497 1 d506515d497.htm 497 497
Table of Contents

Filed pursuant to Rule 497 (e)
under the Securities Act of 1933,
as amended, File No. 333-183599

PROSPECTUS SUPPLEMENT

(To Prospectus dated March 4, 2013)

$110,000,000

LOGO

3.500% Series F Mandatory Redeemable Preferred Shares

Liquidation Preference $25.00 per share

Mandatorily Redeemable April 15, 2020

 

 

Kayne Anderson MLP Investment Company (the “Company,” “we,” “us” or “our”) is a non-diversified, closed-end management investment company. Our investment objective is to obtain a high after-tax total return by investing at least 85% of our total assets in energy-related partnerships and their affiliates (collectively, “master limited partnerships” or “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, crude oil, refined petroleum products or coal (collectively with MLPs, “Midstream Energy Companies”).

We are offering 4,400,000 shares of our Series F Mandatory Redeemable Preferred Shares (“Series F MRP Shares”) with an aggregate liquidation preference of $110 million in this prospectus supplement. This prospectus supplement, together with the accompanying prospectus dated March 4, 2013 (the “prospectus”), sets forth the information that you should know before investing.

Investors in the Series F MRP Shares will be entitled to receive cash dividends at an annual rate of 3.500% per annum. Dividends on the Series F MRP Shares will be payable on the first business day of each month, beginning on May 1, 2013 and upon the redemption of the Series F MRP Shares. The initial dividend period for the Series F MRP Shares will commence on April 3, 2013 and end on April 30, 2013. Each subsequent dividend period will be a calendar month (or the portion thereof occurring prior to the redemption of such Series F MRP Shares). Dividends with respect to any monthly dividend period will be declared and paid to holders of record of Series F MRP Shares as their names appear on our books and records at the close of business on the 15th day of such monthly dividend period (or if such day is not a business day, the next preceding business day) or, with respect to the initial dividend period, to holders of record of Series F MRP Shares as their names appear on our books and records at the close of business on April 15, 2013.

We are required to redeem the Series F MRP Shares on April 15, 2020. In addition, the Series F MRP Shares are subject to optional and mandatory redemption by us in certain circumstances described in this prospectus supplement.

Application has been made to list the Series F MRP Shares on the New York Stock Exchange (the “NYSE”) under the symbol “KYN Pr F”. If the application is approved, trading on such exchange will begin within 30 days after the date of this prospectus supplement, subject to notice of issuance. We have been advised by the Underwriters that they intend to make a market in the Series F MRP Shares, but they are not obligated to do so and may discontinue market-making at any time without notice. Consequently, it is anticipated that, prior to the commencement of trading on the NYSE, an investment in Series F MRP Shares may be illiquid.

We intend to use the net proceeds from the sale of Series F MRP Shares to make investments in portfolio companies in accordance with our investment objective and policies, to repay indebtedness, to redeem our Series D Mandatory Redeemable Preferred Shares (“Series D MRP Shares”) and for general corporate purposes. See “Use of Proceeds” in this prospectus supplement.

The Series F MRP Shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.

Investing in Series F MRP Shares involves risk. See “Risk Factors” beginning on page 18 of the accompanying prospectus and “Risks of Investing in Mandatory Redeemable Preferred Shares” on page S-7 of this prospectus supplement.

 

     Per Share     

Total

 

Initial price to public

   $ 25.00       $ 110,000,000   

Underwriting discount

   $ 0.50       $ 2,200,000   

Proceeds before expenses to the Company(1)

   $ 24.50       $ 107,800,000   

 

(1) Assumes no exercise of the overallotment option described below.

The Underwriters may also purchase up to an aggregate of 600,000 additional Series F MRP Shares from us, at the initial public offering price, less the underwriting discount, within 15 days from the date of this prospectus supplement solely to cover overallotments, if any.

None of the Securities and Exchange Commission, any state securities commission or any other regulatory body has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The Series F MRP Shares will be ready for delivery on or about April 3, 2013.

 

 

Joint Book-Running Managers

 

BofA Merrill Lynch   Citigroup  

UBS Investment Bank

Lead Manager

RBC Capital Markets

 

 

March 26, 2013.


