N-Q 1 finalmcnnq93015.htm N-Q N-Q



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM N-Q
 
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
 
Investment Company Act file number 811-21582
 
Madison Covered Call & Equity Strategy Fund
(Exact name of registrant as specified in charter)
 
550 Science Drive, Madison, WI  53711
(Address of principal executive offices)(Zip code)
 
Lisa R. Lange
Chief Legal Officer & Chief Compliance Officer
Madison Asset Management, LLC
550 Science Drive
Madison, WI 53711
(Name and address of agent for service)
 
Registrant's telephone number, including area code:  608-274-0300
 
Date of fiscal year end:  December 31
 
Date of reporting period:  September 30, 2015
 
Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (ss 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5).  The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.
 
A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public.  A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget ("OMB") control number.  Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC  20549-0609.  The OMB has reviewed this collection of information under the clearance requirements of
44 U.S.C. s 3507.
 




Item 1.  Schedule of Investments.


 
1

Madison Funds  | September 30, 2015
 
 
Covered Call & Equity Strategy Fund Portfolio of Investments (unaudited)


 
Shares
Value (Note 1)
 
COMMON STOCKS - 81.2%
 
 
 
Consumer Discretionary - 12.1%
 
 
 
CBS Corp., Class B
70,900
 
$
2,828,910
 
 
Discovery Communications Inc., Class C *
119,200
 
2,895,368
 
 
Johnson Controls Inc. (A)
83,200
 
3,441,152
 
 
Nordstrom Inc. (A)
49,600
 
3,556,816
 
 
Priceline Group Inc./The * (A)
3,600
 
4,452,696
 
 
Starbucks Corp. (A)
45,700
 
2,597,588
 
 
      
 
 
19,772,530
 
 
Consumer Staples - 9.3%
 
 
 
Costco Wholesale Corp. (A)
19,500
 
2,819,115
 
 
Diageo PLC, ADR (A)
22,700
 
2,446,833
 
 
General Mills Inc. (A)
40,500
 
2,273,265
 
 
JM Smucker Co./The (A)
36,600
 
4,175,694
 
 
Tyson Foods Inc., Class A (A)
78,300
 
3,374,730
 
 
      
 
 
15,089,637
 
 
Energy - 10.2%
 
 
 
Apache Corp. (A)
59,100
 
2,314,356
 
 
Baker Hughes Inc.
69,500
 
3,616,780
 
 
Cameron International Corp. * (A)
76,900
 
4,715,508
 
 
EOG Resources Inc. (A)
32,000
 
2,329,600
 
 
Occidental Petroleum Corp. (A)
55,500
 
3,671,325
 
 
      
 
 
16,647,569
 
 
Financials - 8.9%
 
 
 
American Tower Corp. (A)
17,800
 
1,566,044
 
 
PNC Financial Services Group Inc./The (A)
40,600
 
3,621,520
 
 
Progressive Corp./The (A)
66,600
 
2,040,624
 
 
State Street Corp. (A)
47,000
 
3,158,870
 
 
T. Rowe Price Group Inc. (A)
58,060
 
4,035,170
 
 
      
 
 
14,422,228
 
 
Health Care - 12.0%
 
 
 
Agilent Technologies Inc. (A)
86,200
 
2,959,246
 
 
Biogen Inc. * (A)
10,500
 
3,064,005
 
 
Cerner Corp. * (A)
55,100
 
3,303,796
 
 
Express Scripts Holding Co. * (A)
38,900
 
3,149,344
 
 
Gilead Sciences Inc. (A)
19,000
 
1,865,610
 
 
McKesson Corp. (A)
11,600
 
2,146,348
 
 
Varian Medical Systems Inc. * (A)
41,500
 
3,061,870
 
 
      
 
 
19,550,219
 
 
Industrials - 11.1%
 
 
 
Danaher Corp. (A)
30,000
 
2,556,300
 
 
Jacobs Engineering Group Inc. * (A)
65,300
 
2,444,179
 
 
PACCAR Inc. (A)
41,500
 
2,165,055
 
 
United Parcel Service Inc., Class B (A)
35,500
 
3,503,495
 
 
United Technologies Corp. (A)
54,200
 
4,823,258
 
 
W.W. Grainger Inc. (A)
11,600
 
2,494,116
 
 
      
 
 
17,986,403
 
 

See accompanying Notes to Portfolios of Investments.
2

Madison Funds  | September 30, 2015
 
 
Covered Call & Equity Strategy Fund Portfolio of Investments (unaudited)


