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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   77002
 
(Address of principal executive offices)   (Zip code)
David Shladovsky, Esq.
KA Fund Advisors, LLC, 717 Texas Avenue, Suite 3100, Houston, Texas 77002
 
(Name and address of agent for service)
Registrant’s telephone number, including area code: (713) 493-2020
Date of fiscal year end: November 30, 2010
Date of reporting period: August 31, 2010
 
 

 

 

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 EX-99.CERT

 

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Item 1: Schedule of Investments
KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
AUGUST 31, 2010
(amounts in 000’s, except number of option contracts)
(UNAUDITED)
                 
    No. of        
Description   Shares/Units     Value  
Long-Term Investments — 152.8%
                
Equity Investments(a) — 149.4%
                
Midstream MLP(b) — 102.0%
                
Boardwalk Pipeline Partners, LP
    587     $ 17,952  
Buckeye Partners, L.P.
     413       25,209  
Chesapeake Midstream Partners, L.P.(c)
     786       18,500  
Copano Energy, L.L.C.
     3,510       88,181  
Crosstex Energy, L.P.(d)
     2,633       31,591  
DCP Midstream Partners, LP
     1,281       40,677  
Duncan Energy Partners L.P.
     371       10,278  
Eagle Rock Energy Partners, L.P.
     677       4,063  
El Paso Pipeline Partners, L.P.
     1,479       46,322  
Enbridge Energy Partners, L.P.(e)
    1,566       84,165  
Energy Transfer Partners, L.P.
     1,823       83,310  
Enterprise Products Partners L.P.(e)
    4,821       178,221  
Exterran Partners, L.P.
     1,193       27,866  
Global Partners LP
    1,441       35,788  
Holly Energy Partners, L.P.
     770       38,489  
Magellan Midstream Partners, L.P.(e)
     3,462       167,768  
Magellan Midstream Partners, L.P. — Unregistered(h)
     238       11,224  
MarkWest Energy Partners, L.P.(e)
    3,858       128,542  
Martin Midstream Partners L.P.
     339       10,092  
Niska Gas Storage Partners LLC
    540       10,191  
ONEOK Partners, L.P.(e)
     1,122       77,219  
PAA Natural Gas Storage, L.P.(f)
     210       5,009  
Plains All American Pipeline, L.P.(f)
     2,876       172,698  
Quicksilver Gas Services LP
     949       22,031  
Regency Energy Partners LP
     3,506       83,377  
Spectra Energy Partners, LP
     294       9,462  
Sunoco Logistics Partners L.P.
     217       16,032  
Targa Resources Partners LP
     1,032       26,104  
TC PipeLines, LP
     189       8,225  
TransMontaigne Partners L.P.
     697       24,279  
Western Gas Partners, LP
     1,247       30,027  
Williams Partners L.P.
     2,898       114,787  
 
              
 
             1,647,679  
 
              
General Partner MLP — 17.3%
                
Alliance Holdings GP L.P.
     1,066       40,591  
Buckeye GP Holdings L.P.
     46       1,920  
Energy Transfer Equity, L.P.(e)
    2,648       92,019  
Enterprise GP Holdings L.P.
     1,318       63,728  
Inergy Holdings, L.P. — Unregistered(h)
    1,526       40,583  
Penn Virginia GP Holdings, L.P.
     2,024       39,624  
 
              
 
             278,465  
 
              

 

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KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
AUGUST 31, 2010
(amounts in 000’s, except number of option contracts)
(UNAUDITED)
                 
    No. of        
Description   Shares/Units     Value  
MLP Affiliates(b) — 13.6%
                
Enbridge Energy Management, L.L.C.(g)
     999     $ 53,003  
Kinder Morgan Management, LLC(g)
     2,816       166,330  
 
              
 
             219,333  
 
              
Shipping MLP — 7.4%
                
Capital Product Partners L.P.
     2,281       18,433  
Navios Maritime Partners L.P.
     1,685       29,168  
Teekay LNG Partners L.P.
     1,012       33,238  
Teekay Offshore Partners L.P.
     1,319       28,030  
Teekay Tankers Ltd.
     936       10,816  
 
              
 
             119,685  
 
              
Propane MLP — 6.7%
                
Inergy, L.P.
     2,910       108,360  
 
              
 
                
Coal MLP — 1.3%
                
Alliance Resource Partners, L.P.
     67       3,602  
Natural Resource Partners L.P.
     599       15,344  
Oxford Resource Partners, LP
     60       1,145  
Penn Virginia Resource Partners, L.P.
     59       1,314  
 
