-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Io6qKqup5sDshl1W7GGDOCVDJtoPlkBokoMMXJr7bGAqHp5Of4HIT/Otr5Ym/kVe EY/km++3fdB+xZjlk+fvnw== 0001193805-07-002312.txt : 20070905 0001193805-07-002312.hdr.sgml : 20070905 20070905124459 ACCESSION NUMBER: 0001193805-07-002312 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070905 DATE AS OF CHANGE: 20070905 EFFECTIVENESS DATE: 20070905 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Enhanced S&P 500 Covered Call Fund Inc. CENTRAL INDEX KEY: 0001331948 IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 0606 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-21787 FILM NUMBER: 071098964 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL ROAD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 609-282-1212 MAIL ADDRESS: STREET 1: 800 SCUDDERS MILL ROAD CITY: PLAINSBORO STATE: NJ ZIP: 08536 FORMER COMPANY: FORMER CONFORMED NAME: Enhanced SYP 500 Covered Call Fund, Inc. DATE OF NAME CHANGE: 20050630 N-CSRS 1 e602573_ncsrs-iqenhcovcall.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-21787 Name of Fund: Enhanced S&P 500(R) Covered Call Fund Inc. Fund Address: P.O. Box 9011 Princeton, NJ 08543-9011 Name and address of agent for service: Mitchell M. Cox, Chief Executive Officer, Enhanced S&P 500(R) Covered Call Fund Inc., 4 World Financial Center, 6th Floor, New York, New York 10080. Registrant's telephone number, including area code: (212) 449-4742 Date of fiscal year end: 12/31/07 Date of reporting period: 01/01/07 - 06/30/07 Item 1 - Report to Stockholders Enhanced S&P 500(R) Covered Call Fund Inc. Semi-Annual Report (Unaudited) June 30, 2007 [LOGO] IQ INVESTMENT ADVISORS [LOGO] Oppenheimer Capital Enhanced S&P 500(R) Covered Call Fund Inc. Proxy Results During the six-month period ended June 30, 2007, the shareholders of Enhanced S&P 500(R) Covered Call Fund Inc. voted on the following proposal, which was approved at an annual shareholders' meeting on April 27, 2007. A description of the proposal and number of shares voted are as follows:
- ----------------------------------------------------------------------------------------------------- Shares Voted Shares Withheld For From Voting - ----------------------------------------------------------------------------------------------------- To elect the Fund's Board of Directors: Paul Glasserman 7,801,774 141,180 Steven W. Kohlhagen 7,803,716 139,238 William J. Rainer 7,803,716 139,238 - -----------------------------------------------------------------------------------------------------
Directors and Officers William J. Rainer, Director and Chairman of the Board Paul Glasserman, Director and Chairman of the Audit Committee Steven W. Kohlhagen, Director and Chairman of the Nominating and Corporate Governance Committee Donald C. Burke, Vice President and Secretary Martin G. Byrne, Chief Legal Officer Mitchell M. Cox, President Justin C. Ferri, Vice President Jay M. Fife, Vice President James E. Hillman, Vice President and Treasurer Catherine A. Johnston, Chief Compliance Officer Colleen R. Rusch, Vice President Custodian State Street Bank and Trust Company P.O. Box 351 Boston, MA 02101 Transfer Agent The Bank of New York 101 Barclay Street -- 11 East New York, NY 10286 NYSE Symbol BEO S&P 500 and Standard & Poor's 500 are registered trademarks of the McGraw-Hill Companies. 2 ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 Portfolio Information As of June 30, 2007 Percent of Ten Largest Equity Holdings Net Assets - -------------------------------------------------------------------------------- Exxon Mobil Corp. ...................................................... 2.7% General Electric Co. ................................................... 2.3 AT&T Inc. .............................................................. 1.5 Citigroup, Inc. ........................................................ 1.5 Microsoft Corp. ........................................................ 1.4 Bank of America Corp. .................................................. 1.3 The Procter & Gamble Co. ............................................... 1.1 American International Group, Inc. ..................................... 1.1 Chevron Corp. .......................................................... 1.1 Pfizer, Inc. ........................................................... 1.0 - -------------------------------------------------------------------------------- Percent of Five Largest Industries Net Assets - -------------------------------------------------------------------------------- Oil, Gas & Consumable Fuels ............................................ 6.6% Pharmaceuticals ........................................................ 4.9 Diversified Financial Services ......................................... 3.9 Insurance .............................................................. 3.7 Industrial Conglomerates ............................................... 3.1 - -------------------------------------------------------------------------------- S&P 500(R) Index Sector Weightings Percent of Total on Common Stock Long-Term Investments - -------------------------------------------------------------------------------- Financials ............................................................. 20.9% Information Technology ................................................. 15.4 Health Care ............................................................ 11.7 Industrials ............................................................ 11.4 Energy ................................................................. 10.7 Consumer Discretionary ................................................. 10.2 Consumer Staples ....................................................... 9.3 Telecommunication Services ............................................. 3.7 Utilities .............................................................. 3.6 Materials .............................................................. 3.1 - -------------------------------------------------------------------------------- For Fund portfolio compliance purposes, the Fund's industry and sector classifications refer to any one or more of the industry and sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine such industry and sector sub-classifications for reporting ease. ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 3 A Discussion With Your Fund's Portfolio Manager We are pleased to provide you with this shareholder report for Enhanced S&P 500(R) Covered Call Fund Inc. While the Fund is advised by IQ Investment Advisors LLC, the following discussion is provided by Oppenheimer Capital LLC, the Fund's subadviser. The investment objective of Enhanced S&P 500(R) Covered Call Fund Inc. (the "Fund") is to seek leveraged returns on the Chicago Board Options Exchange ("CBOE(R)") S&P 500(R) Buywrite Index(SM) (the "BXM(SM) Index"), less fees and expenses. How did the Fund perform during the six-month period? For the six-month period ended June 30, 2007, the Common Stock of the Fund had a total investment return of +3.61%, based on a change in per share net asset value from $18.99 to $18.58, and assuming reinvestment of distributions paid during the period ($1.10). During the same period, the Fund's unmanaged reference index, the BXM Index, returned +3.76%. It is not possible to make a direct investment in the BXM Index. For more detail with regard to the Fund's total investment return based on a change in per share market value of the Fund's Common Stock (as measured by the trading price of the Fund's shares on the New York Stock Exchange), and assuming reinvestment of dividends, please refer to the Financial Highlights section of this report. As a closed-end fund, the Fund's shares may trade in the secondary market at a premium or a discount to the Fund's net asset value. As a result, total investment returns based on changes in the market value of the Fund's Common Stock can vary significantly from total investment returns based on changes in the Fund's net asset value. How did you manage the portfolio during the six-month period? The Fund owns a portfolio of stocks invested to substantially replicate the S&P 500 Index and/or other investments that have economic characteristics similar to the securities that comprise the S&P 500 Index. The Fund also sells one-month, at-the-money S&P 500 Index call options. Options are sold the third Friday of every month and cash-settled at expiration. Because the options are written at-the-money, the Fund forgoes any appreciation in the S&P 500 Index above the strike price on the portion of the portfolio subject to the written calls. If the S&P 500 Index settles above the strike price, the Fund will satisfy its obligations through cash settlement. If the S&P 500 Index settles below the strike price of the option, the Fund retains the entire option premium. In addition to the option positions, we frequently rebalance our underlying S&P 500 Index individual stock positions to ensure that the weight of each individual security in the Fund continuously matches its weight in the S&P 500 Index. In addition, the Fund has entered into a total return swap as part of the Fund's investment strategy to provide additional exposure to the BXM Index. How would you characterize the portfolio's position at the close of the period? The Fund is poised to deliver its stated goals of providing leveraged returns to the BXM Index. Because the index is a passive strategy, we consider our processes and positions to be precise and accurate. We believe that the portfolio is positioned to meet its objectives. Stephen Bond-Nelson Portfolio Manager July 13, 2007 CBOE, Volatility Index and VIX are registered trademarks and BXM is a service mark of the Chicago Board Options Exchange. 4 ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 Schedule of Investments as of June 30, 2007 (Unaudited)
