nvq
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM N-Q
 
 
 
     
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF
REGISTERED MANAGEMENT INVESTMENT COMPANY  
 
INVESTMENT COMPANY ACT FILE NUMBER 811-21593
 
 
KAYNE ANDERSON MLP INVESTMENT COMPANY
(Exact name of registrant as specified in charter)
 
 
     
     
717 Texas Avenue, Suite 3100,
Houston, Texas
(Address of principal executive offices) 		  77002
(Zip code)
 
David Shladovsky, Esq.
 
KA Fund Advisors, LLC,
1800 Avenue of the Stars, Second Floor,
Los Angeles, California 90067
(Name and address of agent for service)
 
Registrant’s telephone number, including area code:
(713) 493-2020
 
Date of fiscal year end:
November 30, 2009
 
Date of reporting period:
February 28, 2009
 
 

 

 
ITEM 1:   SCHEDULE OF INVESTMENTS
 
KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2009
(amounts in 000’s)
(UNAUDITED)
 
                 
    No. of
 		       
Description
  Shares/Units     Value  
 
Long-Term Investments — 139.3%
               
Equity Investments(a) — 136.7%
               
Midstream MLP(b) — 94.1%
               
Atlas Pipeline Partners, L.P. 
    627     $ 3,573  
Buckeye Partners, L.P. 
    84       3,319  
Copano Energy, L.L.C. 
    3,585       50,973  
Crosstex Energy, L.P. 
    3,181       11,007  
DCP Midstream Partners, LP
    192       2,074  
Duncan Energy Partners L.P. 
    58       943  
Eagle Rock Energy Partners, L.P. 
    249       1,156  
El Paso Pipeline Partners, L.P. 
    277       4,878  
Enbridge Energy Partners L.P. 
    1,337       38,074  
Energy Transfer Partners, L.P. 
    2,476       89,673  
Enterprise Products Partners L.P. 
    3,721       80,294  
Exterran Partners, L.P. 
    755       9,249  
Global Partners L.P. 
    1,472       15,746  
Hiland Partners, LP
    82       606  
Holly Energy Partners, L.P. 
    131       3,330  
Magellan Midstream Partners, L.P. 
    2,223       70,694  
MarkWest Energy Partners, L.P. 
    2,326       25,028  
Martin Midstream Partners L.P. 
    412       7,674  
ONEOK Partners, L.P. 
    164       6,969  
Plains All American Pipeline, L.P.(c)
    2,876       110,856  
Quicksilver Gas Services LP
    39       475  
Regency Energy Partners LP
    1,989       20,429  
Targa Resources Partners LP
    471       3,984  
TC PipeLines, LP
    1,027       26,562  
TEPPCO Partners, L.P. 
    617       14,033  
Transmontaigne Partners L.P. 
    46       786  
Western Gas Partners LP
    715       10,495  
Williams Partners L.P. 
    497       5,437  
Williams Pipeline Partners L.P.(d)
    199       3,151  
                 
              621,468  
                 
Propane MLP — 10.5%
               
Inergy, L.P. 
    3,077       69,305  
                 
Shipping MLP — 3.0%
               
Capital Product Partners L.P. 
    72       490  
K-Sea Transportation Partners L.P. 
    167       2,784  

 

 
KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2009
(amounts in 000’s)
(UNAUDITED)
 
                 
    No. of
 		       
Description
  Shares/Units     Value  
 
Shipping MLP — (Continued)
               
Navios Maritime Partners L.P. 
    210     $ 1,627  
OSG America L.P. 
    555       3,716  
Teekay LNG Partners L.P. 
    433       7,977  
Teekay Offshore Partners L.P. 
    267       3,187  
                 
              19,781  
                 
Coal MLP — 2.1%
               
Alliance Resource Partners, L.P. 
    111       2,931  
Clearwater Natural Resources, LP — Unregistered(e)(f)(g)
    3,889       3,889  
Clearwater Natural Resources, LP — Unregistered, Deferred Participation Units(e)(f)(g)(h)
    41       —  
Clearwater Natural Resources, LP — Unregistered, Warrants(e)(f)(g)(i)
    34       33  
Natural Resource Partners L.P. 
    97       2,018  
Penn Virginia Resource Partners, L.P.(d)
    413       4,811  
                 
