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 into sectors for reporting ease.
A description of the valuation techniques applied to the Funds’ major classifications of assets and liabilities measured at fair
value follows:
Equity securities and exchange-traded funds listed or traded on a national market or exchange are valued based on their last reported sales price or
official closing price of such market or exchange on the valuation date. Foreign equity securities and registered investment companies that trade on a foreign exchange are valued at the last reported sales price or official closing price on the
principal exchange where traded, and converted to U.S. dollars at the prevailing rates of exchange on the valuation date. For events affecting the value of foreign securities between the time when the exchange on which they are traded closes and the
time when the Funds’ net assets are calculated, such securities will be valued at fair value in accordance with procedures adopted by the Adviser, subject to the oversight of the Board. To the extent these securities are actively traded and no
valuation adjustments are applied, they are generally classified as Level 1. When valuation adjustments are applied to the most recent last sales price or official closing price, these securities are generally classified as Level 2.
Prices of certain American Depositary Receipts (“ADR”) held by the Funds that trade in the United States are valued based on the last traded price, official
closing price, or an evaluated price provided by the independent pricing service (“pricing service”) and are generally classified as Level 1 or 2.
Purchased and written options traded and listed on a national market or exchange are valued at the mean of the closing bid and asked prices and are generally classified
as Level 1.
Investments in investment companies are valued at their respective NAVs or share price on the valuation date and are generally classified as Level
1.
Repurchase agreements are valued at contract amount plus accrued interest, which approximates market value. These securities are generally classified as Level 2.
For any portfolio security or derivative for which market quotations are not readily available or for which the Adviser deems the valuations derived using the
valuation procedures described above not to reflect fair value, the Adviser will determine a fair value in good faith using alternative procedures approved by the Adviser, subject to the oversight of the Board. As a general principle, the fair value
of a security is the amount that the owner might reasonably expect to receive for it in a current sale. A variety of factors may be considered in determining the fair value of such securities, which may include consideration of the following: yields
or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers, evaluations of anticipated cash flows or collateral, general market conditions and other
information and analysis, including the obligor’s credit characteristics considered relevant. To the extent the inputs are observable and timely, the values would be classified as Level 2; otherwise they would be classified as
Level 3.
The following table summarizes the market value of the Funds’ investments as of the end of the reporting period, based on the inputs used to value
them:
In connection with transactions in repurchase agreements, it is each Fund’s policy that its custodian take possession of the underlying collateral securities, the
fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. If the counterparty defaults, and the fair value of the collateral declines, realization of the collateral may be delayed or
limited.
The following table presents the repurchase
agreements for the Funds that are subject to netting agreements as of the end of the reporting period, and the collateral delivered related to those repurchase agreements.
When a Fund loans its portfolio securities, it will receive, at the inception of
each loan, cash collateral equal to an amount not less than 100% of the market value of the loaned securities. The actual percentage of the cash collateral will vary depending upon the asset type of the loaned securities. Collateral for the loaned
securities is invested in a government money market vehicle maintained by the Agent, which is subject to the requirements of Rule 2a-7 under the 1940 Act. The value of the loaned securities and the liability
to return the cash collateral received are recognized on the Statement of Assets and Liabilities. If the market value of the loaned securities increases, the borrower must furnish additional collateral to the Fund, which is also recognized on the
Statement of Assets and Liabilities. Securities out on loan are subject to termination at any time at the option of the borrower or the Fund. Upon termination, the borrower is required to return to the Fund securities identical to the securities
loaned. During the term of the loan, the Fund bears the market risk with respect to the investment of collateral and the risk that the Agent may default on its contractual obligations to the Fund. The Agent bears the risk that the borrower may
default on its obligation to return the loaned securities as the Agent is contractually obligated to indemnify the Fund if at the time of a default by a borrower some or all of the loan securities have not been returned.
Securities lending income recognized by a Fund consists of earnings on invested collateral and lending fees, net of any rebates to the borrower and compensation to the
Agent. Such income is recognized on the Statement of Operations.
As of the end of the current reporting period, the total value of the loaned securities and the
total value of collateral received were as follows:
The Funds may purchase securities on a when-issued or delayed-delivery basis. Securities purchased on a when-issued or delayed-delivery
basis may have extended settlement periods; interest income is not accrued until settlement date. Any securities so purchased are subject to market fluctuation during this period. The Funds have earmarked securities in their portfolios with a
current value at least equal to the amount of the when-issued/delayed-delivery purchase commitments. If a Fund has outstanding when-issued/delayed-delivery purchases commitments as of the end of the reporting period, such amounts are recognized on
the Statement of Assets and Liabilities.
Each
Fund is authorized to invest in certain derivative instruments, such as futures, options and swap contracts. Each Fund limits its investments in futures, options on futures and swap contracts to the extent necessary for the Adviser to claim the
exclusion from registration by the Commodity Futures Trading Commission as a commodity pool operator with respect to the Fund. The Funds record derivative instruments at fair value, with changes in fair value recognized on the Statement of
Operations, when applicable. Even though the Funds’ investments in derivatives may represent economic hedges, they are not considered to be hedge transactions for financial reporting purposes.
Upon execution of a futures contract, a Fund is obligated to deposit cash or eligible securities, also known as “initial margin,” into an account at its
clearing broker equal to a specified percentage of the contract amount. Cash held by the broker to cover initial margin requirements on open futures contracts, if any, is recognized as “Cash collateral at brokers for investments in futures
contracts” on the Statement of Assets and Liabilities. Investments in futures contracts obligate a Fund and the clearing broker to settle monies on a daily basis representing changes in the prior days “mark-to-market” of the open contracts. If a Fund has unrealized appreciation the clearing broker would credit the Fund’s account with an amount equal to appreciation and conversely if a Fund
has unrealized depreciation the clearing broker would debit the Fund’s account with an amount equal to depreciation. These daily cash settlements are also known as “variation margin.” Variation margin is recognized as a receivable
and/or payable for “Variation margin on futures contracts” on the Statement of Assets and Liabilities.
During the period the futures contract is open,
changes in the value of the contract are recognized as an unrealized gain or loss by “marking-to-market” on a daily basis to reflect the changes in market
value of the contract, which is recognized as a component of “Change in net unrealized appreciation (depreciation) of futures contracts” on the Statement of Operations. When the contract is closed or expired, a Fund records a realized gain
or loss equal to the difference between the value of the contract on the closing date and value of the contract when originally entered into, which is recognized as a component of “Net realized gain (loss) from futures contracts” on the
Statement of Operations.
Risks of investments in futures contracts include the possible adverse movement in the price of the securities or indices underlying the
contracts, the possibility that there may not be a liquid secondary market for the contracts and/or that a change in the value of the contract may not correlate with a change in the value of the underlying securities or indices.
During the current fiscal period, JCE used equity futures for cash management purposes. The average notional amount of futures contracts outstanding during the current
fiscal period was as follows:
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized on futures contracts on the
Statement of Operations during the current fiscal period, and the primary underlying risk exposure.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fund |
|
Underlying
Risk Exposure |
|
Derivative
Instrument |
|
Net Realized
Gain (Loss)
from Futures
Contracts |
|
|
Change in Net
Unrealized
Appreciation
(Depreciation)
of Futures
Contracts |
|
| JCE |
|
Equity |
|
Future Contracts |
|
$ |
(8,968 |
) |
|
$ |
— |
|
Options Transactions
The purchase of options
involves the risk of loss of all or a part of the cash paid for the options (the premium). The market risk associated with purchasing options is limited to the premium paid. The counterparty credit risk of purchasing options, however, needs to take
into account the current value of the option, as this is the performance expected from the counterparty. When a Fund purchases an option, an amount equal to the premium paid (the premium plus commission) is recognized as a component of “Options
purchased, at value” on the Statement of Asset and Liabilities. When a Fund writes an option, an amount equal to the net premium received (the premium less commission) is recognized as a component of “Options written, at value” on the
Statement of Assets and Liabilities and is subsequently adjusted to reflect the current value of the written option until the option is exercised or expires or the Fund enters into a closing purchase transaction. The changes in the value of options
purchased and/or written during the fiscal period are recognized as a component of “Change in net unrealized appreciation (depreciation) of options purchased and/or written” on the Statement of Operations. When an option is exercised or
expires or a Fund enters into a closing purchase transaction, the difference between the net premium received, and any amount paid at expiration or on executing a closing purchase transaction, including commission, is recognized as a component of
“Net realized gain (loss) from options purchased and/or written” on the Statement of Operations. The Fund, as writer of an option, has no control over whether the underlying instrument may be sold (called) or purchased (put) and as a
result bears the risk of an unfavorable change in the market value of the instrument underlying the written option. There is also the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.
During the current fiscal period, BXMX wrote call options on equity indices as per its stated strategy, with the notional amount of these options averaging 99% of the
Fund’s assets.
78
During the current fiscal period, DIAX, SPXX and
QQQX, each wrote call options on equity indices as per its stated dynamic overwriting strategy with the notional amounts of these options ranging from approximately 35-75% of each Fund’s assets. DIAX, SPXX and QQQX also purchased put and call
options as part of their overwrite strategy.
During the current fiscal period, JCE continued to write and purchase call options on equity indexes, while investing in
a portfolio that included equities to enhance returns while foregoing some upside potential of its equity portfolio.
The average notional amount of outstanding
options purchased and options written during the current fiscal period, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
DIAX |
|
|
SPXX |
|
|
QQQX |
|
|
JCE |
|
| Average notional amount of outstanding call options
purchased* |
|
|
|
|
|
$ |
840,000 |
|
|
$ |
420,000 |
|
|
$ |
840,000 |
|
|
$ |
— |
|
|
|
|
|
|
|
| |
|
BXMX |
|
|
DIAX |
|
|
SPXX |
|
|
QQQX |
|
|
JCE |
|
| Average notional amount of outstanding call options
written* |
|
$ |
(1,420,496,500 |
) |
|
$ |
(328,178,000 |
) |
|
$ |
(156,559,500 |
) |
|
$ |
(603,551,500 |
) |
|
$ |
(64,679,000 |
) |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
DIAX |
|
|
SPXX |
|
|
QQQX |
|
| Average notional amount of outstanding put options
purchased* |
|
|
|
|
|
|
|
|
|
$ |
228,000 |
|
|
$ |
114,000 |
|
|
$ |
228,000 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
DIAX |
|
|
SPXX |
|
|
QQQX |
|
| Average notional amount of outstanding put options
written* |
|
|
|
|
|
|
|
|
|
$ |
(9,360,000 |
) |
|
$ |
(4,320,000 |
) |
|
$ |
(15,840,000 |
) |
| * |
The average notional amount is calculated based on the absolute aggregate notional amount of contracts outstanding at the
beginning of the current fiscal period and at the end of each quarter within the current fiscal period. JCE did not hold any call options purchased at the end of any fiscal quarter within the current fiscal period. |
The following table presents the fair value of all options purchased and options written by the Funds as of the end of the reporting period, the location of these
instruments on the Statement of Assets and Liabilities and the primary underlying risk exposure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Location on the Statement of Assets and
Liabilities |
|
Underlying
Risk Exposure |
|
Derivative
Instrument |
|
Asset Derivatives |
|
|
|
|
|
(Liability) Derivatives |
|
| |
Location |
|
Value |
|
|
|
|
|
Location |
|
Value |
|
| BXMX |
|
| Equity price |
|
Options |
|
— |
|
$ |
— |
|
|
|
|
|
|
Options written, at value |
|
$ |
(23,696,130 |
) |
| DIAX |
|
| Equity price |
|
Options |
|
Option purchased, at value |
|
$ |
4,800 |
|
|
|
|
|
|
Options written, at value |
|
$ |
(4,822,375 |
) |
| SPXX |
|
| Equity price |
|
Options |
|
Options purchased, at value |
|
$ |
2,400 |
|
|
|
|
|
|
Options written, at value |
|
$ |
(2,195,338 |
) |
| QQQX |
|
| Equity price |
|
Options |
|
Options purchased, at value |
|
$ |
4,800 |
|
|
|
|
|
|
Options written, at value |
|
$ |
(5,487,302 |
) |
| JCE |
|
| Equity price |
|
Options |
|
— |
|
$ |
— |
|
|
|
|
|
|
Options written, at value |
|
$ |
(84,988 |
) |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized on
options purchased and options written on the Statement of Operations during the current fiscal period, and the primary underlying risk exposure.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fund |
|
Underlying
Risk Exposure |
|
Derivative
Instrument |
|
Net Realized
Gain (Loss)
from Options
Purchased/Written |
|
|
Change in Net
Unrealized
Appreciation
(Depreciation)
of Options
Purchased/Written |
|
| BXMX |
|
Equity price |
|
Options purchased |
|
$ |
— |
|
|
$ |
— |
|
| BXMX |
|
Equity price |
|
Options written |
|
|
92,014,514 |
|
|
|
17,610,140 |
|
| DIAX |
|
Equity price |
|
Options purchased |
|
|
(169,111 |
) |
|
|
(17,463 |
) |
| DIAX |
|
Equity price |
|
Options written |
|
|
18,144,464 |
|
|
|
6,048,286 |
|
| SPXX |
|
Equity price |
|
Options purchased |
|
|
(87,930 |
) |
|
|
(8,732 |
) |
| SPXX |
|
Equity price |
|
Options written |
|
|
9,550,235 |
|
|
|
2,888,440 |
|
| QQQX |
|
Equity price |
|
Options purchased |
|
|
(221,017 |
) |
|
|
(17,463 |
) |
| QQQX |
|
Equity price |
|
Options written |
|
|
82,240,122 |
|
|
|
14,447,843 |
|
| JCE |
|
Equity price |
|
Options purchased |
|
|
13,408 |
|
|
|
— |
|
| JCE |
|
Equity price |
|
Options written |
|
|
907,627 |
|
|
|
359,740 |
|
79
Notes to Financial Statements (continued)
Market and Counterparty Credit Risk
In the normal course of business each Fund may invest in financial instruments and enter into financial transactions where risk of potential loss exists due to changes in
the market (market risk) or failure of the other party to the transaction to perform (counterparty credit risk). The potential loss could exceed the value of the financial assets recorded on the financial statements. Financial assets, which
potentially expose each Fund to counterparty credit risk, consist principally of cash due from counterparties on forward, option and swap transactions, when applicable. The extent of each Fund’s exposure to counterparty credit risk in respect
to these financial assets approximates their carrying value as recorded on the Statement of Assets and Liabilities.
Each Fund helps manage counterparty credit risk
by entering into agreements only with counterparties the Adviser believes have the financial resources to honor their obligations and by having the Adviser monitor the financial stability of the counterparties. Additionally, counterparties may be
required to pledge collateral daily (based on the daily valuation of the financial asset) on behalf of each Fund with a value approximately equal to the amount of any unrealized gain above a pre-determined threshold. Reciprocally, when each Fund has
an unrealized loss, the Funds have instructed the custodian to pledge assets of the Funds as collateral with a value approximately equal to the amount of the unrealized loss above a pre-determined threshold. Collateral pledges are monitored and
subsequently adjusted if and when the valuations fluctuate, either up or down, by at least the pre-determined threshold amount.
5. Fund Shares
Common Shares
Common Share Equity Shelf Programs and Offering Costs
SPXX and QQQX have each filed registration statements with the SEC authorizing each Fund to issue additional shares through one or more equity shelf program (“Shelf
Offering”), which became effective with the SEC during a prior fiscal period.
Under these Shelf Offerings, the Funds, subject to market conditions, may raise
additional equity capital by issuing additional shares from time to time in varying amounts and by different offering methods at a net price at or above each Fund’s NAV per common share. In the event each Fund’s Shelf Offering registration
statement is no longer current, the Funds may not issue additional shares until a post-effective amendment to the registration statement has been filed with the SEC.
Additional authorized common shares, common shares sold and offering proceeds, net of offering costs under each Fund’s Shelf Offering during the Funds’ current
and prior fiscal period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
SPXX |
|
|
QQQX |
|
| |
|
Year Ended
12/31/22 |
|
|
Year Ended
12/31/21 |
|
|
Year Ended
12/31/22 |
|
|
Year Ended
12/31/21 |
|
| Maximum aggregate offering |
|
|
4,993,317 |
|
|
|
4,993,317 |
* |
|
|
Unlimited |
|
|
|
Unlimited |
** |
| Common shares sold |
|
|
639,749 |
|
|
|
100,336 |
|
|
|
3,280,964 |
|
|
|
3,478,731 |
|
| Offering proceeds, net of offering costs |
|
$ |
10,181,265 |
|
|
$ |
1,804,279 |
|
|
$ |
81,420,803 |
|
|
$ |
99,137,676 |
|
| * |
Represents maximum aggregate offering for the period July 28, 2021 through December 31, 2021. |
| ** |
Represents maximum aggregate offering for the period April 30, 2021 through December 31, 2021. |
Costs incurred by the Funds in connection with their initial shelf registrations are recorded as a prepaid expense and recognized as “Deferred offering costs”
on the Statement of Assets and Liabilities. These costs are amortized pro rata as shares are sold and are recognized as a component of “Proceeds from shelf offering, net of offering costs” on the Statement of Changes in Net Assets. Any
deferred offering costs remaining after the effectiveness of the initial shelf registration will be expensed. Costs incurred by the Funds to keep the shelf registration current are expensed as incurred and recognized as a component of “Other
Expenses” on the Statement of Operations.