Shares Industry Common Stocks Held Value ====================================================================================================== Aerospace & Defense -- 2.1% Boeing Co. 7,749 $ 745,144 General Dynamics Corp. 3,985 311,707 Goodrich Corp. 1,228 73,140 Honeywell International, Inc. 7,674 431,893 L-3 Communications Holdings, Inc. 1,231 119,887 Lockheed Martin Corp. 3,494 328,890 Northrop Grumman Corp. 3,398 264,602 Precision Castparts Corp. 1,354 164,321 Raytheon Co. 4,370 235,499 Rockwell Collins, Inc. 1,648 116,415 United Technologies Corp. 9,787 694,192 ------------ 3,485,690 - ------------------------------------------------------------------------------------------------------ Air Freight & Logistics -- 0.7% CH Robinson Worldwide, Inc. 1,686 88,549 FedEx Corp. 3,030 336,239 United Parcel Service, Inc. Class B 10,424 760,952 ------------ 1,185,740 - ------------------------------------------------------------------------------------------------------ Airlines -- 0.1% Southwest Airlines Co. 7,685 114,583 - ------------------------------------------------------------------------------------------------------ Auto Components -- 0.2% The Goodyear Tire & Rubber Co. (a) 2,031 70,598 Johnson Controls, Inc. 1,942 224,825 ------------ 295,423 - ------------------------------------------------------------------------------------------------------ Automobiles -- 0.3% Ford Motor Co. 18,504 174,308 General Motors Corp. 5,567 210,433 Harley-Davidson, Inc. 2,535 151,111 ------------ 535,852 - ------------------------------------------------------------------------------------------------------ Beverages -- 1.6% Anheuser-Busch Cos., Inc. 7,478 390,052 Brown-Forman Corp. Class B 777 56,783 The Coca-Cola Co. 19,778 1,034,587 Coca-Cola Enterprises, Inc. 2,746 65,904 Constellation Brands, Inc. Class A (a) 1,902 46,181 Molson Coors Brewing Co. Class B 467 43,179 Pepsi Bottling Group, Inc. 1,296 43,649 PepsiCo, Inc. 16,032 1,039,675 ------------ 2,720,010 - ------------------------------------------------------------------------------------------------------ Biotechnology -- 0.9% Amgen, Inc. (a) 11,414 631,080 Biogen Idec, Inc. (a) 2,812 150,442 Celgene Corp. (a) 3,740 214,414 Genzyme Corp. (a) 2,587 166,603 Gilead Sciences, Inc. (a) 9,192 356,374 ------------ 1,518,913 - ------------------------------------------------------------------------------------------------------ Building Products -- 0.1% American Standard Cos., Inc. 1,731 102,094 Masco Corp. 3,718 105,851 ------------ 207,945 - ------------------------------------------------------------------------------------------------------ Capital Markets -- 2.9% Ameriprise Financial, Inc. 2,316 147,228 The Bank of New York Co., Inc. 7,441 308,355 The Bear Stearns Cos., Inc. 1,174 164,360 The Charles Schwab Corp. 9,958 204,338 E*Trade Financial Corp. (a) 4,202 92,822 Federated Investors, Inc. Class B 872 33,424 Franklin Resources, Inc. 1,622 214,866 The Goldman Sachs Group, Inc. 4,021 871,552 Janus Capital Group, Inc. 1,825 50,808 Legg Mason, Inc. 1,295 127,402 Lehman Brothers Holdings, Inc. 5,242 390,634 Mellon Financial Corp. 4,098 180,312 Merrill Lynch & Co., Inc. (b) 8,570 716,281 Morgan Stanley 10,372 870,003 Northern Trust Corp. 1,858 119,358 State Street Corp. 3,311 226,472 T. Rowe Price Group, Inc. 2,615 135,692 ------------ 4,853,907 - ------------------------------------------------------------------------------------------------------ Chemicals -- 1.2% Air Products & Chemicals, Inc. 2,132 171,349 Ashland, Inc. 546 34,917 The Dow Chemical Co. 9,382 414,872 E.I. du Pont de Nemours & Co. 9,091 462,186 Eastman Chemical Co. 829 53,330 Ecolab, Inc. 1,726 73,700 Hercules, Inc. (a) 1,148 22,558 International Flavors & Fragrances, Inc. 761 39,679 Monsanto Co. 5,349 361,271 PPG Industries, Inc. 1,617 123,070 Praxair, Inc. 3,138 225,905 Rohm & Haas Co. 1,402 76,661 Sigma-Aldrich Corp. 1,290 55,044 ------------ 2,114,542 - ------------------------------------------------------------------------------------------------------ Commercial Banks -- 2.9% BB&T Corp. 5,340 217,231 Comerica, Inc. 1,536 91,346 Commerce Bancorp, Inc. 1,884 69,689 Compass Bancshares, Inc. 1,297 89,467 Fifth Third Bancorp 5,414 215,315 First Horizon National Corp. 1,238 48,282 Huntington Bancshares, Inc. 3,596 81,773 KeyCorp 3,862 132,582 M&T Bank Corp. 746 79,747 Marshall & Ilsley Corp. 2,551 121,504 National City Corp. 5,666 188,791 PNC Financial Services Group, Inc. 3,396 243,086 Regions Financial Corp. 6,935 229,549 SunTrust Banks, Inc. 3,510 300,947 Synovus Financial Corp. 3,219 98,823 U.S. Bancorp 17,112 563,840 Wachovia Corp. 18,830 965,038 Wells Fargo & Co. 32,870 1,156,038 Zions Bancorporation 1,084 83,370 ------------ 4,976,418 - ------------------------------------------------------------------------------------------------------
ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 5 Schedule of Investments (continued)
Shares Industry Common Stocks Held Value ====================================================================================================== Commercial Services & Supplies -- 0.4% Allied Waste Industries, Inc. (a) 2,513 $ 33,825 Avery Dennison Corp. 902 59,965 Cintas Corp. 1,327 52,324 Equifax, Inc. 1,433 63,654 Monster Worldwide, Inc. (a) 1,285 52,814 Pitney Bowes, Inc. 2,158 101,038 RR Donnelley & Sons Co. 2,167 94,286 Robert Half International, Inc. 1,637 59,751 Waste Management, Inc. 5,092 198,843 ------------ 716,500 - ------------------------------------------------------------------------------------------------------ Communications Equipment -- 2.1% Avaya, Inc. (a) 4,429 74,584 Ciena Corp. (a) 841 30,385 Cisco Systems, Inc. (a) 59,751 1,664,065 Corning, Inc. (a) 15,479 395,488 JDS Uniphase Corp. (a) 2,079 27,921 Juniper Networks, Inc. (a) 5,574 140,298 Motorola, Inc. 22,780 403,206 QUALCOMM, Inc. 16,404 711,770 Tellabs, Inc. (a) 4,310 46,376 ------------ 3,494,093 - ------------------------------------------------------------------------------------------------------ Computers & Peripherals -- 3.0% Apple Computer, Inc. (a) 8,512 1,038,804 Dell, Inc. (a) 22,357 638,292 EMC Corp. (a) 20,652 373,801 Hewlett-Packard Co. 25,774 1,150,036 International Business Machines Corp. 13,445 1,415,086 Lexmark International, Inc. Class A (a) 931 45,908 NCR Corp. (a) 1,771 93,048 Network Appliance, Inc. (a) 3,653 106,668 QLogic Corp. (a) 1,566 26,074 SanDisk Corp. (a) 2,247 109,968 Sun Microsystems, Inc. (a) 35,137 184,821 ------------ 5,182,506 - ------------------------------------------------------------------------------------------------------ Construction & Engineering -- 0.1% Fluor Corp. 869 96,781 - ------------------------------------------------------------------------------------------------------ Construction Materials -- 0.1% Vulcan Materials Co. 938 107,439 - ------------------------------------------------------------------------------------------------------ Consumer Finance -- 0.8% American Express Co. 11,698 715,684 Capital One Financial Corp. 4,068 319,094 SLM Corp. 4,050 233,199 ------------ 1,267,977 - ------------------------------------------------------------------------------------------------------ Containers & Packaging -- 0.1% Ball Corp. 1,005 53,436 Bemis Co. 1,030 34,175 Pactiv Corp. (a) 1,284 40,947 Sealed Air Corp. 1,591 49,353 Temple-Inland, Inc. 1,042 64,114 ------------ 242,025 - ------------------------------------------------------------------------------------------------------ Distributors -- 0.0% Genuine Parts Co. 1,677 83,179 - ------------------------------------------------------------------------------------------------------ Diversified Consumer Services -- 0.1% Apollo Group, Inc. Class A (a) 1,378 80,516 H&R Block, Inc. 3,179 74,293 ------------ 154,809 - ------------------------------------------------------------------------------------------------------ Diversified Financial Services -- 3.9% Bank of America Corp. 43,676 2,135,320 CIT Group, Inc. 1,888 103,519 Chicago Mercantile Exchange Holdings, Inc. 350 187,026 Citigroup, Inc. 48,681 2,496,848 JPMorgan Chase & Co. 33,621 1,628,937 Moody's Corp. 2,264 140,821 ------------ 6,692,471 - ------------------------------------------------------------------------------------------------------ Diversified Telecommunication Services -- 2.4% AT&T Inc. 60,680 2,518,220 CenturyTel, Inc. 1,079 52,925 Citizens Communications Co. 3,371 51,475 Embarq Corp. 1,487 94,231 Qwest Communications International Inc. (a) 15,287 148,284 Verizon Communications, Inc. 28,574 1,176,392 Windstream Corp. 4,693 69,269 ------------ 4,110,796 - ------------------------------------------------------------------------------------------------------ Electric Utilities -- 1.4% Allegheny Energy, Inc. (a) 1,632 84,440 American Electric Power Co., Inc. 3,925 176,782 Duke Energy Corp. 12,396 226,847 Edison International 3,207 179,977 Entergy Corp. 1,942 208,474 Exelon Corp. 6,620 480,612 FPL Group, Inc. 4,001 227,017 FirstEnergy Corp. 3,001 194,255 PPL Corp. 3,791 177,381 Pinnacle West Capital Corp. 987 39,332 Progress Energy, Inc. 2,503 114,112 The Southern Co. 7,400 253,746 ------------ 2,362,975 - ------------------------------------------------------------------------------------------------------ Electrical Equipment -- 0.3% Cooper Industries Ltd. Class A 1,802 102,876 Emerson Electric Co. 7,827 366,304 Rockwell Automation, Inc. 1,553 107,840 ------------ 577,020 - ------------------------------------------------------------------------------------------------------ Electronic Equipment & Instruments -- 0.2% Agilent Technologies, Inc. (a) 3,897 149,801 Jabil Circuit, Inc. 1,765 38,954 Molex, Inc. 1,398 41,954 Solectron Corp. (a) 8,898 32,745 Tektronix, Inc. 800 26,992 ------------ 290,446 - ------------------------------------------------------------------------------------------------------ Energy Equipment & Services -- 1.6% BJ Services Co. 2,888 82,135 Baker Hughes, Inc. 3,153 265,262 ENSCO International, Inc. 1,468 89,563 Halliburton Co. 8,996 310,362 Nabors Industries Ltd. (a) 2,771 92,496 National Oilwell Varco, Inc. (a) 1,749 182,316 Noble Corp. 1,318 128,531 Rowan Cos., Inc. 1,089 44,627 Schlumberger Ltd. 11,600 985,304 Smith International, Inc. 1,974 115,755 Transocean, Inc. (a) 2,837 300,665 Weatherford International Ltd. (a) 3,320 183,397 ------------ 2,780,413 - ------------------------------------------------------------------------------------------------------
6 ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 Schedule of Investments (continued)
Shares Industry Common Stocks Held Value ====================================================================================================== Food & Staples Retailing -- 1.8% CVS Corp./Caremark Corp. 15,190 $ 553,676 Costco Wholesale Corp. 4,397 257,312 The Kroger Co. 6,968 196,010 SUPERVALU INC. 2,046 94,771 SYSCO Corp. 6,082 200,645 Safeway, Inc. 4,347 147,928 Wal-Mart Stores, Inc. 23,859 1,147,856 Walgreen Co. 9,851 428,913 Whole Foods Market, Inc. 1,392 53,314 ------------ 3,080,425 - ------------------------------------------------------------------------------------------------------ Food Products -- 1.1% Archer-Daniels-Midland Co. 6,425 212,603 Campbell Soup Co. 2,140 83,053 ConAgra Foods, Inc. 4,903 131,695 Dean Foods Co. 1,280 40,794 General Mills, Inc. 3,410 199,212 H.J. Heinz Co. 3,198 151,809 The Hershey Co. 1,687 85,396 Kellogg Co. 2,466 127,714 Kraft Foods, Inc. 15,787 556,492 McCormick & Co., Inc. 1,282 48,947 Sara Lee Corp. 7,229 125,785 Tyson Foods, Inc. Class A 2,489 57,347 Wm. Wrigley Jr. Co. 2,123 117,423 ------------ 1,938,270 - ------------------------------------------------------------------------------------------------------ Gas Utilities -- 0.2% Nicor, Inc. 443 19,014 Questar Corp. 1,698 89,739 Spectra Energy Corp. 6,218 161,419 ------------ 270,172 - ------------------------------------------------------------------------------------------------------ Health Care Equipment & Supplies -- 1.3% Bausch & Lomb, Inc. 533 37,012 Baxter International, Inc. 6,412 361,252 Becton Dickinson & Co. 2,411 179,620 Biomet, Inc. 2,417 110,505 Boston Scientific Corp. (a) 11,678 179,141 CR Bard, Inc. 1,017 84,035 Hospira, Inc. (a) 1,534 59,887 Medtronic, Inc. 11,334 587,781 St. Jude Medical, Inc. (a) 3,331 138,203 Stryker Corp. 2,940 185,485 Varian Medical Systems, Inc. (a) 1,255 53,350 Zimmer Holdings, Inc. (a) 2,331 197,879 ------------ 2,174,150 - ------------------------------------------------------------------------------------------------------ Health Care Providers & Services -- 1.7% Aetna, Inc. 5,082 251,051 AmerisourceBergen Corp. 1,881 93,053 Cardinal Health, Inc. 3,787 267,514 Cigna Corp. 2,833 147,939 Coventry Health Care, Inc. (a) 1,540 88,781 Express Scripts, Inc. (a) 2,682 134,127 Humana, Inc. (a) 1,654 100,745 Laboratory Corp. of America Holdings (a) 1,158 90,625 