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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: SeaViewer who wrote (88588)	1/17/2001 11:07:40 AM
From: Knighty Tin	Respond to of 132070

Jeff, The dividends are fixed. The price of the shares vary to reflect higher and lower rates. So far, most of the funds have never redeemed pf. shares and none have been forced to by market conditions. GAM and some of the other firms will bid in the market when the pf. gets too low. Why redeem at $25 when you can buy at $21? That has helped the prices to remain in relatively narrow trading ranges. However, I have made an assumption that seems logical but may prove false. My experience has shown me that if long term rates soar, stock prices decline precipitously. So, I feel that if rates soar, hurting pf. share prices, the firms will be required to redeem or take action (higher dividend, buy in some shares) based upon coverage restrictions and covenants. We haven't been in one of those markets for some time, so it is not a sure thing that the legal covenants are worth the boilerplate they are etched on. But I tend to think they are. However, if I were an investor in the regular fund shares, I would question the wisdom. It looks like they issue pf. shares when stock prices are high and are forced to redeem when they are low. A good time to jump on these well managed funds might be if they ever do have to redeem the preferred, as that process will be certain to widen the discount.