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 811-21708
Name of Fund: Dow 30(SM) Premium & Dividend Income 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,
Dow 30(SM) Premium & Dividend Income Fund Inc., 4 World Financial Center,
5th Floor, New York, New York 10080. Mailing address: P.O. Box 9011,
Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (212) 449-8118
Date of fiscal year end: 12/31/06
Date of reporting period: 01/01/06 - 06/30/06
Item 1 - Report to Stockholders
Dow 30(SM) Premium &
Dividend Income Fund Inc.
Semi-Annual Report
June 30, 2006
[LOGO] IQ INVESTMENT [LOGO] NUVEEN
ADVISORS Investments
Dow 30(SM) Premium & Dividend Income Fund Inc.
Proxy Results
During the six-month period ended June 30, 2006, Dow 30(SM) Premium & Dividend
Income Fund Inc.'s shareholders voted on the following proposal. The proposal
was approved at a shareholders' meeting on April 27, 2006. A description of the
proposal and number of shares voted are as follows:
- -------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- -------------------------------------------------------------------------------------------------------------
1. To elect the Fund's Board of Directors: Alan R. Batkin 10,862,439 192,073
Andrew J. Donohue 10,869,534 184,978
Paul Glasserman 10,862,599 191,913
Steven W. Kohlhagen 10,869,534 184,978
William J. Rainer 10,869,319 185,193
- -------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Andrew J. Donohue gave notice to the Fund and the Advisor of his intention to
resign his positions as a Director and Officer of the Fund and as an Officer of
the Advisor in May 2006 in order to assume the role of director of the
Securities and Exchange Commission's Division of Investment Management.
- --------------------------------------------------------------------------------
Officers and Directors
Alan R. Batkin, Director and Chairman of the Board
Paul Glasserman, Director and Chairman of the Audit Committee
Steven W. Kohlhagen, Director
William J. Rainer, Director and Chairman of the Nominating and Corporate
Governance Committee
Mitchell M. Cox, President
Donald C. Burke, Vice President, Secretary and Treasurer
Martin G. Byrne, Chief Legal Officer
Jeffrey Hiller, Chief Compliance Officer
Justin C. Ferri, Vice President
Jay M. Fife, Vice President
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
DPD
"Dow Jones Industrial Average", "DJIA", "Dow 30", "Dow Industrials" and "The
Dow" are service marks of Dow Jones & Company, Inc. and have been licensed for
use for certain purposes by IQ Investment Advisors LLC. The Fund is not
sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no
representation regarding the advisability of investing in the Fund.
2 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006
Portfolio Information
As of June 30, 2006
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Boeing Co. ................................................ 5.9%
3M Co. .................................................... 5.9
International Business Machines Corp. ..................... 5.6
Caterpillar, Inc. ......................................... 5.4
Altria Group, Inc. ........................................ 5.3
United Technologies Corp. ................................. 4.6
Exxon Mobil Corp. ......................................... 4.5
Johnson & Johnson ......................................... 4.4
American International Group, Inc. ........................ 4.3
Procter & Gamble Co. ...................................... 4.0
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries Net Assets
- --------------------------------------------------------------------------------
Aerospace & Defense ....................................... 13.5%
Pharmaceuticals ........................................... 8.7
Industrial Conglomerates .................................. 8.3
Computers & Peripherals ................................... 7.9
Diversified Financial Services ............................ 6.5
- --------------------------------------------------------------------------------
Percent of
Sector Representation Total Investments
- --------------------------------------------------------------------------------
Industrials ............................................... 27.1%
Consumer Staples .......................................... 16.0
Financials ................................................ 14.7
Information Technology .................................... 10.9
Consumer Discretionary .................................... 9.4
Health Care ............................................... 8.7
Materials ................................................. 5.4
Telecommunication Services ................................ 4.4
Energy .................................................... 4.4
Other* .................................................... (1.0)
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments and options written.
For Fund compliance purposes, the Fund's sector and industry
classifications refer to any one or more of the sector and 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
sector and industry sub-classifications for reporting ease.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006 3
A Discussion With Your Fund's Portfolio Manager
We are pleased to provide you with this shareholder report for Dow 30(SM)
Premium & Dividend Income Fund Inc. While the Fund is advised by IQ Investment
Advisors LLC, the subadviser to the Fund is Nuveen Asset Management. The
following discussion is provided to you by Nuveen Investments.
How did the Fund perform during the six-month period?
The investment objective of Dow 30(SM) Premium & Dividend Income Fund Inc. (the
"Fund") is to provide stockholders with a high level of current income, with a
secondary objective of capital appreciation. For the six-month period ended June
30, 2006, the total investment return of the Common Stock of the Fund was
+4.39%, based on a change in net asset value from $19.13 to $19.05, and assuming
reinvestment of all distributions. For comparative purposes, the unmanaged Dow
Jones Industrial Average(SM) ("DJIA") returned +5.22% (including dividend
reinvestment) and the Chicago Board Options Exchange ("CBOE(R)") DJIA BuyWrite
Index returned +4.90% during the same period. The portfolio continues to provide
a higher dividend return relative to the broader market, paying out an
indicative dividend yield of 9.0% on the initial share price of $20 versus the
DJIA dividend yield of 2.38% as of June 30, 2006.
