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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:
  February 28, 2010        
 
           
 

 

TABLE OF CONTENTS

Item 1: Schedule of Investments
Item 2: Controls and Procedures
ITEM 3: Exhibits
SIGNATURES
EX-99.CERT

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Item 1: Schedule of Investments
KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2010
(amounts in 000’s except number of option contracts)
(UNAUDITED)
                 
    No. of    
Description   Shares/Units   Value
Long-Term Investments — 151.9%
                
Equity Investments(a) — 147.9%
                
Midstream MLP(b) — 105.1%
                
Boardwalk Pipeline Partners, LP
    350     $ 10,464  
Buckeye Partners, L.P.
     830       48,799  
Copano Energy, L.L.C.
     3,634       86,491  
Crosstex Energy, L.P.(c)
     2,868       27,188  
DCP Midstream Partners, LP
     861       26,546  
Duncan Energy Partners L.P.
     592       15,087  
El Paso Pipeline Partners, L.P.
     1,064       27,540  
Enbridge Energy Partners, L.P.
     1,307       66,945  
Energy Transfer Partners, L.P.(d)
     1,846       85,450  
Enterprise Products Partners L.P.
     4,416       144,678  
Exterran Partners, L.P.
     1,092       23,960  
Global Partners LP
    1,302       32,346  
Holly Energy Partners, L.P.
     562       23,951  
Magellan Midstream Partners, L.P.
     3,130       141,580  
MarkWest Energy Partners, L.P.
     3,502       103,581  
Martin Midstream Partners L.P.
     318       10,051  
ONEOK Partners, L.P.(d)
     951       57,657  
Plains All American Pipeline, L.P.(e)
     2,876       159,380  
Quicksilver Gas Services LP
     612       12,352  
Regency Energy Partners LP(d)
     3,383       71,860  
Spectra Energy Partners, LP
     381       11,415  
Sunoco Logistics Partners L.P.
     114       7,716  
Targa Resources Partners LP
     952       23,797  
TC PipeLines, LP
     772       28,469  
TransMontaigne Partners L.P.
     502       13,850  
Western Gas Partners, LP
     932       19,921  
Williams Partners L.P.
     1,430       55,555  
Williams Pipeline Partners L.P.
     722       21,065  
 
            
 
             1,357,694  
 
            
 
                
MLP Affiliates(b) — 13.5%
                
Enbridge Energy Management, L.L.C.(f)
     782       39,090  
Kinder Morgan Management, LLC(d)(f)
     2,351       134,825  
 
            
 
             173,915  
 
            
General Partner MLP — 12.6%
                
Alliance Holdings GP L.P.
     874       25,096  
Buckeye GP Holdings L.P.
     57       1,857  
Energy Transfer Equity, L.P.
     2,473       79,919  
Enterprise GP Holdings L.P.
     1,347       55,299  
Inergy Holdings, L.P.
     8       555  
 
            
 
             162,726  
 
            

 

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KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2010
(amounts in 000’s except number of option contracts)
(UNAUDITED)
                 
    No. of    
Description   Shares/Units   Value
Propane MLP — 9.5%
                
Inergy, L.P.(d)
    3,404     $ 122,938  
 
            
 
                
Shipping MLP — 6.3%
                
Capital Product Partners L.P.
     895       7,766  
K-Sea Transportation Partners L.P.
     78       737  
Navios Maritime Partners L.P.
     1,247       19,617  
Teekay LNG Partners L.P.
     1,132       30,886  
Teekay Offshore Partners L.P.
     876       16,456  
Teekay Tankers Ltd.
     524       5,354  
 
            
 
             80,816  
 
            
 
                
Upstream MLP — 0.5%
                
Legacy Reserves LP
     313       6,632  
 
            
 
                
Coal MLP — 0.4%
                
Alliance Resource Partners, L.P.
    83       3,466  
Penn Virginia Resource Partners, L.P.
     98       2,266  
 
            
 
             5,732  
 
            
Total Equity Investments (Cost — $1,346,541)
             1,910,453  
 
            
                                 
    Interest   Maturity   Principal    
  Rate   Date   Amount    
Energy Debt Investments — 4.0%
                                
