KAYNE ANDERSON MLP INVESTMENT COMPANY
FINANCIAL HIGHLIGHTS
(amounts in 000s, except share and per share amounts)
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For the
Six Months
Ended
May 31,
2013
(Unaudited)
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For the Fiscal Year
Ended
November 30,
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For the
Period
September 28,
2004
(1)
through
November 30,
2004
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2012
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2011
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2010
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2009
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2008
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2007
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2006
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2005
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Per Share of Common Stock
(2)
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Net asset value, beginning of period
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$
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28.51
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$
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27.01
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$
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26.67
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$
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20.13
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$
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14.74
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$
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30.08
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$
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28.99
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$
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25.07
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$
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23.91
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$
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23.70
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(3)
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Net investment income (loss)
(4)
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(0.37
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)
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(0.71
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(0.69
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(0.44
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(0.33
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(0.73
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(0.73
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(0.62
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(0.17
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0.02
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Net realized and unrealized gain (loss)
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5.84
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4.27
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2.91
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8.72
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7.50
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(12.56
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)
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3.58
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6.39
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2.80
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0.19
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Total income (loss) from operations
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5.47
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3.56
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2.22
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8.28
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7.17
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(13.29
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2.85
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5.77
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2.63
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0.21
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Dividends and distributions auction rate preferred
(4)(5)
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(0.01
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(0.10
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(0.10
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(0.10
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(0.05
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Common dividends
(5)
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(1.12
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(1.54
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(1.26
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(0.84
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(0.09
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(0.13
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Common distributions return of
capital
(5)
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(0.55
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(0.72
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(1.08
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(1.94
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(1.99
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(1.84
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(1.75
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(1.37
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Total dividends and distributions common
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(1.12
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(2.09
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(1.98
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(1.92
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(1.94
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(1.99
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(1.93
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(1.75
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(1.50
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Underwriting discounts and offering costs on the issuance of auction rate preferred stock
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(0.03
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Effect of issuance of common stock
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0.05
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0.02
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0.09
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0.16
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0.12
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0.26
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0.11
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Effect of shares issued in reinvestment of distributions
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0.01
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0.01
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0.02
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0.05
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0.04
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0.01
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Total capital stock transactions
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0.05
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0.03
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0.10
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0.18
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0.17
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0.04
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0.27
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0.08
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Net asset value, end of period
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$
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32.91
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$
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28.51
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$
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27.01
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$
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26.67
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$
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20.13
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$
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14.74
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$
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30.08
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$
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28.99
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$
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25.07
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$
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23.91
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Market value per share of common stock, end of period
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$
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37.21
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$
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31.13
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$
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28.03
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$
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28.49
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$
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24.43
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$
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13.37
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$
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28.27
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$
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31.39
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$
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24.33
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$
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24.90
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Total investment return based on common stock market
value
(6)
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23.8
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%
(7)
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19.3
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%
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5.6
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%
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26.0
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%
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103.0
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%
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(48.8
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)%
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(4.4
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)%
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37.9
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%
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3.7
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%
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(0.4
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)%
(7)
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See accompanying notes to financial statements.
13
KAYNE ANDERSON MLP INVESTMENT COMPANY
FINANCIAL HIGHLIGHTS
(amounts in 000s, except share and per share amounts)
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For the
Six Months
Ended
May 31,
2013
(Unaudited)
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For the Fiscal Year
Ended
November 30,
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|
For the
Period
September 28,
2004
(1)
through
November 30,
2004
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2012
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2011
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2010
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2009
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2008
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2007
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2006
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2005
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Supplemental Data and Ratios
(8)
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Net assets applicable to common stockholders, end of period
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$
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3,071,978
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$
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2,520,821
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$
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2,029,603
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$
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1,825,891
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$
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1,038,277
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$
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651,156
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$
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1,300,030
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$
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1,103,392
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$
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932,090
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$
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792,836
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Ratio of expenses to average net assets
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Management fees
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2.4
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%
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2.4
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%
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2.4
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%
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2.1
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%
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2.1
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%
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2.2
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%
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2.3
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%
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3.2
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%
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1.2
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%
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0.8
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%
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Other expenses
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0.1
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0.2
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0.2
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|
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0.2
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0.4
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0.3
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0.2
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0.2
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0.3
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0.4
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Subtotal
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2.5
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|
|
2.6
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|
|
2.6
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2.3
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|
2.5
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2.5
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|
2.5
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3.4
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1.5
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1.2
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Interest expense and distributions on mandatory redeemable preferred stock
(4)
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2.4
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2.4
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2.3
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|
1.9
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|
2.5
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3.4
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2.3
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1.7
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|
|
0.8
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|
|
0.0
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Income tax expense
|
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|
21.6
|
|
|
|
7.2
|
|
|
|
4.8
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|
|
|
20.5
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|
|
|
25.4
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|
|
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|
(9)
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|
3.5
|
|
|
|
13.8
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|
|
|
6.4
|
|
|
|
3.5
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|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total expenses
|
|
|
26.5
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%
|
|
|
12.2
|
%
|
|
|
9.7
|
%
|
|
|
24.7
|
%
|
|
|
30.4
|
%
|
|
|
5.9
|
%
|
|
|
8.3
|
%
|
|
|
18.9
|
%
|
|
|
8.7
|
%
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Ratio of net investment income/(loss) to average net
assets
(4)
|
|
|
(2.5
|
)%
|
|
|
(2.5
|
)%
|
|
|
(2.5
|
)%
|
|
|
(1.8
|
)%
|
|
|
(2.0
|
)%
|
|
|
(2.8
|
)%
|
|
|
(2.3
|
)%
|
|
|
(2.4
|
)%
|
|
|
(0.7
|
)%
|
|
|
0.5
|
%
|
Net increase/(decrease) in net assets to common stockholders resulting from operations to average net
assets
|
|
|
17.9
|
%
(7)
|
|
|
11.6
|
%
|
|
|
7.7
|
%
|
|
|
34.6
|
%
|
|
|
43.2
|
%
|
|
|
(51.2
|
)%
|
|
|
7.3
|
%
|
|
|
21.7
|
%
|
|
|
10.0
|
%
|
|
|
0.9
|
%
(7)
|
Portfolio turnover rate
|
|
|
10.9
|
%
(7)
|
|
|
20.4
|
%
|
|
|
22.3
|
%
|
|
|
18.7
|
%
|
|
|
28.9
|
%
|
|
|
6.7
|
%
|
|
|
10.6
|
%
|
|
|
10.0
|
%
|
|
|
25.6
|
%
|
|
|
11.8
|
%
(7)
|
Average net assets
|
|
$
|
2,761,654
|
|
|
$
|
2,346,249
|
|
|
$
|
1,971,469
|
|
|
$
|
1,432,266
|
|
|
$
|
774,999
|
|
|
$
|
1,143,192
|
|
|
$
|
1,302,425
|
|
|
$
|
986,908
|
|
|
$
|
870,672
|
|
|
$
|
729,280
|
|
Senior unsecured notes outstanding, end of period
|
|
|
1,000,000
|
|
|
|
890,000
|
|
|
|
775,000
|
|
|
|
620,000
|
|
|
|
370,000
|
|
|
|
304,000
|
|
|
|
505,000
|
|
|
|
320,000
|
|
|
|
260,000
|
|
|
|
|
|
Credit facility outstanding, end of period
|
|
|
53,000
|
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,000
|
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
Auction rate preferred stock, end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
|
|
Mandatory redeemable preferred stock, end of period
|
|
|
399,000
|
|
|
|
374,000
|
|
|
|
260,000
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares of common stock outstanding
|
|
|
90,771,113
|
|
|
|
82,809,687
|
|
|
|
72,661,162
|
|
|
|
60,762,952
|
|
|
|
46,894,632
|
|
|
|
43,671,666
|
|
|
|
41,134,949
|
|
|
|
37,638,314
|
|
|
|
34,077,731
|
|
|
|
33,165,900
|
|
Asset coverage of total debt
(10)
|
|
|
429.6
|
%
|
|
|
418.5
|
%
|
|
|
395.4
|
%
|
|
|
420.3
|
%
|
|
|
400.9
|
%
|
|
|
338.9
|
%
|
|
|
328.4
|
%
|
|
|
449.7
|
%
|
|
|
487.3
|
%
|
|
|
|
|
Asset coverage of total leverage (debt and preferred
stock)
(11)
|
|
|
311.6
|
%
|
|
|
296.5
|
%
|
|
|
296.1
|
%
|
|
|
334.1
|
%
|
|
|
333.3
|
%
|
|
|
271.8
|
%
|
|
|
292.0
|
%
|
|
|
367.8
|
%
|
|
|
378.2
|
%
|
|
|
|
|
Average amount of borrowings per share of common stock during the period
(2)
|
|
$
|
10.96
|
|
|
$
|
10.80
|
|
|
$
|
10.09
|
|
|
$
|
7.70
|
|
|
$
|
6.79
|
|
|
$
|
11.52
|
|
|
$
|
12.14
|
|
|
$
|
8.53
|
|
|
$
|
5.57
|
|
|
|
|
|
See accompanying notes to financial statements.
14
KAYNE ANDERSON MLP INVESTMENT COMPANY
FINANCIAL HIGHLIGHTS
(amounts in 000s, except share and per share amounts)
(1)
|
Commencement of operations.
|
(2)
|
Based on average shares of common stock outstanding.
|
(3)
|
Initial public offering price of $25.00 per share less underwriting discounts of $1.25 per share and offering costs of $0.05 per share.
|
(4)
|
Distributions on the Companys mandatory redeemable preferred stock are treated as an operating expense under GAAP and are included in the calculation of net
investment income (loss). See Note 2 Significant Accounting Policies.
|
(5)
|
The information presented for the six months ended May 31, 2013 is an estimate of the characterization of the distribution paid and is based on the Companys
operating results during the period. The information presented for each of the other periods is a characterization of the total distributions paid to preferred stockholders and common stockholders as either a dividend (eligible to be treated as
qualified dividend) or a distribution (return of capital) and is based on the Companys earnings and profits.
|
(6)
|
Total investment return is calculated assuming a purchase of common stock at the market price on the first day and a sale at the current market price on the last day of
the period reported. The calculation also assumes reinvestment of distributions at actual prices pursuant to the Companys dividend reinvestment plan.
|
(8)
|
Unless otherwise noted, ratios are annualized.
|
(9)
|
For the fiscal year ended November 30, 2008, the Company accrued deferred income tax benefits of $339,991 (29.7% of average net assets) primarily related to
unrealized losses on investments. Realization of a deferred tax benefit was dependent on whether there would be sufficient taxable income of the appropriate character within the carryforward periods to realize a portion or all of the deferred tax
benefit. Because it could not have been predicted whether the Company would incur a benefit in the future, a deferred income tax expense of 0% was assumed.
|
(10)
|
Calculated pursuant to section 18(a)(1)(A) of the 1940 Act. Represents the value of total assets less all liabilities not represented by Senior Notes or any other
senior securities representing indebtedness and mandatory redeemable preferred stock divided by the aggregate amount of Senior Notes and any other senior securities representing indebtedness. Under the 1940 Act, the Company may not declare or make
any distribution on its common stock nor can it incur additional indebtedness if, at the time of such declaration or incurrence, its asset coverage with respect to senior securities representing indebtedness would be less than 300%. For purposes of
this test, the Credit Facility is considered a senior security representing indebtedness.
|
(11)
|
Calculated pursuant to section 18(a)(2)(A) of the 1940 Act. Represents the value of total assets less all liabilities not represented by Senior Notes, any other
senior securities representing indebtedness and preferred stock divided by the aggregate amount of Senior Notes, any other senior securities representing indebtedness and preferred stock. Under the 1940 Act, the Company may not declare or make any
distribution on its common stock nor can it issue additional preferred stock if at the time of such declaration or issuance, its asset coverage with respect to all senior securities would be less than 200%. In addition to the limitations under the
1940 Act, the Company, under the terms of its mandatory redeemable preferred stock, would not be able to declare or pay any distributions on its common stock if such declaration would cause its asset coverage with respect to all senior securities to
be less than 225%. For purposes of these tests, the Credit Facility is considered a senior security representing indebtedness.
|
See accompanying notes to financial statements.