For a description of 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.
Describe the market environment during the six-month period.
After a strong start in the first quarter of 2006, during which the U.S. economy
expanded by 5.6%, economic growth appears to have slowed down in the second
quarter of the year, which was the desired effect of the Federal Reserve Board's
(the "Fed") two-year interest rate hike program. At their June meeting, Federal
Reserve policy makers announced the 17th consecutive quarter-point interest rate
increase, raising the benchmark rate to 5.25%. A weaker jobs report, gradual
cooling in the housing market and the increasing impact of energy costs on U.S.
businesses contributed to a slowdown during the second quarter.
With strong economic growth in the first quarter, U.S. equity markets rallied
strongly with the Standard & Poor's 500(R) Index ("S&P 500 Index") and the DJIA
up 4.21% and 4.25%, respectively. The beginning of the second quarter brought
more of the same as the S&P 500 Index and the DJIA rose 2.37% and 5.09% between
March 31 and May 10. However, the growing evidence of a slowing economy and
increased concerns that inflation was higher than expected, resulted in an
equity market swoon in the middle of the second quarter. From May 10 to June 13,
the S&P 500 Index and the DJIA lost 7.30% and 7.79%, respectively.
4 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006
How did you manage the portfolio during the six-month period?
The Fund invests in the 30 stocks in the DJIA and then writes options on each
individual stock to generate the Fund's dividend. During the first quarter, the
Fund sold a series of one-month call options struck 1% out-of-the money on 45%
to 50% of each individual stock in the DJIA. The out-of-the-money call options
and low overwrite percentage (below 50%), allowed the Fund to participate in a
portion of the appreciation of the DJIA in the first quarter.
Given the higher level of volatility, reduced earnings expectations due to
expected slower global growth, and market appreciation year to date, the Fund
moved to a less bullish equity posture and more aggressive option overwrite
position in the second quarter. In early June, the Fund began selling options on
50% to 55% of its equity holdings versus the prior 45% to 50%. Additionally, in
order to capitalize on the expected trading range over the coming summer months,
the Fund lengthened its average option expiration.
How would you characterize the Fund's position at the close of the six-month
period?
The Fund is appropriately positioned for the second half of 2006. The portfolio
of stocks is fully invested at DJIA weightings. The option portfolio is
overwriting approximately 50% to 55% of each underlying stock on a pro-rata
basis with a laddered portfolio of expiration dates sold approximately 1% out of
the money. Given this portfolio structure, we feel confident that the portfolio
is well positioned to meet its investment objectives.
Rob A. Guttschow
Portfolio Manager
July 13, 2006
"CBOE" is a registered trademark of the Chicago Board Options Exchange.
"Standard & Poor's 500" is a registered trademark of the McGraw-Hill Companies.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006 5
Schedule of Investments
Shares
Industry Common Stocks Held Value
===================================================================================
Aerospace & Defense--13.5%
Boeing Co. 157,298 $ 12,884,279
Honeywell International, Inc. 157,298 6,339,109
United Technologies Corp. 157,298 9,975,839
------------
29,199,227
- -----------------------------------------------------------------------------------
Automobiles--2.2%
General Motors Corp. 157,298 4,685,908
- -----------------------------------------------------------------------------------
Beverages--3.1%
The Coca-Cola Co. 157,298 6,766,960
- -----------------------------------------------------------------------------------
Chemicals--3.0%
E.I. du Pont de Nemours & Co. 157,298 6,543,597
- -----------------------------------------------------------------------------------
Computers & Peripherals--7.9%
Hewlett-Packard Co. 157,298 4,983,201
International Business Machines Corp. 157,298 12,083,632
------------
17,066,833
- -----------------------------------------------------------------------------------
Consumer Finance--3.9%
American Express Co. 157,298 8,371,400
- -----------------------------------------------------------------------------------
Diversified Financial Services--6.5%
Citigroup, Inc. 157,298 7,588,056
JPMorgan Chase & Co. 157,298 6,606,516
------------
14,194,572
- -----------------------------------------------------------------------------------
Diversified Telecommunication Services--4.5%
AT&T, Inc. 157,298 4,387,041
Verizon Communications, Inc. 157,298 5,267,910
------------
9,654,951
- -----------------------------------------------------------------------------------
Food & Staples Retailing--3.5%
Wal-Mart Stores, Inc. 157,298 7,577,045
- -----------------------------------------------------------------------------------
Hotels, Restaurants & Leisure--2.4%
McDonald's Corp. 157,298 5,285,213
- -----------------------------------------------------------------------------------
Household Products--4.0%
Procter & Gamble Co. 157,298 8,745,769
