|
|
|
|
•
|
Options — The Fund writes
covered call options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked-to-market to
reflect the current market value of the option written. The Fund provides the
purchaser with the right to potentially receive a cash payment from the Fund
equal to any appreciation in the cash value of the index over the strike
price on the expiration date of the written option. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a gain or
loss on the option to the extent of the premiums received (or gain or loss to
the extent the cost of the closing transaction exceeds the premium received).
Written options are non-income producing investments.
|
|
|
|
|
|
Writing (selling) covered
call options subjects the Fund to certain additional risks. The Fund, by
writing covered call options, will forgo the opportunity to benefit from
potential increases in the value of the equity investments above the exercise
prices of the options, but will continue to bear the risk of declines in the
value of the equity investments. The premiums received from the options may
not be sufficient to offset any losses sustained from the volatility of the
equity securities over time.
|
|
|
|
|
|
The premium received from
writing options and amounts available for distribution from the Fund’s
options may decrease in declining interest rate environments. The value of the
equity investments also may be influenced by changes in interest rates.
Higher yielding equity investments and those issuers whose businesses are
substantially affected by changes in interest rates may be particularly
sensitive to interest rate risk. A summary of option transactions is found in
Note 3, Investments.
|
|
|
|
|
•
|
Financial futures contracts
— The Fund may purchase or sell financial futures contracts and options on
such financial futures contracts. Financial futures contracts are contracts
for delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund deposits,
and maintains as collateral, such initial margin as required by the exchange
on which the transaction is effected. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. With futures, there is
minimal counterparty credit risk to the Fund since futures are exchange
traded and the exchange’s clearinghouse, as counterparty to all exchange
traded futures, guarantees the futures against default.
|
|
|
|
|
•
|
Swaps — The Fund will enter
into swap agreements, which are OTC contracts in which the Fund and a
counterparty agree to make periodic net payments on a specified notional
amount. Swap contracts are subject to risk related to the creditworthiness of
the counterparty to the swap contract. In order to mitigate this risk, it is
expected that the Fund will enter into swap contracts with at least two
counterparties and only with counterparties that are rated A3 or better by
Moody’s or A– or better by S&P (or counterparties whose obligations are
guaranteed by other persons meeting such ratings), or those counterparties
determined by the Fund to be of comparable credit quality. These credit standards
do not ensure that a counterparty will not default on its obligations, if
any, to the Fund. If there is a default by a counterparty to the swap
contract, the Fund’s potential loss generally is the net amount of payments
the Fund is contractually entitled to receive for one payment period, if any.
The Fund will have contractual remedies pursuant to the swap contract, but
there is no guarantee that the Fund would be successful in pursuing them. The
Fund thus assumes the risk that it will be delayed or prevented from
obtaining payments that it is owed by a defaulting counterparty.
|
|
|
|
|
|
The swaps market is largely
unregulated. It is possible that developments in the swap market, including
potential government regulation, could adversely affect the Fund’s ability to
terminate existing swap contracts or to realize amounts to be received under
such contracts. The net payments can be made for a set period of time or may
be triggered by a pre-determined credit event. The net periodic payments may
be based on a fixed or variable interest rate; the change in market value of
a specified security, basket of securities, or index; or the return generated
by a security. Additionally, as interest rates increase, the ongoing cost of
gaining the additional exposure is expected to increase. These periodic
payments received or made by the Fund are recorded in the accompanying
Statement of Operations as realized gains or losses, respectively. Gains or
losses are also realized upon termination of the swap agreements. Swaps are
marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation).
|
|
|
|
|
|
|
Notes to Financial Statements (continued)
|
(d) Income taxes
— It is the Fund’s policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its stockholders.
Therefore, no federal income tax provision is required.
FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN 48”) requires an analysis of
tax positions taken or to be taken on a tax return and whether such positions
are “more likely than not” to be sustained upon examination based on their
technical merit. To the extent they would not be sustained, tax expense (and
related interest and penalties) would be recognized for financial statement
reporting purposes. Management has evaluated the application of FIN 48 to the
Fund, and has determined that FIN 48 does not have a material impact on the
Fund’s financial statements. The Fund files U.S. and various state tax returns.
