Generally CEFs trade at a discount to their NAV. Many use leverage to amplify their yields but this can be detrimental if interest rates rise.

Taxes

Part of the taxes are at interest level whereas other parts are the dividend level. This is good news since some of the dividends may be taxed at the 15% level. The preferred provider should have the tax information on their website.

Risks

The risks abound.

Interest rates
Hedging strategy risk
Credit risk
Liquidity risk
Leverage risk
Securities lending risk
Industry concentration risk
Preferred securities risk
Credit securities risk
Debt securities risk
Credit derivatives risk
Market discount risk
Management risk
Below investment grade securities risk
Conversion risk
Anti-takeover provisions
Market disruption
Inflation risk
Deflation risk
Tax risk
Foreign security risk
Portfolio turnover risk

Risk is inherent in all investing. Investing in any investment company security involves risk, including the risk that you may receive little or no return on your investment or even that you may lose part or all of your investment. Therefore, before buying shares of the Fund you should consider carefully the following risks that you assume when you invest in shares of the Fund’s Common Stock:

Interest Rate Risk. Fixed income securities typically decline in value when correlated interest rates rise and increase in value when correlated interest rates fall. Changes in the level of long-term interest rates are expected to affect the value of the Fund’s portfolio holdings of fixed rate securities and, under certain circumstances, its holdings of adjustable rate securities. Subject to certain limitations described herein, the Fund currently anticipates hedging, from time to time, some or all of its holdings of fixed rate and adjustable rate securities, for the purposes of (1) protecting against declines in value attributable to significant increases in long-term interest rates and (2) providing increased income in the event of significant increases in long-term interest rates while maintaining the Fund’s relative resistance to a reduction in income in the event of declines in long-term interest rates. There can be no guarantee that such hedging strategies will be successful. Significant changes in the interest rate environment, as well as other factors, may cause the Fund’s holdings of preferred and debt securities to be redeemed by the issuers, thereby reducing the Fund’s holdings of higher income-paying securities at a time when the Fund may be unable to acquire other securities paying comparable income rates with the redemption proceeds. In addition to fluctuations due to changes in long-term interest rates, the value of the Fund’s holdings of preferred securities, and, as a result, the Fund’s net asset value, may also be affected by other market and credit factors, as well as by actual or anticipated changes in tax laws.

Hedging Strategy Risk. Certain of the investment techniques that the Fund may employ for hedging or, under certain circumstances, to increase income or total return will expose the Fund to risks. There are economic costs of hedging reflected in the pricing of futures, swaps, options, swaption contracts, and credit derivatives which can be significant. There may be an imperfect correlation between changes in the value of the Fund’s portfolio holdings and hedging positions entered into by the Fund, which may prevent the Fund from achieving the intended hedge or expose the Fund to risk of loss. In addition, the Fund’s success in using hedge instruments is subject to the Adviser’s ability to predict correctly changes in the relationships of such hedge instruments to the Fund’s portfolio holdings, and there can be no assurance that the Adviser’s judgment in this respect will be accurate. In addition to the hedging techniques described elsewhere, i.e., positions in Treasury Bond or Treasury Note futures contracts, use of options on these positions, positions in interest rate swaps and options thereon (”swaptions”), and positions in credit derivatives, such investment techniques may include entering into interest rate and stock index futures contracts and options on interest rate and stock index futures contracts, purchasing and selling put and call options on securities and stock indices, purchasing and selling securities on a when-issued or delayed delivery basis, entering into repurchase agreements, lending portfolio securities and making short sales of securities “against the box.” The Fund intends to comply with regulations of the Securities and Exchange Commission (and with the limitations of the Fund’s credit rating agencies in connection with the Fund’s leverage) involving “covering” or segregating assets in connection with the Fund’s use of options, futures and other derivatives contracts.

Credit Risk. Credit risk is the risk that an issuer of a preferred or debt security will become unable to meet its obligation to make dividend, interest and principal payments. In general, lower rated preferred or debt securities carry a greater degree of credit risk. If rating agencies lower their ratings of preferred or debt securities in the Fund’s portfolio, the value of those obligations could decline, which could jeopardize the rating agencies’ ratings of Fund Preferred Shares. In addition, the underlying revenue source for a preferred or debt security may be insufficient to pay dividends, interest or principal in a timely manner. Because the primary source of income for the Fund is the dividend, interest and principal payments on the preferred or debt securities in which it invests, any default by an issuer of a preferred or debt security could have a negative impact on the Fund’s ability to pay dividends on Common Stock. Even if the issuer does not actually default, adverse changes in the issuer’s financial condition may negatively affect its credit rating or presumed creditworthiness. These developments would adversely affect the market value of the issuer’s obligations or the value of credit derivatives if the Fund has sold credit protection.