- -----------------------------------------------------------------------------------
Industrial Conglomerates--8.3%
3M Co. 157,298 12,704,960
General Electric Co. 157,298 5,184,542
------------
17,889,502
- -----------------------------------------------------------------------------------
Insurance--4.3%
American International Group, Inc. 157,298 9,288,447
- -----------------------------------------------------------------------------------
Machinery--5.4%
Caterpillar, Inc. 157,298 11,715,555
- -----------------------------------------------------------------------------------
Media--2.2%
Walt Disney Co. 157,298 4,718,940
- -----------------------------------------------------------------------------------
Metals & Mining--2.3%
Alcoa, Inc. 157,298 5,090,163
- -----------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels--4.5%
Exxon Mobil Corp. 157,298 9,650,232
- -----------------------------------------------------------------------------------
Pharmaceuticals--8.7%
Johnson & Johnson 157,298 9,425,296
Merck & Co., Inc. 157,298 5,730,366
Pfizer, Inc. 157,298 3,691,784
------------
18,847,446
- -----------------------------------------------------------------------------------
Semiconductors & Semiconductor
Equipment--1.4%
Intel Corp. 157,298 2,980,797
- -----------------------------------------------------------------------------------
Software--1.7%
Microsoft Corp. 157,298 3,665,043
- -----------------------------------------------------------------------------------
Specialty Retail--2.6%
Home Depot, Inc. 157,298 5,629,695
- -----------------------------------------------------------------------------------
Tobacco--5.3%
Altria Group, Inc. 157,298 11,550,392
- -----------------------------------------------------------------------------------
Total Common Stocks
(Cost--$202,875,395)--101.2% 219,117,687
===================================================================================
===================================================================================
Face
Short-Term Securities Amount
===================================================================================
Time Deposits--1.2%
State Street Bank & Trust Co., 4.25%
due 7/03/2006 $2,727,899 2,727,899
- -----------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$2,727,899)--1.2% 2,727,899
===================================================================================
Total Investments
(Cost--$205,603,294)--102.4% 221,845,586
===================================================================================
===================================================================================
Number of
Options Written Contracts
===================================================================================
Call Options Written
3M Co.:
expiring July 2006 at USD 84.496,
Broker JPMorgan Chase Bank 300 (15,000)
expiring July 2006 at USD 84.534,
Broker JPMorgan Chase Bank 300 (900)
expiring August 2006 at USD 84.562,
Broker Banc of America 300 (38,174)
AT&T, Inc.:
expiring July 2006 at USD 26.97,
Broker UBS Warburg 300 (21,240)
expiring August 2006 at USD 26.855,
Broker Banc of America 300 (34,352)
expiring September 2006 at USD 26.744,
Broker Banc of America 300 (46,952)
Alcoa, Inc.:
expiring July 2006 at USD 30.444,
Broker Deutsche Bank AG 300 (69,000)
expiring August 2006 at USD 29.78,
Broker BNP Paribas 300 (93,600)
expiring September 2006 at USD 29.78,
Broker BNP Paribas 300 (105,000)
Altria Group, Inc.:
expiring July 2006 at USD 72.121,
Broker JPMorgan Chase Bank 300 (67,800)
expiring August 2006 at USD 71.003,
Broker Deutsche Bank AG 300 (124,383)
expiring September 2006 at USD 71.374,
Broker JPMorgan Chase Bank 300 (145,800)
American Express Co.:
expiring July 2006 at USD 53.933,
Broker JPMorgan Chase Bank 300 (13,500)
expiring August 2006 at USD 53.216,
Broker Banc of America 300 (45,507)
expiring September 2006 at
USD 53.216, Broker Banc of America 300 (66,076)
6 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006
Schedule of Investments (continued)
Number of
Options Written Contracts Value
===================================================================================
Call Options Written (continued)
American International Group, Inc.:
expiring July 2006 at USD 60.992,
Broker JPMorgan Chase Bank 300 $ (6,000)
expiring August 2006 at USD 60.413,
Broker Banc of America 300 (27,470)
expiring September 2006 at USD 60.13,
Broker BNP Paribas 300 (51,000)
Boeing Co.:
expiring July 2006 at USD 77.89,
Broker BNP Paribas 300 (144,000)
expiring August 2006 at USD 77.906,
Broker Deutsche Bank AG 300 (173,004)
expiring September 2006 at USD 77.89,
Broker BNP Paribas 300 (205,800)
Caterpillar, Inc.:
expiring July 2006 at USD 67.649,
Broker Banc of America 300 (205,858)
expiring August 2006 at USD 67.28,
Broker UBS Warburg 300 (234,540)
expiring September 2006 at USD 66.33,
Broker BNP Paribas 300 (287,100)
Citigroup, Inc.:
expiring July 2006 at USD 49.99,
Broker UBS Warburg 300 (3,180)
expiring August 2006 at USD 49.99,
Broker UBS Warburg 300 (6,840)
expiring September 2006 at USD 49.99,
Broker UBS Warburg 300 (19,020)
The Coca-Cola Co.:
expiring July 2006 at USD 44.187,
Broker Banc of America 300 (777)
expiring July 2006 at USD 44.47,
Broker Banc of America 300 (5,104)
