mspnq0911.htm
 
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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 811-21713
 
Madison Strategic Sector Premium Fund
(Exact name of registrant as specified in charter)
 
550 Science Drive, Madison, WI  53711
(Address of principal executive offices)(Zip code)
 
Pamela M. Krill
Madison/Mosaic Legal and Compliance Department
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, 2011
 
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, September 30, 2011, Madison Strategic Sector Premium Fund

     
Consumer Discretionary - 13.4%
    
American Eagle Outfitters Inc.
80,000
 $        937,600
Best Buy Co. Inc.
80,000
1,864,000
Kohl's Corp.
35,000
1,718,500
Lowe's Cos. Inc.
80,000
1,547,200
Staples Inc.
80,000
1,064,000
Target Corp.
40,000
1,961,600
   
9,092,900
Energy - 6.7%
    
Apache Corp.
15,000
1,203,600
Canadian Natural Resources Ltd.
40,000
1,170,800
Noble Corp.*
30,000
880,500
Schlumberger Ltd.
22,000
1,314,060
   
4,568,960
Financials - 16.4%
    
Affiliated Managers Group Inc.*
25,000
1,951,250
American Express Co.
35,000
1,571,500
Bank of America Corp.
200,000
1,224,000
Goldman Sachs Group Inc./The
14,000
1,323,700
Morgan Stanley
100,000
1,350,000
State Street Corp.
60,000
1,929,600
Wells Fargo & Co.
75,000
1,809,000
   
11,159,050
Health Care - 23.5%
    
Celgene Corp.*
30,000
1,857,600
Community Health Systems Inc.*
75,000
1,248,000
Gilead Sciences Inc.*
60,000
2,328,000
Medtronic Inc.
40,000
1,329,600
Mylan Inc./PA*
90,000
1,530,000
Pfizer Inc.
39,800
703,664
St Jude Medical Inc.
50,000
1,809,500
Stryker Corp.
40,000
1,885,200
Teva Pharmaceutical Industries Ltd., ADR
45,000
1,674,900
Zimmer Holdings Inc.*
30,000
1,605,000
   
15,971,464
Information Technology - 27.6%
    
Adobe Systems Inc.*
65,000
1,571,050
Applied Materials Inc.
90,000
931,500
Cisco Systems Inc.
130,000
2,013,700
Flextronics International Ltd.*
184,900
1,040,987
FLIR Systems Inc.
65,000
1,628,250
Google Inc., Class A*
5,700
2,931,966
Hewlett-Packard Co.
60,000
1,347,000
Microsoft Corp.
95,000
2,364,550
Symantec Corp.*
80,000
1,304,000
Visa Inc., Class A
35,000
3,000,200
Yahoo! Inc.*
50,000
658,000
   
18,791,203
     
    Total Common Stock (Cost $74,768,915)
  
59,583,577
     
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 0.8%
  
     
U.S. Treasury Note - 0.8%
    
0.875%, 1/31/12
550,000
551,569
    Total U.S. Government and Agency Obligations (Cost $551,252)
551,569
     
INVESTMENT COMPANIES - 7.5%
    
iPATH S&P 500 VIX Short-Term Futures ETN*
19,000
1,014,030
Powershares QQQ Trust Series 1
35,000
1,838,200
SPDR S&P 500 ETF Trust
20,000
2,263,400
    Total Investment Companies (Cost $5,274,697)
  
5,115,630
     
Repurchase Agreement - 8.1%
    
With U.S. Bank National Association issued 09/30/11 at 0.01%, due
  
10/03/11, collateralized by $5,594,176 in Freddie Mac MBS Pool E99143
  
due 09/01/18.  Proceeds at maturity are $5,484,441 (Cost $5,484,436)
5,484,436
     
TOTAL INVESTMENTS - 104.0% (Cost $86,079,300)
  
70,735,212
NET OTHER ASSETS AND LIABILITIES - 0.1%
  
62,434
TOTAL CALL & PUT OPTIONS WRITTEN - (4.1%)
  
(2,810,361)
TOTAL ASSETS - 100%
  
 $   67,987,285
     
*Non-income producing
**All or a portion of these securities’ positions represent covers (directly or through conversion rights) for outstanding options written
    
ADR-American Depository Receipt
    
ETF-Exchange Traded Fund
    
ETN-Exchange Traded Note
    
     

 
         