Common Share Transactions
Transactions in common shares for the Funds during the Funds’ current and prior fiscal period, where applicable, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
SPXX |
|
|
QQQX |
|
|
JCE |
|
| |
|
Year Ended
12/31/22 |
|
|
Year Ended
12/31/21 |
|
|
Year Ended
12/31/22 |
|
|
Year Ended
12/31/21 |
|
|
Year Ended
12/31/22 |
|
|
Year Ended
12/31/21 |
|
| Common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issued to shareholders due to reinvestment of distributions |
|
|
14,838 |
|
|
|
4,478 |
|
|
|
109,290 |
|
|
|
60,886 |
|
|
|
25,025 |
|
|
|
18,321 |
|
| Sold through shelf offering |
|
|
639,749 |
|
|
|
100,336 |
|
|
|
3,280,964 |
|
|
|
3,478,731 |
|
|
|
— |
|
|
|
— |
|
| Weighted average common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Premium to NAV per shelf offering sold |
|
|
1.77 |
% |
|
|
1.23 |
% |
|
|
2.37 |
% |
|
|
1.90 |
% |
|
|
— |
|
|
|
— |
|
80
6. Income Tax Information
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund intends to distribute substantially all of its net investment income and net capital gains to
shareholders and otherwise comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. Therefore, no federal income tax provision is required.
Each Fund files income tax returns in U.S. federal and applicable state and local jurisdictions. A Fund’s federal income tax returns are generally subject to
examination for a period of three fiscal years after being filed. State and local tax returns may be subject to examination for an additional period of time depending on the jurisdiction. Management has analyzed each Fund’s tax positions taken
for all open tax years and has concluded that no provision for income tax is required in the Fund’s financial statements.
Differences between amounts for
financial statement and federal income tax purposes are primarily due to timing differences in recognizing gains and losses on investment transactions. Temporary differences do not require reclassification. As of year end, permanent differences that
resulted in reclassifications among the components of net assets relate primarily to distribution reallocations, foreign currency transactions, nondeductible offering costs, and return of capital and long-term capital gain distributions received
from portfolio investments. Temporary and permanent differences have no impact on a Fund’s net assets.
As of year end, the aggregate cost and the net unrealized
appreciation/(depreciation) of all investments for federal income tax purposes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fund |
|
Tax Cost |
|
|
Gross
Unrealized
Appreciation |
|
|
Gross
Unrealized
(Depreciation) |
|
|
Net
Unrealized
Appreciation
(Depreciation) |
|
| BXMX |
|
$ |
585,897,149 |
|
|
$ |
760,950,520 |
|
|
$ |
(37,680,964 |
) |
|
$ |
723,269,556 |
|
| DIAX |
|
|
246,076,837 |
|
|
|
363,443,554 |
|
|
|
(20,329,715 |
) |
|
|
343,113,839 |
|
| SPXX |
|
|
130,759,686 |
|
|
|
143,034,612 |
|
|
|
(7,889,626 |
) |
|
|
135,144,986 |
|
| QQQX |
|
|
456,664,951 |
|
|
|
549,643,963 |
|
|
|
(55,564,431 |
) |
|
|
494,079,532 |
|
| JCE |
|
|
186,289,875 |
|
|
|
22,550,776 |
|
|
|
(15,232,622 |
) |
|
|
7,318,154 |
|
For purposes of this disclosure, tax cost generally includes the cost of portfolio investments as well as
up-front fees or premiums exchanged on derivatives and any amounts unrealized for income statement reporting but realized income and/or capital gains for tax reporting, if applicable.
As of year end, the components of accumulated earnings on a tax basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fund |
|
Undistributed
Ordinary
Income |
|
|
Undistributed
Long-Term
Capital Gains |
|
|
Unrealized
Appreciation
(Depreciation) |
|
|
Capital Loss
Carryforwards |
|
|
Late-Year Loss
Deferrals |
|
|
Other
Book-to-Tax
Differences |
|
|
Total |
|
| BXMX |
|
$ |
18,370,943 |
|
|
$ |
41,451,927 |
|
|
$ |
723,269,556 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
783,092,426 |
|
| DIAX |
|
|
— |
|
|
|
— |
|
|
|
343,113,839 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
343,113,839 |
|
| SPXX |
|
|
— |
|
|
|
5,035,575 |
|
|
|
135,144,986 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
140,180,561 |
|
| QQQX |
|
|
5,025,099 |
|
|
|
21,358,038 |
|
|
|
494,079,532 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
520,462,669 |
|
| JCE |
|
|
— |
|
|
|
— |
|
|
|
7,318,154 |
|
|
|
(1,485,191 |
) |
|
|
— |
|
|
|
(37,746 |
) |
|
|
5,795,217 |
|
The tax character of distributions paid was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
12/31/2022 |
|
|
12/31/2021 |
|
| Fund |
|
Ordinary
Income |
|
|
Long-Term
Capital Gains |
|
|
Return of
Capital |
|
|
Ordinary
Income |
|
|
Long-Term
Capital Gains |
|
|
Return of
Capital |
|
| BXMX |
|
$ |
37,065,603 |
|
|
$ |
61,400,545 |
|
|
$ |
— |
|
|
$ |
7,941,118 |
|
|
$ |
42,365,694 |
|
|
$ |
39,207,868 |
|
| DIAX |
|
|
17,416,496 |
|
|
|
22,929,386 |
|
|
|
1,359,694 |
|
|
|
6,196,646 |
|
|
|
5,996,179 |
|
|
|
27,519,845 |
|
| SPXX |
|
|
2,223,255 |
|
|
|
18,532,859 |
|
|
|
— |
|
|
|
1,822,067 |
|
|
|
10,354,471 |
|
|
|
4,722,744 |
|
| QQQX |
|
|
18,109,242 |
|
|
|
75,075,334 |
|
|
|
— |
|
|
|
— |
|
|
|
33,913,718 |
|
|
|
44,002,163 |
|
| JCE |
|
|
27,672,785 |
|
|
|
4,996,444 |
|
|
|
4,773,720 |
|
|
|
4,883,323 |
|
|
|
24,578,132 |
|
|
|
— |
|
As of year end, the Funds had capital loss carryforwards, which will not expire:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fund |
|
Short-Term |
|
|
Long-Term |
|
|
Total |
|
| BXMX |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| DIAX |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| SPXX |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| QQQX |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| JCE |
|
|
1,485,191 |
|
|
|
— |
|
|
|
1,485,191 |
|
81
Notes to Financial Statements (continued)
7. Management Fees
The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. Gateway and NAM are compensated for
their services to the Funds from the management fees paid to the Adviser.
Each Fund’s management fee consists of two components – a fund-level fee, based
only on the amount of assets within each individual Fund, and a complex-level fee, based on the aggregate amount of all eligible fund assets managed by the Adviser. This pricing structure enables Fund shareholders to benefit from growth in the
assets within their respective Fund as well as from growth in the amount of complex-wide assets managed by the Adviser.
The annual fund-level fee, payable monthly,
for each Fund is calculated according to the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average Daily Managed Assets* |
|
BXMX |
|
|
DIAX |
|
|
SPXX |
|
|
QQQX |
|
|
JCE |
|
| For the first $500 million |
|
|
0.7000 |
% |
|
|
0.7000 |
% |
|
|
0.6600 |
% |
|
|
0.6900 |
% |
|
|
0.7500 |
% |
| For the next $500 million |
|
|
0.6750 |
|
|
|
0.6750 |
|
|
|
0.6350 |
|
|
|
0.6650 |
|
|
|
0.7250 |
|
| For the next $500 million |
|
|
0.6500 |
|
|
|
0.6500 |
|
|
|
0.6100 |
|
|
|
0.6400 |
|
|
|
0.7000 |
|
| For the next $500 million |
|
|
0.6250 |
|
|
|
0.6250 |
|
|
|
0.5850 |
|
|
|
0.6150 |
|
|
|
0.6750 |
|
| For managed assets over $2 billion |
|
|
0.6000 |
|
|
|
0.6000 |
|
|
|
0.5600 |
|
|
|
0.5900 |
|
|
|
0.6500 |
|
The annual complex-level fee, payable monthly, for each Fund is calculated by multiplying the current complex-wide fee rate, determined
according to the following schedule by each Fund’s daily managed assets:
|
|
|
|
|
| Complex-Level Eligible Asset Breakpoint Level* |
|
Effective Complex-Level Fee Rate at Breakpoint Level |
|
| $55 billion |
|
|
0.2000 |
% |
| $56 billion |
|
|
0.1996 |
|
| $57 billion |
|
|
0.1989 |
|
| $60 billion |
|
|
0.1961 |
|
| $63 billion |
|
|
0.1931 |
|
| $66 billion |
|
|
0.1900 |
|
| $71 billion |
|
|
0.1851 |
|
| $76 billion |
|
|
0.1806 |
|
| $80 billion |
|
|
0.1773 |
|
| $91 billion |
|
|
0.1691 |
|
| $125 billion |
|
|
0.1599 |
|
| $200 billion |
|
|
0.1505 |
|
| $250 billion |
|
|
0.1469 |
|
| $300 billion |
|
|
0.1445 |
|
| * |
For the complex-level fees, managed assets include closed-end fund assets managed by the Adviser that are attributable to
certain types of leverage. For these purposes, leverage includes the funds’ use of preferred stock and borrowings and certain investments in the residual interest certificates (also called inverse floating rate securities) in tender option bond
(TOB) trusts, including the portion of assets held by a TOB trust that has been effectively financed by the trust’s issuance of floating rate securities, subject to an agreement by the Adviser as to certain funds to limit the amount of such
assets for determining managed assets in certain circumstances. The complex-level fee is calculated based upon the aggregate daily managed assets of all Nuveen open-end and closed-end funds that constitute “eligible assets.” Eligible
assets do not include assets attributable to investments in other Nuveen funds or assets in excess of a determined amount (originally $2 billion) added to the Nuveen fund complex in connection with the Adviser’s assumption of the
management of the former First American Funds effective January 1, 2011, but do not include certain assets of certain Nuveen funds that were reorganized into funds advised by an affiliate of the Adviser during the 2019 calendar year. As of
December 31, 2022, the complex-level fee for each Fund was 0.1590%. |
Other Transactions with Affiliates
Each Fund is permitted to purchase or sell securities from or to certain other funds or accounts managed by the Sub-Adviser (“Affiliated Entity”) under
specified conditions outlined in procedures adopted by the Board (“cross-trade”). These procedures have been designed to ensure that any cross-trade of securities by the Fund from or to an Affiliated Entity by virtue of having a common
investment adviser (or affiliated investment adviser), common officer and/or common trustee complies with Rule 17a-7 under the 1940 Act. These transactions are effected at the current market price (as provided by an independent pricing service)
without incurring broker commissions.
During the current fiscal period, the following Funds engaged in cross-trades pursuant to these procedures as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cross-Trades |
|
DIAX |
|
|
SPXX |
|
|
QQQX |
|
|
JCE |
|
| Purchases |
|
$ |
— |
|
|
$ |
5,123,979 |
|
|
$ |
28,727,398 |
|
|
$ |
11,888,018 |
|
| Sales |
|
|
3,112,821 |
|
|
|
5,858,785 |
|
|
|
12,808,549 |
|
|
|
16,741,218 |
|
| Realized gain(loss) |
|
|
1,726,248 |
|
|
|
1,018,916 |
|
|
|
2,092,701 |
|
|
|
(366,622 |
) |
82
8. Borrowing Arrangements
Inter-Fund Borrowing and Lending
The SEC has granted an exemptive order
permitting registered open-end and closed-end Nuveen funds to participate in an inter-fund lending facility whereby the Nuveen funds may directly lend to and borrow money from each other for temporary purposes (e.g., to satisfy redemption requests
or when a sale of securities “fails,” resulting in an unanticipated cash shortfall) (the “Inter-Fund Program”). The closed-end Nuveen funds, including the Funds covered by this shareholder report, will participate only as
lenders, and not as borrowers, in the Inter-Fund Program because such closed-end funds rarely, if ever, need to borrow cash to meet redemptions. The Inter-Fund Program is subject to a number of conditions, including, among other things, the
requirements that (1) no fund may borrow or lend money through the Inter-Fund Program unless it receives a more favorable interest rate than is typically available from a bank or other financial institution for a comparable transaction; (2) no fund
may borrow on an unsecured basis through the Inter-Fund Program unless the fund’s outstanding borrowings from all sources immediately after the inter-fund borrowing total 10% or less of its total assets; provided that if the borrowing fund has
a secured borrowing outstanding from any other lender, including but not limited to another fund, the inter-fund loan must be secured on at least an equal priority basis with at least an equivalent percentage of collateral to loan value; (3) if a
fund’s total outstanding borrowings immediately after an inter-fund borrowing would be greater than 10% of its total assets, the fund may borrow through the inter-fund loan on a secured basis only; (4) no fund may lend money if the loan would
cause its aggregate outstanding loans through the Inter-Fund Program to exceed 15% of its net assets at the time of the loan; (5) a fund’s inter-fund loans to any one fund shall not exceed 5% of the lending fund’s net assets; (6) the
duration of inter-fund loans will be limited to the time required to receive payment for securities sold, but in no event more than seven days; and (7) each inter-fund loan may be called on one business day’s notice by a lending fund and may be
repaid on any day by a borrowing fund. In addition, a Nuveen fund may participate in the Inter-Fund Program only if and to the extent that such participation is consistent with the fund’s investment objective and investment policies. The Board
is responsible for overseeing the Inter-Fund Program.
The limitations detailed above and the other conditions of the SEC exemptive order permitting the Inter-Fund
Program are designed to minimize the risks associated with Inter-Fund Program for both the lending fund and the borrowing fund. However, no borrowing or lending activity is without risk. When a fund borrows money from another fund, there is a risk
that the loan could be called on one day’s notice or not renewed, in which case the fund may have to borrow from a bank at a higher rate or take other actions to payoff such loan if an inter-fund loan is not available from another fund. Any
delay in repayment to a lending fund could result in a lost investment opportunity or additional borrowing costs.
During the current reporting period, none of the
Funds covered by this shareholder report have entered into any inter-fund loan activity.
83
Shareholder Update
(Unaudited)
CURRENT INVESTMENT OBJECTIVES, INVESTMENT POLICIES AND PRINCIPAL RISKS OF THE FUNDS
NUVEEN S&P 500 BUY-WRITE INCOME FUND (BXMX)
Investment Objective
The Fund’s investment objective is to seek
attractive total return with less volatility than the S&P 500 Index.
Investment Policies
Under normal circumstances, the Fund will invest at least 80% of its Assets (as defined below) in a diversified equity portfolio made up of securities comprising the
S&P 500 Index (or securities that have economic characteristics that are similar to those securities comprising the S&P 500 Index) that seeks to substantially replicate price movements of the S&P 500 Index and is
designed to support the Fund’s option strategy.
Under normal circumstances, the Fund expects to invest substantially all (at least 90%) of its Managed Assets
(as defined below) in its equity portfolio or otherwise in pursuit of its investment objective.
The Fund employs a constant
“buy-write” option strategy whereby the Fund’s sub-adviser sells (writes) index call options on a continuous basis on substantially the full value of
the Fund’s equity portfolio. The Fund targets a constant overwrite level (i.e., the ratio of the notional value of index call options sold by the Fund to the market value of the Fund’s equity portfolio) of 100% of the value of
its equity portfolio. The Fund’s use of a buy-write strategy, which is also commonly referred to as a buy-write income strategy, is intended to produce cash flow
for the Fund in the form of premiums on the options written. In exchange for this cash flow (the income component of a buy-write strategy), the Fund’s total return may be reduced relative to the S&P
500 Index in rising markets and may be enhanced relative to the S&P 500 Index in flat or declining markets, in each case consistent with the Fund’s investment objective to seek attractive total return with less volatility than the S&P
500 Index.
“Assets” means net assets of the Fund plus the amount of any borrowings for investment purposes. “Managed Assets” mean the total
assets of the Fund, minus the sum of its accrued liabilities (other than Fund liabilities incurred for the express purpose of creating leverage). Total assets for this purpose shall include assets attributable to the Fund’s use of leverage
(whether or not those assets are reflected in the Fund’s financial statements for purposes of generally accepted accounting principles), and derivatives will be valued at their market value.
Under normal market conditions:
| |
• |
|
The Fund may invest no more than 10% of its Managed Assets in short-term, high quality fixed-income securities.
|
| |
• |
|
The Fund may invest up to 20% of its Managed Assets in securities
of non-U.S. issuers that are U.S. dollar denominated, which may include securities of issuers located, or conducting their business, in emerging market countries. |
The foregoing policies apply only at the time of any new investment.
Approving
Changes in Investment Policies
The Board of Trustees of the Fund may change the policies described above without a shareholder vote. However, with respect to the
Fund’s policy of investing at least 80% of its Assets in its equity portfolio, such policy may not be changed without 60 days’ prior written notice to Common Shareholders.
Portfolio Contents
The Fund expects to invest in a portfolio of individual
common stocks designed to replicate the risk and return profile, and thereby substantially replicate price movements, of the S&P 500 Index. The Fund may also invest in other investment companies, including exchange-traded fund
(“ETFs”), that provide similar exposure to individual common stocks consistent with the Fund’s investment objective. Common stock generally represents an equity ownership interest in an issuer, without preference over and with a lower
priority than any other class of securities, including such issuer’s debt securities, preferred stock and other senior equity securities. Common stocks usually carry voting rights and earn dividends. Common stocks fluctuate in price in response
to many factors including historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity, as such the company may or may not pay dividends. Dividends
on common stocks are declared at the discretion of the company’s board. In addition, common stock generally has the greatest appreciation and depreciation potential because increases and decreases in earnings are usually reflected in a
company’s stock price.