Midstream MLP (b) — 2.1%
                                
Copano Energy, L.L.C.
     7.750 %     6/1/18     $ 1,800       1,759  
Copano Energy, L.L.C.
     8.125       3/1/16       500       504  
Crosstex Energy, L.P.
     8.875       2/15/18       20,000       20,300  
Niska Gas Storage U.S., LLC
     8.875       3/15/18       5,000       5,000  
 
                            
 
                             27,563  
 
                            
 
                                
Upstream MLP(b) — 1.5%
                                
Atlas Energy Resources, LLC
     12.125       8/1/17       9,000       10,125  
Atlas Energy Resources, LLC
     10.750       2/1/18       9,000       9,743  
 
                            
 
                             19,868  
 
                            
 
                                
Coal MLP — 0.4%
                                
Clearwater Natural Resources, LP(c)(g)(h)
     (i)     12/3/09       13,601       4,420  
 
                            
 
Total Energy Debt Investments (Cost — $57,421)
                             51,851  
 
                            
Total Long-Term Investments (Cost — $1,403,962)
                             1,962,304  
 
                              

 

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KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2010
(amounts in 000’s except number of option contracts)
(UNAUDITED)
                                 
    Interest   Maturity        
Description   Rate   Date       Value
Short-Term Investment — 0.2%
                                
Repurchase Agreement — 0.2%
                                
J.P. Morgan Securities Inc. (Agreement dated 2/26/10 to be repurchased at $2,087), collateralized by $2,152 in U.S. Treasury note (Cost — $2,087)
     0.020       3/1/10             $ 2,087  
 
                            
 
                                
Total Investments — 152.1% (Cost — $1,406,049)
                             1,964,391  
 
                            
                 
    No. of          
    Contracts          
Liabilities
                
Call Option Contracts Written(c)
                
Midstream MLP
                
Energy Transfer Partners, L.P., call option expiring 3/19/10 @ $45.00
     906       (136 )
ONEOK Partners, L.P., call option expiring 3/19/10 @ $60.00
     1,000       (115 )
Regency Energy Partners LP, call option expiring 3/19/10 @ $20.00
     250       (34 )
 
            
 
             (285 )
 
            
Propane MLP
                
Inergy, L.P., call option expiring 3/19/10 @ $35.00
     1,000       (145 )
 
            
Total Call Option Contracts Written (Premiums Received — $391)
             (430 )
Senior Unsecured Notes
             (370,000 )
Unrealized Depreciation on Interest Rate Swap Contracts
             (416 )
Revolving Credit Line
             (40,000 )
Deferred Tax Liability
             (174,308 )
Other Liabilities
             (17,708 )
 
            
Total Liabilities
             (602,862 )
Other Assets
             5,331  
 
            
Total Liabilities in Excess of Other Assets
             (597,531 )
Preferred Stock at Redemption Value
             (75,000 )
 
            
Net Assets Applicable to Common Stockholders
           $ 1,291,860  
 
            
 
(a)  
Unless otherwise noted, equity investments are common units/common shares.
 
(b)  
Includes Limited Liability Companies.
 
(c)  
Security is non-income producing.
 
(d)  
Security or a portion thereof is segregated as collateral on option contracts written or interest rate swap contract.
 
(e)  
The Company believes that it is an affiliate of Plains All American, L.P.
 
(f)  
Distributions are paid in-kind.
 
(g)  
Fair valued securities, restricted from public sale.
 
(h)  
Clearwater Natural Resources, LP is a privately-held MLP that 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).

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KAYNE ANDERSON MLP INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2010
(amounts in 000’s except number of option contracts)
(UNAUDITED)
   
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 unregistered, deferred participation units of Clearwater. The Company assigned no value to these equity investments as of February 28, 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 February 28, 2010, and believes it is a controlled affiliate.
 
(i)  
Floating rate unsecured working capital term loan. Interest is paid-in-kind at a rate of the higher of (i) one year LIBOR or (ii) 4.75%, plus 900 basis points (13.75% as of February 28, 2010). The Company is not accruing interest on this investment.