Table of Contents

TABLE OF CONTENTS

Prospectus Supplement

 

     Page  

Cautionary Notice Regarding Forward-Looking Statements

     S-ii   

Prospectus Supplement Summary

     S-1   

Risks of Investing in Mandatory Redeemable Preferred Shares

     S-7   

Use of Proceeds

     S-8   

Capitalization

     S-9   

Asset Coverage Requirements

     S-11   

Description of Mandatory Redeemable Preferred Shares

     S-12   

Federal Income Tax Matters

     S-20   

Underwriting

     S-22   

Legal Matters

     S-25   

Where You Can Find More Information

     S-25   

Financial Statements as of and for the Year ended November  30, 2012 and Financial Highlights for the Period September 28, 2004 through November 30, 2004 and for the Fiscal Years ended November 30, 2005 through 2012

     F-1   

Prospectus

 

     Page  

Prospectus Summary

     1   

Forward-Looking Statements

     8   

Kayne Anderson MLP Investment Company

     9   

Fees and Expenses

     10   

Financial Highlights

     12   

Senior Securities

     13   

Market and Net Asset Value Information

     16   

Use of Proceeds

     17   

Risk Factors

     18   

Distributions

     38   

Dividend Reinvestment Plan

     40   

Investment Objective and Policies

     42   

Use of Leverage

     47   

Management

     51   

Net Asset Value

     55   

Description of Capital Stock

     58   

Rating Agency Guidelines

     74   

Our Structure; Common Stock Repurchases and Change in Our Structure

     76   

Tax Matters

     78   

Plan of Distribution

     82   

Transfer Agent and Dividend-Paying Agent

     85   

Administrator, Custodian and Fund Accountant

     86   

Legal Matters

     86   

Table of Contents of Our Statement of Additional Information

     87   


Table of Contents

You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. This prospectus supplement and the accompanying prospectus set forth certain information about us that a prospective investor should carefully consider before making an investment in our securities. This prospectus supplement, which describes the specific terms of this offering, also adds to and updates information contained in the accompanying prospectus and the documents incorporated by reference in the accompanying prospectus. The accompanying prospectus gives more general information, some of which may not apply to this offering. If the description of this offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information contained in this prospectus supplement; provided that if any statement in one of these documents is inconsistent with a statement in another document having a later date and incorporated by reference into the accompanying prospectus or this prospectus supplement, the statement in the incorporated document having the later date modifies or supersedes the earlier statement. We have not, and the Underwriters have not, authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the Underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom it is not permitted to make such offer or sale. The information contained in or incorporated by reference in this prospectus supplement and the accompanying prospectus is accurate only as of the respective dates on their front covers, regardless of the time of delivery of this prospectus supplement, the accompanying prospectus, or the sale of the Series F MRP Shares. Our business, financial condition, results of operations and prospects may have changed since that date.

You should read this prospectus supplement and the accompanying prospectus before deciding whether to invest and retain it for future reference. A statement of additional information, dated March 4, 2013 (“SAI”), as supplemented from time to time, containing additional information about us, has been filed with the Securities and Exchange Commission (“SEC”) and is incorporated by reference in its entirety into this prospectus supplement. You may request a free copy of our SAI by calling toll-free at (877) 657-3863, or by writing to us at 717 Texas Avenue, Suite 3100, Houston, Texas 77002. Electronic copies of the accompanying prospectus, our stockholder reports and our SAI are also available on our website (http://www.kaynefunds.com). You may also obtain copies of these documents (and other information regarding us) from the SEC’s web site (http://www.sec.gov).

Capitalized terms used but not defined in this prospectus supplement shall have the meanings given to such terms in the Articles Supplementary setting forth the rights and preferences of the Series F MRP Shares (the “Articles Supplementary”). The Articles Supplementary are available from us upon request.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus supplement, the accompanying prospectus and the SAI contain forward-looking statements. All statements other than statements of historical facts included in this prospectus supplement, the accompanying prospectus or the SAI that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations and business. We have identified some of these forward-looking statements with words like “believe,” “may,” “could,” “might,” “forecast,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “approximate” or “continue” and other words and terms of similar meaning and the negative of such terms. Such forward-looking statements may be contained in this prospectus supplement as well as in the accompanying prospectus. These forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Many factors mentioned in our discussion in this prospectus supplement, the accompanying prospectus or the SAI, including the risks outlined under “Risks of Investing in Mandatory Redeemable Preferred Shares” in this prospectus supplement and under “Risk Factors” in the accompanying prospectus, will be important in determining future results. In addition, several factors that could materially affect our actual results are the ability

 

