In light of current market conditions, has the Fund altered its hedging strategy?
As a result of the credit crunch that began in July 2007, there has been a lower correlation between changes in the value of the Fund’s portfolio holdings of preferred securities and the put options on Treasury bond futures that the Fund normally has used to hedge its preferred securities. During that time, the preferred securities holdings tended to trade more based on credit quality than on changes in interest rates as expressed in Treasury bond rates. Recently, the correlation was further reduced as investors’ flight to quality pushed Treasury bond rates downward. At the same time, the cost of hedging the Fund’s portfolio holdings has increased as short-term interest rates have dropped substantially below long-term rates and interest-rate volatility has increased. In response, throughout this period, the Fund’s investment adviser has modified its approach to hedging, which has moderated its cost to common stock shareholders. With the more severe market disruptions that began in Sept