              
 
             21,405  
 
              
Upstream MLP — 1.1%
                
EV Energy Partners, L.P.
     221       7,430  
Legacy Reserves LP
     447       10,230  
 
              
 
             17,660  
 
              
 
                
Total Equity Investments (Cost — $1,650,673)
             2,412,587  
 
              
                                 
    Interest     Maturity     Principal          
    Rate     Date     Amount          
Energy Debt Investments — 3.4%
                                
Midstream MLP (b) — 1.6%
                                
Crosstex Energy, L.P.
     8.875 %     2/15/18     $ 15,000       15,487  
El Paso Corporation
     7.750       1/15/32       5,000       5,033  
Niska Gas Storage U.S., LLC
     8.875       3/15/18       5,000       5,263  
 
                              
 
                             25,783  
 
                              
Upstream MLP(b) — 1.2%
                                
Atlas Energy Resources, LLC
     12.125       8/1/17       9,000       10,339  
Atlas Energy Resources, LLC
     10.750       2/1/18       6,000       6,615  
Linn Energy, LLC
     8.625       4/15/20       2,000       2,110  
 
                              
 
                             19,064  
 
                              

 

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KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
AUGUST 31, 2010
(amounts in 000’s, except number of option contracts)
(UNAUDITED)
                                 
    Interest     Maturity     Principal        
Description   Rate     Date     Amount     Value  
Coal MLP — 0.6%
                                
Clearwater Natural Resources, LP(d)(h)(i)
     N/A       N/A       13,601     $ 4,760  
Penn Virginia Resource Partners, L.P.
     8.250 %     4/15/18       5,000       5,050  
 
                              
 
                             9,810  
 
                              
Total Energy Debt Investments (Cost — $60,139)
                             54,657  
 
                              
Total Long-Term Investments (Cost — $1,710,812)
                             2,467,244  
 
                              
 
                                
Short-Term Investment — 1.1%
                                
Repurchase Agreement — 1.1%
                                
J.P. Morgan Securities Inc. (Agreement dated 8/31/10 to be repurchased at $17,221), collateralized by $17,632 in U.S. Treasury bill (Cost — $17,221)
     0.140       9/1/10               17,221  
 
                              
                 
    No. of          
    Contracts          
Put Option Contracts Purchased(d) — 0.0%
                
Midstream MLP
                
Duncan Energy Partners L.P., put option expiring 9/18/10 @ $25.00 (Cost — $21)
     1,000       10  
 
              
 
                
Total Short-Term Investments (Cost — $17,242)
             17,231  
 
              
 
                
Total Investments — 153.9% (Cost — $1,728,054)
             2,484,475  
 
              
 
                
Liabilities
                
Call Option Contracts Written(d)
                
Midstream MLP
                
Enbridge Energy Partners, L.P., call option expiring 10/16/10 @ $55.00
     1,000       (105 )
Enterprise Products Partners L.P., call option expiring 9/18/10 @ $36.00
     1,800       (180 )
Enterprise Products Partners L.P., call option expiring 9/18/10 @ $37.00
     400       (25 )
Magellan Midstream Partners, L.P., call option expiring 9/18/10 @ $50.00
     200       (4 )
MarkWest Energy Partners, L.P., call option expiring 9/18/10 @ $34.00
     851       (43 )
MarkWest Energy Partners, L.P., call option expiring 9/18/10 @ $35.00
     850       (13 )
ONEOK Partners, L.P., call option expiring 9/18/10 @ $70.00
     300       (15 )
 
              
 
             (385 )
 
              
General Partner MLP
                
Energy Transfer Equity, L.P., call option expiring 9/18/10 @ $35.00
     100       (4 )
 
              
 
                
Total Call Option Contracts Written (Premiums Received — $533)
             (389 )
 
              
Senior Unsecured Notes
             (480,000 )
Mandatory Redeemable Preferred Stock at Redemption Value
             (110,000 )
Deferred Tax Liability
             (262,227 )
Other Liabilities
             (26,578 )
 
              
Total Liabilities
             (879,194 )
Other Assets
             9,427  
 
              
Total Liabilities in Excess of Other Assets
             (869,767 )
 
              
Net Assets Applicable to Common Stockholders
           $ 1,614,708  
 
              

 

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KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
AUGUST 31, 2010
(amounts in 000’s, except number of option contracts)
(UNAUDITED)
 
(a)   Unless otherwise noted, equity investments are common units/common shares.
 