S-ii


Table of Contents

of the MLPs and other Midstream Energy Companies in which we invest to achieve their objectives, our ability to source favorable private investments, the timing and amount of distributions and dividends from the MLPs and other Midstream Energy Companies in which we intend to invest, the dependence of our future success on the general economy and its impact on the industries in which we invest and other factors discussed in our periodic filings with the SEC.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. The factors identified above are believed to be important factors, but not necessarily all of the important factors, that could cause our actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material adverse effects on us. Since our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements, we cannot give any assurance that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. All forward-looking statements included in this prospectus supplement, the accompanying prospectus or the SAI, are expressly qualified in their entirety by the foregoing cautionary statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of such documents. We do not undertake any obligation to update, amend or clarify these forward-looking statements or the risk factors contained therein, whether as a result of new information, future events or otherwise, except as may be required under the federal securities laws. We acknowledge that, notwithstanding the foregoing statements, the Private Securities Litigation Reform Act of 1995 does not apply to investment companies such as us.

 

S-iii


Table of Contents

PROSPECTUS SUPPLEMENT SUMMARY

This summary does not contain all of the information that you should consider before investing in our mandatory redeemable preferred stock. You should read carefully this entire prospectus supplement, the accompanying prospectus, including the sections entitled “Risk Factors” beginning on page 18 of the accompanying prospectus and “Risks of Investing in Mandatory Redeemable Preferred Shares” on page S-7 of this prospectus supplement.

The Company

Kayne Anderson MLP Investment Company, a Maryland corporation, is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). Our investment objective is to obtain a high after-tax total return by investing at least 85% of our total assets in MLPs and other Midstream Energy Companies. We also must comply with the SEC’s rule regarding investment company names, which requires us, under normal market conditions, to invest at least 80% of our total assets in MLPs so long as “MLP” is in our name. Our shares of common stock are listed on the New York Stock Exchange (“NYSE”) under the symbol “KYN.”

We began investment activities in September 2004 following our initial public offering. As of February 28, 2013, we had net assets applicable to our common stock of approximately $2.7 billion and total assets of approximately $4.9 billion.

As of February 28, 2013, we had $1.3 billion of total leverage outstanding. This leverage is comprised of debt (senior notes and borrowings under our revolving credit facility) and mandatory redeemable preferred stock. Under normal market conditions, our policy is to use leverage that represents approximately 30% of total assets. As of February 28, 2013, we had $890 million in senior unsecured notes outstanding through 18 series of notes with maturity dates ranging from June 2013 to November 2022 (the “Senior Notes”).

On March 12, 2013, we issued 4,543,995 shares of our common stock at a price per share equal to $33.36 pursuant to an underwritten public offering. We received net proceeds from such offering of approximately $145 million. In connection with this common stock offering, we granted the underwriters for such offering an option exercisable through April 21, 2013 to purchase up to 675,000 additional shares of common stock to cover overallotments, if any. The 4,543,995 shares of common stock issued on March 12, 2013 included 43,995 shares of common stock issued pursuant to the partial exercise of the overallotment option.

On March 22, 2013, we announced a conditional agreement with institutional investors relating to a private placement of $235 million of senior notes. Net proceeds from the senior notes offering will be used to make new portfolio investments ($110 million), to refinance Series K senior notes ($125 million principal amount) which mature in June 2013, and for general corporate purposes. The senior notes offering will close in April 2013, and there will be two fundings in connection with the transaction: $110 million will fund in April 2013, and $125 million will fund in June 2013. Closing of the senior notes offering is subject to investor due diligence, legal documentation and other standard closing conditions.

We have paid distributions to common stockholders every fiscal quarter since inception and intend to continue to pay quarterly distributions to our common stockholders, funded in part by the net distributable income generated from our portfolio investments. The net distributable income generated from our portfolio investments is the amount received by us as cash or paid-in-kind distributions from MLPs or other Midstream Energy Companies, interest payments received on debt securities owned by us, other payments on securities owned by us, net premiums received from the sale of covered call options and income tax benefits, if any, less current or anticipated operating expenses, income tax expense, if any, and our leverage costs (including dividends on preferred stock issued by us). On March 21, 2013, we declared a quarterly distribution of $0.565 per share to common stockholders to be paid on April 12, 2013. Payment of future distributions is subject to approval by our Board of Directors, as well as meeting the covenants of our senior debt, the terms of our preferred stock and the asset coverage requirements of the 1940 Act.

