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

FORM N-CSRS

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, 2007

Date of reporting period: August 31, 2006

Form N-CSRS 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-CSRS, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSRS 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

 

 

Semi-Annual Report
August 31, 2006

 

 


      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
     
Matters Relating to the Trustees Consideration of the    
Investment Management and Portfolio Management    
Agreements   27-29
     
Annual Shareholders Meeting Results   30

 

 




Nicholas-Applegate Convertible & Income Funds Letter to Shareholders (unaudited)

October 4, 2006

Dear Shareholder:

We are pleased to provide you with the semi-annual report for Nicholas-Applegate Convertible & Income Fund and Nicholas-Applegate Convertible & Income Fund II (the “Funds”) for the fiscal six months ended August 31, 2006.

The convertible market finished the six-month fiscal period ended August 31, 2006 on a positive note, as the Merrill Lynch All-Convertible Index increased 2.04%. For this period, the convertible market lagged the S&P 500 Index but outperformed the NASDAQ Composite Index. The Merrill Lynch Master II Index, a gauge for the high yield market, returned 3.55%. For information on how the Funds fared in this environment, please review the following pages.

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. In addition, a wide range of information and resources are available 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 LLC, the Funds’ sub-adviser, we thank you for investing with us.

We remain dedicated to serving your financial needs.

Sincerely,


Robert E. Connor
Chairman

Brian S. Shlissel
President & Chief Executive Officer

 

 

8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 1


Nicholas-Applegate Convertible & Income Fund Performance & Statistics
August 31, 2006 (unaudited)
   
*     

Nicholas-Applegate Convertible & Income Fund had a net asset value (“NAV”) return of 3.70% and a market price return of 7.39% for the six-month reporting period.

*

In the convertibles portion of the Fund’s portfolio, performance was affected by a broad-based sell-off in the market. In this environment, cyclicals were hit the hardest, particularly airlines and materials. This reflects investor anticipation of a slowing economy, which would likely see less business and leisure travel as well as lower demand for housing-related materials.

*

The healthcare industry was a positive contributor to Fund performance, based on strong first-quarter earnings and a broad rotation into defensive growth areas such as biotechnology and healthcare services.

*

Insurance companies aided Fund performance, rising on solid corporate profits and low catastrophe occurrences year-to-date.

*

High yield bond performance was solid for the period. Investors were drawn to energy, telecommunications and consumer products, reassured by ratings increases in these sectors.

*

Given investor confidence in the high yield bond market, lower-quality issuers turned in the best performance during the reporting period.

 
Total Return(1) :  
Market Price
  Net Asset Value (“NAV”)
6 months   7.39 %   3.70%
1 year   15.30 %   7.61%
Commencement of Operations (3/31/03) to 8/31/06   15.32 %   13.48%


Common Share Market Price/NAV Performance:
Commencement of Operations (3/31/03) to 8/31/06

Market Price/NAV:    
Market Price   $16.03
NAV   $14.47
Premium to NAV
  10.78%
Market Price Yield(2)
  9.36%
Moody's Ratings
(as a % of total investments)

(1) 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 equal to the total assets applicable to common shareholders less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily.

(2) Market Price Yield is determined by dividing the annualized current per share dividend to common shareholders by the market price per common share at August 31, 2006.

2 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06


Nicholas-Applegate Convertible & Income Fund II Performance & Statistics
August 31, 2006 (unaudited)
   
*     

Nicholas-Applegate Convertible & Income Fund II had a net asset value (NAV) return of 3.79% and a market price return of 7.43% for the six months ended August 31, 2006.

*

In the convertibles portion of the Funds portfolio, performance was affected by a broad-based sell-off in the market. In this environment cyclicals were hit the hardest, particularly airlines and materials. This reflects investor anticipation of a slowing economy, which would likely see less business and leisure travel as well as lower demand for housing-related materials.

*

The healthcare industry was a positive contributor to the Fund, based on strong first quarter earnings and a broad rotation into defensive growth areas such as biotechnology and healthcare services.

*

Insurance companies aided Fund performance, rising on solid corporate profits and low catastrophe occurrences year-to-date.

*

High yield bond performance was solid for the period. Investors were drawn to energy, telecommunications and consumer products, reassured by ratings increases in these sectors.

*

Given investor confidence in the high yield bond market, lower-quality issuers turned in the best performance during the reporting period.

 
Total Return(1) :  
Market Price
  Net Asset Value (“NAV”)
6 months   7.43 %   3.79%
1 year   13.32 %   8.11%
Commencement of Operations (7/31/03) to 8/31/06   12.26 %   11.61%


Common Share Market Price/NAV Performance:
Commencement of Operations (7/31/03) to 8/31/06
Market Price/NAV:    
Market Price   $15.52
NAV   $14.55
Premium to NAV   6.67%
Market Price Yield(2)   8.94%
Moody's Ratings
(as a % of total investments)

 

(1) 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 equal to the total assets applicable to common shareholders less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily.

(2) Market Price Yield is determined by dividing the annualized current per share dividend to common shareholders by the market price per common share at August 31, 2006.

8.31.06 |Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 3


Nicholas-Applegate Convertible & Income Fund Schedule of Investments      
August 31, 2006 (unaudited)          









 
Principal
Amount
     
Credit Rating
     
 
(000)
     
(Moodys/S&P)*
    Value
CORPORATE BONDS & NOTES40.7%
 
     
        Advertising0.7%  
     
  $10,700     Affinion Group, Inc., 11.50%, 10/15/15 (a)  
Caa1/B-
  $ 10,807,000
        Apparel1.0%  
     
        Levi Strauss & Co,  
     
  2,000        9.75%, 1/15/15  
B3/B-
    2,080,000
  10,295        12.25%, 12/15/12  
B3/B-
    11,530,400
  1,975     Oxford Industries, Inc., 8.875%, 6/1/11  
B1/B
    1,994,750
           
    15,605,150
        Automotive1.6%  
     
  7,485     General Motors Corp., 8.375%, 7/15/33  
Caa1/B-
    6,268,687
  10,890     Goodyear Tire & Rubber Co., 11.25%, 3/1/11  
B3/B-
    12,033,450
  8,308     HLI Operating Co., Inc., 10.50%, 6/15/10  
Caa3/CCC
    6,397,160
           
    24,699,297
        Chemicals2.7%  
     
  4,703     Huntsman LLC, 11.625%, 10/15/10  
Ba3/BB-
    5,220,330
        Lyondell Chemical Co.,  
     
  5,115        10.875%, 5/1/09  
B2/B
    5,217,300
  5,435        11.125%, 7/15/12  
Ba3/BB
    5,924,150
  13,590     Mosaic Global Holdings, Inc., 11.25%, 6/1/11  
Ba3/BB
    14,354,438
  5,125     PolyOne Corp., 10.625%, 5/15/10  
B3/B+
    5,496,562
  4,830     Rhodia S.A., 10.25%, 6/1/10  
B2/B-
    5,325,075
           
    41,537,855
        Coal0.9%  
     
  3,595     International Coal Group, Inc., 10.25%, 7/15/14 (a)  
B3/CCC+
    3,711,837
  10,445     James River Coal Co., 9.375%, 6/1/12  
Caa2/CCC-
    9,687,738
           
    13,399,575
        Commercial Services1.8%  
     
  3,800     Cenveo Corp., 7.875%, 12/1/13  
B3/B-
    3,591,000
  5,400     Hertz Corp., 10.50%, 1/1/16 (a)  
B3/B
    5,818,500
  4,444     Rent-Way, Inc., 11.875%, 6/15/10  
B3/NR
    4,966,170
  12,335     Vertrue, Inc., 9.25%, 4/1/14  
B2/B
    12,766,725
           
    27,142,395
        Computers0.5%  
     
  8,515     Unisys Corp., 8.00%, 10/15/12  
B2/B+
    7,887,019
        Electric2.7%  
     
  13,025     AES Corp., 9.50%, 6/1/09  
B/B1
    13,936,750
  12,750     Mission Energy Holdings Co., 13.50%, 7/15/08  
B/B-2
    14,264,063
  12,630     PSEG Energy Holdings LLC, 10.00%, 10/1/09  
Ba/BB3-
    13,640,400
           
    41,841,213
        Electronics1.6%  
     
  13,405     IMAX Corp., 9.625%, 12/1/10  
B3/B-
    12,902,312
  12,170     Stoneridge, Inc., 11.50%, 5/1/12  
B2/B
    11,835,325
           
    24,737,637

4 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06



Nicholas-Applegate Convertible & Income Fund Schedule of Investments          
August 31, 2006 (unaudited)          

 
Principal
     
     
 
Amount
     
Credit Rating
     
 
(000)
     
(Moodys/S&P)
    Value
 
        Financial Services2.4%  
     
  $11,080     Alamosa Delaware, Inc., 11.00%, 7/31/10  
Baa3/BBB+
  $ 12,104,900
  8,175     AMR Holdings Co., 10.00%, 2/15/15  
Caa1/B-
    8,747,250
  10,795     Ford Motor Credit Co., 7.00%, 10/1/13  
Ba3/B+
    10,074,952
  4,945     MedCath Holdings Corp., 9.875%, 7/15/12  
Caa1/B-
    5,241,700
           
