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