NFJ Dividend, Interest & Premium Strategy Fund
|
|
Nicholas-Applegate Equity & Convertible Income Fund
|
Notes to Financial
|
July 31, 2007 (unaudited)
|
Statements
|
1. Organization and Significant Accounting Policies
NFJ Dividend, Interest & Premium Strategy Fund and Nicholas-Applegate Equity & Convertible Income Fund, collectively referred to as the Funds
, were organized as Massachusetts business trusts on August 20, 2003 and December 12, 2006, respectively. Prior to commencing operations on
February 28, 2005 and February 27, 2007, 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, and the sale and issuance of 4,189 shares of beneficial interest at an aggregate par of $100,012, for each fund, to Allianz Global Investors of America L.P. (Allianz Global
). 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. Allianz Global is an indirect, majority-owned subsidiary of Allianz SE, a publicly traded European insurance and financial services company. Each
Fund has an unlimited amount of $0.00001 par value common stock authorized.
The Nicholas-Applegate Equity & Convertible Income Fund issued 20,300,000 shares of common stock in its initial public offering. An additional 2,000,000 shares were issued in connection with the
underwriter
í
s over-allotment option. These shares were all issued at $25.00 per share before an underwriting discount of $1.125 per share. Offering costs of
$1,115,000 (representing $0.05 per share) were offset against the proceeds of the offering and over-allotment option and have been charged to paid-in capital in excess of par.
NFJ Dividend, Interest & Premium Strategy Funds primary investment objective is to seek current income and gains, with a secondary
objective of long-term capital appreciation. The Fund will pursue its investment objectives by investing in a diversified portfolio of dividend-paying common stocks and income-producing convertible securities. The Fund will also employ a strategy of
writing (selling) call options and equity indexes in an attempt to generate gains from option premiums.
Nicholas Applegate Equity & Convertible Income Funds investment objective is to seek total return comprised of capital appreciation,
current income and gains. The Fund will pursue its objective by investing in a diversified portfolio of equity securities and income producing convertible securities. The Fund will also employ a strategy of writing (selling) call options on the
equity securities held by the Fund.
The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ from these estimates.
In the normal course of business, the Funds enter into contracts that contain a variety of representations which provide general indemnifications. The Funds maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet been asserted. However, the Funds expect the risk of any loss to be
remote.
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. Fund
management has determined that its evaluation of the Interpretation has resulted in no impact to the Funds financial statements at July 31, 2007.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS
) 157, Fair Value Measurements, which clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and
liabilities in interim and annual periods subsequent to initial recognition. Adoption of SFAS 157 requires the use of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. At this time, the Funds are in the process of reviewing
SFAS 157 against its current valuation policies to determine future applicability.
NFJ Dividend, Interest & Premium Strategy Fund
|
18
Nicholas-Applegate Equity & Convertible Income Fund Semi-Annual Report | 7.31.07 |
|
NFJ Dividend, Interest & Premium Strategy Fund
|
|
Nicholas-Applegate Equity & Convertible Income Fund
|
Notes to Financial
|
July 31, 2007 (unaudited)
|
Statements
|
1. Organization and Significant Accounting Policies (continued)
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,
including over-the-counter options, are valued daily using prices supplied by
an independent pricing service or dealer quotations, or the last sale price on
the exchange that is the primary market for such securities, or the mean between
the last quoted bid and ask price for those securities for which the over-the-counter
market is the primary market or for listed securities in which there were no
sales. 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. Exchange traded options are valued
at the settlement price determined by the relevant exchange. 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. Each Funds
net asset value is normally 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, respectively to interest income over the lives of the respective securities
using the effective interest method. Payments received from certain investments
may be comprised of dividends, realized gains and return of capital. These payments
may initially be recorded as dividend income and may subsequently be reclassified
as realized gains and/or return of capital upon receipt of information from the
issuer. Dividend income is recorded on the ex-dividend date.
