MSP
| Madison Strategic Sector Premium Fund | June 30, 2013
Statement of Assets and Liabilities
as of June 30, 2013 (unaudited)
Assets:
|
|
Investments in securities, at cost
|
|
Unaffiliated issuers
|
$
89,339,106
|
Net unrealized depreciation
|
|
Unaffiliated issuers
|
|
Total investments at value
|
87,265,213
|
Receivables:
|
|
Investments sold
|
154,816
|
Dividends and interest
|
|
Total assets
|
|
Liabilities:
|
|
Payables:
|
|
Investments purchased
|
9,312,359
|
Advisory agreement fees
|
51,055
|
Service agreement fees
|
30,987
|
Options written, at value (premium received $1,946,707) (Note 6)
|
|
Total liabilities
|
|
Net assets applicable to outstanding capital stock
|
|
Net assets consist of:
|
|
Paid-in capital
|
$
92,465,594
|
Accumulated undistributed net investment loss
|
(2,973,862)
|
Accumulated net realized loss on investments sold, options and foreign currency related transactions
|
(11,262,561)
|
Net unrealized depreciation of investments (including appreciation (depreciation) of options and foreign currency related transactions)
|
|
Net As
s
ets
|
|
|
|
Capital Shares Issued and Outstanding
(Note 7)
|
5,798,291
|
Net Asset Value
and redemption price per share
|
$13.17
|
See accompanying Notes to Financial Statements.
8
MSP
| Madison Strategic Sector Premium Fund | June 30, 2013
Statement of Operations
For the Period Ended June 30, 2013 (unaudited)
Investment Income:
|
|
Interest
|
$
3,586
|
Dividends
|
|
Unaffiliated issuers
|
419,750
|
Less: Foreign taxes withheld
|
|
Total investment income
|
416,308
|
Expenses:
|
|
Advisory agreement fees
|
306,058
|
Service agreement fees
|
68,863
|
Other Expenses
|
|
Total expenses
|
|
Net Investment Income
|
41,249
|
Net Realized and Unrealized Gain (Loss) on Investments
|
|
Net realized gain on investments (including net realized gain (loss) on foreign currency related transactions)
|
|
Options
|
2,823,092
|
Unaffiliated issuers
|
2,650,618
|
Net change in unrealized depreciation on investments (including net unrealized appreciation (depreciation) on foreign currency related transactions)
|
|
Options
|
568,289
|
Unaffiliated issuers
|
|
Net Realized and Unrealized Gain on Investments and Option Transactions
|
|
Net Increase in Net Assets from Operations
|
|
See accompanying Notes to Financial Statements.
9
MSP
| Madison Strategic Sector Premium Fund | June 30, 2013
Statements of Changes in Net Assets
|
(unaudited)
Six-Months
Ended
6/30/13
|
|
|
Net Assets at beginning of period
|
$
74,417,340
|
|
$
73,212,098
|
Increase (decrease) in net assets from operations:
|
|
|
|
Net investment income
|
41,249
|
|
166,882
|
Net realized gain on investments and options transactions
|
5,473,710
|
|
32,352
|
Net change in unrealized appreciation (depreciation) on investments and options transactions
|
|
|
|
Net increase in net assets from operations
|
4,970,554
|
|
7,235,465
|
Distributions to shareholders from:
|
|
|
|
Net investment income
|
(3,015,111)
|
|
(166,882)
|
Net capital gains
|
–
|
|
(23,748)
|
Return of capital
|
|
|
|
Total distributions
|
|
|
|
|
|
|
|
Total increase in net assets
|
|
|
|
Net Assets at end of period
|
|
|
|
Undistributed net investment loss included in net assets
|
$
(2,973,862)
|
|
$
–
|
See accompanying Notes to Financial Statements.