15
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
Kayne Anderson MLP
Investment Company (the Company) was organized as a Maryland corporation on June 4, 2004, and is a non-diversified closed-end management investment company registered under the Investment Company Act of 1940, as amended (the
1940 Act). The Companys investment objective is to obtain a high after-tax total return by investing at least 85% of its net assets plus any borrowings (total assets) in energy-related master limited partnerships and
their affiliates (collectively, MLPs), and in other companies that, as their principal business, operate assets used in the gathering, transporting, processing, storing, refining, distributing, mining or marketing of natural gas, natural
gas liquids (including propane), crude oil, refined petroleum products or coal (collectively with MLPs, Midstream Energy Companies). The Company commenced operations on September 28, 2004. The Companys shares of common stock
are listed on the New York Stock Exchange, Inc. (NYSE) under the symbol KYN.
2. Significant
|
Accounting Policies
|
A.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ
materially from those estimates.
B.
Reclassifications
Certain prior year amounts in the accompanying financial
statements have been reclassified to conform to the current years presentation.
C.
Cash and Cash Equivalents
Cash and cash equivalents include short-term, liquid investments with an original maturity of three months or less and include money market fund accounts.
D.
Calculation of Net Asset Value
The Company determines its net asset value no less frequently than as of the last day of each month based on the most recent close of regular session
trading on the NYSE, and makes its net asset value available for publication monthly. Currently, the Company calculates its net asset value on a weekly basis. Net asset value is computed by dividing the value of the Companys assets (including
accrued interest and distributions and current and deferred income tax assets), less all of its liabilities (including accrued expenses, distributions payable, current and deferred accrued income taxes, and any borrowings) and the liquidation value
of any outstanding preferred stock, by the total number of common shares outstanding.
E.
Investment Valuation
Readily marketable portfolio securities listed on any exchange other than the NASDAQ Stock Market, Inc. (NASDAQ) are valued, except as indicated below, at the last sale price on the business day as of which such value is
being determined. If there has been no sale on such day, the securities are valued at the mean of the most recent bid and ask prices on such day. Securities admitted to trade on the NASDAQ are valued at the NASDAQ official closing price. Portfolio
securities traded on more than one securities exchange are valued at the last sale price on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities.
Equity securities traded in the over-the-counter market, but excluding securities admitted to trading on the NASDAQ, are valued at the
closing bid prices. Debt securities that are considered bonds are valued by using the mean of the bid and ask prices provided by an independent pricing service. For debt securities that are considered bank loans, the fair market value is determined
by the mean of the bid and ask prices provided by the agent or syndicate bank or principal market maker. When price quotes are not available, fair market value will be based on prices of comparable securities. In certain cases, the Company may not
be able to purchase or sell debt securities at the quoted prices due to the lack of liquidity for these securities.
16
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
Exchange-traded options and futures contracts are valued at the last sales price at the close of trading in the market where such contracts are principally traded or, if there was no sale on the
applicable exchange on such day, at the mean between the quoted bid and ask price as of the close of such exchange.
The
Company holds securities that are privately issued or otherwise restricted as to resale. For these securities, as well as any other portfolio security held by the Company for which reliable market quotations are not readily available, valuations are
determined in a manner that most accurately reflects fair value of the security on the valuation date. Unless otherwise determined by the Board of Directors, the following valuation process is used for such securities:
|
|
|
Investment Team Valuation.
The applicable investments are valued by senior professionals of KA Fund Advisors,
LLC (KAFA or the Adviser) who are responsible for the portfolio investments. The investments will be valued monthly with new investments valued at the time such investment was made.
|
|
|
|
Investment Team Valuation Documentation.
Preliminary valuation conclusions will be determined by senior management
of KAFA. Such valuations and supporting documentation is submitted to the Valuation Committee (a committee of the Companys Board of Directors) or the Board of Directors on a quarterly basis, or if the investment is new, at the end of the month
in which the investment was made.
|
|
|
|
Valuation Committee.
The Valuation Committee meets to consider the valuations submitted by KAFA (1) at the
end of the month for new investments, if any, and (2) at the end of each quarter for existing investments. Between meetings of the Valuation Committee, a senior officer of KAFA is authorized to make valuation determinations. All valuation
determinations of the Valuation Committee are subject to ratification by the Board of Directors at its next regular meeting.
|
|
|
|
Valuation Firm.
No less than quarterly, a third-party valuation firm engaged by the Board of Directors reviews the
valuation methodologies and calculations employed for these securities.
|
|
|
|
Board of Directors Determination.
The Board of Directors meets quarterly to consider the valuations provided by
KAFA and the Valuation Committee, if applicable, and ratify valuations for the applicable securities. The Board of Directors considers the report provided by the third-party valuation firm in reviewing and determining in good faith the fair value of
the applicable portfolio securities.
|
At May 31, 2013, the Company held 5.6% of its net assets applicable to
common stockholders (3.1% of total assets) in securities valued at fair value pursuant to procedures adopted by the Board of Directors, with fair value of $173,513. See Note 3 Fair Value and
Note 7 Restricted Securities.
F.
Repurchase Agreements
From time to time, the Company
has agreed to purchase securities from financial institutions subject to the sellers agreement to repurchase them at an agreed-upon time and price (repurchase agreements). The financial institutions with whom the Company enters
into repurchase agreements are banks and broker/dealers which KAFA considers creditworthy. The seller under a repurchase agreement is required to maintain the value of the securities as collateral, subject to the agreement, at not less than the
repurchase price plus accrued interest. KAFA monitors daily the mark-to-market of the value of the collateral, and, if necessary, requires the seller to maintain additional securities so that the value of the collateral is not less than the
repurchase price. Default by or bankruptcy of the seller would, however, expose the Company to possible loss because of adverse market action or delays in connection with the disposition of the underlying securities. As of May 31, 2013, the Company
did not have any repurchase agreements.
G.
Short Sales
A short sale is a transaction in which the Company
sells securities it does not own (but has borrowed) in anticipation of or to hedge against a decline in the market price of the securities. To complete a short sale, the Company may arrange through a broker to borrow the securities to be delivered
to the buyer. The proceeds received by the Company for the short sale are retained by the broker until the Company replaces the
17
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
borrowed securities. In borrowing the securities to be delivered to the buyer, the Company becomes obligated to replace the securities borrowed at their market price at the time of replacement,
whatever the price may be.
The Companys short sales, if any, are fully collateralized. The Company is required to
maintain assets consisting of cash or liquid securities equal in amount to the liability created by the short sale. These assets are adjusted daily to reflect changes in the value of the securities sold short. The Company is liable for any dividends
or distributions paid on securities sold short.
The Company may also sell short against the box (
i.e.,
the
Company enters into a short sale as described above while holding an offsetting long position in the security which it sold short). If the Company enters into a short sale against the box, the Company would segregate an equivalent amount
of securities owned as collateral while the short sale is outstanding. During the six months ended May 31, 2013, the Company did not engage in any short sales.
H.
Security Transactions
Security transactions are accounted for on the date these securities are purchased or sold (trade date). Realized gains and losses are reported on an identified
cost basis.
I.
Return of Capital Estimates
Distributions received from the Companys investments in
MLPs and other securities generally are comprised of income and return of capital. The Company records investment income and return of capital based on estimates made at the time such distributions are received. The Company estimates that 90% of the
MLP distributions received will be treated as a return of capital. Such estimates for MLPs and other investments are based on historical information available from each investment and other industry sources. These estimates may subsequently be
revised based on information received from MLPs after their tax reporting periods are concluded.
The return of capital portion
of the distributions is a reduction to investment income, results in an equivalent reduction in the cost basis of the associated investments and increases net realized gains (losses) and net change in unrealized gains (losses). If the cash
distributions received by the Company exceed its cost basis (
i.e
. its cost basis is zero), the distributions are treated as realized gains.
The Company includes all cash distributions received on its Statement of Operations and reduces its investment income by (i) the estimated return of capital and (ii) the distributions in excess of cost
basis. For the six months ended May 31, 2013, the Company had $121,261 of return of capital and $1,506 of cash distributions that were in excess of cost basis, which were treated as realized gains.
In accordance with GAAP, the return of capital cost basis reductions for the Companys MLP investments are limited to the total
amount of the cash distributions received from such investments. For income tax purposes, the cost basis reductions for the Companys MLP investments typically exceed cash distributions received from such investments due to allocated losses
from these investments. See Note 6 Income Taxes. The following table sets forth the Companys estimated total return of capital portion of the distributions received from its investments.
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
May
31,
2013
|
|
|
Six Months
Ended
May
31,
2013
|
|
Return of capital portion of dividends and distributions received
|
|
|
87
|
%
|
|
|
86
|
%
|
Return of capital attributable to net realized gains (losses)
|
|
$
|
16,156
|
|
|
$
|
21,442
|
|
Return of capital attributable to net change in unrealized gains (losses)
|
|
|
48,268
|
|
|
|
99,819
|
|
|
|
|
|
|
|
|
|
|
Total return of capital
|
|
$
|
64,424
|
|
|
$
|
121,261
|
|
|
|
|
|
|
|
|
|
|
J.
Investment Income
The Company records dividends and distributions on the ex-dividend
date. Interest income is recognized on the accrual basis, including amortization of premiums and accretion of discounts. When
18
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
investing in securities with payment in-kind interest, the Company will accrue interest income during the life of the security even though it will not be receiving cash as the interest is
accrued. To the extent that interest income to be received is not expected to be realized, a reserve against income is established.
Debt securities that the Company may hold will typically be purchased at a discount or premium to the par value of the security. The non-cash accretion of a discount to par value increases interest
income while the non-cash amortization of a premium to par value decreases interest income. The accretion of a discount and amortization of a premium are based on the effective interest method. The amount of these non-cash adjustments, if any, can
be found in the Companys Statement of Cash Flows. The non-cash accretion of a discount increases the cost basis of the debt security, which results in an offsetting unrealized loss. The non-cash amortization of a premium decreases the cost
basis of the debt security, which results in an offsetting unrealized gain. To the extent that par value is not expected to be realized, the Company discontinues accruing the non-cash accretion of the discount to par value of the debt security.
The Company receives paid-in-kind dividends in the form of additional units from its investment in Buckeye Partners, L.P.