(c) Federal Income Taxes
The
Funds intend to distribute all of their 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 Distributions
The
Funds declare quarterly dividends and distributions from net investment income
and gains from option premiums and the sale of portfolio securities. The Funds
record dividends and distributions to 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 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.
(e) Call Option Transactions
The
Funds employ a strategy of writing (selling) call options on equities and/or
equity indexes in an attempt to generate gains from option premiums. When an
option is written, the premium received is recorded as an asset with an equal
liability, which is subsequently adjusted to the current market value of the
option. Premiums received from writing options, which expire unexercised, are
recorded on the expiration date as a realized gain. The difference between the
premium received and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is also treated as a realized gain, or if the
premium is less than the amount paid for the closing purchase transactions, as
a realized loss. If a call option is exercised, the premium is added to the
proceeds from the sale of the underlying security or index option in determining
whether there has been a realized gain or loss.
The Funds, as writers of call options, may have no control over whether the underlying securities or index option may be sold (called). As a result, the Funds bear the market risk of an unfavorable change in the price
of the security or index underlying the written call options.
The use of derivative transactions may involve elements of both market and credit risk in excess of the amounts reflected on the Statements of Assets and Liabilities.
|
NFJ Dividend, Interest & Premium Strategy Fund
|
| 7.31.07 |
|
Nicholas-Applegate Equity & Convertible Income Fund Semi-Annual Report
19
|
NFJ Dividend, Interest & Premium Strategy Fund
|
|
Nicholas-Applegate Equity & Convertible Income Fund
|
Notes to Financial
|
July 31, 2007 (unaudited)
|
Statements
|
1. Organization and Significant Accounting Policies (continued)
(f) Concentration of Risk
It
is the Funds policy
to invest a portion of their 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, the Funds are exposed to greater downside
risk than traditional debt securities, but still less than that of the underlying
common stock.
2. Investment Manager/Sub-Advisers
Each
Fund has 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,
the NFJ Dividend, Interest & Premium Strategy Fund pays the Investment Manager
an annual fee, payable monthly, at the annual rate of 0.90% of the Funds
average daily total managed assets. The Nicholas-Applegate Equity & Convertible
Income Fund pays the Investment Manager an annual fee, payable monthly, at the
annual rate of 1.00% of the 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 affiliates, NFJ Investment
Group L.P (NFJ
),
Nicholas-Applegate Capital Management LLC (NACM
),
and Oppenheimer Capital LLC (OCC
)
(the Sub-Advisers
),
to manage the NFJ Dividend, Interest &
Premium Strategy Funds
equity component, convertible component and index option strategy, respectively.
NACM serves as the sole sub-adviser to the Nicholas-Applegate Equity & Convertible
Income Fund. Subject to the supervision of the Investment Manager, NFJ, NACM
and OCC make all of NFJ Dividend, Interest & Premium Strategy Funds investment
decisions in connection with their respective components of the Funds investments.
Subject to the supervision of the Investment Manager, NACM is responsible for
making all of Nicholas-Applegate Equity & Convertible Income
Funds investment
decisions. For their services, pursuant to Sub-Advisory Agreements, the Investment
Manager and not the Funds, pays each of the Sub-Advisers an annual fee payable
on a monthly basis.