              13,682  
                 
Upstream MLP(b) — 3.7%
               
Atlas Energy Resources, LLC
    1,308       17,431  
BreitBurn Energy Partners L.P. 
    1,086       6,785  
Constellation Energy Partners LLC
    276       541  
                 
              24,757  
                 
MLP Affiliates(b) — 14.4%
               
Enbridge Energy Management, L.L.C.(j)
    531       14,558  
Kinder Morgan Management, LLC(d)(j)
    1,935       80,710  
                 
              95,268  
                 
General Partner MLP(b) — 8.4%
               
Alliance Holdings GP L.P. 
    63       934  
CNR GP Holdco, LLC — Unregistered(e)(f)(g)(k)
    N/A       —  
Energy Transfer Equity, L.P. 
    664       13,029  
Enterprise GP Holdings L.P. 
    1,082       21,171  
Hiland Holdings GP, LP
    149       413  
Inergy Holdings GP
    95       2,637  
Magellan Midstream Holdings, L.P. 
    1,086       17,286  
                 
              55,470  
                 
Other MLP — 0.5%
               
Calumet Specialty Products Partners, L.P. 
    288       3,481  
                 
Total Equity Investments (Cost — $1,069,533)
            903,212  
                 

 

 
KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2009
(amounts in 000’s)
(UNAUDITED)
 
 
                             
    Interest
 		  Maturity
 		    Principal
 		       
Description
  Rate   Date     Amount     Value  
 
Energy Debt Investments — 2.6%
                           
Coal MLP — 1.9%
                           
Clearwater Natural Resources, LP(e)(f)
  (l)     12/3/09     $ 13,601     $ 12,831  
                             
Upstream MLP(b) — 0.3%
                           
Atlas Energy Resources, LLC
  10.75%     2/1/18       2,427       1,965  
                             
Other — 0.4%
                           
Calumet Lubricants Co., L.P. 
  (m)     3/15/15       4,412       2,249  
Calumet Lubricants Co., L.P. 
  (n)     3/15/15       588       301  
                             
                          2,550  
                             
Total Energy Debt Investments (Cost — $18,098)
                        17,346  
                             
Total Long-Term Investments (Cost — $1,087,631)
                        920,558  
                             
Short-Term Investment — 6.0%
                           
Repurchase Agreements — 5.8%
                           
J.P. Morgan Securities Inc. (Agreement dated 2/27/09 to be repurchased at $38,653), collateralized by $39,763 in U.S. Treasury note (Cost — $38,653)
  0.18     3/2/09               38,653  
                             

 

 
KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2009
(amounts in 000’s, except option contracts)
(UNAUDITED)
 
                 
    No. of
 		       
Description
  Contracts     Value  
 
Call Option Contracts Purchased(g) — 0.2%
               
Midstream MLP — 0.2%
               
Enterprise Products Partners L.P., call option expiring 6/20/09 @ $25.00
    5,000     $ 212  
Magellan Midstream Partners L.P., call option expiring 4/18/09 @ $30.00
    2,820       832  
ONEOK Partners, L.P., call option expiring 4/18/09 @ $50.00
    3,000       83  
                 
              1,127  
                 
General Partner MLP — 0.0%
               
Magellan Midstream Holdings L.P., call option expiring 3/21/09 @ $17.50
    2,100       42  
                 
Total Call Option Contracts Purchased (Premiums Paid — $3,611)
            1,169  
                 
Total Short-Term Investments — (Cost — $42,264)
            39,822  
                 
Total Investments — 145.3% (Cost — $1,129,895)
            960,380  
                 
Liabilities
               
Option Contracts Written(g)
               
Coal MLP
               
Penn Virginia Resource Partners, L.P., call option expiring 3/21/09 @ $15.00
    1,620       (8 )
Midstream MLP
               