Manor Care, Inc. 721 47,074 McKesson Corp. 2,908 173,433 Medco Health Solutions, Inc. (a) 2,757 215,018 Patterson Cos., Inc. (a) 1,370 51,060 Quest Diagnostics, Inc. 1,555 80,316 Tenet Healthcare Corp. (a) 4,657 30,317 UnitedHealth Group, Inc. 13,189 674,485 WellPoint, Inc. (a) 6,039 482,093 ------------ 2,927,631 - ------------------------------------------------------------------------------------------------------ Health Care Technology -- 0.0% IMS Health, Inc. 1,932 62,075 - ------------------------------------------------------------------------------------------------------ Hotels, Restaurants & Leisure -- 1.2% Carnival Corp. 4,355 212,393 Darden Restaurants, Inc. 1,393 61,278 Harrah's Entertainment, Inc. 1,838 156,708 Hilton Hotels Corp. 3,837 128,424 International Game Technology 3,273 129,938 Marriott International, Inc. Class A 3,230 139,665 McDonald's Corp. 11,751 596,481 Starbucks Corp. (a) 7,291 191,316 Starwood Hotels & Resorts Worldwide, Inc. 2,117 141,987 Wendy's International, Inc. 859 31,568 Wyndham Worldwide Corp. (a) 1,794 65,050 Yum! Brands, Inc. 5,156 168,704 ------------ 2,023,512 - ------------------------------------------------------------------------------------------------------ Household Durables -- 0.5% Black & Decker Corp. 650 57,402 Centex Corp. 1,176 47,158 DR Horton, Inc. 2,691 53,632 Fortune Brands, Inc. 1,504 123,884 Harman International Industries, Inc. 642 74,986 KB Home 753 29,646 Leggett & Platt, Inc. 1,744 38,455 Lennar Corp. Class A 1,371 50,124 Newell Rubbermaid, Inc. 2,745 80,785 Pulte Homes, Inc. 2,091 46,943 Snap-On, Inc. 571 28,841 The Stanley Works 821 49,835 Whirlpool Corp. 777 86,402 ------------ 768,093 - ------------------------------------------------------------------------------------------------------ Household Products -- 1.5% Clorox Co. 1,494 92,777 Colgate-Palmolive Co. 5,034 326,455 Kimberly-Clark Corp. 4,490 300,336 The Procter & Gamble Co. 30,991 1,896,339 ------------ 2,615,907 - ------------------------------------------------------------------------------------------------------ IT Services -- 0.9% Affiliated Computer Services, Inc. Class A (a) 977 55,415 Automatic Data Processing, Inc. 5,445 263,919 Cognizant Technology Solutions Corp. (a) 1,416 106,327 Computer Sciences Corp. (a) 1,705 100,851 Convergys Corp. (a) 1,348 32,676 Electronic Data Systems Corp. 5,008 138,872 Fidelity National Information Services, Inc. 1,610 87,391 First Data Corp. 7,425 242,575 Fiserv, Inc. (a) 1,656 94,061 Paychex, Inc. 3,347 130,935 Unisys Corp. (a) 3,424 31,295 The Western Union Co. 7,604 158,391 ------------ 1,442,708 - ------------------------------------------------------------------------------------------------------
ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 7 Schedule of Investments (continued)
Shares Industry Common Stocks Held Value ====================================================================================================== Independent Power Producers & Energy Traders -- 0.4% The AES Corp. (a) 6,571 $ 143,773 Constellation Energy Group, Inc. 1,779 155,075 Dynegy, Inc. Class A (a) 3,960 37,382 TXU Corp. 4,520 304,196 ------------ 640,426 - ------------------------------------------------------------------------------------------------------ Industrial Conglomerates -- 3.1% 3M Co. 7,088 615,168 General Electric Co. 101,253 3,875,965 Textron, Inc. 1,235 135,986 Tyco International Ltd. 19,511 659,277 ------------ 5,286,396 - ------------------------------------------------------------------------------------------------------ Insurance -- 3.7% ACE Ltd. 3,205 200,377 AMBAC Financial Group, Inc. 1,003 87,451 AON Corp. 2,891 123,185 Aflac, Inc. 4,818 247,645 The Allstate Corp. 5,978 367,707 American International Group, Inc. 25,532 1,788,006 Assurant, Inc. 978 57,624 Chubb Corp. 3,952 213,961 Cincinnati Financial Corp. 1,690 73,346 Genworth Financial, Inc. Class A 4,118 141,659 Hartford Financial Services Group, Inc. 3,118 307,154 Lincoln National Corp. 2,665 189,082 Loews Corp. 4,388 223,700 MBIA, Inc. 1,288 80,139 Marsh & McLennan Cos., Inc. 5,466 168,790 MetLife, Inc. 7,299 470,640 Principal Financial Group, Inc. 2,637 153,711 The Progressive Corp. 7,246 173,397 Prudential Financial, Inc. 4,603 447,550 Safeco Corp. 1,045 65,062 Torchmark Corp. 940 62,980 The Travelers Cos., Inc. 6,535 349,623 UnumProvident Corp. 3,374 88,095 XL Capital Ltd. Class A 1,831 154,335 ------------ 6,235,219 - ------------------------------------------------------------------------------------------------------ Internet & Catalog Retail -- 0.2% Amazon.com, Inc. (a) 3,062 209,471 IAC/InterActiveCorp (a) 2,151 74,446 ------------ 283,917 - ------------------------------------------------------------------------------------------------------ Internet Software & Services -- 1.1% eBay, Inc. (a) 11,141 358,517 Google, Inc. Class A (a) 2,147 1,123,697 VeriSign, Inc. (a) 2,413 76,564 Yahoo! Inc. (a) 11,904 322,956 ------------ 1,881,734 - ------------------------------------------------------------------------------------------------------ Leisure Equipment & Products -- 0.1% Brunswick Corp. 889 29,008 Eastman Kodak Co. 2,832 78,815 Hasbro, Inc. 1,569 49,282 Mattel, Inc. 3,872 97,923 ------------ 255,028 - ------------------------------------------------------------------------------------------------------ Life Sciences Tools & Services -- 0.2% Applera Corp. -- Applied Biosystems Group 1,808 55,216 Millipore Corp. (a) 529 39,723 PerkinElmer, Inc. 1,179 30,725 Thermo Fisher Scientific, Inc. (a) 4,153 214,793 Waters Corp. (a) 995 59,063 ------------ 399,520 - ------------------------------------------------------------------------------------------------------ Machinery -- 1.3% Caterpillar, Inc. 6,303 493,525 Cummins, Inc. 1,024 103,639 Danaher Corp. 2,343 176,897 Deere & Co. 2,215 267,439 Dover Corp. 2,012 102,914 Eaton Corp. 1,443 134,199 ITT Corp. 1,789 122,153 Illinois Tool Works, Inc. 4,056 219,795 Ingersoll-Rand Co. Class A 2,970 162,815 PACCAR, Inc. 2,445 212,813 Pall Corp. 1,205 55,418 Parker Hannifin Corp. 1,140 111,617 Terex Corp. (a) 1,016 82,601 ------------ 2,245,825 - ------------------------------------------------------------------------------------------------------ Media -- 2.6% CBS Corp. Class B 7,210 240,237 Clear Channel Communications, Inc. 4,886 184,789 Comcast Corp. Class A (a) 30,628 861,259 The DIRECTV Group, Inc. (a) 7,586 175,312 Dow Jones & Co., Inc. 640 36,768 EW Scripps Co. Class A 818 37,374 Gannett Co., Inc. 2,310 126,935 Interpublic Group of Cos., Inc. (a) 4,616 52,622 The McGraw-Hill Cos., Inc. 3,378 229,974 Meredith Corp. 384 23,654 The New York Times Co. Class A 1,417 35,992 News Corp. Class A 22,924 486,218 Omnicom Group Inc. 3,258 172,413 Time Warner, Inc. 37,256 783,866 Tribune Co. 832 24,461 Viacom, Inc. Class B (a) 6,783 282,376 Walt Disney Co. 19,503 665,832 ------------ 4,420,082 - ------------------------------------------------------------------------------------------------------ Metals & Mining -- 0.7% Alcoa, Inc. 8,558 346,856 Allegheny Technologies, Inc. 1,006 105,509 Freeport-McMoRan Copper & Gold, Inc. Class B 3,695 306,020 Newmont Mining Corp. 4,441 173,465 Nucor Corp. 2,970 174,191 United States Steel Corp. 1,165 126,694 ------------ 1,232,735 - ------------------------------------------------------------------------------------------------------
8 ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 Schedule of Investments (continued)
Shares Industry Common Stocks Held Value ====================================================================================================== Multi-Utilities -- 0.9% Ameren Corp. 2,031 $ 99,539 CMS Energy Corp. 2,210 38,012 CenterPoint Energy, Inc. 3,158 54,949 Consolidated Edison, Inc. 2,664 120,200 DTE Energy Co. 1,736 83,710 Dominion Resources, Inc. 3,449 297,683 Integrys Energy Group, Inc. 746 37,845 KeySpan Corp. 1,730 72,625 NiSource, Inc. 2,698 55,876 PG&E Corp. 3,460 156,738 Public Service Enterprise Group, Inc. 2,489 218,484 Sempra Energy 2,598 153,880 TECO Energy, Inc. 2,063 35,442 Xcel Energy, Inc. 4,025 82,392 ------------ 1,507,375 - ------------------------------------------------------------------------------------------------------ Multiline Retail -- 0.9% Big Lots, Inc. (a) 1,078 31,715 Dillard's, Inc. Class A 600 21,558 Dollar General Corp. 3,100 67,952 Family Dollar Stores, Inc. 1,486 51,000 JC Penney Co., Inc. 2,215 160,322 Kohl's Corp. (a) 3,176 225,591 Macy's, Inc. 4,525 180,005 Nordstrom, Inc. 2,209 112,924 Sears Holdings Corp. (a) 811 137,465 Target Corp. 8,380 532,968 ------------ 1,521,500 - ------------------------------------------------------------------------------------------------------ Office Electronics -- 0.1% Xerox Corp. (a) 9,225 170,478 - ------------------------------------------------------------------------------------------------------ Oil, Gas & Consumable Fuels -- 6.6% Anadarko Petroleum Corp. 4,566 237,386 Apache Corp. 3,260 265,983 Chesapeake Energy Corp. 4,030 139,438 Chevron Corp. 21,153 1,781,929 ConocoPhillips 16,086 1,262,751 Consol Energy, Inc. 1,793 82,675 Devon Energy Corp. 4,378 342,754 EOG Resources, Inc. 2,408 175,928 El Paso Corp. 6,892 118,749 Exxon Mobil Corp. 55,440 4,650,307 Hess Corp. 2,686 158,367 Marathon Oil Corp. 6,751 404,790 Murphy Oil Corp. 1,852 110,083 Occidental Petroleum Corp. 8,207 475,021 Peabody Energy Corp. 2,609 126,223 Sunoco, Inc. 1,196 95,297 Valero Energy Corp. 5,403 399,066 Williams Cos., Inc. 5,894 186,368 XTO Energy, Inc. 3,774 226,817 ------------ 11,239,932 - ------------------------------------------------------------------------------------------------------ Paper & Forest Products -- 0.2% International Paper Co. 4,287 167,407 MeadWestvaco Corp. 1,816 64,141 Weyerhaeuser Co. 2,126 167,805 ------------ 399,353 - ------------------------------------------------------------------------------------------------------ Personal Products -- 0.1% Avon Products, Inc. 4,321 158,797 The Estee Lauder Cos., Inc. Class A 1,162 52,883 ------------ 211,680 - ------------------------------------------------------------------------------------------------------ Pharmaceuticals -- 4.9% Abbott Laboratories 15,160 811,818 Allergan, Inc. 3,026 174,419 Barr Pharmaceuticals, Inc. (a) 1,081 54,299 Bristol-Myers Squibb Co. 19,369 611,286 Eli Lilly & Co. 9,710 542,595 Forest Laboratories, Inc. (a) 3,129 142,839 Johnson & Johnson 28,507 1,756,601 King Pharmaceuticals, Inc. (a) 2,398 49,063 Merck & Co., Inc. 21,330 1,062,234 Mylan Laboratories Inc. 2,446 44,493 Pfizer, Inc. 69,072 1,766,171 Schering-Plough Corp. 14,659 446,220 Watson Pharmaceuticals, Inc. (a) 1,010 32,855 Wyeth 13,239 759,124 ------------ 8,254,017 - ------------------------------------------------------------------------------------------------------ Real Estate Investment Trusts (REITs) -- 0.9% Apartment Investment & Management Co. Class A 956 48,202 Archstone-Smith Trust 2,195 129,746 AvalonBay Communities, Inc. 784 93,202 Boston Properties, Inc. 1,172 119,696 Developers Diversified Realty Corp. 1,231 64,886 Equity Residential 2,863 130,639 General Growth Properties, Inc. 2,412 127,715 Host Marriott Corp. 5,138 118,791 Kimco Realty Corp. 2,233 85,010 Plum Creek Timber Co., Inc. 1,737 72,363 ProLogis 2,526 143,729 Public Storage 1,208 92,799 Simon Property Group, Inc. 2,199 204,595 Vornado Realty Trust 1,286 141,254 ------------ 1,572,627 - ------------------------------------------------------------------------------------------------------ Real Estate Management & Development -- 0.0% CB Richard Ellis Group, Inc. (a) 1,846 67,379 - ------------------------------------------------------------------------------------------------------ Road & Rail -- 0.6% Burlington Northern Santa Fe Corp. 3,506 298,501 CSX Corp. 4,303 193,979 Norfolk Southern Corp. 3,870 203,446 Ryder System, Inc. 603 32,441 Union Pacific Corp. 2,665 306,875 ------------ 1,035,242 - ------------------------------------------------------------------------------------------------------ Semiconductors & Semiconductor Equipment -- 2.1% Advanced Micro Devices, Inc. (a) 5,418 77,477 Altera Corp. 3,492 77,278 Analog Devices, Inc. 3,220 121,201 Applied Materials, Inc. 13,601 270,252 Broadcom Corp. Class A (a) 4,580 133,965 Intel Corp. 57,180 1,358,597 KLA-Tencor Corp. 1,887 103,691 LSI Logic Corp. (a) 7,582 56,941 Linear Technology Corp. 2,499 90,414 MEMC Electronic Materials, Inc. (a) 2,209 135,014 Maxim Integrated Products, Inc. 3,157 105,475
ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 9 Schedule of Investments (continued)
Shares Industry Common Stocks Held Value ====================================================================================================== Semiconductors & Semiconductor Equipment (concluded) Micron Technology, Inc. (a) 7,444 $ 93,273 National Semiconductor Corp. 2,746 77,629 Novellus Systems, Inc. (a) 1,245 35,321 Nvidia Corp. (a) 3,573 147,601 Teradyne, Inc. (a) 1,868 32,839 Texas Instruments, Inc. 14,111 530,997 Xilinx, Inc. 2,932 78,490 ------------ 3,526,455 - ------------------------------------------------------------------------------------------------------ Software -- 2.5% Adobe Systems, Inc. (a) 5,787 232,348 Autodesk, Inc. (a) 2,276 107,154 BMC Software, Inc. (a) 2,009 60,873 CA, Inc. 4,049 104,586 Citrix Systems, Inc. (a) 1,778 59,865 Compuware Corp. (a) 2,965 35,165 Electronic Arts, Inc. (a) 3,053 144,468 Intuit, Inc. (a) 3,373 101,460 Microsoft Corp. 82,856 2,441,766 Novell, Inc. (a) 3,428 26,704 Oracle Corp. (a) 38,958 767,862 Symantec Corp. (a) 8,868 179,134 ------------ 4,261,385 - ------------------------------------------------------------------------------------------------------ Specialty Retail -- 1.4% Abercrombie & Fitch Co. Class A 865 63,128 AutoNation, Inc. (a) 1,487 33,368 AutoZone, Inc. (a) 470 64,211 Bed Bath & Beyond, Inc. (a) 2,696 97,029 Best Buy Co., Inc. 3,985 185,980 Circuit City Stores, Inc. 1,362 20,539 The Gap, Inc. 5,218 99,664 Home Depot, Inc. 19,429 764,531 Limited Brands, Inc. 3,369 92,479 Lowe's Cos., Inc. 14,812 454,580 Office Depot, Inc. (a) 2,722 82,477 OfficeMax, Inc. 742 29,161 RadioShack Corp. 1,335 44,242 The Sherwin-Williams Co. 1,078 71,655 Staples, Inc. 7,040 167,059 TJX Cos., Inc. 4,478 123,145 Tiffany & Co. 1,346 71,419 ------------ 2,464,667 - ------------------------------------------------------------------------------------------------------ Textiles, Apparel & Luxury Goods -- 0.4% Coach, Inc. (a) 3,654 173,163 Jones Apparel Group, Inc. 1,072 30,284 Liz Claiborne, Inc. 1,030 38,419 Nike, Inc. Class B 3,732 217,538 Polo Ralph Lauren Corp. 603 59,160 VF Corp. 877 80,316 ------------ 598,880 - ------------------------------------------------------------------------------------------------------ Thrifts & Mortgage Finance -- 1.1% Countrywide Financial Corp. 5,840 212,284 Fannie Mae 9,577 625,665 Freddie Mac 6,511 395,218 Hudson City Bancorp, Inc. 4,769 58,277 MGIC Investment Corp. 818 46,511 Sovereign Bancorp, Inc. 3,555 75,153 Washington Mutual, Inc. 8,750 373,100 ------------ 1,786,208 - ------------------------------------------------------------------------------------------------------ Tobacco -- 1.0% Altria Group, Inc. 20,700 1,451,898 Reynolds American, Inc. 1,685 109,862 UST, Inc. 1,577 84,701 ------------ 1,646,461 - ------------------------------------------------------------------------------------------------------ Trading Companies & Distributors -- 0.0% WW Grainger, Inc. 702 65,321 - ------------------------------------------------------------------------------------------------------ Wireless Telecommunication Services -- 0.5% Alltel Corp. 3,400 229,670 Sprint Nextel Corp. 28,479 589,800 ------------ 819,470 - ------------------------------------------------------------------------------------------------------ Total Common Stocks (Cost -- $106,354,362) -- 77.3% 131,500,708 ====================================================================================================== Face U.S. Government Obligations Amount ====================================================================================================== U.S. Treasury Notes, 4.25% due 10/31/2007 $33,485,000 33,414,380 - ------------------------------------------------------------------------------------------------------ Total U.S. Government Obligations (Cost -- $33,414,573) -- 19.6% 33,414,380 ====================================================================================================== Short-Term Securities ====================================================================================================== Time Deposits -- 1.6% State Street Bank & Trust Co., 4.25% due 7/02/2007 2,724,915 2,724,915 - ------------------------------------------------------------------------------------------------------ Total Short-Term Securities (Cost -- $2,724,915) -- 1.6% 2,724,915 ====================================================================================================== Total Investments (Cost -- $142,493,850) -- 98.5% 167,640,003 ====================================================================================================== Number of Options Written Contracts ====================================================================================================== Call Options Written S&P 500 Index, expiring July 2007 at USD 1,540 884 (521,560) - ------------------------------------------------------------------------------------------------------ Total Options Written (Premiums Received -- $1,971,249) -- (0.3%) (521,560) ====================================================================================================== Total Investments, Net of Options Written (Cost -- $140,522,601*) -- 98.2% 167,118,443 Other Assets Less Liabilities -- 1.8% 2,978,752 ------------ Net Assets -- 100.0% $170,097,195 ============
10 ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 Schedule of Investments (concluded) * The cost and unrealized appreciation (depreciation) of investments, net of options written, as of June 30, 2007, as computed for federal income tax purposes, were as follows: Aggregate cost ................................... $ 167,387,127 ============= Gross unrealized appreciation .................... $ 2,365,292 Gross unrealized depreciation .................... $ (2,633,976) ------------- Net unrealized depreciation ...................... $ (268,684) ============= (a) Non-income producing security. (b) Investments in companies considered to be an affiliate of the Fund, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as follows:
------------------------------------------------------------------------------------------------------------------------------ Purchase Sales Realized Dividend Affiliate Cost Cost Gain Income ------------------------------------------------------------------------------------------------------------------------------ Merrill Lynch & Co., Inc. $3,357 $45,907 $20,233 $6,501 ------------------------------------------------------------------------------------------------------------------------------
o Financial futures contracts purchased as of June 30, 2007 were as follows:
------------------------------------------------------------------------------------------------------------------------------ Number of Expiration Face Unrealized Contracts Issue Date Value Depreciation ------------------------------------------------------------------------------------------------------------------------------ 20 E-MINI S&P 500 September 2007 $1,544,220 $(28,720) ------------------------------------------------------------------------------------------------------------------------------
o Total Return Swaps outstanding as of June 30, 2007 were as follows:
------------------------------------------------------------------------------------------------------------------------------ Notional Unrealized Counterparty Receive Total Return Pay Expiration Amount Appreciation ------------------------------------------------------------------------------------------------------------------------------ HSBC Bank USA NA CBOE S&P 500 BuyWrite Index 12-month LIBOR rate with (BXM(SM)) -- Total Return a negotiated spread October 2007 $50,000,000 $1,186,678 Deutsche Bank AG CBOE S&P 500 BuyWrite Index 12-month LIBOR rate with (BXM(SM)) -- Total Return a negotiated spread October 2007 $68,200,199 1,670,980 ------------------------------------------------------------------------------------------------------------------------------ Total $2,857,658 ==========
o For Fund portfolio compliance purposes, the Fund's industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industry sub-classifications for reporting ease. Industries are shown as a percent of net assets. See Notes to Financial Statements. ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 11 Statement of Assets, Liabilities and Capital
As of June 30, 2007 (Unaudited) =================================================================================================================================== Assets - ----------------------------------------------------------------------------------------------------------------------------------- Investments in unaffiliated securities, at value (identified cost -- $141,960,489) ..... $ 166,923,722 Investments in affiliated securities, at value (identified cost -- $533,361) ........... 716,281 Cash collateral on financial futures contracts ......................................... 56,000 Unrealized appreciation on swaps ....................................................... 2,857,658 Receivables: Interest ........................................................................... $ 237,507 Dividends .......................................................................... 147,489 Securities sold .................................................................... 83,573 468,569 ------------- Prepaid expenses ....................................................................... 9,943 ------------- Total assets ........................................................................... 171,032,173 ------------- =================================================================================================================================== Liabilities - ----------------------------------------------------------------------------------------------------------------------------------- Options written, at value (premiums received -- $1,971,249) ............................ 521,560 Payables: Securities purchased ............................................................... 156,699 Investment adviser ................................................................. 106,263 Variation margin ................................................................... 5,255 268,217 ------------- Accrued expenses ....................................................................... 145,201 ------------- Total liabilities ...................................................................... 934,978 ------------- =================================================================================================================================== Net Assets - ----------------------------------------------------------------------------------------------------------------------------------- Net assets ............................................................................. $ 170,097,195 ============= =================================================================================================================================== Capital - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock, $.001 par value, 100,000,000 shares authorized ........................... $ 9,155 Paid-in capital in excess of par ....................................................... 170,401,521 Accumulated distributions in excess of investment income -- net ........................ $ (6,779,174) Accumulated realized capital losses -- net ............................................. (22,959,087) Unrealized appreciation -- net ......................................................... 29,424,780 ------------- Total accumulated losses -- net ........................................................ (313,481) ------------- Total capital -- Equivalent to $18.58 per share based on 9,155,163 shares of Common Stock outstanding (market price -- $19.64) ................................................. $ 170,097,195 =============