(Class B Units), Crestwood Midstream Partners LP (Class C Units), Enbridge Energy Management, L.L.C. and Kinder Morgan Management, LLC. During the three and six months ended May 31, 2013, the Company received the following paid-in-kind
dividends.
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
May
31,
2013
|
|
|
Six Months
Ended
May
31,
2013
|
|
Buckeye Partners, L.P. (Class B Units)
|
|
$
|
995
|
|
|
$
|
1,956
|
|
Crestwood Midstream Partners LP (Class C Units)
(1)
|
|
|
|
|
|
|
612
|
|
Enbridge Energy Management, L.L.C.
|
|
|
101
|
|
|
|
190
|
|
Kinder Morgan Management, LLC
|
|
|
5,794
|
|
|
|
11,267
|
|
|
|
|
|
|
|
|
|
|
Total paid-in-kind dividends
|
|
$
|
6,890
|
|
|
$
|
14,025
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Converted to common units on April 1, 2013.
|
K.
Distributions to Stockholders
Distributions to common stockholders are recorded on the ex-dividend date. Distributions to mandatory redeemable preferred stockholders are accrued on a
daily basis as described in Note 12 Preferred Stock. As required by the Distinguishing Liabilities from Equity topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification, the Company
includes the accrued distributions on its mandatory redeemable preferred stock as an operating expense due to the fixed term of this obligation. For tax purposes the payments made to the holders of the Companys mandatory redeemable preferred
stock are treated as dividends or distributions.
The estimated characterization of the distributions paid to preferred and
common stockholders will be either a dividend (eligible to be treated as qualified dividend income) or distribution (return of capital). This estimate is based on the Companys operating results during the period. The actual characterization of
the preferred and common stock distributions made during the current year will not be determinable until after the end of the fiscal year when the Company can determine earnings and profits and, therefore, the characterization may differ from the
preliminary estimates.
L.
Partnership Accounting Policy
The Company records its pro-rata share of the
income (loss) and capital gains (losses), to the extent of distributions it has received, allocated from the underlying partnerships and adjusts the cost basis of the underlying partnerships accordingly. These amounts are included in the
Companys Statement of Operations.
M.
Federal and State Income Taxation
The Company, as a corporation,
is obligated to pay federal and state income tax on its taxable income. The Company invests its assets primarily in MLPs, which generally are treated as partnerships for federal income tax purposes. As a limited partner in the MLPs, the Company
includes its allocable
19
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
share of the MLPs taxable income in computing its own taxable income. Deferred income taxes reflect (i) taxes on unrealized gains (losses), which are attributable to the temporary
difference between fair value and tax basis, (ii) the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and
(iii) the net tax benefit of accumulated net operating and capital losses. To the extent the Company has a deferred tax asset, consideration is given as to whether or not a valuation allowance is required. The need to establish a valuation
allowance for deferred tax assets is assessed periodically by the Company based on the Income Tax Topic of the FASB Accounting Standards Codification that it is more likely than not that some portion or all of the deferred tax asset will not be
realized. In the assessment for a valuation allowance, consideration is given to all positive and negative evidence related to the realization of the deferred tax asset. This assessment considers, among other matters, the nature, frequency and
severity of current and cumulative losses, forecasts of future profitability (which are highly dependent on future cash distributions from the Companys MLP holdings), the duration of statutory carryforward periods and the associated risk that
operating and capital loss carryforwards may expire unused.
The Company may rely to some extent on information provided by the
MLPs, which may not necessarily be timely, to estimate taxable income allocable to the MLP units held in the portfolio and to estimate the associated deferred tax liability. Such estimates are made in good faith. From time to time, as new
information becomes available, the Company modifies its estimates or assumptions regarding the deferred tax liability.
The
Companys policy is to classify interest and penalties associated with underpayment of federal and state income taxes, if any, as income tax expense on its Statement of Operations. For the three and six months ended May 31, 2013, the
Company did not have any interest or penalties associated with the underpayment of any income taxes. The tax years from 2009 through 2012 remain open and subject to examination by tax jurisdictions.
N.
Derivative Financial Instruments
The Company may utilize derivative financial instruments in its operations.
Interest rate swap contracts.
The Company may use hedging techniques such as interest
rate swaps to mitigate potential interest rate risk on a portion of the Companys leverage. Such interest rate swaps would principally be used to protect the Company against higher costs on its leverage resulting from increases in interest
rates. The Company does not hedge any interest rate risk associated with portfolio holdings. Interest rate transactions the Company uses for hedging purposes expose it to certain risks that differ from the risks associated with its portfolio
holdings. A decline in interest rates may result in a decline in the value of the swap contracts, which, everything else being held constant, would result in a decline in the net assets of the Company. In addition, if the counterparty to an interest
rate swap defaults, the Company would not be able to use the anticipated net receipts under the interest rate swap to offset its cost of financial leverage.
Interest rate swap contracts are recorded at fair value with changes in value during the reporting period, and amounts accrued under the agreements, included as unrealized gains or losses in the Statement
of Operations. Monthly cash settlements under the terms of the interest rate swap agreements or termination payments are recorded as realized gains or losses in the Statement of Operations. The Company generally values its interest rate swap
contracts based on dealer quotations, if available, or by discounting the future cash flows from the stated terms of the interest rate swap agreement by using interest rates currently available in the market. See
Note 8 Derivative Financial Instruments.
Option contracts.
The
Company is also exposed to financial market risks including changes in the valuations of its investment portfolio. The Company may purchase or write (sell) call options. A call option on a security is a contract that gives the holder of the option,
in return for a premium, the right to buy from the writer of the option the security underlying the option at a specified exercise price at any time during the term of the option.
The Company would realize a gain on a purchased call option if, during the option period, the value of such securities exceeded the sum of
the exercise price, the premium paid and transaction costs; otherwise the
20
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
Company would realize either no gain or a loss on the purchased call option. The Company may also purchase put option contracts. If a purchased put option is exercised, the premium paid increases
the cost basis of the securities sold by the Company.
The Company may also write (sell) call options with the purpose of
generating realized gains or reducing its ownership of certain securities. If the Company writes a call option on a security, the Company has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise
price. The Company will only write call options on securities that the Company holds in its portfolio (
i.e
., covered calls).
When the Company writes a call option, an amount equal to the premium received by the Company is recorded as a liability and is subsequently adjusted to the current fair value of the option written.
Premiums received from writing options that expire unexercised are treated by the Company on the expiration date as realized gains from investments. If the Company repurchases a written call option prior to its exercise, the difference between the
premium received and the amount paid to repurchase the option is treated as a realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Company has
realized a gain or loss. The Company, as the writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. See Note 8 Derivative Financial Instruments.
O.
Indemnifications
Under the Companys organizational documents, its officers and
directors are indemnified against certain liabilities arising out of the performance of their duties to the Company. In addition, in the normal course of business, the Company enters into contracts that provide general indemnification to other
parties. The Companys maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred, and may not occur. However, the Company has not had prior claims
or losses pursuant to these contracts and expects the risk of loss to be remote.
The Fair Value
Measurement Topic of the FASB Accounting Standards Codification (ASC 820) defines fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants under
current market conditions at the measurement date. As required by ASC 820, the Company has performed an analysis of all assets and liabilities (other than deferred taxes) measured at fair value to determine the significance and character of all
inputs to their fair value determination. Inputs are the assumptions, along with considerations of risk, that a market participant would use to value an asset or a liability. In general, observable inputs are based on market data that is readily
available, regularly distributed and verifiable that the Company obtains from independent, third-party sources. Unobservable inputs are developed by the Company based on its own assumptions of how market participants would value an asset or a
liability.
In May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-04 Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs which amends ASC 820. The amended guidance clarifies the wording used to describe many requirements in accounting literature for fair value measurement and
disclosure to establish consistency between U.S. GAAP and International Financial Reporting Standards (IFRSs). The Company adopted ASU No. 2011-04 in the fiscal second quarter of 2012.
ASU No. 2011-04 requires the inclusion of additional disclosures on assumptions used by the Company to determine fair value. Specifically,
for assets measured at fair value using significant unobservable inputs (Level 3), ASU No. 2011-04 requires that the Company (i) describe the valuation process, (ii) disclose quantitative information about unobservable inputs and (iii) provide
a qualitative discussion about the sensitivity of the fair value measurement to changes in the unobservable inputs and inter-relationships between the inputs.
21
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories.
|
|
|
Level 1
Valuations based on quoted unadjusted prices for identical instruments in active markets traded on a national exchange
to which the Company has access at the date of measurement.
|
|
|
|
Level 2
Valuations based on 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 Companys own assumptions that market participants would use to price the asset or liability based on the best available information.
|
The following table presents the Companys assets and liabilities measured at fair value on a recurring basis at May 31, 2013, and
the Company presents these assets by security type and description on its Schedule of Investments or on its Statement of Assets and Liabilities. Note that the valuation levels below are not necessarily an indication of the risk or liquidity
associated with the underlying investment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Quoted Prices in
Active
Markets
(Level 1)
|
|
|
Prices with
Other
Observable Inputs
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
|
|
Assets at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments
|
|
$
|
5,505,103
|
|
|
$
|
5,331,590
|
|
|
$
|
|
|
|
$
|
173,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call option contracts written
|
|
$
|
405
|
|
|
$
|
|
|
|
$
|
405
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended May 31, 2013, there were no transfers between Level 1 and Level 2.
As of May 31, 2013, the Company had senior unsecured notes (Senior Notes) outstanding with aggregate principal
amount of $1,000,000 and 15,960,000 shares of mandatory redeemable preferred stock outstanding with a total liquidation value of $399,000. See Note 11 Senior Unsecured Notes and Note 12 Preferred Stock.
Of the $399,000 of mandatory redeemable preferred stock, Series E ($120,000 liquidation value) and Series F ($125,000 liquidation value)
are publicly traded on the NYSE. As a result, the Company categorizes these series of mandatory redeemable preferred stock as Level 1. The remaining three series of preferred stock the Series A, B and C mandatory redeemable preferred stock
($154,000 aggregate liquidation value) and all of the senior unsecured notes were issued in private placements to institutional investors and are not listed on any exchange or automated quotation system. As such, the Company categorizes all
of the Senior Notes ($1,000,000 aggregate principal amount) and Series A, B and C of the mandatory redeemable preferred stock ($154,000 liquidation value) as Level 3 and determines the fair value of these instruments based on estimated market yields
and credit spreads for comparable instruments with similar maturity, terms and structure.