In carrying out its option strategy, the Fund may write index call options on the S&P 500 Index and other broad-based indices and
may, if the Fund’s sub-adviser deems conditions appropriate, write call options on a variety of other equity market indices. As the seller of an index call option, the Fund receives a premium from the
purchaser. The purchaser of the index call option has the right to any appreciation in the value of the index over the exercise price upon the exercise of the call option or the expiration date. If, at expiration, the purchaser exercises the index
option sold by the Fund, the Fund will pay the purchaser the difference between the cash value of the index and the exercise price of the index option. The premium, the exercise price and the market value of the index determine the gain or loss
realized by the Fund as the seller of the index call option.
84
The Fund may invest in U.S. Government securities.
U.S. Government securities include (1) U.S. Treasury obligations, which differ in their interest rates, maturities and times of issuance: U.S. Treasury bills (maturities of one year or less), U.S. Treasury notes (maturities of one year to ten
years) and U.S. Treasury bonds (generally maturities of greater than ten years) and (2) obligations issued or guaranteed by U.S. Government agencies and instrumentalities that are supported by any of the following: (i) the full faith and
credit of the U.S. Treasury, (ii) the right of the issuer to borrow an amount limited to a specific line of credit from the U.S. Treasury, (iii) discretionary authority of the U.S. Government to purchase certain obligations of the U.S.
Government agency or instrumentality or (iv) the credit of the agency or instrumentality.
The Fund also may invest in any other security or agreement
collateralized or otherwise secured by U.S. Government securities. Agencies and instrumentalities of the U.S. Government include but are not limited to: Federal Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal Intermediate Credit
Banks, Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Government National Mortgage Association, Student Loan Marketing Association, U.S. Postal Service, Small Business
Administration, Tennessee Valley Authority and any other enterprise established or sponsored by the U.S. Government. Because the U.S. Government generally is not obligated to provide support to its instrumentalities, the Fund will invest in
obligations issued by these instrumentalities only if its sub-adviser determines that the credit risk with respect to such obligations is minimal.
The Fund may invest in commercial paper. Commercial paper represents short-term unsecured promissory notes issued in bearer form by corporations such as banks or bank
holding companies and finance companies.
The Fund may enter into repurchase agreements (the purchase of a security coupled with an agreement to resell that security
at a higher price) with respect to its permitted investments. The Fund’s repurchase agreements will provide that the value of the collateral underlying the repurchase agreement will always be at least equal to the repurchase price, including
any accrued interest earned on the agreement, and will be marked-to-market daily.
The
Fund may invest in securities of non-U.S. issuers that are U.S. dollar-denominated, which may include securities of issuers located, or conducting their business, in emerging market countries. The Fund will
classify an issuer of a security as being a U.S. or non-U.S. issuer based on the determination of an unaffiliated, recognized financial data provider. Such determinations are based on a number of criteria,
such as the issuer’s country of domicile, the primary exchange on which the security predominately trades, the location from which the majority of the issuer’s revenue comes, and the issuer’s reporting currency. Furthermore, a country
is considered to be an “emerging market” if it has a relatively low gross national product per capita compared to the world’s major economies and the potential for rapid economic growth. The Fund considers a country an emerging market
country based on the determination of an international organization, such as the IMF, or an unaffiliated, recognized financial data provider.
The Fund may buy and
sell securities on a when-issued or delayed delivery basis, making payment or taking delivery at a later date, normally within 15 to 45 days of the trade date.
The
Fund may invest in illiquid securities (i.e., securities that are not readily marketable), including, but not limited to, restricted securities (securities the disposition of which is restricted under the federal securities laws), securities that
may be resold only pursuant to Rule 144A under the Securities Act of 1933, as amended (the “1933 Act”), and repurchase agreements with maturities in excess of seven days.
The Fund may enter into certain derivative instruments in pursuit of its investment objective, including to seek to enhance return, to hedge certain risks of its
investments in securities or as a substitute for a position in the underlying asset. Such instruments include financial futures contracts and options thereon, swaps (with varying terms, including interest rate swaps and credit default swaps),
options on interest rates, options on indices, options on swaps, options on currencies and other fixed-income derivative instruments that may have the economic effect of leverage.
The Fund may also invest in securities of other open- or closed-end investment companies (including ETFs) that invest
primarily in securities of the types in which the Fund may invest directly, to the extent permitted by the Investment Company Act of 1940 Act, as amended (the “1940 Act”), the rules and regulations issued thereunder and applicable
exemptive orders issued by the Securities and Exchange Commission (“SEC”).
The Fund may lend securities representing up
to one-third of the value of its total assets to broker-dealers, banks, and other institutions to generate additional income. When the Fund loans its portfolio securities, it will receive, at the
inception of each loan, cash collateral equal to at least 102% of the value of the loaned securities. Under the Fund’s securities lending agreement, the securities lending agent will generally bear the risk that a borrower may default on its
obligation to return loaned securities. The Fund, however, will be responsible for the risks associated with the investment of cash collateral. The Fund may lose money on its investment of cash collateral or may fail to earn sufficient income on its
investment to meet its obligations to the borrower.
Use of Leverage
As a non-fundamental policy, the Fund will not leverage its capital structure by issuing senior securities such as the issuance of preferred shares of beneficial interest (“Preferred Shares”) or
debt instruments. However, the Fund may borrow for temporary or emergency purposes and may enter into certain derivatives transactions that have the economic effect of leverage.
85
Shareholder Update (continued)
(Unaudited)
Temporary Defensive Periods
During temporary defensive periods the Fund may
deviate from its investment objective and policies, and in order to keep the Fund’s cash fully invested, the Fund may invest any portion of its Managed Assets in investment grade debt securities, including obligations issued or guaranteed by
the U.S. government, its agencies and instrumentalities. The Fund may not achieve its investment objectives during such periods.
86
NUVEEN DOW 30SM DYNAMIC OVERWRITE FUND (DIAX)
Investment Objective
The Fund’s investment objective is to seek attractive total return with less volatility than the Dow Jones Industrial Average (the “DJIA”).
Investment Policies
Under normal circumstances, the Fund will invest at least
80% of its Assets (as defined below) in the thirty stocks included in the DJIA in approximately the amount such stocks are weighted in the DJIA and/or in other securities or financial instruments with economic characteristics that are similar to the
thirty stocks included in the DJIA that are intended to correlate with the price movements of the DJIA.
Under normal circumstances, the Fund expects to invest
substantially all (at least 90%) of its Managed Assets (as defined below) in its equity portfolio or otherwise in pursuit of its investment objective.
The
Fund’s sub-adviser constructs the Fund’s equity portfolio by purchasing the common stock of each company included in the DJIA in approximately the amounts stocks are weighted in the DJIA. The Fund
will periodically rebalance its holdings of DJIA stocks in order to more closely approximate each stock’s weighting in the DJIA. The Fund’s sub-adviser will consider the tax consequences of certain
transactions within the Fund’s equity portfolio and intends to manage the portfolio in a tax-efficient manner by taking, for example, capital losses when possible to offset realized capital gains. The
Fund’s sub-adviser will rebalance and adjust the Fund’s equity portfolio as necessary for tracking and tax management purposes.
The Fund employs a dynamic options “overwrite” strategy whereby the Fund’s sub-adviser sells (writes) call options
on a varying percentage of the market value of the Fund’s equity portfolio based on its market outlook. Pursuant to this option strategy, under normal circumstances, the Fund sells (writes) index call options, call options on custom baskets of
securities, and call options on individual securities. In addition to a primary emphasis on writing call options to reduce downside risk and volatility of the Fund’s equity portfolio, the Fund’s option strategy as a secondary emphasis
seeks additional return opportunities by capitalizing on inefficiencies in the options market through a variety of means including the use of call spreads, purchasing call options, and selling put options.
The Fund targets an overwrite level (i.e., the ratio of the notional value of call options sold by the Fund to the market value of the Fund’s equity portfolio) of
55% of the value of its equity portfolio over time, and the overwrite level will vary, based on market conditions, between 35% to 75% of the value of its equity portfolio.
“Assets” means net assets of the Fund plus the amount of any borrowings for investment purposes. “Managed Assets” mean the total assets of the Fund,
minus the sum of its accrued liabilities (other than Fund liabilities incurred for the express purpose of creating leverage). Total assets for this purpose shall include assets attributable to the Fund’s use of leverage (whether or not those
assets are reflected in the Fund’s financial statements for purposes of generally accepted accounting principles), and derivatives will be valued at their market value.
Under normal market conditions:
| |
• |
|
As a fundamental policy, the Fund may not invest more than 25% of its total assets in securities of issuers in any one
industry, except that if 25% or more of the securities in the DIJA are issued by companies in one industry, the Fund would concentrate in that industry unless the Fund would need to avoid concentration in order to implement its investment strategy
as it relates to avoiding the adverse tax treatment associated with straddle positions (Industry Concentration Policy). |
| |
• |
|
The Fund may invest no more than 10% of its Managed Assets in short-term, high quality fixed-income securities.
|
| |
• |
|
The Fund may invest up to 20% of its Managed Assets in securities
of non-U.S. issuers that are U.S. dollar denominated, which may include securities of issuers located, or conducting their business, in emerging market countries. |
The foregoing policies apply only at the time of any new investment.
Approving
Changes in Investment Policies
The Board of Trustees of the Fund may change the policies described above without a shareholder vote. However, with respect to the
Fund’s policy of investing at least 80% of its Assets in its equity portfolio, such policy may not be changed without 60 days’ prior written notice to shareholders.
However, the Fund’s fundamental Industry Concentration Policy may not be changed without the approval of the holders of a majority of the outstanding common shares
and Preferred Shares voting together as a single class, and the approval of the holders of a majority of the outstanding Preferred Shares, voting separately as a single class. A “majority of the outstanding” shares means (i) 67% or more of
the shares present at a meeting, if the holders of more than 50% of the shares are present or represented by proxy or (ii) more than 50% of the shares, whichever is less.
87
Shareholder Update (continued)
(Unaudited)
Portfolio Contents
The Fund will invest in the thirty common stocks included in
the DJIA in approximately the amount such stocks are weighted in the DJIA. The Fund may also invest in other securities or financial instruments with economic characteristics that are similar to the thirty stocks included in the DJIA that are
intended to correlate with the price movements of the DJIA. The Fund may also invest in other investment companies, including ETFs, that provide similar exposure to individual common stocks consistent with the Fund’s investment objective.
Common stock generally represents an equity ownership interest in an issuer, without preference over and with a lower priority than any other class of securities, including such issuer’s debt securities, preferred stock and other senior equity
securities. Common stocks usually carry voting rights and earn dividends. Common stocks fluctuate in price in response to many factors including historical and prospective earnings of the issuer, the value of its assets, general economic conditions,
interest rates, investor perceptions and market liquidity, as such the company may or may not pay dividends. Dividends on common stocks are declared at the discretion of the company’s board. In addition, common stock generally has the greatest
appreciation and depreciation potential because increases and decreases in earnings are usually reflected in a company’s stock price.
As part of its option
strategy, the Fund sells (writes) index call options, call options on custom baskets of securities, and covered or uncovered call options on individual securities. An option contract is a contract that gives the holder of the option, in return for a
premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the reference instrument underlying the option (or the cash value of the index) at a specified exercise price at any time during the
term of the option. The writer of an option on a security has the obligation upon exercise of the option to deliver the reference instrument (or the cash) upon payment of the exercise price or to pay the exercise price upon delivery of the reference
instrument (or the cash). Upon exercise of an index option, the writer of an option on an index is obligated to pay the difference between the cash value of the index and the exercise price multiplied by the specified multiplier for the index
option. Options may be “covered,” meaning that the party required to deliver the reference instrument if the option is exercised owns that instrument (or has set aside sufficient assets to meet its obligation to deliver the instrument).
Options may be listed on an exchange or traded in the over-the-counter (“OTC”) market. In general, exchange-traded options have standardized exercise prices
and expiration dates and may require the parties to post margin against their obligations, and the performance of the parties’ obligations in connection with such options is guaranteed by the exchange or a related clearing corporation. OTC
options have more flexible terms negotiated between the buyer and the seller but are subject to counterparty risk. The ability of the Fund to transact business with any one or any number of counterparties, the lack of any independent evaluation
of the counterparties or their financial capabilities, and the absence of a regulated market to facilitate settlement, may increase the potential for losses to the Fund. OTC options also involve greater liquidity risk. This risk may be
increased in times of financial stress, if the trading market for OTC derivative contracts becomes limited.
In carrying out its option strategy, the Fund may write
index call options on the DJIA and other broad-based indices and may, if the Fund’s sub-adviser deems conditions appropriate, write call options on a variety of other equity market indices. As the seller
of an index call option, the Fund receives a premium from the purchaser. The purchaser of the index call option has the right to any appreciation in the value of the index over the exercise price upon the exercise of the call option or the
expiration date. If, at expiration, the purchaser exercises the index option sold by the Fund, the Fund will pay the purchaser the difference between the cash value of the index and the exercise price of the index option. The premium, the exercise
price and the market value of the index determine the gain or loss realized by the Fund as the seller of the index call option.
The Fund may also write call options
on custom baskets of securities. A custom basket call option is an OTC option with a counterparty whose value is linked to the market value of a portfolio of underlying securities and is collateralized by a portion of the Fund’s equity
portfolio. In designing the custom basket call options, the Fund’s sub-adviser will primarily select assets not held by the Fund. In order to minimize the difference between the returns of the underlying
securities in the custom basket (commonly referred to as a tracking error), the Fund’s sub-adviser will use optimization calculations when selecting the individual securities for inclusion in the custom
basket.
The Fund may also write single name call options, both covered and “naked” or uncovered, on individual stocks. A call option written by the Fund on
an individual security is “covered” if the Fund owns the security underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration. The Fund, in effect, sells the potential
appreciation in the value of the security subject to the call option in exchange for the premium. The Fund may execute a closing purchase transaction with respect to an option it has sold and sell another option (with either a different exercise
price or expiration date or both). The Fund’s objective in entering into such a closing transaction will be to optimize net index option premiums. The cost of a closing transaction may reduce the net option premiums realized from the sale of
the option. This reduction could be offset, at least in part, by appreciation in the value of the underlying security held in the Fund’s equity portfolio, and by the opportunity to realize additional premium income from selling a new option.
The Fund may also purchase call options. A call option entitles the purchaser, in return for the premium paid, to purchase specified securities at a specified price
during the option period. Because the premium paid for a call option is typically a small fraction of the price of the underlying security, a given amount of funds will purchase call options covering a much larger quantity of such security than
could be purchased directly. By purchasing call options, the Fund could benefit from any significant increase in the price of the underlying security to a greater extent than if it had invested the same amount in the security directly.
88
The Fund may also use call spreads as part of its
option strategy. A call spread involves the sale of a call option and the corresponding purchase of a call option on the same underlying instrument with the same expiration date but with different exercise prices. The call spreads utilized by the
Fund generally will generate less net option premium than writing calls, but limit the overall risk of the strategy by capping the Fund’s liability from the written call while simultaneously allowing for additional upside above the strike price
of the purchased call.
The Fund may also use put options as part of its option strategy. A put option gives the purchaser of the option the right (but not the
obligation) to sell, and the writer of the option the obligation to buy, the underlying instrument (or the cash value of the index) at a stated price (the “exercise price”) at any time before the option expires. The purchase price for a
put option is the “premium” paid by the purchaser for the right to sell. When the Fund sells a put option on an underlying instrument and the underlying instrument decreases in value, the purchaser of the put option has the right to
exercise the option, obligating the Fund to purchase the underlying instrument at an exercise price that is higher than the prevailing market price. The Fund collects option premium income when it sells the put option. If the underlying instrument
increases in value, the purchaser of the put option is unlikely to exercise the option since the prevailing market price will be higher than the exercise price. Accordingly, the Fund retains all put premium income collected during market advances.
The Fund may invest in U.S. Government securities. U.S. Government securities include (1) U.S. Treasury obligations, which differ in their interest rates,
maturities and times of issuance: U.S. Treasury bills (maturities of one year or less), U.S. Treasury notes (maturities of one year to ten years) and U.S. Treasury bonds (generally maturities of greater than ten years) and (2) obligations
issued or guaranteed by U.S. Government agencies and instrumentalities that are supported by any of the following: (i) the full faith and credit of the U.S. Treasury, (ii) the right of the issuer to borrow an amount limited to a specific
line of credit from the U.S. Treasury, (iii) discretionary authority of the U.S. Government to purchase certain obligations of the U.S. Government agency or instrumentality or (iv) the credit of the agency or instrumentality.
The Fund also may invest in any other security or agreement collateralized or otherwise secured by U.S. Government securities. Agencies and instrumentalities of the U.S.
Government include but are not limited to: Federal Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National
Mortgage Association, Government National Mortgage Association, Student Loan Marketing Association, U.S. Postal Service, Small Business Administration, Tennessee Valley Authority and any other enterprise established or sponsored by the U.S.
Government. Because the U.S. Government generally is not obligated to provide support to its instrumentalities, the Fund will invest in obligations issued by these instrumentalities only if its sub-adviser
determines that the credit risk with respect to such obligations is minimal.
The Fund may invest in commercial paper. Commercial paper represents short-term
unsecured promissory notes issued in bearer form by corporations such as banks or bank holding companies and finance companies.
The Fund may enter into repurchase
agreements (the purchase of a security coupled with an agreement to resell that security at a higher price) with respect to its permitted investments. The Fund’s repurchase agreements will provide that the value of the collateral underlying the
repurchase agreement will always be at least equal to the repurchase price, including any accrued interest earned on the agreement, and will be marked-to-market daily.