 

 

S-1


Table of Contents

Investment Adviser

KA Fund Advisors, LLC (“KAFA” or the “Adviser”) is our investment adviser, responsible for implementing and administering our investment strategy. KAFA is a subsidiary of Kayne Anderson Capital Advisors, L.P. (“KACALP” and, together with KAFA, “Kayne Anderson”). Each of KAFA and KACALP is an SEC-registered investment adviser. As of January 31, 2013, Kayne Anderson and its affiliates managed approximately $19.4 billion, including approximately $12.0 billion in MLPs and other Midstream Energy Companies. Kayne Anderson has invested in MLPs and other Midstream Energy Companies since 1998. We believe that Kayne Anderson has developed an understanding of the MLP market that enables it to identify and take advantage of public MLP investment opportunities. In addition, Kayne Anderson’s senior professionals have developed a strong reputation in the energy sector and have many long-term relationships with industry managers, which we believe gives Kayne Anderson an important advantage in sourcing and structuring private investments.

Portfolio Investments

Our investments are principally in equity securities issued by MLPs. Generally, we invest in equity securities of (i) master limited partnerships, including preferred, common and subordinated units and general partner interests, (ii) owners of such interests in master limited partnerships and (iii) other Midstream Energy Companies. We may also invest in debt securities of MLPs and other Midstream Energy Companies with varying maturities of up to 30 years.

We are permitted to invest up to 50% of our total assets in unregistered or otherwise restricted securities of MLPs and other Midstream Energy Companies, including securities issued by private companies. We may invest up to 15% of our total assets in any single issuer.

We are permitted to invest up to 20% of our total assets in debt securities of MLPs and other Midstream Energy Companies, including below investment grade debt securities (commonly referred to as “junk bonds” or “high yield bonds”) rated, at the time of investment, at least B3 by Moody’s Investors Service, Inc., B- by Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, or Fitch, Inc., comparably rated by another rating agency or, if unrated, determined by Kayne Anderson to be of comparable quality. In addition, up to one-quarter of our permitted investments in debt securities (or up to 5% of our total assets) may be invested in unrated debt securities or debt securities that are rated less than B3/B- of public or private companies.

As of February 28, 2013, we held $4.8 billion in equity investments and no fixed income investments. Our top 10 largest holdings by issuer as of that date were:

 

    

Company

    

Units

(in thousands)

      

Amount

($ millions)

      

Percent of

Long-Term

Investments

 
1.    Enterprise Products Partners L.P.         7,674         $ 434.9           9.0
2.    Plains All American Pipeline, L.P.         6,852           375.1           7.7   
3.    Kinder Morgan Management, LLC        4,307           356.7           7.4   
4.    MarkWest Energy Partners, L.P.         4,961           283.6           5.8   
5.    EI Paso Pipeline Partners, L.P.         4,968           207.6           4.3   
6.    Energy Transfer Equity, L.P.         3,891           206.9           4.3   
7.    Williams Partners L.P.         4,095           203.5           4.2   
8.    Regency Energy Partners LP        7,810           185.8           3.8   
9.    ONEOK Partners, L.P.         2,953           161.8           3.3   
10.    Enbridge Energy Partners, L.P.         5,670           157.1           3.2   

 

 

S-2


Table of Contents

The Offering

 

Issuer

Kayne Anderson MLP Investment Company

 

Series F MRP Shares Offered

4,400,000 Series F MRP Shares, $25.00 liquidation preference per share ($110 million aggregate liquidation preference). The Series F MRP Shares are being offered by the underwriters (the “Underwriters”) listed under “Underwriting” for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and UBS Securities LLC are acting as representatives. We have granted the Underwriters the option for 15 days to purchase up to an additional 600,000 Series F MRP Shares to cover overallotments, if any. Unless otherwise specifically stated, the information throughout this prospectus supplement does not take into account the possible issuance to the Underwriters of additional Series F MRP Shares pursuant to their option to purchase additional Series F MRP Shares to cover overallotments.

 

Dividend Rate

The Series F MRP Shares will pay monthly cash dividends at a rate of 3.500% per annum. The dividend rate is subject to adjustment (but will not in any event be lower than 3.500%) in certain circumstances. See “Description of Mandatory Redeemable Preferred Shares—Series F MRP Shares—Dividends and Dividend Periods—Fixed Dividend Rate,” “Description of Mandatory Redeemable Preferred Shares—Series F MRP Shares—Dividends and Dividend Periods—Adjustment to Fixed Dividend Rate—Ratings” and “Description of Mandatory Redeemable Preferred Shares—Series F MRP Shares—Dividends and Dividend Periods—Default Rate—Default Period” in this prospectus supplement.