3. Investment in Securities
For
the six months ended July 31, 2007, and for the period February 27, 2007 (commencement
of operations) through July 31, 2007 for NFJ Dividend, Interest & Premium
Strategy Fund and Nicholas-Applegate Equity &
Convertible Income Fund, respectively, purchases and sales of investments, other
than short-term securities and U.S. government obligations were:
|
|
NFJ Dividend,
|
|
Nicholas-Applegate
|
|
|
|
Interest & Premium
|
|
Equity & Convertible
|
|
|
|
Strategy
Fund
|
|
Income
Fund
|
|
Purchases
|
|
|
$1,100,699,738
|
|
|
|
$1,281,503,803
|
|
Sales
|
|
1,028,634,300
|
|
|
|
781,579,323
|
|
|
|
For the six months
ended July 31, 2007, and for the period February 27, 2007 (commencement
of operations) through July 31, 2007 for NFJ Dividend, Interest & Premium
Strategy Fund and Nicholas-Applegate Equity & Convertible Income
Fund, respectively, purchases and sales of U.S. government obligations
were:
|
|
|
|
|
NFJ Dividend,
|
|
Nicholas-Applegate
|
|
|
|
Interest & Premium
|
|
Equity & Convertible
|
|
|
|
Strategy
Fund
|
|
Income
Fund
|
|
Purchases
|
|
|
|
|
|
$49,807,500
|
|
Sales
|
|
|
|
|
|
35,127,188
|
|
|
|
(a) Transactions
in call options written for the six months ended July 31, 2007:
|
|
|
|
|
|
|
NFJ
Dividend, Interest & Premium Strategy Fund:
|
|
Contracts
|
|
Premiums
|
|
Options outstanding,
January 31, 2007
|
|
56,880
|
|
|
|
$25,702,860
|
|
Options written
|
|
166,657
|
|
|
|
71,438,540
|
|
Options terminated in
closing purchase transactions
|
|
(97,607
|
)
|
|
|
(51,350,179
|
)
|
Options expired
|
|
(72,180
|
)
|
|
|
(20,912,860
|
)
|
Options Options outstanding,
expired July 31, 2007
|
|
53,750
|
|
|
|
$24,878,361
|
|
NFJ Dividend, Interest & Premium Strategy Fund
|
20
Nicholas-Applegate Equity & Convertible Income Fund Semi-Annual Report | 7.31.07 |
|
NFJ Dividend, Interest & Premium Strategy Fund
|
|
Nicholas-Applegate Equity & Convertible Income Fund
|
Notes to Financial
|
July 31, 2007 (unaudited)
|
Statements
|
3. Investment in Securities (continued)
Transactions in call options written for the period February 27, 2007 (commencement of operations) through July 31, 2007:
Nicholas-Applegate
Equity & Convertible Income Fund:
|
Contracts
|
|
|
Premiums
|
Options outstanding,
February 27, 2007*
|
|
|
|
$
|
|
|
Options written
|
148,580
|
|
|
|
23,287,087
|
|
Options terminated in
closing purchase transactions
|
(87,927
|
)
|
|
|
(15,394,739
|
)
|
Options expired
|
(27,920
|
)
|
|
|
(2,587,813
|
)
|
Options exercised
|
(81
|
)
|
|
|
(11,097
|
)
|
Options Options outstanding,
exercised July 31, 2007
|
32,652
|
|
|
|
$5,293,438
|
|
*Commencement of operations
4. Income Tax Information
The cost of investments for federal income tax purposes and gross unrealized appreciation and gross unrealized depreciation of investments at July 31, 2007 were:
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Unrealized
|
|
|
Cost of
|
|
Unrealized
|
|
Unrealized
|
|
Appreciation
|
|
|
Investments
|
|
Appreciation
|
|
Depreciation
|
|
(Depreciation)
|
NFJ Dividend, Interest & Premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategy
|
|
$
|
2,342,874,234
|
|
$
|
160,961,430
|
|
|
$89,966,451
|
|
|
$70,994,979
|
|
Nicholas-Applegate Equity &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Income
|
|
|
568,573,424
|
|
|
7,033,087
|
|
|
28,372,355
|
|
|
(21,339,268
|
)
|
5. Legal Proceedings
In
June and September 2004, the Investment Manager, certain of its affiliates (including
Allianz Global Investors Distributors LLC, 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. In addition to
monetary payments, the settling parties agreed to undertake certain corporate
governance, compliance and disclosure reforms related to market timing, brokerage
commissions, revenue sharing and shelf-space arrangements, and consented to
cease and desist orders and censures. Subsequent to these events PEA Capital
LLC deregistered and dissolved. None of the settlements alleged that any inappropriate
activity took place with respect to the Funds.