10
MSP
| Madison Strategic Sector Premium Fund | June 30, 2013
Financial Highlights for a Share of Beneficial Interest Outstanding
|
(unaudited)
Six-Months Ended
|
|
|
|
|
|
|
|
Net Asset Value
at beginning of period
|
$12.83
|
$12.63
|
$14.07
|
$13.83
|
$10.75
|
$17.52
|
Income from Investment Operations:
|
|
|
|
|
|
|
Net investment income
1
|
0.01
|
0.03
|
0.002
|
(0.03)
|
(0.03)
|
0.03
|
Net realized and unrealized gain (loss) on investments
|
|
|
|
|
|
|
Total from investment operations
|
0.86
|
1.24
|
(0.40)
|
1.28
|
4.23
|
(5.27)
|
Less Distributions:
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.52)
|
(0.03)
|
(0.00)
2
|
–
|
–
|
(0.03)
|
Distributions from capital gains
|
–
|
(0.00)
2
|
(0.94)
|
–
|
(1.15)
|
(1.47)
|
Distributions from return of capital
|
|
|
|
|
|
|
Total distributions
|
|
|
|
|
|
|
Net increase (decrease) in net asset value
|
0.34
|
0.20
|
(1.44)
|
0.24
|
3.08
|
(6.77)
|
Net Asset Value
at end of period
|
$13.17
|
$12.83
|
$12.63
|
$14.07
|
$13.83
|
$10.75
|
Market Value
at end of period
|
$11.59
|
$11.09
|
$10.64
|
$12.82
|
$12.23
|
$8.75
|
Total Return
|
|
|
|
|
|
|
Net asset value (%)
|
6.74
3
|
9.92
|
(2.80)
|
9.79
|
41.21
|
(31.94)
|
Market value (%)
|
9.21
3
|
13.97
|
(9.24)
|
14.01
|
55.81
|
(36.18)
|
Ratios/Supplemental Data:
|
|
|
|
|
|
|
Net Assets at end of period (in 000’s)
|
$76,373
|
$74,417
|
$73,212
|
$81,572
|
$80,178
|
$62,333
|
Ratios of expenses to average net assets:
|
|
|
|
|
|
|
Total expenses, excluding interest expense (%)
|
0.98
4
|
0.98
|
0.98
|
0.98
|
1.04
|
1.07
|
Total expenses, including interest expense (%)
|
0.98
4
|
0.98
|
0.98
|
0.98
|
1.23
|
1.50
|
Ratio of net investment income to average net assets, including interest expense (%)
|
0.11
4
|
0.22
|
0.01
|
(0.20)
|
(0.27)
|
0.19
|
Portfolio turnover (%)
|
80
3
|
53
|
83
|
61
|
25
|
41
|
Senior Indebtedness
|
|
|
|
|
|
|
Outstanding balance, end of period (thousands)
|
–
|
–
|
–
|
–
|
–
|
10,000
|
Asset coverage per $1,000 of indebtedness
|
–
|
–
|
–
|
–
|
–
|
7,233
5
|
1
Based on average shares outstanding during the year.
2
Amounts represent less than $0.005 per share.
3
Not annualized.
4
Annualized.
5
Calculated by subtracting the fund’s total liabilities (not including borrowings) from the fund’s total assets and dividing by the total borrowings.
See accompanying Notes to Financial Statements.
11
MSP
| Madison Strategic Sector Premium Fund | June 30, 2013
Notes to Financial Statements
(unaudited)
1. Organization
Madison Strategic Sector Premium Fund (the "Fund") was organized as a Delaware statutory trust on February 4, 2005. The Fund is registered as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended. The Fund commenced operations on April 27, 2005.
The Fund’s primary investment objective is to provide a high level of current income and current gains, with a secondary objective of long-term capital appreciation. The Fund will pursue its investment objectives by investing in a portfolio consisting primarily of common stocks of large and mid-capitalization issuers that are, in the view of Madison Asset Management, LLC, the Fund’s investment adviser (the "Adviser"), selling at a reasonable price in relation to their long-term earnings growth rates. Under normal market conditions, the Fund will seek to generate current earnings from option premiums by writing (selling) covered call options on a substantial portion of its portfolio securities. There can be no assurance that the Fund will achieve its investment objectives. The Fund’s investment objectives are considered fundamental and may not be changed without shareholder approval.
2. Significant Accounting Policies
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates affect the reported amounts of assets and liabilities and reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
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. 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. Mutual funds are valued at their Net Asset Value. 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 – unadjusted 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;
|
12
MSP
| Madison Strategic Sector Premium Fund |
Notes to Financial Statements (unaudited)
- continued | June 30, 2013
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 June 30, 2013, maximized the use of observable inputs and minimized the use of unobservable inputs.
The following table represents the Fund’s investments carried on the Statement of Assets and Liabilities by caption and by level within the fair value hierarchy as of June 30, 2013:
|
Quoted Prices in
Active Markets for Identical Investments
(Level 1)
|
Significant Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
Common Stocks
|
$57,107,958
|
$
–
|
$
–
|
$57,107,958
|
Put Options Purchased
|
382,950
|
–
|
–
|
382,950
|
Investment Companies
|
3,878,395
|
–
|
–
|
3,878,395
|
U.S. Government and Agency Obligations
|
–
|
9,999,303
|
–
|
9,999,303
|
Short Term Investments
|
|
|
|
|
|
77,265,910
|
9,999,303
|
–
|
87,265,213
|
Liabilities:
|
|
|
|
|
Written Options
|
1,729,086
|
–
|
–
|
1,729,086
|
There were no transfers between classification levels during the six-months ended June 30, 2013. As of and during the six-months ended June 30, 2013, the Fund did not hold securities deemed as a Level 3.