Williams Pipeline Partners L.P., call option expiring 3/21/09 @ $17.50
    155       (1 )
                 
Total Call Option Contracts Written (Premiums Received — $201)
            (9 )
Senior Unsecured Notes
            (304,000 )
Unrealized Depreciation on Interest Rate Swap Contracts
            (28 )
Other Liabilities
            (15,113 )
                 
Total Liabilities
            (319,150 )
                 
Net Deferred Tax Asset
            83,957  
Unrealized Appreciation on Interest Rate Swap Contracts
            154  
Other Assets
            10,390  
                 
Total Liabilities in Excess of Other Assets
            (224,649 )
Preferred Stock at Redemption Value
            (75,000 )
                 
Net Assets Applicable to Common Stockholders
          $ 660,731  
                 
 
 
(a) Unless otherwise noted, equity investments are common units/common shares.
 
(b) Includes Limited Liability Companies.
 
(c) The Company believes that it is an affiliate of Plains All American, L.P.
 
(d) Security or a portion thereof is segregated as collateral on option contracts written or interest rate swap contracts.
 
(e) Fair valued securities, restricted from public sale.
 
(f) Clearwater Natural Resources, LP is a privately-held MLP that the Company believes is a controlled affiliate. On January 7, 2009, Clearwater Natural Resources, LP (“Clearwater”) and Clearwater Natural Resources, LLC (Clearwater’s general partner) filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code.
 
(g) Security is non-income producing.
 
(h) Holders of Clearwater Natural Resources, LP’s deferred participation units are entitled, in certain circumstances, to receive a portion of value realized in a sale or initial public offering by certain of the partnership’s common unitholders.
 
(i) Warrants are non-income producing and expire on September 30, 2018.
 
(j) Distributions are paid in-kind.

 

 
KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2009
(amounts in 000’s)
(UNAUDITED)
 
 
(k) CNR GP Holdco, LLC is the general partner of Clearwater Natural Resources, LP. The Company owns 83.7% of CNR GP Holdco, LLC and believes it is a controlled affiliate.
 
(l) Floating rate unsecured working capital term loan. Interest is paid in-kind at a rate of the higher of one year LIBOR or 4.75% plus 900 basis points (13.75% as of February 28, 2009).
 
(m) Floating rate senior secured first lien loan facility. Security pays interest at a rate of LIBOR + 400 basis points (6.15% as of February 28, 2009).
 
(n) Fixed rate letter of credit facility. Security pays interest at 4.00%.

 

From time to time, certain of the Company’s investments may be restricted as to resale. For instance, securities that are not registered under the Securities Act of 1933, as amended, and cannot, as a result, be offered for public sale in a non-exempt transaction without first being registered. In other cases, certain of the Company’s investments have restrictions such as lock-up agreements that preclude the Company from offering these securities for public sale.
 
At February 28, 2009, the Company held the following restricted investments:
 
                                                                 
            Number of
 		                      Fair
             
            Units,
 		                      Value
 		    Percent
 		    Percent
 		 
        Type of
 		  Principal ($)
 		    Acquisition
 		    Cost
 		    Fair
 		    per
    of Net
 		    of Total
 		 
Investment
 
Security
  Restriction   (in 000’s)     Date     Basis     Value     Unit     Assets     Assets  
 
Clearwater Natural Resources, L.P.
  Common Units   (1)     3,889       (2)     $ 72,860     $ 3,889     $ 1.00       0.6 %     0.4 %
Clearwater Natural Resources, L.P.
  Term Loan   (1)   $ 13,601       (3)       13,638       12,831       n/a       1.9       1.2  
Clearwater Natural Resources, L.P.
  Deferred Participation Units   (1)     41       3/5/2008       —       —       —       0.0       0.0  
Clearwater Natural Resources, L.P.
  Warrants   (1)     34       9/29/2008       —       33       0.99       0.0       0.0  
CNR GP Holdco, LLC
  LLC Interests   (1)     n/a       3/5/2008       1,083       —       1,513       0.0       0.0  
                                                                 