Securities Lending Risk. Counterparty risk on the securities lending side of the transaction exists. Although risk is limited since the loan is collateralized by cash, the Fund could suffer losses if the counterparty fails to return securities that have risen in value. There is also investment risk on the proceeds from the securities loans: These monies are invested in short-term investments, and if those investments lose value, the Fund will still owe the amount borrowed.

Liquidity Risk. The Fund intends to invest in securities and derivatives contracts with varying degrees of market liquidity and may invest up to 20% of its total assets in illiquid securities. Preferred securities may be substantially less liquid than many other securities such as Government Securities, corporate debt, or common stocks. At any particular time, a preferred security may not be actively traded in the secondary market, even though it may be listed on the New York Stock Exchange or other securities exchange. Many preferred securities currently outstanding are listed on the New York Stock Exchange, although secondary market transactions in preferred securities are frequently effected in the over-the-counter market, even in those preferred securities that are listed. Over-the-counter derivatives contracts, including credit derivatives, also may be substantially less liquid than many other securities such as Government Securities, corporate debt or common stocks. They are not traded on an exchange, may not be actively traded, and are individual contracts between counterparties. The prices of illiquid securities and the market-to-market values of illiquid derivatives contracts may be more volatile than more actively traded securities or derivatives due to a variety of factors, such as there being fewer active buyers and sellers and the lower frequency of trading. The absence of a liquid secondary market may adversely affect the ability of the Fund to buy or sell its preferred securities or derivatives holdings at the times and prices desired and the ability of the Fund to determine its net asset value.

Leverage Risk. The Fund’s use of leverage through the issuance of Fund Preferred Shares creates an opportunity for increased Common Stock net income, but also creates special risks for Common Stockholders. There is no assurance that the Fund’s leveraging strategy will be successful. Risks affecting the Fund’s net asset value are magnified. If the Fund’s current net investment income and capital gains are not sufficient to meet dividend requirements on outstanding Fund Preferred Shares, the Fund may need to liquidate certain of its investments, thereby possibly reducing the net asset value attributable to the Common Stock. In addition, failure to meet required asset coverage requirements for Fund Preferred Shares to satisfy certain guidelines established by the rating agencies may result in mandatory partial or full redemptions of Fund Preferred Shares, which would reduce or eliminate the Fund’s leverage and could also adversely affect distributions to holders of the Common Stock. Such redemptions may also cause the Fund to incur additional transaction costs, including costs associated with the sale of portfolio securities.

Leverage creates two additional major types of risks for Common Stockholders:

* The likelihood of greater volatility of net asset value and market price of Common Stock because changes in the value of the Fund’s portfolio are borne entirely by the Common Stockholders; and
* The possibility either that Common Stock income will fall if the dividend rate on the Fund Preferred Shares or the interest rate on any borrowings rises, or that Common Stock income will fluctuate because the dividend rate on the Fund Preferred Shares or the interest rate on any borrowings varies.

When the Fund is utilizing leverage, the fees paid to the Adviser and other service providers will be higher than if the Fund did not utilize leverage because the fees paid will be calculated based on the Fund’s managed assets (which include the liquidation preference on any Fund Preferred Shares and the principal amount of any borrowings used for leverage).

Industry Concentration Risk. The Fund concentrates its investments in the utilities and banking industries. As a result, the Fund’s investments may be subject to greater risk and market fluctuation than a fund that had securities representing a broader range of investment alternatives. Banks and utilities are subject to such risks as changes in law, regulatory policies or accounting standards, regulatory restrictions, increased competition and general economic and political conditions.

Preferred Securities Risk. In addition to credit risk, investment in preferred securities carries certain risks including:

* Deferral Risk-Traditional preferreds contain provisions that allow an issuer, under certain conditions, to skip (in the case of “noncumulative” preferreds) or defer (in the case of “cumulative” preferreds) dividend payments. Fully taxable or hybrid preferred securities typically contain provisions that allow an issuer, at its discretion, to defer distributions for up to 20 consecutive quarters. If the Fund owns a preferred security that is deferring its distributions, the Fund may be required to report income for tax purposes while it is not receiving any income.
* Redemption Risk-Preferred securities typically contain provisions that allow for redemption in the event of tax or security law changes in addition to call features at the option of the issuer. In the event of redemption, the Fund may not be able to reinvest the proceeds at comparable rates of return.
* Limited Voting Rights-Preferred securities typically do not provide any voting rights, except in cases when dividends are in arrears beyond a certain time period, which varies by issue.
* Subordination-Preferred securities are subordinated to bonds and other debt instruments in a company’s capital structure in terms of priority to corporate income and liquidation payments, and therefore will be subject to greater credit risk than those debt instruments.
Liquidity-Preferred securities may be substantially less liquid than many other securities, such as U.S. government securities, corporate debt or common stock.