The Company records these
instruments on its Statement of Assets and Liabilities at principal amount or liquidation value. As of May 31, 2013, the estimated fair values of these leverage instruments are as follows.
|
|
|
|
|
|
|
|
|
Instrument
|
|
Principal Amount/
Liquidation
Value
|
|
|
Fair Value
|
|
Senior Notes
|
|
$
|
1,000,000
|
|
|
$
|
1,044,600
|
|
Mandatory redeemable preferred stock
|
|
$
|
399,000
|
|
|
$
|
414,428
|
|
22
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
The following tables present the Companys assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended May 31,
2013.
|
|
|
|
|
Three Months Ended May 31, 2013
|
|
Equity
Investments
|
|
Balance February 28, 2013
|
|
$
|
193,278
|
|
Purchases
|
|
|
25,024
|
|
Issuances
|
|
|
995
|
|
Transfers out
|
|
|
(67,896
|
)
|
Realized gains(losses)
|
|
|
|
|
Unrealized gains, net
|
|
|
22,112
|
|
|
|
|
|
|
Balance May 31, 2013
|
|
$
|
173,513
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended May 31, 2013
|
|
Equity
Investments
|
|
Balance November 30, 2012
|
|
$
|
129,311
|
|
Purchases
|
|
|
65,024
|
|
Issuances
|
|
|
2,568
|
|
Transfers out
|
|
|
(67,896
|
)
|
Realized gains (losses)
|
|
|
|
|
Unrealized gains, net
|
|
|
44,506
|
|
|
|
|
|
|
Balance May 31, 2013
|
|
$
|
173,513
|
|
|
|
|
|
|
The $22,112 and $44,506 of unrealized gains presented in the tables above for the three and six months
ended May 31, 2013 relate to investments that are still held at May 31, 2013, and the Company includes these unrealized gains on the Statement of Operations Net Change in Unrealized Gains (Losses).
The purchases of $25,024 and $65,024 for the three and six months ended May 31, 2013 relate to the Companys investment in Capital
Products Partners L.P. (Class B Units) and Inergy Midstream, L.P. (Common Units). The issuances of $995 and $2,568 for the three and six months ended May 31, 2013 relate to additional units received from Buckeye Partners, L.P. (Class B Units)
and Crestwood Midstream Partners LP (Class C Units). The Companys investments in the Class C Units of Crestwood Midstream Partners LP and common units of Inergy Midstream, L.P. became readily marketable during the fiscal second quarter of
2013 and are noted as transfers out of Level 3 in the tables above.
Valuation Techniques and Unobservable Inputs
Unless otherwise determined by the Board of Directors, the Company values its private investments in public equity
(PIPE) investments that are convertible into or otherwise will become publicly tradeable (
e.g.,
through subsequent registration or expiration of a restriction on trading) based on the market value of the publicly-traded security
less a discount. The discount is initially equal to the discount negotiated at the time the Company agrees to a purchase price. To the extent that such securities are convertible or otherwise become publicly traded within a time frame that may be
reasonably determined, this discount will be amortized on a straight line basis over such estimated time frame.
The
Companys investments in private companies are typically valued using one of or a combination of the following valuation techniques: (i) analysis of valuations for publicly-traded companies in a similar line of business (public
company analysis), (ii) analysis of valuations for comparable M&A transactions (M&A analysis) and (iii) discounted cash flow analysis. The table entitled Quantitative Table for Valuation Techniques
outlines the valuation technique(s) used for each asset category.
23
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
The public company analysis utilizes valuation ratios (commonly referred to as trading multiples) for publicly-traded companies in a similar line of business as the portfolio company to estimate the fair
value of such portfolio company. Typically, the Companys analysis focuses on the ratio of enterprise value (EV) to earnings before interest expense, income tax expense, depreciation and amortization (EBITDA), which is
referred to as an EV/EBITDA multiple and the ratio of equity market value (EMV) to distributable cash flow (DCF), which is referred to as a EMV/DCF multiple. For these analyses, the Company utilizes projections provided by
external sources (
i.e.
, third party equity research estimates) as well as internally developed estimates, and focuses on EBITDA and DCF projections for the current calendar year and next two calendar years. Based on this data, the Company
selects a range of multiples for each metric given the trading multiples of similar publicly-traded companies and applies such multiples to the portfolio companys EBITDA and DCF to estimate the portfolio companys enterprise value and
equity value. When calculating these values, the Company applies a discount to the portfolio companys estimated equity value for the lack of marketability in the portfolio companys securities.
The M&A analysis utilizes valuation multiples for historical M&A transactions for companies or assets in a similar line of
business as the portfolio company to estimate the fair value of such portfolio company. Typically, the Companys analysis focuses on EV/EBITDA multiples. The Company selects a range of multiples based on EV/EBITDA multiples for similar M&A
transactions and applies such ranges to the portfolio companys EBITDA to estimate the portfolio companys enterprise value. The Company utilizes projections provided by external sources as well as internally developed estimates to
calculate the valuation multiples of the comparable M&A transactions.
The discounted cash flow analysis is used to
estimate the equity value for the portfolio company based on estimated cash flows of such portfolio company. Such cash flows include a terminal value for the portfolio company, which is typically based on an EV/EBITDA multiple. A present value of
these cash flows is determined by using estimated discount rates (based on the Companys estimate for required equity rate of return for such portfolio company).
Under these valuation techniques, the Company estimates operating results of its portfolio companies (including EBITDA and DCF). These estimates utilize unobservable inputs such as historical operating
results, which may be unaudited, and projected operating results, which will be based on operating assumptions for such portfolio company. These estimates will be sensitive to changes in assumptions specific to such portfolio company as well as
general assumptions for the industry. Other unobservable inputs utilized in the valuation techniques outlined above include: discounts for lack of marketability, selection of publicly-traded companies, selection of similar M&A transactions,
selected ranges for valuation multiples and expected required rates of return discount rates.
Changes in EBITDA multiples, DCF
multiples, or discount rates, each in isolation, may change the fair value of the Companys portfolio investments. Generally, a decrease in EBITDA multiples or DCF multiples, or an increase in discount rates will result in a decrease in the
fair value of the Companys portfolio investments.
One of the Companys private investments is Class B units of
Capital Product Partners L.P. (CPLP). The Class B units are convertible preferred units (convertible on a one-for-one basis into common units) and are senior to CPLPs common units in terms of liquidation preference and priority of
distributions. The Companys Board of Directors has determined that it is appropriate to value the Class B units using a convertible pricing model, which takes into account the units preference relative to the common units as well as its
conversion features. This model takes into account the attributes of the Class B units (preferred dividend, conversion ratio and call features) to determine the estimated value of such units. In using this model, the Company estimates (i) the credit
spread for CPLPs preferred units, which is based on credit spreads for companies in a similar line of business as CPLP and (ii) the expected volatility for CPLPs common units, which is based on CPLPs historical volatility as well
as historical volatility for publicly-traded companies in a similar line of business as CPLP. The Company applies a discount to the value derived from the convertible pricing model to account for an expected discount in market prices for convertible
securities relative to the values calculated using pricing models.
24
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Companys investments may fluctuate from period
to period. Additionally, the fair value of the Companys investments may differ from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately
realize.
The following table summarizes the significant unobservable inputs that the Company uses to value its portfolio
investments categorized as Level 3 as of May 31, 2013:
Quantitative Table for Valuation Techniques
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range
|
|
|
Weighted
Average
(1)
|
|
Assets at Fair Value
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Low
|
|
|
|
|
High
|
|
|
Equity securities of
|
|
$
|
62,191
|
|
|
- Discount to publicly-traded
|
|
- Current discount
|
|
|
2.7%
|
|
|
|
|
|
2.7%
|
|
|
|
2.7%
|
|
public companies
|
|
|
|
|
|
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(PIPE)
|
|
|
|
|
|
|
|
- Remaining restricted period
|
|
|
122 days
|
|
|
|
|
|
122 days
|
|
|
|
122 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities of
|
|
|
29,743
|
|
|
- Convertible pricing model
|
|
- Credit spread
|
|
|
6.8%
|
|
|
|
|
|
7.8%
|
|
|
|
7.3%
|
|
public companies not valued based on a discount to market value
|
|
|
|
|
|
|
|
- Volatility
- Discount for
marketability
|
|
|
27.5%
4.0%
|
|
|
|
|
|
32.5%
4.0%
|
|
|
|
30.0%
4.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities of
|
|
|
79,229
|
|
|
- Public company analysis
|
|
- Selected valuation multiples:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
private companies
|
|
|
|
|
|
|
|
EV / 2013E EBITDA
|
|
|
22.0x
|
|
|
|
|
|
24.0x
|
|
|
|
23.0x
|
|
common units /
|
|
|
|
|
|
|
|
EV / 2014E EBITDA
|
|
|
19.0x
|
|
|
|
|
|
21.5x
|
|
|
|
20.3x
|
|
common equity
|
|
|
|
|
|
|
|
- Discount for marketability
|
|
|
12.5%
|
|
|
|
|
|
12.5%
|
|
|
|
12.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- M&A analysis
|
|
- Selected EV / EBITDA
multiples
|
|
|
20.0x
|
|
|
|
|
|
22.0x
|
|
|
|
21.0x
|
|
|
|
|
|
|
|
- Discounted cash flow
|
|
- Equity rate of return
|
|
|
17.0%
|
|
|
|
|
|
19.0%
|
|
|
|
18.0%
|
|
|
|
|
|
|
|
|
|
Equity securities of
|
|
|
2,350
|
|
|
- Discounted cash flow
|
|
- Equity rate of return
|
|
|
25%
|
|
|
|
|
|
25%
|
|
|
|
25%
|
|
private trust
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
173,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Weighted average based on the fair value of investments in each category.
|
The
Companys investment objective is to obtain a high after-tax total return by investing at least 85% of total assets in MLPs and other Midstream Energy Companies. Under normal circumstances, the Company intends to invest at least 80% of its
total assets in MLPs, which are subject to certain risks, including supply and demand risk, depletion and exploration risk, commodity pricing risk, acquisition risk, and the risk associated with the hazards inherent in midstream energy industry
activities. A substantial portion of the cash flow received by the Company is derived from investment in equity securities of MLPs and other Midstream Energy Companies. The amount of cash that an MLP or other Midstream Energy Company has available
for distributions and the tax character of such distributions are dependent upon the amount of cash generated by such portfolio companys operations. The Company may invest up to 15% of its total assets in any single issuer and a decline in
value of the securities of such an issuer could significantly impact the Companys net asset value. The Company may invest up to 20% of its total assets in debt securities of MLPs and other Midstream Energy Companies, which may include
below investment grade debt securities. The Company may, for defensive purposes, temporarily invest all or a significant portion of its assets in investment grade securities, short-term debt securities and cash or cash equivalents. To the extent the
Company uses this strategy, it may not achieve its investment objectives.
25
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
5. Agreements
|
and Affiliations
|
A.
Administration Agreement
The Company has entered into an administration agreement with Ultimus Fund Solutions, LLC (Ultimus), which may be amended from time to time. Pursuant to the administration agreement,
Ultimus will provide certain administrative services for the Company. The administration agreement has automatic one-year renewals unless earlier terminated by either party as provided under the terms of the administration agreement.
B.
Investment Management Agreement
The Company has entered into an investment management agreement with KAFA under
which KAFA, subject to the overall supervision of the Companys Board of Directors, manages the day-to-day operations of, and provides investment advisory services to, the Company. For providing these services, KAFA receives a management fee
from the Company. On September 20, 2012, the Company renewed its agreement with KAFA for a period of one year. The agreement will expire on December 11, 2013 and may be renewed annually thereafter upon approval of the Companys Board of
Directors (including a majority of the Companys directors who are not interested persons of the Company, as such term is defined in the 1940 Act). In conjunction with this renewal, the Company entered into a one year agreement with
KAFA to waive a portion of its management fee, which agreement may be renewed annually. Effective October 1, 2012, KAFA agreed to waive 0.125% of its 1.375% management fee on average total assets in excess of $4,500,000 (thereby reducing the
management fee to 1.25% on average total assets in excess of $4,500,000). For the six months ended May 31, 2013, the Company paid management fees at an annual rate of 1.359% of the Companys average quarterly total assets.
