Eaton Vance to redeem $1.6 bln of preferred shares

By Muralikumar Anantharaman

BOSTON (Reuters) - U.S. money manager Eaton Vance Corp (EV.N: Quote, Profile, Research)said on Monday it was redeeming nearly a third of the preferred shares issued by its closed-end funds, offering relief to owners of the shares who have been unable to sell them because of the credit crisis.

Eaton Vance, the third-biggest closed-end fund firm, said three of its closed-end equity funds would redeem the preferred shares they have issued and the funds have secured about $1.6 billion in financing for the purpose.

"The funds expect to redeem in full their outstanding APS (auction preferred shares)," the company said in a statement. Eaton Vance has 29 closed-end funds that have about $5 billion of preferred shares outstanding, it said. Overall, the firm has about $31 billion in closed-end fund assets.

Eaton Vance's move comes after UK money manager Aberdeen Asset Management (ADN.L: Quote, Profile, Research) announced last week that one of its U.S. closed-end mutual funds is redeeming its preferred shares worth about $30 million.

Closed-end funds, which issue a fixed number of common shares and trade like stocks on exchanges, have for about two decades issued preferred shares in order to borrow and boost their returns. According to industry numbers, U.S closed-end funds have about $64 billion in preferred shares outstanding.

These shares trade at par and their dividends are reset in auctions held every seven to 35 days. However, over the past month, the auctions have failed as institutional and wealthy individual investors who usually snap up these shares have stayed away due to growing concerns about the credit markets.

Besides Eaton Vance, other major closed-end fund issuers such as Nuveen Investments and BlackRock Inc (BLK.N: Quote, Profile, Research) saw failed auctions in recent weeks.

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