expiring August 2006 at USD 44.268,
Broker Deutsche Bank AG 300 (15,354)
E.I. du Pont de Nemours & Co.:
expiring July 2006 at USD 41.052,
Broker Deutsche Bank AG 300 (33,240)
expiring August 2006 at USD 40.74,
Broker UBS Warburg 300 (54,150)
expiring September 2006 at USD 40.74,
Broker UBS Warburg 300 (62,880)
Exxon Mobil Corp.:
expiring July 2006 at USD 58.86,
Broker BNP Paribas 300 (82,800)
expiring August 2006 at USD 58.86,
Broker BNP Paribas 300 (101,700)
expiring September 2006 at USD 58.862,
Broker Banc of America 300 (126,049)
General Electric Co.:
expiring July 2006 at USD 34.56,
Broker UBS Warburg 300 (720)
expiring August 2006 at USD 34.21,
Broker UBS Warburg 300 (6,330)
expiring September 2006 at USD 34.208,
Broker Banc of America 300 (17,795)
General Motors Corp.:
expiring July 2006 at USD 25,
Broker BNP Paribas 300 (146,100)
expiring August 2006 at USD 25,
Broker BNP Paribas 300 (156,000)
expiring September 2006 at USD 24.997,
Broker Banc of America 300 (175,985)
Hewlett-Packard Co.:
expiring July 2006 at USD 32.6,
Broker Deutsche Bank 300 (5,028)
expiring July 2006 at USD 32.7,
Broker BNP Paribas 300 (15,300)
expiring August 2006 at USD 32.38,
Broker Banc of America 300 (48,146)
Home Depot, Inc.:
expiring July 2006 at USD 38.258,
Broker Banc of America 300 (117)
expiring July 2006 at USD 38.501,
Broker Banc of America 300 (3,905)
expiring August 2006 at USD 38.503,
Broker JPMorgan Chase Bank 300 (15,000)
Honeywell International, Inc.:
expiring July 2006 at USD 41.591,
Broker Deutsche Bank AG 300 (11,361)
expiring July 2006 at USD 41.61,
Broker BNP Paribas 300 (2,400)
expiring August 2006 at USD 41.662,
Broker Deutsche Bank AG 300 (23,991)
Intel Corp.:
expiring July 2006 at USD 18.201,
Broker BNP Paribas 300 (32,400)
expiring July 2006 at USD 18.26,
Broker BNP Paribas 300 (22,800)
expiring August 2006 at USD 18.07,
Broker UBS Warburg 300 (40,260)
International Business Machines Corp.:
expiring July 2006 at USD 80.699,
Broker Deutsche Bank AG 300 (9,579)
expiring July 2006 at USD 80.964,
Broker Deutsche Bank AG 300 (21)
expiring August 2006 at USD 81.466,
Broker Banc of America 300 (19,523)
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006 7
Schedule of Investments (concluded)
Number of
Options Written Contracts Value
===================================================================================
Call Options Written (continued)
JPMorgan Chase & Co.:
expiring July 2006 at USD 42.26,
Broker BNP Paribas 300 $ (13,800)
expiring July 2006 at USD 42.28,
Broker UBS Warburg 300 (22,140)
expiring August 2006 at USD 42.28,
Broker UBS Warburg 300 (37,740)
Johnson & Johnson:
expiring July 2006 at USD 60.65,
Broker BNP Paribas 300 (4,200)
expiring July 2006 at USD 60.822,
Broker Banc of America 300 (17,308)
expiring August 2006 at USD 61.137,
Broker JPMorgan Chase Bank 300 (25,200)
McDonald's Corp.:
expiring July 2006 at USD 33.501,
Broker Deutsche Bank AG 300 (27,894)
expiring July 2006 at USD 33.532,
Broker Banc of America 300 (15,364)
expiring August 2006 at USD 33.63,
Broker UBS Warburg 300 (37,980)
Merck & Co., Inc.:
expiring July 2006 at USD 34.623,
Broker Deutsche Bank AG 300 (57,663)
expiring August 2006 at USD 34.30,
Broker Deutsche Bank AG 300 (75,522)
expiring September 2006 at USD 33.98,
Broker UBS Warburg 300 (88,170)
Microsoft Corp.:
expiring July 2006 at USD 22.45,
Broker UBS Warburg 300 (29,580)
expiring August 2006 at USD 22.26,
Broker Banc of America 300 (40,840)
expiring September 2006 at USD 22.25,
Broker Banc of America 300 (47,975)
Pfizer, Inc.:
expiring July 2006 at USD 24.22,
Broker Deutsche Bank AG 300 (2,583)
expiring August 2006 at USD 24.149,
Broker Deutsche Bank AG 300 (11,580)
expiring September 2006 at USD 23.916,
Broker Banc of America 300 (19,674)
Procter & Gamble Co.:
expiring July 2006 at USD 54.269,
Broker JPMorgan Chase Bank 300 (50,400)
expiring August 2006 at USD 53.24,
Broker JPMorgan Chase Bank 300 (80,100)
expiring September 2006 at USD 55.058,
Broker Banc of America 300 (61,702)
United Technologies Corp.:
expiring July 2006 at USD 61.226,
Broker Banc of America 300 (77,627)
expiring August 2006 at USD 60.62,
Broker Banc of America 300 (109,843)
expiring September 2006 at USD 60.061,
Broker JPMorgan Chase Bank 300 (135,000)
Verizon Communications, Inc.:
expiring July 2006 at USD 32.254,
Broker Deutsche Bank AG 300 (29,259)
expiring August 2006 at USD 32.158,
Broker Nuveen Investments 300 (39,663)
expiring September 2006 at USD 31.86,
Broker UBS Warburg 300 (59,040)
Wal-Mart Stores, Inc.:
expiring August 2006 at USD 47.51,
Broker JPMorgan Chase Bank 300 (45,000)
expiring September 2006 at USD 47.63,
Broker UBS Warburg 300 (59,010)
expiring July 2007 at USD 47.92,
Broker UBS Warburg 300 (22,410)
Walt Disney, Co.:
expiring July 2006 at USD 28.886,
Broker Banc of America 300 (43,046)
expiring August 2006 at USD 28.94,
Broker BNP Paribas 300 (50,400)
expiring September 2006 at USD 28.94,
Broker BNP Paribas 300 (60,000)
- -----------------------------------------------------------------------------------
Total Options Written
(Premiums Received--$4,049,561)--(2.3%) (4,983,624)
===================================================================================
Total Investments, Net of Options Written
(Cost--$201,553,733*)--100.1% 216,861,962