Information Technology - 15.1%
 
 
 
Apple Inc. (A)
46,000
 
5,073,800
 
 
EMC Corp. (A)
130,300
 
3,148,048
 
 
Linear Technology Corp. (A)
57,900
 
2,336,265
 
 
Microsoft Corp. (A)
83,400
 
3,691,284
 
 
Nuance Communications Inc. * (A)
119,100
 
1,949,667
 
 
Oracle Corp. (A)
88,100
 
3,182,172
 
 
PayPal Holdings Inc. * (A)
30,000
 
931,200
 
 
QUALCOMM Inc. (A)
78,500
 
4,217,805
 
 
      
 
 
24,530,241
 
 
Telecommunication Service - 2.5%
 
 
 
Verizon Communications Inc.
95,300
 
4,146,503
 
 
      
 
Total Common Stocks 
( Cost $152,342,351 )
132,145,330
 
 
INVESTMENT COMPANIES - 9.2%
 
 
 
Powershares QQQ Trust Series 1 (A)
46,000
 
4,680,960
 
 
SPDR Gold Shares * (A)
49,600
 
5,300,256
 
 
SPDR S&P 500 ETF Trust (A)
25,800
 
4,944,054
 
 
      
 
Total Investment Companies 
( Cost $16,548,877 )
14,925,270
 
 
SHORT-TERM INVESTMENTS - 1.0%
 
 
 
State Street Institutional U.S. Government Money Market Fund
1,560,528
 
1,560,528
 
 
      
 
Total Short-Term Investments 
( Cost $1,560,528 )
1,560,528
 
 
 
Contracts
 
 
PUT OPTION PURCHASED - 0.8%
 
 
 
S&P 500 Index, Put, Nov 2015, $1,900
235
 
1,330,100
 
 
      
 
Total Put Options Purchased 
( Cost $1,019,585 )
1,330,100
 
 
 
Par Value
 
 
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 9.2%
 
 
 
U.S. Treasury Bill (B) (C), 0.002%, 2/25/16
$
15,000,000
 
14,998,620
 
 
      
 
Total U.S. Government and Agency Obligations 
( Cost $14,999,877 )
14,998,620
 
 
      
TOTAL INVESTMENTS - 101.4% ( Cost $186,471,218 )
164,959,848
 
 
NET OTHER ASSETS AND LIABILITIES - 0.0%
72,108
 
 
TOTAL CALL & PUT OPTIONS WRITTEN - (1.4%)
(2,323,469)
 
 
      
TOTAL NET ASSETS - 100.0%
$
162,708,487
 
 
      
*
 
Non-income producing.
 
 
 
 
 
 
 
 
 
 
 
 
 
(A)
 
All or a portion of these securities' positions represent covers (directly or through conversion rights) for outstanding options written.
 
 
 
 
 
 
 
 
 
 
 
 
 
(B)
 
Rate noted represents annualized yield at time of purchase.
 
 
 
 
 
 
 
 
 
 
 
 
 
(C)
 
All or a portion of these securities are segregated as collateral for put options written. As of September 30, 2015, the total amount segregated was $14,998,620.
 
 
 
 
 
 
 
 
 
 
 
 
 
ADR
 
American Depositary Receipt.
 
 
 
 
 
 
 
 
 
 
 
 
 
ETF
 
Exchange Traded Fund.
 
 
 
 
 
 
 
 
 
 
 
 
 
PLC
 
Public Limited Company.
 
 
 
 
 
 
 
 
 
 
 
 
 

See accompanying Notes to Portfolios of Investments.
3

Madison Funds  | September 30, 2015
 
 
Covered Call & Equity Strategy Fund Portfolio of Investments (unaudited)


Call Options Written
 
Contracts
(100 Shares
Per Contract)
 
Expiration Date
 
Strike
Price
 
Value
(Note 1)
 
Agilent Technologies Inc.
 
372
 
November 2015
 
$
42.50
 
$
7,068

 
American Tower Corp.
 
178
 
January 2016
 
 
92.50
 
 
40,495

 
Apache Corp.
 
591
 
January 2016
 
 
52.50
 
 
31,028

 
Apple Inc.
 
230
 
October 2015
 
 
120.00
 
 
3,220

 
Apple Inc.
 
230
 
January 2016
 
 
120.00
 
 
84,525

 
Biogen Inc.
 
105
 
January 2016
 
 
330.00
 
 
113,400

 
Cameron International Corp.
 