Since February 2004, the Investment Manager, the Sub-Advisers and certain of their affiliates and their employees have been named as defendants in a number of pending lawsuits concerning market timing
and revenue sharing/shelf-space/directed brokerage,
which allege the same or similar conduct underlying the regulatory settlements discussed above. The
market timing lawsuits have been consolidated in a multi-district litigation proceeding in the U.S. District Court for the District of Maryland and the revenue sharing/shelf-space/directed brokerage lawsuits have been consolidated in the U.S.
District Court for the District of Connecticut. Any potential resolution of these matters may include, but not be limited to, judgments or settlements for damages against the Investment Manager or their affiliates or related injunctions.
The Investment Manager and the Sub-Advisers 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.
|
NFJ Dividend,
Interest & Premium Strategy Fund
|
| 7.31.07 |
|
Nicholas-Applegate Equity & Convertible Income Fund Semi-Annual Report
21
|
NFJ Dividend, Interest & Premium Strategy Fund
Financial Highlights
For a share outstanding throughout each period:
|
|
Six Months
|
|
|
|
|
|
For the
Period
|
|
|
ended
|
|
|
|
|
|
February
28, 2005*
|
|
|
July 31,
2007
|
|
Year ended
|
|
through
|
|
|
(unaudited)
|
|
January
31, 2007
|
|
January
31, 2006
|
Net
asset value, beginning of period
|
|
|
$25.72
|
|
|
|
$24.18
|
|
|
|
$23.88
|
**
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
0.41
|
|
|
|
0.75
|
|
|
|
0.70
|
|
Net realized and change
in unrealized gain on investments,
|
|
|
|
|
|
|
|
|
|
|
|
|
call
options written and short sales
|
|
|
0.12
|
|
|
|
2.89
|
|
|
|
1.28
|
|
Total
from investment operations
|
|
|
0.53
|
|
|
|
3.64
|
|
|
|
1.98
|
|
Dividends and Distributions
to Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
(0.46
|
)
|
|
|
(0.73
|
)
|
|
|
(0.65
|
)
|
Net
realized gains
|
|
|
(0.59
|
)
|
|
|
(1.37
|
)
|
|
|
(1.00
|
)
|
Total
dividends and distributions to shareholders
|
|
|
(1.05
|
)
|
|
|
(2.10
|
)
|
|
|
(1.65
|
)
|
Capital Share Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering
costs charged to paid-in capital in excess of par
|
|
|
|
|
|
|
|
|
|
|
(0.03
|
)
|
Net
asset value, end of period
|
|
|
$25.20
|
|
|
|
$25.72
|
|
|
|
$24.18
|
|
Market
price, end of period
|
|
|
$23.77
|
|
|
|
$25.87
|
|
|
|
$22.20
|
|
Total
Investment Return (1)
|
|
|
(4.38
|
)%
|
|
|
27.15
|
%
|
|
|
(4.65
|
)%
|
RATIOS/SUPPLEMENTAL
DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets, end of period (000)
|
|
$
|
2,382,389
|
|
|
|
$2,431,595
|
|
|
|
$2,285,652
|
|
Ratio
of expenses to average net assets
|
|
|
0.96
|
%(2)
|
|
|
0.95
|
%
|
|
|
0.94
|
%(2)
|
Ratio
of net investment income to average net assets
|
|
|
3.19
|
%(2)
|
|
|
3.08
|
%
|
|
|
3.27
|
%(2)
|
Portfolio
turnover
|
|
|
43
|
%
|
|
|
69
|
%
|
|
|
97
|
%
|
*
|
Commencement of operations.
|
**
|
Initial public offering price of $25.00
per share less underwriting discount of $1.125 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 each period and a sale of a share of common
stock at the current market price on the last day of each period reported.