To the best of the Fund’s knowledge, no income tax returns are currently under
examination. All tax years of the Fund are open at this time.
(e) Security transactions and investment income
— Security transactions are recorded on the
dates the transactions are entered into (the trade dates). Realized gains and
losses on security transactions are determined on the identified cost basis.
Dividend income is recorded on the ex-dividend dates. Interest is recognized on
the accrual basis. The Fund amortizes all premiums and discounts on debt
securities.
(f) Dividends and distributions
— Dividends and distributions paid by the
Fund are recorded on the ex-dividend dates. For the current period ended June
30, 2009, Fund management believes it is likely total dividends and
distributions may exceed net investment income and accumulated realized capital
gains, resulting in a portion of the total distribution treated as a tax return
of capital. A portion of the distributions paid by the Fund during the year
ended December 31, 2008 was characterized as a tax return of capital.
2. Investment Advisory and Management Agreement and
Transactions with Affiliates:
The Fund has entered into an
Investment Advisory and Management Agreement with IQ Investment Advisors LLC
(“IQ Advisors”), an indirect, wholly owned subsidiary of Merrill Lynch &
Co., Inc. (“ML & Co.”), which is a wholly owned subsidiary of Bank of
America Corporation (“Bank of America”). IQ Advisors is responsible for the
investment advisory, management and administrative services to the Fund. In
addition, IQ Advisors provides the necessary personnel, facilities, equipment
and certain other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate equal to .90% of the
average daily value of the Fund’s net assets plus borrowings for investment
purposes, but excluding any net assets attributable to leveraging transactions.
In addition, IQ Advisors has
entered into a Subadvisory Agreement with Oppenheimer Capital, LLC (the
“Subadviser”). Pursuant to the agreement, the Subadviser provides certain
investment advisory services to IQ Advisors with respect to the Fund. For such
services, IQ Advisors pays the Subadviser a monthly fee at an annual rate equal
to .40% of the average daily value of the Fund’s net assets plus borrowings for
investment purposes, but excluding any net assets attributable to leveraging
transactions. There is no increase in the aggregate fees paid by the Fund for
these services.
IQ Advisors has entered into
an Administration Agreement with Princeton Administrators, LLC (the
“Administrator”). The Administration Agreement provides that IQ Advisors pays
the Administrator a fee from its investment advisory fee at an annual rate
equal to .12% of the average daily value of the Fund’s net assets plus borrowings
for investment purposes, but excluding any net assets attributable to
leveraging transactions for the performance of administrative and other
services necessary for the operation of the Fund. There is no increase in the
aggregate fees paid by the Fund for these services. The Administrator is an
indirect subsidiary of BlackRock, Inc. (“BlackRock”). ML & Co. has a
substantial financial interest in BlackRock.
Certain officers of the Fund
are officers and/or directors of IQ Advisors and/or ML & Co. or their
affiliates.
|
|
|
|
|
|
ENHANCED S&P 500
®
COVERED CALL FUND INC.
|
JUNE 30, 2009
|
19
|
|
|
|
|
|
|
Notes to Financial Statements (concluded)
|
3. Investments:
Purchases and sales of
investments, excluding short-term securities, for the six months ended June 30,
2009, were $1,600,709 and $11,208,508, respectively.
Transactions in call options
written for the six months ended June 30, 2009,were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Contracts
|
|
Premiums
Received
|
|
|
|
|
|
|
|
|
Outstanding
call options written, beginning of period
|
|
|
777
|
|
$
|
2,525,879
|
|
|
Options written
|
|
|
4,875
|
|
|
14,478,045
|
|
|
Options
closed
|
|
|
(3,357
|
)
|
|
(9,954,736
|
)
|
|
Options expired
|
|
|
(1,594
|
)
|
|
(5,610,540
|
)
|
|
|
|
|
|
|
|
|
|
|
Outstanding call options
written, end of period
|
|
|
701
|
|
$
|
1,438,648
|
|
|
|
|
|
|
|
|
|
|
4. Common Stock Transactions:
The Fund is authorized to
issue 100,000,000 shares of capital stock, par value $.001 per share, all of
which were initially classified as Common Stock. The Board of Directors is
authorized, however, to classify and reclassify any unissued shares of Common
Stock without approval of the holders of Common Stock.