For purposes of calculating the management fee the average total assets for each quarterly period are determined by averaging the total
assets at the last day of that quarter with the total assets at the last day of the prior quarter. The Companys total assets are equal to the Companys gross asset value (which includes assets attributable to or proceeds from the
Companys use of preferred stock, commercial paper or notes and other borrowings and excludes any net deferred tax asset), minus the sum of the Companys accrued and unpaid dividends and distributions on any outstanding common stock and
accrued and unpaid dividends and distributions on any outstanding preferred stock and accrued liabilities (other than liabilities associated with borrowing or leverage by the Company and any accrued taxes, including, a deferred tax liability).
Liabilities associated with borrowing or leverage by the Company include the principal amount of any borrowings, commercial paper or notes issued by the Company, the liquidation preference of any outstanding preferred stock, and other liabilities
from other forms of borrowing or leverage such as short positions and put or call options held or written by the Company.
C.
Portfolio Companies
From time to time, the Company may control or may be an affiliate of one or more of its portfolio companies, as each of these terms is defined in the 1940 Act. In general, under the
1940 Act, the Company would be presumed to control a portfolio company if the Company and its affiliates owned 25% or more of its outstanding voting securities and would be an affiliate of a portfolio company if the Company
and its affiliates owned 5% or more of its outstanding voting securities. The 1940 Act contains prohibitions and restrictions relating to transactions between investment companies and their affiliates (including the Companys investment
adviser), principal underwriters and affiliates of those affiliates or underwriters.
The Company believes that there are
several factors that determine whether or not a security should be considered a voting security in complex structures such as limited partnerships of the kind in which the Company invests. The Company also notes that the Securities and
Exchange Commission (the SEC) staff has issued guidance on the circumstances under which it would consider a limited partnership interest to constitute a voting security. Under most partnership agreements, the management of the
partnership is vested in the general partner, and the limited partners, individually or collectively, have no rights to manage or influence management of the partnership through such activities as participating in the selection of the managers or
the board of the limited partnership or the general partner. As a result, the Company believes that many of the limited partnership interests in which it invests should not be considered voting securities. However, it is possible that the SEC staff
may consider the limited partner interests the Company holds in certain limited partnerships to be voting
26
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
securities. If such a determination were made, the Company may be regarded as a person affiliated with and controlling the issuer(s) of those securities for purposes of Section 17 of the 1940
Act.
In making such a determination as to whether to treat any class of limited partnership interests the Company holds as a
voting security, the Company considers, among other factors, whether or not the holders of such limited partnership interests have the right to elect the board of directors of the limited partnership or the general partner. If the holders of such
limited partnership interests do not have the right to elect the board of directors, the Company generally has not treated such security as a voting security. In other circumstances, based on the facts and circumstances of those partnership
agreements, including the right to elect the directors of the general partner, the Company has treated those securities as voting securities and, therefore, as affiliates. If the Company does not consider the security to be a voting security, it
will not consider such partnership to be an affiliate unless the Company and its affiliates own more than 25% of the outstanding securities of such partnership.
There is no assurance that the SEC staff will not consider that other limited partnership securities that the Company owns and does not treat as voting securities are, in fact, voting securities for the
purposes of Section 17 of the 1940 Act. If such determination were made, the Company will be required to abide by the restrictions on control or affiliate transactions as proscribed in the 1940 Act. The Company or any
portfolio company that it controls, and its affiliates, may from time to time engage in certain of such joint transactions, purchases, sales and loans in reliance upon and in compliance with the conditions of certain exemptive rules promulgated by
the SEC. The Company cannot make assurances, however, that it would be able to satisfy the conditions of these rules with respect to any particular eligible transaction, or even if the Company were allowed to engage in such a transaction, that the
terms would be more or as favorable to the Company or any company that it controls as those that could be obtained in arms length transaction. As a result of these prohibitions, restrictions may be imposed on the size of positions that may be
taken for the Company or on the type of investments that it could make.
As of May 31, 2013, the Company believes that MarkWest
Energy Partners, L.P. and PVR Partners, L.P. meet the criteria described above and are therefore considered affiliates of the Company.
Clearwater Trust
At May 31, 2013, the Company held approximately 63% of the Clearwater Trust. The Company believes that it is an affiliate of the trust under the 1940
Act by virtue of its majority interest in the trust.
Emerge Energy Services LP
Kevin S. McCarthy is
Chairman of the Board of Directors and President and Chief Executive Officer of the Company. Mr. McCarthy also serves as a director on the board of Emerge Energy Services LP (Emerge). Various affiliated funds managed by KAFA, including
the Company, own units of Emerge. The Company believes that it is an affiliate of Emerge under the 1940 Act by virtue of Mr. McCarthys participation on the board of Emerge.
Plains All American GP LLC and Plains All American Pipeline, L.P.
Robert V. Sinnott is Chief Executive Officer of
Kayne Anderson Capital Advisors, L.P. (KACALP), the managing member of KAFA. Mr. Sinnott also serves as a director on the board of Plains All American GP LLC (Plains GP), the general partner of Plains All American
Pipeline, L.P. (PAA). Members of senior management of KACALP and KAFA and various affiliated funds managed by KACALP, including the Company, own units of Plains GP. The Company believes that it is an affiliate of Plains GP and PAA under
the 1940 Act by virtue of (i) the Companys and other affiliated Kayne Anderson funds ownership interests in Plains GP and (ii) Mr. Sinnotts participation on the board of Plains GP.
The Companys
taxes include current and deferred income taxes. Current income taxes reflect the estimated income tax liability of the Company as of a measurement date. Deferred income taxes reflect (i) taxes on net unrealized gains, which are attributable to
the difference between fair market value and tax basis, (ii) the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
27
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
purposes and the amounts used for income tax purposes and (iii) the net tax benefit of accumulated net operating losses.
At May 31, 2013, the Company had a current income tax asset of $107. The receivable is a result of the Companys estimated income tax
payments being greater than its tax liability at May 31, 2013. Components of the Companys tax assets and liabilities as of May 31, 2013 are as follows:
|
|
|
|
|
Current tax asset
|
|
$
|
107
|
|
|
|
Deferred tax assets:
|
|
|
|
|
Net operating loss carryforwards Federal
|
|
|
54,839
|
|
Net operating loss carryforwards State
|
|
|
4,661
|
|
AMT credit carryforwards
|
|
|
1,687
|
|
Deferred tax liabilities:
|
|
|
|
|
Net unrealized gains on investment securities, interest rate swap contracts and option contracts
|
|
|
(1,012,162
|
)
|
|
|
|
|
|
Total deferred tax liability, net
|
|
$
|
(950,975
|
)
|
|
|
|
|
|
At May 31, 2013, the Company had federal net operating loss carryforwards of $161,650 (deferred tax asset
of $54,839). Realization of the deferred tax assets and net operating loss carryforwards are dependent, in part, on generating sufficient taxable income prior to expiration of the loss carryforwards. The federal net operating loss carryforwards have
expiration dates ranging from 2026 to 2032. In addition, the Company has state net operating loss carryforwards of $151,466 (deferred tax asset of $4,661). These state net operating loss carryforwards have expiration dates ranging from the current
year to 2033.
At May 31, 2013, the Company had alternative minimum tax (ATM) credit carryforwards of $1,687. AMT
credits can be used to reduce regular tax to the extent that regular tax exceeds the AMT in a future year. AMT credits do not expire.
The Company primarily invests in equity securities issued by MLPs, which generally are treated as partnerships for federal income tax purposes. As a limited partner of MLPs, the Company includes its
allocable share of such MLPs income or loss in computing its own taxable income or loss. Additionally, for income tax purposes, the Company reduces the cost basis of its MLP investments by the cash distributions received, and increases or
decreases the cost basis of its MLP investments by its allocable share of the MLPs income or loss. During the fiscal year ended November 30, 2012, the Company received $212,803 in aggregate cash distributions from its MLP investments and
reduced its cost basis, for income tax purposes, by the same amount. During the same period, the Company had additional cost basis reductions of $140,863 due to net allocated losses from its MLP investments.
Although the Company currently has a net deferred tax liability, it periodically reviews the recoverability of its deferred tax assets
based on the weight of available evidence. When assessing the recoverability of its deferred tax assets, significant weight is given to the effects of potential future realized and unrealized gains on investments and the period over which these
deferred tax assets can be realized, as the expiration dates for the federal capital and operating loss carryforwards range from five to nineteen years.
Based on the Companys assessment, it has determined that it is more likely than not that its deferred tax assets will be realized through future taxable income of the appropriate character.
Accordingly, no valuation allowance has been established for the Companys deferred tax assets. The Company will continue to assess the need for a valuation allowance in the future. Significant declines in the fair value of its portfolio of
investments may change the Companys assessment regarding the recoverability of its deferred tax assets and may result in a valuation allowance. If a valuation allowance is required to reduce any deferred tax asset in the future, it could have
a material impact on the Companys net asset value and results of operations in the period it is recorded.
28
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
Total income taxes were different from the amount computed by applying the federal statutory income tax rate of 35% to the net investment loss and realized and unrealized gains (losses) on investments
before taxes for the three and six months ended May 31, 2013, as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
May 31,
2013
|
|
|
Six Months
Ended
May 31,
2013
|
|
Computed federal income tax at 35%
|
|
$
|
130,907
|
|
|
$
|
277,420
|
|
State income tax, net of federal tax
|
|
|
7,609
|
|
|
|
16,057
|
|
Non-deductible distributions on mandatory redeemable preferred stock and other
|
|
|
2,232
|
|
|
|
3,537
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
140,748
|
|
|
$
|
297,014
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2013, the cost basis of investments for federal income tax purposes was $2,811,889. The cost
basis for federal income tax purposes is $363,587 lower than the cost basis for GAAP reporting purposes primarily due to the additional basis adjustments attributable to the Companys share of the allocated losses from its MLP investments. At
May 31, 2013, gross unrealized appreciation and depreciation of investments and options for federal income tax purposes were as follows:
|
|
|
|
|
Gross unrealized appreciation of investments (including options)
|
|
$
|
2,702,903
|
|
Gross unrealized depreciation of investments (including options)
|
|
|
(9,727
|
)
|
|
|
|
|
|
Net unrealized appreciation of investments
|
|
$
|
2,693,176
|
|
|
|
|
|
|
From time to
time, certain of the Companys 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 Companys investments have restrictions such as lock-up agreements that preclude the Company from offering these securities for public sale.
