nqmsp312.htm





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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM N-Q
 
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
 
Investment Company Act file number 811-21713
 
Madison Strategic Sector Premium Fund
(Exact name of registrant as specified in charter)
 
550 Science Drive, Madison, WI  53711
(Address of principal executive offices)(Zip code)
 
W. Richard Mason
Madison/Mosaic Legal and Compliance Department
8777 N. Gainey Center Drive, Suite 220
Scottsdale, AZ  85258
(Name and address of agent for service)
 
Registrant's telephone number, including area code:  608-274-0300
 
Date of fiscal year end:  December 31
 
Date of reporting period:  March 31, 2012
 
Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (ss 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5).  The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.
 
A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public.  A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget ("OMB") control number.  Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC  20549-0609.  The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. s 3507.


 
 
 

Item 1.  Schedule of Investments.

         
COMMON STOCK - 80.4%**
Shares
Value (Note 1)
    
Consumer Discretionary - 11.7%
        
American Eagle Outfitters Inc.
           50,000
 $          859,500
    
Best Buy Co. Inc.
           80,000
          1,894,400
    
Kohl's Corp.
           35,000
          1,751,050
    
Lowe's Cos. Inc.
           50,000
          1,569,000
    
Staples Inc.
           50,000
            809,000
    
Target Corp.
           40,000
         2,330,800
    
   
         9,213,750
    
Energy - 6.9%
        
Apache Corp.
           20,000
         2,008,800
    
Canadian Natural Resources Ltd.
       40,000
        1,327,200
    
Schlumberger Ltd.
       30,000
        2,097,900
    
   
         5,433,900
    
Financials - 15.8%
        
Affiliated Managers Group Inc.*
           25,000
    2,795,250
    
Bank of America Corp.
         199,800
         1,912,086
    
Goldman Sachs Group Inc./The
           14,000
          1,741,180
    
Morgan Stanley
           70,000
          1,374,800
    
State Street Corp.
           60,000
          2,730,000
    
Wells Fargo & Co.
           55,000
          1,877,700
    
   
        12,431,016
    
Health Care - 20.3%
        
Community Health Systems Inc.*
           50,000
          1,112,000
    
Gilead Sciences Inc.*
           25,000
         1,221,250
    
Laboratory Corp. of America Holdings*
           20,000
         1,830,800
    
Medtronic Inc.
           40,000
         1,567,600
    
Mylan Inc./PA*
           90,000
         2,110,500
    
Pfizer Inc.
           39,800
            901,868
    
St Jude Medical Inc.
           50,000
        2,215,500
    
Stryker Corp.
           35,000
        1,941,800
    
Teva Pharmaceutical Industries Ltd., ADR
           25,000
        1,126,500
    
Zimmer Holdings Inc.
           30,000
        1,928,400
    
   
       15,956,218
    
Industrials - 1.7%
        
Norfolk Southern Corp.
       20,000
        1,316,600
    
         
Information Technology - 22.5%
        
Adobe Systems Inc.*
           55,000
        1,887,050
    
Altera Corp.
           20,000
            796,400
    
Apple Inc.*
             2,200
         1,318,834
    
Applied Materials Inc.
           90,000
        1,119,600
    
Cisco Systems Inc.
         100,000
          2,115,000
    
Flextronics International Ltd.*
         184,900
        1,336,827
    
FLIR Systems Inc.
           80,000
        2,024,800
    
Google Inc., Class A*
             4,000
        2,564,960
    
Hewlett-Packard Co.
           60,000
        1,429,800
    
Microsoft Corp.
           50,000
        1,612,500
    
Symantec Corp.*
           80,000
        1,496,000
    
   
       17,701,771
    
Materials - 1.5%
        
Freeport-McMoRan Copper & Gold Inc.
           30,000
         1,141,200
    
 
 
 
 
 
 
         
    Total Common Stock (Cost $64,872,871)
  
63,194,455
    
         
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 5.1%
        
U.S. Treasury Bills - 4.2%
        
0.04%, 4/26/12
     500,000
            499,985
    
0.07%, 8/23/12
         550,000
            549,835
    
0.14%, 9/20/12
         750,000
            749,489
    
0.12%, 11/15/12
      1,500,000
         1,498,817
    
   
        3,298,127
    
U.S. Treasury Note - 0.9%
        
1.5%, 7/15/12
 700,000
           702,871
    
         
    Total U.S. Government and Agency Obligations
              (Cost $4,000,999)
  
4,000,998
    
         
INVESTMENT COMPANIES - 1.2%
        
SPDR S&P MidCap 400 ETF Trust
             5,000
903,350
    
    Total Investment Companies   (Cost $910,500)
  