See Notes to Financial Statements. 12 ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 Statement of Operations
For the Six Months Ended June 30, 2007 (Unaudited) =================================================================================================================================== Investment Income - ----------------------------------------------------------------------------------------------------------------------------------- Dividends (including $6,501 from affiliates) ......................................... $ 1,271,770 Interest ............................................................................. 905,421 ------------- Total income ......................................................................... 2,177,191 ------------- =================================================================================================================================== Expenses - ----------------------------------------------------------------------------------------------------------------------------------- Investment advisory fees ............................................................. $ 698,766 Professional fees .................................................................... 34,837 Accounting services .................................................................. 34,037 Directors' fees and expenses ......................................................... 25,630 Printing and shareholder reports ..................................................... 19,815 Transfer agent fees .................................................................. 19,318 Custodian fees ....................................................................... 13,840 Listing fees ......................................................................... 12,533 Repurchase fees ...................................................................... 9,723 Other ................................................................................ 13,008 ------------- Total expenses ....................................................................... 881,507 ------------- Investment income -- net ............................................................. 1,295,684 ------------- =================================================================================================================================== Realized & Unrealized Gain (Loss) -- Net - ----------------------------------------------------------------------------------------------------------------------------------- Realized gain (loss) on: Investments -- net (including $20,233 from affiliates) ........................... 2,520,547 Financial futures contracts -- net ............................................... 370,134 Options written -- net ........................................................... (5,288,250) (2,397,569) ------------- Change in unrealized appreciation/depreciation on: Investments -- net ............................................................... 5,654,261 Financial futures contracts and swaps -- net ..................................... 1,032,521 Options written -- net ........................................................... 683,513 7,370,295 ------------------------------ Total realized and unrealized gain -- net ............................................ 4,972,726 ------------- Net Increase in Net Assets Resulting from Operations ................................. $ 6,268,410 =============
See Notes to Financial Statements. ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 13 Statements of Changes in Net Assets
For the Six Months Ended For the June 30, Year Ended 2007 December 31, Increase (Decrease) in Net Assets: (Unaudited) 2006 =================================================================================================================================== Operations - ----------------------------------------------------------------------------------------------------------------------------------- Investment income -- net ............................................................. $ 1,295,684 $ 2,321,240 Realized gain (loss) -- net .......................................................... (2,397,569) 7,648,713 Change in unrealized appreciation/depreciation -- net ................................ 7,370,295 15,894,635 ------------------------------ Net increase in net assets resulting from operations ................................. 6,268,410 25,864,588 ------------------------------ =================================================================================================================================== Dividends & Distributions to Shareholders - ----------------------------------------------------------------------------------------------------------------------------------- Investment income -- net ............................................................. (9,986,182)+ (429,115) Realized gain -- net ................................................................. -- (19,628,868) ------------------------------ Net decrease in net assets resulting from dividends and distributions to shareholders (9,986,182) (20,057,983) ------------------------------ =================================================================================================================================== Common Stock Transactions - ----------------------------------------------------------------------------------------------------------------------------------- Net redemption of Common Stock resulting from a repurchase offer (including $2,759 of repurchase offer fees) ........................................ -- (5,378,110) Value of shares issued to shareholders in reinvestment of dividends and distributions 1,433,234 1,911,192 ------------------------------ Net increase (decrease) in net assets resulting from common stock transactions ....... 1,433,234 (3,466,918) ------------------------------ =================================================================================================================================== Net Assets - ----------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets .............................................. (2,284,538) 2,339,687 Beginning of period .................................................................. 172,381,733 170,042,046 ------------------------------ End of period* ....................................................................... $ 170,097,195 $ 172,381,733 ============================== * Undistributed (accumulated distributions in excess of) investment income -- net $ (6,779,174) $ 1,911,324 ==============================
+ A portion of the dividends from net investment income may be deemed a tax return of capital or net realized gain at fiscal year end. See Notes to Financial Statements. 14 ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007
For the Six For the Period Months Ended For the September 30, June 30, Year Ended 2005+ to The following per share data and ratios have been derived 2007 December 31, December 31, from information provided in the financial statements. (Unaudited) 2006 2005 ========================================================================================================================= Per Share Operating Performance - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period ..................... $ 18.99 $ 18.37 $ 19.10 ----------------------------------------------- Investment income -- net*** .............................. .14 .25 .06 Realized and unrealized gain -- net ...................... .55 2.57++ (.20) ----------------------------------------------- Total from investment operations ......................... .69 2.82 (.14) ----------------------------------------------- Less dividends and distributions from: Investment income -- net ............................. (1.10)@@ (.05) (.06) Realized gain -- net ................................. -- (2.15) (.06) Tax return of capital ................................ -- -- (.43) ----------------------------------------------- Total dividends and distributions ........................ (1.10) (2.20) (.55) ----------------------------------------------- Offering costs resulting from the issuance of common stock -- -- (.04) ----------------------------------------------- Net asset value, end of period ........................... $ 18.58 $ 18.99 $ 18.37 ----------------------------------------------- Market price per share, end of period .................... $ 19.64 $ 20.31 $ 16.83 =============================================== ========================================================================================================================= Total Investment Return** - ------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ....................... 3.61%@ 16.11% (.73%)@ =============================================== Based on market price per share .......................... 2.40%@ 35.55% (13.14%)@ =============================================== ========================================================================================================================= Ratios to Average Net Assets - ------------------------------------------------------------------------------------------------------------------------- Expenses ................................................. 1.14%* 1.06% 1.36%* =============================================== Investment income -- net ................................. 1.67%* 1.32% 1.32%* =============================================== ========================================================================================================================= Supplemental Data - ------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) ................. $ 170,097 $ 172,382 $ 170,042 =============================================== Portfolio turnover ....................................... 2% 26% 7% ===============================================