Subject to the approval of
the Board of Directors, the Fund will make offers to repurchase its shares at
annual (approximately 12-month) intervals. The shares tendered in the
repurchase offer will be subject to a repurchase fee retained by the Fund to
compensate the Fund for expenses directly related to the repurchase offer.
Shares issued and outstanding
for the six months ended June 30, 2009 increased by 144,470 from dividend
reinvestment. Shares issued and outstanding for the year ended December 31,
2008, increased by 88,147 from dividend reinvestment and decreased by 456,548
as a result of a repurchase offer.
With regard to repurchase
fees, IQ will reimburse the Fund for the cost of expenses paid in excess of 2%
of the value of the shares that are repurchased.
5. Capital Loss Carryforward:
As of December 31, 2008, the
Fund had a net capital loss carryforward of $68,445,313, all of which expires
in 2016. This amount will be available to offset like amounts of any future
taxable gains.
|
|
|
|
|
|
20
|
ENHANCED S&P 500
®
COVERED
CALL FUND INC.
|
JUNE 30, 2009
|
|
|
|
|
|
|
Fundamental Periodic Repurchase Policy
|
The Board of Directors
approved a fundamental policy whereby the Fund would adopt an “interval fund”
structure pursuant to Rule 23c-3 under the Investment Company Act of 1940, as
amended (the “1940 Act”). As an interval fund, the Fund will make annual
repurchase offers at net asset value (less repurchase fee not to exceed 2%) to
all Fund stockholders. The percentage of outstanding shares that the Fund can
repurchase in each offer will be established by the Fund’s Board of Directors
shortly before the commencement of each offer, and will be between 5% and 25%
of the Fund’s then outstanding shares.
The Fund has adopted the
following fundamental policy regarding the periodic repurchases:
a) The Fund will make offers
to repurchase its shares at annual (approximately once every 13 months)
intervals pursuant to Rule 23c-3 under the 1940 Act (“Offers”). The Board of
Directors may place such conditions and limitations on an Offer as may be
permitted under Rule 23c-3.
b) The repurchase request
deadline, by which the Fund must receive repurchase requests submitted by
stockholders in response to the most recent offer, will be determined by
reference to the maturity date of the swap contracts that comprise the Fund’s
leveraging transactions (as described in the Fund’s prospectus) for each annual
period, and will be the fourteenth day prior to such maturity date; provided
that in the event that such day is not a business day, the repurchase request
deadline will be the business day subsequent to the fourteenth day prior to the
maturity date of the swap contracts (the “Repurchase Request Deadline”).
c) The maximum number of days
between a Repurchase Request Deadline and the next repurchase pricing date will
be fourteen days; provided that if the fourteenth day after a Repurchase
Request Deadline is not a business day, the repurchase pricing date shall be
the next business day (the “Repurchase Pricing Date”).
d) Offers may be suspended or
postponed under certain circumstances, as provided for in Rule 23c-3.
|
|
|
|
|
|
ENHANCED
S&P 500
®
COVERED CALL FUND INC.
|
JUNE 30, 2009
|
21
|
|
|
|
|
|
|
Availability of Quarterly Schedule of Investments
|
The Fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission
(“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The
Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov. The
Fund’s Forms N-Q may also be reviewed and copied at the SEC’s Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
The Fund offers electronic
delivery of communications to its stockholders. In order to receive this
service, you must register your account and provide us with e-mail information.
To sign up for this service, simply access this website at
http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you
will obtain a personal identification number (PIN). You will need this PIN
should you wish to update your e-mail address, choose to discontinue this
service and/or make any other changes to the service. This service is not
available for certain retirement accounts at this time.
For more information
regarding the Fund, please visit www.IQIAFunds.com or contact us at
1-877-449-4742.
|
|
|
|
|
|
22
|
ENHANCED S&P 500
®
COVERED
CALL FUND INC.
|
JUNE 30, 2009
|
|
|
|
|
|
www.IQIAFunds.com
|
Enhanced S&P 500
®
Covered
Call Fund Inc. seeks to provide leveraged returns on the CBOE S&P 500
®
BuyWrite Index
SM
less fees and expenses.