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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 February 28, 2010, the Company held the following restricted investments:
                                               
                Number of                          
                Units,                          
                Principal                       Percent
        Acquisition   Type of   ($)   Cost   Fair   Percent of   of Total
Investment   Security   Date   Restriction   (in 000s)   Basis   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     4,420     0.3 %     0.2 %
Clearwater Natural Resources, L.P.
   Deferred Participation Units   3/5/08   (2)     41     —     —     —       —  
Clearwater Natural Resources, L.P.
   Warrants   9/29/08   (2)     34     —     —     —       —  
CNR GP Holdco, LLC
   LLC Interests   3/5/08   (2)     n/a     1,082     —     —       —  
 
                                  
Total of securities valued in accordance with procedures established by the Board of Directors(4)   $ 87,632     $ 4,420     0.3 %     0.2 %
 
                                  
 
Niska Gas Storage U.S., LLC
   Senior Notes   (5)   (6)        $ 5,000     $ 5,023     $ 5,000     0.4 %     0.3 %
 
                                  
 
Total of securities valued by prices provided by market maker or independent pricing services   $ 5,023     $ 5,000     0.4 %     0.3 %
 
                                  
 
Total of all restricted securities
                       $ 92,655     $ 9,420     0.7 %     0.5 %
 
                                  
 
(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. On January 12, 2010, Clearwater closed on the sale of substantially all of its reserves and operating assets. See “Clearwater Update” below for a status update.
 
(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)  
Restricted securities that are classified as a Level 3. Security is valued using inputs reflecting the Company’s own assumptions.
 
(5)  
These securities were acquired during the three months ended February 28, 2010.
 
(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.
Clearwater Update. 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. The Company will not receive any consideration for its equity investment in Clearwater or CNR GP Holdco, LLC. The Company will receive such consideration when Clearwater’s plan of reorganization becomes effective, which is expected to be May or June 2010.

 

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At February 28, 2010, the cost basis of investments for federal income tax purposes was $1,224,870. At February 28, 2010, gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
         
Gross unrealized appreciation of investments
   $ 803,173  
Gross unrealized depreciation of investments
     (63,652 )
 
    
Net unrealized appreciation
   $ 739,521  
 
    
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 in this footnote.
As required by the Fair Value Measurement and Disclosures of the 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 February 28, 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
    $  1,910,453       $  1,910,453       $         —       $       —  
Energy debt investments
     51,851       —       47,431       4,420  
Repurchase agreement
     2,087       —       2,087       —  
 
                      
Total assets at fair value
    $  1,964,391       $  1,910,453       $  49,518       $  4,420  
 
                      
 
                                
Liabilities at Fair Value
                                
Unrealized depreciation on interest rate swaps
    $  416       $              —       $       416       $       —  
Option contracts written
     430       —       430       —  
 
                      
Total liabilities at fair value
    $  846       $              —       $       846       $       —  
 
                      
 
(1)   The Company’s investments in Level 3 represent its investments in 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 period ended February 28, 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
     340  
Purchases, issuances or settlements
     —  
 
    
Balance — February 28, 2010
   $ 4,420  
 
    
The $340 of unrealized gains presented in the table above relate to investments that are still held at February 28, 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 February 28, 2010 and at November 30, 2009.
In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements.” ASU 2010-06 amends FASB Accounting Standards Codification Topic, Fair Value Measurements and Disclosures, to require additional disclosures regarding fair value measurements. Certain disclosures required by ASU No. 2010-06 are effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management is currently evaluating the impact ASU No. 2010-06 will have on its financial statement disclosures.
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 following table sets forth the fair value of the Company’s derivative instruments.
             
Derivatives Not Accounted       Fair Value as of  
for as Hedging Instruments   Statement of Assets and Liabilities Location   February 28, 2010  
Liabilities
            
Call options
   Call option contracts written      $430
Interest rate swap contracts
   Unrealized depreciation on interest rate swap contracts      416
 
        
 
          $846
 
        

 

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The following table sets forth the effect of the Company’s derivative instruments.
                     
        For the Three Months Ended
        February 28, 2010
                Change in
        Net Realized   Unrealized Gains/
        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 )     $ 76  
Call options
   Options     74       767  
Interest rate swap contracts
   Interest rate swap contracts     (240 )     (211 )
         
 
         $ (256 )     $ 632  
         
Securities valuation policies and other investment related disclosures are hereby incorporated by reference to the Fund’s annual report previously filed with the Securities and Exchange Commission on form N-CSR on February 8, 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 at 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.

 

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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:  

Date:  		 Chairman of the Board of Directors,
President and Chief Executive Officer
April 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:  

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