 

Dividend Payments

The holders of Series F MRP Shares will be entitled to receive cash dividends when, as and if authorized by the Board of Directors and declared by us, out of funds legally available therefor. Dividends on the Series F MRP Shares will be payable on the first business day of each month, beginning on May 1, 2013, and upon redemption of the Series F MRP Shares (each payment date a “Dividend Payment Date”). The initial dividend period for the Series F MRP Shares will commence on April 3, 2013 and end on April 30, 2013. Each subsequent dividend period will be a one month period (or the portion thereof occurring prior to the redemption of such Series F MRP Shares) (each dividend period a “Dividend Period”). Dividends with respect to any monthly Dividend Period will be declared and paid to holders of record of the Series F MRP Shares as their names appear on our books and records at the close of business on the 15th day of such Dividend Period (or if such day is not a business day, the next preceding business day) or, with respect to the initial Dividend Period, to holders of record of Series F MRP Shares as their names appear on our books and records at the close of business on April 15, 2013. See “Description of Mandatory Redeemable Preferred Shares—Series F MRP Shares—Dividends and Dividend Periods” in this prospectus supplement.

 

 

S-3


Table of Contents

Term Redemption

We are required to redeem all outstanding Series F MRP Shares on April 15, 2020 (the “Term Redemption Date”) at a redemption price equal to $25.00 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared but excluding interest thereon) to (but excluding) the Term Redemption Date (the “Redemption Price”). See “Description of Mandatory Redeemable Preferred Shares—Series F MRP Shares—Redemption—Term Redemption” in this prospectus supplement.

 

Mandatory Redemption for Asset Coverage and Series F MRP Shares Basic Maintenance Amount

Asset Coverage.    If we fail to maintain asset coverage of at least 225% (the “Series F MRP Shares Asset Coverage”) as of the close of business on the last day of any month and such failure is not cured as of the close of business on the date that is 30 days following such day, the Series F MRP Shares will be subject to mandatory redemption at the Redemption Price. See “Asset Coverage Requirements” and “Description of Mandatory Redeemable Preferred Shares—Series F MRP Shares—Redemption—Mandatory Redemption” in this prospectus supplement.

 

  Series F MRP Shares Basic Maintenance Amount.    If we fail to maintain assets in our portfolio that have a value equal to the Series F MRP Shares Basic Maintenance Amount (as defined below) as of the close of business on the last business day of any week, and such failure is not cured as of the close of business on the date that is 30 days following such day, the Series F MRP Shares will be subject to mandatory redemption at the Redemption Price. See “Asset Coverage Requirements” and “Description of Mandatory Redeemable Preferred Shares—Series F MRP Shares—Redemption—Mandatory Redemption” in this prospectus supplement.

 

  Mandatory Redemption of Series A MRP Shares.    To the extent that a redemption of the Series A MRP Shares is required as a result of our failure to maintain either (i) asset coverage of at least 225% or (ii) assets in our portfolio that have a value equal the basic maintenance amount required by the rating agency rating the Series A MRP Shares under its specific rating agency guideline at any time, the Series F MRP Shares will be subject to mandatory redemption at the Redemption Price. See “Asset Coverage Requirements” and “Description of Mandatory Redeemable Preferred Shares—Series F MRP Shares—Redemption—Mandatory Redemption” in this prospectus supplement.

 

Optional Redemption

We may redeem the Series F MRP Shares at any time following April 14, 2014 at the Optional Redemption Price (as defined below) per share. On a limited basis, if at any time on or prior to April 14, 2014, the Series F MRP Shares Asset Coverage is greater than 225% but less than or equal to 235% for any 5 business days within a 10 business day period, we may redeem the Series F MRP Shares at 102% of the liquidation preference per share, plus an amount equal to the then accumulated but unpaid dividends thereon to (but excluding) the date fixed for redemption. See “Description of Mandatory

 

 

S-4


Table of Contents
 

Redeemable Preferred Shares—Series F MRP Shares—Redemption—Optional Redemption” in this prospectus supplement.

 

Use of Proceeds

We estimate that our net proceeds from this offering after deducting the underwriting discount and estimated offering expenses payable by us will be approximately $108 million (or $122 million if the underwriters exercise their overallotment option in full). We intend to use all of the net proceeds of this offering to make investments in portfolio companies in accordance with our investment objective and policies, to repay indebtedness, to redeem our Series D MRP Shares and for general corporate purposes. See “Use of Proceeds” in this prospectus supplement.

 

NYSE Listing

Application has been made to list the Series F MRP Shares on the NYSE under the symbol “KYN Pr F”. If the application is approved, trading on such exchange will begin within 30 days after the date of this prospectus supplement, subject to notice of issuance. We have been advised by the Underwriters that they intend to make a market in the Series F MRP Shares, but they are not obligated to do so and may discontinue market-making at any time without notice. Consequently, it is anticipated that, prior to the commencement of trading on the NYSE, an investment in Series F MRP Shares may be illiquid.

