Re: "Is this very bad bet the source that ultimately caused the Dec. 2008 withholding of dividends due to the preferred stock's collateral coverage going under 200%?"

I think the primary factor was the significant decline in Municipal bond prices last fall. Leveraged funds experienced a greater decline in NAV than unleveraged funds. However, the loss on the Treasury Short position undoubtedly added to the decline in the value of the portfolio.

PCK had a similar loss from a Treasury short position. One of the reports showed a -$66.4M Short position increasing to -$77.8M in value which would have represented a loss of $11.4M.

I believe PIMCO suspended dividends on six leveraged Municipal bond funds as a result of the Preferred share asset coverage falling below 200%. The funds required a partial deleveraging before dividends could again be paid.

The next issue is whether earlier dividend levels can be maintained which would seem unlikely.