Dividends and distributions are assumed, for purposes of this calculation,
to be reinvested at prices obtained under the Fund
s
dividend reinvestment plan. Total investment return does not reflect
brokerage commissions or sales charges. Total investment return for a period of less than one year is not annualized.
|
(2)
|
Annualized.
|
NFJ Dividend, Interest & Premium Strategy Fund
|
22
Nicholas-Applegate Equity & Convertible Income Fund Semi-Annual Report | 7.31.07 |
See accompanying Notes to Financial
Statements
|
Nicholas-Applegate
Equity & Convertible Income Fund
Financial
Highlights
For a share outstanding for the period February
27, 2007* through July 31, 2007 (unaudited):
Net
asset value, beginning of period
|
|
|
$23.88
|
**
|
Investment Operations:
|
|
|
|
|
Net
investment income
|
|
|
0.35
|
|
Net
realized and unrealized gain on investments and call options written
|
|
|
0.82
|
|
Total
from investment operations
|
|
|
1.17
|
|
Dividends and Distributions
to Shareholders from:
|
|
|
|
|
Net
investment income
|
|
|
(0.26
|
)
|
Net
realized gains
|
|
|
(0.30
|
)
|
Total
dividends and distributions to shareholders
|
|
|
(0.56
|
)
|
Capital Share Transactions:
|
|
|
|
|
Offering
costs charged to paid-in capital in excess of par
|
|
|
(0.05
|
)
|
Net
asset value, end of period
|
|
|
$24.44
|
|
Market
price, end of period
|
|
|
$23.47
|
|
Total
Investment Return (1)
|
|
|
(4.16
|
)%
|
RATIOS/SUPPLEMENTAL
DATA:
|
|
|
|
|
Net
assets, end of period (000)
|
|
|
$545,024
|
|
Ratio
of expenses to average net assets
|
|
|
1.11
|
%(2)
|
Ratio
of net investment income to average net assets
|
|
|
3.48
|
%(2)
|
Portfolio
turnover
|
|
|
165
|
%
|
*
|
Commencement of operations.
|
**
|
Initial public offering price of $25.00
per share less underwriting discount of $1.125 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 the period reported. Dividends and distributions are assumed,
for purposes of this calculation, to be reinvested at prices obtained
under the Fund
s
dividend reinvestment plan. Total investment return does not reflect
brokerage commissions or sales charges. Total investment return of a
period of less than one year is not annualized.
|
(2)
|
Annualized.
|
|
NFJ Dividend,
Interest & Premium Strategy Fund
|
See accompanying Notes
to Financial Statements
| 7.31.07
|
|
Nicholas-Applegate Equity & Convertible Income Fund Semi-Annual Report
23
|
NFJ Dividend, Interest & Premium Strategy Fund
|
Annual Shareholder
|
July 31, 2007 (unaudited)
|
Meeting Results
|
The Fund held its annual meeting of shareholders on May 31, 2007. Shareholders voted to re-elect R. Peter Sullivan III and John J. Dalessandro II and elect William B. Ogden IV and John C. Maney as trustees as indicated
below.
|
|
|
|
Withheld
|
|
|
Affirmative
|
|
Authority
|
Re-election of R. Peter
Sullivan III
Class
II to serve until 2010
|
|
86,723,610
|
|
838,426
|
Re-election of John
J. Dalessandro II
Class
II to serve until 2010
|
|
86,674,255
|
|
887,781
|
Election of William
B. Ogden IV
Class
I to serve until 2009
|
|
86,738,716
|
|
823,320
|
Election of John C.
Maney
Class
III to serve until 2008
|
|
86,738,396
|
|
823,640
|
Paul Belica, Robert E. Connor and Hans W. Kertess continue to serve as Trustees of the Fund.