    36,168,802
        Food Products0.9%  
     
  12,805     Pilgrims Pride Corp., 9.625%, 9/15/11  
Ba2/BB-
    13,413,237
        Healthcare0.9%  
     
  7,275     Alliance Imaging, Inc., 7.25%, 12/15/12  
B/B- 3
    6,765,750
  6,475     Hanger Orthopedic Group, Inc., 10.25%, 6/1/14  
B3/CCC+
    6,491,187
           
    13,256,937
        Home Builders0.7%  
     
  12,160     William Lyon Homes, Inc., 10.75%, 4/1/13  
B2/B
    11,187,200
        Home Furnishings1.8%  
     
  11,370     Central Garden & Pet Co., 9.125%, 2/1/13  
B2/B
    11,767,950
  14,600     Jarden Corp., 9.75%, 5/1/12  
B3 /B-
    15,111,000
           
    26,878,950
        Machinery0.9%  
     
  12,940     Case New Holland, Inc., 9.25%, 8/1/11  
Ba3/BB
    13,716,400
        Manufacturing0.5%  
     
  6,875     Clarke American Corp., 11.75%, 12/15/13  
B2/B-
    7,184,375
        Metals & Mining2.2%  
     
  7,710     AK Steel Corp., 7.875%, 2/15/09  
B1/B+
    7,661,812
  11,665     Freeport-McMoRan Copper & Gold, Inc., 10.125%, 2/1/10  
B1/B+
    12,405,728
  13,420     United States Steel LLC, 10.75%, 8/1/08  
Ba1/BB
    14,460,050
           
    34,527,590
        Miscellaneous1.5%  
     
  22,405     Dow Jones CDX High Yield, 10.50%, 12/29/09 (a) (b)  
NR/NR
    22,460,670
        Multi-Media1.7%  
     
  12,870     CCH I LLC, 11.00%, 10/1/15  
Caa3/CCC-
    11,486,475
  6,450     Lodgenet Entertainment Corp., 9.50%, 6/15/13  
B3/B-
    6,917,625
  8,140     Sirius Satellite Radio, Inc., 9.625%, 8/1/13  
Caa1/CCC
    7,773,700
           
    26,177,800
        Office/Business Equipment0.4%  
     
  5,565     Xerox Corp., 9.75%, 1/15/09  
Ba2 /BB+
    6,010,200
        Office Furnishings1.1%  
     
        Interface, Inc.,  
     
  5,375    
   9.50%, 2/1/14
 
Caa1/CCC
    5,549,687
  6,490    
   10.375%, 2/1/10
 
B2/B-
    7,065,988
  3,791     Tempur-Pedic, Inc., 10.25%, 8/15/10  
B2/B
    3,971,072
           
    16,586,747
        Oil & Gas0.4%  
     
  5,000     Seitel, Inc., 11.75%, 7/15/11  
B3/NR
    5,775,000

8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 5



Nicholas-Applegate Convertible & Income Fund Schedule of Investments
August 31, 2006 (unaudited)
 
 
Principal
     
     
 
Amount
     
Credit Rating
     
 
(000)
     
(Moodys/S&P)
    Value
 
        Paper Products1.2%  
     
  $  5,096     Buckeye Technologies, Inc., 9.25%, 9/15/08  
Caa1/B
  $ 5,096,000
  12,945     NewPage Corp., 12.00%, 5/1/13  
Caa2/CCC+
    13,365,713
           
    18,461,713
        Pharmaceuticals0.4%  
     
  7,180     Leiner Health Products, Inc., 11.00%, 6/1/12  
Caa1/CCC
    6,821,000
        Pipelines0.9%  
     
  13,330     Sonat, Inc., 7.625%, 7/15/11  
B2/B
    13,629,925
        Retail4.3%  
     
  14,420     Bon-Ton Stores, Inc., 10.25%, 3/15/14  
B2/B-
    13,572,825
  5,420     EPL Finance Corp., 11.75%, 11/15/13 (a)  
Caa1/CCC+
    6,056,850
  4,790     GSC Holdings Corp., 8.00%, 10/1/12  
Ba3/B+
    4,891,788
  8,325     Mothers Work, Inc., 11.25%, 8/1/10  
Caa1/B-
    8,793,281
  9,710     Neiman-Marcus Group, Inc., 10.375%, 10/15/15  
B/B- 3
    10,389,700
  10,000     R.H. Donnelley, Inc., 10.875%, 12/15/12  
B2/B
    10,950,000
  10,770     Star Gas Partners L.P., 10.25%, 2/15/13, Ser. B  
Caa3/B-
    10,985,400
           
    65,639,844
        Telecommunications3.9%  
     
  7,395     Hawaiian Telcom Communications, Inc., 12.50%, 5/1/15, Ser. B  
Caa1/CCC+
    7,561,388
  12,400     Intelsat Bermuda Ltd, 11.25%, 6/15/16 (a)  
Caa1/B
    12,849,500
  10,110     Level 3 Financing, Inc., 12.25%, 3/15/13 (a)  
B3/CCC-
    11,083,088
  12,990     Millicom International Cellular S.A., 10.00%, 12/1/13  
B3/B-
    13,931,775
  12,680     Nortel Networks Ltd, 10.75%, 7/15/16 (a)  
B3/B-
    13,123,800
           
    58,549,551
        Transportation0.4%  
     
  5,870     PHI, Inc., 7.125%, 4/15/13 (a)  
B1/BB-
    5,591,175
        Travel Services0.7%  
     
  10,245     TDS Investor Corp., 11.875%, 9/1/16 (a)  
Caa1/B-
    9,988,875
 
      Total Corporate Bonds & Notes (cost-$616,410,371)  
    619,683,132
 
CONVERTIBLE PREFERRED STOCK28.9%
 
     
 
Shares
     
     
 
(000)
     
     
        Automotive1.3%  
     
  145     Ford Motor Co., Capital Trust II, 6.50%, 1/15/32  
Caa1/CCC+
    4,935,800
  785     General Motors Corp., 5.25%, 3/6/32  
Caa1/B-
    14,836,500
           
    19,772,300
        Banking1.0%  
     
  289     Washington Mutual Capital Trust, 5.375%, 5/3/41  
    15,702,022
        Commercial Services1.3%  
     
  463     United Rentals, Inc., 6.50%, 8/1/28  
Caa1/B-
    20,350,000
        Electric3.1%  
     
  447     AES Trust III, 6.75%, 10/15/29  
B3/B
    21,781,500
  96     NRG Energy, Inc., 5.75%, 3/16/09  
B3/CCC+
    24,664,063
           
    46,445,563

6 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06



Nicholas-Applegate Convertible & Income Fund Schedule of Investments
August 31, 2006 (unaudited)

 
Shares
     
Credit Rating
     
 
(000)
     
(Moodys/S&P)*
    Value
 
        Financial Services8.9%  
     
  230     Citigroup Funding, Inc., 5.02%, 9/27/08 (c)  
Aa1/AA-
  $ 7,560,100
  410     E*Trade Financial Corp., 6.125%, 11/18/08  
Ba3/NA
    12,658,750
        Lehman Brothers Holdings, Inc.,  
     
  735        6.25%, 10/15/07  
A1/A+
    19,690,650
  505        20.00%, 3/17/07  
A1/A+
    16,589,250
  261        20.00%, 8/15/07  
A1/A+
    16,015,449
        Morgan Stanley,  
     
  215        20.00%, 12/14/06  
Aa3/A+
    14,993,025
  280        20.00%, 12/22/06  
Aa3/A+
    16,304,632
  590        20.00%, 3/9/07  
Aa/A+3
    16,275,150
  540        20.00%, 6/2/07  
Aa3/A+
    15,408,900
           
    135,495,906
        Food0.7%  
     
  442     Albertsons, Inc., 7.25%, 5/16/07  
B2 /B
    11,095,392
        Insurance5.7%  
     
  425     Genworth Financial, Inc., 6.00%, 5/16/07  
A2/A
    15,818,500
  714     Metlife, Inc., 6.375%, 8/15/08  
NR/BBB+
    20,657,372
  540     Platinum Underwriters Holdings Ltd, 6.00%, 2/15/09      
NR/BB+
    15,997,500
  678     PMI Group, Inc., 5.875%, 11/15/06  
A1/A
    17,127,075
  785     XL Capital Ltd, 6.50%, 5/15/07  
A3/A-
    17,136,550
           
    86,736,997
        Oil & Gas 2.1%  
     
  153     Chesapeake Energy Corp., 5.00%, 12/31/49  
NR/B
    16,350,944
  133     Hess Corp., 7.00%, 12/01/06  
Ba3/BB
    15,378,125
           
    31,729,069
        Pharmaceuticals1.7%  
     
  464     Schering-Plough Corp., 6.00%, 9/14/07  
Baa3/BBB
    25,037,964
        Real Estate1.1%  
     
  677     FelCor Lodging Trust, Inc., 1.95%, 12/31/49, Ser. A, REIT  
B2/CCC+
    16,750,800
        Telecommunications1.1%  
     
  305     Crown Castle International Corp., 6.25%, 8/15/12  
NR/NR
    17,003,750
        Waste Disposal0.9%  
     
  45     Allied Waste Industries, Inc., 6.25%, 3/1/08  
Caa3/B
    12,928,500
 
        Total Convertible Preferred Stock (cost-$428,136,352)  
    439,048,263
 
CONVERTIBLE BONDS & NOTES24.0%
 
     
 