350
 
January 2016
 
 
67.50
 
 
39,375

 
Cameron International Corp.
 
302
 
January 2016
 
 
70.00
 
 
18,875

 
Cerner Corp.
 
250
 
October 2015
 
 
65.00
 
 
3,125

 
Cerner Corp.
 
262
 
January 2016
 
 
65.00
 
 
44,540

 
Costco Wholesale Corp.
 
195
 
October 2015
 
 
145.00
 
 
42,608

 
Danaher Corp.
 
75
 
October 2015
 
 
87.50
 
 
5,250

 
Danaher Corp.
 
225
 
January 2016
 
 
87.50
 
 
71,438

 
Diageo PLC
 
227
 
October 2015
 
 
115.00
 
 
9,647

 
EMC Corp.
 
318
 
October 2015
 
 
28.00
 
 
2,226

 
EMC Corp.
 
985
 
January 2016
 
 
25.00
 
 
112,290

 
EOG Resources Inc.
 
320
 
January 2016
 
 
77.50
 
 
123,200

 
Express Scripts Holding Co.
 
312
 
October 2015
 
 
87.50
 
 
5,460

 
Express Scripts Holding Co.
 
63
 
November 2015
 
 
87.50
 
 
6,426

 
Express Scripts Holding Co.
 
14
 
January 2016
 
 
87.50
 
 
2,534

 
General Mills Inc.
 
85
 
October 2015
 
 
57.50
 
 
2,762

 
General Mills Inc.
 
148
 
October 2015
 
 
60.00
 
 
888

 
General Mills Inc.
 
172
 
January 2016
 
 
57.50
 
 
26,058

 
Gilead Sciences Inc.
 
190
 
October 2015
 
 
115.00
 
 
1,330

 
Jacobs Engineering Group Inc.
 
222
 
January 2016
 
 
42.50
 
 
17,760

 
JM Smucker Co./The
 
123
 
October 2015
 
 
110.00
 
 
59,040

 
JM Smucker Co./The
 
243
 
October 2015
 
 
115.00
 
 
39,488

 
Johnson Controls Inc.
 
416
 
January 2016
 
 
43.00
 
 
70,720

 
Linear Technology Corp.
 
280
 
October 2015
 
 
42.00
 
 
22,400

 
Linear Technology Corp.
 
299
 
November 2015
 
 
42.00
 
 
39,618

 
McKesson Corp.
 
116
 
November 2015
 
 
220.00
 
 
3,190

 
Microsoft Corp.
 
106
 
October 2015
 
 
47.00
 
 
636

 
Microsoft Corp.
 
418
 
November 2015
 
 
44.00
 
 
78,584

 
Microsoft Corp.
 
310
 
January 2016
 
 
45.00
 
 
58,745

 
Nordstrom Inc.
 
358
 
October 2015
 
 
75.00
 
 
11,635

 
Nordstrom Inc.
 
138
 
January 2016
 
 
75.00
 
 
32,085

 
Nuance Communications Inc.
 
753
 
October 2015
 
 
18.00
 
 
3,765

 
Occidental Petroleum Corp.
 
555
 
November 2015
 
 
72.50
 
 
38,850

 
Oracle Corp.
 
294
 
December 2015
 
 
41.00
 
 
5,292

 
Oracle Corp.
 
300
 
January 2016
 
 
38.00
 
 
30,150

 
Oracle Corp.
 
278
 
January 2016
 
 
40.00
 
 
12,232

 
Oracle Corp.
 
9
 
January 2016
 
 
42.00
 
 
148

 
PACCAR Inc.
 
200
 
November 2015
 
 
67.50
 
 
1,000

 
PACCAR Inc.
 
135
 
February 2016
 
 
57.50
 
 
18,900

 
PACCAR Inc.
 
80
 
February 2016
 
 
62.50
 
 
3,400

 
PayPal Holdings Inc.
 
300
 
October 2015
 
 
35.00
 
 
3,750

 
PNC Financial Services Group Inc./The
 
122
 
November 2015
 
 
100.00
 
 
2,867

 
PNC Financial Services Group Inc./The
 
284
 
January 2016
 
 
95.00
 
 
54,670

 
Powershares QQQ Trust Series 1
 
460
 
November 2015
 
 
105.00
 
 
88,550

 

See accompanying Notes to Portfolios of Investments.
4

Madison Funds  | September 30, 2015
 
 
Covered Call & Equity Strategy Fund Portfolio of Investments (unaudited)


Priceline Group Inc./The
 
36
 
October 2015
 
 
1,225.00
 
 
135,540

 
Progressive Corp./The
 
666
 
November 2015
 
 
28.00
 
 
191,475

 
QUALCOMM Inc.
 