The Fund may invest in securities of non-U.S. issuers that are U.S. dollar-denominated, which may include securities of
issuers located, or conducting their business, in emerging market countries. The Fund will classify an issuer of a security as being a U.S. or non-U.S. issuer based on the determination of an unaffiliated,
recognized financial data provider. Such determinations are based on a number of criteria, such as the issuer’s country of domicile, the primary exchange on which the security predominately trades, the location from which the majority of the
issuer’s revenue comes, and the issuer’s reporting currency. Furthermore, a country is considered to be an “emerging market” if it has a relatively low gross national product per capita compared to the world’s major
economies and the potential for rapid economic growth. The Fund considers a country an emerging market country based on the determination of an international organization, such as the IMF, or an unaffiliated, recognized financial data provider.
The Fund may buy and sell securities on a when-issued or delayed delivery basis, making payment or taking delivery at a later date, normally within 15 to 45 days of the
trade date.
The Fund may invest in illiquid securities (i.e., securities that are not readily marketable), including, but not limited to, restricted securities
(securities the disposition of which is restricted under the federal securities laws), securities that may be resold only pursuant to Rule 144A under the 1933 Act, and repurchase agreements with maturities in excess of seven days.
The Fund may enter into certain derivative instruments in pursuit of its investment objective, including to seek to enhance return, to hedge certain risks of its
investments in securities or as a substitute for a position in the underlying asset. Such instruments include financial futures contracts and options thereon, swaps (with varying terms, including interest rate swaps and credit default swaps),
options on interest rates, options on indices, options on swaps, options on currencies and other fixed-income derivative instruments that may have the economic effect of leverage.
The Fund may also invest in securities of other open- or closed-end investment companies (including ETFs) that invest
primarily in securities of the types in which the Fund may invest directly, to the extent permitted by the 1940 Act, the rules and regulations issued thereunder and applicable exemptive orders issued by the SEC.
89
Shareholder Update (continued)
(Unaudited)
The Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks, and
other institutions to generate additional income. When the Fund loans its portfolio securities, it will receive, at the inception of each loan, cash collateral equal to at least 102% of the value of the loaned securities. Under the Fund’s
securities lending agreement, the securities lending agent will generally bear the risk that a borrower may default on its obligation to return loaned securities. The Fund, however, will be responsible for the risks associated with the investment of
cash collateral. The Fund may lose money on its investment of cash collateral or may fail to earn sufficient income on its investment to meet its obligations to the borrower.
Use of Leverage
As
a non-fundamental policy, the Fund will not leverage its capital structure by issuing senior securities such as the issuance of Preferred Shares or debt instruments. However, the Fund may borrow for
temporary or emergency purposes and may enter into certain derivatives transactions that have the economic effect of leverage.
Temporary Defensive Periods
During temporary defensive periods the Fund may deviate from its investment objective and policies, and in order to keep the Fund’s cash fully invested, the
Fund may invest any portion of its Managed Assets in investment grade debt securities, including obligations issued or guaranteed by the U.S. government, its agencies and instrumentalities. The Fund may not achieve its investment objective during
such periods.
90
NUVEEN S&P 500 DYNAMIC
OVERWRITE FUND (SPXX)
Investment Objective
The Fund’s investment
objective is to seek attractive total return with less volatility than the S&P 500 Index.
Investment Policies
Under normal circumstances, the Fund will invest at least 80% of its Assets (as defined below) in a diversified equity portfolio made up of securities comprising the
S&P 500 Index (or securities that have economic characteristics that are similar to those securities comprising the S&P 500 Index) that seeks to substantially replicate price movements of the S&P 500 Index and is designed to support
the Fund’s option strategy.
Under normal circumstances, the Fund expects to invest substantially all (at least 90%) of its Managed Assets (as defined below) in
its equity portfolio or otherwise in pursuit of its investment objective.
The Fund’s sub-adviser uses a multi-factor
quantitative model, which will consider opportunities to engage in tax-loss harvesting (i.e., periodically selling positions that have depreciated in value to realize capital losses that can be used to offset
capital gains realized by the Fund) and other tax management considerations to improve after-tax shareholder outcomes, to construct the Fund’s equity portfolio.
The Fund employs a dynamic options “overwrite” strategy whereby the Fund’s sub-adviser sells (writes) call options
on a varying percentage of the market value of the Fund’s equity portfolio based on its market outlook. Pursuant to this option strategy, under normal circumstances, the Fund sells (writes) index call options, call options on custom baskets of
securities, and call options on individual securities. In addition to a primary emphasis on writing call options to reduce downside risk and volatility of the Fund’s equity portfolio, the Fund’s option strategy as a secondary emphasis
seeks additional return opportunities by capitalizing on inefficiencies in the options market through a variety of means including the use of call spreads and selling put option
The Fund targets an overwrite level (i.e., the ratio of the notional value of call options sold by the Fund to the market value of the Fund’s equity portfolio) of
55% of the value of its equity portfolio over time, and the overwrite level will vary, based on market conditions, between 35% to 75% of the value of its equity portfolio.
“Assets” means net assets of the Fund plus the amount of any borrowings for investment purposes. “Managed Assets” mean the total assets of the Fund,
minus the sum of its accrued liabilities (other than Fund liabilities incurred for the express purpose of creating leverage). Total assets for this purpose shall include assets attributable to the Fund’s use of leverage (whether or not those
assets are reflected in the Fund’s financial statements for purposes of generally accepted accounting principles), and derivatives will be valued at their market value.
Under normal market conditions:
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As a fundamental policy, the Fund may not invest more than 25% of its total assets in securities of issuers in any one
industry, except that if 25% or more of the securities in the S&P 500 Index are issued by companies in one industry, the Fund would concentrate in that industry unless the Fund would need to avoid concentration in order to implement its
investment strategy as it relates to avoiding the adverse tax treatment associated with straddle positions (Industry Concentration Policy). |
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• |
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The Fund may invest no more than 10% of its Managed Assets in short-term, high quality fixed-income securities.
|
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The Fund may invest up to 20% of its Managed Assets in securities
of non-U.S. issuers that are U.S. dollar denominated, which may include securities of issuers located, or conducting their business, in emerging market countries. |
The foregoing policies apply only at the time of any new investment.
Approving
Changes in Investment Policies
The Board of Trustees of the Fund may change the policies described above without a shareholder vote. However, with respect to the
Fund’s policy of investing at least 80% of its Assets in its equity portfolio, such policies may not be changed without 60 days’ prior written notice to shareholders.
However, the Fund’s fundamental Industry Concentration Policy may not be changed without the approval of the holders of a majority of the outstanding common shares
and Preferred Shares voting together as a single class, and the approval of the holders of a majority of the outstanding Preferred Shares, voting separately as a single class. A “majority of the outstanding” shares means (i) 67% or more of
the shares present at a meeting, if the holders of more than 50% of the shares are present or represented by proxy or (ii) more than 50% of the shares, whichever is less.
Portfolio Contents
The Fund will invest in a portfolio of individual common
stocks designed to replicate the risk and return profile, and thereby substantially replicate price movements of the S&P 500 Index. The Fund may also invest in other investment companies, including ETFs, that provide similar exposure to
individual
common stocks consistent with the Fund’s investment objective. Common stock generally represents an equity ownership interest in an issuer, without
preference over and with a lower priority than any other class of securities, including such issuer’s debt securities, preferred stock and other senior equity
91
Shareholder Update (continued)
(Unaudited)
securities. Common stocks usually carry voting rights and earn dividends. Common stocks fluctuate in price in response to many factors including historical and
prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity, as such the company may or may not pay dividends. Dividends on common stocks are declared at the
discretion of the company’s board. In addition, common stock generally has the greatest appreciation and depreciation potential because increases and decreases in earnings are usually reflected in a company’s stock price.
As part of its option strategy, the Fund sells (writes) index call options, call options on custom baskets of securities, and covered or uncovered call options on
individual securities. An option contract is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the reference instrument
underlying the option (or the cash value of the index) at a specified exercise price at any time during the term of the option. The writer of an option on a security has the obligation upon exercise of the option to deliver the reference instrument
(or the cash) upon payment of the exercise price or to pay the exercise price upon delivery of the reference instrument (or the cash). Upon exercise of an index option, the writer of an option on an index is obligated to pay the difference between
the cash value of the index and the exercise price multiplied by the specified multiplier for the index option. Options may be “covered,” meaning that the party required to deliver the reference instrument if the option is exercised owns
that instrument (or has set aside sufficient assets to meet its obligation to deliver the instrument). Options may be listed on an exchange or traded in the OTC market. In general, exchange-traded options have standardized exercise prices and
expiration dates and may require the parties to post margin against their obligations, and the performance of the parties’ obligations in connection with such options is guaranteed by the exchange or a related clearing corporation. OTC options
have more flexible terms negotiated between the buyer and the seller but are subject to counterparty risk. The ability of the Fund to transact business with any one or any number of counterparties, the lack of any independent evaluation of the
counterparties or their financial capabilities, and the absence of a regulated market to facilitate settlement, may increase the potential for losses to the Fund. OTC options also involve greater liquidity risk. This risk may be increased
in times of financial stress, if the trading market for OTC derivative contracts becomes limited.
In carrying out its option strategy, the Fund may write index call
options on the S&P 500 Index and other broad-based indices and may, if the Fund’s sub-adviser deems conditions appropriate, write call options on a variety of other equity market indices. As the
seller of an index call option, the Fund receives a premium from the purchaser. The purchaser of the index call option has the right to any appreciation in the value of the index over the exercise price upon the exercise of the call option or the
expiration date. If, at expiration, the purchaser exercises the index option sold by the Fund, the Fund will pay the purchaser the difference between the cash value of the index and the exercise price of the index option. The premium, the exercise
price and the market value of the index determine the gain or loss realized by the Fund as the seller of the index call option.
The Fund may also write call options
on custom baskets of securities. A custom basket call option is an OTC option with a counterparty whose value is linked to the market value of a portfolio of underlying securities and is collateralized by a portion of the Fund’s equity
portfolio. In designing the custom basket call options, the Fund’s sub-adviser will primarily select assets not held by the Fund. In order to minimize the difference between the returns of the underlying
securities in the custom basket (commonly referred to as a tracking error), the Fund’s sub-adviser will use optimization calculations when selecting the individual securities for inclusion in the custom
basket.
The Fund may also write single name call options, both covered and “naked” or uncovered, on individual stocks. A call option written by the Fund on
an individual security is “covered” if the Fund owns the security underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration. The Fund, in effect, sells the potential
appreciation in the value of the security subject to the call option in exchange for the premium. The Fund may execute a closing purchase transaction with respect to an option it has sold and sell another option (with either a different exercise
price or expiration date or both). The Fund’s objective in entering into such a closing transaction will be to optimize net index option premiums. The cost of a closing transaction may reduce the net option premiums realized from the sale of
the option. This reduction could be offset, at least in part, by appreciation in the value of the underlying security held in the Fund’s equity portfolio, and by the opportunity to realize additional premium income from selling a new option.
The Fund may also use call spreads as part of its option strategy. A call spread involves the sale of a call option and the corresponding purchase of a call option
on the same underlying instrument with the same expiration date but with different exercise prices. The call spreads utilized by the Fund generally will generate less net option premium than writing calls, but limit the overall risk of the strategy
by capping the Fund’s liability from the written call while simultaneously allowing for additional upside above the strike price of the purchased call.
The Fund
may also use put options as part of its option strategy. A put option gives the purchaser of the option the right (but not the obligation) to sell, and the writer of the option the obligation to buy, the underlying instrument (or the cash value of
the index) at a stated price (the “exercise price”) at any time before the option expires. The purchase price for a put option is the “premium” paid by the purchaser for the right to sell. When the Fund sells a put option on an
underlying instrument and the underlying instrument decreases in value, the purchaser of the put option has the right to exercise the option, obligating the Fund to purchase the underlying instrument at an exercise price that is higher than the
prevailing market price. The Fund collects option premium income when it sells the put option. If the underlying instrument increases in value, the purchaser of the put option is unlikely to exercise the option since the prevailing market price will
be higher than the exercise price. Accordingly, the Fund retains all put premium income collected during market advances.
92
The Fund may invest in U.S. Government securities.
U.S. Government securities include (1) U.S. Treasury obligations, which differ in their interest rates, maturities and times of issuance: U.S. Treasury bills (maturities of one year or less), U.S. Treasury notes (maturities of one year to ten
years) and U.S. Treasury bonds (generally maturities of greater than ten years) and (2) obligations issued or guaranteed by U.S. Government agencies and instrumentalities that are supported by any of the following: (i) the full faith and
credit of the U.S. Treasury, (ii) the right of the issuer to borrow an amount limited to a specific line of credit from the U.S. Treasury, (iii) discretionary authority of the U.S. Government to purchase certain obligations of the U.S.
Government agency or instrumentality or (iv) the credit of the agency or instrumentality.
The Fund also may invest in any other security or agreement
collateralized or otherwise secured by U.S. Government securities. Agencies and instrumentalities of the U.S. Government include but are not limited to: Federal Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal Intermediate Credit
Banks, Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Government National Mortgage Association, Student Loan Marketing Association, U.S. Postal Service, Small Business
Administration, Tennessee Valley Authority and any other enterprise established or sponsored by the U.S. Government. Because the U.S. Government generally is not obligated to provide support to its instrumentalities, the Fund will invest in
obligations issued by these instrumentalities only if its sub-adviser determines that the credit risk with respect to such obligations is minimal.
The Fund may invest in commercial paper. Commercial paper represents short-term unsecured promissory notes issued in bearer form by corporations such as banks or bank
holding companies and finance companies.
The Fund may enter into repurchase agreements (the purchase of a security coupled with an agreement to resell that security
at a higher price) with respect to its permitted investments. The Fund’s repurchase agreements will provide that the value of the collateral underlying the repurchase agreement will always be at least equal to the repurchase price, including
any accrued interest earned on the agreement, and will be marked-to-market daily.
The
Fund may invest in securities of non-U.S. issuers that are U.S. dollar-denominated, which may include securities of issuers located, or conducting their business, in emerging market countries. The Fund will
classify an issuer of a security as being a U.S. or non-U.S. issuer based on the determination of an unaffiliated, recognized financial data provider. Such determinations are based on a number of criteria,
such as the issuer’s country of domicile, the primary exchange on which the security predominately trades, the location from which the majority of the issuer’s revenue comes, and the issuer’s reporting currency. Furthermore, a country
is considered to be an “emerging market” if it has a relatively low gross national product per capita compared to the world’s major economies and the potential for rapid economic growth. The Fund considers a country an emerging market
country based on the determination of an international organization, such as the IMF, or an unaffiliated, recognized financial data provider.
The Fund may buy and
sell securities on a when-issued or delayed delivery basis, making payment or taking delivery at a later date, normally within 15 to 45 days of the trade date.
The
Fund may invest in illiquid securities (i.e., securities that are not readily marketable), including, but not limited to, restricted securities (securities the disposition of which is restricted under the federal securities laws), securities that
may be resold only pursuant to Rule 144A under the 1933 Act, and repurchase agreements with maturities in excess of seven days.
The Fund may enter into certain
derivative instruments in pursuit of its investment objective, including to seek to enhance return, to hedge certain risks of its investments in securities or as a substitute for a position in the underlying asset. Such instruments include financial
futures contracts and options thereon, swaps (with varying terms, including interest rate swaps and credit default swaps), options on interest rates, options on indices, options on swaps, options on currencies and other fixed-income derivative
instruments that may have the economic effect of leverage.
The Fund may also invest in securities of other open-
or closed-end investment companies (including ETFs) that invest primarily in securities of the types in which the Fund may invest directly, to the extent permitted by the 1940 Act, the rules and
regulations issued thereunder and applicable exemptive orders issued by the SEC.
The Fund may lend securities representing up
to one-third of the value of its total assets to broker-dealers, banks, and other institutions to generate additional income. When the Fund loans its portfolio securities, it will receive, at the
inception of each loan, cash collateral equal to at least 102% of the value of the loaned securities. Under the Fund’s securities lending agreement, the securities lending agent will generally bear the risk that a borrower may default on its
obligation to return loaned securities. The Fund, however, will be responsible for the risks associated with the investment of cash collateral.
The Fund may lose
money on its investment of cash collateral or may fail to earn sufficient income on its investment to meet its obligations to the borrower.
Use of Leverage
As a non-fundamental policy, the Fund will not leverage its capital structure by issuing senior securities such
as the issuance of Preferred Shares or debt instruments. However, the Fund may borrow for temporary or emergency purposes and may enter into certain derivatives transactions that have the economic effect of leverage.
93
Shareholder Update (continued)
(Unaudited)
Temporary Defensive Periods
During temporary defensive periods the Fund may
deviate from its investment objective and policies, and in order to keep the Fund’s cash fully invested, the Fund may invest any portion of its Managed Assets in investment grade debt securities, including obligations issued or guaranteed by
the U.S. government, its agencies and instrumentalities. The Fund may not achieve its investment objective during such periods.
94
NUVEEN NASDAQ 100 DYNAMIC
OVERWRITE FUND (QQQX)
Investment Objective
The Fund’s investment
objective is to seek attractive total return with less volatility than the Nasdaq 100 Index.
Investment Policies
Under normal circumstances, the Fund will invest at least 80% of its Assets (as defined below) in an equity portfolio made up of securities comprising the Nasdaq 100
Index (or securities that have economic characteristics that are similar to those securities comprising the Nasdaq 100 Index) that seeks to substantially replicate price movements of the Nasdaq 100 Index and is designed to support the Fund’s
option strategy.