This report, including the
financial information herein, is transmitted to stockholders of Enhanced
S&P 500
®
Covered Call Fund Inc. for their information. It is not
a prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Statements and other
information herein are as dated and are subject to change.
A description of the policies
and procedures that the Fund uses to determine how to vote proxies relating to
portfolio securities is available without charge at www.IQIAFunds.com/proxyvoting.asp
or upon request by calling toll-free 1-877-449-4742 or through the Securities
and Exchange Commission’s website at http://www.sec.gov. Information about how
the Fund voted proxies relating to securities held in the Fund’s portfolio during
the most recent 12-month period ended June 30 is available (1) at
www.IQIAFunds.com/proxyvoting.asp; and (2) on the Securities and Exchange
Commission’s website at http://www.sec.gov.
Enhanced S&P 500
®
Covered
Call Fund Inc.
2 World Financial Center, 7th Floor
New York, NY 10281
|
Item 2 –
|
Code of Ethics – Not Applicable to this semi-annual report
|
|
|
|
|
Item 3 –
|
Audit Committee Financial Expert – Not Applicable to this semi-annual report
|
|
|
|
|
Item 4 –
|
Principal Accountant Fees and Services – Not Applicable to this semi-annual report
|
|
|
|
|
Item 5 –
|
Audit Committee of Listed Registrants – Not Applicable to this semi-annual report
|
|
|
|
|
Item 6 –
|
Investments
|
|
|
(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.
|
|
|
(b) Not Applicable since no such divestments occurred during the semi-annual period covered since the last report on Form N-CSR.
|
|
|
|
|
Item 7 –
|
Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – Not Applicable to this semi-annual report
|
|
|
|
|
Item 8 –
|
Portfolio Managers of Closed-End Management Investment Companies – Not Applicable to this semi-annual report
|
|
|
|
|
Item 9 –
|
Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not Applicable
|
|
|
|
|
Item 10 –
|
Submission of Matters to a Vote of Security Holders – The registrant’s Nominating Committee will consider nominees to the board of directors recommended by shareholders when a vacancy becomes available. Shareholders who wish to recommend a nominee should send nominations that include biographical information and set forth
the qualifications of the proposed nominee to the registrant’s Secretary. There have been no material changes to these procedures.
|
|
|
|
|
Item 11 –
|
Controls and Procedures
|
|
|
|
|
11(a) –
|
The registrant’s principal executive and principal financial officers or persons performing similar functions have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date
within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended.
|
|
|
|
|
11(b) –
|
There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal
control over financial reporting.
|
|
|
|
|
Item 12 –
|
Exhibits attached hereto
|
|
|
|
|
12(a)(1) –
|
Code of Ethics – Not Applicable to this semi-annual report
|
|
|
|
|
12(a)(2) –
|
Certifications – Attached hereto
|
|
|
|
|
12(a)(3) –
|
Not Applicable
|
|
|
|
|
12(b) –
|
Certifications – Attached hereto
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
Enhanced S&P 500
®
Covered Call Fund Inc.
|
|
|
|
|
|
By:
|
/s/ Justin C. Ferri
|
|
|
|
|
Justin C. Ferri
|
|
|
|
Chief Executive Officer of
|
|
|
|
Enhanced S&P 500
®
Covered Call Fund Inc.
|
|
|
|
|
|
Date: August 20, 2009
|
|
|
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
By:
|
/s/ Justin C. Ferri
|
|
|
|
|
Justin C. Ferri
|
|
|
|
Chief Executive Officer (principal executive officer) of
|
|
|
|
Enhanced S&P 500
®
Covered Call Fund Inc.
|
|
|
|
|
|
Date: August 20, 2009
|
|
|
|
|
|
By:
|
/s/ James E. Hillman
|
|
|
|
|
James E. Hillman
|
|
|
|
Chief Financial Officer (principal financial officer) of
|
|
|
|
Enhanced S&P 500
®
Covered Call Fund Inc.
|
|
|
|
|
|
Date: August 20, 2009
|
Enhanced S & P CV Call (NYSE:BEO)
Historical Stock Chart
From May 2024 to Jun 2024
Enhanced S & P CV Call (NYSE:BEO)
Historical Stock Chart
From Jun 2023 to Jun 2024
