer ranking in institutional consultant universes determines the other half. The


remaining 25% of the performance bonus is based on a qualitative review and firm profitability. In the qualitative review, team members are evaluated based on the consistency of their implementation of the investment process. Lead portfolio managers evaluate the members of their teams. The Chief Investment Officer evaluates the lead portfolio managers.

Investment teams have a profit-sharing plan which represents approximately 25% of the total bonus. Each team receives a pool which is based on the pre-tax profit of their product. All team members are eligible. Allocations are decided between the Chief Investment Officer and lead portfolio managers of the teams. The share of pre-tax profit increases with increasing profitability. This structure, together with the bonus based on investment performance, fully aligns the team with client interests.

A Long-Term Cash Bonus Plan was established to provide long-term incentives and rewards to certain key staff and executives of Nicholas-Applegate and the other Allianz Global Investors companies to promote their long-term growth and profitability. The Plan provides awards that are valued based on the operating earnings growth of the worldwide Allianz Global Investors group of companies, as well as the target achievement of Nicholas-Applegate’s average operating earnings on a three-year basis. The Plan provides a link between longer term company performance and participant pay, further motivating participants to make a long-term commitment to the company’s success.

(a)(4)      As of February 28, 2006, none of the Portfolio Managers beneficially own any of the shares issued by the Funds.

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED COMPANIES

            Total Number     
            of Shares Purchased    Maximum Number of 
    Total Number    Average    as Part of Publicly    Shares that May yet Be 
    of Shares    Price Paid    Announced Plans or    Purchased Under the Plans 
Period    Purchased    Per Share    Programs    or Programs 
March 2005    N/A    N/A    N/A    N/A 
April 2005    N/A    N/A    N/A    N/A 
May 2005    N/A    14.44    118,272    N/A 
June 2005    N/A    14.78    117,275    N/A 
July 2005    N/A    15.08    114,831    N/A 
August 2005    N/A    15.54    110,355    N/A 
September 2005    N/A    15.61    108,524    N/A 
October 2005    N/A    15.61    107,952    N/A 
November 2005    N/A    15.03    111,048    N/A 
December 2005    N/A    14.97    109,009    N/A 
December 2005    N/A    15.03    208,450    N/A 
December 2005    N/A    14.5    113,592    N/A 
January 2006    N/A    14.74    375,523    N/A 
February 2006    N/A    14.93    110,411    N/A 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Trustees since the Fund last provided disclosure in response to this item.


ITEM 11. 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 12. 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 99.906 Cert. - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant) Nicholas-Applegate Convertible & Income Fund     

By /s/ Brian S. Shlissel     
President and Chief Executive Officer

Date May 8, 2006     

By /s/ Lawrence G. Altadonna     
Treasurer, Principal Financial & Accounting Officer

Date May 8, 2006     

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 8, 2006     

By /s/ Lawrence G. Altadonna     
Treasurer, Principal Financial & Accounting Officer

Date May 8, 2006