Debt Securities Risk. In addition to credit risk, investment in debt securities carries certain risks including:

* Redemption Risk-Debt securities may contain provisions that allow for redemption in the event of tax or security law changes in addition to call features at the option of the issuer. In the event of redemption, the Fund may not be able to reinvest the proceeds at comparable rates of return.
* Limited Voting Rights-Debt securities typically do not provide any voting rights, except in cases when interest payments have not been made and the issuer is in default.
* Liquidity-Debt securities may be substantially less liquid than many other securities, such as U.S. government securities or common stocks.

Credit Derivatives Risk. In addition to credit risk, investment in credit derivatives carries certain risks including:

* Counterparty Risk-Credit derivatives are contracts between a buyer and a seller (the counterparties) of credit protection. While credit derivatives are collateralized, there is risk that a counterparty will fail to make payments due under the terms of the contract at a time when there is insufficient collateral to compensate the Fund for the full value of the contract.
* No Voting Rights-Credit derivatives do not provide any voting rights, although the delivery of an underlying reference obligation may provide such rights.
* Liquidity-Credit derivatives may be substantially less liquid than many other securities, such as U.S. government securities, corporate debt, or common stocks.

Market Discount Risk. As with any stock, the price of the Fund’s shares will fluctuate with market conditions and other factors. Shares of closed-end investment companies frequently trade at discounts from net asset value. This characteristic of shares of a closed-end fund is a risk separate and distinct from the risk that the fund’s net asset value may decrease. The Fund cannot predict whether the Common Stock will trade at, above or below net asset value. The Common Stock is designed for long-term investors and should not be treated as a trading vehicle. For those investors, realization of gain or loss on their investment is likely to be more dependent upon the existence of a premium or discount than upon portfolio performance.

Management Risk. The Fund is subject to management risk because it is an actively managed portfolio. The Adviser will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired results.

Lower-rated Securities Risk. The Fund may invest up to 25% of its total assets in its holdings of securities rated below investment grade at the time of purchase or judged to be comparable in quality at the time of purchase. Lower rated preferred or debt securities, or equivalent unrated securities, which are commonly known as “junk bonds,” generally involve greater volatility or price and risk of loss of income and principal, and may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade securities. It is reasonable to expect that any adverse economic conditions could disrupt the market for lower-rated securities, have an adverse impact on the value of those securities, and adversely affect the ability of the issuers of those securities to repay principal, dividends and interest on those securities.

Conversion Risk. Under the Fund’s Bylaws, if at any time shares of the Common Stock publicly trade for a substantial period of time at a significant discount from the Fund’s then current net asset value per share, the Board of Directors of the Fund is obligated to consider taking various actions designed to reduce or eliminate the discount, including recommending to shareholders amendments to the Fund’s Articles of Incorporation (together with any amendments or supplements thereto, including any articles supplementary, the “Articles” or “Articles of Incorporation”) to convert the Fund to an open-end investment company, which would result in the redemption of Fund Preferred Shares then outstanding and the potential subsequent sale of Fund assets during unfavorable market conditions. In addition, the Board may consider taking actions designed to eliminate the discount whenever it deems it to be appropriate.

Anti-Takeover Provisions. The Fund’s Articles of Incorporation and Bylaws include provisions that could have the effect of inhibiting the Fund’s possible conversion to open-end status and limiting the ability of other entities or persons to acquire control of the Fund’s Board of Directors. In certain circumstances, these provisions might also inhibit the ability of shareholders to sell their shares at a premium over prevailing market prices.

Market Disruption. As a result of the terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001, some of the U.S. securities markets were closed for a four-day period. These terrorist attacks and related events have led to increased short-term market volatility and may have long-term effects on U.S. and world economies and markets. A similar disruption of the financial markets could impact interest rates, auctions, secondary trading, ratings, credit risk, inflation and other factors relating to the Common Stock.

Inflation Risk. Inflation risk is the risk that the value of assets or income from the Fund’s investments will be worth less in the future as inflation decreases the value of payments at future dates.

Deflation Risk. Deflation risk is the risk that the Fund’s dividends may be reduced in the future as deflation reduces interest rates in general, resulting in higher-yielding assets owned by the Fund being redeemed by their issuers.

Tax Risk. Future changes in tax law or regulation could adversely affect the Fund and its portfolio holdings, including their valuation, which could negatively impact the Fund’s shareholders and distributions they receive from the Fund. Tax changes can be given retroactive effect.

Foreign Security Risk. The prices of foreign securities may be affected by factors not present with U.S. securities, including currency exchange rates, political and economic conditions, less stringent regulation and higher volatility. As a result, many foreign securities may be less liquid and more volatile than U.S. securities.

Portfolio Turnover Risk. The techniques and strategies contemplated by the Fund might result in a high degree of portfolio turnover. The Fund cannot accurately predict its securities portfolio turnover rate, but anticipates that its annual portfolio turnover rate will not exceed 150% under normal market conditions, although it could be materially higher under certain conditions. Higher portfolio turnover rates could result in corresponding increases in brokerage commissions and generate short-term capital gains taxable as ordinary income.