December 2, 2008

Pimco Will Postpone Some Dividends -

Pimco Will Postpone Some Dividends -

Several closed end funds have suspended distribution to shareholders. The operational risks from closed end funds have surfaced due to the severe decline in assets and credit crises. I have noted to this when I have talked about investing high yield closed end funds. The problem is

... closed-end funds must maintain asset coverage of at least 200% with respect to senior securities, such as auction-rate preferred securities. That means for each $1 of preferred stock issued, a fund must have at least $2 in assets. A fund is prohibited from declaring or paying a dividend that would put it below the 200% asset-coverage ratio.

As a result of the market's declines, the Pimco funds' asset-coverage ratios have fallen below the required 200% level, the firm said.

However, most of these dividends are postponed and will resume once asset prices correct.

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