(b)   Includes Limited Liability Companies.
 
(c)   Security is currently not paying cash distributions but is expected to pay cash distributions within the next 12 months.
 
(d)   Security is non-income producing.
 
(e)   Security or a portion thereof is segregated as collateral on option contracts written.
 
(f)   The Company believes that it is an affiliate of PAA Natural Gas Storage, L.P. and Plains All American, L.P.
 
(g)   Distributions are paid in-kind.
 
(h)   Fair valued securities, restricted from public sale.
 
(i)   Clearwater Natural Resources, LP is a privately-held MLP that Kayne Anderson MLP Investment Company (the “Company”) believes is a controlled affiliate. On January 12, 2010, Clearwater closed on the sale of all of its reserves and a substantial portion of its operating assets to International Resource Partners, L.P. (“IRP”). On March 16, 2010, the Bankruptcy Court confirmed Clearwater’s plan of reorganization (including such sale of assets to IRP). As part of Clearwater’s plan of reorganization, the Company will receive consideration for its unsecured term loan. Such consideration will be in the form of cash and a royalty interest in the reserves sold. Pursuant to the plan of reorganization, the Company will not receive any consideration for its equity investment in Clearwater or CNR GP Holdco, LLC. In addition to the unsecured term loan, the Company owns 3,889 common units, 34 warrants and 41 deferred participation units of Clearwater. The Company assigned no value to these equity investments as of August 31, 2010. CNR GP Holdco, LLC is the general partner of Clearwater. The Company owns 83.7% of CNR GP Holdco, LLC, which was assigned no value as of August 31, 2010, and believes it is a controlled affiliate.

 

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From time to time, certain of the Company’s investments may be restricted as to resale. For instance, private investments that are not registered under the Securities Act of 1933, as amended, cannot 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 August 31, 2010, the Company held the following restricted investments.
                                                     
                Number of                                
                Units,                             Percent of  
        Acquisition   Type of   Principal ($)     Cost             Percent of     Total  
Investment   Security   Date   Restriction   (in 000s)     Basis     Fair Value     Net Assets     Assets  
Clearwater Natural Resources, L.P.
   Common Units   (1)   (2)     3,889     $ 72,860     $ —       —       —  
Clearwater Natural Resources, L.P.
   Unsecured Term Loan   (3)   (2)   $ 13,601       13,690       4,760       0.3 %     0.2 %
CNR GP Holdco, LLC
   LLC Interests   3/5/08   (2)     n/a       1,083       —       —       —  
Inergy Holdings, L.P.
   Common Units   6/15/10   (4)     1,526       34,533       40,583       2.5     1.6
Magellan Midstream Partners, L.P.
   Common Units   6/10/10   (4)     238       9,705       11,224       0.7     0.5
 
                                            
Total of securities valued in accordance with procedures established by the Board of Directors(5)   $ 131,871     $ 56,567       3.5 %     2.3 %
 
                                            
 
                                                    
Linn Energy, LLC
   Senior Notes   7/21/10   (6)   $ 2,000     $ 2,112     $ 2,110       0.1     0.1
Niska Gas Storage U.S., LLC
   Senior Notes   2/26/10   (6)   $ 5,000       5,022       5,263       0.3     0.2
 
                                            
Total of securities valued by prices provided by market maker or independent pricing services   $ 7,134     $ 7,373       0.4 %     0.3 %
 
                                            
Total of all restricted securities
                       $ 139,005     $ 63,940       3.9 %     2.6 %
 
                                            
 
(1)   The Company purchased common units on August 1, 2005 and October 2, 2006.
 
(2)   On January 7, 2009, Clearwater Natural Resources, LP (“Clearwater”) filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. Clearwater continued operations as a debtor-in-possession during fiscal 2009.
 
(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. The Company is not accruing interest income on this investment.
 
(4)   Unregistered security of a public company.
 
(5)   Restricted securities that are classified as a Level 3. Security is valued using inputs reflecting the Company’s own assumptions.
 
(6)   Unregistered security of a public company that are classified as a Level 2. These securities have 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.

