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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