Liabilities in Excess of Other Assets--(0.1%) (283,993)
------------
Net Assets--100.0% $216,577,969
============
- -----------------------------------------------------------------------------------
* The cost and unrealized appreciation (depreciation) of investments, net of
options written, as of June 30, 2006, as computed for federal income tax
purposes, were as follows:
Aggregate cost ......................................... $201,557,466
============
Gross unrealized appreciation .......................... $ 22,287,268
Gross unrealized depreciation .......................... (6,982,772)
------------
Net unrealized appreciation ............................ $ 15,304,496
============
o For Fund 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.
8 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006
Statement of Assets, Liabilities and Capital
As of June 30, 2006
=======================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified
cost--$205,603,294) $ 221,845,586
Receivables:
Dividends ........................................................... $ 287,122
Interest ............................................................ 322 287,444
-------------
Prepaid expenses ....................................................... 5,000
-------------
Total assets ........................................................... 222,138,030
-------------
=======================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received--$4,049,561) .............. 4,983,624
Payables:
Dividends to shareholders ........................................... 350,653
Investment adviser .................................................. 148,687 499,340
-------------
Accrued expenses ....................................................... 77,097
-------------
Total liabilities ...................................................... 5,560,061
-------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Net assets ............................................................. $ 216,577,969
=============
=======================================================================================================================
Capital
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001, 100,000,000 shares authorized ........... $ 11,369
Paid-in capital in excess of par ....................................... 210,097,130
Accumulated distributions in excess of investment income--net .......... $ (8,885,847)
Accumulated realized capital gains--net ................................ 47,088
Unrealized appreciation--net ........................................... 15,308,229
-------------
Total accumulated earnings--net ........................................ 6,469,470
-------------
Total capital--Equivalent to $19.05 per share based on 11,369,470 shares
of Common Stock outstanding (market price--$18.85) .................... $ 216,577,969
=============
See Notes to Financial Statements.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006 9
Statement of Operations
For the Six Months Ended June 30, 2006
=======================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------
Dividends .............................................................. $ 2,527,469
Interest ............................................................... 11,886
-------------
Total income ........................................................... 2,539,355
-------------
=======================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................... $ 988,792
Directors' fees and expenses ........................................... 36,715
Professional fees ...................................................... 32,865
Accounting services .................................................... 27,301
Transfer agent fees .................................................... 22,559
Printing and shareholder reports ....................................... 15,431
Custodian fees ......................................................... 10,115
Listing fees ........................................................... 8,998
Pricing services ....................................................... 577
Other .................................................................. 49,331
-------------
Total expenses ......................................................... 1,192,684
-------------
Investment income--net ................................................. 1,346,671
-------------
=======================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -----------------------------------------------------------------------------------------------------------------------
Realized gain on:
Investments--net .................................................... 710,812
Options written--net ................................................ 1,379,502 2,090,314
-------------
Change in unrealized appreciation/depreciation on:
Investments--net .................................................... 8,092,451
Options written--net ................................................ (2,263,986) 5,828,465
-------------------------------
Total realized and unrealized gain--net ................................ 7,918,779
-------------
Net Increase in Net Assets Resulting from Operations ................... $ 9,265,450
=============
See Notes to Financial Statements.