Principal
     
     
 
Amount
     
     
 
(000)
     
     
        Airlines1.3%  
     
  $ 20,572     Continental Airlines, Inc., 4.50%, 2/1/07  
Caa2/CCC+
    20,443,425
        Banks0.6%  
     
  9,300     UBS AG Jersey Branch, 22.00%, 8/15/07 (a)  
NR/NR
    9,265,125

8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 7



Nicholas-Applegate Convertible & Income Fund Schedule of Investments
August 31, 2006 (unaudited)

 
Principal
     
     
 
Amount
     
Credit Rating
     
 
(000)
     
(Moodys/S&P)
    Value
 
        Commercial Services3.1%  
     
  $ 9,100     Bowne & Co., Inc., 5.00%, 10/1/33  
B2/B-
  $ 9,941,750
  13,440     Memberworks, Inc., 5.50%, 10/1/10  
NR/B-
    16,212,000
  20,614     Quebecor World USA, Inc., 6.00%, 10/1/07  
B2 /B
    20,433,627
           
    46,587,377
        Computers1.2%  
     
  16,400     Maxtor Corp., 6.80%, 4/30/10  
Ba1/NR
    18,183,500
        Electric1.2%  
     
  6,075     PG&E Corp., 9.50%, 6/30/10  
NR/NR
    18,581,906
        Electrical Components & Equipment0.7%  
     
  7,250     Artesyn Technologies, Inc., 5.50%, 8/15/10  
NR/NR
    9,925,975
        Metals & Mining1.0%  
     
  7,490     Freeport-McMoRan Copper & Gold, Inc., 7.00%, 2/11/11  
NR/B+
    14,792,750
        Multi-Media1.4%  
     
  20,995     EchoStar Communications Corp., 5.75%, 5/15/08  
B2/B
    21,099,975
        Oil & Gas1.2%  
     
  14,100     Devon Energy Corp., 4.95%, 8/15/08  
Baa2/BBB
    17,713,125
        Pharmaceuticals1.4%  
     
  20,950     Sepracor, Inc., 5.00%, 2/15/07  
NR/B-
    20,950,000
        Retail1.3%  
     
  21,008     Sonic Automotive, Inc., 5.25%, 5/7/09  
B/B3
    19,931,340
        Semi-Conductors1.2%  
     
  2,363     Amkor Technology, Inc., 5.00%, 3/15/07  
Ca/CC
    2,274,388
  16,750     Fairchild Semiconductor Corp., 5.00%, 11/1/08  
NR/B
    16,645,313
           
    18,919,701
        Telecommunications7.1%  
     
  19,000     American Tower Corp., 5.00%, 2/15/10  
B1/BB-
    19,023,750
  15,900     CenturyTel, Inc., 4.75%, 8/1/32  
Baa2/BBB
    16,734,750
  3,200     Ciena Corp., 3.75%, 2/1/08  
B2 /B
    3,100,000
  20,550     Level 3 Communications, Inc., 6.00%, 3/15/10  
Ca/CCC-
    17,647,313
  19,800     Lucent Technologies, Inc., 8.00%, 8/1/31  
B3/CCC+
    19,948,500
  20,500     Nextel Communications, Inc., 5.25%, 1/15/10  
Baa3/BBB+
    20,423,125
  12,345     Nortel Networks Corp., 4.25%, 9/1/08  
B3/B-
    11,743,181
           
    108,620,619
        Trucking/Leasing1.3%  
     
  17,500     GATX Corp., 7.50%, 2/1/07  
Baa3/BBB
    19,906,250
 
        Total Convertible Bonds & Notes (cost-$358,487,213)  
    364,921,068
 
U.S. GOVERNMENT SECURITIES2.0%  
     
        United States Treasury Notes,  
     
  10,785        10.375%, 11/15/12  
    11,469,599
  16,275        12.00%, 8/15/13  
    18,463,239
        Total U.S. Government Securities (cost-$32,088,019)  
    29,932,838

8 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06



Nicholas-Applegate Convertible & Income Fund Schedule of Investments
August 31, 2006 (unaudited)

 
Principal
     
     
 
Amount
     
Credit Rating
     
 
(000)
     
(Moodys/S&P)
    Value
SHORT-TERM INVESTMENTS4.4%
 
     
        Corporate Bonds & Notes1.9%  
     
        Chemicals0.1%  
     
  $     965     Lyondell Chemical Co., 9.625%, 5/1/07, Ser. A  
Ba3/BB
  $ 984,300
        Hotels/Gaming0.7%  
     
  10,500     Mandalay Resort Group, Inc., 10.25%, 8/1/07, Ser. B  
Ba3/B+
    10,867,500
        Real Estate0.2%  
     
  2,715     Host Marriot L.P., 9.50%, 1/15/07, Ser. I, REIT  
Ba2/BB
    2,745,544
        Retail0.9%  
     
  13,575     Rite Aid Corp., 12.50%, 9/15/06  
NR/B+
    13,575,000
 
        Total Corporate Bonds & Notes (cost-$28,139,149)  
    28,172,344
        Time Deposit2.5%  
     
  38,719     Wachovia Bank Grand Cayman, 4.61%, 9/1/06  
    38,718,833
       
   (cost-$38,718,833)
 
     
 
        Total Short-Term Investments (cost-$66,857,982)  
    66,891,177
        Total Investments (cost-$1,501,979,937)100.0%  
  $ 1,520,476,478

8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 9



Nicholas-Applegate Convertible & Income Fund II Schedule of Investments

August 31, 2006 (unaudited)

 
Principal
                 
 
Amount
       
Credit Rating
       
 
(000)
       
(Moodys/S&P)
      Value
CORPORATE BONDS & NOTES39.6%
 
       
        Advertising0.7%  
       
  $     9,150     Affinion Group, Inc., 11.50%, 10/15/15 (a)  
Caa1/B-
    $ 9,241,500
        Apparel1.0%  
       
        Levi Strauss & Co.,  
       
  2,000        9.75%, 1/15/15  
B3/B-
      2,080,000
  8,705        12.25%, 12/15/12  
B3/B-
      9,749,600
  1,225     Oxford Industries, Inc., 8.875%, 6/1/11  
B1/B
      1,237,250
           
      13,066,850
        Automotive1.6%  
       
  6,430     General Motors Corp., 8.375%, 7/15/33  
Caa1/B-
      5,385,125
  9,260     Goodyear Tire & Rubber Co., 11.25%, 3/1/11  
B3/B-
      10,232,300
  7,265     HLI Operating Co., Inc., 10.50%, 6/15/10  
Caa3/CCC
      5,594,050
           
      21,211,475
        Chemicals2.6%  
       
  3,998     Huntsman LLC, 11.625%, 10/15/10  
Ba3/BB-
      4,437,780
        Lyondell Chemical Co.,  
       
  4,315        10.875%, 5/1/09  
B2/B
      4,401,300
  4,565        11.125%, 7/15/12  
Ba3/BB
      4,975,850
  11,410     Mosaic Global Holdings, Inc., 11.25%, 6/1/11  
Ba3/BB
      12,051,812
  4,765     PolyOne Corp., 10.625%, 5/15/10  
B3/B+
      5,110,463
  3,609     Rhodia S.A., 10.25%, 6/1/10  
B2 /B-
      3,978,923
           
      34,956,128
        Coal0.9%  
       
  3,405     International Coal Group, Inc., 10.25%, 7/15/14 (a)  
B3/CCC+
      3,515,662
  8,915     James River Coal Co., 9.375%, 6/1/12  
Caa2/CCC-
      8,268,662
           
      11,784,324
        Commercial Services1.7%  
       
  3,250     Cenveo Corp., 7.875%, 12/1/13  
B3/B-
      3,071,250
  4,600     Hertz Corp., 10.50%, 1/1/16 (a)  
B3/B
      4,956,500
  3,795     Rent-Way, Inc., 11.875%, 6/15/10  
B3NR-
      4,240,912
  10,585     Vertrue, Inc., 9.25%, 4/1/14  
B2/B
      10,955,475
           
      23,224,137
        Computers0.5%  
       
  7,235     Unisys Corp., 8.00%, 10/15/12  
B2/B+
      6,701,419
        Electric2.6%  
       
  10,645     AES Corp., 9.50%, 6/1/09  
B1/B
      11,390,150
  10,250     Mission Energy Holdings Co., 13.50%, 7/15/08  
B2/B-
      11,467,187
  10,570     PSEG Energy Holdings LLC, 10.00%, 10/1/09  
Ba3/BB-
      11,415,600
           
      34,272,937
        Electronics1.5%  
       
  10,725     IMAX Corp., 9.625%, 12/1/10  
B3/B-
      10,322,812
  10,335     Stoneridge, Inc., 11.50%, 5/1/12  
B2/B
      10,050,788
           
      20,373,600

10 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06


Nicholas-Applegate Convertible & Income Fund II Schedule of Investments
August 31, 2006 (unaudited)

 
Principal
       
       
 
Amount
       
Credit Rating
       
 
(000)
       
