With ‘the Governator’ saying California is on the verge of financial Armageddon, there is concern about billions of investor dollars in municipal bond funds.  This raises many questions about that sustainability of municipal bonds that are issued specifically in California, which are widely held by closed-end funds (and open-end mutual funds).  There are many California-only closed-end funds that trade actively.  Keep in mind that some funds have seen dividend interruptions and others may based upon discount to net asset values and an inability from some funds to pay dividend series.

We have outlined some of the many California funds and sorted the screened funds by name and ticker, with prices, 52-week trading ranges, indicated dividend yield (some suspended), and by market cap.

Name (Ticker)       
Price   52-week range   Yield    Mkt Cap
BlackRock California Insured Municipal Income Trust (NYSE: BCK)
$8.50    $7.15 – $15.05    7.80%    $44.8M

BlackRock California Municipal Income Trust (NYSE: BFZ)
$8.80    $7.84 – $16.51    9.60%    $133.1M

BlackRock California Municipal Income Trust II (AMEX: BCL)
$7.90    $6.85 – $15.26    8.60%    $63.2M

BlackRock California Municipal 2018 Term Trust (NYSE: BJZ)
$11.95    $9.02 – $16.05    6.10%    $76.8M

BlackRock California Municipal Bond Trust (NYSE: BZA)
$8.65    $7.66 – $17.35    9.20%    $29.5M

Blackrock MuniYield California Fund, Inc. (NYSE: MYC)
$7.89    $6.91 – $14.00    8.30%    $168M

Eaton Vance California Municipal Income Trust (AMEX: CEV)
$6.51    $5.26 – $14.65    10.30%    $46.7M

Eaton Vance Insured California Municipal Bond Fund (AMEX: EVM)
$7.00    $6.26 – $14.94    10.60%    $151.7M

MFS California Insured Municipal Fund (AMEX: CCA)
$7.75    $7.41 – $12.45    8.40%    $21.55M

Morgan Stanley California Insured Municipal Income Trust (NYSE: IIC)
$8.69    $7.24 – $14.75    7.20%    $92.6M

Nuveen California Dividend Advantage Municipal Fund (NYSE: NAC)
$8.35    $7.55 – $14.84    8.90%    $196M

Nuveen California Investment Quality Municipal Fund Inc. (NYSE: NQC)
$8.14    $6.19 – $14.25    9.00%    $110.5M

Nuveen California Municipal Value Fund Inc. (NYSE: NCA)
$8.05    $6.05 – $9.92    7.30%    $203.2M

Nuveen California Select Quality Municipal Fund Inc. (NYSE: NVC)
$8.25    $7.00 – $14.17    10.7%    $190.8M

PIMCO California Municipal Income Fund (NYSE: PCQ)
$8.06    $7.50 – $16.65    11.20%    $145.9M   

PIMCO California Municipal Income Fund II (NYSE: PCK)
$4.69    $4.25 – $14.93    17.4%    $143.3M

Van Kampen California Value Municipal Income Trust (NYSE: VCV)
$7.14    $6.69 – $16.10    $12.1%    $156.8M

As a reminder, these dividends are high because of plummeting shareprices and the concern that the dividends will be cut off if they havenot already been altered.  Many of these dividends are in the processof being cut or delayed due to regulations on closed-end funds.  Thereis also an issue about the "insured municipal" status now that the bondinsurers are in their own crisis mode.

It is unfortunate, but many retirees and near-retirement ageindividuals own these bond funds and others as they had been buyingfunds which offer tax-free income.

The prices here are at a major inflection point.  It is similar tobeing on the verge of collapse.  If California gets some sort of itsown bailout, imagine a new "CARP" fund in Congress, then these willskyrocket.  No such plan is known.  Some of the holdings in these fundsmay now resemble the pricing of CDO’s with a range of $0.10 to $0.25 onthe dollar, but with the same problem of indications only and no buyersnor any sellers.

Jon C. Ogg
December 11, 2008

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