315
 
January 2016
 
 
57.50
 
 
50,085

 
SPDR Gold Shares
 
250
 
November 2015
 
 
112.00
 
 
23,375

 
SPDR S&P 500 ETF Trust
 
258
 
November 2015
 
 
200.00
 
 
47,343

 
Starbucks Corp.
 
457
 
October 2015
 
 
57.50
 
 
40,902

 
State Street Corp.
 
270
 
October 2015
 
 
75.00
 
 
3,780

 
State Street Corp.
 
200
 
January 2016
 
 
75.00
 
 
21,500

 
T. Rowe Price Group Inc.
 
147
 
January 2016
 
 
70.00
 
 
42,630

 
Tyson Foods Inc., Class A
 
170
 
October 2015
 
 
43.00
 
 
17,425

 
Tyson Foods Inc., Class A
 
346
 
October 2015
 
 
44.00
 
 
19,895

 
Tyson Foods Inc., Class A
 
142
 
November 2015
 
 
44.00
 
 
19,170

 
Tyson Foods Inc., Class A
 
125
 
January 2016
 
 
44.00
 
 
27,812

 
United Parcel Service Inc., Class B
 
355
 
October 2015
 
 
105.00
 
 
3,372

 
United Technologies Corp.
 
300
 
November 2015
 
 
95.00
 
 
27,000

 
United Technologies Corp.
 
92
 
January 2016
 
 
95.00
 
 
16,882

 
Varian Medical Systems Inc.
 
415
 
November 2015
 
 
85.00
 
 
14,525

 
W.W. Grainger Inc.
 
58
 
October 2015
 
 
230.00
 
 
3,190

 
W.W. Grainger Inc.
 
20
 
November 2015
 
 
220.00
 
 
10,800

 
W.W. Grainger Inc.
 
38
 
January 2016
 
 
220.00
 
 
29,450

 
      
 
Total Call Options Written ( Premiums received $4,162,579 )
$
2,241,394

 
 
 
 
 
Put Options Written
 
 
 
      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gilead Sciences Inc.
 
180
 
October 2015
 
 
100.00
 
 
74,700

 
Microsoft Corp.
 
250
 
October 2015
 
 
42.00
 
 
7,375

 
      
 
Total Put Options Written ( Premiums received $89,190 )
$
82,075

 
      
 
Total Options Written, at Value ( Premiums received $4,251,769 )
$
2,323,469

 
      
      




See accompanying Notes to Portfolios of Investments.
5

Madison Funds  | September 30, 2015
 
 
Madison Covered Call & Equity Strategy Fund Notes to Portfolio of Investments (unaudited)


 
1. Portfolio Valuation: Madison Covered Call & Equity Strategy Fund (the "Fund") values securities traded on a national securities exchange at their closing sale price, except for securities traded on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), which are valued at the NASDAQ official closing price ("NOCP"), and options, which are valued at the mean between the best bid and best ask price across all option exchanges. Debt securities having maturities of 60 days or less are valued at amortized cost, which approximates market value. Debt securities having longer maturities are valued on the basis of the last available bid prices or current market quotations provided by dealers or pricing services approved by the Fund. Mutual funds are valued at their Net Asset Value ("NAV"). Securities for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures approved by the Board of Trustees.

At times, the Fund maintains cash balances at financial institutions in excess of federally insured limits. The Fund monitors this credit risk and has not experienced any losses related to this risk.

2. Fair Value Measurements: The Fund has adopted Financial Accounting Standards Board ("FASB") applicable guidance on fair value measurements. Fair value is defined as the price that each fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data "inputs" and minimize the use of unobservable "inputs" and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk (for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique). Inputs may be observable or unobservable.

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:

·
Level 1 - unadjusted quoted prices in active markets for identical investments

·
Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rate volatilities, prepayment speeds, credit risk, benchmark yields, transactions, bids, offers, new issues, spreads and other relationships observed in the markets among comparable securities, underlying equity of the issuer; and proprietary pricing models such as yield measures calculated using factors such as cash flows, financial or collateral performance and other reference date, etc.)

·
Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)

The valuation techniques used by the Fund to measure fair value for the period ended September 30, 2015, maximized the use of observable inputs and minimized the use of unobservable inputs.