Total of securities valued in accordance with procedures established by the Board of Directors(4)
  $ 87,581     $ 16,753               2.5 %     1.6 %
                                         
                                                                 
Calumet Lubricants Co., L.P.
  Term Loan   (5)   $ 4,412       2/23/2009     $ 2,316     $ 2,249               0.3 %     0.2 %
Calumet Lubricants Co., L.P.
  Letter of Credit Facility   (5)   $ 588       2/23/2009       309       301               0.1       0.0  
Atlas Energy Resources, LLC
  Senior Unsecured Notes   (5)   $ 2,427       1/8/2009       1,836       1,965               0.3       0.2  
                                                                 
Total of securities valued by prices provided by market maker or independent pricing services
  $ 4,461     $ 4,515               0.7 %     0.4 %
                                         
Total of all restricted securities
  $ 92,042     $ 21,268               3.2 %     2.0 %
                                         
 
 
(1) On January 7, 2009, Clearwater Natural Resources, LP (“Clearwater”) and CNR GP Holdco, LLC (Clearwater’s general partner) filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. Both entities have continued operations as a debtor-in-possession. Clearwater’s existing lenders are providing debtor-in-possession financing and, as part of the financing agreement with the banks, Clearwater has agreed to pursue a sales process for the company. Financial markets remain volatile and, as a result, it is more difficult for interested parties to finance the purchase of Clearwater than in a more stable environment. Additionally, significant uncertainty exists with respect to pending U.S. environmental legislation and the ultimate impact on coal producers, such as Clearwater. For these reasons no assurances can be made as to the success of such sales process and the proceeds received in such process. Clearwater has an active dialogue with its existing lenders regarding the timing of such sales process.
 
(2) The Company purchased common units on August 1, 2005 and October 2, 2006.
 
(3) The Company purchased term loans on January 11, 2008; February 28, 2008; May 5, 2008; July 8, 2008; August 6, 2008; and September 29, 2008. As part of an Agreement with Clearwater’s existing lenders, the term loan owned by the Company is not currently paying cash interest expense. Such interest is “payment in kind”, with the principal amount of the term loan increased by such interest.
 
(4) Restricted security that represent Level 3 under SFAS No. 157. Security is valued using inputs reflecting the Company’s own assumptions.
 
(5) Unregistered security of a public company. Restricted security that represent Level 2 under SFAS No. 157. Securities with a fair market value determined by the mean of the bid and ask prices provided by a syndicate bank, principal market maker or an independent pricing service. These securities have limited trading volume and are not listed on a national exchange.
 
 
At February 28, 2009, the cost basis of investments for federal income tax purposes was $989,562. At February 28, 2009, gross unrealized appreciation and depreciation of investments and options for federal income tax purposes were as follows:
 
         
 
Gross unrealized appreciation
  $ 234,599  
Gross unrealized depreciation
    (263,781 )
         
Net unrealized depreciation..
  $ (29,182 )
         
 
The identified cost basis for federal tax purposes is estimated based on information available from the Company’s portfolio companies. In some cases, this information is very limited. Accordingly, the actual cost basis may prove higher or lower than the estimated cost basis included in this footnote.

 

 
SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories.
 
  •  Level 1 — Quoted unadjusted prices for identical instruments in active markets to which the Company has access at the date of measurement.
 
  •  Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.
 
  •  Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Company’s own assumptions that market participants would use to price the asset or liability based on the best available information.
 
The following table presents our assets and liabilities measured at fair value on a recurring basis at February 28, 2009.
 
                                 
          Quoted Prices in
 		    Prices with Other
 		    Unobservable
 		 
          Active Markets
 		    Observable Inputs
 		    Inputs
 
Assets at Fair Value
  Total     (Level 1)     (Level 2)     (Level 3)  
 
Investments(1)
  $ 921,727     $ 899,290     $ 5,684     $ 16,753  
Unrealized appreciation on interest rate swaps
    154       —       154       —  
                                 
Total assets at fair value
  $ 921,881     $ 899,290     $ 5,838     $ 16,753  
                                 
                                 
Liabilities at Fair Value
                               
Unrealized depreciation on interest rate swaps
  $ 28       —     $ 28       —  
Option contracts written
    9       —       9       —  
                                 
Total liabilities at fair value
  $ 37       —     $ 37       —  
                                 
 
 
(1) The Company’s investments in Level 3 represent its investments in Clearwater Natural Resources, L.P. and CNR GP Holdco, LLC.
 