* Annualized. ** Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales charges. *** Based on average shares outstanding. + Commencement of operations. ++ Includes repurchase offer fees, which are less than $.01 per share. @ Aggregate total investment return. @@ A portion of the dividends from net investment income may be deemed a tax return of capital or net realized gain at fiscal year end. See Notes to Financial Statements. ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 15 Notes to Financial Statements 1. Significant Accounting Policies: Enhanced S&P 500(R) Covered Call Fund Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company with a fixed term of approximately five years. The Fund's financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for the interim period. All such adjustments are of a normal, recurring nature. The Fund determines and makes available for publication the net asset value of its Common Stock on a daily basis. The Fund's Common Stock shares are listed on the New York Stock Exchange ("NYSE") under the symbol BEO. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments -- Equity securities that are held by the Fund that are traded on stock exchanges or the NASDAQ Global Market are valued at the last sale price or official close price on the exchange, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price for long positions, and at the last available asked price for short positions. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange designated as the primary market by or under the authority of the Board of Directors of the Fund. Long positions traded in the over-the-counter ("OTC") market, NASDAQ Capital Market or Bulletin Board are valued at the last available bid price or yield equivalent obtained from one or more dealers or pricing services approved by the Board of Directors of the Fund. Short positions traded in the OTC market are valued at the last available asked price. Portfolio securities that are traded both in the OTC market and on a stock exchange are valued according to the broadest and most representative market. Options written or purchased are valued at the last sales price in the case of exchange-traded options. Options traded in the OTC market are valued at the last asked price (options written) and last bid price (options purchased). Swap agreements are valued based upon quoted fair valuations received daily by the Fund from a pricing service or counterparty. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges. Obligations with remaining maturities of 60 days or less are valued at amortized cost unless the investment adviser believes that this method no longer produces valuations. Repurchase agreements are valued at cost plus accrued interest. The Fund employs pricing services to provide certain securities prices for the Fund. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by the pricing services retained by the Fund, which may use a matrix system for valuations. The procedures of a pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Fund's Board of Directors. Such valuations and procedures will be reviewed periodically by the Board of Directors of the Fund. Generally, trading in foreign securities, as well as U.S. government securities, money market instruments and certain fixed income securities, is substantially completed each day at various times prior to the close of business on the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates will generally be determined as of the close of business on the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of business on the NYSE that may not be reflected in the computation of the Fund's net asset value. If events (for example, a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such securities, those securities may be valued at their fair value as determined in good faith by the Fund's Board of Directors or by the Investment Advisor using a pricing service and/or procedures approved by the Fund's Board of Directors. (b) Derivative financial instruments -- The Fund will engage in various portfolio investment strategies both to enhance its returns or as a proxy for a direct investment in securities underlying the Fund's index. Losses may arise due to changes in the value of the contract due to an unfavorable change in the price of the underlying security or index, or if the counterparty does not perform under the contract. o 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 value of the option written. The Fund provides the purchaser with 16 ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 Notes to Financial Statements (continued) 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. o 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. o 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. 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. 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). Risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts' terms and the possible lack of liquidity with respect to the swap agreements. (c) 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 shareholders. Therefore, no federal income tax provision is required. (d) 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. (e) Dividends and distributions -- Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. For the current period ended June 30, 2007, 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. (f) Securities lending -- The Fund may lend securities to financial institutions that provide cash or securities issued or guaranteed by the U.S. government as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. Where the Fund receives securities as collateral for the loaned securities, it receives a fee from the borrower. The Fund typically receives the income on the loaned securities, but does not receive the income on the collateral. Where the Fund receives cash collateral, it may invest such collateral and retain the amount earned on such investment, net of any amount rebated to the borrower. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Fund may pay reasonable finder's, lending agent, administrative and custodial fees in connection with its loans. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Fund could experience delays and costs in gaining access to the collateral. The Fund also could suffer a loss where the value of the collateral falls below the market value of the borrowed securities, in the event of borrower default or in the event of losses on investments made with cash collateral. ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 17 Notes to Financial Statements (continued) (g) Recent accounting pronouncements -- Effective June 29, 2007, the Fund implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity, including investment companies, before being measured and recognized in the financial statements. Management has evaluated the application of FIN 48 to the Fund, and has determined that the adoption of FIN 48 does not have a material impact on the Fund's financial statements. The Fund files U.S. and various state tax returns. No income tax returns are currently under examination. In September 2006, Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. At this time, management is evaluating the implications of FAS 157 and its impact on the Fund's financial statements, if any, has not been determined. In addition, in February 2007, Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("FAS 159"), was issued and is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FAS 157. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. At this time, management is evaluating the implications of FAS 159 and its impact on the Fund's financial statements, if any, has not been determined. 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"), an indirect subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."). IQ is responsible for the investment advisory, management and administrative services to the Fund. In addition, IQ provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund will pay 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 entered into a Subadvisory Agreement with Oppenheimer Capital, LLC (the "Subadviser") pursuant to which the Subadviser provides certain investment advisory services to IQ with respect to the Fund. For such services, IQ will pay 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 was no increase in the aggregate fees paid by the Fund for these services. IQ has entered into an Administration Agreement with Princeton Administrators, LLC (the "Administrator"). The Administration Agreement provides that IQ will pay 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. ML & Co. is a principal owner of BlackRock, Inc. Certain officers of the Fund are officers of IQ, ML & Co., BlackRock, Inc. or its affiliates. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended June 30, 2007 were $2,773,290 and $12,745,751, respectively. Transactions in call options written for the six months ended June 30, 2007 were as follows: - -------------------------------------------------------------------------------- Number of Premiums Contracts Received - -------------------------------------------------------------------------------- Outstanding call options written, beginning of period .................... 960 $ 1,447,776 Options written .......................... 5,823 10,529,459 Options closed ........................... (3,944) (7,061,190) Options expired .......................... (1,955) (2,944,796) ------------------------------- Outstanding call options written, end of period .......................... 884 $ 1,971,249 =============================== 18 ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 Notes to Financial Statements (concluded) 4. Common Stock Transactions: The Fund is authorized to issue 100,000,000 shares of stock, all of which are initially classified as Common Stock, par value $.001. 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. 