When the collapsed Auction Rate Securities (ARS) market gets personal

Does anyone have a direct line to the fund manager of Pioneer Floating Rate Fund?

Another redemption:

The Gabelli Convertible and Income Securities Fund Inc. to Redeem Auction Rate Preferred Stock
The Board of Directors of The Gabelli Convertible and Income Securities Fund Inc. (NYSE:GCV) has authorized the filing of a shelf registration of up to $100 million in preferred stock or debt securities. The registration process typically takes approximately one to two months. Upon its completion the Fund will have additional flexibility to take steps toward resolving the illiquidity that has occurred for holders of the Fund’s auction rate preferred stock.

I want to confirm the earlier comments about Duff & Phelps' (DNP's) aggressive anti-preferred stance. (Earlier someone said DNP told them they should essentially feel proud to pass this down to their kids!)

I just spoke with an agent at Duff & Phelps. He said -- really -- that they are still making money off the preffered shares, and as long as their common shareholders are benefiting, they have no intention of acting on behalf of their preferred shareholders.

He said that preferred shareholders should have known the risk, and if they didn't, they should sue UBS, Merrill Lynch, whomever.

I gave him two opportunities to soften this or add something less callous, and he declined.

Clearly, their position is that they want UBS held responsible, and they will hold us hostage.

Here is Board of Directors information for Duff & Phelps. They have two directors who are responsible for the preferred funds: Nancy Lampton and Robert Jenetski. The address for letters to them: Duff & Phelps Investments, 55 East Monroe St., Ste. 3600, Chicago, IL 60603.

Duff & Phelps is having its shareholders meeting Friday, May 9, at the University Club, 76 East Monroe St., 8 a.m. sharp. The meeting is open. Would anyone like to attend with me?

Please read this February 26 excerpt from a Bloomberg article. I believe this takes away any notion that the people creating and selling these ARPS didn't know exactly what they were doing when they sold these to the public.

Had told us the truth and made us aware of the potential risks of playing a card game of "Old Maid" then we wouldn't have bought the products and then they wouldn't have made their huge management fees and commissions. I believe Bill Gross was being very honest when he made these comments.

"Feb. 26 (Bloomberg) -- Bill Gross, manager of the world's biggest bond fund, said auction-rate preferred securities, even those sold by his own company, are the latest "old maid" card to be foisted on investors.

Failures at auctions run by banks to determine the rate on more than $166 billion of securities are the most recent sign that the contraction in the credit markets will last, Gross said in a comment today on the firm's Web site, using an analogy to the children's card game.

"And so the game goes on and on,'' said Gross, chief investment officer at Pacific Investment Management Co. in Newport Beach, California. "Its most recent twist involves an asset class known as auction-rate preferred stock and the astounding revelation that its holders didn't even know they were playing cards to begin with.''

Old Maid is a child's card game in which the objective is to avoid holding the card of the old maid at the end and being declared the loser.

Investors "should have thought twice about'' about buying preferred auction-rate securities, including those sold by Pimco, Gross wrote in a follow up e-mail. Pimco's parent company, Allianz SE, has 18 closed-end funds, according to the company's Web site. Mark Porterfield, a Pimco spokesman, didn't return calls seeking additional information on the funds."

The fact that he sent a follow up e-mail is very telling and could possibly indicate someone at Pimco was not pleased with his comments?

Read the entire article at www.bloomberg.com and search Bill Gross for the February 26 article.

The Fed Injected $200 Billion for Liquidity of Financial Firms. When is that going to trickle into redeeming our ARP's ?

The SEC email for complaints is now definitely working:

ENF-ARScomplaints@SEC.gov

It really does feel good to report your story. How can they ignore hundreds of these without an investigation?

And what's wrong with class actions and individual actions against the funds, at the same time as actions against the funds and their underwriters? You can be part of them all at the same time, so take hold of 'em all and SQUEEZE. At the same time, urge the SEC to do an investigation and tell your broker and your fund you have reported them, together with hundreds of other people, to the SEC.

Kathy:

I also received a similar letter from Duff and Phelps.
In the letter, they do pass the blame onto the broker. You can email me at arpholder@live.com

Here is a good appraiser to use to value the current value of the arps for litigation services. Just putting together resources:

Pluris Valuation Advisors LLC
17 Battery Place
Suite 1343
New York, NY 10004

I don't know if they are good or not,
but here is their URL just in case:
http://www.plurisvaluation.com/

"In Google I trust"

Here’s an innovative way to redeem preferred shareholders while preserving common shareholders’s return. Evergreen announced that is considering refinancing their ARPSs
“with advisory fee waivers to keep costs down for the affected funds' common shareholders. If the borrowing on any commercial paper funding exceeds the maximum rate being paid to the preferred shareholders at that point, Evergreen will waive its advisory fees ….”