Under normal circumstances, the Fund expects to invest substantially all (at least 90%) of its Managed Assets (as defined below) in its equity
portfolio or otherwise in pursuit of its investment objective.
The Fund’s sub-adviser uses a multi-factor quantitative
model, which will consider opportunities to engage in tax-loss harvesting (i.e., periodically selling positions that have depreciated in value to realize capital losses that can be used to offset capital gains
realized by the Fund) and other tax management considerations to improve after-tax shareholder outcomes, to construct the Fund’s equity portfolio.
The Fund employs a dynamic options “overwrite” strategy whereby the Fund’s sub-adviser sells (writes) call options
on a varying percentage of the market value of the Fund’s equity portfolio based on its market outlook. Pursuant to this option strategy, under normal circumstances, the Fund sells (writes) index call options, call options on custom baskets of
securities, and call options on individual securities. In addition to a primary emphasis on writing call options to reduce downside risk and volatility of the Fund’s equity portfolio, the Fund’s option strategy as a secondary emphasis
seeks additional return opportunities by capitalizing on inefficiencies in the options market through a variety of means including the use of call spreads and selling put options.
The Fund targets an overwrite level (i.e., the ratio of the notional value of call options sold by the Fund to the market value of the Fund’s equity portfolio) of
55% of the value of its equity portfolio over time, and the overwrite level will vary, based on market conditions, between 35% to 75% of the value of its equity portfolio.
“Assets” means net assets of the Fund plus the amount of any borrowings for investment purposes. “Managed Assets” mean the total assets of the Fund,
minus the sum of its accrued liabilities (other than Fund liabilities incurred for the express purpose of creating leverage). Total assets for this purpose shall include assets attributable to the Fund’s use of leverage (whether or not those
assets are reflected in the Fund’s financial statements for purposes of generally accepted accounting principles), and derivatives will be valued at their market value.
Under normal market conditions:
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• |
|
As a fundamental policy, the Fund may not invest more than 25% of its total assets in securities of issuers in any one
industry, except that if 25% or more of the securities in the Nasdaq 100 Index are issued by companies in one industry, the Fund would concentrate in that industry unless the Fund would need to avoid concentration in order to implement its
investment strategy as it relates to avoiding the adverse tax treatment associated with straddle positions (Industry Concentration Policy). |
| |
• |
|
The Fund may invest no more than 10% of its Managed Assets in short-term, high quality fixed-income securities.
|
| |
• |
|
The Fund may invest up to 20% of its Managed Assets in securities
of non-U.S. issuers that are U.S. dollar denominated, which may include securities of issuers located, or conducting their business, in emerging market countries. |
The foregoing policies apply only at the time of any new investment.
Approving
Changes in Investment Policies
The Board of Trustees of the Fund may change the policies described above without a shareholder vote. However, with respect to the
Fund’s policy of investing at least 80% of its Assets in the equity portfolio, such policy may not be changed without 60 days’ prior written notice to shareholders.
However, the Fund’s fundamental Industry Concentration Policy may not be changed without the approval of the holders of a majority of the outstanding common shares
and preferred shares voting together as a single class, and the approval of the holders of a majority of the outstanding preferred shares, voting separately as a single class. A “majority of the outstanding” shares means (i) 67% or more of
the shares present at a meeting, if the holders of more than 50% of the shares are present or represented by proxy or (ii) more than 50% of the shares, whichever is less.
Portfolio Contents
The Fund will invest in a portfolio of individual common
stocks designed to replicate the risk and return profile, and thereby substantially replicate price movements of the Nasdaq 100 Index. The Fund may also invest in other investment companies, including ETFs, that provide similar exposure to
individual common stocks consistent with the Fund’s investment objective. Common stock generally represents an equity ownership interest in an issuer, without preference over and with a lower priority than any other class of securities,
including such issuer’s debt securities, preferred stock and other senior equity
95
Shareholder Update (continued)
(Unaudited)
securities. Common stocks usually carry voting rights and earn dividends. Common stocks fluctuate in price in response to many factors including historical and
prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity, as such the company may or may not pay dividends. Dividends on common stocks are declared at the
discretion of the company’s board. In addition, common stock generally has the greatest appreciation and depreciation potential because increases and decreases in earnings are usually reflected in a company’s stock price.
As part of its option strategy, the Fund sells (writes) index call options, call options on custom baskets of securities, and covered or uncovered call options on
individual securities. An option contract is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the reference instrument
underlying the option (or the cash value of the index) at a specified exercise price at any time during the term of the option. The writer of an option on a security has the obligation upon exercise of the option to deliver the reference instrument
(or the cash) upon payment of the exercise price or to pay the exercise price upon delivery of the reference instrument (or the cash). Upon exercise of an index option, the writer of an option on an index is obligated to pay the difference between
the cash value of the index and the exercise price multiplied by the specified multiplier for the index option. Options may be “covered,” meaning that the party required to deliver the reference instrument if the option is exercised owns
that instrument (or has set aside sufficient assets to meet its obligation to deliver the instrument). Options may be listed on an exchange or traded in the OTC market. In general, exchange-traded options have standardized exercise prices and
expiration dates and may require the parties to post margin against their obligations, and the performance of the parties’ obligations in connection with such options is guaranteed by the exchange or a related clearing corporation. OTC options
have more flexible terms negotiated between the buyer and the seller but are subject to counterparty risk. The ability of the Fund to transact business with any one or any number of counterparties, the lack of any independent evaluation of the
counterparties or their financial capabilities, and the absence of a regulated market to facilitate settlement, may increase the potential for losses to the Fund. OTC options also involve greater liquidity risk. This risk may be increased
in times of financial stress, if the trading market for OTC derivative contracts becomes limited.
In carrying out its option strategy, the Fund may write index call
options on the Nasdaq 100 Index and other broad-based indices and may, if the Fund’s sub-adviser deems conditions appropriate, write call options on a variety of other equity market indices. As the seller
of an index call option, the Fund receives a premium from the purchaser. The purchaser of the index call option has the right to any appreciation in the value of the index over the exercise price upon the exercise of the call option or the
expiration date. If, at expiration, the purchaser exercises the index option sold by the Fund, the Fund will pay the purchaser the difference between the cash value of the index and the exercise price of the index option. The premium, the exercise
price and the market value of the index determine the gain or loss realized by the Fund as the seller of the index call option.
The Fund may also write call options
on custom baskets of securities. A custom basket call option is an OTC option with a counterparty whose value is linked to the market value of a portfolio of underlying securities and is collateralized by a portion of the Fund’s equity
portfolio. In designing the custom basket call options, the Fund’s sub-adviser will primarily select assets not held by the Fund. In order to minimize the difference between the returns of the underlying
securities in the custom basket (commonly referred to as a tracking error), the Fund’s sub-adviser will use optimization calculations when selecting the individual securities for inclusion in the custom
basket.
The Fund may also write single name call options, both covered and “naked” or uncovered, on individual stocks. A call option written by the Fund on
an individual security is “covered” if the Fund owns the security underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration. The Fund, in effect, sells the potential
appreciation in the value of the security subject to the call option in exchange for the premium. The Fund may execute a closing purchase transaction with respect to an option it has sold and sell another option (with either a different exercise
price or expiration date or both). The Fund’s objective in entering into such a closing transaction will be to optimize net index option premiums. The cost of a closing transaction may reduce the net option premiums realized from the sale of
the option. This reduction could be offset, at least in part, by appreciation in the value of the underlying security held in the Fund’s equity portfolio, and by the opportunity to realize additional premium income from selling a new option.
The Fund may also use call spreads as part of its option strategy. A call spread involves the sale of a call option and the corresponding purchase of a call option
on the same underlying instrument with the same expiration date but with different exercise prices. The call spreads utilized by the Fund generally will generate less net option premium than writing calls, but limit the overall risk of the strategy
by capping the Fund’s liability from the written call while simultaneously allowing for additional upside above the strike price of the purchased call.
The Fund
may also use put options as part of its option strategy. A put option gives the purchaser of the option the right (but not the obligation) to sell, and the writer of the option the obligation to buy, the underlying instrument (or the cash value of
the index) at a stated price (the “exercise price”) at any time before the option expires. The purchase price for a put option is the “premium” paid by the purchaser for the right to sell. When the Fund sells a put option on an
underlying instrument and the underlying instrument decreases in value, the purchaser of the put option has the right to exercise the option, obligating the Fund to purchase the underlying instrument at an exercise price that is higher than the
prevailing market price. The Fund collects option premium income when it sells the put option. If the underlying instrument increases in value, the purchaser of the put option is unlikely to exercise the option since the prevailing market price will
be higher than the exercise price. Accordingly, the Fund retains all put premium income collected during market advances.
96
The Fund may invest in U.S. Government securities.
U.S. Government securities include (1) U.S. Treasury obligations, which differ in their interest rates, maturities and times of issuance: U.S. Treasury bills (maturities of one year or less), U.S. Treasury notes (maturities of one year to ten
years) and U.S. Treasury bonds (generally maturities of greater than ten years) and (2) obligations issued or guaranteed by U.S. Government agencies and instrumentalities that are supported by any of the following: (i) the full faith and
credit of the U.S. Treasury, (ii) the right of the issuer to borrow an amount limited to a specific line of credit from the U.S. Treasury, (iii) discretionary authority of the U.S. Government to purchase certain obligations of the U.S.
Government agency or instrumentality or (iv) the credit of the agency or instrumentality.
The Fund also may invest in any other security or agreement
collateralized or otherwise secured by U.S. Government securities. Agencies and instrumentalities of the U.S. Government include but are not limited to: Federal Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal Intermediate Credit
Banks, Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Government National Mortgage Association, Student Loan Marketing Association, U.S. Postal Service, Small Business
Administration, Tennessee Valley Authority and any other enterprise established or sponsored by the U.S. Government. Because the U.S. Government generally is not obligated to provide support to its instrumentalities, the Fund will invest in
obligations issued by these instrumentalities only if its sub-adviser determines that the credit risk with respect to such obligations is minimal.
The Fund may invest in commercial paper. Commercial paper represents short-term unsecured promissory notes issued in bearer form by corporations such as banks or bank
holding companies and finance companies.
The Fund may enter into repurchase agreements (the purchase of a security coupled with an agreement to resell that security
at a higher price) with respect to its permitted investments. The Fund’s repurchase agreements will provide that the value of the collateral underlying the repurchase agreement will always be at least equal to the repurchase price, including
any accrued interest earned on the agreement, and will be marked-to-market daily.
The
Fund may invest in securities of non-U.S. issuers that are U.S. dollar-denominated, which may include securities of issuers located, or conducting their business, in emerging market countries. The Fund will
classify an issuer of a security as being a U.S. or non-U.S. issuer based on the determination of an unaffiliated, recognized financial data provider. Such determinations are based on a number of criteria,
such as the issuer’s country of domicile, the primary exchange on which the security predominately trades, the location from which the majority of the issuer’s revenue comes, and the issuer’s reporting currency. Furthermore, a country
is considered to be an “emerging market” if it has a relatively low gross national product per capita compared to the world’s major economies and the potential for rapid economic growth. The Fund considers a country an emerging market
country based on the determination of an international organization, such as the IMF, or an unaffiliated, recognized financial data provider.
The Fund may buy and
sell securities on a when-issued or delayed delivery basis, making payment or taking delivery at a later date, normally within 15 to 45 days of the trade date.
The
Fund may invest in illiquid securities (i.e., securities that are not readily marketable), including, but not limited to, restricted securities (securities the disposition of which is restricted under the federal securities laws), securities that
may be resold only pursuant to Rule 144A under the 1933 Act, and repurchase agreements with maturities in excess of seven days.
The Fund may enter into certain
derivative instruments in pursuit of its investment objective, including to seek to enhance return, to hedge certain risks of its investments in securities or as a substitute for a position in the underlying asset. Such instruments include financial
futures contracts and options thereon, swaps (with varying terms, including interest rate swaps and credit default swaps), options on interest rates, options on indices, options on swaps, options on currencies and other fixed-income derivative
instruments that may have the economic effect of leverage.
The Fund may also invest in securities of other open-
or closed-end investment companies (including ETFs) that invest primarily in securities of the types in which the Fund may invest directly, to the extent permitted by the 1940 Act, the rules and
regulations issued thereunder and applicable exemptive orders issued by the SEC.
The Fund may lend securities representing up
to one-third of the value of its total assets to broker-dealers, banks, and other institutions to generate additional income. When the Fund loans its portfolio securities, it will receive, at the
inception of each loan, cash collateral equal to at least 102% of the value of the loaned securities. Under the Fund’s securities lending agreement, the securities lending agent will generally bear the risk that a borrower may default on its
obligation to return loaned securities. The Fund, however, will be responsible for the risks associated with the investment of cash collateral. The Fund may lose money on its investment of cash collateral or may fail to earn sufficient income on its
investment to meet its obligations to the borrower.
Use of Leverage
As a non-fundamental policy, the Fund will not leverage its capital structure by issuing senior securities such as the issuance of Preferred Shares or debt instruments. However, the Fund may borrow for
temporary or emergency purposes and may enter into certain derivatives transactions that have the economic effect of leverage.
97
Shareholder Update (continued)
(Unaudited)
Temporary Defensive Periods
During temporary defensive periods the Fund may
deviate from its investment objective and policies, and in order to keep the Fund’s cash fully invested, the Fund may invest any portion of its Managed Assets in investment grade debt securities, including obligations issued or guaranteed by
the U.S. government, its agencies and instrumentalities. The Fund may not achieve its investment objective during such periods.
98
NUVEEN CORE EQUITY ALPHA FUND
(JCE)
Investment Objective
The Fund’s investment objective is to
provide an attractive level of total return. The Fund seeks to achieve its investment objective primarily through long term capital appreciation and secondarily through income and gains.
Investment Policies
Under normal circumstances, the Fund will invest at least
80% of its Assets (as defined below) in the Equity Portfolio (as defined below).
The Fund invests in a portfolio of actively managed large capitalization U.S. common
stocks, using the sub-adviser’s proprietary quantitative process designed to provide the potential for long-term outperformance (the “Equity Portfolio”). Additionally, the Fund seeks to reduce
the volatility of its returns relative to the returns of the Equity Portfolio over extended periods by writing (selling) index call options and/or call options on custom baskets of securities (the “Options Strategy”).
“Assets” means net assets of the Fund plus the amount of any borrowings for investment purposes. “Managed Assets” mean the total assets of the Fund,
minus the sum of its accrued liabilities (other than Fund liabilities incurred for the express purpose of creating leverage). Total assets for this purpose shall include assets attributable to the Fund’s use of leverage (whether or not those
assets are reflected in the Fund’s financial statements for purposes of generally accepted accounting principles), and derivatives will be valued at their market value.
Under normal market conditions:
| |
• |
|
The notional value of the call options written by the Fund under its Options Strategy may be up to 50% of the value of the
Fund’s Managed Assets. |
| |
• |
|
The Fund intends to limit the overlap between the stocks held in the Equity Portfolio and the stocks underlying the
Fund’s call options to less than 70% (generally based on the value of such components). |
| |
• |
|
The Fund may invest up to 10% of is Managed Assets in securities of other open- or
closed-end investment companies (including ETFs) that invest primarily in securities of the types in which the Fund may invest directly. In addition, the Fund may invest a portion of its Managed Assets in
pooled investment vehicles (other than investment companies) that invest primarily in securities of the types in which the Fund may invest directly. |
The foregoing policies apply only at the time of any new investment.
Approving
Changes in Investment Policies
The Board of Trustees of the Fund may change the policies described above without a shareholder vote. However, with respect to the
Fund’s policy of investing at least 80% of its Assets in the Equity Portfolio, such policy may not be changed without 60 days’ prior written notice to shareholders.
Portfolio Contents
The Fund generally invests in a portfolio of common stocks.
Common stock generally represents an equity ownership interest in an issuer, without preference over and with a lower priority than any other class of securities, including such issuer’s debt securities, preferred stock and other senior equity
securities. Common stocks usually carry voting rights and earn dividends. Common stocks fluctuate in price in response to many factors including historical and prospective earnings of the issuer, the value of its assets, general economic conditions,
interest rates, investor perceptions and market liquidity, as such the company may or may not pay dividends. Dividends on common stocks are declared at the discretion of the company’s board. In addition, common stock generally has the greatest
appreciation and depreciation potential because increases and decreases in earnings are usually reflected in a company’s stock price.
The Fund implements its
Option Strategy by writing (selling) index call options and call options on custom baskets of securities.
An option contract is a contract that gives the holder of
the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the reference instrument underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a security has the obligation upon exercise of the option to deliver the reference instrument (or the cash) upon payment of the exercise price or to pay the exercise price
upon delivery of the reference instrument (or the cash). Upon exercise of an index option, the writer of an option on an index is obligated to pay the difference between the cash value of the index and the exercise price multiplied by the specified
multiplier for the index option. Options may be “covered,” meaning that the party required to deliver the reference instrument if the option is exercised owns that instrument (or has set aside sufficient assets to meet its obligation to
deliver the instrument). Options may be listed on an exchange or traded in the OTC market. In general, exchange-traded options have standardized exercise prices and expiration dates and may require the parties to post margin against their
obligations, and the performance of the parties’ obligations in connection with such options is guaranteed by the exchange or a related clearing corporation. OTC options have more flexible terms negotiated between the buyer and the seller, but
generally are subject
99
Shareholder Update (continued)
(Unaudited)
to counterparty risk. The ability of the Fund to transact business with any one or any number of counterparties, the lack of any independent evaluation of the
counterparties or their financial capabilities, and the absence of a regulated market to facilitate settlement, may increase the potential for losses to the Fund. OTC options also involve greater liquidity risk. This risk may be increased
in times of financial stress, if the trading market for OTC derivative contracts becomes limited. The staff of the SEC takes the position that certain purchased OTC options, and assets used as cover for certain written OTC options, are illiquid.