(Moodys/S&P)
      Value
 
        Financial Services2.3%  
       
  $     9,400     Alamosa Delaware, Inc., 11.00%, 7/31/10  
Baa3/BBB+
    $ 10,269,500
  6,755     AMR Holdings Co., 10.00%, 2/15/15  
Caa1/B-
      7,227,850
  9,205     Ford Motor Credit Co., 7.00%, 10/1/13  
Ba3/B+
      8,591,008
  4,370     MedCath Holdings Corp., 9.875%, 7/15/12  
Caa1/B-
      4,632,200
           
      30,720,558
        Food Products0.8%  
       
  10,815     Pilgrims Pride Corp., 9.625%, 9/15/11  
Ba2/BB-
      11,328,712
        Healthcare0.9%  
       
  6,325     Alliance Imaging, Inc., 7.25%, 12/15/12  
B3/B-
      5,882,250
  5,525     Hanger Orthopedic Group, Inc., 10.25%, 6/1/14  
B3/CCC+
      5,538,813
           
      11,421,063
        Home Builders0.7%  
       
  10,260     William Lyon Homes, Inc., 10.75%, 4/1/13  
B2/B
      9,439,200
        Home Furnishings1.8%  
       
  9,670     Central Garden & Pet Co., 9.125%, 2/1/13  
B2/B
      10,008,450
  13,400     Jarden Corp., 9.75%, 5/1/12  
B3/B-
      13,869,000
           
      23,877,450
        Machinery0.9%  
       
  10,730     Case New Holland, Inc., 9.25%, 8/1/11  
Ba3/BB
      11,373,800
        Manufacturing0.5%  
       
  5,825     Clarke American Corp., 11.75%, 12/15/13  
B2/B-
      6,087,125
        Metals & Mining2.2%  
       
  6,490     AK Steel Corp., 7.875%, 2/15/09  
B/B+1
      6,449,438
  9,835     Freeport-McMoRan Copper & Gold, Inc., 10.125%, 2/1/10  
B1/B+
      10,459,523
  11,450     United States Steel LLC, 10.75%, 8/1/08  
Ba1/BB
      12,337,375
           
      29,246,336
        Miscellaneous1.3%  
       
  17,729     Dow Jones CDX High Yield, 10.50%, 12/29/09 (a) (b)  
NR/NR
      17,772,982
        Multi-Media1.6%  
       
  12,291     CCH I LLC, 11.00%, 10/1/15  
Caa3/CCC-
      10,969,718
  3,725     Lodgenet Entertainment Corp., 9.50%, 6/15/13  
B3/B-
      3,995,062
  6,860     Sirius Satellite Radio, Inc., 9.625%, 8/1/13  
Caa1/CCC
      6,551,300
           
      21,516,080
        Office/Business Equipment0.4%  
       
  5,195     Xerox Corp., 9.75%, 1/15/09  
Ba2/BB+
      5,610,600
        Office Furnishings1.1%  
       
        Interface, Inc.,  
       
  4,625    
   9.50%, 2/1/14
 
Caa1/CCC
      4,775,312
  5,625    
   10.375%, 2/1/10
 
B2/B-
      6,124,219
  3,199     Tempur-Pedic, Inc., 10.25%, 8/15/10  
B2 /B
      3,350,953
           
      14,250,484
        Oil & Gas0.4%  
       
  5,000     Seitel, Inc., 11.75%, 7/15/11  
B3 /NR
      5,775,000

8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 11


Nicholas-Applegate Convertible & Income Fund II Schedule of Investments
August 31, 2006 (unaudited)

 
Principal
     
       
 
Amount
     
Credit Rating
       
 
(000)
     
(Moodys/S&P)
      Value
 
        Paper Products1.2%  
       
  $   4,013     Buckeye Technologies, Inc., 9.25%, 9/15/08  
Caa1/B
    $ 4,013,000
  11,055     NewPage Corp., 12.00%, 5/1/13  
Caa2/CCC+
      11,414,288
           
      15,427,288
        Pharmaceuticals0.4%  
       
  6,085     Leiner Health Products, Inc., 11.00%, 6/1/12  
Caa1/CCC
      5,780,750
        Pipelines0.9%  
       
  12,240     Sonat, Inc., 7.625%, 7/15/11  
B2/B
      12,515,400
        Retail4.3%  
       
  12,160     Bon-Ton Stores, Inc., 10.25%, 3/15/14  
B2/B-
      11,445,600
  4,580     EPL Finance Corp., 11.75%, 11/15/13 (a)  
Caa1/CCC+
      5,118,150
  4,210     GSC Holdings Corp., 8.00%, 10/1/12  
Ba3/B+
      4,299,462
  6,910     Mothers Work, Inc., 11.25%, 8/1/10  
Caa1/B-
      7,298,688
  8,290     Neiman-Marcus Group, Inc., 10.375%, 10/15/15  
B3/B-
      8,870,300
  10,000     R.H. Donnelley, Inc., 10.875%, 12/15/12  
B2/B
      10,950,000
  9,230     Star Gas Partners L.P., 10.25%, 2/15/13, Ser. B  
Caa3/B-
      9,414,600
           
      57,396,800
        Telecommunications3.8%  
       
  6,305     Hawaiian Telcom Communications, Inc., 12.50%, 5/1/15, Ser. B  
Caa1/CCC+
      6,446,862
  10,600     Intelsat Bermuda Ltd, 11.25%, 6/15/16 (a)  
Caa1/B
      10,984,250
  8,643     Level 3 Financing, Inc., 12.25%, 3/15/13 (a)  
B3/CCC-
      9,474,889
  11,660     Millicom International Cellular S.A., 10.00%, 12/1/13  
B3/B-
      12,505,350
  10,820     Nortel Networks Ltd, 10.75%, 7/15/16 (a)  
B3/B-
      11,198,700
           
      50,610,051
        Transportation0.4%  
       
  5,210     PHI, Inc., 7.125%, 4/15/13 (a)  
B1/BB-
      4,962,525
        Travel Services0.6%  
       
  8,755     TDS Investor Corp., 11.875%, 9/1/16 (a)  
Caa1/B-
      8,536,125
 
        Total Corporate Bonds & Notes (cost-$528,105,237)  
      528,480,699
 
CONVERTIBLE PREFERRED STOCK29.4%
 
       
 
Shares
     
       
 
(000)
     
       
        Automotive1.3%  
       
  130     Ford Motor Co., Capital Trust II, 6.50%, 1/15/32  
Caa1/CCC+
      4,425,200
  680     General Motors Corp., 5.25%, 3/6/32  
Caa1/B-
      12,852,000
           
      17,277,200
        Banking1.1%  
       
  263     Washington Mutual Capital Trust, 5.375%, 5/1/41  
Baa1/BBB
      14,261,625
        Commercial Services1.4%  
       
  436     United Rentals, Inc., 6.50%, 8/1/28  
Caa1/B-
      19,184,000
        Electric2.9%  
       
  344     AES Trust III, 6.75%, 10/15/29  
B3/B
      16,789,500
  87     NRG Energy, Inc., 5.75%, 3/16/09  
B3/CCC+
      22,293,750
           
      39,083,250

12 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06



Nicholas-Applegate Convertible & Income Fund II Schedule of Investments
August 31, 2006 (unaudited)

 
Shares
     
Credit Rating
       
 
(000)
     
(Moodys/S&P)
      Value
 
        Financial Services9.2%  
       
  220     Citigroup Funding, Inc., 5.02%, 9/27/08 (c)  
Aa1 /AA-
    $ 7,231,400
  370     E*Trade Financial Corp., 6.125%, 11/18/08  
Ba3/NA
      11,437,644
        Lehman Brothers Holdings, Inc.,  
       
  675        6.25%, 10/15/07  
A1 /A+
      18,083,250
  455        20.00%, 3/17/07  
A1/A+
      14,946,750
  235        20.00%, 8/15/07  
A1/A+
      14,424,548
        Morgan Stanley,  
       
  190        20.00%, 12/14/06  
Aa3 /A+
      13,249,650
  250        20.00%, 12/22/06  
Aa3/A+
      14,607,084
  535        20.00%, 3/9/07  
Aa3/A+
      14,757,975
  492        20.00%, 6/2/07  
Aa3/A+
      14,042,074
           
      122,780,375
        Food0.7%  
       
  371     Albertsons, Inc., 7.25%, 5/16/07  
B2/B
      9,294,648
        Insurance5.8%  
       
  408     Genworth Financial, Inc., 6.00%, 5/16/07  
A2/A
      15,167,150
  636     Metlife, Inc., 6.375%, 8/15/08  
NR/BBB+
      18,391,370
  470     Platinum Underwriters Holdings Ltd, 6.00%, 2/15/09  
NR/BB+
      13,923,750
  580     PMI Group, Inc., 5.875%, 11/15/06  
A1/A
      14,645,000
  702     XL Capital Ltd, 6.50%, 5/15/07  
A3/A-
      15,324,660
           
      77,451,930
        Oil & Gas2.1%  
       
  138     Chesapeake Energy Corp., 5.00%, 12/31/49  
NR/B
      14,692,925
  119     Hess Corp., 7.00%, 12/01/06  
Ba3/BB
      13,759,375
           
      28,452,300
        Pharmaceuticals1.7%  
       
  416     Schering-Plough Corp., 6.00%, 9/14/07  
Baa3/BBB
      22,485,600
        Real Estate1.1%  
       
  606     FelCor Lodging Trust, Inc., 1.95%, 12/31/49, Ser. A, REIT  
B2/CCC+
      14,986,125
        Telecommunications1.2%  
       