There were no transfers between classification levels during the period ended September 30, 2015. As of, and during the period ended September 30, 2015, the Fund did not hold securities deemed as a Level 3.


 
6

Madison Funds  | September 30, 2015
 
 
Madison Covered Call & Equity Strategy Fund Notes to Portfolio of Investments (unaudited)



The following is a summary of the inputs used as of September 30, 2015, in valuing the Fund's investments carried at fair value:

Description
Quoted Prices in
Active Markets for
Identical Investments
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Value at
09/30/15
                                             
Assets:1
 
 
 
 
 
 
 
 
 
Common Stocks
$
132,145,330
 
$
 
$

$
132,145,330
 
Investment Companies
 
14,925,270
 
 
 
 

 
14,925,270
 
Short-Term Investments
 
1,560,528
 
 
 
 

 
1,560,528
 
Put Options Purchased
 
1,330,100
 
 
 
 

 
1,330,100
 
U.S. Government and Agency Obligations
 
 
 
14,998,620
 
 

 
14,998,620
 
$
149,961,228
 
$
14,998,620
 
$

$
164,959,848
Liabilities:
 
Written Options
$
2,323,469
 
$
 
$

$
2,323,469

1 Please see the Portfolio of Investments for a listing of all securities within each category.

Derivatives: The FASB issued guidance intended to enhance financial statement disclosure for derivative instruments and hedging activities and enable investors to understand: a) how and why a Fund uses derivative investments, b) how derivative instruments and related hedge fund items are accounted for, and c) how derivative instruments and related hedge items affect a Fund's financial position, results of operations and cash flows.

The following table presents the types of derivatives in the Fund and their effect:

 
Asset Derivatives
Fair Value
 
Liability Derivatives
Fair Value
 
Derivatives not accounted for as hedging instruments
Derivatives not accounted for as hedging instruments
 
Equity contracts – Options purchased

$1,330,100

Equity contracts – Options written

$2,323,469

 
 
3. Federal Income Taxes: Information on the tax components of investments, excluding option contracts, as of September 30, 2015, is as follows:

Cost
$
186,471,218
Gross appreciation
 
1,448,093
Gross depreciation
 
(22,959,463)
Net depreciation
$
(21,511,370)

4. Discussion of Risks: Please see the Fund's prospectus for a complete discussion of risks associated with investing in the Fund.
 
Equity Risk. The value of the securities held by the Fund may decline due to general market and economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate, or factors relating to specific companies in which the Fund invests.
 
Option Risk. There are several risks associated with transactions in options on securities. For example, there are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events.


 
7

Madison Funds  | September 30, 2015
 
 
Madison Covered Call & Equity Strategy Fund Notes to Portfolio of Investments (unaudited)


As the writer of a covered call option, the Fund forgoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but retains the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price.
 
When the Fund writes covered put options, it bears the risk of loss if the value of the underlying stock declines below the exercise price. If the option is exercised, the Fund could incur a loss if it is required to purchase the stock underlying the put option at a price greater than the market price of the stock at the time of exercise. While the Fund's potential gain in writing a covered put option is limited to the interest earned on the liquid assets securing the put option plus the premium received from the purchaser of the put option, the Fund risks a loss equal to the entire value of the stock.
 
Foreign Investment Risk. Investing in non-U.S. issuers may involve unique risks such as currency, political, and economic risks, as well as lower market liquidity, generally greater market volatility and less complete financial information than for U.S. issuers.
 
Mid-Cap Company Risk. Mid-Cap companies often are newer or less established companies than larger companies. Investments in mid-cap companies carry additional risks because earnings of these companies tend to be less predictable; they often have limited product lines, markets, distribution channels or financial resources; and the management of such companies may be dependent upon one or a few key people. The market movements of equity securities of mid-cap companies may be more abrupt or erratic than the market movements of equity securities of larger, more established companies or the stock market in general.
 
Industry Concentration Risk. To the extent that the Fund makes substantial investments in a single industry, the Fund will be more susceptible to adverse economic or regulatory occurrences affecting those sectors.
 
Fund Distribution Risk. In order to make regular quarterly distributions on its common shares, the Fund may have to sell a portion of its investment portfolio at a time when independent investment judgment may not dictate such action. In addition, the Fund's ability to make distributions more frequently than annually from any net realized capital gains by the Fund is subject to the Fund obtaining exemptive relief from the Securities and Exchange Commission, which cannot be assured. To the extent the total quarterly distributions for a year exceed the Fund's net investment company income and net realized capital gain for that year, the excess will generally constitute a return of the Fund's capital to its common shareholders. Such return of capital distributions generally are tax-free up to the amount of a common shareholder's tax basis in the common shares (generally, the amount paid for the common shares). In addition, such excess distributions will decrease the Fund's total assets and may increase the Fund's expense ratio.
 