The Fund writes index call options on broad-based indices and may, if the sub-adviser deems conditions appropriate, write
call options on a variety of other equity market indices. As the seller of an index call option, the Fund receives a premium from the purchaser. The purchaser of the index call option has the right to any appreciation in the value of the index over
the exercise price upon the exercise of the call option or the expiration date. If, at expiration, the purchaser exercises the index option sold by the Fund, the Fund will pay the purchaser the difference between the cash value of the index and the
exercise price of the index option. The premium, the exercise price and the market value of the index determine the gain or loss realized by the Fund as the seller of the index call option.
The Fund may also write call options on custom baskets of securities. A custom basket call option is an OTC option with a counterparty whose value is linked to the market
value of a portfolio of underlying securities and is collateralized by a portion of the Fund’s Equity Portfolio. In order to minimize the difference between the returns of the underlying securities in the custom basket (commonly referred to as
a tracking error), the sub-adviser will use optimization calculations when selecting the individual securities for inclusion in the custom basket.
In addition to the use of call options as described above, the Fund may enter into certain derivative instruments in pursuit of its investment objective, including to
seek to enhance return, to hedge certain risks of its investments or as a substitute for a position in the underlying asset. Such instruments include options, futures contracts, index futures and total return swaps. In addition, the Fund may invest
in other types of derivative instruments that are currently non-principal investments, including forward contracts, interest rate swaps, caps, collars and floors, credit default swaps, and swap options.
The Fund may enter into repurchase agreements (the purchase of a security coupled with an agreement to resell that security at a higher price) with respect to its
permitted investments. The Fund’s repurchase agreements will provide that the value of the collateral underlying the repurchase agreement will always be at least equal to the repurchase price, including any accrued interest earned on the
agreement, and will be marked-to-market daily.
The Fund may invest in
illiquid securities (i.e., securities that are not readily marketable), including, but not limited to, restricted securities (securities the disposition of which is restricted under the federal securities laws), securities that may be resold only
pursuant to Rule 144A under the 1933 Act, and repurchase agreements with maturities in excess of seven days.
The Fund may buy and sell securities on a when-issued or
delayed delivery basis, making payment or taking delivery at a later date, normally within 15 to 45 days of the trade date.
The Fund may lend securities representing
up to one-third of the value of its total assets to broker-dealers, banks, and other institutions to generate additional income. When the Fund loans its portfolio securities, it will receive, at the
inception of each loan, cash collateral equal to at least 102% of the value of the loaned securities. Under the Fund’s securities lending agreement, the securities lending agent will generally bear the risk that a borrower may default on its
obligation to return loaned securities. The Fund, however, will be responsible for the risks associated with the investment of cash collateral. The Fund may lose money on its investment of cash collateral or may fail to earn sufficient income on its
investment to meet its obligations to the borrower.
Use of Leverage
As a non-fundamental policy, the Fund will not leverage its capital structure by issuing senior securities such as the issuance of Preferred Shares or debt instruments. The Fund may, however, borrow up to
7.5% of its Managed Assets for cash management purposes. In addition, the Fund may borrow for temporary or emergency purposes and may enter into certain derivatives transactions that have the economic effect of leverage by creating additional
investment exposure.
Temporary Defensive Periods
During temporary
defensive periods the Fund may deviate from its investment objective and policies, and in order to keep the Fund’s cash fully invested, the Fund may invest up to 100% of its Managed Assets in investment grade debt securities, including
obligations issued or guaranteed by the U.S. government, its agencies and instrumentalities. The Fund may not achieve its investment objective during such periods.
100
PRINCIPAL RISKS OF THE FUNDS
The factors that are most likely to have a material effect on a particular Fund’s portfolio as a whole are called “principal risks.” Each Fund is subject
to the principal risks indicated below, whether through direct investment or derivative positions. Each Fund may be subject to additional risks other than those identified and described below because the types of investments made by a Fund can
change over time.
|
|
|
|
|
|
|
|
|
|
|
| Risk |
|
Nuveen S&P
500 Buy-Write
Income Fund
(BXMX) |
|
Nuveen Dow
30SM Dynamic
Overwrite Fund
(DIAX) |
|
Nuveen S&P
500 Dynamic
Overwrite Fund
(SPXX) |
|
Nuveen Nasdaq
100 Dynamic
Overwrite Fund
(QQQX) |
|
Nuveen Core
Equity Alpha
Fund
(JCE) |
|
|
|
|
|
|
| Portfolio Level Risks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Call Option Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Call Spreads Risk |
|
X |
|
X |
|
X |
|
X |
|
— |
| Common Stock Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Counterparty Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Deflation Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Derivatives Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Dividend Income Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Frequent Trading Risk |
|
— |
|
— |
|
— |
|
— |
|
X |
| Hedging Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Illiquid Investments Risk |
|
X |
|
X |
|
X |
|
X |
|
— |
| Inflation Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Information Technology Sector Risk |
|
X |
|
— |
|
X |
|
— |
|
— |
| Large-Cap Company
Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Non-U.S. Securities
Risk |
|
X |
|
X |
|
X |
|
X |
|
— |
| Option Strategy Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Other Investment Companies Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Put Option Risk |
|
X |
|
X |
|
X |
|
X |
|
— |
| Quantitative Analysis Risk |
|
— |
|
— |
|
— |
|
— |
|
X |
| Swap Transactions Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Technology Company Investment Risk |
|
— |
|
— |
|
— |
|
X |
|
— |
| Valuation Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
|
|
|
|
| Fund Level and Other Risks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Anti-Takeover Provisions |
|
X |
|
X |
|
X |
|
X |
|
X |
| Borrowing Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Cybersecurity Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Global Economic Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Investment and Market Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Legislation and Regulatory Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
| Market Discount from Net Asset Value |
|
X |
|
X |
|
X |
|
X |
|
X |
| Non-Diversified Status
Risk |
|
— |
|
X |
|
— |
|
X |
|
— |
| Not an Index Fund |
|
X |
|
X |
|
X |
|
X |
|
— |
| Recent Market Conditions |
|
X |
|
X |
|
X |
|
X |
|
X |
| Tax Risk |
|
X |
|
X |
|
X |
|
X |
|
X |
101
Shareholder Update (continued)
(Unaudited)
Portfolio Level Risks:
Call Option
Risk. As the writer of a call option, the Fund foregoes, during the option’s life, the opportunity to profit from increases in the market value of the instrument underlying the call option above the
sum of the premium and the strike price of the option, but will retain the risk of loss should the market value of the instrument underlying the call option decline. The purchaser of the call option has the right to any appreciation in the value of
the underlying instrument over the exercise price upon the exercise of the call option or the expiration date. As the Fund increases the option overlay percentage, its ability to benefit from capital appreciation becomes more limited and the risk of
NAV erosion increases. If the Fund experiences NAV erosion, which itself may have a negative effect on the market price of the Fund’s shares, the Fund will have a reduced asset base over which to write call options, which may eventually lead to
reduced distributions to shareholders.
In addition, because the exercise of index options is settled in cash, sellers of index call options, such as the Fund,
cannot provide in advance for their potential settlement obligations by acquiring and holding the underlying securities. The Fund bears a risk that the value of the securities held by the Fund will vary from the value of the underlying index and
relative to the written index call option positions. Accordingly, the Fund may incur losses on the index call options that it has sold that exceed gains on the Fund’s equity portfolio. The value of index options written by the Fund, which will
be priced daily, will be affected by changes in the value of and dividend rates of the underlying common stocks in the index, changes in the actual or perceived volatility of the stock market and the remaining time to the options’ expiration.
The value of the index options also may be adversely affected if the market for the index options becomes less liquid or smaller.
Call Spreads Risk. The Fund may enter into call spreads. A call spread involves the sale of
a call option and the corresponding purchase of a call option on the same underlying instrument with the same expiration date but with different strike prices. The Fund may not be able to enter into (or close out of) these transactions, at times or
in the quantities desired by the sub-adviser. The Fund also may not be able to enter into (or close out of) these transactions because of, among other things, the lack of market participants that are willing
to take contrary positions to that of the Fund.
Common Stock Risk. Common stocks
have experienced significantly more volatility in returns and may significantly underperform relative to fixed-income securities during certain periods. An adverse event, such as an unfavorable earnings report, may depress the value of a particular
common stock held by the Fund. Also, the price of common stocks is sensitive to general movements in the stock market, and a drop in the stock market may depress the price of common stocks to which the Fund has exposure. Common stock prices
fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer, the general condition of the relevant stock market or the current and expected future conditions of the broader economy, or when
political or economic events affecting the issuer in particular or the stock market in general occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase.
Counterparty Risk. The Fund will be subject to credit risk with respect to the
counterparties to the derivative transactions entered into by the Fund. Changes in the credit quality of the companies that serve as the Fund’s counterparties with respect to derivatives transactions may affect the value of those instruments.
Because certain derivative transactions in which the Fund may engage may be traded between counterparties based on contractual relationships, the Fund is subject to the risk that a counterparty will not perform its obligations under the related
contracts. If a counterparty becomes bankrupt or otherwise becomes unable to perform its obligations due to financial difficulties the Fund may sustain losses (including the full amount of its
investment), may be unable to liquidate a derivatives position or may experience significant delays in obtaining any recovery in bankruptcy or other reorganization
proceedings. By entering into derivatives transactions, the Fund assumes the risk that its counterparties could experience such financial hardships. Although the Fund intends to enter into transactions only with counterparties that the sub-adviser believes to be creditworthy, there can be no assurance that a counterparty will not default and that the Fund will not sustain a loss on a transaction. In the event of a counterparty’s bankruptcy or
insolvency, any collateral posted by the Fund in connection with a derivatives transaction may be subject to the conflicting claims of that counterparty’s creditors, and the Fund may be exposed to the risk of a court treating the Fund as a
general unsecured creditor of the counterparty, rather than as the owner of the collateral.
Deflation Risk. Deflation risk is the risk that prices throughout the economy decline over time. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a
decline in the value of the Fund’s portfolio.
Derivatives Risk. The use of
derivatives involves additional risks and transaction costs which could leave the Fund in a worse position than if it had not used these instruments. Derivative instruments can be used to acquire or to transfer the risk and returns of a security or
other asset without buying or selling the security or asset. These instruments may entail investment exposures that are greater than their cost would suggest. As a result, a small investment in derivatives can result in losses that greatly exceed
the original investment. Derivatives can be highly volatile, illiquid and difficult to value. An over-the-counter derivative transaction between the Fund and a
counterparty that is not cleared through a central counterparty also involves the risk that a loss may be sustained as a result of the failure of the counterparty to the contract to make required payments. The payment obligation for a cleared
derivative transaction is guaranteed by a central counterparty, which exposes the Fund to the creditworthiness of the central counterparty.
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It is possible that regulatory or other developments
in the derivatives market, including changes in government regulation the SEC’s recently adopted new Rule 18f-4 under the 1940 Act, which imposes limits on the amount of derivatives a fund can enter into,
could adversely impact the Fund’s ability to invest in certain derivatives successfully use derivative instruments.
Dividend
Income Risk. A portion of the net investment income paid by the Fund to its shareholders is derived from dividends it receives from the common stocks held in the Fund’s equity portfolio. Dividends paid
on securities held by the Fund can vary significantly over the short-term and long-term. Dividends on common stocks are not fixed, but are declared at the discretion of an issuer’s board of directors. There is no guarantee that the issuers of
common stocks in which the Fund invests will declare dividends in the future or that if declared they will remain at current levels or increase over time.
Frequent Trading Risk. The Fund’s portfolio turnover rate may exceed 100%. Frequent trading of portfolio securities may produce capital gains, which are taxable to
shareholders when distributed. Frequent trading may also increase the amount of commissions or mark-ups to broker-dealers that a fund pays when it buys and sells securities, which may detract from the
fund’s performance.
Hedging Risk. The Fund’s use of derivatives or
other transactions to reduce risk involves costs and will be subject to the investment adviser’s and/or the sub-adviser’s ability to predict correctly changes in the relationships of such hedge
instruments to the Fund’s portfolio holdings or other factors. No assurance can be given that the investment adviser’s and/or the sub-adviser’s judgment in this respect will be correct, and no
assurance can be given that the Fund will enter into hedging or other transactions at times or under circumstances in which it may be advisable to do so. Hedging activities may reduce the Fund’s opportunities for gain by offsetting the positive
effects of favorable price movements and may result in net losses.
Illiquid Investments Risk. Illiquid investments are investments that are not readily marketable. These investments may include restricted investments, including Rule 144A securities, which cannot be resold to the public without an effective
registration statement under the 1933 Act, or, if they are unregistered may be sold only in a privately negotiated transaction or pursuant to an available exemption from registration. The Fund may not be able to readily dispose of such investments
at prices that approximate those at which the Fund could sell such investments if they were more widely traded and, as a result of such illiquidity, the Fund may have to sell other investments or engage in borrowing transactions if necessary to
raise cash to meet its obligations. Limited liquidity can also affect the market price of investments, thereby adversely affecting the Fund’s NAV and ability to make dividend distributions. The financial markets in general have in recent years
experienced periods of extreme secondary market supply and demand imbalance, resulting in a loss of liquidity during which market prices were suddenly and substantially below traditional measures of intrinsic value. During such periods, some
investments could be sold only at arbitrary prices and with substantial losses. Periods of such market dislocation may occur again at any time.
Inflation Risk. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As
inflation increases, the real value of the common shares and distributions can decline. Currently, inflation rates are elevated relative to normal market conditions and could continue to increase.
Information Technology Sector Risk. The Fund currently invests a significant portion of its
assets in the information technology sector, although this may change over time. The information technology sector can be significantly affected by changes in, among other things, the supply and demand for specific
products and services, the pace of technological development and product obsolescence, market competition, government regulation, and patent and intellectual property rights.
Large-Cap Company Risk. While large-cap companies
may be less volatile than those of mid-and small-cap companies, they still involve risk. To the extent the Fund invests in large-capitalization securities, the Fund may
underperform funds that invest primarily in securities of smaller capitalization companies during periods when the securities of such companies are in favor. Large-capitalization companies may be unable to respond as quickly as smaller
capitalization companies to competitive challenges or to changes in business, product, financial or other market conditions.
Non-U.S. Securities Risk. Investments in securities
of non-U.S. issuers involve special risks, including: less publicly available information about non-U.S. issuers or markets due to less rigorous disclosure or accounting
standards or regulatory practices; many non-U.S. markets are smaller, less liquid and more volatile; the economies of non-U.S. countries may grow at slower rates than
expected or may experience a downturn or recession; the impact of economic, political, social or diplomatic events; and withholding and other non-U.S. taxes may decrease the Fund’s return. These risks are
more pronounced to the extent that the Fund invests a significant amount of its assets in issuers located in one region.
Option Strategy Risk. The value of call options sold (written) by the Fund will fluctuate.
The Fund may not participate in any appreciation of its portfolio as fully as it would if the Fund did not sell call options. In addition, the Fund will continue to bear the risk of declines in the value of its portfolio. In employing the
Fund’s option strategy, the sub-adviser seeks to reduce downside risk and volatility of the Fund’s equity portfolio. This strategy may not protect against market declines and may limit the
Fund’s participation in market gains, particularly during periods when market values are increasing. This strategy may increase the Fund’s portfolio transaction costs, which could result in losses or reduce gains, and may not be
successful.
Other Investment Companies Risk. The Fund may invest in the
securities of other investment companies, including ETFs. Investing in an investment company exposes the Fund to all of the risks of that investment company’s investments. The Fund, as a holder of the securities of other investment
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Shareholder Update (continued)
(Unaudited)
companies, will bear its pro rata portion of the other investment companies’ expenses, including advisory fees. These expenses are in addition to the direct expenses
of the Fund’s own operations. As a result, the cost of investing in investment company shares may exceed the costs of investing directly in its underlying investments. In addition, securities of other investment companies may be leveraged. As a
result, the Fund may be indirectly exposed to leverage through an investment in such securities and therefore magnify the Fund’s leverage risk.
With respect to
ETF’s, an ETF that is based on a specific index may not be able to replicate and maintain exactly the composition and relative weighting of securities in the index. The value of an ETF based on a specific index is subject to change as the
values of its respective component assets fluctuate according to market volatility. ETFs typically rely on a limited pool of authorized participants to create and redeem shares, and an active trading market for ETF shares may not develop or be
maintained. The market value of shares of ETFs and closed-end funds may differ from their NAV.
Put Option Risk. By writing put options, the Fund takes on the risk of declines in the value
of the underlying instrument, including the possibility of a loss up to the entire strike price of each option it sells but without the corresponding opportunity to benefit from potential increases in the value of the underlying instrument. When the
Fund writes a put option, it assumes the risk that it must purchase the underlying instrument at a strike price that may be higher than the market price of the instrument. If there is a broad market decline and the Fund is not able to close out its
written put options, it may result in substantial losses to the Fund. The Fund will receive a premium from writing options, but the premium received may not be sufficient to offset any losses sustained from exercised put options.
Quantitative Analysis Risk. The risk that stocks selected using quantitative modeling and
analysis could perform differently from the market as a whole and the risk that such quantitative analysis and modeling may not adequately take into account certain factors, may contain design flaws or inaccurate assumptions and may rely on
inaccurate data inputs, which may result in losses to the Fund.