903,350
    
         
Repurchase Agreement - 26.4%
        
With U.S. Bank National Association issued 03/30/12 at 0.01%, due
        
04/02/12, collateralized by $21,107,628 in Fannie Mae pool #2008-47
        
due 06/25/38.  Proceeds at maturity are $20,693,644 (Cost $20,693,627)
  
20,693,627
    
         
TOTAL INVESTMENTS - 113.1% (Cost $90,477,997)
  
88,792,430
    
NET OTHER ASSETS AND LIABILITIES - (8.1%)
  
(6,324,658)
    
TOTAL CALL & PUT OPTIONS WRITTEN - (5.0%)
  
(3,957,961)
    
TOTAL ASSETS - 100%
  
 $     78,509,811
    
*Non-income producing
        
**All or a portion of these securities' positions represent covers (directly or through conversion rights)
  
     for outstanding options written
        
ADR-American Depository Receipt
        
ETF-Exchange Traded Fund
        
 
 Contracts
        
 
 (100 shares
Expiration
 Exercise
    
Call Options Written
Per contract)
Date
 Price
Value
  
Adobe Systems Inc.
                350
April 2012
 $      30.00
 $  152,250
  
Adobe Systems Inc.
                200
October 2012
         35.00
51,400
  
Affiliated Managers Group Inc.
                250
June 2012
      100.00
331,250
  
American Eagle Outfitters Inc.
                500
August 2012
         15.00
137,500
  
Apache Corp.
                150
July 2012
       105.00
60,000
  
Apache Corp.
                  50
October 2012
       110.00
22,625
  
Apple Inc.
                  22
August 2012
       625.00
83,875
  
Applied Materials Inc.
                600
July 2012
         13.00
23,400
  
Applied Materials Inc.
                300
July 2012
         14.00
3,750
  
Bank of America Corp.
                298
May 2012
           8.00
51,256
  
Bank of America Corp.
                500
August 2012
           9.00
65,250
  
Bank of America Corp.
                500
November 2012
           8.00
108,750
  
Bank of America Corp.
                400
November 2012
         10.00
41,800
  
Best Buy Co. Inc.
                300
June 2012
         25.00
24,750
  
Best Buy Co. Inc.
            300
September 2012
         27.00
25,650
  
Canadian Natural Resources Ltd.
                200
June 2012
         40.00
4,500
  
 
 
 
 
 
 
Canadian Natural Resources Ltd.
                200
September 2012
         43.00
9,000
  
Cisco Systems Inc.
                200
July 2012
         21.00
21,600
  
Cisco Systems Inc.
                200
October 2012
         22.00
20,700
  
Community Health Systems Inc.
                200
June 2012
         21.00
50,000
  
Flextronics International Ltd.
                500
April 2012
           7.00
16,000
  
Flextronics International Ltd.
                500
July 2012
           7.00
31,500
  
FLIR Systems Inc.
                450
April 2012
         28.00
2,250
  
FLIR Systems Inc.
                150
July 2012
         26.00
13,500
  
Gilead Sciences Inc.
                250
May 2012
         41.00
207,500
  
Goldman Sachs Group Inc./The
                  70
July 2012
       105.00
151,725
  
Google Inc.
                    8
June 2012
       660.00
18,160
  
Google Inc.
                  16
September 2012
       625.00
88,240
  
Hewlett-Packard Co.
                200
May 2012
         30.00
300
  
Kohl's Corp.
                100
April 2012
         55.00
500
  
Kohl's Corp.
                200
July 2012
         50.00
51,000
  
Laboratory Corp. of America Holdings
                200
May 2012
         85.00
147,000
  
Lowe's Cos. Inc.
                300
April 2012
         22.00
282,000
  
Lowe's Cos. Inc.
                200
April 2012
         24.00
148,000
  
Medtronic Inc.
                150
May 2012
         37.00
36,000
  
Medtronic Inc.
                250
August 2012
         41.00
27,375
  
Microsoft Corp.
                300
July 2012
         28.00
133,500
  
Microsoft Corp.
                200
October 2012
         33.00
30,000
  
Morgan Stanley
                200
May 2012
         20.00
20,000
  
Mylan Inc./PA
                300
July 2012
         25.00
18,300
  
Mylan Inc./PA
                300
October 2012
         24.00
47,400
  
Pfizer Inc.
                300
June 2012
         23.00
14,250
  
Schlumberger Ltd.
                220
August 2012
     80.00
29,810
  
SPDR S&P MidCap 400 ETF Trust
                  50
September 2012
   183.00
42,750
  