Financial Leverage Risk. The Fund is authorized to utilize leverage through the issuance of preferred shares and/ or the Fund may borrow or issue debt securities for financial leveraging purposes and for temporary purposes such as settlement of transactions. Although the use of any financial leverage by the Fund may create an opportunity for increased net income, gains and capital appreciation for common shares, it also results in additional risks and can magnify the effect of any losses. If the income and gains earned on securities purchased with financial leverage proceeds are greater than the cost of financial leverage, the Fund's return will be greater than if financial leverage had not been used. Conversely, if the income or gain from the securities purchased with such proceeds does not cover the cost of financial leverage, the return to the Fund will be less than if financial leverage had not been used. Financial leverage also increases the likelihood of greater volatility of the NAV and market price of, and dividends on, the common shares than a comparable portfolio without leverage.
 
Recent Market Developments Risk. Global and domestic financial markets have experienced periods of unprecedented turmoil. Recently, markets have witnessed more stabilized economic activity as expectations for an economic recovery increased. However, risks to a robust resumption of growth persist. Continuing uncertainty as to the status of the euro and European Monetary Union has created significant volatility in currency and financial markets generally. A return to unfavorable economic conditions or sustained economic slowdown could adversely impact the Fund's portfolio. Financial market conditions, as well as various social and political tensions in the United States and around the world, have contributed to increased market volatility and may have long-term effects on the United States and worldwide financial markets and cause further economic uncertainties or deterioration in the United States and worldwide. The Fund's Investment Adviser does not know how long the financial markets will continue to be affected by these events and cannot predict the effects of these or similar events in the future on the United States and global economies and securities markets.

 
8

Madison Funds  | September 30, 2015
 
 
Madison Covered Call & Equity Strategy Fund Notes to Portfolio of Investments (unaudited)


 
Cybersecurity Risk. The risks associated with computer systems, networks and devices to carry out routine business operations. These systems, networks and devices employ a variety of protections that are designed to prevent cyberattacks. Despite the various cyber protections utilized by the Fund, the Investment Adviser and other service providers, their systems, networks, or devices could potentially be breached. The Fund, its shareholders, and the Investment Adviser could be negatively impacted as a result of a cybersecurity breach. The Fund cannot control the cybersecurity plans and systems put in place by service providers or any other third parties whose operations may affect the Fund.
 
Additional Risks. Although the Investment Adviser seeks to appropriately address and manage the risks identified and disclosed to you in connection with the management of the securities in the Fund, you should understand that the very nature of the securities markets includes the possibility that there may be additional risks of which we are not aware. We certainly seek to identify all applicable risks and then appropriately address them, take appropriate action to reasonably manage them and to make you aware of them so you can determine if they exceed your risk tolerance. Nevertheless, the often volatile nature of the securities markets and the global economy in which we work suggests that the risk of the unknown is something to consider in connection with an investment in securities. Unforeseen events could under certain circumstances produce a material loss of the value of some or all of the securities we manage for you in the Fund.




 
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Madison Funds  | September 30, 2015
 
 
Madison Covered Call & Equity Strategy Fund Notes to Portfolio of Investments (unaudited)



Item 2. Controls and Procedures.
 
(a) The registrant's principal executive officer and principal financial officer determined that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act") are effective, based on their evaluation of these controls and procedures within 90 days of the date of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the Act.  There were no significant changes in the Trust's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. The officers identified no significant deficiencies or material weaknesses.
 
(b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the registrant's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 
 
Item 3.  Exhibits.
 
Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Act.


 
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Madison Funds  | September 30, 2015
 
 
Madison Covered Call & Equity Strategy Fund Notes to Portfolio of Investments (unaudited)



SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Madison Covered Call & Equity Strategy Fund
 
By: /s/ Lisa R. Lange
 
Lisa R. Lange, Chief Compliance Officer
 
Date: November 23, 2015
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
By: /s/ Katherine L. Frank
 
Katherine L. Frank, Principal Executive Officer
 
Date:  November 23, 2015
 
By:  /s/ Greg Hoppe
 
Greg Hoppe, Principal Financial Officer
 
Date: November 23, 2015


 
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