  285     Crown Castle International Corp., 6.25%, 8/15/12  
NR/NR
      15,888,750
        Waste Disposal0.9%  
       
  40     Allied Waste Industries, Inc., 6.25%, 3/1/08  
Caa3/B
      11,405,810
 
        Total Convertible Preferred Stock (cost-$382,070,205)  
      392,551,613
 
CONVERTIBLE BONDS & NOTES24.8%
 
       
 
Principal
     
       
 
Amount
     
       
 
(000)
     
       
        Airlines1.2%  
       
  $16,300     Continental Airlines, Inc., 4.50%, 2/1/07  
Caa2/CCC+
      16,198,125
        Banking0.4%  
       
  5,700     UBS AG Jersey Branch, 22.00%, 8/15/07 (a)  
NR/NR
      5,678,625

8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 13


Nicholas-Applegate Convertible & Income Fund II Schedule of Investments
August 31, 2006 (unaudited)

 
Principal
     
Credit Rating
       
 
Amount
     
(Moodys/S&P)*
      Value
 
        Commercial Services3.2%  
       
  $10,125     Bowne & Co., Inc., 5.00%, 10/1/33  
B2/B-
    $ 11,061,563
  11,000     Memberworks, Inc., 5.50%, 10/1/10  
NR/B-
      13,268,750
  17,985     Quebecor World USA, Inc., 6.00%, 10/1/07  
B2/B
      17,827,631
           
      42,157,944
        Computers1.2%  
       
  14,400     Maxtor Corp., 6.80%, 4/30/10  
Ba1/NR
      15,966,000
                   
        Electric1.2%  
       
  5,425     PG&E Corp., 9.50%, 6/30/10  
NR/NR
      16,593,719
                     
        Electrical Components & Equipment0.8%  
       
  8,150     Artesyn Technologies, Inc., 5.50%, 8/15/10  
NR/NR
      11,158,165
                     
        Metals & Mining1.0%  
       
  6,725     Freeport-McMoRan Copper & Gold, Inc., 7.00%, 2/11/11  
NR/B+
      13,281,875
                     
        Multi-Media1.4%  
       
  18,500     EchoStar Communications Corp., 5.75%, 5/15/08  
B2/B
      18,592,500
                     
        Oil & Gas1.2%  
       
  12,500     Devon Energy Corp., 4.95%, 8/15/08  
Baa2/BBB
      15,703,125
                     
        Pharmaceuticals1.4%  
       
  18,550     Sepracor, Inc., 5.00%, 2/15/07  
NR/B-
      18,550,000
                     
        Retail1.3%  
       
  18,535     Sonic Automotive, Inc., 5.25%, 5/7/09  
B3/B
      17,585,081
                     
        Semi-Conductors2.2%  
       
  14,300     Amkor Technology, Inc., 5.00%, 3/15/07  
Ca/CC
      13,763,750
  15,000     Fairchild Semiconductor Corp., 5.00%, 11/1/08  
NR/B
      14,906,250
           
      28,670,000
        Telecommunications7.0%  
       
  16,250     American Tower Corp., 5.00%, 2/15/10  
B1/BB-
      16,270,312
  13,600     CenturyTel, Inc., 4.75%, 8/1/32  
Baa2/BBB
      14,314,000
  2,800     Ciena Corp., 3.75%, 2/1/08  
B2/B
      2,712,500
  17,500     Level 3 Communications, Inc., 6.00%, 3/15/10  
Ca/CCC-
      15,028,125
  17,500     Lucent Technologies, Inc., 8.00%, 8/1/31  
B3/CCC+
      17,631,250
  18,500     Nextel Communications, Inc., 5.25%, 1/15/10  
Baa3/BBB+
      18,430,625
  9,940     Nortel Networks Corp., 4.25%, 9/1/08  
B3/B-
      9,455,425
           
      93,842,237
        Trucking/Leasing1.3%  
       
  15,150     GATX Corp., 7.50%, 2/1/07  
Baa3/BBB
      17,233,125
 
        Total Convertible Bonds & Notes (cost-$326,469,838)  
      331,210,521
 
U.S. GOVERNMENT SECURITIES1.9%  
       
        United States Treasury Notes,  
       
  9,215        10.375%, 11/15/12  
      9,799,941
  13,725        12.00%, 8/15/13  
      15,570,381
        Total U.S. Government Securities (cost-$27,196,356)  
      25,370,322

14 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06


Nicholas-Applegate Convertible & Income Fund II Schedule of Investments
August 31, 2006 (unaudited)

 
Principal
     
     
 
Amount
     
Credit Rating
     
 
(000)
     
(Moodys/S&P)
    Value
SHORT-TERM INVESTMENTS4.3%  
     
 
    Corporate Bonds & Notes2.1%  
     
 
    Chemicals0.2%  
     
 
$ 2,590
    Lyondell Chemical Co., 9.625%, 5/1/07, Ser. A  
Ba3/BB
  $ 2,641,800
 
    Hotels/Gaming0.9%  
     
 
11,080
    Mandalay Resort Group, Inc., 10.25%, 8/1/07, Ser. B  
Ba3/B+
    11,467,800
 
    Real Estate0.2%  
     
 
2,285
    Host Marriot L.P., 9.50%, 1/15/07, Ser. I, REIT  
Ba2/BB
    2,310,706
 
    Retail0.8%  
     
 
11,460
    Rite Aid Corp., 12.50%, 9/15/06  
NR/B+
    11,460,000
 
 
    Total Corporate Bonds & Notes (cost-$27,783,916)  
    27,880,306
 
    Time Deposit2.2%  
     
 
28,618
    Bank of America - London, 4.61%, 9/1/06  
    28,617,512
 
   
   (cost-$28,617,512)
 
     
 
    Total Short-Term Investments (cost-$56,401,428)  
    56,497,818
                   
 
    Total Investments (cost-$1,320,243,064)100.0%  
  $ 1,334,110,973
 

Notes to Schedule of Investments

(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 August 31, 2006.

 

Glossary:
NR Not Rated
REIT Real Estate Investment Trust

See accompanying Notes to Financial Statements | 8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 15


Nicholas-Applegate Convertible & Income Funds Statements of Assets and Liabilities 
August 31, 2006 (unaudited) 
 
 

      Convertible &       Convertible &  
      Income       Income II  
Assets:                 
Investments, at value (cost$1,501,979,937 and                 
   $1,320,243,064, respectively)    $ 1,520,476,478     $  1,334,110,973  
Interest and dividends receivable      22,302,045       19,551,716  
Interest rate cap premium paid      15,041,250       14,468,250  
Receivable for investments sold      3,507,156       3,000,658  
Unrealized appreciation on interest rate cap      737,750       709,750  
Prepaid expenses      76,135       47,622  
   Total Assets      1,562,140,814       1,371,888,969  
 
Liabilities:                 
Payable for investments purchased      14,720,118       10,309,631  
Dividends payable to common and preferred shareholders      8,990,909       6,981,060  
Investment management fees payable      911,599       802,746  
Accrued expenses      246,996       190,119  
   Total Liabilities      24,869,622       18,283,556  
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    $ 1,012,271,192     $  848,605,413  
 
Composition of Net Assets Applicable to Common Shareholders:                 
Common Stock:                 
   Par value ($0.00001 per share applicable to 69,936,824 and 58,330,604                 
      shares issued and outstanding, respectively) 
  $ 699     $ 583  
   Paid-in-capital in excess of par      1,000,297,998       829,750,603  
Dividends in excess of net investment income      (12,818,033 )      (3,165,212 ) 
Accumulated net realized gain      5,556,237       7,441,780  
Net unrealized appreciation of investments and interest rate caps      19,234,291       14,577,659  
Net Assets Applicable to Common Shareholders    $ 1,012,271,192     $  848,605,413  
Net Asset Value Per Common Share    $14.47     $14.55  

16 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06 | See accompanying Notes to Financial Statements


Nicholas-Applegate Convertible & Income Funds Statements of Operations
For the six months ended August 31,2006 (unaudited)
                 
   
Convertible &
Convertible &
       
Income
     
Income II
Investment Income:                 
Interest    $ 39,226,164     $ 33,605,589  
Dividends      20,577,662       17,832,487  
Consent and other fee income      1,060,011       928,715  
   Total Investment Income      60,863,837       52,366,791  
 
Expenses:                 
Investment management fees      5,430,534       4,777,957  
Auction agent fees and commissions      672,571       653,726  
Custodian and accounting agent fees      96,784       84,640  
Shareholder communications      88,072       73,904  
Audit and tax services      57,960       54,960  
Trusteesfees and expenses      37,720       34,960  
New York Stock Exchange listing fees      36,922       29,032  
Insurance expense      20,796       14,540  
Legal fees      20,240       15,272  
Transfer agent fees      18,400       16,560  
Investor relations      8,096       7,728  
Miscellaneous      9,016       8,280  
   Total expenses      6,497,111       5,771,559  
 