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, 2007 increased by 76,816 from dividend reinvestments. Shares issued and outstanding for the year ended December 31, 2006 increased by 99,053 from dividend and distribution reinvestments and decreased by 275,942 as a result of a repurchase offer. Renewal of Current Investment Advisory and Management Agreements The Board of Directors of each Fund, currently consisting solely of Independent Directors, as defined in Section 2(a)(19) of the Investment Company Act of 1940 (the "Investment Company Act"), has the responsibility under the Investment Company Act to consider annually the Investment Advisory and Management Agreement of each Fund (each, a "Management Agreement" and together, the "Management Agreements") with IQ Investment Advisors LLC ("IQ Advisors"). At a Board meeting held on June 14, 2007, all of the Directors present at the meeting renewed the Management Agreement for each Fund for an additional one-year term. Each Management Agreement was considered separately by the relevant Fund's Directors. In considering whether to approve the Management Agreements, the Directors reviewed a meeting book and other materials from counsel to the Funds and from IQ Advisors which: (i) included information concerning the services rendered to the Funds by IQ Advisors and IQ Advisors' affiliates; (ii) contained information concerning the revenues and expenses incurred by IQ Advisors and its affiliates from the operation of the Funds; and (iii) outlined the legal duties of the Board under the Investment Company Act. The Board also received information from Lipper, Inc. ("Lipper") comparing each Fund's fee rate for advisory and administrative services to those of other closed-end funds chosen by Lipper. In voting to approve the renewal of each Fund's Management Agreement, the Directors considered in particular the following factors: (a) The nature, extent and quality of services provided by IQ Advisors and its affiliates -- The Directors reviewed the services that IQ Advisors has provided to the Funds. They considered the size and experience of IQ Advisors' staff, its use of technology, and the degree to which IQ Advisors exercises supervision over the actions of each Fund's subadviser. In connection with the investment advisory services provided, the Directors took into account detailed discussions they had with officers of IQ Advisors regarding the management of each Fund's investments in accordance with the Fund's stated investment objective and policies and the types of transactions entered into on behalf of each Fund. During these discussions, the Directors asked detailed questions of, and received answers from, the officers of IQ Advisors regarding the implementation of each Fund's investment strategy, its efficacy and risks. In addition to the investment advisory services provided to the Funds, the Directors considered that IQ Advisors and its affiliates also provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements and other services necessary for the operation of the Funds. In particular, the Directors reviewed the compliance and administrative services provided to the Funds by IQ Advisors, including its oversight of each Fund's day-to-day operations and its oversight of Fund accounting. The Directors noted that IQ Advisors has access to administrative, legal and compliance resources that help ensure a high level of quality in the compliance and administrative services provided to the Funds. The Directors also considered each Fund's compliance history. Following their consideration of this information, and based on the presentations at the meeting and the Directors' experience as Directors of other investment companies advised by IQ Advisors, the Directors concluded that the services provided to each Fund by IQ Advisors under the respective Management Agreement were of a high quality and benefited the Funds. ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 19 Renewal of Current Investment Advisory and Management Agreements (continued) (b) Investment performance of each Fund and IQ Advisors -- The Directors considered the history, experience, resources and strengths of IQ Advisors and its affiliates in developing and implementing the investment strategies used by each Fund. The Directors also considered the innovative nature of each Fund. The Directors noted that each Fund uses a unique investment strategy and that comparisons of a Fund's investment performance to the performance of other investment companies were generally not meaningful. The Directors reviewed each Fund's investment performance and where applicable, compared such performance to the performance of a relevant reference index. The Directors discussed the degree to which each Fund was achieving its investment objective, noting that each Fund had been in operation for a relatively short period of time. In particular, the Directors noted that all of the Funds generally performed as expected relative to their respective reference index and met their respective investment objectives. As a result of their discussions and review, the Directors concluded that each Fund's performance was satisfactory. Based on these factors, the Directors determined that IQ Advisors continued to be an appropriate investment adviser for the Funds. (c) Cost of services provided and profits realized by IQ Advisors and its affiliates from the relationship with each of the Funds -- The Directors reviewed and considered a memorandum from IQ Advisors regarding the methodology used by IQ Advisors in allocating its costs regarding the operations of the Funds and calculating each Fund's profitability (if any) to IQ Advisors and its affiliates. The Directors noted that IQ Advisors' methodology in calculating profitability had previously been reviewed by independent consultants. The Directors also reviewed a report detailing IQ Advisors' profitability. After considering their discussion with IQ Advisors and reviewing its memorandum and report, the Directors concluded that there was a reasonable basis for the allocation of costs and the determination of profitability. The Directors considered the cost of the services provided by IQ Advisors to each Fund and the revenue derived by IQ Advisors and its affiliates. The Directors took into account discussions that they had with representatives of IQ Advisors regarding its general level of profitability (if any), and the profits derived by its affiliates, including Merrill Lynch Investment Managers, L.P. ("MLIM") prior to its merger with BlackRock, Inc. ("BlackRock"), from operating the Funds. The Directors also considered the direct and indirect benefits derived by other IQ Advisors affiliates, including Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), from the establishment of the Funds, including the underwriting arrangements relating to the initial distribution of Fund shares. The Directors considered federal court decisions discussing an investment adviser's profitability and profitability levels considered to be reasonable in those decisions. The Directors concluded that any profits made by IQ Advisors and its affiliates (including MLIM and MLPF&S) are acceptable in relation to the nature, extent and quality of services provided. The Directors also concluded that each Fund benefited from such services provided by IQ Advisors' affiliates. (d) The extent to which economies of scale would be realized as a Fund grows and whether fee levels would reflect such economies of scale -- The Directors considered the extent to which economies of scale might be realized if the assets of the Funds increase and whether there should be changes in the management fee rate or structure in order to enable a Fund to participate in these economies of scale. The Directors noted that, because each Fund is a closed-end fund, any increase in asset levels generally would have to come from appreciation through investment performance. The Directors also noted that each Fund, except for Dow 30(SM) Premium & Dividend Income Fund Inc. and S&P 500(R) Covered Call Fund Inc., is an interval fund that periodically allows stockholders to tender their shares to the Funds and that such tender offers reduce the amount of Fund assets. In consideration of these and other factors, the Directors determined that no changes were currently necessary to each Fund's fee structure. The Directors also discussed the renewal requirements for investment advisory agreements, and determined that they would revisit this issue no later than when they next review the investment advisory fees. (e) Comparison of services rendered and fees paid to those under other investment advisory contracts, such as contracts of the same and other investment advisers or other clients -- The Directors compared both the services rendered and the fees paid under the Management Agreements to the contracts of other investment advisers with respect to other closed-end registered investment companies. In particular, the Directors evaluated each Fund's contractual fee rate for advisory and administrative services as compared to the contractual fee rate of other closed-end funds chosen by Lipper. In considering this information, the Directors took into account the unique nature of the investment strategies of the Funds and the fact that the relevant peer group of funds provided by Lipper for comparison have investment strategies and restrictions different from those of the Funds. The Directors did not consider compensation paid to IQ Advisors with respect to accounts other than registered investment companies because IQ Advisors utilizes each Fund's strategy in connection with only registered funds. 20 ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 In particular, the Directors noted that each Fund's contractual advisory fee rate at a common asset level was lower than the median fee rate of its Lipper comparison funds. The Directors concluded that the advisory fee rates were reasonable in comparison to the data reflected in the Lipper materials. (f) Conclusion -- No single factor was determinative to the decision of the Directors. Based on the foregoing and such other matters as were deemed relevant, all of the Directors concluded that the advisory fee rate of each Fund was reasonable in relation to the services provided by IQ Advisors to the Funds, as well as the costs incurred and benefits gained by IQ Advisors and its affiliates in providing such services, including the investment advisory and administrative components. The Directors also found the investment advisory fees to be reasonable in comparison to the fees charged by advisers to other funds of a similar size. As a result, the Board of Directors of each Fund approved the Management Agreement for each Fund. The Directors were represented by independent legal counsel who assisted them in their deliberations. Renewal of Current Investment Subadvisory Agreements The Board of Directors of each Fund, currently consisting solely of Independent Directors, at a meeting held on June 14, 2007 considered and approved the renewal of the Current Investment Subadvisory Agreement of each Fund (each a "Subadvisory Agreement" and together, the "Subadvisory Agreements"). Each Subadvisory Agreement was considered separately by the relevant Fund's Directors. The Directors received, reviewed and evaluated information concerning the services and personnel of BlackRock Investment Management, LLC ("BlackRock"), as subadviser to each of S&P 500(R) GEARED(SM) Fund Inc. and Small Cap Premium & Dividend Income Fund Inc.; Oppenheimer Capital LLC ("Oppenheimer"), as subadviser to each of S&P 500(R) Covered Call Fund Inc. and Enhanced S&P 500(R) Covered Call Fund Inc.; and Nuveen Asset Management ("Nuveen," and together with BlackRock and Oppenheimer, the "Subadvisers"), as subadviser to Dow 30(SM) Premium & Dividend Income Fund Inc. and Global Income & Currency Fund Inc. (a) The nature, extent and quality of services provided by each Subadviser -- The Directors reviewed the services that each Subadviser provides to each of their respective Funds. The Directors considered their detailed discussions with officers of IQ Advisors and members of each Subadviser's portfolio management team, the management of each Fund's investments in accordance with the Fund's stated investment objective and policies and the types of transactions that have been entered into on behalf of the Funds. The Directors took into account the annual due diligence investment review conducted by Merrill Lynch