At May 31, 2013, the Company held the following restricted investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
Acquisition
Date
|
|
Type of
Restriction
|
|
Number of
Units,
Principal ($)
(in 000s)
|
|
|
Cost Basis
|
|
|
Fair
Value
|
|
|
Fair Value
Per Unit
|
|
|
Percent
of Net
Assets
|
|
|
Percent
of Total
Assets
|
|
Level 3 Investments
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buckeye Partners, L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Units
|
|
(2)
|
|
(3)
|
|
|
967
|
|
|
$
|
45,006
|
|
|
$
|
62,191
|
|
|
$
|
64.33
|
|
|
|
2.0
|
%
|
|
|
1.1
|
%
|
Clearwater Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Interest
|
|
(4)
|
|
(5)
|
|
|
N/A
|
|
|
|
3,266
|
|
|
|
2,350
|
|
|
|
N/A
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Capital Products Partners L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Units
|
|
(2)
|
|
(3)
|
|
|
3,030
|
|
|
|
23,943
|
|
|
|
29,743
|
|
|
|
9.82
|
|
|
|
0.9
|
|
|
|
0.5
|
|
Plains All American GP LLC
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Units
|
|
(2)
|
|
(5)
|
|
|
24
|
|
|
|
29,412
|
|
|
|
79,229
|
|
|
|
3,261
|
|
|
|
2.6
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
101,627
|
|
|
$
|
173,513
|
|
|
|
|
|
|
|
5.6
|
%
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Securities are valued using inputs reflecting the Companys own assumptions as more fully described in Note 2 Significant Accounting Policies and Note 3
Fair Value.
|
(2)
|
Securities acquired at various dates during the six months ended May 31, 2013 and/or in prior fiscal years.
|
(3)
|
Unregistered or restricted security of a publicly-traded company.
|
(4)
|
On September 28, 2010, the Bankruptcy Court finalized the plan of reorganization of Clearwater Natural Resources, LP (Clearwater). As part of the plan
of reorganization, the Company received an interest in the Clearwater Trust consisting of cash and a coal royalty interest as consideration for its unsecured loan to Clearwater. See Note 5 Agreements and Affiliations.
|
29
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
(5)
|
Unregistered security of a private company or trust.
|
(6)
|
In determining the fair value for Plains GP, the Companys valuation is based on publicly available information. Robert V. Sinnott, the CEO of KACALP, is a member
of Plains GPs board of directors (see Note 5 Agreements and Affiliations). Certain private investment funds managed by KACALP may value its investment in Plains GP based on non-public information, and, as a result, such
valuation may be different than the Companys valuation.
|
8. Derivative
|
Financial Instruments
|
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 May 31, 2013 is indicative of
the volume of this type of option activity during the period. See Note 2 Significant Accounting Policies.
Option Contracts
Transactions in option contracts for the three and six months ended May 31, 2013 were as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, 2013
|
|
Number of
Contracts
|
|
|
Premium
|
|
Call Options Written
|
|
|
|
|
|
|
|
|
Options outstanding at February 28, 2013
|
|
|
11,750
|
|
|
$
|
1,217
|
|
Options written
|
|
|
11,754
|
|
|
|
1,122
|
|
Options subsequently repurchased
(1)
|
|
|
(9,710
|
)
|
|
|
(790
|
)
|
Options exercised
|
|
|
(10,594
|
)
|
|
|
(1,182
|
)
|
Options expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at May 31, 2013
(2)
|
|
|
3,200
|
|
|
$
|
367
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The price at which the Company subsequently repurchased the options was $179 which resulted in net realized gains of $611.
|
(2)
|
The percentage of total investments subject to call options written was 0.3% at May 31, 2013.
|
|
|
|
|
|
|
|
|
|
Six Months Ended May 31, 2013
|
|
Number of
Contracts
|
|
|
Premium
|
|
Call Options Written
|
|
|
|
|
|
|
|
|
Options outstanding at November 30, 2012
|
|
|
4,100
|
|
|
$
|
406
|
|
Options written
|
|
|
30,884
|
|
|
|
2,971
|
|
Options subsequently repurchased
(1)
|
|
|
(13,410
|
)
|
|
|
(1,171
|
)
|
Options exercised
|
|
|
(18,374
|
)
|
|
|
(1,839
|
)
|
Options expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at May 31, 2013
|
|
|
3,200
|
|
|
$
|
367
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The price at which the Company subsequently repurchased the options was $374, which resulted in net realized gains of $797.
|
Interest Rate Swap Contracts
The Company may enter into interest rate swap contracts to
partially hedge itself from increasing expense on its leverage resulting from increasing interest rates. At the time the interest rate swap contracts reach their scheduled termination, there is a risk that the Company would not be able to obtain a
replacement transaction or that the terms of the replacement transaction would not be as favorable as on the expiring transaction. In addition, if the Company is required to terminate any swap contract early, then the Company could be required to
make a termination payment. As of May 31, 2013, the Company did not have any interest rate swap contracts outstanding.
30
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
During the first and second quarters of fiscal 2013, the Company entered into interest rate swap contracts ($175,000 notional amount) in anticipation of a private placement of Senior Notes. On March 22,
2013, these interest rate swap contracts were terminated in conjunction with the pricing of the private placement, and resulted in a $32 realized gain.
The following table sets forth the fair value of the Companys derivative instruments on the Statement of Assets and Liabilities.
|
|
|
|
|
|
|
Derivatives Not Accounted for as
Hedging Instruments
|
|
Statement of Assets and Liabilities Location
|
|
Fair Value as of
May
31, 2013
|
|
Call options
|
|
Call option contracts written
|
|
$
|
(405
|
)
|
The following tables set forth the effect of the Companys derivative instruments on the Statement of
Operations.
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Accounted for
as
Hedging Instruments
|
|
Location of Gains/(Losses) on
Derivatives Recognized in Income
|
|
For the Three Months Ended
May 31, 2013
|
|
|
|
Net
Realized
Gains/(Losses)
on
Derivatives
Recognized
in
Income
|
|
|
Change
in
Unrealized
Gains/(Losses)
on
Derivatives
Recognized
in
Income
|
|
Call options
|
|
Options
|
|
$
|
611
|
|
|
$
|
545
|
|
Interest rate swap contracts
|
|
Interest rate swap contracts
|
|
|
32
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
643
|
|
|
$
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Accounted for
as
Hedging Instruments
|
|
Location of Gains/(Losses) on
Derivatives Recognized in Income
|
|
For the Six Months Ended
May 31, 2013
|
|
|
|
Net
Realized
Gains/(Losses)
on
Derivatives
Recognized
in
Income
|
|
|
Change
in
Unrealized
Gains/(Losses)
on
Derivatives
Recognized
in
Income
|
|
Call options
|
|
Options
|
|
$
|
797
|
|
|
$
|
(65
|
)
|
Interest rate swap contracts
|
|
Interest rate swap contracts
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
829
|
|
|
$
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
9. Investment
|
Transactions
|
For the six
months ended May 31, 2013, the Company purchased and sold securities in the amounts of $856,122 and $545,213 (excluding short-term investments and options).
At May
31, 2013, the Company had a $250,000 unsecured revolving credit facility (the Credit Facility). On March 5, 2013, the Company renewed its Credit Facility that was scheduled to mature on June 11, 2013 with a syndicate of
lenders. The new Credit Facility has a three-year commitment, maturing on March 4, 2016, and the total commitment amount was increased from $200,000 to $250,000. Under the new Credit Facility, the interest rate varies between LIBOR plus 1.60%
and LIBOR plus 2.25%, depending on the Companys asset coverage ratios (prior to renewal, the interest rate varied between LIBOR plus 1.75% and LIBOR plus 3.00%). The Company pays a fee of 0.30% per annum on any unused amounts of the new
Credit Facility (the fee was 0.40% per annum prior to the renewal).
31
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
For the six months ended May 31, 2013, the average amount outstanding under the Credit Facility was $77,912 with a weighted average interest rate of 2.07%. As of May 31, 2013, the Company had $53,000
outstanding under the Credit Facility at an interest rate of 1.80%. See Financial Highlights for the Companys asset coverage ratios under the 1940 Act.
11. Senior
|
Unsecured Notes
|
At May
31, 2013, the Company had $1,000,000 aggregate principal amount of Senior Notes outstanding. On April 16, 2013, the Company executed a definitive agreement for the private placement of $235,000 of Senior Notes. In conjunction with the execution
of this agreement, on April 16, 2013, the Company received funding of $100,000 (the April Funding) of the $235,000 total offering amount. Proceeds from the April Funding were used to make new portfolio investments and to repay
borrowings on the Credit Facility. The remaining $125,000 was funded on June 13, 2013 and was used to refinance $125,000 principal amount of the Series K Senior Notes which would have matured on June 19, 2013. See Note 14
Subsequent Events.
The table below sets forth the key terms of each series of the Senior Notes at May 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
|
|
Principal
Outstanding,
November 30,
2012
|
|
|
Principal
Issued
|
|
|
Principal
Outstanding,
May 31,
2013
|
|
|
Estimated
Fair Value
May 31,
2013
|
|
|
Fixed/Floating
Interest Rate
|
|
Maturity
Date
|
K
|
|
$
|
125,000
|
|
|
|
|
|
|
$
|
125,000
|
|
|
$
|
128,700
|
|
|
5.991%
|
|
6/19/13
|
M
|
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
|
|
63,500
|
|
|
4.560%
|
|
11/4/14
|
N
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
50,400
|
|
|
3-month LIBOR + 185 bps
|
|
11/4/14
|
O
|
|
|
65,000
|
|
|
|
|
|
|
|
65,000
|
|
|
|
69,000
|
|
|
4.210%
|
|
5/7/15
|
P
|
|
|
45,000
|
|
|
|
|
|
|
|
45,000
|
|
|
|
45,200
|
|
|
3-month LIBOR + 160 bps
|
|
5/7/15
|
Q
|
|
|
15,000
|
|
|
|
|
|
|
|
15,000
|
|
|
|
15,600
|
|
|
3.230%
|
|
11/9/15
|
R
|
|
|
25,000
|
|
|
|
|
|
|
|
25,000
|
|
|
|
26,600
|
|
|
3.730%
|
|
11/9/17
|
S
|
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
|
|
65,600
|
|
|
4.400%
|
|
11/9/20
|
T
|
|
|
40,000
|
|
|
|
|
|
|
|
40,000
|
|
|
|
45,100
|
|
|
4.500%
|
|
11/9/22
|
U
|
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
|
|
60,000
|
|
|
3-month LIBOR + 145 bps
|
|
5/26/16
|
V
|
|
|
70,000
|
|
|
|
|
|
|
|
70,000
|
|
|
|
74,300
|
|
|
3.710%
|
|
5/26/16
|
W
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
|
|
109,800
|
|
|
4.380%
|
|
5/26/18
|
X
|
|
|
14,000
|
|
|
|
|
|
|
|
14,000
|
|
|
|
14,300
|
|
|
2.460%
|
|
5/3/15
|
Y
|
|
|
20,000
|
|
|
|
|
|
|
|
20,000
|
|
|
|
20,600
|
|
|
2.910%
|
|
5/3/17
|
Z
|
|
|
15,000
|
|
|
|
|
|
|
|
15,000
|
|
|
|
15,600
|
|
|
3.390%
|
|
5/3/19
|
AA
|
|
|
15,000
|
|
|
|
|
|
|
|
15,000
|
|
|
|
15,600
|
|
|
3.560%
|
|
5/3/20
|
BB
|
|
|
35,000
|
|
|
|
|
|
|
|
35,000
|
|
|
|
36,500
|
|
|
3.770%
|
|
5/3/21
|
CC
|
|
|
76,000
|
|
|
|
|
|
|
|
76,000
|
|
|
|
79,400
|
|
|
3.950%
|
|
5/3/22
|
DD
|
|
|
|
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
34,800
|
|
|
2.740%
|
|
4/16/19
|
EE
|
|
|
|
|
|
|
24,000
|
|
|
|
24,000
|
|
|
|
23,800
|
|
|
3.200%
|
|
4/16/21
|
FF
|
|
|
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
29,600
|
|
|
3.570%
|
|
4/16/23
|
GG
|
|
|
|
|
|
|
21,000
|
|
|
|
21,000
|
|
|
|
20,600
|
|
|
3.670%
|
|
4/16/25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
890,000
|
|
|
$
|
110,000
|
|
|
$
|
1,000,000
|
|
|
$
|
1,044,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holders of the fixed rate Senior Notes are entitled to receive cash interest payments semi-annually (on
June 19 and December 19) at the fixed rate. Holders of the floating rate Senior Notes are entitled to receive cash interest payments quarterly (on March 19, June 19, September 19 and December 19) at the floating rate. During
the six months ended May 31, 2013, the weighted average interest rate on the outstanding Senior Notes was 3.88%.