10 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006
Statements of Changes in Net Assets
For the Period
For the Six April 29,
Months Ended 2005+ to
June 30, December 31,
Increase (Decrease) in Net Assets: 2006 2005
=======================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................. $ 1,346,671 $ 2,116,710
Realized gain--net ..................................................... 2,090,314 1,179,428
Unrealized appreciation/depreciation--net .............................. 5,828,465 9,479,764
-------------------------------
Net increase in net assets resulting from operations ................... 9,265,450 12,775,902
-------------------------------
=======================================================================================================================
Dividends & Distributions to Shareholders
- -----------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................. (10,232,518) (2,024,530)
Realized gain--net ..................................................... -- (3,222,654)
Tax return of capital .................................................. -- (6,732,089)
-------------------------------
Net decrease in net assets resulting from dividends and distributions to
shareholders .......................................................... (10,232,518) (11,979,273)
-------------------------------
=======================================================================================================================
Common Stock Transactions
- -----------------------------------------------------------------------------------------------------------------------
Net proceeds from issuance of Common Stock ............................. -- 214,875,000
Value of shares issued to shareholders in reinvestment of dividends .... -- 2,195,790
Offering costs resulting from the issuance of Common Stock ............. -- (422,390)
-------------------------------
Net increase in net assets resulting from Common Stock transactions .... -- 216,648,400
-------------------------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ................................ (967,068) 217,445,029
Beginning of period .................................................... 217,545,037 100,008
-------------------------------
End of period* ......................................................... $ 216,577,969 $ 217,545,037
===============================
* Accumulated distributions in excess of investment income--net ...... $ (8,885,847) --
===============================
+ Commencement of operations.
See Notes to Financial Statements.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006 11
Financial Highlights
For the Period
For the Six April 29,
Months Ended 2005+ to
The following per share data and ratios have been derived June 30, December 31,
from information provided in the financial statements. 2006 2005
=======================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ................................... $ 19.13 $ 19.10
-------------------------------
Investment income--net** ............................................... .12 .19
Realized and unrealized gain--net ...................................... .70 .94
-------------------------------
Total from investment operations ....................................... .82 1.13
-------------------------------
Less dividends and distributions from:
Investment income--net .............................................. (.90) (.18)
Realized gain--net .................................................. -- (.28)
Tax return of capital ............................................... -- (.60)
-------------------------------
Total dividends and distributions ...................................... (.90) (1.06)
-------------------------------
Offering costs resulting from the issuance of Common Stock ............. -- (.04)
-------------------------------
Net asset value, end of period ......................................... $ 19.05 $ 19.13
===============================
Market price per share, end of period .................................. $ 18.85 $ 18.15
===============================
=======================================================================================================================
Total Investment Return++
- -----------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..................................... 4.39%@ 5.86%***@
===============================
Based on market price per share ........................................ 8.87%@ (4.08%)@
===============================
=======================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Expenses ............................................................... 1.09%* 1.12%*
===============================
Investment income--net ................................................. 1.23%* 1.44%*
===============================
=======================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ............................... $ 216,578 $ 217,545
===============================
Portfolio turnover ..................................................... .00%@@ 17.95%
===============================
* Annualized.
** Based on average shares outstanding.
*** In 2005, IQ Investment Advisors LLC (an affiliate) reimbursed the Fund as
a result of a trading/administrative error, which had no impact on total
investment return.
+ Commencement of operations.
++ Total investment returns based on market price, 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.
@ Aggregate total investment return.
@@ For purposes of calculating portfolio turnover of the Fund, the options
written by the Fund have been classified as short-term investments because
the expiration dates at the time of acquisition were one year or less, and
therefore, the portfolio turnover is zero.
See Notes to Financial Statements.
12 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
Dow 30(SM) Premium & Dividend Income Fund Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. 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 DPD.
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 National 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 Small Cap
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 are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last asked
price. Options purchased are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. 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 fair valuations.
Valuation of other short-term investment vehicles is generally based on the net
asset value of the underlying investment vehicle or amortized cost.
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
also are generally determined prior to 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 Adviser using a pricing service and/or procedures approved
by the Fund's Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract 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 market
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006 13
Notes to Financial Statements (continued)
value of the option written. When a security is purchased or sold through
an exercise of an option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. 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 paid (or
gain or loss to the extent the cost of the closing transaction exceeds the
premium paid or 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 futures contracts. 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.