Net Investment Income      54,366,726       46,595,232  
 
Realized and Change in Unrealized Gain (Loss):                 
Net realized gain (loss) on:                 
   Investments      (2,860,336 )      (4,715,704 ) 
   Interest rate caps      4,584,191       4,409,555  
Net change in unrealized appreciation/depreciation of:                 
   Investments      (4,003,506 )      744,924  
   Interest rate caps      (4,189,077 )      (4,029,265 ) 
Net realized and change in unrealized loss                 
   on investments and interest rate caps      (6,468,728 )      (3,590,490 ) 
Net Increase in Net Assets Resulting from                 
   Investment Operations      47,897,998       43,004,742  
 
Dividends on Preferred Shares from net investment income:      (12,681,172 )      (12,183,317 ) 
Net Increase in Net Assets Applicable to                 
   Common Shareholders Resulting from                 
   Investment Operations    $ 35,216,826     $ 30,821,425  

See accompanying Notes to Financial Statements | 8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 17


Nicholas-Applegate Convertible & Income Funds    Statements of Changes in
  Net Assets Applicable to 
  Common Shareholders 
   
Convertible & Income
   
Six Months
       
ended
     
   
August 31, 2006
Year ended
   
(unaudited)
February 28, 2006
Investment Operations:                 
Net investment income    $ 54,366,726     $ 103,017,768  
Net realized gain (loss) on investments and interest rate caps      1,723,855       24,039,690  
Net change in unrealized appreciation/depreciation of                 
   investments and interest rate caps      (8,192,583 )      (55,836,067 ) 
Net increase in net assets resulting from investment operations      47,897,998       71,221,391  
 
Dividends and Distributions on Preferred Shares from:                 
Net investment income      (12,681,172 )      (17,331,721 ) 
Net realized gains            (1,272,471 ) 
Total dividends and distributions on preferred shares      (12,681,172 )      (18,604,192 ) 
Net increase in net assets applicable to common shareholders                 
   resulting from investment operations      35,216,826       52,617,199  
 
Dividends and Distributions to Common Shareholders from:                 
Net investment income      (52,247,134 )      (130,588,596 ) 
Net realized gains            (15,782,779 ) 
Total dividends and distributions to common shareholders      (52,247,134 )      (146,371,375 ) 
 
Capital Share Transactions:                 
Reinvestment of dividends and distributions      11,522,922       25,531,435  
Total increase (decrease) in net assets applicable to common shareholders      (5,507,386 )      (68,222,741 ) 
 
Net Assets Applicable to Common Shareholders:                 
Beginning of period      1,017,778,578       1,086,001,319  
End of period (including undistributed (dividends in excess of net                 
   investment income) of $(12,818,033), $(2,256,453);                 
   $(3,165,212), $2,759,510 and $7,077,799 respectively)    $ 1,012,271,192     $ 1,017,778,578  
 
Common shares:                 
Issued in reinvestment of dividends and distributions      666,530       1,705,242  

*     

Represents the eight months ended February 28, 2006. During the period, the Funds fiscal year-end was changed to February 28 from June 30.

 

18 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06 | See accompanying Notes to Financial Statements


 
Convertible & Income II
Six Months
For the period
ended
July 1, 2005
August 31, 2006
     
through
     
Year Ended
(unaudited)
February 28, 2006*
June 30, 2005
 
$
46,595,232     $ 60,146,487    
$
82,903,663  
  (306,149 )      33,513,573       22,695,873  
 
  (3,284,341 )      (862,905 )      (37,383,669 ) 
  43,004,742       92,797,155       68,215,867  
 
 
  (12,183,317 )      (10,113,694 )      (11,768,307 ) 
        (2,619,976 )      (75,399 ) 
  (12,183,317 )      (12,733,670 )      (11,843,706 ) 
 
  30,821,425       80,063,485       56,372,161  
 
 
  (40,336,637 )      (60,083,257 )      (81,000,846 ) 
        (15,188,931 )      (7,680,066 ) 
  (40,336,637 )      (75,272,188 )      (88,680,912 ) 
 
 
  7,351,217       11,068,696       11,434,945  
  (2,163,995 )      15,859,993       (20,873,806 ) 
 
 
  850,769,408       834,909,415       855,783,221  
 
 
$ 848,605,413     $ 850,769,408     $ 834,909,415  
 
  457,029       744,597       764,611  

See accompanying Notes to Financial Statements | 8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 19


Nicholas-Applegate Convertible & Income Funds  Notes to Financial
August 31, 2006 (unaudited) Statements

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. 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 SE, a publicly traded insurance and financial services company. The Funds have an unlimited amount of $0.00001 par value common stock authorized.

Each 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 July 2006, the Financial Accounting Standards Board issued interpretation No. 48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109 (the Interpretation). The Interpretation establishes for all entities, including pass-through entities such as the Funds, a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. The Interpretation is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Funds management has recently begun to evaluate the application of the Interpretation, and is not in a position at this time to estimate the significance of its impact, if any, on the Funds financial statements.

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, are 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 securities maturing in 60 days or less are valued at amortized cost, if their original term to maturity was 60 days 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.

20 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06


Nicholas-Applegate Convertible & Income Funds  Notes to Financial
August 31, 2006 (unaudited) Statements

Organization and Significant Accounting Policies (continued)

(c) Federal Income Taxes
The Funds intend to distribute all of its taxable income and to comply with the other requirements of the U.S. 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 DistributionsCommon 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 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. 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.

The Funds treat amounts received under interest rate cap agreements as net realized gain (loss) in accordance with generally accepted accounting principles (GAAP). However, these amounts are treated as net income (loss) for federal income tax purposes. By using GAAP, Convertible & Income Funds net investment income for the six months ended August 31, 2006 was $15,319,461 lower and net realized and change in unrealized loss, correspondingly lower than if payments received from interest rate cap agreements were treated as net income (loss) in accordance with federal income tax treatment. In addition, interest income for the six months ended August 31, 2006 includes amortization of market premium of $8,409,269. For tax purposes, Convertible & Income has elected not to amortize market premium. By using GAAP, Convertible & Income II Funds net investment income for the six months ended August 31, 2006 was $14,735,862 lower and net realized and change in unrealized loss, correspondingly lower than if payments received from interest rate cap agreements were treated as net income (loss) in accordance with federal income tax treatment. In addition, interest income for the six months ended August 31, 2006 includes amortization of market premium of $7,375,551. For tax purposes, Convertible & Income II has elected not to amortize market premium.

(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 specific 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.

8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 21


Nicholas-Applegate Convertible & Income Funds  Notes to Financial
August 31, 2006 (unaudited) Statements

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 Board 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, each Fund pays the Investment Manager an annual fee, payable monthly, at the annual rate of 0.70% of each Funds average daily total managed assets. Total managed assets refer to the total assets of each Fund (including assets attributable to any Preferred Shares and borrowings that may be outstanding) minus accrued liabilities (other than liabilities representing borrowings).

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, pays the Sub-Adviser a monthly fee.

3. Investment in Securities
For the six months ended August 31, 2006, purchases and sales of investments, other than short-term securities and U.S. government obligations were:

        Convertible & Income Convertible & Income II
Purchases       $510,960,314   $437,727,542 
Sales       352,191,145 304,437,444

For the six months ended August 31, 2006, purchases and sales of U.S. government obligations were:

       
Convertible & Income
Convertible & Income II
Purchases          
Sales       $5,980,669   $4,913,081  

(a) Interest rate cap agreements outstanding at August 31, 2006:

Convertible & Income:                
        Notional   Termination       Payment received   Unrealized
Counterparty       Amount   Date  
Premium
  by Fund   Appreciation
UBS AG       $525,000,000   1/15/08  
$15,041,250
  1 month LIBOR-BBA   $737,750
                    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  
$14,468,250
  1 month LIBOR-BBA   $709,750
                    over 3% strike price    

_____________
LIBOR-London Interbank Offered Rate

4. Income Tax Information

Convertible & Income:

The cost basis of portfolio securities of $1,501,979,937 is substantially the same for both federal income tax purposes and financial reporting purposes. Aggregated gross unrealized appreciation for securities in which there is an excess value over tax cost is $45,349,233; aggregate gross unrealized depreciation for securities in which there is an excess of tax cost over value is $26,852,692; net unrealized appreciation for federal income tax purposes is $18,496,541.

Convertible & Income II:

The cost basis of portfolio securities of $1,320,243,064 is substantially the same for both federal income tax purposes and financial reporting purposes. Aggregated gross unrealized appreciation for securities in which there is an excess value

22 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06


Nicholas-Applegate Convertible & Income Funds  Notes to Financial
August 31, 2006 (unaudited) Statements

over tax cost is $38,511,080; aggregate gross unrealized depreciation for securities in which there is an excess of tax cost over value is $24,643,171; net unrealized appreciation for federal income tax purposes is $13,867,909.

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 (typically re-set every seven days) through auction procedures. Distributions of net realized long-term capital gains, if any, are paid annually.

Convertible & Income:

For the six months ended August 31, 2006, the annualized dividend rate ranged from:

   
High
 
Low
  At August 31, 2006
Series A   5.25 %   4.37 %   5.10 %
Series B   5.25 %   4.37 %   5.10 %
Series C   5.26 %   4.20 %   5.10 %
Series D   5.15 %   4.37 %   5.10 %
Series E   5.25 %   4.30 %   5.05 %
 
Convertible & Income II:                  
   
High
 
Low
  At 2/28/06
Series A   5.25 %   4.30 %   5.10 %
Series B   5.25 %   4.21 %   5.10 %
Series C   5.15 %   4.30 %   5.10 %
Series D   5.30 %   4.30 %   5.00 %
Series E   5.30 %   4.37 %   5.00 %

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.