As
of May 31, 2013, each series of Senior Notes were rated AAA by FitchRatings. In the event the credit rating on any series of Senior Notes falls below A-, the interest rate on such series will increase by 1% during the
32
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
period of time such series is rated below A-. The Company is required to maintain a current rating from one rating agency with respect to each series of Senior Notes.
The Senior Notes were issued in private placement offerings to institutional investors and are not listed on any exchange or automated
quotation system. The Senior Notes contain various covenants related to other indebtedness, liens and limits on the Companys overall leverage. Under the 1940 Act and the terms of the Senior Notes, the Company may not declare dividends or make
other distributions on shares of its common stock or make purchases of such shares if, at any time of the declaration, distribution or purchase, asset coverage with respect to the outstanding Senior Notes would be less than 300%.
The Senior Notes are redeemable in certain circumstances at the option of the Company. The Senior Notes are also subject to a mandatory
redemption to the extent needed to satisfy certain requirements if the Company fails to meet an asset coverage ratio required by law and is not able to cure the coverage deficiency by the applicable deadline, or fails to cure a deficiency as stated
in the Companys rating agency guidelines in a timely manner.
The Senior Notes are unsecured obligations of the Company
and, upon liquidation, dissolution or winding up of the Company, will rank: (1) senior to all of the Companys outstanding preferred shares; (2) senior to all of the Companys outstanding common shares; (3) on a parity with
any unsecured creditors of the Company and any unsecured senior securities representing indebtedness of the Company; and (4) junior to any secured creditors of the Company.
At May 31, 2013, the Company was in compliance with all covenants under the Senior Notes agreements.
At May 31,
2013, the Company had 15,960,000 shares of mandatory redeemable preferred stock outstanding, with a total liquidation value of $399,000 ($25.00 per share). On April 3, 2013, the Company completed a public offering of 5,000,000 shares of Series
F mandatory redeemable preferred stock at a price of $25.00 per share. Net proceeds from the offering were approximately $122,500 and were used primarily to redeem all 4,000,000 shares of Series D mandatory redeemable preferred stock with a $100,000
liquidation value. The redemption price per share was equal to the liquidation value, plus (i) accumulated unpaid dividends of $578, calculated using the current rate of 4.95% accrued to, but not including, the redemption date and (ii) a
redemption premium of $500 (0.5% of the liquidation value).
The table below sets forth the key terms of each series of the
mandatory redeemable preferred stock at May 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
|
|
Liquidation
Value
November 30,
2012
|
|
|
Liquidation
Value
Shares
Redeemed
|
|
|
Liquidation
Value
Shares
Issued
|
|
|
Liquidation
Value
May 31,
2013
|
|
|
Estimated
Fair Value
May 31,
2013
|
|
|
Rate
|
|
Maturity
Redemption
Date
|
|
A
|
|
$
|
104,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
104,000
|
|
|
$
|
113,200
|
|
|
5.57%
|
|
|
5/7/17
|
|
B
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
8,400
|
|
|
4.53%
|
|
|
11/9/17
|
|
C
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
|
|
42,000
|
|
|
|
45,100
|
|
|
5.20%
|
|
|
11/9/20
|
|
D
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.95%
|
|
|
6/1/18
|
|
E
(1)
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
120,000
|
|
|
|
121,728
|
|
|
4.25%
|
|
|
4/1/19
|
|
F
(2)
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
126,000
|
|
|
3.50%
|
|
|
4/15/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
374,000
|
|
|
$
|
100,000
|
|
|
$
|
125,000
|
|
|
$
|
399,000
|
|
|
$
|
414,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Series E mandatory redeemable preferred shares are publicly traded on the NYSE under the symbol KYNPRE. The fair value is based on the price of $25.36 on
May 31, 2013.
|
(2)
|
Series F MRP Shares are publicly traded on the NYSE under the symbol KYNPRF. The fair value is based on the price of $25.20 as of May 31, 2013.
|
33
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
Holders of the series A, B and C mandatory redeemable preferred stock are entitled to receive cumulative cash dividend payments on the first business day following each quarterly period (February 28,
May 31, August 31 and November 30). Holders of the series D and E mandatory redeemable preferred stock are entitled to receive cumulative cash dividend payments on the first business day of each month.
The table below outlines the terms of each series of mandatory redeemable preferred stock. The dividend rate on the Companys
mandatory redeemable preferred stock will increase if the credit rating is downgraded below A by FitchRatings. Further, the annual dividend rate for all series of mandatory redeemable preferred stock will increase by 4.0% if no ratings
are maintained, and the annual dividend rate will increase by 5.0% if the Company fails to make dividend or certain other payments. The Company is required to maintain a current rating from one rating agency with respect to each series of mandatory
redeemable preferred stock.
|
|
|
|
|
|
|
Series A, B and C
|
|
Series D and E
|
Rating as of May 31, 2013 (FitchRatings)
|
|
AA
|
|
AA
|
Ratings Threshold
|
|
A
|
|
A
|
Method of Determination
|
|
Lowest Credit Rating
|
|
Highest Credit Rating
|
Increase in Annual Dividend Rate
|
|
0.5% to 4.0%
|
|
0.75% to 4.0%
|
The mandatory redeemable preferred stock rank senior to all of the Companys outstanding common
shares and on parity with any other preferred stock. The mandatory redeemable preferred stock is redeemable in certain circumstances at the option of the Company and is also subject to a mandatory redemption if the Company fails to meet a total
leverage (debt and preferred stock) asset coverage ratio of 225% or fails to maintain its basic maintenance amount as stated in the Companys rating agency guidelines.
Under the terms of the mandatory redeemable preferred stock, the Company may not declare dividends or pay other distributions on shares of its common stock or make purchases of such shares if, at any time
of the declaration, distribution or purchase, asset coverage with respect to total leverage would be less than 225%.
The
holders of the mandatory redeemable preferred stock have one vote per share and will vote together with the holders of common stock as a single class except on matters affecting only the holders of mandatory redeemable preferred stock or the holders
of common stock. The holders of the mandatory redeemable preferred stock, voting separately as a single class, have the right to elect at least two directors of the Company.
At May 31, 2013, the Company was in compliance with the asset coverage and basic maintenance requirements of its mandatory redeemable preferred stock.
At May 31,
2013, the Company had 184,040,000 shares of common stock authorized and 93,338,082 shares outstanding. As of that date, KACALP owned 4,000 shares. On March 12, 2013, the Company completed a public offering of 4,543,995 shares of
common stock at a price of $33.36 per share. The net proceeds from the offering were used by the Company to make additional portfolio investments that are consistent with the Companys investment objective and for general corporate purposes.
Transactions in common shares for the six months ended May 31, 2013 were as follows:
|
|
|
|
|
Shares outstanding at November 30, 2012
|
|
|
88,431,413
|
|
Shares issued through reinvestment of distributions
|
|
|
362,674
|
|
Shares issued in connection with the offering of common stock
|
|
|
4,543,995
|
|
|
|
|
|
|
Shares outstanding at May 31, 2013
|
|
|
93,338,082
|
|
|
|
|
|
|
34
KAYNE ANDERSON MLP INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except number of option contracts, share and per share amounts)
(UNAUDITED)
On June 13,
2013, the Company completed a Senior Notes offering and received $125,000 (the June Funding) of the $235,000 total offering amount. The proceeds were used to refinance $125,000 principal amount of the Series K Senior Notes, which would
have matured on June 19, 2013. The initial funding (April Funding) of $110,000 was received on April 16, 2013 and was used to make new portfolio investments and to repay indebtedness.
The table below sets forth the timing and key terms of the Senior Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
|
|
April
Funding
|
|
|
June
Funding
|
|
|
Total
Amount
|
|
|
Interest
Rate
|
|
|
Maturity
Date
|
|
DD
|
|
$
|
35,000
|
|
|
$
|
40,000
|
|
|
$
|
75,000
|
|
|
|
2.74
|
%
|
|
|
4/16/19
|
|
EE
|
|
|
24,000
|
|
|
|
26,000
|
|
|
|
50,000
|
|
|
|
3.20
|
%
|
|
|
4/16/21
|
|
FF
|
|
|
30,000
|
|
|
|
35,000
|
|
|
|
65,000
|
|
|
|
3.57
|
%
|
|
|
4/16/23
|
|
GG
|
|
|
21,000
|
|
|
|
24,000
|
|
|
|
45,000
|
|
|
|
3.67
|
%
|
|
|
4/16/25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
110,000
|
|
|
$
|
125,000
|
|
|
$
|
235,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 18, 2013, the Company declared its quarterly distribution of $0.58 per common share for
the second quarter of fiscal 2013 for a total quarterly distribution payment of $54,136. The distribution was paid on July 12, 2013 to common stockholders of record on July 5, 2013. Of this total, pursuant to the Companys dividend
reinvestment plan, $6,151 was reinvested into the Company through the issuance of 179,329 shares of common stock.
On July 15,
2013, the Company completed a public offering of 6,200,000 shares of common stock at a price of $36.00 per share. The net proceeds of $214,300 will be used to make additional portfolio investments, to repay amounts borrowed on the Credit Facility
and for general corporate purposes.
The Company has performed an evaluation of subsequent events through the date the
financial statements were issued and has determined that no additional items require recognition or disclosure.