(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 income is recognized on the accrual basis.
(e) Dividends and distributions -- Dividends are declared and paid monthly. A
portion of the dividends paid by the Fund during the period April 29, 2005 to
December 31, 2005 was characterized as a tax return of capital.
(f) Offering expenses -- Direct expenses relating to the public offering of the
Fund's Common Stock were charged to capital at the time of issuance of the
shares.
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 exclude any net assets attributable to
leveraging transactions. IQ has entered into a Subadvisory Agreement with Nuveen
Asset Management, Inc. ("Nuveen") pursuant to which Nuveen provides certain
investment advisory services to IQ with respect to the Fund. For such services,
IQ will pay Nuveen a monthly fee at an annual rate equal to .39% of the average
daily value of the Fund's net assets plus borrowings for investment purposes,
but exclude any net assets attributable to leveraging transactions. There is no
increase in the aggregate fees paid by the Fund for these services.
Certain officers and/or directors of the Fund are officers and/or directors of
IQ and ML & Co.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, to the investment
management business of BlackRock, Inc. The transaction is expected to close at
the end of the third quarter of 2006.
14 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006
Notes to Financial Statements (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2006 were $0 and $8,467,329, respectively.
Transactions in options written for the six months ended June 30, 2006 were as
follows:
- -------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- -------------------------------------------------------------------------------
Outstanding call options written,
beginning of period .................... 24,000 $ 2,418,367
Options written .......................... 120,000 12,918,701
Options expired .......................... (62,700) (5,972,149)
Options closed ........................... (54,300) (5,315,358)
-----------------------------
Outstanding call options written,
end of period .......................... 27,000 $ 4,049,561
=============================
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.
Shares issued and outstanding during the six months ended June 30, 2006 remained
constant. Shares issued and outstanding during the period April 29, 2005 to
December 31, 2005 increased by 11,250,000 from shares sold and 114,234 as a
result of dividend reinvestments.
5. Subsequent Event:
The Fund paid an ordinary income dividend in the amount of $.15 per share on
July 31, 2006 to shareholders of record on July 21, 2006.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006 15
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"). Each Fund's Board of Directors receives, reviews and
evaluates information concerning the services and personnel of IQ Investment
Advisors LLC ("IQ Advisors") and its affiliates at each quarterly meeting of the
Board of Directors. While particular emphasis is placed on information
concerning profitability, comparability of fees, total expenses and a Fund's
investment performance at meetings at which a renewal of the Management
Agreement is considered, the process of evaluating IQ Advisors and a Fund's
investment advisory arrangements is an ongoing one. In this regard, the Board's
consideration of the nature, extent and quality of the services provided by IQ
Advisors under the Management Agreement is expected to include deliberations at
future quarterly meetings.
At a Board meeting held on June 5, 2006, 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 Boards 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. The Board of each Fund considered the size, education 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 Board of
Directors discussed in detail with officers of IQ Advisors 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 this discussion, 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
Boards of 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
Boards of 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 Boards noted that IQ
Advisors has an administrative, legal and compliance staff that helps ensure a
high level of quality in the compliance and administrative services provided to
the Funds. The Boards also considered each Fund's compliance history. Based on
the presentations at the meeting and the Directors' experience as Directors of
other investment companies advised by IQ Advisors, the Boards of Directors
concluded that the services provided to the Funds by IQ Advisors under the
Management Agreements were of a high quality and benefited the Funds.
(b) Investment performance of the Funds 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 Boards of Directors also considered the innovative nature of each
Fund. The Boards noted that each Fund uses a relatively unique investment
strategy and that comparisons of a Fund's investment performance to the
performance of other investment companies were generally not meaningful. The
Boards reviewed each Fund's investment performance and 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 Boards 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.
16 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006
Based on these factors, the Directors determined that IQ Advisors continued to
be an appropriate investment adviser for the Funds.
(c) Cost of the services provided and profits realized by IQ Advisors and its
affiliates from the relationship with 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 also reviewed and considered a report prepared by
independent consultants engaged by the Directors to review and evaluate IQ
Advisors' methodology in calculating profitability. After discussions with the
independent consultants, who participated in the meeting, and reviewing their
report, the Directors concluded that 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 discussed with
representatives of IQ Advisors its general level of profitability (if any), and
the profits derived by its affiliates, including MLIM, from operating the Funds.
The Boards 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 Funds, including the
underwriting arrangements relating to the initial distribution of Fund shares.
The Boards considered federal court decisions discussing an investment adviser's
profitability and profitability levels considered to be reasonable in those
decisions. The Boards 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 Boards also concluded that each
Fund benefited from these services.
(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 Boards
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 Boards noted that, because each Fund is a
closed-end fund, any increase in asset levels would have to come from the
appreciation of Fund assets. The Boards 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 Boards 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 after the one-year renewal term of the
Management Agreements.
