NEW YORK, Oct. 24, 2008 (GLOBE NEWSWIRE) -- Nicholas-Applegate Convertible & Income Fund (NYSE:NCV) and Nicholas-Applegate Convertible & Income Fund II (NYSE:NCZ) (the "Funds") announced today that due to the unprecedented market conditions over the last few weeks, the Funds may be required to delay the payment of declared dividends and the declaration of the next scheduled dividend on the Funds' common shares.
In response to the market environment described above, on October 9, 2008, the Funds decided to reduce leverage by announcing a partial redemption of their auction rate preferred shares ("ARPS"). That decision was made in an effort to reduce the common shares' net asset value volatility and increase the asset coverage of the Funds' ARPS. Since the announcement on October 9, the markets have continued to decline. For example, the high-yield and convertible bond markets in which the Funds primarily invest, as represented by the Merrill Lynch High Yield Master II and Merrill Lynch All Convertible All Quality Indexes, have declined more than 16% and 21%, respectively, in the month-to-date period through October 23.
In accordance with the Investment Company Act of 1940, as amended and the Funds' By-laws, the Funds are not permitted to declare or pay common share dividends unless the Funds' ARPS have asset coverage of 200% after payment of the common share dividend ("200% Level"). Additionally, in accordance with the Funds' By-laws, the Funds must maintain asset coverage in line with the requirements of the rating agencies that rate the ARPS ("Rating Agency Level") in order to declare and pay common share dividends. Due to the unprecedented market conditions, recently the Funds' asset coverage ratios (after taking into account the partial ARPS redemption) have declined below the 200% Level and in the case of NCV, below the Rating Agency Level. Depending on market conditions, these coverage ratios may increase or decrease further. In the event that the 200% Level or the Rating Agency Level is not met at the time of the scheduled payment of common share dividends on November 3, 2008, the Funds that do not meet these coverage tests would have to postpone the payment of the previously declared dividends. This same date is also planned as the declaration date for the December common share dividends, and any Fund that does not meet the coverage tests would have to postpone the declaration of the December common share dividend on its previously planned declaration date, until the situation is corrected.
The Funds' ability to earn sufficient income to pay the previously declared dividend was not impacted by this decline in the asset coverage ratios or market conditions. Therefore, if market conditions improve and the values of the Funds' assets increase to a point where the Funds have adequate asset coverage on the respective dividend payment and declaration dates, the Funds intend to pay the common share dividend on the payment date and declare the December dividend. The Funds will make a subsequent public announcement on or before the dividend payment and declaration date to confirm whether or not the November common share dividend will be paid and the December common share dividends declared on the scheduled payment and declaration date.
Doug Forsyth, a managing director at Nicholas-Applegate Capital Management LLC and lead portfolio manager of the Funds, commented: "We will continue to actively monitor the Funds' asset coverage levels. We recognize that many common shareholders hold our Funds for their monthly dividends in addition to the potential for total return and those continue to be the Funds' objectives." With regard to current market conditions, Mr. Forsyth added: "Although the market has experienced substantial declines in value, which may continue, we are seeing unparalleled long-term opportunities in the convertible and high-yield markets today, with high-yield spreads relative to U.S. treasuries at approximately 1600 basis points and an average yield to maturity of over 18%. We believe that similarly attractive opportunities exist in the convertible market as a result of recent equity market declines."
The Funds' investment objective is to provide total return through a combination of capital appreciation and high current income. There can be no assurance that the Funds will achieve their stated objectives.
Allianz Global Investors Fund Management LLC, an indirect, wholly-owned subsidiary of Allianz Global Investors of America L.P., serves as the Funds' investment manager and is a member of Munich-based Allianz Group (NYSE:AZ). Nicholas-Applegate Capital Management LLC, an Allianz Global Investors Fund Management affiliate, serves as the Funds' sub-adviser.
The Funds' daily New York Stock Exchange closing prices and net asset values per share are available by calling the Funds' shareholder servicing agent at (800) 331-1710. This information, as well as updated portfolio statistics and performance, is available at http://www.allianzinvestors.com.
Statements made in this release that look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such risks and uncertainties include, without limitation, the adverse effect from further declines in the securities markets and in the Funds' performance, a general downturn in the economy, inability to obtain leverage to replace ARPS that have been redeemed, competition from other companies, changes in government policy or regulation, inability to attract or retain key employees, inability to implement its operating strategy and/or acquisition strategy, and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations. The Funds' ability to maintain leverage and to pay dividends to common shareholders is subject to the restrictions in their registration statements, by-laws and other governing documents.