Now anytime we hear garbage about considering the return of the common shareholder (at our expense!), we now have a viable option for these fund companies to pursue. Demand they take a management fee waiver to offset any reductions to the common shareholder's return!

http://money.cnn.com/news/newsfeeds/articles/djf500/200803241912DOWJONESDJONLINE000377_FORTUNE5.htm

lowell
i dont know what you own just wanted to let you know that option is only available to taxable arps. you cant pass through tax free interest using cp. I was on that call.

Lowell and Mike---you are right that commercial debt won't work on the munis because of the tax issue. However, the funds could waive their fees anytime they wanted to in the munis if they find another way that is close to their current costs to replace the leverage but don't hold your breath. I was on a call when that question was posed and there was dead silence for 20 seconds and then they said " we couldn't do that". Have the funds give up some of their fees--LOL. and fee waivers would even benefit their common shareholders.

I was a broker/ FA at a major brokerage & am an ARPS owner. While at this firm, heard the same thing about ARPs via the company's internal website as other retail clients: AAA rated (most of them); “cash alternative”, easy liquidity, etc. I know of other FAs who also put substantial sums of their own money into ARPs obviously unaware of possible illiquidity. The implication was their firm would make a market.

Regarding not receiving a prospectus, I glossed over it at first then recalled an incident a few years ago which may apply to our ARPs issue. During a routine inspection by industry regulators at the firm I was with, boxes of unopened prospectuses for several $25 par preferred issues were found unopened. The upshot was the firm had to offer all clients a recission option, or to buy them back at par ($25) since the client hadn’t received a prospectus. The firm was also fined $100,000,000.

Arbitration or class action may be a worthwhile option in some situations, although the results will have a wide range of outcomes depending on the arbitrations’ sense of “fairness” or the attorneys’ skills. It seems there ought to be a uniform solution such as the one above.

Mike: That's correct. As far as I know ALL redemptions announced thus far is for taxable ARPSs.

As I have said from the very beginning of this debacle, the funds are the ones with YOUR MONEY.

Your broker and your FA don't have your money. It's sitting very nicely in the hands of the CEF's , earning them a generous spread at current rates, and as far as I know, earning FEES for the auction runners, even though they are doing nothing to earn it.

Any fund that does not voluntarily , and within a reasonable time frame, deleverage or refinanace, should be embarrassed into doing so. If they would deliberately cause this much harm to a class of shareholder, they should not be in business, or trusted by any of its clients.

If Duff & Phelps is actually taking a hard line, they need to be set straight, in public, and often.

If the ARPS market was fraudulently marketed to investors, and I believe it was, then the Funds themselves are certainly co-conspirators.

I still think the INDUSTRY WIDE decision to pull their support simultaneously for ARPS, virtually on the same day, is quite damning. I don't think the Rockettes could have synchronized that any better.

Sarah, Very interesting post. Who were the "industry regulators" who investigated and fined your firm? Can we find out? Can you divulge name of the firm, approximate date of occurrence, etc.?

In the end, the brokers have power to force the Funds to solve the problem. The brokers have to say to Duff and Phelps-OK you do not want to help us out in solving the problem--we will never again market your funds. When a clients asks their broker about Duff and Phelps--the broker has to say they are not a stand up company. Move on.

Bloomberg article:

http://www.bloomberg.com/apps/news?pid=20601039&sid=av9gKhmmfHcU&refer=home

Jim: I am with you. I have downloaded the following from Nuveen’s website. NOWHERE do they state that the auction may fail. They promoted this as heavily as the broker-dealers.

Jeffery: I know you mentioned you were looking for a legal angle against the issuers. Would statements like this be enough? If you look at the language, the target audience here is the investor and not the broker.

“At any time, MuniPreferred and FundPreferred shareholders may instruct their advisors to offer shares for sale at the next weekly auction. The $25,000 share price remains constant, providing a $1 in, $1 out” feature that means the principal received upon sale will always equal the amount invested”

“Consider Nuveen FundPreferred is you’re seeking: A stable, short-term source of income; a place to park cash before choosing your next long-term investment; AAA ratings and weekly liquidity”

“MuniPreferred and FundPreferred attract investors because of their highly competitive yields and AAA rated quality. They appeal to individuals seeking an attractive alternative to various money market instruments”

“MuniPreferred and FundPreferred Shares provide a number of potential advantages looking for a highly rated short-term investment, including: AAA ratings, Attractive, competitive income, stable principal value”.

It is interesting that the marketing materials I received from Merrill Lynch for ARS in December 2007 do not mention the possibility of auction failures, yet a nearly identical version I received last week from Financial Advisor, from this group, also copyright 2007, differs only because of the inclusion of a paragraph that explicitly discusses that possibility. Because I received my version so late in the year, I assume that the version that omits a discussion of auction failures was the more recent. Could it be possible that someone at Merrill Lynch decided that providing such information was bad marketing and thus deleted it from their marketing literature?