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 Events:
On September 12, 2006, each Funds Board of Trustees appointed William B. Ogden IV as a Class I Trustee. On October 10, 2006, David C. Flattum, an interested Trustee, resigned as a Class III Trustee of the Funds.

7. Subsequent Common Dividend Declarations:
On September 1, 2006, the following dividends were declared to common shareholders payable October 2, 2006 to shareholders of record on September 11, 2006:

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

On September 15, 2006, the following capital gain dividends were declared to common shareholders payable September 29, 2006 to shareholders of record on September 25, 2006:

Convertible & Income   $0.19403 long-term
Convertible & Income II   $0.00001 short-term
    $0.24580 long-term

8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 23


Nicholas-Applegate Convertible & Income Funds  Notes to Financial
August 31, 2006 (unaudited) Statements

7. Subsequent Common Dividend Declarations (continued)

On October 2, 2006, the following dividends were declared to common shareholders payable November 1, 2006 to shareholders of record on October 12, 2006:

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

8. Legal Proceedings
In June and September 2004, the Investment Manager, certain of its affiliates (including 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 LLC.

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, compliance and disclosure reforms, and consented to cease and desist orders and censures. None of the settlements alleged 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 fifteen lawsuits filed in various jurisdictions. Eleven of those lawsuits concern market timing and have been transferred to and consolidated for pre-trial proceedings in a multi-district litigation proceeding in the U.S. District Court for the District of Maryland; the other four lawsuits concern revenue sharing and have been consolidated into a single action in the U.S. District Court for the District of Connecticut. The lawsuits generally relate to the same allegations that are the subject of the regulatory proceedings discussed above. The lawsuits seek, among other things, unspecified compensatory damages plus interest and, in some cases, punitive damages, the rescission of investment advisory contracts, the return of fees paid under those contracts, restitution, and waiver of or return of certain sales charges paid by open-end fund shareholders.

The Investment Manager and the Sub-Adviser believe that these matters are not likely to have a material adverse effect on the Funds or on their ability to perform their respective investment advisory activities relating to the Funds.

The foregoing speaks only as of the date hereof.

24 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06


Nicholas-Applegate Convertible & Income Fund Financial Highlights
For a share of common stock outstanding throughout each period
                                 
   
Six Months
For the Period
   
ended
March 31, 2003*
   
August 31, 2006
Year ended
through
   
(unaudited)
     
February 28, 2006
     
February 28, 2005
     
February 29, 2004
Net asset value, beginning of period        $ 14.69     $ 16.07     $ 16.67     $ 14.33 ** 
Income from Investment Operations:                                 
Net investment income      0.78       1.51       1.48       1.28  
Net realized and change in unrealized gain                                 
   (loss) on investments and interest rate caps      (0.07 )      (0.48 )      0.38       2.61  
Total from investment operations      0.71       1.03       1.86       3.89  
Dividends and Distributions on                                 
   Preferred Shares from:                                 
Net investment income      (0.18 )      (0.25 )      (0.12 )      (0.07 ) 
Net realized gains            (0.02 )      (0.02 )       
Total dividends and distributions                                 
   on preferred shares      (0.18 )      (0.27 )      (0.14 )      (0.07 ) 
Net increase in net assets applicable                                 
   to common shareholders resulting                                 
   from investment operations      0.53       0.76       1.72       3.82  
Dividends and Distributions to                                 
   Common Shareholders from:                                 
Net investment income      (0.75 )      (1.91 )      (1.50 )      (1.33 ) 
Net realized gains            (0.23 )      (0.82 )      (0.03 ) 
Total dividends and distributions                                 
   to common shareholders      (0.75 )      (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    $ 14.47     $ 14.69     $ 16.07     $ 16.67  
Market price, end of period    $ 16.03     $ 15.69     $ 15.82     $ 16.38  
Total Investment Return (1)      7.39%       14.30%       11.53%       18.98%  
RATIOS/SUPPLEMENTAL DATA:                                 
Net assets applicable to common                                 
   shareholders, end of period (000)    $ 1,012,271     $ 1,017,779     $ 1,086,001     $ 1,101,833  
Ratio of expenses to average net assets (2)      1.27%   (3)     1.28%  (4)     1.24%       1.17%   (3)
Ratio of net investment income                                 
   to average net assets (2)      10.64%   (3)     10.03%       9.20%       8.97%   (3)
Preferred shares asset coverage per share    $73,181     $73,442     $76,698     $77,460  
Portfolio turnover      24%       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 brokeragecommissions 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.

(4)

Ratio of expenses, excluding excise tax expense to average net assets is 1.26%.

 

See accompanying Notes to Financial Statements | 8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 25


Nicholas-Applegate Convertible & Income Fund II Financial Highlights
For a share of common stock outstanding throughout each period
                                 
   
Six Months
For the Period
For the Period
       
ended
July 1, 2005
July 31, 2003*
   
August 31, 2006
     
through
     
Year ended
     
through
   
(unaudited)
February 28, 2006†
June 30, 2005
June 30, 2004
Net asset value, beginning of period    $ 14.70     $ 14.61     $ 15.18     $ 14.33 ** 
Income from Investment Operations:                                 
Net investment income      0.80       1.04       1.59       1.23  
Net realized and change in unrealized gain                                 
   (loss) on investments and interest rate caps      (0.05 )      0.58       (0.39 )      1.10  
Total from investment operations      0.75       1.62       1.20       2.33  
Dividends and Distributions on                                 
   Preferred Shares from:                                 
Net investment income      (0.21 )      (0.17 )      (0.21 )      (0.08 ) 
Net realized gains            (0.05 )      (0.00 )††       
Total dividends and distributions                                 
   on preferred shares      (0.21 )      (0.22 )      (0.21 )      (0.08 ) 
Net increase in net assets applicable                                 
   to common shareholders resulting                                 
   from investment operations      0.54       1.40       0.99       2.25  
Dividends and Distributions to                                 
   Common Shareholders from:                                 
Net investment income      (0.69 )      (1.05 )      (1.42 )      (1.24 ) 
Net realized gains            (0.26 )      (0.14 )      (0.03 ) 
Total dividends and distributions to                                 
   common shareholders      (0.69 )      (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    $ 14.55     $ 14.70     $ 14.61     $ 15.18  
Market price, end of period    $ 15.52     $ 15.14     $ 14.74     $ 14.05  
Total Investment Return (1)      7.43%       12.10%       16.44%       1.88%  
RATIOS/SUPPLEMENTAL DATA:                                 
Net assets applicable to common                                 
   shareholders, end of period (000)    $ 848,605     $ 850,769     $ 834,909     $ 855,783  
Ratio of expenses to average net assets (2)      1.35%  (3)     1.37%   (3)(4)     1.35%       1.23%   (3)
Ratio of net investment income                                 
   to average net assets (2)      10.89%   (3)     10.57%   (3)     9.79%       8.87%   (3)
Preferred shares asset coverage per share    $66,991     $67,096     $66,319     $67,359  
Portfolio turnover      24%       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 Funds 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 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 Funds 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.

(4)

Ratio of expenses, excluding excise tax expense to average net assets is 1.35%.

 

26 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06 | See accompanying Notes to Financial Statements


Nicholas-Applegate Convertible & Income Fund   Matters Relating to the Trustees
  Consideration of the Investment
  Management and Portfolio
  Management Agreements
  (unaudited)
 

The Investment Company Act of 1940 requires that both the full Board of Trustees (the Trustees) and a majority of the non-interested (Independent) Trustees, voting separately, approve the Funds Management Agreements (the Advisory Agreements) with the Investment Manager and Portfolio Management Agreements (the Sub-Advisory Agreements , and together with the Advisory Agreements, (the Agreements) between the Investment Manager and the Sub-Adviser. The Trustees met on June 20 and 21, 2006 (the Contract Review Meeting) for the specific purpose of considering whether to approve the Advisory Agreements and the Sub-Advisory Agreements. The Independent Trustees were assisted in their evaluation of the Agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately from Fund management during the contract review meeting.

Based on their evaluation of factors that they deemed to be material, including those factors described below, the Board of Trustees, including a majority of the Independent Trustees, concluded that the Funds Advisory Agreements and the Sub-Advisory Agreements should be approved for a one-year period commencing July 1, 2006.

In connection with their deliberations regarding the continuation of the Agreements, the Trustees, including the Independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. As described below, the Trustees considered the nature, quality, and extent of the various investment management, administrative and other services performed by the Investment Manager and the Sub-Adviser under the Agreements.

In connection with their contract review meeting, the Trustees received and relied upon materials provided by the Investment Manager which included, among other items: (i) information provided by Lipper Analytical Services Inc. (Lipper Inc.) on the total return investment performance (based on net assets) of the Funds for various time periods and the investment performance of a group of funds with substantially similar investment classifications/objectives identified by Lipper Inc., (ii) information provided by Lipper Inc. on the Funds management fees and other expenses and the management fees and other expenses of comparable funds identified by Lipper Inc., (iii) information regarding the investment performance and management fees of comparable portfolios of other clients of the Sub-Adviser, including institutional separate accounts and other clients, (iv) the profitability to the Investment Manager from its relationship with the Funds for the twelve months ended March 31, 2006, (v) descriptions of various functions performed by the Investment Manager and the Sub-Adviser for the Funds, such as portfolio management, compliance monitoring and portfolio trading practices, and (vi) information regarding the overall organization of the Investment Manager and the Sub-Adviser, including information regarding senior management, portfolio managers and other personnel providing investment management, administrative and other services to the Funds.