Swap Transactions Risk. The Fund may enter into derivative instruments such as swap contracts, credit default swaps, interest rate swaps and forward contracts. Like most derivative instruments, the use of swaps is a highly specialized activity
that involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. In addition, the use of swaps requires an understanding by the adviser and/or the
sub-adviser of not only the referenced asset, rate or index, but also of the swap itself. If the investment adviser and/or the sub-adviser is incorrect in its forecasts
of default risks, market spreads or other applicable factors or events, the investment performance of the Fund would diminish compared with what it would have been if these techniques were not used.
Technology Company Investment Risk. A substantial portion of the securities represented in
the applicable index are in the technology sector. As a result, the Fund may invest a substantial portion of its assets in technology companies. The market prices of technology-related stocks tend to exhibit a greater degree of market risk and price
volatility than other types of investments. These stocks may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices. Technology stocks also may be affected adversely by changes in
technology, consumer and business purchasing patterns, government regulation and/or obsolete products or services.
Valuation Risk. The securities in which the Fund invests typically are valued by a pricing
service utilizing a range of market-based inputs and assumptions, including readily available market quotations obtained from broker-dealers making markets in such instruments, cash flows and transactions for comparable instruments. There is no
assurance that the Fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the Fund. Pricing services generally price securities assuming orderly transactions of an
institutional “round lot” size, but some trades may occur in smaller, “odd lot” sizes, often at lower prices than institutional round lot trades. Different pricing services may incorporate different assumptions and inputs into
their valuation methodologies, potentially resulting in different values for the same securities. As a result, if the Fund were to change pricing services, or if the Fund’s pricing service were to change its valuation methodology, there could
be a material impact, either positive or negative, on the Fund’s NAV.
Fund Level and Other Risks:
Anti-Takeover Provisions. The Fund’s organizational documents include provisions that
could limit the ability of other entities or persons to acquire control of the Fund or convert the Fund to open-end status. Although the application of the “Control Share Acquisition” provisions has
currently been suspended, these provisions could have the effect of depriving the common shareholders of opportunities to sell their common shares at a premium over the then-current market price of the common shares.
Borrowing Risk. The Fund may borrow for temporary or emergency purposes. Borrowing may
exaggerate changes in the NAV of the Fund’s shares and may affect the Fund’s net income. When the Fund borrows money, it must pay interest and other fees, which will reduce the Fund’s returns if such costs exceed the returns on the
portfolio securities purchased or retained with such borrowings. Any such borrowings are intended to be temporary. However, under certain market circumstances, such borrowings might be outstanding for longer periods of time.
Cybersecurity Risk. The Fund and its service providers are susceptible to operational and
information security risk resulting from cyber incidents. Cyber incidents refer to both intentional attacks and unintentional events including: processing errors, human errors, technical errors including computer glitches
104
and system malfunctions, inadequate or failed
internal or external processes, market-wide technical-related disruptions, unauthorized access to digital systems (through “hacking” or malicious software coding), computer viruses, and cyber-attacks which shut down, disable, slow or
otherwise disrupt operations, business processes or website access or functionality (including denial of service attacks). Cyber incidents could adversely impact the Fund and cause the Fund to incur financial loss and expense, as well as face
exposure to regulatory penalties, reputational damage, and additional compliance costs associated with corrective measures. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. Furthermore, the Fund
cannot control the cybersecurity plans and systems put in place by its service providers or any other third parties whose operations may affect the Fund.
Global Economic Risk. National and regional economies and financial markets are becoming increasingly interconnected, which increases the possibilities that conditions in one
country, region or market might adversely impact issuers in a different country, region or market. Changes in legal, political, regulatory, tax and economic conditions may cause fluctuations in markets and investments prices around the world, which
could negatively impact the value of the Fund’s investments. Major economic or political disruptions, particularly in large economies like China’s, may have global negative economic and market repercussions. Additionally, instability in
various countries, such as Afghanistan and Syria, and natural and environmental disasters and the spread of infectious illnesses or other public health emergencies , possible terrorist attacks in the United States and around the world, continued
tensions between North Korea and the United States and the international community generally, growing social and political discord in the United States, the European debt crisis, the response of the international community – through economic
sanctions and otherwise – further downgrade of U.S. government securities, the change in the U.S. president and the new administration and other similar events may adversely affect the global economy and the markets and issuers in which the
Fund invests. Recent examples of such events include the outbreak of a novel coronavirus known as COVID-19 that was first detected in China in December 2019 and heightened concerns regarding North Korea’s
nuclear weapons and long-range ballistic missile programs. In addition, Russia’s recent invasion of Ukraine in February 2022 has resulted in sanctions imposed by several nations, such as the United States, United Kingdom, European Union and
Canada. The current sanctions and potential further sanctions may negatively impact certain sectors of Russia’s economy, but also may negatively impact the value of the Fund’s investments that do not have direct exposure to Russia. These
events could reduce consumer demand or economic output, result in market closure, travel restrictions or quarantines, and generally have a significant impact on the economy. These events could also impair the information technology and other
operational systems upon which the Fund’s service providers, including the Fund’s sub-adviser, rely, and could otherwise disrupt the ability of employees of the Fund’s service providers to
perform essential tasks on behalf of the Fund.
The Fund does not know and cannot predict how long the securities markets may be affected by these events and
the effects of these and similar events in the future on the U.S. economy and securities markets. The Fund may be adversely affected by abrogation of international agreements and national laws which have created the market instruments in which the
Fund may invest, failure of the designated national and international authorities to enforce compliance with the same laws and agreements, failure of local, national and international organizations to carry out the duties prescribed to them under
the relevant agreements, revisions of these laws and agreements which dilute their effectiveness or conflicting interpretation of provisions of the same laws and agreements.
Governmental and quasi-governmental authorities and regulators throughout the world have in the past responded to major economic disruptions with a variety of significant
fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs and dramatically lower interest rates. An unexpected or quick reversal of these policies, or the ineffectiveness of
these policies, could increase volatility in securities markets, which could adversely affect the Fund’s investments.
Investment and Market Risk. An investment in the Fund’s common shares is subject to
investment risk, including the possible loss of the entire principal amount that you invest. Common shares frequently trade at a discount to their NAV. An investment in common shares represents an indirect investment in the securities owned by the
Fund. Common shares at any point in time may be worth less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions.
Legislation and Regulatory Risk. At any time after the date of this report, legislation or
additional regulations may be enacted that could negatively affect the assets of the Fund, securities held by the Fund or the issuers of such securities. Fund shareholders may incur increased costs resulting from such legislation or additional
regulation. There can be no assurance that future legislation, regulation or deregulation will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve its investment objectives.
Market Discount from Net Asset Value. Shares of
closed-end investment companies like the Fund frequently trade at prices lower than their NAV. This characteristic is a risk separate and distinct from the risk that the Fund’s NAV could decrease as a
result of investment activities. Whether investors will realize gains or losses upon the sale of the common shares will depend not upon the Fund’s NAV but entirely upon whether the market price of the common shares at the time of sale is above
or below the investor’s purchase price for the common shares. Furthermore, management may have difficulty meeting the Fund’s investment objectives and managing its portfolio when the underlying securities are redeemed or sold during
periods of market turmoil and as investors’ perceptions regarding closed-end funds or their underlying investments change. Because the market price of the common shares will be determined by factors such
as relative supply of and demand for the common shares in the market, general market and economic circumstances, and other factors beyond the control of the Fund, the Fund cannot predict whether the common shares will trade at, below or above NAV.
The common shares are designed primarily for long-term investors, and you should not view the Fund as a vehicle for short-term trading purposes.
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Shareholder Update (continued)
(Unaudited)
Non-Diversified Status Risk. Because the Fund is classified as “non-diversified” under the 1940 Act, it can invest a greater portion of its assets in obligations of a single issuer than a “diversified” fund. As a result, the Fund will be more susceptible
than a diversified fund to fluctuations in the prices of securities of a single issuer.
Not an Index Fund. The Fund is not, nor is it intended to be, an index fund. As a result, the performance of the Fund will differ from the performance of the index as a whole for various reasons, including the fact that the Fund will write
call options on a portion of its equity portfolio and the weightings of the securities included in the Fund’s equity portfolio may be different than the weightings of the common stocks in the index. The Fund, by writing call options on its
equity portfolio, will give up the opportunity to benefit from potential increases in the value of the Fund’s equity portfolio above the exercise prices of the options, but will continue to bear the risk of declines in the value of the
Fund’s equity portfolio.
Recent Market Conditions. Periods of unusually
high financial market volatility and restrictive credit conditions, at times limited to a particular sector or geographic area, have occurred in the past and may be expected to recur in the future. Some countries, including the United States, have
adopted or have signaled protectionist trade measures, relaxation of the financial industry regulations that followed the financial crisis, and/or reductions to corporate taxes. The scope of these policy changes is still developing, but the equity
and debt markets may react strongly to expectations of change, which could increase volatility, particularly if a resulting policy runs counter to the market’s expectations. The outcome of such changes cannot be foreseen at the present time. In
addition, geopolitical and other risks, including environmental and public health risks, may add to instability in the world economy and markets generally. As a result of increasingly interconnected global economies and financial markets, the value
and liquidity of the Fund’s investments may be negatively affected by events impacting a country or region, regardless of whether the Fund invests in issuers located in or with significant exposure to such country or region. The outbreak of COVID-19 resulted in instances of market closures and dislocations, extreme volatility, liquidity constraints and increased trading costs. The full economic impact and ongoing effects of COVID-19 (or other future epidemics or pandemics) at the macro-level and on individual businesses are unpredictable and may result in significant and prolonged effects on the Fund’s performance.
On June 23, 2016, the United Kingdom (“UK”) held a referendum on whether to remain a member state of the European Union (“EU”), in which voters
favored the UK’s withdrawal from the EU, an event widely referred to as “Brexit.” On January 31, 2020, the UK formally withdrew from the EU. The transition period concluded on December 31, 2020, and EU law no longer applies
in the UK. On December 30, 2020, the UK and EU signed an EU-UK Trade and Cooperation Agreement (“UK/EU Trade Agreement”), which went into effect on January 1, 2021 and sets out the
foundation of the economic and legal framework for trade between the UK and EU. As the UK/EU Trade Agreement is a new legal framework, the implementation of the UK/EU Trade Agreement may result in uncertainty in its application and periods of
volatility in both the UK and wider European markets. The longer term economic, legal, political and social framework to be put in place between the UK and the EU are unclear at this stage, remain subject to negotiation and are likely to lead to
ongoing political and economic uncertainty and periods of exacerbated volatility in both the UK and in wider European markets for some time. The outcomes may cause increased volatility and have a significant adverse impact on world financial
markets, other international trade agreements, and the UK and European economies, as well as the broader global economy for some time. Additionally, a number of countries in Europe have suffered terror attacks, and additional attacks may occur in
the future.
Ukraine has experienced ongoing military conflict, most recently in February 2022 when Russia invaded Ukraine; this conflict may expand and military
attacks could occur elsewhere in Europe. Europe has also been struggling with mass migration from the Middle East and Africa. The ultimate effects of these events and other socio-political or geographical issues are not known but could profoundly
affect global economies and markets.
The ongoing trade war between China and the United States, including the imposition of tariffs by each country on the other
country’s products, has created a tense political environment. These actions may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial price reductions of goods and possible failure of
individual companies and/or large segments of China’s export industry, which could have a negative impact on the Fund’s performance. U.S. companies that source material and goods from China and those that make large amounts of sales in
China would be particularly vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and the potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the
Japanese yen and the euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs may be imposed or other escalating actions may be taken in the future. The impact of these developments in the
near- and long-term is unknown and could have additional adverse effects on economies, financial markets and asset valuations around the world.
Tax Risk. The Fund has elected to be treated and intends to qualify each year as a Regulated Investment Company (“RIC”) under the Internal Revenue Code of 1986, as
amended (the “Code”). As a RIC, the Fund is not expected to be subject to U.S. federal income tax to the extent that it distributes its investment company taxable income and net capital gains. To qualify for the special tax treatment
available to a RIC, the Fund must comply with certain investment, distribution, and diversification requirements. Under certain circumstances, the Fund may be forced to sell certain assets when it is not advantageous in order to meet these
requirements, which may reduce the Fund’s overall return. If the Fund fails to meet any of these requirements, subject to the opportunity to cure such failures under applicable provisions of the Code, the Fund’s income would be subject to
a double level of U.S. federal income tax. The Fund’s income, including its net capital gain, would first be subject to U.S. federal income tax at regular corporate rates, even if such income were distributed to shareholders and, second, all
distributions by the Fund from earnings and profits, including distributions of net capital gain (if any), would be taxable to shareholders as dividends.
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DIVIDEND REINVESTMENT PLAN
Nuveen Closed-End Funds Automatic Reinvestment Plan
Your Nuveen Closed-End Fund allows you to conveniently reinvest distributions in additional Fund shares. By choosing to reinvest,
you’ll be able to invest money regularly and automatically, and watch your investment grow through the power of compounding. Just like distributions in cash, there may be times when income or capital gains taxes may be payable on distributions
that are reinvested. It is important to note that an automatic reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market.
Easy and convenient
To make recordkeeping easy and convenient, each quarter
you’ll receive a statement showing your total distributions, the date of investment, the shares acquired and the price per share, and the total number of shares you own.
How shares are purchased
The shares you acquire by reinvesting will either be
purchased on the open market or newly issued by the Fund. If the shares are trading at or above NAV at the time of valuation, the Fund will issue new shares at the greater of the NAV or 95% of the then-current market price. If the shares are trading
at less than NAV, shares for your account will be purchased on the open market. If Computershare Trust Company, N.A. (the “Plan Agent”) begins purchasing Fund shares on the open market while shares are trading below NAV, but the
Fund’s shares subsequently trade at or above their NAV before the Plan Agent is able to complete its purchases, the Plan Agent may cease open-market purchases and may invest the uninvested portion of the distribution in newly-issued Fund shares
at a price equal to the greater of the shares’ NAV or 95% of the shares’ market value on the last business day immediately prior to the purchase date. Distributions received to purchase shares in the open market will normally be invested
shortly after the distribution payment date. No interest will be paid on distributions awaiting reinvestment. Because the market price of the shares may increase before purchases are completed, the average purchase price per share may exceed the
market price at the time of valuation, resulting in the acquisition of fewer shares than if the distribution had been paid in shares issued by the Fund. A pro rata portion of any applicable brokerage commissions on open market purchases will be paid
by Dividend Reinvestment Plan (the “Plan”) participants. These commissions usually will be lower than those charged on individual transactions.
Flexible
You may change your distribution option or withdraw from the Plan at
any time, should your needs or situation change. You can reinvest whether your shares are registered in your name, or in the name of a brokerage firm, bank, or other nominee. Ask your investment advisor if his or her firm will participate on your
behalf. Participants whose shares are registered in the name of one firm may not be able to transfer the shares to another firm and continue to participate in the Plan. The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge payable by the participants, there is no direct service charge to participants in the Plan at this time.
Call today to start reinvesting distributions
For more information on the
Nuveen Automatic Reinvestment Plan or to enroll in or withdraw from the Plan, speak with your financial professional or call us at (800) 257-8787.
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Shareholder Update (continued)
(Unaudited)
CHANGES OCCURRING DURING THE FISCAL YEAR
The following information in this
annual report is a summary of certain changes during the most recent fiscal year. This information may not reflect all of the changes that have occurred since you purchased shares of a Fund.
During the most recent fiscal year, there have been no changes to: (i) the Funds’ investment objectives and principal investment policies that have not been
approved by shareholders, (ii) the principal risks of the Fund, (iii) the portfolio managers of the Funds; (iv) a Fund’s charter or by-laws that would delay or prevent a change of control
of the Fund that have not been approved by shareholders, except as follows:
Amended and Restated Bylaws
On October 5, 2020, the Nuveen S&P 500 Buy-Write Income Fund, Nuveen Dow 30SM Dynamic Overwrite Fund, Nuveen S&P 500
Dynamic Overwrite Fund, and Nuveen Nasdaq 100 Dynamic Overwrite Fund and Nuveen Core Equity Alpha Fund (each a “Fund” and collectively the “Funds”) and certain other closed-end funds in the
Nuveen fund complex amended their by-laws. Among other things, the amended by-laws included provisions pursuant to which, in summary, a shareholder who obtains
beneficial ownership of common shares in a Control Share Acquisition (as defined in the by-laws) shall have the same voting rights as other common shareholders only to the extent authorized by the other
disinterested shareholders (the “Control Share By-Law”). On January 14, 2021, a shareholder of certain Nuveen closed-end funds filed a civil complaint in
the U.S. District Court for the Southern District of New York (the “District Court”) against certain Nuveen funds and their trustees, seeking a declaration that such funds’ Control Share By-Laws
violate the 1940 Act, rescission of such fund’s Control Share By-Laws and a permanent injunction against such funds applying the Control Share By-Laws. On
February 18, 2022, the District Court granted judgment in favor of the plaintiff’s claim for rescission of such funds’ Control Share By-Laws and the plaintiff’s declaratory judgment claim,
and declared that such funds’ Control Share By-Laws violate Section 18(i) of the 1940 Act. Following review of the judgment of the District Court, on February 22, 2022, the Board amended the
Funds’ bylaws to provide that the Funds’ Control Share By-Law shall be of no force and effect for so long as the judgment of the District Court is effective and that if the judgment of the District
Court is reversed, overturned, vacated, stayed, or otherwise nullified, the Fund’s Control Share By-Law will be automatically reinstated and apply to any beneficial owner of common shares acquired in a
Control Share Acquisition, regardless of whether such Control Share Acquisition occurs before or after such reinstatement, for the duration of the stay or upon issuance of the mandate reversing, overturning, vacating or otherwise nullifying the
judgment of the District Court. On February 25, 2022, the Board and the Funds appealed the District Court’s decision to the U.S. Court of Appeals for the Second Circuit.
