Investment in KYN and other closed-end MLP infrastructure companies offer several advantages. These include less tax preparation problems and reduced paperwork. It may include diversification, depending on how large your portfolio, and can include leverage, if this is desired.

However, there are drawbacks. There are advisory fees and expenses which for KYN are running about 2.5% of NAV. The leverage enhances the yield before these expenses but not enough to cover these expenses. This is in part due to the fact that NAV includes deferred taxes and other non earning assets. NAV for KYN is about 18% higher than NAV with deferred taxes excluded. As a result the net yield for KYN and competitors appears to run about 1% point plus below the gross yield on investments before expenses.

Yet cash distributed to common stockholders has yields on market (which for KYN at 16.52 is about a
15% premium to estimated NAV of 14.41) which appear to equal or exceed that available by investing directly in the underlying MLP's. The question is how can the distribution exceed the cash operating income (which includes return of capital from the MLP's)? My conclusion is that KYN and others are factoring in non cash deferred tax benefits and financing the cash short fall with the proceeds of investors who have elected to reinvest their cash distributions. For KYN in 2008 this was 27% of total distributions to common stockholders.

The above is not meant as a critcism of KYN or competitors. An analysis of competitors would produce similar results. I would welcome any comments or corrections regarding this analysis of KYN. Clearly, an investor should try to understand an investment in a company which has a NAV about 18% higher than it earning assets and frequently sells at a premium to its NAV.