Global Private Client Investment Management, an affiliate of IQ Advisors, of each Subadviser and its report that concluded that each such Subadviser has thus far executed its respective Fund's investment strategies in accordance with the Fund's objectives and general expectations. The Directors noted that, drawing on their collective industry experience, they had discussed each Fund's investment strategy with representatives from each Subadviser, including discussions regarding the premises underlying the Fund's investment strategy, its efficacy and potential risks. The Directors also considered the favorable history, reputation and background of each Subadviser and its personnel, and the substantial experience of such Subadviser's portfolio management teams. The Directors discussed the compliance program of each Subadviser and the report of Mrs. Catherine Johnston, the chief compliance officer of the Funds. Following consideration of this information, and based on management presentations during the Board meeting and their discussion during an Executive Session, the Directors concluded that the nature, extent and quality of services provided to each Fund by the applicable Subadviser under its Subadvisory Agreement were of a high quality and would continue to benefit the Fund. (b) Investment performance of each Fund and each Subadviser -- The Directors received and considered information about each Fund's investment performance in comparison to the performance of its relative reference index, where applicable, and also in light of its stated investment objective and made the determinations discussed above under "Renewal of Current Investment Advisory and Management Agreements." Based on these factors, the Directors determined that each Subadviser continued to be appropriate for each of its respective Funds. (c) Cost of services provided and profits realized by each Subadviser from the relationship with each respective Fund -- The Directors considered the profitability to MLIM, prior to its merger with BlackRock, of serving as investment subadviser to two Funds and from its relationship with IQ Advisors based on the information discussed above under "Renewal of Current Investment Advisory and Management Agreements." Based on such information, the Directors concluded that MLIM's profits were acceptable in relation to the nature, extent and quality of services provided. The Directors noted that profitability data was not provided with respect to the unaffiliated Subadvisers of the Funds and concluded that such data was unnecessary because such subadvisory ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 21 Renewal of Current Investment Advisory and Management Agreements (concluded) arrangements were entered into at "arm's length" between the Subadviser and IQ Advisors. The Directors then considered the potential direct and indirect benefits to each Subadviser and its affiliates from their relationship with each of their respective Funds, including the reputational benefits from managing the Funds. The Directors of each Fund concluded that the potential benefits to each Subadviser were consistent with those obtained by other subadvisers in similar types of arrangements. (d) The extent to which economies of scale would be realized as a Fund grows and whether fee levels would reflect such economies of scale -- The Directors considered the extent to which economies of scale might be realized if the assets of the Funds increase and whether there should be changes in the subadvisory fee rate or structure in order to enable a Fund to participate in these economies of scale. The Directors noted that each Subadviser's fees are paid by IQ Advisors out of its fees and not directly by the Funds. The Directors noted that, because each Fund is a closed-end fund, any increase in asset levels would have to come from appreciation due to investment performance. The Directors also noted that each Fund, except for Dow 30(SM) Premium & Dividend Income Fund Inc. and S&P 500(R) Covered Call Fund Inc., is an interval fund that periodically allows stockholders to tender their shares to the Funds and that such tender offers reduce the amount of Fund assets. The Directors also discussed the renewal requirements for subadvisory agreements, and determined that they would revisit this issue no later than when they next review the subadvisory fee. (e) Comparison of services rendered and fees paid to those under other subadvisory contracts, such as contracts of the same and other investment advisers or other clients -- The Directors discussed the services rendered by each Subadviser and determined that such services were consistent with those provided by subadvisers generally and sufficient for the management of the Funds. Taking into account the totality of the information and materials provided to the Directors as noted above, including the fact that the subadvisory fee for each Fund was negotiated with IQ Advisors and not payable directly by the Fund, the Directors concluded that the subadvisory fee for each Fund was reasonable for the services being rendered. Conclusion -- No single factor was determinative to the decision of the Directors. Based on the foregoing and such other matters as were deemed relevant, all of the Directors concluded that the relevant subadvisory fee rate was reasonable in relation to the services provided by each Subadviser. As a result, all of the Directors approved the Subadvisory Agreement for each Fund. The Directors were represented by independent legal counsel who assisted them in their deliberations. 22 ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 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 (the "1940 Act"), as amended. 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 shareholders. 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 shareholders 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. 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 Web site 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. Electronic Delivery The Fund offers electronic delivery of communications to its shareholders. 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 Web site 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. Contact Information For more information regarding the Fund, please visit www.IQIAFunds.com or contact us at 1-877-449-4742. ENHANCED S&P 500(R) COVERED CALL FUND INC. JUNE 30, 2007 23 [LOGO] IQ INVESTMENT ADVISORS www.IQIAFunds.com Enhanced S&P 500(R) Covered Call Fund Inc. seeks to provide leveraged returns on the CBOE S&P 500(R) BuyWrite Index(SM) less fees and expenses. This report, including the financial information herein, is transmitted to shareholders of Enhanced S&P 500(R) 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 Web site 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 Web site at http://www.sec.gov. Enhanced S&P 500(R) Covered Call Fund Inc. P.O. Box 9011 Princeton, NJ 08543-9011 #IQBEO -- 6/07 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 - Schedule of Investments - The registrant's Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form. 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 - as of June 30, 2007 (a) Not Applicable (b) Effective May 22, 2007, Mr. Greg Tournant, a co-portfolio manager of the Registrant identified in response to paragraph (a) of this item in the Registrant's most recent annual report, has resigned from the Sub-Adviser. Mr. Stephen Bond-Nelson, a co-portfolio manager also identified in the Registrant's most recent annual report, has assumed sole leadership of the Registrant's portfolio management team. Item 9 - Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers - Not Applicable to this semi-annual report Item 10 - Submission of Matters to a Vote of Security Holders - The registrant's Nominating Committee will consider nominees to the Board recommended by shareholders when a vacancy becomes available. Shareholders who wish to recommend a nominee should send nominations which 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 and 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 (17 CFR 270.30a-3(d)) 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(R) Covered Call Fund Inc. By: /s/ Mitchell M. Cox ------------------------------- Mitchell M. Cox, Chief Executive Officer of Enhanced S&P 500(R) Covered Call Fund Inc. Date: August 28, 2007 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/ Mitchell M. Cox ------------------------------- Mitchell M. Cox, Chief Executive Officer of Enhanced S&P 500(R) Covered Call Fund Inc. Date: August 28, 2007 By: /s/ James E. Hillman ------------------------------- James E. Hillman, Chief Financial Officer of Enhanced S&P 500(R) Covered Call Fund Inc. Date: August 28, 2007 EX-99.CERT 2 e602573_ex99-cert.txt EX-99. CERT CERTIFICATION PURSUANT TO RULE 30a-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - -------------------------------------------------------------------------------- I, Mitchell M. Cox, Chief Executive Officer of Enhanced S&P 500(R) Covered Call Fund Inc., certify that: 1. I have reviewed this report on Form N-CSR of Enhanced S&P 500(R) Covered Call Fund Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committees of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 28, 2007 /s/ Mitchell M. Cox - ------------------- Mitchell M. Cox, Chief Executive Officer of Enhanced S&P 500(R) Covered Call Fund Inc. EX-99. CERT CERTIFICATION PURSUANT TO RULE 30a-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - -------------------------------------------------------------------------------- I, James E. Hillman, Chief Financial Officer of Enhanced S&P 500(R) Covered Call Fund Inc., certify that: 1. I have reviewed this report on Form N-CSR of Enhanced S&P 500(R) Covered Call Fund Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committees of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 28, 2007 /s/ James E. Hillman - -------------------- James E. Hillman, Chief Financial Officer of Enhanced S&P 500(R) Covered Call Fund Inc. EX-99.906CERT 3 e602573_ex99-1350cert.txt Exhibit 99.1350CERT Certification Pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes Oxley Act Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Enhanced S&P 500(R) Covered Call Fund Inc. (the "Registrant"), hereby certifies, to the best of his knowledge, that the Registrant's Report on Form N-CSR for the period ended June 30, 2007, (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: August 28, 2007 /s/ Mitchell M. Cox - ------------------- Mitchell M. Cox, Chief Executive Officer of Enhanced S&P 500(R) Covered Call Fund Inc. Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Enhanced S&P 500(R) Covered Call Fund Inc. (the "Registrant"), hereby certifies, to the best of his knowledge, that the Registrant's Report on Form N-CSR for the period ended June 30, 2007, (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: August 28, 2007 /s/ James E. Hillman - -------------------- James E. Hillman, Chief Financial Officer of Enhanced S&P 500(R) Covered Call Fund Inc. This certification is being furnished pursuant to Rule 30a-2(b) under the Investment Company Act of 1940, as amended, and 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR with the Securities and Exchange Commission -----END PRIVACY-ENHANCED MESSAGE-----