The following table presents the types of derivatives in the Fund and their effect:
Statement of Asset & Liability Presentation of Fair Values of Derivative Instruments
|
|
|
|
Derivatives not accounted
for as hedging instruments
|
Statement of Assets
and Liabilities Location
|
|
Statement of Assets
and Liabilities Location
|
|
Equity contracts
|
–
|
–
|
Options written
|
$1,729,086
|
The following table presents the effect of Derivative Instruments on the Statement of Operations for the six-months ended June 30, 2013:
Derivatives not accounted
for as hedging instruments
|
Realized Gain on Derivatives
|
Change in Unrealized Depreciation on Derivatives
|
Equity contracts – options
|
$2,823,092
|
$568,289
|
In December 2011, the IASB and the FASB issued ASU 2011-11 "Disclosures about Offsetting Assets And Liabilities." These common disclosure requirements are intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting arrangements on a portfolio’s financial position. They also intend to improve transparency in the reporting of how companies mitigate credit risk, including disclosure of related collateral pledged or received. In addition, ASU 2011-11 facilitates comparison between those entities
13
MSP
| Madison Strategic Sector Premium Fund |
Notes to Financial Statements (unaudited)
- continued | June 30, 2013
that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. ASU 2011-11 requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the financial position; and disclose instruments and transactions subject to an agreement similar to a master netting agreement. ASU 2011-11 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. Management has evaluated the implications of ASU 2011-11 and its impact on financial statement disclosures and adopted the disclosures required by this update.
Investment Transactions and Investment Income:
Investment transactions are recorded on a trade date basis. The cost of investments sold is determined on the identified cost basis for financial statement and federal income tax purposes. Dividend income is recorded on the ex-dividend date and interest income is recorded on an accrual basis.
Clarification of Investment Strategy:
The Fund may invest up to 15% in foreign securities. Foreign securities are defined as securities that are: (i) issued by companies organized outside the U.S. or whose principal operations are outside the U.S., or issued by foreign governments or their agencies or instrumentalities ("foreign issuers"); (ii) principally traded outside of the U.S.; and (iii) quoted or denominated in a foreign currency ("non-dollar securities").
3. Investment Advisory Agreement and Service Agreement
Pursuant to an Investment Advisory Agreement between the Fund and the Adviser, the Adviser, under the supervision of the Fund’s Board of Trustees, provides a continuous investment program for the Fund’s portfolio; provides investment research and makes and executes recommendations for the purchase and sale of securities; and provides certain facilities and personnel, including officers required for the Fund’s administrative management and compensation of all officers and trustees of the Fund who are its affiliates. For these services, the Fund pays the Adviser a fee, payable monthly, in an amount equal to 0.80% of the Fund’s average daily managed assets on the first $500 million of assets, and 0.60% of the Fund’s average daily managed assets on assets in excess of $500 million.
Under a separate Services Agreement, the Adviser also provides or arranges to have a third party provide the Fund with such services as it may require in the ordinary conduct of its business, to the extent that the Adviser (or any other person acting as the Fund’s investment adviser) has not undertaken to provide such services. In this regard, the Adviser shall provide, or arrange to have a third party provide, among other things, the following services to the Fund: compliance services, transfer agent services, custodial services, fund administration services, fund accounting services, and such other services necessary in order to conduct the Fund’s business. In addition, the Adviser shall arrange and pay for independent public accounting services for audit and tax purposes, legal services, the services of independent trustees of the Fund, a fidelity bond, and directors and officers/errors and omissions insurance. In exchange for these services, the Fund pays the Adviser a service fee, payable monthly, equal to 0.18% of the Fund’s average daily managed assets. Not included in service fee (and, therefore, the responsibility of the Fund) are (i) any fees and expenses relating to portfolio holdings (e.g., brokerage commissions, interest on loans, etc.); (ii) extraordinary and non-recurring fees and expenses (e.g., costs relating to any line of credit the Fund maintains with its custodian or another entity for investment purposes); or (iii) the costs associated with investment by the Fund in other investment companies (i.e., acquired fund fees).
4. Federal Income Taxes
No provision is made for federal income taxes since it is the intention of the Fund to comply with the provisions of Subchapter M of the Internal Revenue Code available to investment companies and to make the requisite distribution to shareholders of taxable income which will be sufficient to relieve it from all or substantially all federal income taxes.