35
KAYNE ANDERSON MLP INVESTMENT COMPANY
PRIVACY POLICY NOTICE
(UNAUDITED)
Rev. 01/2011
|
|
|
FACTS
|
|
WHAT DOES KAYNE ANDERSON MLP INVESTMENT COMPANY
(KYN) DO WITH YOUR PERSONAL INFORMATION?
|
|
|
|
Why?
|
|
Financial companies choose how they share your personal
information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we
do.
|
|
What?
|
|
The types of
personal information we collect and share depend on the product or service you have with us. This information can include:
n
Social Security number and account
balances
n
Payment history and transaction history
n
Account transactions and wire transfer
instructions
When you are
no longer
our customer, we continue to
share your information as described in this notice.
|
|
How?
|
|
All financial companies need to share customers
personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers personal information; the reasons KYN chooses to share; and whether you can limit this
sharing.
|
|
|
|
|
|
Reasons we can share your personal information
|
|
Does KYN share?
|
|
Can you limit
this sharing?
|
For our
everyday business purposes
such as to process your transactions, maintain your account(s), respond to court orders and
legal investigations, or report to credit bureaus
|
|
Yes
|
|
No
|
For our
marketing purposes
to offer our products and services to you
|
|
No
|
|
No
|
For joint marketing with other financial
companies
|
|
No
|
|
We dont share
|
For our affiliates everyday business
purposes
information about your transactions and experiences
|
|
No
|
|
We dont share
|
For our
affiliates everyday business purposes
information about your creditworthiness
|
|
No
|
|
We dont share
|
For nonaffiliates to market to you
|
|
No
|
|
We dont share
|
|
|
|
Questions?
|
|
Call 877-657-3863 or go to
http://www.kaynefunds.com
|
36
KAYNE ANDERSON MLP INVESTMENT COMPANY
PRIVACY POLICY NOTICE
(UNAUDITED)
|
|
|
|
|
Who we are
|
Who is providing this notice?
|
|
KYN
|
|
|
|
|
|
|
|
What we do
|
How does
KYN
protect my personal information?
|
|
To protect your personal information from unauthorized access and use, we use security measures
that comply with federal law. These measures include computer safeguards and secured files and buildings.
Access to your personal information is on a need-to-know basis. KYN has adopted internal policies to protect your non-public personal information.
|
|
|
How does
KYN
collect my personal information?
|
|
We collect your personal information, for example, when you
n
Open an account or provide account
information
n
Buy securities from us or make a wire transfer
n
Give us your contact information
We also collect your personal information from other companies.
|
|
|
Why cant I limit all sharing?
|
|
Federal law gives you the right to limit only
n
sharing for affiliates everyday business
purposes information about your creditworthiness
n
affiliates from using your information to market to you
n
sharing for nonaffiliates to market to
you
State laws and individual companies may give you additional rights to
limit sharing.
|
|
|
|
|
|
|
|
Definitions
|
Affiliates
|
|
Companies related by common ownership or control. They can be financial and nonfinancial
companies.
n
KYN does not share with our affiliates.
|
|
|
Nonaffiliates
|
|
Companies not related by common ownership or control. They can be financial and nonfinancial
companies.
n
KYN does not share with nonaffiliates so they can market to you.
|
|
|
Joint marketing
|
|
A formal agreement between nonaffiliated financial companies that together market financial
products or services to you.
n
KYN doesnt jointly
market.
|
|
|
|
|
|
|
|
Other important information
|
None.
|
|
|
37
KAYNE ANDERSON MLP INVESTMENT COMPANY
DIVIDEND REINVESTMENT PLAN
(UNAUDITED)
Kayne Anderson MLP Investment Company, a Maryland corporation (the Company), has adopted the following plan (the Plan) with respect to distributions declared by its Board of
Directors (the Board) on shares of its Common Stock:
1. Unless a stockholder specifically elects
to receive cash as set forth below, all distributions hereafter declared by the Board shall be payable in shares of the Common Stock of the Company, and no action shall be required on such stockholders part to receive a distribution in stock.
2. Such distributions shall be payable on such date or dates as may be fixed from time to time by the Board to
stockholders of record at the close of business on the record date(s) established by the Board for the distribution involved.
3. The Company may use newly-issued shares of its Common Stock or purchase shares in the open market in connection with the implementation of the plan. The number of shares to be issued to a stockholder
shall be based on share price equal to 95% of the closing price of the Companys Common Stock one day prior to the dividend payment date.
4. The Board may, in its sole discretion, instruct the Company to purchase shares of its Common Stock in the open market in connection with the implementation of the Plan as follows: If the Companys
Common Stock is trading below net asset value at the time of valuation, upon notice from the Company, the Plan Administrator (as defined below) will receive the dividend or distribution in cash and will purchase Common Stock in the open market, on
the New York Stock Exchange or elsewhere, for the Participants accounts, except that the Plan Administrator will endeavor to terminate purchases in the open market and cause the Company to issue the remaining shares if, following the
commencement of the purchases, the market value of the shares, including brokerage commissions, exceeds the net asset value at the time of valuation. These remaining shares will be issued by the Company at a price equal to the greater of
(i) the net asset value at the time of valuation or (ii) 95% of the then current market price.
5. In
a case where the Plan Administrator has terminated open market purchases and caused the issuance of remaining shares by the Company, the number of shares received by the participant in respect of the cash dividend or distribution will be based on
the weighted average of prices paid for shares purchased in the open market, including brokerage commissions, and the price at which the Company issues the remaining shares. To the extent that the Plan Administrator is unable to terminate purchases
in the open market before the Plan Administrator has completed its purchases, or remaining shares cannot be issued by the Company because the Company declared a dividend or distribution payable only in cash, and the market price exceeds the net
asset value of the shares, the average share purchase price paid by the Plan Administrator may exceed the net asset value of the shares, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued
by the Company.
6. A stockholder may, however, elect to receive his or its distributions in cash. To exercise
this option, such stockholder shall notify American Stock Transfer & Trust Company, the plan administrator and the Companys transfer agent and registrar (collectively the Plan Administrator), in writing so that such
notice is received by the Plan Administrator no later than the record date fixed by the Board for the distribution involved.
7. The Plan Administrator will set up an account for shares acquired pursuant to the Plan for each stockholder who has not so elected to receive dividends and distributions in cash (each, a
Participant). The Plan Administrator may hold each Participants shares, together with the shares of other Participants, in non-certificated form in the Plan Administrators name or that of its nominee. Upon request by a
Participant, received no later than three (3) days prior to the payable date, the Plan Administrator will, instead of crediting shares to and/or carrying shares in a Participants account, issue, without charge to the Participant, a
certificate registered in the Participants name for the number of whole shares payable to the Participant
38
KAYNE ANDERSON MLP INVESTMENT COMPANY
DIVIDEND REINVESTMENT PLAN
(UNAUDITED)
and a check for any fractional share less a broker commission on the sale of such fractional shares. If a request to terminate a Participants participation in the Plan is received less than
three (3) days before the payable date, dividends and distributions for that payable date will be reinvested. However, subsequent dividends and distributions will be paid to the Participant in cash.
8. The Plan Administrator will confirm to each Participant each acquisition made pursuant to the Plan as soon as
practicable but not later than ten (10) business days after the date thereof. Although each Participant may from time to time have an undivided fractional interest (computed to three decimal places) in a share of Common Stock of the Company, no
certificates for a fractional share will be issued. However, dividends and distributions on fractional shares will be credited to each Participants account. In the event of termination of a Participants account under the Plan, the Plan
Administrator will adjust for any such undivided fractional interest in cash at the market value of the Companys shares at the time of termination.
9. The Plan Administrator will forward to each Participant any Company related proxy solicitation materials and each Company report or other communication to stockholders, and will vote any shares held by
it under the Plan in accordance with the instructions set forth on proxies returned by Participants to the Company.
10. In the event that the Company makes available to its stockholders rights to purchase additional shares or other securities, the shares held by the Plan Administrator for each Participant under the
Plan will be added to any other shares held by the Participant in certificated form in calculating the number of rights to be issued to the Participant.
11. The Plan Administrators service fee, if any, and expenses for administering the Plan will be paid for by the Company.
12. Each Participant may terminate his or its account under the Plan by so notifying the Plan Administrator via the Plan
Administrators website at www.amstock.com, by filling out the transaction request form located at the bottom of the Participants Statement and sending it to American Stock Transfer and Trust Company, P.O. Box 922, Wall
Street Station, New York, NY 10269-0560 or by calling the Plan Administrator at (888) 888-0317. Such termination will be effective immediately. The Plan may be terminated by the Company upon notice in writing mailed to each Participant at least
30 days prior to any record date for the payment of any dividend or distribution by the Company. Upon any termination, the Plan Administrator will cause a certificate or certificates to be issued for the full shares held for the Participant
under the Plan and a cash adjustment for any fractional share to be delivered to the Participant without charge to the Participant. If a Participant elects by his or its written notice to the Plan Administrator in advance of termination to have the
Plan Administrator sell part or all of his or its shares and remit the proceeds to the Participant, the Plan Administrator is authorized to deduct a $15.00 transaction fee plus a $0.10 per share brokerage commission from the proceeds.
13. These terms and conditions may be amended or supplemented by the Company at any time but, except when necessary or
appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, only by mailing to each Participant appropriate written notice at least 30 days prior to the
effective date thereof. The amendment or supplement shall be deemed to be accepted by each Participant unless, prior to the effective date thereof, the Plan Administrator receives written notice of the termination of his or its account under the
Plan. Any such amendment may include an appointment by the Plan Administrator in its place and stead of a successor agent under these terms and conditions, with full power and authority to perform all or any of the acts to be performed by the Plan
Administrator under these terms and conditions. Upon any such appointment of any agent for the purpose of receiving dividends and distributions, the Company will be authorized to pay to such successor agent, for each Participants account, all
dividends and distributions payable on shares of the
39
KAYNE ANDERSON MLP INVESTMENT COMPANY
DIVIDEND REINVESTMENT PLAN
(UNAUDITED)
Company held in the Participants name or under the Plan for retention or application by such successor agent as provided in these terms and conditions.
14. The Plan Administrator will at all times act in good faith and use its best efforts within reasonable limits to ensure
its full and timely performance of all services to be performed by it under this Plan and to comply with applicable law, but assumes no responsibility and shall not be liable for loss or damage due to errors unless such error is caused by the Plan
Administrators negligence, bad faith, or willful misconduct or that of its employees or agents.
15.
These terms and conditions shall be governed by the laws of the State of Maryland.
Adopted: September 27, 2004
Amended: December 13, 2005
Amended:
March 12, 2009
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KAYNE ANDERSON MLP INVESTMENT COMPANY
PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION
(UNAUDITED)
The policies and procedures that the Company uses to determine how to vote proxies relating to its portfolio securities are available:
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without charge, upon request, by calling (877) 657-3863/MLP-FUND;
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on the Companys website,
http://www.kaynefunds.com
; and
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on the SECs website,
http://www.sec.gov
.
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Information regarding how the Company voted proxies relating to portfolio securities during the most recent
12-month
period ended June 30 is available without
charge, upon request, by calling (877) 657-3863/MLP-FUND, and on the SECs website at
http://www.sec.gov
(see Form N-PX).
The Company files a complete schedule of its portfolio holdings for the first and third quarters of each of its fiscal years with the SEC on
Form N-Q
and Form
N-30B-2. The Companys
Form N-Q
and Form N-30B-2 are available on the SECs website at
http://www.sec.gov
and may be reviewed and copied at the SECs Public Reference Room in
Washington, DC. Information on the operation of the SECs Public Reference Room may be obtained by calling 1-800-SEC-0330. The Company also makes its
Form N-Q
and Form N-30B-2 available on its
website at
http://www.kaynefunds.com.
REPURCHASE DISCLOSURE
(UNAUDITED)
Notice is hereby given in accordance with Section 23(c) of the 1940 Act, that the Company may from time to time purchase shares of
its common and preferred stock and its Senior Notes in the open market or in privately negotiated transactions.
41