The Trustees conclusions as to the continuation of the Agreements were based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors.

As part of their review, the Trustees examined the Investment Managers and the Sub-Advisers abilities to provide high quality investment management and other services to the Funds. The Trustees considered the investment philosophy and research and decision-making processes of the Sub-Adviser; the experience of key advisory personnel of the Sub-Adviser responsible for portfolio management of the Funds; the ability of the Investment Manager and the Sub-Adviser to attract and retain capable personnel; the capability and integrity of the senior management and staff of the Investment Manager and the Sub-Adviser; and the level of skill required to manage the Funds. In addition, the Trustees reviewed the quality of the Investment Managers and the Sub-Advisers services with respect to regulatory compliance and compliance with the investment policies of the Funds; the nature and quality of certain administrative services the Investment Manager is responsible for providing to the Funds; and conditions that might affect the Investment Managers or the Sub-Advisers ability to provide high quality services to the Funds in the future under the Agreements, including each organizations respective business reputation, financial condition and operational stability. Based on the foregoing, the Trustees concluded that the Sub-Advisers investment process, research capabilities and philosophy were well suited to the Funds given their investment objectives and policies, and that the Investment Manager and the Sub-Adviser would be able to continue to meet any reasonably foreseeable obligations under the Agreements.

8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 27


Nicholas-Applegate Convertible & Income Fund  Matters Relating to the Trustees
  Consideration of the Investment
  Management and Portfolio
  Management Agreements
  (unaudited) (continued)
 

Based on information provided by Lipper Inc., the Trustees also reviewed each Funds total return investment performance as well as the performance of comparable funds identified by Lipper Inc. In the course of their deliberations, the Trustees took into account information provided by the Investment Manager in connection with the contract review meeting, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding each Funds performance.

In assessing the reasonableness of each Funds fees under the Agreements, the Trustees considered, among other information, each Funds management fee and the total expense ratio as a percentage of average net assets attributable to common shares and the management fee and total expense ratios of comparable funds identified by Lipper Inc.

For each of the Funds, the Trustees specifically took note of how each Fund compared to its Lipper Inc. peers as to performance and other expenses. The Trustees noted that while the Funds are not charged a separate administration fee, it was not clear whether the peer funds in the Lipper Inc. categories were charged such a fee by their investment managers. Thus, the Trustees, at the recommendation of the Investment Manager, considered the total expenses of the Funds compared to the total expenses of the peer funds, recognizing that the fees for management and administrative services would be subsumed within the total expense ratio.

The Trustees noted that Nicholas-Applegate Convertible & Income Fund outperformed its peer median and average group for the one-year and three-year periods ended April 30, 2006. The Trustees also noted that Nicholas-Applegate Convertible & Income Funds expense ratio, including the effect of preferred shares, was significantly below the average and median for its peer group and, excluding the effect of preferred shares, was slightly above the average and median for its peer group.

The Trustees noted that Nicholas-Applegate Convertible & Income Fund II outperformed its peer median and average group for the one-year period ended April 30, 2006. The Trustees also noted that the Nicholas-Applegate Convertible & Income Fund II expense ratio, including the effect of preferred shares, was significantly below the average and median for its peer group and, excluding the effect of preferred shares, was slightly above the average and median for its peer group.

After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the Agreements, that they were satisfied with the Investment Managers and the Sub-Advisers responses and efforts relating to investment performance and the comparative positioning of each Fund with respect to the management fee paid to the Investment Manager.

The Trustees also considered the management fees charged by the Sub-Adviser to other clients, including institutional separate accounts with investment strategies similar to those of the Funds. Regarding the institutional separate accounts, they noted that the management fees paid by the Funds are generally higher than the fees paid by other clients of the Sub-Adviser, but were advised that the administrative burden for the Investment Manager and the Sub-Adviser with respect to the Funds is also relatively higher, due in part to the more extensive regulatory regime to which the Funds are subject in comparison to institutional separate accounts. The Trustees noted that the management fees paid by the Funds are generally higher than the fees paid by the open-end funds but were advised that there are additional portfolio management challenges in managing the Funds, such as the use of leverage and meeting a regular dividend.

The Trustees also took into account that the Funds have preferred shares outstanding, which increases the amount of fees received by the Investment Manager and the Sub-Adviser under the Agreements (because the fees are calculated based on each Funds total managed assets, including assets attributable to preferred shares and other forms of leverage outstanding). In this regard, the Trustees took into account that the Investment Manager and the Sub-Adviser have a financial incentive for the Funds to continue to have preferred shares outstanding, which may create a conflict of interest between the Investment Manager and the Sub-Adviser, on the one hand, and each Funds common shareholders, on the other. In this regard, the Trustees considered information provided by the Investment Manager and the Sub-Adviser indicating that each Funds use of leverage through preferred shares continues to be appropriate and in the interests of the Funds common shareholders.

Based on a profitability analysis provided by the Investment Manager, the Trustees also considered the profitability of the Investment Manager from its relationship with each Fund and determined that such profitability was not excessive.

28 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06


Nicholas-Applegate Convertible & Income Fund  Matters Relating to the Trustees
  Consideration of the Investment
  Management and Portfolio
  Management Agreements
  (unaudited) (continued)
 

The Trustees also took into account that, as closed-end investment companies, the Funds do not currently intend to raise additional assets, so the assets of the Funds will grow (if at all) only through the investment performance of each Fund. Therefore, the Trustees did not consider potential economies of scale as a principal factor in assessing the fee rates payable under the Agreements.

Additionally, the Trustees considered so-called fall-out benefits to the Investment Manager and the Sub-Adviser, such as reputational value derived from serving as Investment Manager and Sub-Adviser to the Funds.

After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the Agreements, that the fees payable under the Agreements represent reasonable compensation in light of the nature and quality of the services being provided by the Investment Manager and Sub-Adviser to the Funds.

 

8.31.06 | Nicholas-Applegate Convertible & Income Funds Semi-Annual Report 29


Nicholas-Applegate Convertible & Income Fund II  Annual Shareholders
August 31, 2006 (unaudited) Meeting Results

The Funds held their annual meetings of shareholders on October 2, 2006. Common/Preferred shareholders of Convertible & Income voted to re-elect Paul Belica and David C. Flattum as Class III Trustees to serve until 2009. Common/Preferred shareholders of Convertible & Income II voted to re-elect Hans W. Kertess and David C. Flattum as Class III Trustees to serve until 2009.

The resulting vote count is indicated below:

      Withhold
    Affirmative Authority
Convertible & Income      
       
Re-election of Paul Belica   63,090,905 803,119
       
Re-election of David C. Flattum   63,186,734 707,290
       
Convertible & Income II      
       
Re-election of Hans W. Kertess   52,440,166 544,670
       
Re-election of David C. Flattum   52,454,764 530,072

Messrs. Robert E. Connor*, John J. Dalessandro*, William B. Ogden IV and R. Peter Sullivan III continue to serve as Trustees of the Funds.

     *Preferred Shares Trustee

 

30 Nicholas-Applegate Convertible & Income Funds Semi-Annual Report | 8.31.06


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

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

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

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.

The financial information included herein is taken from the records of the Funds without examination by an independent registered public accounting firm, who did not express an opinion hereon.

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 their 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 year on Form N-Q. The Funds Form N-Q is available on the SECs website at www.sec.gov and may be reviewed and copied at the SECs Public Reference Room in Washington D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.

On October 4, 2006, 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 NYSEs Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, each 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.

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 Funds voted proxies relating to portfolio securities held during the twelve months ended June 30, 2006 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 website at www.sec.gov.

Information on the Funds is available at www.allianzinvestors.com/closedendfunds or by calling the Funds shareholder servicing agent at (800) 331-1710.




ITEM 2. CODE OF ETHICS

               Not required in this filing.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT

               Not required in this filing.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES

               Not required in this filing

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT

               Not required in this filing

ITEM 6. SCHEDULE OF INVESTMENTS Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this form.

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

               Not required in this filing

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

               Not required in this filing

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 2006    N/A    14.887    115,285    N/A 
April 2006    N/A    14.801    112,230    N/A 
May 2006    N/A    14.830    111,603    N/A 
June 2006    N/A    15.039    109,296    N/A 
July 2006    N/A    14.906    110,032    N/A 
August 2006    N/A    15.039    108,084    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. The Nominating Committee Charter governing the affairs of the Nominating Committee of the Board is posted on the Allianz Global Investors website at www.allianzinvestors.com/closedendfunds.


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 99.302 Cert. - Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
(b) Exhibit 99.906 Cert. - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 

Signature

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

Nicholas-Applegate Convertible & Income Fund

By /s/ Brian S. Shlissel
------------------------
Brian S. Shlissel, President & Chief Executive Officer

Date: November 2, 2006

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

Date: November 2, 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
------------------------
Brian S. Shlissel, President & Chief Executive Officer

Date: November 2, 2006

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

Date: November 2, 2006