The Regulated Investment Company ("RIC") Modernization Act of 2010 (the "Modernization Act") modernizes several
14
MSP
| Madison Strategic Sector Premium Fund |
Notes to Financial Statements (unaudited)
- continued | June 30, 2013
of the federal income and excise tax provisions related to RICs. The Modernization Act contains simplification provisions effective for taxable years beginning after December 22, 2010, which are aimed at preventing disqualification of a RIC for "inadvertent" failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act allows capital losses to be carried forward indefinitely, and retain the character of the original loss, exempts RICs from the preferential dividend rule, and repealed the 60-day designation requirement for certain types of pay-through income
and gains.
As of December 31, 2012, for federal income tax purposes, the Fund utilized $23,748 of capital loss carryforwards ("CLCF"). The Fund had a remaining CLCF of $16,470,588 which can be used to offset future capital gains. These CLCFs will expire on December 31, 2018. Per the Modernization Act, CLCFs generated in taxable years beginning after December 22, 2010 must be fully used before CLCFs generated in taxable years prior to December 22, 2010; therefore, CLCFs available as of the report date may expire unused.
Information on the tax components of investments, excluding option contracts, as of June 30, 2013, is as follows:
Cost
|
$
87,971,069
|
Gross appreciation
|
2,105,198
|
Gross (depreciation)
|
|
Net depreciation
|
|
Net realized gains or losses may differ for financial reporting and tax purposes primarily as a result of the deferral of losses relating to wash sale transactions and post-October transactions.
For the years ended December 31, 2012 and 2011, the tax character of distributions paid to shareholders was $190,630 ordinary income and $5,839,593 return of capital for 2012 and $5,495,249 ordinary income and $534,974 return of capital for 2011.
5. Investment Transactions
During the six-months ended June 30, 2013, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $50,676,750 and $54,833,477, respectively. No long-term U.S. Government securities were purchased or sold during the period.
6. Covered Call and Put Options
An option on a security is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the security underlying the option at a specified exercise or "strike" price. The writer of an option on a security has an obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price (in the case of a call) or pay the exercise price upon delivery of the underlying security (in the case of a put).
There are several risks associated with transactions in options on securities. As the writer of a covered call option, the Fund forgoes, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call but has retained the risk of loss should the price of the underlying security decline. A writer of a put option is exposed to the risk of loss if the fair value of the underlying securities declines, but profits only to the extent of the premium received if the underlying security increases in value. The writer of an option has no control over the time when it may be required to fill its obligation as writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price.
The number of call options the Fund can write (sell) is limited by the amount of equity securities the Fund holds in its portfolio. The Fund will not write (sell) "naked" or uncovered call options. The Fund seeks to produce a high level of current income and gains generated from option writing premiums and, to a lesser extent, from dividends.
When an option is written, the premium received is recorded as an asset with an equal liability and is subsequently marked-to-market to reflect the current market value of the option written. These liabilities are reflected as options written in the Statement of Assets and
15
MSP
| Madison Strategic Sector Premium Fund |
Notes to Financial Statements (unaudited)
- concluded | June 30, 2013
Liabilities. Premiums received from writing options which expire unexercised are recorded on the expiration date as a realized gain. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transactions, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether there has been a realized gain or loss.
Transactions in option contracts during the six-months ended June 30, 2013, were as follows:
|
|
|
Options outstanding, beginning of period
|
12,272
|
$2,555,680
|
Options written during the period
|
23,235
|
3,803,082
|
Options closed during the period
|
(6,721)
|
(1,023,140)
|
Options exercised during the period
|
(11,443)
|
(2,090,198)
|
Options expired during the period
|
|
|
Options outstanding, end of period
|
|
|
7. Capital
The Fund has an unlimited amount of common shares, $0.01 par value, authorized and 5,798,291 shares issued and outstanding as of June 30, 2013.
In connection with the Fund’s dividend reinvestment plan, there were no shares reinvested for the six-months ended June 30, 2013 and years ended December 31, 2012 and 2011, respectively.
8. Indemnifications
In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is dependent upon claims that may be made against the Fund in the future and, therefore cannot be estimated; however, the risk of material loss from such claims is considered remote.
