DOW JONES NEWSWIRES
Two more closed-end funds at Pacific Investment Management Co.
said Friday they won't pay their April dividends as the funds sell
some of their auction-rate preferred shares.
The Floating Rate Income Fund (PFL) and Floating Rate Strategy
Fund (PFN) were among five Pimco funds which said a week ago they
would redeem some of their auction-rate securities to be able to
pay or declare dividends. The other three said Monday that neither
March nor April payments would be made because of the falling value
of auction-rate preferred shares.
The purchases will push the company's asset coverage of the
auction-rate preferreds back above the 200% level required for the
funds to pay dividends.
Because the level has fallen below that, Pimco is being forced
to buy back some of the ARPs issued by its closed-end funds. That
is a reversal for money-management giant owned by Allianz SA (AZ).
Pimco had refused to redeem the securities for months after the
auction-rate market froze up a year ago. But deteriorating markets
and legal requirements are forcing Pimco to do so after all.
The two funds intend to resume dividend payments "as soon as
possible."
Pimco's closed-end funds, like dozens of others, have for years
issued auction-rate preferreds to borrow money and add leverage to
the funds. Such securities are long-term debt with lower,
short-term rates that are set at periodic auctions.
When the auction-preferred market froze, auction-preferred
holders wanted their money back, so most closed-end fund shops
started redeeming some securities or worked on plans to do so. But
Pimco balked, pointing out that redeeming the preferreds would
reduce leverage in its funds, which in turn would shrink income for
closed-end fund shareholders. The firm's preference for its common
shareholders incensed brokers and preferred holders.
Not all companies' closed-end funds have been hit by the
troubles. Nuveen's funds declared quarterly dividends earlier this
week. And analysts said recently that low interest rates on
auction-rate preferreds are low, permitting some closed-end funds
to raise their dividends, although many expect investors to be
disappointed by cash distributions this year.
The Floating Rate Income Fund was down 3.6% at $4.25 in
premarket trading.
-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089;
kerry.grace@dowjones.com
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