Call Options Written
        
Underlying Security
 Contracts
Expiration
 Strike Price
 Market Value
Adobe Systems Inc.
32
October 2011
33.00
 $               16
Adobe Systems Inc.
300
January 2012
28.00
29,700
Affiliated Managers Group Inc.
250
December  2011
95.00
72,500
American Eagle Outfitters Inc.
300
February 2012
12.00
39,750
American Express Co.
350
January 2012
47.00
113,750
Apache Corp.
150
January 2012
110.00
13,500
Applied Materials Inc.
400
January 2012
12.50
10,400
Bank of America Corp.
500
January 2012
9.00
11,500
Bank of America Corp.
500
January 2012
12.50
1,750
Best Buy Co. Inc.
300
December 2011
33.00
3,000
Canadian Natural Resources Ltd.
400
January 2012
45.00
7,000
Celgene Corp.
200
October 2011
57.50
107,000
Celgene Corp.
100
January 2012
62.50
46,750
Cisco Systems Inc.
1,300
January 2012
17.50
75,400
Flextronics International Ltd.
500
January 2012
10.00
750
FLIR Systems Inc.
200
January 2012
26.00
44,500
FLIR Systems Inc.
450
April 2012
28.00
96,750
Gilead Sciences Inc.
250
January 2012
43.00
34,750
Gilead Sciences Inc.
100
February 2012
41.00
24,850
Goldman Sachs Group Inc./The
100
October 2011
160.00
200
Google Inc.
25
December 2011
540.00
68,250
Google Inc.
32
January 2012
560.00
88,320
Hewlett-Packard Co.
200
February 2012
29.00
18,900
iPATH S&P 500 VIX Short-Term Futures ETN
190
December 2011
23.00
595,650
Kohl's Corp.
100
January 2012
50.00
40,000
Kohl's Corp.
150
January 2012
48.00
75,000
Lowe's Cos. Inc.
200
January 2012
21.00
19,600
Lowe's Cos. Inc.
300
January 2012
20.00
41,700
Medtronic Inc.
250
January 2012
40.00
10,625
Microsoft Corp.
200
January 2012
27.50
15,100
Microsoft Corp.
650
January 2012
26.00
84,175
Morgan Stanley
300
January 2012
17.50
32,250
Mylan Inc./PA
400
January 2012
21.00
21,200
Mylan Inc./PA
500
January 2012
20.00
36,500
Powershares QQQ Trust Series 1
350
October 2011
55.00
33,425
Schlumberger Ltd.
220
January 2012
85.00
11,000
SPDR S&P 500 ETF Trust
200
October 2011
120.00
26,300
St Jude Medical Inc.
100
October 2011
42.50
500
St Jude Medical Inc.
200
January 2012
45.00
10,000
St Jude Medical Inc.
200
April 2012
45.00
24,000
Staples Inc.
300
January 2012
15.00
20,250
Staples Inc.
300
January 2012
16.00
12,000
State Street Corp.
300
November 2011
47.00
1,350
Stryker Corp.
200
March 2012
50.00
68,000
Symantec Corp.
500
January 2012
17.50
57,000
Target Corp.
200
January 2012
50.00
62,000
Target Corp.
200
January 2012
52.50
40,000
Teva Pharmaceutical Industries Ltd.
200
January 2012
40.00
37,100
Visa Inc.
150
January 2012
80.00
169,500
Visa Inc.
200
January 2012
87.50
138,500
Wells Fargo & Co.
200
January 2012
30.00
10,800
Wells Fargo & Co.
300
January 2012
31.00
10,950
Yahoo! Inc.
500
January 2012
15.00
62,000
Zimmer Holdings Inc.
300
December 2011
55.00
102,000
    Total Call Options Written (Premiums received $3,496,882)
    
 $   2,777,761
         
Put Options Written
        
Microsoft Corp.
200
January 2012
24.00
32,600
    Total Put Options Written (Premiums received $34,799)
      
$        32,600

 
1. Portfolio Valuation: Securities traded on a national securities exchange are valued at their closing sale price except for securities traded on 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.  Repurchase agreements and other securities having maturities of 60 days or less are valued at amortized cost, which approximates market value.  Securities having longer maturities, for which quotations are readily available, are valued at the mean between their closing bid and ask prices.  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.
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 in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 - 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 data, 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, 2011 maximized the use of observable inputs and minimized the use of unobservable inputs.  As of September 30, 2011, the Fund held no securities deemed as a Level 3.
The following is a summary of the inputs used as of September 30, 2011 in valuing the Fund's investments carried at fair value:
 
Quoted Prices in Active Markets for Identical Securities
 Significant Other Observable Inputs
Significant Unobservable Inputs
Value at
    
Fund
(Level 1)
(Level 2)
(Level 3)
9/30/2011
    
Madison Strategic Sector Premium Fund
          
Assets:
            
   Common Stocks
 $59,583,577
 $                         -
 $                 -
 $59,583,577
    
   Investment Companies
        551,569
    
551,569
    
   U.S. Government and Agency Obligations
             5,115,630
  
5,115,630
    
   Repurchase Agreement
  
             5,484,436
  
5,484,436
    
 
 $60,135,146
 $        10,600,066
 $                 -
 $70,735,212
    
Liabilities:
            
   Written Options
 $  2,810,361
 $                         -
 $                 -
 $ 2,810,361
    
 
 $  2,810,361
 $                         -
 $                 -
 $ 2,810,361
    
 
The Fund has adopted the Accounting Standard Update, Fair Value Measurements and Disclosures; Improving Disclosures about Fair Value Measurements which provides guidance on how investment assets and liabilities are to be valued and disclosed. Specifically, the amendment requires reporting entities to disclose i) the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements, for Level 2 or Level 3 positions, ii) transfers between all levels (including Level 1 and Level 2) will be required to be disclosed on a gross basis (i.e. transfers out must be disclosed separately from transfers in) as well as the reason(s) for the transfer and iii) purchases, sales, issuances and settlements must be shown on a gross basis in the Level 3 rollforward rather than as one net number. The effective date of the amendment is for interim and annual periods beginning after December 15, 2009, and the requirement to provide the Level 3 activity for purchases, sales, issuance and settlements on a gross basis was effective for interim and annual period beginning after December 15, 2010. There were no transfers between classification levels during the period ended September 30, 2011.
    
The fund adopted guidance on enhanced disclosures about a fund's derivative and hedging activities in order to 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 fund 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
Liability Derivatives
  
Derivatives not accounted
Statement of Assets and
Fair Value
Statement of Assets and
Fair Value
  
for as hedging instruments
Liabilities Location
  
Liabilities Location
    
Equity contracts
  
$-
Options Written
  
$2,810,361
  
             

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.

 
 
 
 

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 Strategic Sector Premium Fund
 
By: (signature)
 
W. Richard Mason, CCO
 
Date: November 23, 2011
 
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: (signature)
 
Katherine L. Frank, Principal Executive Officer
 
Date:  November 23, 2011
 
By:  (signature)
 
Greg Hoppe, Principal Financial Officer
 
Date: November 23, 2011