9. Discussion of Risks
Please see the Fund’s original prospectus for a discussion of risks associated with investing in the Fund. While investments in stocks and bonds have been keystones in wealth building and management for a hundred years, at times they’ve produced surprises for even the savviest investors. Those who enjoyed growth and income of their investments were rewarded for the risks they took by investing in the markets. When calamity strikes, the word "security" itself seems a misnomer. Although the Adviser seeks to appropriately address and manage the risks identified and disclosed to you in connection with the management of the securities in the Fund, you should understand that the very nature of the securities markets includes the possibility that there are additional risks that we did not contemplate for any number of reasons. We seek to identify all applicable risks and then appropriately address them, take appropriate action to reasonably manage them and, of course, to make you aware of them so you can determine if they exceed your risk tolerance. Nevertheless, the often volatile nature of the securities markets and the global economy in which we work suggests that the risk of the unknown is something you must consider in connection with your investments in securities. Unforeseen events have the potential to upset the best laid plans, and could, under certain circumstances produce a material loss of the value of some or all of the securities we manage for you in the Fund.
10. Subsequent Events
Management has evaluated all subsequent events through the date the financial statements were available for issue. No events have taken place that meet the definition of a subsequent event that requires adjustment to, or disclosure in, the financial statements.
16
MSP
| Madison Strategic Sector Premium Fund | June 30, 2013
Other Information
Additional Information.
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that from time to time, the Fund may purchase shares of its common stock in the open market at prevailing market prices.
Forward-Looking Statement Disclosure.
One of our most important responsibilities as investment company managers is to communicate with shareholders in an open and direct manner. Some of our comments in our letters to shareholders are based on current management expectations and are considered "forward-looking statements." Actual future results, however, may prove to be different from our expectations. You can identify forward-looking statements by words such as estimate, may, will, expect, believe, plan and other similar terms. We cannot promise future returns. Our opinions are a reflection of our best judgment at the time this report is compiled, and we disclaim any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise.
N-Q Disclosure.
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information about the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-1520. Form N-Q and other information about the Fund are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. Copies of this information may also be obtained, upon payment of a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, DC 20549-0102. Finally, you may call the Fund at 800-368-3195 if you would like a copy of Form N-Q and we will mail one to you at no charge.
17
MSP
| Madison Strategic Sector Premium Fund | June 30, 2013
Dividend Reinvestment Plan
(unaudited)
Unless the registered owner of common shares elects to receive cash by contacting Computershare Trust Company, Inc. (the "Plan Administrator"), all dividends declared on common shares of the Fund will be automatically reinvested by the Plan Administrator in the Fund’s Dividend Reinvestment Plan (the "Plan") in additional common shares of the Fund. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Some brokers may automatically elect to receive cash on your behalf and may re-invest that cash in additional common shares of the Fund for you. If you wish for all dividends declared on your common shares of the Fund to be automatically reinvested pursuant to the Plan, please contact your broker.
The Plan Administrator will open an account for each common shareholder under the Plan in the same name in which such common shareholder’s common shares are registered. Whenever the Fund declares a dividend or other distribution (together, a "Dividend") payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in common shares. The common shares will be acquired by the Plan Administrator for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized common shares from the Fund ("Newly Issued Common Shares") or (ii) by purchase of outstanding common shares on the open market ("Open-Market Purchases") on the New York Stock Exchange or elsewhere. If, on the payment date for any Dividend, the closing market price plus estimated brokerage commission per common share is equal to or greater than the net asset value per common share, the Plan Administrator will invest the Dividend amount in Newly Issued Common Shares on behalf of the participants. The number of Newly Issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the net asset value per common share on the payment date; provided that, if the net asset value is less than or equal to 95% of the closing market value on the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per common share on the payment date. If, on the payment date for any Dividend, the net asset value per common share is greater than the closing market value plus estimated brokerage commission, the Plan Administrator will invest the Dividend amount in common shares acquired on behalf of the participants in Open-Market Purchases.
If, before the Plan Administrator has completed its Open-Market Purchases, the market price per common share exceeds the net asset value per common share, the average per common share purchase price paid by the Plan Administrator may exceed the net asset value of the common shares, resulting in the acquisition of fewer common shares than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Administrator may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at net asset value per common share at the close of business on the Last Purchase Date provided that, if the net asset value is less than or equal to 95% of the then current market price per common share; the dollar amount of the Dividend will be divided by 95% of the market price on the payment date.
The Plan Administrator maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Common shares in the account of each Plan participant will be held by the Plan Administrator on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will
18
MSP
| Madison Strategic Sector Premium Fund |
Dividend Reinvestment Plan (unaudited)
- concluded | June 30, 2013
forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instruction of the participants. There will be no brokerage charges with respect to common shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commission incurred in connection with Open-Market Purchases. The automatic reinvestment of Dividends will not relieve participants of any Federal, state or local income tax that may be payable (or required to be withheld) on such Dividends.
The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.
All correspondence or questions concerning the Plan should be directed to the Plan Administrator, Computershare Trust Company, N.A., 250 Royall St., Canton, MA 02021, Phone Number: 1-781-575-4523.
19