If You Invested in XAI Madison Equity Premium Income Fund (MCN)

XAI Madison Equity Premium Income Fund (NYSE: MCN) is a diversified, closed-end management investment company. According to its public disclosures, the Fund’s primary investment objective is to provide a high level of current income and gains, with a secondary objective of capital appreciation. Its common shares are listed and traded on the New York Stock Exchange under the ticker symbol MCN.

Investment objectives and strategy

The Fund states that it pursues its objectives by investing in a portfolio consisting primarily of high quality, large and mid-capitalization stocks. These portfolio companies are selected based on the investment sub-adviser’s view that they are selling at a reasonable price in relation to their long-term earnings growth rates. This equity-focused approach is combined with an options overlay strategy.

On an ongoing and consistent basis, the Fund sells covered call options on its portfolio stocks to seek to generate current earnings from option premiums. By writing covered calls on positions it already holds, the Fund aims to add option premium income and realized gains to the income and gains generated by its underlying equity holdings. The Fund notes that there can be no assurance that it will achieve its investment objectives.

Fund structure and governance

XAI Madison Equity Premium Income Fund is organized as a closed-end management investment company and describes itself as diversified. As a closed-end fund, it has a fixed number of common shares that trade on an exchange rather than issuing and redeeming shares on a daily basis at net asset value. The Fund’s common shares are shares of beneficial interest with a stated par value per share.

The Fund is overseen by a Board of Trustees. Public proxy materials describe a classified board structure with multiple classes of Trustees serving staggered terms and standing for election at annual meetings of shareholders. The Fund holds annual meetings in line with its governing documents and New York Stock Exchange requirements, and shareholders vote on the election of Trustees and other matters that may properly come before such meetings.

Adviser and sub-adviser relationships

The Fund identifies XA Investments LLC (“XAI”) as its investment adviser. XAI is described in public communications as a Chicago-based firm founded by XMS Capital Partners in 2016. XAI serves as the investment adviser for two listed closed-end funds and an interval closed-end fund, including XAI Madison Equity Premium Income Fund. XAI also provides investment fund structuring and consulting services focused on registered closed-end funds.

Madison Investments is described in Fund-related press releases as the investment sub-adviser. Madison Investments is an independent investment management firm based in Madison, Wisconsin. It has managed covered call strategies for over 20 years through various market cycles and offers investment management strategies that include domestic fixed income, U.S. and international equity, covered call, multi-asset, insurance, and credit union strategies. In the context of MCN, Madison Investments serves as the investment sub-adviser responsible for implementing the Fund’s equity and covered call option strategy, subject to the oversight of XAI and the Board.

Covered call equity premium approach

The Fund’s disclosures emphasize its use of covered call options as a core element of its strategy. By selling call options on stocks held in the portfolio, the Fund seeks to generate option premium income. This approach is intended to support the Fund’s objective of a high level of current income and gains. The equity portfolio focuses on large and mid-capitalization stocks that the sub-adviser believes are reasonably priced relative to their long-term earnings growth rates, and the covered call overlay is applied on an ongoing basis to those holdings.

The combination of an actively managed equity portfolio and a systematic covered call writing program is designed to provide exposure to the equity market while also seeking to generate additional income from option premiums. The Fund’s materials note that there is no guarantee that this approach will achieve the stated objectives, and investors are directed to consider the Fund’s investment objectives, policies, risk considerations, charges and expenses before investing.

Shareholder communications and reporting

As a registered closed-end fund, XAI Madison Equity Premium Income Fund files reports and proxy materials with the U.S. Securities and Exchange Commission. The Fund makes its most recent annual and semi-annual reports to shareholders available upon request. It also holds annual shareholder meetings, at which shareholders vote on the election of Trustees and may consider other business. Proxy statements describe how shareholders can vote in person, by mail, by telephone, or via the internet, and outline the record date, quorum requirements, and voting procedures.

The Fund has disclosed changes to its fiscal year end through public announcements. For example, it has announced a change of fiscal year end to September 30 from December 31, with a corresponding transition report to be filed for a specified transition period. Such changes are described as intended to align the Fund’s reporting calendar with other funds in its complex.

Role within the XA Investments fund complex

Public communications from XAI describe XAI Madison Equity Premium Income Fund as one of two listed closed-end funds for which XAI acts as investment adviser, alongside XAI Octagon Floating Rate & Alternative Income Trust. XAI also advises an interval closed-end fund, the Octagon XAI CLO Income Fund. XAI states that it focuses on registered closed-end funds and interval funds and that it believes the investing public can benefit from new vehicles to access a broad range of alternative investment strategies and managers.

Within this broader platform, MCN represents an equity and covered call-oriented strategy, in contrast to other funds in the complex that focus on floating rate, alternative income, or collateralized loan obligation investments. The Fund’s emphasis on high quality large and mid-capitalization stocks and on generating income and gains through covered call writing is a distinguishing feature within the XAI-advised lineup.

Risk and suitability considerations

Fund-related press releases include standard risk disclosures noting that investing involves risk, including the possible loss of the entire investment, and that income may be subject to various taxes. They also state that the Fund’s shares are not guaranteed or endorsed by any bank or other insured depository institution and are not federally insured by the Federal Deposit Insurance Corporation. Investors are encouraged to review the Fund’s prospectus and statement of additional information for detailed risk considerations and to consult a professional tax advisor regarding their specific tax situation.

Because MCN is a closed-end fund whose shares trade on an exchange, its market price may differ from its net asset value. The Fund’s materials emphasize that investors should carefully consider the Fund’s investment objectives and policies, risk considerations, charges and expenses before investing, and that there can be no assurance that the Fund will achieve its objectives.