In an attempt to assuage investor fears, Nuveen Investments' held a conference call on Wednesday to discuss price swings in their closed-end municipal funds.

What is the cause of the volatility? William Adams, executive vice president of the US Fund Products group, attributed the volatility to a real likelihood that the long-term interest rate will rise, due to positive job data, growing momentum of the U.S. economy and recent remarks of Federal Reserve Chairman Alan Greenspan.

Adams and William M. Fitzgerald, managing director of Nuveen Asset Management, spent most of the call putting the volatility into context, explaining the firm's strategy for reducing exposure to rising interest rates, and stressing that managers would remain consistent with stated strategies.

Another oft-repeated theme was directing investors to their website for further information.

"Our experience tells us that in the short run, share prices will go up and down in response to trading imbalances, emotion, and real or perceived views about interest rate trends" said Adams early on in the call.

Adams said that share prices were dropping out-of-proportion to declines in net asset value of the funds. The average share prices of municipal exchange-traded funds declined 11.3 percent, while the net asset value declined four percent.

During the drop in prices, Adams stressed that the company did not change its fundamental strategy, said Adams. Nuveen experienced no material increase in the cost of leverage, portfolio earnings, compensation or monthly dividend level, stressed Adams.

Of 98 funds, 88 of the firm's funds are municipal closed-end funds. Only 10 of those 88 are unleveraged.

Adams also countered that Nuveen is taking measures to ensure that the funds live up to their promise to long-term, tax-free income-seeking investors.

The firm is lowering its average bond durations and purchasing high coupon bonds that are close to call dates. The firm is also counting on reserves of undistributed dividends in 79 of the 88 leveraged funds to help maintain a steady future dividend stream.

So far, the firm is steering clear of using derivatives as an investment hedge. Fitzgerald said that derivatives translate to more risk, high correlation with taxable markets, and do not offer the "perfect hedge" with municipal bonds.

That Nuveen had an explanatory call was "fairly unusual" but "something necessary…in these times" said closed-end muni analyst Mariana Bush, at Wachovia Securities. Bush added that the call was probably directed towards investors and brokers, rather than analysts. 

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