Since inception this thing distributed $2.10 per share which was too high and resulted in reducing NAV. Early this year the distribution was reduced to $0.60 which is much more appropriate and sustainable from dividends and interest - no more selling down in order to pay distribution.
When they lowered the distribution the fund got killed by nervous retail investors and the discount to NAV has yet to recover.
The fund is relatively low cost, invests in good quality dividend paying stocks and convertibles, and has no debt. They also sell out-of-the-money calls, which can be a drag in a rapidly rising market but surprisingly has not hurt their NAV performance vs. S&P500 the last few months. In a flatter market the call selling should provide a little boost.
Bottom line, there is no logical reason for the 20% discount and eventually it will correct to below 10%.
The 6/09 income for 6 months is .33 I don't see an increase in the dividend soon. Even though the NAV is high, with a 4% payout it is not likley that there will be much of an increase in PPS until the dividend is raised. This may take a while.
If this fund writes call options, the income from that is considered a capital gain, not income. Thus, any pass-through of income from options premiums would be classified as a "return of capital". It's an accounting classification.
If a fund didn't collect options premiums, then a return of capital would be a real return of capital - about which you're right to be concerned.