Lately, many frustrated preferred investors have searched for an opportunity to cash in on the subprime crisis and move on. Responding directly to investor woes, several closed-end fund companies like Nuveen Investments and Eaton Vance have scrambled to offer investors a chance to redeem their auction-rate preferred securities.

Earlier this month, for instance, the Securities and Exchange Commission granted Eaton permission to provide a new auction-rate security known as Liquidity Protected Preferred Shares. Last Monday, Eaton Vance said that it plans to redeem about $310 million in auction-rate preferred securities for about 15 of its municipal funds.

However, not everyone is as eager to follow Eaton Vance's lead. Other well-known closed-end fund companies have decided not to follow this trend, mainly out of fear for common investors, including Allianz, Lehman Brothers Holdings and Pioneer Investments.

For Allianz, the decision to wait might be particularly smart. According to data from FactSet Research Systems, legendary bond fund manager Bill Gross has roughly $43 million invested in nine Allianz SE PIMCO closed-end funds. With common shareholders this powerful, companies need to be sure they make decisions they do not regret after the fact. Mainly, firms worry that if they replace the auction-rate debt with other leveraged instruments, fund earnings might suffer in the long run.

(c) 2008 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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