The following table presents our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at November 30, 2008 and at February 28, 2009.
 
         
    Long-Term
 		 
Assets at Fair Value Using Unobservable Inputs (Level 3)
  Investments  
 
Balance — November 30, 2008
  $ 32,987  
Transfers out of Level 3
    —  
Realized gains/(losses)
    —  
Unrealized losses, net
    (16,234 )
Purchases, issuances or settlements
    —  
         
Balance — February 28, 2009
  $ 16,753  
         
 
The $16,234 of unrealized losses presented in the table above relate to investments that are still held at February 28, 2009.
 
The Company did not have any liabilities that were measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at November 30, 2008 and at February 28, 2009.
 
 
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. This standard amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, to illustrate how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for under SFAS No. 133; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued

 

for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. As of December 1, 2008, the Company adopted SFAS No. 161.
 
The following table sets forth the fair value of the Company’s derivative instruments.
 
             
Derivatives Not Accounted for
 		      Fair Value as of
 		 
as Hedging Instruments
 		      February 28,
 		 
Under SFAS No. 133   Statement of Assets and Liabilities Location   2009  
 
Assets
           
Call options
  Call option contracts purchased   $ 1,169  
Interest Rate Swap Contracts
  Unrealized appreciation on interest rate swap contracts     154  
             
        $ 1,323  
             
Liabilities
           
Call options
  Call option contracts written   $ 9  
Interest Rate Swap Contracts
  Unrealized depreciation on interest rate swap contracts     28  
             
        $ 37  
             
 
The following table sets forth the effect of derivative instruments.
 
                     
        For the Three Months
 		 
        Ended February 28, 2009  
              Change in
 		 
        Net Realized
 		    Unrealized
 		 
        Gains/(Losses)
 		    Gains/(Losses)
 		 
Derivatives Not Accounted for
 		      on Derivatives
 		    on Derivatives
 		 
as Hedging Instruments
 		  Location of Gains/(Losses)
 		  Recognized in
 		    Recognized in
 		 
Under SFAS No. 133   on Derivatives Recognized in Income   Income     Income  
 
Call options
  Options   $ 345     $ (2,250 )
Interest Rate Swap Contracts
  Interest rate swap contracts     (13,154 )     9,003  
                     
        $ (12,809 )   $ 6,753  
                     
 
 
Securities valuation policies and other investment related disclosures are hereby incorporated by reference to the Company’s annual report previously filed with the Securities and Exchange Commission on Form N-CSR on February 6, 2009, with a file number 811-21593.
 
Other information regarding the Company is available in the Company’s most recent annual report. This information is also available on the Company’s website at http://www.kaynefunds.com; or on the website of the Securities and Exchange Commission, http://www.sec.gov.

 

ITEM 2:   CONTROLS AND PROCEDURES
 
(a) As of a date within 90 days from the filing date of this report, the principal executive officer and principal financial officer concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)), were effective based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities and Exchange Act of 1934.
 
(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 have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
ITEM 3:   EXHIBITS
 
1. The certifications of the registrant as required by Rule 30a-2(a) under the Act are exhibits to this report.

 

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.
 
         
    KAYNE ANDERSON MLP INVESTMENT COMPANY
 
         
   
/s/  Kevin S. McCarthy

Name:     Kevin S. McCarthy
Title: Chairman, President and Chief Executive Officer
Date: April 29, 2009
 
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.
 
         
   
/s/  Kevin S. McCarthy

Name:     Kevin S. McCarthy
Title: Chairman, President and Chief Executive Officer
Date: April 29, 2009
 
         
   
/s/  Terry A. Hart

Name:     Terry A. Hart
Title: Chief Financial Officer and Treasurer
Date: April 29, 2009