St Jude Medical Inc.
                200
April 2012
     45.00
18,000
  
Staples Inc.
                150
September 2012
   16.00
19,125
  
Staples Inc.
                250
September 2012
         17.00
19,375
  
State Street Corp.
                300
August 2012
         44.00
114,000
  
Stryker Corp.
                200
June 2012
         55.00
45,500
  
Symantec Corp.
                300
October 2012
         18.00
56,100
  
Target Corp.
                200
July 2012
         52.50
127,000
  
Target Corp.
                200
October 2012
         57.50
72,000
  
Teva Pharmaceutical Industries Ltd.
                250
September 2012
         47.50
39,250
  
Wells Fargo & Co.
                250
July 2012
         29.00
137,500
  
Zimmer Holdings Inc.
                300
June 2012
         55.00
289,500
  
    Total Call Options Written (Premiums received $2,758,841)
      
$3,783,716
  
           
Put Options Written
          
Apple Inc.
                  22
August 2012
       575.00
81,895
  
Best Buy Co. Inc.
                300
June 2012
         21.00
16,500
  
Cisco Systems Inc.
                200
July 2012
         19.00
7,700
  
Google Inc.
                  10
June 2012
       590.00
11,950
  
Microsoft Corp.
                200
October 2012
         31.00
32,500
  
Symantec Corp.
                300
October 2012
         17.00
23,700
  
    Total Put Options Written (Premiums received $259,797)
      
 $  174,245
  


 
 
 
 

 
Notes to Quarterly Holdings Report
 
1. Portfolio Valuation: Securities traded on a national securities exchange are valued at their closing sale price except for securities traded on NASDAQ which are valued at the NASDAQ official closing price ("NOCP") and options which are valued at the mean between the best bid and best ask price across all option exchanges.  Repurchase agreements and other securities having maturities of 60 days or less are valued at amortized cost, which approximates market value.  Securities having longer maturities, for which quotations are readily available, are valued at the mean between their closing bid and ask prices.  Securities for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures approved by the Board of Trustees.
The Fund has adopted Financial Accounting Standards Board (“FASB”) applicable guidance on fair value measurements.  Fair value is defined as the price that each fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data “inputs” and minimize the use of unobservable “inputs” and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk (for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique). Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 - quoted prices in active markets for identical investments
Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rate volatilities, prepayment speeds, credit risk, benchmark yields, transactions, bids, offers, new issues, spreads and other relationships observed in the markets among comparable securities, underlying equity of the issuer; and proprietary pricing models such as yield measures calculated using factors such as cash flows, financial or collateral performance and other reference data, etc.)
Level 3 - significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
The valuation techniques used by the Fund to measure fair value for the period ended March 31, 2012 maximized the use of observable inputs and minimized the use of unobservable inputs.  As of March 31, 2012, the Fund held no securities deemed as a Level 3.
The following is a summary of the inputs used as of March 31, 2012 in valuing the Fund's investments carried at fair value:

       
Value at
Fund
(Level 1)
(Level 2)
(Level 3)
3/31/2012
Madison Strategic Sector Premium Fund
        
Assets:
        
   Common Stocks
 $        63,194,455
 $                        -
 $                        -
 $        63,194,455
   Investment Companies
                903,350
    
                903,350
   U.S. Government and Agency Obligations
             4,000,998
  
             4,000,998
   Repurchase Agreement
  
           20,693,627
  
           20,693,627
 
 $        64,097,805
 $        24,694,625
 $                        -
 $        88,792,430
Liabilities:
        
   Written Options
 $          3,957,961
 $                        -
 $                        -
 $          3,957,961
 
 $          3,957,961
 $                        -
 $                        -
 $          3,957,961
 
 
 
 
 
 
 

 
The Fund has adopted the Accounting Standard Update, Fair Value Measurements and Disclosures; Improving Disclosures about Fair Value Measurements which provides guidance on how investment assets and liabilities are to be valued and disclosed. Specifically, the amendment requires reporting entities to disclose i) the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements, for Level 2 or Level 3 positions, ii) transfers between all levels (including Level 1 and Level 2) will be required to be disclosed on a gross basis (i.e. transfers out must be disclosed separately from transfers in) as well as the reason(s) for the transfer and iii) purchases, sales, issuances and settlements must be shown on a gross basis in the Level 3 rollforward rather than as one net number. The effective date of the amendment is for interim and annual periods beginning after December 15, 2009, and the requirement to provide the Level 3 activity for purchases, sales, issuance and settlements on a gross basis was effective for interim and annual period beginning after December 15, 2010. There were no transfers between classification levels during the period ended March 31, 2012.
The fund adopted guidance on enhanced disclosures about a fund's derivative and hedging activities in order to enable investors to understand: a) how and why a fund uses derivative investments, b) how derivative instruments and related hedge fund items are accounted for, and c) how derivative instruments and related hedge fund items affect a fund’s financial position, results of operations and cash flows
The following table presents the types of derivatives in the Fund and their effect:

 
Asset Derivatives
    
Liability Derivatives
Derivatives not accounted
Fair Value
Derivatives not accounted
Fair Value
for as hedging instruments
  
for as hedging instruments
  
Equity contracts
$-
Options Written
  
$3,957,961

In May 2011, FASB issued ASU 2011-04, modifying Topic 820, Fair Value Measurements and Disclosures.  At the same time, the International Accounting Standards Board (“IASB”) issued International Financial Reporting Standard (“IFRS”) 13, Fair Value Measurement.  The objective by the FASB and IASB is convergence of their guidance on fair value measurements and disclosures.  The effective date of the ASU is for Interim and annual periods beginning after December 15, 2011.   The adviser has determined the updated standards have no material impact on the Fund’s financial statements.
 
Investment Transactions and Investment Income: Investment transactions are recorded on a trade date basis. The cost of investments sold is determined on the identified cost basis for financial statement and federal income tax purposes.  Dividend income is recorded on the ex-dividend data and interest income is recorded on an accrual basis.
 
 
2. Discussion of Risks: Please see the most current version of the Funds’ prospectus for a discussion of risks associated with investing in the Funds.  While investments in stocks and bonds have been keystones in wealth building and management for a hundred years, at times they’ve produced surprises for even the savviest investors.  Those who enjoyed growth and income of their investments were rewarded for the risks they took by investing in the markets.  When the rare calamity strikes, the word “security” itself seems a misnomer.  Although the Adviser seeks to appropriately address and manage the risks identified and disclosed to you in connection with the management of the securities in the Funds, you should understand that the very nature of the securities markets includes the possibility that there are additional risks that we did not contemplate for any number of reasons.  We certainly seek to identify all applicable risks and then appropriately address them, take appropriate action to reasonably manage them and, of course, to make you aware of them so you can determine if they exceed your risk tolerance.  Nevertheless, the often volatile nature of the securities markets and the global economy in which we work suggests that the risk of the unknown is something you must consider in connection with your investments in securities. Unforeseen events have the potential to upset the best laid plans of man, and could, in a worst-case scenario produce the material loss of the value of some or all of the securities we manage for you in the Funds.
2. Discussion of Risks: Please see the most current version of the Funds’ prospectus for a discussion of risks associated with investing in the Funds.  While investments in stocks and bonds have been keystones in wealth building and management for a hundred years, at times they’ve produced surprises for even the savviest investors.  Those who enjoyed growth and income of their investments were rewarded for the risks they took by investing in the markets.  When the rare calamity strikes, the word “security” itself seems a misnomer.  Although the Adviser seeks to appropriately address and manage the risks identified and disclosed to you in connection with the management of the securities in the Funds, you should understand that the very nature of the securities markets includes the possibility that there are additional risks that we did not contemplate for any number of reasons.  We certainly seek to identify all applicable risks and then appropriately address them, take appropriate action to reasonably manage them and, of course, to make you aware of them so you can determine if they exceed your risk tolerance.  Nevertheless, the often volatile nature of the securities markets and the global economy in which we work suggests that the risk of the unknown is something you must consider in connection with your investments in securities. Unforeseen events have the potential to upset the best laid plans of man, and could, in a worst-case scenario produce the material loss of the value of some or all of the securities we manage for you in the Funds.
 
There are several risks associated with transactions in options on securities.  As the writer of a covered call option, the Fund forgoes, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call but has retained the risk of loss should the price of the underlying security decline.  A writer of a put option is exposed to the risk of loss if fair value of the underlying securities declines, but profits only to the extent of the premium received if the underlying security increases value.  The writer of an option has no control over the time when it may be required to fill its obligation as writer of the option.  Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price.


 
 
 
 
 
Item 2. Controls and Procedures.
 
(a) The registrant's principal executive officer and principal financial officer determined that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act") are effective, based on their evaluation of these controls and procedures within 90 days of the date of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the Act.  There were no significant changes in the Trust's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. The officers identified no significant deficiencies or material weaknesses.
 
(b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the registrant's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 
 
Item 3.  Exhibits.
 
Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Act.





SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Madison Strategic Sector Premium Fund
 
By: (signature)
 
W. Richard Mason, CCO
 
Date: May 18, 2012
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
By: (signature)
 
Katherine L. Frank, Chief Executive Officer
 
Date:  May 18, 2012
 
By:  (signature)
 
Greg Hoppe, Chief Financial Officer
 
Date: May 18, 2012