 

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At August 31, 2010, the cost basis of investments for federal income tax purposes was $1,565,500. At August 31, 2010, gross unrealized appreciation and depreciation of investments and options for federal income tax purposes were as follows:
         
Gross unrealized appreciation of investments
   $ 973,680  
Gross unrealized depreciation of investments
     (54,705 )
 
      
Net unrealized appreciation
   $ 918,975  
 
      
The identified cost basis of 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 above.
As required by the Fair Value Measurement and Disclosures of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification, the Company has performed an analysis of all assets and liabilities measured at fair value to determine the significance and character of all inputs to their fair value determination.
The fair value hierarchy 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 the Company’s assets and liabilities measured at fair value at August 31, 2010. Note that the valuation levels below are not necessarily an indication of the risk or liquidity associated with the underlying investment. For instance, the Company’s repurchase agreements, which are collateralized by U.S. Treasury notes, are generally high quality and liquid; however, the Company reflects these repurchase agreements as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market.
                                 
            Quoted Prices in     Prices with Other     Unobservable  
            Active Markets     Observable Inputs     Inputs  
    Total     (Level 1)     (Level 2)     (Level 3)(1)  
Assets at Fair Value
                                
Equity investments
   $ 2,412,587     $ 2,360,780     $ —     $ 51,807  
Energy debt investments
     54,657       —       49,897       4,760  
Option contracts purchased
     10       —       10       —  
Repurchase agreement
     17,221       —       17,221       —  
 
                        
Total assets at fair value
   $ 2,484,475     $ 2,360,780     $ 67,128     $ 56,567  
 
                        
 
                                
Liabilities at Fair Value
                                
Option contracts written
   $ 389     $ —     $ 389     $ —  
 
                        
 
(1)   The Company’s investments in Level 3 represent its investments in Magellan Midstream Partners, L.P., Inergy Holdings, L.P., Clearwater Natural Resources, L.P. and CNR GP Holdco, LLC.

 

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The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended August 31, 2010.
         
    Long-Term  
Assets at Fair Value Using Unobservable Inputs (Level 3)   Investments  
Balance — November 30, 2009
   $ 4,080  
Transfers out of Level 3
     —  
Realized gains/(losses)
     —  
Unrealized gains, net
     7,625  
Purchases, issuances or settlements
     44,862  
 
      
Balance — August 31, 2010
   $ 56,567  
 
      
The $7,625 of unrealized gains presented in the table above relate to investments that are still held at August 31, 2010.
The Company did not have any liabilities that were measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at August 31, 2010 or November 30, 2009.
As required by the Derivatives and Hedging Topic of the FASB Accounting Standards Codification, the following are the derivative instruments and hedging activities of the Company. The total number of outstanding options at August 31, 2010 is indicative of the volume of this type of derivative for the period ended August 31, 2010.
The following table sets forth the fair value of the Company’s derivative instruments.
             
Derivatives Not Accounted for as Hedging       Fair Value as of  
Instruments   Statement of Assets and Liabilities Location   August 31, 2010  
Assets
            
Put options
   Put option contracts purchased   $ 10  
Liabilities
            
Call options
   Call option contracts written     (389 )
 
          
 
       $ (379 )
 
          
The following table sets forth the effect of the Company’s derivative instruments.
                     
        For the Nine Months Ended  
        August 31, 2010  
                Change in  
        Net Realized     Unrealized Gains/  
        Losses on     (Losses) on  
        Derivatives     Derivatives  
Derivatives Not Accounted For as   Location of Gains/(Losses)   Recognized in     Recognized in  
Hedging Instruments   on Derivatives Recognized in Income   Income     Income  
Put options
   Options   $ (90 )   $ 64  
 
                
 
                    
Call options
   Options     1,059       950  
Interest rate swap contracts
   Interest rate swap contracts     (664 )     205  
 
                
 
       $ 305     $ 1,219  
 
                

 

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Securities valuation policies and other investment related disclosures are hereby incorporated by reference to the Company’s semi-annual report previously filed with the Securities and Exchange Commission on form N-CSR on July 28, 2010 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 www.kaynefunds.com; or on the website of the Securities and Exchange Commission, 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, as amended (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, as amended.
     (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.

 

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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 of the Board of Directors,
President and Chief Executive Officer		    
 
  Date:   October 29, 2010    
     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 of the Board of Directors,
President and Chief Executive Officer		    
 
  Date:   October 29, 2010    
 
            
    /s/ Terry A. Hart    
         
 
  Name:   Terry A. Hart    
 
  Title:   Chief Financial Officer and Treasurer    
 
  Date:   October 29, 2010