Subsequent Dividend Declarations
On September 14, 2007 the following quarterly dividends were declared to shareholders, payable September 2, 2007 to shareholders of record on September 24, 2007:
NFJ Dividend, Interest & Premium Strategy
|
|
$ 0.525 per share
|
Nicholas-Applegate Equity & Convertible Income
|
|
$0.5625 per share
|
NFJ Dividend, Interest & Premium Strategy Fund
|
24
Nicholas-Applegate Equity & Convertible Income Fund Semi-Annual Report | 7.31.07 |
|
NFJ
Dividend, Interest & Premium Strategy Fund
|
Matters Relating
to the
|
|
Trustees Consideration
of the
|
|
Advisory & Sub-Advisory
|
|
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 Agreement (the Advisory Agreement
) 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-Advisers. The Trustees met on June 13, 2007 (the
contract review meeting
) for the specific purpose of considering whether to approve
the Advisory Agreement 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 Agreement and the Sub-Advisory Agreements should be approved for a one-year period commencing July 1, 2007.
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-Advisers 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 Fund 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-Advisers, including institutional separate accounts and other clients, (iv) the profitability to the Investment Manager from its relationship with the
Fund for the twelve months ended March 31, 2007, (v) descriptions of various functions performed by the Investment Manager and the Sub-Advisers for the Fund, such as portfolio management, compliance monitoring and portfolio trading practices, and
(vi) information regarding the overall organization of the Investment Manager and the Sub-Advisers, including information regarding senior management, portfolio managers and other personnel providing investment management, administrative and other
services to the Fund.
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 Fund. The Trustees considered the investment philosophy and research and decision-making processes of
the Sub-Advisers; the experience of key advisory personnel of the Sub-Advisers responsible for portfolio management of the Fund; the ability of the Investment Manager and the Sub-Advisers to attract and retain capable personnel; the capability and
integrity of the senior management and staff of the Investment Manager and the Sub-Advisers; and the level of skill required to manage the Fund. 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 Fund; the nature and quality of certain administrative services the Investment Manager is responsible for providing to the Fund; and conditions that might affect the Investment Managers or the Sub-Advisers ability to provide high quality services to the Fund 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 Fund given their investment objectives and policies, and that
the Investment Manager and the Sub-Advisers would be able to continue to meet any reasonably foreseeable obligations under the Agreements.
|
NFJ
Dividend, Interest & Premium Strategy Fund
|
| 7.31.07 |
|
Nicholas-Applegate
Equity & Convertible Income Fund Semi-Annual Report
25
|
NFJ Dividend, Interest & Premium
Strategy Fund
|
Matters Relating to the
Trustees Consideration
of the
Advisory & Sub-Advisory
Agreements
(unaudited) (continued)
|
Based on information provided by Lipper Inc., the Trustees also reviewed the 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 the Funds performance.
In assessing the reasonableness of the Funds fees under the Agreements, the Trustees considered, among other information, the
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.
The Trustees specifically took note of how the Fund compared to its Lipper Inc. peers as to performance and total expense ratio. The Trustees noted that while the Fund was 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 Fund 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 the Fund had significantly outperformed its peer groups median and low returns but had underperformed its peer
groups high returns for the one-year period ended March 31, 2007. The Trustees also noted that the Funds expense ratio was significantly below the high and median for its peer group and was above the low 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 the Fund with respect to the management fee paid to the Investment Manager.
The Trustees also considered the management fees charged by the Sub-Advisers to other clients, including institutional separate accounts with investment strategies similar to those of the Fund. Regarding the
institutional separate accounts, they noted that the management fees paid by the Fund was generally higher than the fees paid by these other clients of the Sub-Advisers, but were advised that the administrative burden for the Investment Manager and
the Sub-Advisers with respect to the Fund is also relatively higher, due in part to the more extensive regulatory regime to which the Fund was subject in comparison to institutional separate accounts. The Trustees noted that the management fees paid
by the Fund was generally higher than the fees paid by the open-end funds but were advised that there are additional portfolio management challenges in managing the Fund, such as meeting a regular dividend.
Based on a profitability analysis provided by the Investment Manager, the Trustees also considered the profitability of the Investment Manager from its relationship with the Fund and determined that such profitability
was not excessive.
