Couple of people said I was wrong that this fund used leverage. This fund uses a covered call strategy to enhance its dividends. So I went back to check the annual report of this fund.
From Page 2 of the Annual Report of this fund: "As of August 31, 2007, the Fund's $700 million issued and outstanding Auction Preferred Shares (APS) equaled approximately 24% of total assets and maintained a weighted average reset period of 21 days, which is comparable to what it was when the Fund's leverage was originally issued. Use of financial leverage creates an opportunity for increased capital appreciation and income but, at the same time, creates special risks (including the likelihood of greater volatility of net asset value and market price of the common shares). In the event of a rise in long-term interest rates, the value of the Fund's portfolio could decline, which would reduce the asset coverage for its APS."
I also dont find anything on the covered call strategy in the report. Rather, they use a approach called dividend capture strategy - which is basically trading to capture dividends.