Principal Risks
The following principal risk has been
added for the Nuveen S&P 500 Buy-Write Income Fund (BXMX) and Nuveen S&P 500 Dynamic Overwrite Fund (SPXX):
Information Technology Sector Risk. The Fund currently invests a significant portion of its assets in the information technology sector, although this may change
over time. The information technology sector can be significantly affected by changes in, among other things, the supply and demand for specific products and services, the pace of technological development and product
obsolescence, market competition, government regulation, and patent and intellectual property rights.
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UPDATED DISCLOSURES FOR FUNDS WITH AN EFFECTIVE
SHELF OFFERING REGISTRATION STATEMENT
The following includes additional disclosures for the Funds in this annual report with an effective shelf offering
registration statement as of the fiscal year ended December 31, 2022.
NUVEEN S&P 500 DYNAMIC OVERWRITE FUND (SPXX)
NUVEEN NASDAQ 100 DYNAMIC OVERWRITE FUND (QQQX)
SUMMARY OF
FUND EXPENSES
The purpose of the tables and the examples below are to help you understand all fees and expenses that you, as a common shareholder, would bear
directly or indirectly. The tables show the expenses of the Fund as a percentage of the average net assets attributable to Common Shares and not as a percentage of total assets or managed assets.
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|
|
| Shareholder Transaction Expenses |
|
Nuveen
S&P 500
Dynamic
Overwrite
Fund (SPXX) |
|
|
Nuveen
Nasdaq 100
Dynamic
Overwrite
Fund (QQQX) |
|
| Maximum Sales Charge (as a percentage of offering price) |
|
|
4.00% |
(1) |
|
|
4.00% |
(1) |
| Dividend Reinvestment Plan Fees (2) |
|
$ |
2.50 |
|
|
$ |
2.50 |
|
| (1) |
A maximum sales charge of 4.00% applies only to offerings pursuant to a syndicated underwriting. The maximum sales charge
for offerings made at-the-market is 1.00%. There is no sales charge for offerings pursuant to a private transaction. |
| (2) |
You will be charged a $2.50 service charge and pay brokerage charges if you direct Computershare Inc. and Computershare
Trust Company, N.A., as agent for the common shareholders, to sell your Common Shares held in a dividend reinvestment account. |
|
|
|
|
|
|
|
|
|
| |
|
As a Percentage of Net Assets
Attributable to Common Shares (1) |
|
| Annual Expenses |
|
Nuveen
S&P 500
Dynamic
Overwrite
Fund (SPXX) |
|
|
Nuveen
Nasdaq 100
Dynamic
Overwrite
Fund (QQQX) |
|
| Management Fees |
|
|
0.82% |
|
|
|
0.83% |
|
| Other Expenses (2) |
|
|
0.10% |
|
|
|
0.09% |
|
| Total Annual Expenses |
|
|
0.92% |
|
|
|
0.92% |
|
| (1) |
Stated as percentages of average net assets attributable to Common Shares for the fiscal year ended December 31,
2022. |
| (2) |
Other Expenses are based on estimated amounts for the current fiscal year. Expenses attributable to the Fund’s
investments, if any, in other investment companies are currently estimated not to exceed 0.01%. |
Examples
The following examples illustrate the expenses, including the applicable transaction fees (referred to as the “Maximum Sales Charge” in the Shareholder
Transaction Expenses table above), if any, that a common shareholder would pay on a $1,000 investment that is held for the time periods provided in the tables. Each example assumes that all dividends and other distributions are reinvested in the
Fund and that the Fund’s Annual Expenses, as provided above, remain the same. The examples also assume a 5% annual return. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater
or less than the hypothetical 5% return shown in the examples.
Example # 1
(At-the-Market Transaction)
The following example assumes a transaction fee of
1.00%, as a percentage of the offering price.
|
|
|
|
|
|
|
|
|
| |
|
Nuveen
S&P 500
Dynamic
Overwrite
Fund (SPXX) |
|
|
Nuveen
Nasdaq 100
Dynamic
Overwrite
Fund (QQQX) |
|
| 1 Year |
|
$ |
19 |
|
|
$ |
19 |
|
| 3 Years |
|
$ |
39 |
|
|
$ |
39 |
|
| 5 Years |
|
$ |
60 |
|
|
$ |
60 |
|
| 10 Years |
|
$ |
122 |
|
|
$ |
122 |
|
109
Shareholder Update (continued)
(Unaudited)
Example # 2 (Underwriting Syndicate Transaction)
The following example assumes
a transaction fee of 4.00%, as a percentage of the offering price.
|
|
|
|
|
|
|
|
|
| |
|
Nuveen
S&P 500
Dynamic
Overwrite
Fund (SPXX) |
|
|
Nuveen
Nasdaq 100
Dynamic
Overwrite
Fund (QQQX) |
|
| 1 Year |
|
$ |
49 |
|
|
$ |
49 |
|
| 3 Years |
|
$ |
68 |
|
|
$ |
68 |
|
| 5 Years |
|
$ |
89 |
|
|
$ |
89 |
|
| 10 Years |
|
$ |
149 |
|
|
$ |
149 |
|
Example # 3 (Privately Negotiated Transaction)
The following example assumes there is no transaction fee.
|
|
|
|
|
|
|
|
|
| |
|
Nuveen
S&P 500
Dynamic
Overwrite
Fund (SPXX) |
|
|
Nuveen
Nasdaq 100
Dynamic
Overwrite
Fund (QQQX) |
|
| 1 Year |
|
$ |
9 |
|
|
$ |
9 |
|
| 3 Years |
|
$ |
29 |
|
|
$ |
29 |
|
| 5 Years |
|
$ |
51 |
|
|
$ |
51 |
|
| 10 Years |
|
$ |
113 |
|
|
$ |
113 |
|
These examples should not be considered a representation of future expenses. Actual expenses may be greater or less than those shown
above.
TRADING AND NET ASSET VALUE INFORMATION
The following table
shows for the periods indicated: (i) the high and low market prices for the Common Shares of Nuveen S&P 500 Dynamic Overwrite Fund (SPXX) and Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX) reported as of the end of the day on the Nasdaq
Stock Market LLC (Nasdaq) and on the New York Stock Exchange (NYSE), respectively, (ii) the high and low net asset value (NAV) of the Common Shares, and (iii) the high and low of the premium/(discount) to NAV (expressed as a percentage) of
shares of the Common Shares.
Nuveen S&P 500 Dynamic Overwrite Fund (SPXX)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Market Price |
|
|
NAV |
|
|
Premium /
(Discount) to NAV |
|
| Fiscal Quarter End |
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
| December 2022 |
|
$ |
17.87 |
|
|
$ |
15.01 |
|
|
$ |
15.63 |
|
|
$ |
14.04 |
|
|
|
16.12 |
% |
|
|
6.91 |
% |
| September 2022 |
|
$ |
16.78 |
|
|
$ |
15.01 |
|
|
$ |
16.68 |
|
|
$ |
14.04 |
|
|
|
7.85 |
% |
|
|
(0.97 |
)% |
| June 2022 |
|
$ |
18.18 |
|
|
$ |
14.87 |
|
|
$ |
18.18 |
|
|
$ |
14.91 |
|
|
|
3.06 |
% |
|
|
(5.42 |
)% |
| March 2022 |
|
$ |
18.82 |
|
|
$ |
16.48 |
|
|
$ |
18.82 |
|
|
$ |
16.80 |
|
|
|
0.95 |
% |
|
|
(4.30 |
)% |
| December 2021 |
|
$ |
18.60 |
|
|
$ |
16.98 |
|
|
$ |
18.81 |
|
|
$ |
17.51 |
|
|
|
(0.53 |
)% |
|
|
(4.30 |
)% |
| September 2021 |
|
$ |
18.42 |
|
|
$ |
17.08 |
|
|
$ |
18.36 |
|
|
$ |
17.47 |
|
|
|
3.50 |
% |
|
|
(3.61 |
)% |
| June 2021 |
|
$ |
19.07 |
|
|
$ |
16.57 |
|
|
$ |
17.80 |
|
|
$ |
17.04 |
|
|
|
8.72 |
% |
|
|
(3.42 |
)% |
| March 2021 |
|
$ |
16.53 |
|
|
$ |
14.84 |
|
|
$ |
17.03 |
|
|
$ |
16.00 |
|
|
|
(2.36 |
)% |
|
|
(8.38 |
)% |
Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Market Price |
|
|
NAV |
|
|
Premium /
(Discount) to NAV |
|
| Fiscal Quarter End |
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
| December 2022 |
|
$ |
23.42 |
|
|
$ |
20.00 |
|
|
$ |
21.49 |
|
|
$ |
19.18 |
|
|
|
11.19 |
% |
|
|
2.50 |
% |
| September 2022 |
|
$ |
25.08 |
|
|
$ |
20.51 |
|
|
$ |
24.52 |
|
|
$ |
19.93 |
|
|
|
3.59 |
% |
|
|
0.00 |
% |
| June 2022 |
|
$ |
28.77 |
|
|
$ |
21.14 |
|
|
$ |
27.84 |
|
|
$ |
21.28 |
|
|
|
4.18 |
% |
|
|
(1.09 |
)% |
| March 2022 |
|
$ |
30.83 |
|
|
$ |
24.79 |
|
|
$ |
29.97 |
|
|
$ |
24.51 |
|
|
|
3.83 |
% |
|
|
(4.97 |
)% |
| December 2021 |
|
$ |
30.65 |
|
|
$ |
28.05 |
|
|
$ |
30.28 |
|
|
$ |
27.64 |
|
|
|
3.44 |
% |
|
|
0.03 |
% |
| September 2021 |
|
$ |
30.60 |
|
|
$ |
28.37 |
|
|
$ |
30.07 |
|
|
$ |
27.97 |
|
|
|
2.56 |
% |
|
|
(0.51 |
)% |
| June 2021 |
|
$ |
29.57 |
|
|
$ |
26.57 |
|
|
$ |
28.54 |
|
|
$ |
26.43 |
|
|
|
4.30 |
% |
|
|
(0.77 |
)% |
| March 2021 |
|
$ |
27.61 |
|
|
$ |
25.38 |
|
|
$ |
28.27 |
|
|
$ |
25.94 |
|
|
|
2.87 |
% |
|
|
(4.69 |
)% |
110
The following table shows as of December 31,
2022 each Fund’s: (i) NAV per Common Share, (ii) market price, (iii) percentage of premium/(discount) to NAV per Common Share and (iv) net assets attributable to Common Shares.
|
|
|
|
|
|
|
|
|
| December 31, 2022 |
|
Nuveen
S&P 500
Dynamic
Overwrite
Fund (SPXX) |
|
|
Nuveen
Nasdaq 100
Dynamic
Overwrite
Fund (QQQX) |
|
| NAV per Common Share |
|
$ |
14.80 |
|
|
$ |
19.61 |
|
| Market Price |
|
$ |
16.12 |
|
|
$ |
20.43 |
|
| Percentage of Premium/(Discount) to NAV per Common Share |
|
|
8.92% |
|
|
|
4.18% |
|
| Net Assets Attributable to Common Shares |
|
$ |
265,760,349 |
|
|
$ |
949,717,732 |
|
Shares of closed-end investment companies, including those of the Funds, may frequently trade at
prices lower than NAV. The Funds’ Board of Trustees (Board) has currently determined that, at least annually, it will consider action that might be taken to reduce or eliminate any material discount from NAV in respect of Common Shares, which
may include the repurchase of such shares in the open market or in private transactions, the making of a tender offer for such shares at NAV, or the conversion of the Fund to an open-end investment company.
The Funds cannot assure you that their Board will decide to take any of these actions, or that share repurchases or tender offers will actually reduce market discount.
UNRESOLVED STAFF COMMENTS
Each Fund believes that there are no material
unresolved written comments, received 180 days or more before December 31, 2022, from the Staff of the Securities and Exchange Commission (SEC) regarding any of its periodic or current reports under the Securities Exchange Act or 1940 Act, or
its registration statement.
111
Important Tax Information (Unaudited)
As required by the Internal Revenue Code and Treasury Regulations, certain tax information, as
detailed below, must be provided to shareholders. Shareholders are advised to consult their tax advisor with respect to the tax implications of their investment. The amounts listed below may differ from the actual amounts reported on Form 1099-DIV, which will be sent to shareholders shortly after calendar year end.
Long-Term Capital Gains
As of year end, each Fund designates the following distribution amounts, or maximum amount allowable, as being from net long-term capital gains pursuant to
Section 852(b)(3) of the Internal Revenue Code:
|
|
|
|
|
| Fund |
|
Net Long-Term
Capital Gains |
|
| BXMX |
|
$ |
61,400,545 |
|
| DIAX |
|
|
22,929,386 |
|
| SPXX |
|
|
18,532,859 |
|
| QQQX |
|
|
75,075,334 |
|
| JCE |
|
|
4,996,444 |
|
Dividends Received Deduction (DRD)
Each Fund
listed below had the following percentage, or maximum amount allowable, of ordinary income distributions eligible for the dividends received deduction for corporate shareholders:
|
|
|
|
|
| Fund |
|
Percentage |
|
| BXMX |
|
|
55.8 |
% |
| DIAX |
|
|
72.0 |
|
| SPXX |
|
|
100.0 |
|
| QQQX |
|
|
52.5 |
|
| JCE |
|
|
12.6 |
|
Qualified Dividend Income (QDI)
Each Fund
listed below had the following percentage, or maximum amount allowable, of ordinary income distributions treated as qualified dividend income for individuals pursuant to Section 1(h)(11) of the Internal Revenue Code:
|
|
|
|
|
| Fund |
|
Percentage |
|
| BXMX |
|
|
57.6 |
% |
| DIAX |
|
|
72.0 |
|
| SPXX |
|
|
100.0 |
|
| QQQX |
|
|
53.0 |
|
| JCE |
|
|
13.5 |
|
Qualified Interest Income (QII)
Each Fund
listed below had the following percentage, or maximum amount allowable, of ordinary income distributions treated as qualified interest income and/or short-term capital gain dividends pursuant to Section 871(k) of the Internal Revenue Code:
|
|
|
|
|
| Fund |
|
1/1 to Current Year
End Percentage |
|
| BXMX |
|
|
1.1 |
% |
| DIAX |
|
|
0.1 |
|
| SPXX |
|
|
0.1 |
|
| QQQX |
|
|
1.2 |
|
| JCE |
|
|
0.1 |
|
112
Qualified Business Income (QBI)
Each Fund listed below had the following percentage, or maximum amount allowable, of ordinary income distributions treated as qualified business income for individuals
pursuant to Section 199A of the Internal Revenue Code:
|
|
|
|
|
| Fund |
|
Percentage |
|
| BXMX |
|
|
1.8 |
% |
| DIAX |
|
|
— |
|
| SPXX |
|
|
— |
|
| QQQX |
|
|
— |
|
| JCE |
|
|
— |
|
163(j)
Each Fund listed below had the
following percentage, or maximum amount allowable, of ordinary dividends treated as Section 163(j) interest dividends pursuant to Section 163(j) of the Internal Revenue Code:
|
|
|
|
|
| Fund |
|
Percentage |
|
| BXMX |
|
|
0.3 |
% |
| DIAX |
|
|
— |
|
| SPXX |
|
|
0.1 |
|
| QQQX |
|
|
— |
|
| JCE |
|
|
— |
|
113
Additional Fund Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
| Board of Trustees |
|
|
|
|
|
|
|
|
|
|
| Jack B. Evans |
|
William C. Hunter |
|
Amy B. R. Lancellotta |
|
Joanne T. Medero |
|
Albin F. Moschner |
|
John K. Nelson |
| Judith M. Stockdale* |
|
Carole E. Stone* |
|
Matthew Thornton III |
|
Terence J. Toth |
|
Margaret L. Wolff |
|
Robert L. Young |
| * |
Retired from the Fund’s Board of Trustees effective December 31, 2022. |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| Investment Adviser Nuveen Fund Advisors, LLC
333 West Wacker Drive Chicago, IL 60606 |
|
Custodian State Street Bank
& Trust Company One Lincoln Street
Boston, MA 02111 |
|
Legal Counsel Chapman and Cutler LLP
Chicago, IL 60603 |
|
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP One North Wacker Drive
Chicago, IL 60606 |
|
Transfer Agent and Shareholder Services
Computershare Trust Company, N.A. 150 Royall Street
Canton, MA 02021 (800) 257-8787 |
Portfolio of Investments Information
Each Fund is required to file its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third
quarters of each fiscal year as an exhibit to its report on Form N-PORT. You may obtain this information on the SEC’s website at http://www.sec.gov.
Nuveen Funds’ Proxy Voting Information
You may obtain (i) information regarding how each fund voted proxies relating to portfolio securities held during the most recent twelve-month period
ended June 30, without charge, upon request, by calling Nuveen toll-free at (800) 257-8787 or on Nuveen’s website at www.nuveen.com and (ii) a description of the policies and procedures that each fund used to determine how to vote proxies
relating to portfolio securities without charge, upon request, by calling Nuveen toll free at (800) 257-8787. You may also obtain this information directly from the SEC. Visit the SEC on-line at http://www.sec.gov.