(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 relatively unique nature of the
investment strategies of the Funds and the fact that the relevant peer group of
funds provided by Lipper for comparison might have investment strategies and
restrictions different from those of the Funds. The Boards did not consider
compensation paid with respect to accounts other than registered investment
companies because IQ Advisors utilizes each Fund's strategy in connection with
only its registered funds. In particular, the Boards noted that each Fund's
contractual management fee rate at a common asset level was lower than the
median fee rate of its peer funds.
Conclusion
No single factor was determinative to the decision of the Boards. Based on the
foregoing and such other matters as were deemed relevant, all of the Directors
who were present at the June 5, 2006 meeting 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 Boards also found the investment
advisory fees to be reasonable in comparison to the fees charged by advisers to
other funds of 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.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006 17
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 5, 2006 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. At each quarterly meeting of the Board of Directors, each Fund's
Board receives, reviews and evaluates information concerning the services and
personnel of MLIM, as subadviser to each of S&P 500(R) GEARED(SM) Fund Inc. and
Small Cap Premium & Dividend Income Fund Inc., PEA Capital LLC ("PEA"), 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
MLIM and PEA, the "Subadvisers"), as subadviser to Dow 30(SM) Premium & Dividend
Income Fund Inc. While particular emphasis is placed on information concerning a
Fund's investment performance at meetings at which a renewal of the Subadvisory
Agreements is considered, the process of evaluating each Subadviser and the
Fund's subadvisory arrangements is an ongoing one.
(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. In connection with the investment subadvisory services
provided to the respective Funds, the Directors discussed in detail 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. Drawing on their collective industry
experience, the Directors 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. With respect to Funds
subadvised by MLIM, the Directors discussed the fact that MLIM would be merging
with BlackRock to form a new advisory firm and considered the potential effects
such merger may have on such Funds before and after the merger. With respect to
Funds subadvised by PEA, the Directors discussed the fact that it was being
contemplated that PEA would be dissolved and all of its personnel and resources
would be transferred to its affiliate, Oppenheimer Capital LLC. The Directors
considered the potential effects such novation may have on the Funds subadvised
by PEA and determined that it would not result in any change in the way in which
the Funds are managed or operated and would not harm the Funds in any manner and
that there would not be an assignment of the Subadvisory Agreement within the
meaning of the Investment Company Act.
The Board of Directors of each Fund concluded that the services provided to the
Fund by each of the Subadvisers under the Subadvisory Agreement were of a high
quality and would continue to benefit the respective Funds.
(b) Investment performance of the Funds and each Subadviser -- The Board of
Directors of each Fund received and considered information about the Fund's
investment performance in comparison to the performance of its relative
reference index 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 the services provided and profits realized by each Subadviser from
its relationship with the relevant Funds -- The Directors considered the
profitability to MLIM 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 Boards concluded that MLIM's profits are 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 arrangements were entered into at "arm's
length" between the Subadviser and IQ Advisors.
Each Fund's Board of Directors then considered the potential direct and indirect
benefits to each Subadviser and its affiliates from their relationship with the
Fund, including the reputational benefits from managing the Funds. The Board of
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
18 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006
such economies of scale -- The Boards 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 by the Funds
directly. The Boards noted that, because each Fund is a closed-end fund, any
increase in asset levels would have to come from the appreciation of Fund
assets. The Boards 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 after the one-year renewal term of the Subadvisory Agreements.
(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 Boards 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
Boards 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 Boards
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 Boards. Based on the
foregoing and such other matters as were deemed relevant, all of the Directors
present at the June 5, 2006 meeting 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.
"GEARED" is a service mark of Merrill Lynch & Co.
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.
Contact Information
For more information regarding the Fund, please visit www.IQIAFunds.com or
contact us at 1-877-449-4742.
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.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2006 19
[LOGO] IQ INVESTMENT
ADVISORS www.IQIAFunds.com
Dow 30(SM) Premium & Dividend Income Fund Inc. seeks to provide stockholders
with a high level of current income, with a secondary objective of capital
appreciation.
This report, including the financial information herein, is transmitted to
shareholders of Dow 30(SM) Premium & Dividend Income 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.
Dow 30(SM) Premium & Dividend Income Fund Inc.
Box 9011
Princeton, NJ 08543-9011
#IQDPD -- 6/06
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 - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable to this semi-annual report
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal half-year 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.
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.
Dow 30(SM) Premium & Dividend Income Fund Inc.
By: /s/ Mitchell M. Cox
----------------------------------------------
Mitchell M. Cox,
Chief Executive Officer of
Dow 30(SM) Premium & Dividend Income Fund Inc.
Date: August 23, 2006
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
Dow 30(SM) Premium & Dividend Income Fund Inc.
Date: August 23, 2006
By: /s/ Donald C. Burke
----------------------------------------------
Donald C. Burke,
Chief Financial Officer of
Dow 30(SM) Premium & Dividend Income Fund Inc.
Date: August 23, 2006