 

Ratings

There can be no assurance that any rating obtained in connection with the offering of Series F MRP Shares will be maintained at the level originally assigned through the term of the Series F MRP Shares. The dividend rate payable on the Series F MRP Shares will be subject to an increase in the event that the rating of the Series F MRP Shares by Fitch (together with any nationally recognized statistical ratings agency then rating the Series F MRP Shares, a “Rating Agency”) is downgraded below “A” (or the equivalent of such rating by another Rating Agency), or if no Rating Agency is then rating the Series F MRP Shares. See “Description of Mandatory Redeemable Preferred Shares—Series F MRP Shares—Dividends and Dividend Periods—Adjustment to Fixed Dividend Rate—Ratings” in this prospectus supplement. The Board of Directors has the right to terminate the designation of Fitch or any other Rating Agency as a Rating Agency for purposes of the Series F MRP Shares. In such event, any rating of such terminated Rating Agency, to the extent it would have been taken into account in any of the provisions of the Series F MRP Shares which are described in this prospectus supplement or included in the Articles Supplementary, will be disregarded, and only the ratings of the then-designated Rating Agency will be taken into account.

 

Federal Income Tax Matters

Under present law, we believe that the Series F MRP Shares will constitute equity, and thus distributions with respect to the Series F MRP Shares will generally constitute dividends to the extent of our allocable current or accumulated earnings and profits, as calculated for federal income tax purposes. Such dividends generally will be taxable as ordinary income to holders but are expected to be treated as

 

 

S-5


Table of Contents
 

“qualified dividend income” that is generally subject to reduced rates of federal income taxation for noncorporate investors and are also expected to be eligible for the dividends received deduction available to corporate stockholders, in each case provided that certain holding period requirements are met. See “Federal Income Tax Matters” in this prospectus supplement.

 

Redemption and Paying Agent

American Stock Transfer & Trust Company

 

Risk Factors

See “Risk Factors” and other information included in the accompanying prospectus, as well as “Risks of Investing in Mandatory Redeemable Preferred Shares” in this prospectus supplement, for a discussion of risk factors you should carefully consider before deciding to invest in Series F MRP Shares.

 

 

S-6


Table of Contents

RISKS OF INVESTING IN MANDATORY REDEEMABLE PREFERRED SHARES

Investing in any of our securities involves risk, including the risk that you may receive little or no return on your investment or even that you may lose part or all of your investment. Therefore, before investing in the Series F MRP Share you should consider carefully the following risks, as well as the risk factors set forth under “Risk Factors” beginning on page 18 of the accompanying prospectus.

Interest Rate Risk

Our Series F MRP Shares pay dividends at a fixed dividend rate. Prices of fixed income investments vary inversely with changes in market yields. The market yields on intermediate term securities comparable to Series F MRP Shares may increase, which would likely result in a decline in the secondary market price of Series F MRP Shares prior to their term redemption.

Secondary Market and Delayed Listing Risk

Because we have limited prior trading history for exchange-listed preferred shares, it is difficult to predict the trading patterns of Series F MRP Shares, including the effective costs of trading Series F MRP Shares. Moreover, the Series F MRP Shares will not be immediately tradable on a stock exchange after the date of the offering and during this time period, an investment in Series F MRP Shares will be illiquid. Even after the application is approved and the Series F MRP Shares are listed on the NYSE as anticipated, there is a risk that the market for Series F MRP Shares may be thinly traded and relatively illiquid compared to the market for other types of securities, with the spread between the bid and asked prices considerably greater than the spreads of other securities with comparable terms and credit ratings.

Early Redemption Risk

We may voluntarily redeem Series F MRP Shares or may be forced to redeem Series F MRP Shares to meet regulatory requirements or asset coverage requirements. Such redemptions may be at a time that is unfavorable to holders of Series F MRP Shares. See “Asset Coverage Requirements” and “Description of Mandatory Redeemable Preferred Shares—Series F MRP Shares—Redemption” in this prospectus supplement.

Reinvestment Risk

Given the multi-year term and potential for early redemption of Series F MRP Shares, holders of Series F MRP Shares may face an increased reinvestment risk, which is the risk that the return on an investment purchased with proceeds from the sale or redemption of Series F MRP Shares may be lower than the return previously obtained from an investment in Series F MRP Shares.