The Trustees also took into account that, as closed-end investment companies, the Fund do not currently intend to raise additional assets, so the assets of the Fund will grow (if at all) only through the investment
performance of the 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-Advisers, such as reputational value derived from serving as Investment Manager and Sub-Advisers to the Fund.
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-Advisers to the Fund.
NFJ Dividend, Interest & Premium Strategy Fund
|
26
Nicholas-Applegate Equity & Convertible Income Fund Semi-Annual Report | 7.31.07 |
|
Nicholas-Applegate
Equity & Convertible Income Fund
|
Matters
Relating to the
|
|
Trustees
Consideration
|
|
of the
Advisory & Sub-
|
|
Advisory
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 Agreement (the Advisory Agreement
) with Allianz Global Investors Fund Management LLC (the Investment Manager
); the Sub-Advisory Agreement (the Sub-Advisory Agreement
, and together with the Advisory Agreement, the Agreements
) between the Investment Manager and Nicholas-Applegate Capital Management LLC (NACM
or the Sub-Adviser). The Trustees met on February 20, 2007 (the contract review meeting
) for the specific purpose of considering whether to approve the Advisory Agreement and the Sub-Advisory Agreement. 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 Agreement and the Sub-Advisory Agreement should be approved.
In connection with their deliberations regarding the approval 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 for various
time periods and the investment performance of a group of funds with substantially similar investment classifications/objectives as the Fund identified by Lipper Inc., (ii) information on 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-Advisers, including institutional separate accounts and other clients, (iv) an estimate of the
profitability to the Investment Manager and the Sub-Adviser from their relationship with the Fund (v) descriptions of various functions performed by the Investment Manager and the Sub-Adviser for the Fund, 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 Fund.
The Trustees conclusions as to the approval 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 Fund. 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 Fund; 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 Fund. 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 Fund; the nature and quality of certain administrative services the Investment Manager is responsible for providing to the Fund; and conditions that might affect the Investment Managers or the Sub-Advisers ability to provide high quality services to the Fund 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 Fund 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.
|
NFJ Dividend, Interest & Premium Strategy Fund
|
| 7.31.07 |
|
Nicholas-Applegate Equity & Convertible Income Fund Semi-Annual Report
27
|
Nicholas-Applegate
Equity & Convertible Income Fund
|
Matters
Relating to the
|
|
Trustees
Consideration
|
|
of the
Advisory & Sub-
|
|
Advisory
Agreements
|
|
(unaudited)
(continued)
|
In assessing the reasonableness of the Funds fees under the Agreements, the Trustees considered, among other information, the
Funds management fee and the total expense ratio as a percentage of average daily total managed assets and the total expense ratios of comparable funds identified by
Lipper Inc.
For the Fund, the Trustees specifically took note of how the Fund compared to its Lipper Inc. peers as to the total expense ratio. The Trustees noted that while the Fund was 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 expense ratio of the Fund compared
to the total expenses of the peer funds, recognizing that the fees for management, administrative services and non-management fee would be subsumed within the total expense ratio.
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 Fund. Regarding the
institutional separate accounts, they noted that the management fees paid by the Fund was generally higher than the fees paid by these 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 Fund was also relatively higher, due in part to the more extensive regulatory regime to which the Fund was subject in comparison to institutional separate accounts. The Trustees noted that the management fees paid
by the Fund was generally higher than the fees paid by the open-end funds but were advised that there are additional portfolio management challenges in managing the Fund, such as meeting a regular dividend.
Based on the profitability analysis provided by the Investment Manager, the Trustees also considered the estimate of the profitability of the Investment Manager and the Sub-Adviser from their relationship with the Fund
and determined that such profitability was not excessive.
The Trustees also took into account that, a closed-end investment company, the Fund does not currently intend to raise additional assets, so the assets of the Fund will grow (if at all) only through investment
performance. 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-Advisers, such as reputational value derived from serving as Investment Manager and Sub-Advisers to the Fund.
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-Advisers to the Fund.