Credit Crisis and Liquidity Risk

General market uncertainty and extraordinary conditions in the credit markets may impact the liquidity of our investment portfolio, which in turn, during extraordinary circumstances, could impact our distributions and/or the liquidity of the Term Redemption Liquidity Account. Furthermore, there may be market imbalances of sellers and buyers of Series F MRP Shares during periods of extreme illiquidity and volatility. Such market conditions may lead to periods of thin trading in any secondary market for the Series F MRP Shares and may make valuation of the Series F MRP Shares uncertain. As a result, the spread between bid and asked prices is likely to increase significantly such that a Series F MRP Shares investor may have greater difficulty selling his or her Series F MRP Shares. Less liquid and more volatile trading environments could result in sudden and significant valuation increases or declines in market price for Series F MRP Shares.

 

S-7


Table of Contents

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the Series F MRP Shares that we are offering will be approximately $108 million, after payment of the underwriting discount and estimated offering expenses payable by us or $122 million if the Underwriters exercise the overallotment option in full.

We intend to use the net proceeds of this offering to make investments in portfolio companies in accordance with our investment objective and policies, to repay indebtedness, to redeem our Series D MRP Shares and for general corporate purposes. We anticipate that we will be able to invest the net proceeds within one to two months from the date of this prospectus supplement.

Pending such investments, we anticipate (i) repaying all or a portion of the indebtedness owed under our existing unsecured revolving credit facility and (ii) investing the remaining net proceeds in short-term securities issued by the U.S. government or its agencies or instrumentalities or in high quality, short-term or long-term debt obligations or money market instruments. A delay in the anticipated use of proceeds could lower returns, reduce our distributions to common stockholders and reduce the amount of cash available to make dividend payments on preferred stock and debt securities, respectively.

At February 28, 2013, we had outstanding borrowings on the revolving credit facility of $21 million and the interest rate was 2.34%. Any borrowings under our revolving credit facility will be used to fund investments in portfolio companies and for general corporate purposes. Amounts repaid under our revolving credit facility will remain available for future borrowings. Affiliates of some of the Underwriters are lenders under our revolving credit facility and will receive a pro rata portion of the net proceeds from this offering, if any, used to reduce amounts outstanding under our credit facility. See “Underwriting—Affiliations—Conflicts of Interests” in this prospectus supplement.

 

S-8


Table of Contents

CAPITALIZATION

The following table sets forth our capitalization: (i) as of November 30, 2012, (ii) as adjusted to give effect to the issuance of 4,543,995 shares of common stock on March 12, 2013 and (ii) as adjusted for this offering to give effect to the issuance of the Series F MRP Shares offered hereby and the issuance of 4,543,995 shares of common stock on March 12, 2013. As indicated below, common stockholders will bear the offering costs associated with this offering.

 

    

As of November 30, 2012

 
     (Unaudited)  
    

Actual

    As Adjusted     As Adjusted
for this
Offering
 
     ($ in 000s, except per share data)  

Repurchase Agreements, Cash and Cash Equivalents

     $6,118        $132,598        $140,198 (1) 

Short-Term Debt:

      

Revolving Credit Facility

     19,000               (1) 

Long-Term Debt:

      

Senior Notes Series K (2)

     125,000        125,000        125,000   

Senior Notes Series M (2)

     60,000        60,000        60,000   

Senior Notes Series N (2)

     50,000        50,000        50,000   

Senior Notes Series O (2)

     65,000        65,000        65,000   

Senior Notes Series P (2)

     45,000        45,000        45,000   

Senior Notes Series Q (2)

     15,000        15,000        15,000   

Senior Notes Series R (2)

     25,000        25,000        25,000   

Senior Notes Series S (2)

     60,000        60,000        60,000   

Senior Notes Series T (2)

     40,000        40,000        40,000   

Senior Notes Series U (2)

     60,000        60,000        60,000   

Senior Notes Series V (2)

     70,000        70,000        70,000   

Senior Notes Series W (2)

     100,000        100,000        100,000   

Senior Notes Series X (2)

     14,000        14,000        14,000   

Senior Notes Series Y (2)

     20,000        20,000        20,000   

Senior Notes Series Z (2)

     15,000        15,000        15,000   

Senior Notes Series AA (2)

     15,000        15,000        15,000   

Senior Notes Series BB (2)

     35,000        35,000        35,000   

Senior Notes Series CC (2)

     76,000        76,000        76,000   
  

 

 

   

 

 

   

 

 

 

Total Long-Term Debt:

     $890,000        $890,000        $890,000   

Mandatory Redeemable Preferred Stock:

      

Series A MRP Shares, $0.001 par value per share, liquidation preference $25.00 per share (4,160,000 shares issued and outstanding, 4,160,000 shares authorized) (2)

     $104,000        $104,000        $104,000   

Series B MRP Shares, $0.001 par value per share, liquidation preference $25.00 per share (320,000 shares issued and outstanding, 320,000 shares authorized) (2)

     8,000        8,000        8,000   

Series C MRP Shares, $0.001 par value per share, liquidation preference $25.00 per share (1,680,000 shares issued and outstanding, 1,680,000 shares authorized) (2)

     42,000        42,000        42,000   

Series D MRP Shares, $0.001 par value per share, liquidation preference $25.00 per share (4,000,000 shares issued and outstanding, 4,000,000 shares authorized) (2)

     100,000        100,000        (1) 

Series E MRP Shares, $0.001 par value per share, liquidation preference $25.00 per share (4,800,000 shares issued and outstanding, 4,800,000 shares authorized) (2)

     120,000        120,000        120,000   

Series F MRP Shares, $0.001 par value per share, liquidation preference $25.00 per share (4,400,000 shares issued and outstanding, 5,000,000 shares authorized) (2) (3)

                   110,000   

Common Stockholders’ Equity:

      

Common stock, $0.001 par value per share, 185,040,000 shares authorized (88,431,413 shares issued and outstanding; 92,975,408 shares issued and outstanding as adjusted) (2) (3) (4) (5)

     $88        $93        $93   

Paid-in capital (6)

     1,716,276        1,861,756        1,861,756   

Accumulated net investment loss, net of income taxes, less dividends

     (521,715     (521,715     (521,715

Accumulated realized gains on investments, options, and interest rate swap contracts, net of income taxes

     290,599        290,599        290,599   

Net unrealized gains on investments and options, net of income taxes

     1,035,573        1,035,573        1,035,573   
  

 

 

   

 

 

   

 

 

 

Net assets applicable to common stockholders

     $2,520,821        $2,666,306        $2,666,306   
  

 

 

   

 

 

   

 

 

 

 

S-9


Table of Contents

 

(1) As described under “Use of Proceeds” in this prospectus supplement, we intend to use the net proceeds from this offering to make investments in portfolio companies in accordance with our investment objective and policies, to repay indebtedness, to purchase up to $100 million of our Series D MRP Shares and for general corporate purposes. Pending such investments, we anticipate (i) repaying all or a portion of the indebtedness owed under our existing unsecured revolving credit facility and (ii) investing the remaining net proceeds in short-term securities issued by the U.S. government or its agencies or instrumentalities or in high quality, short-term or long-term debt obligations or money market instruments.

 

(2) We do not hold any of these outstanding securities for our account.

 

(3) The Articles Supplementary provide that 5,000,000 shares of authorized but unissued common stock shall be classified and designated as 5,000,000 shares of Series F MRP Shares, $0.001 par value per share. As adjusted for this offering, there will be 180,040,000 shares of common stock authorized.

 

(4) In connection with the March 7, 2013 common stock offering of 4,500,000 shares of common stock (which closed on March 12, 2013), we granted the underwriters for such offering an option to purchase up to an additional 675,000 shares of common stock to cover overallotments. As of March 26, 2013, the underwriters have partially exercised this option and purchased 43,995 shares of common stock (also were issued on March 12, 2013). This row reflects the issuance of the 43,995 shares but does not reflect the issuance of any remaining shares that may be issued in connection with such underwriters’ overallotment option.

 

(5) On January 11, 2013, we issued 190,273 shares of common stock pursuant to our dividend reinvestment plan which are not reflected in the as adjusted shares issued and outstanding.

 

(6) As adjusted, additional paid-in capital reflects the issuance of shares of common stock offered in the March 7, 2013 common stock offering ($151,588), less $0.001 par value per share of common stock ($5), less the underwriting discounts and commissions ($5,907) and less the net estimated offering costs borne by us ($200) related to the issuance of shares of common stock.

 

S-10


Table of Contents

ASSET COVERAGE REQUIREMENTS

The 1940 Act and the Rating Agency rating the Series F MRP Shares impose asset coverage requirements that may limit our ability to engage in certain types of transactions and may limit our ability to take certain actions without confirming with the Rating Agency that such action will not impair the ratings.

We are required to satisfy two separate asset maintenance requirements with respect to outstanding Series F MRP Shares: (1) we must maintain assets in our portfolio that have a value, discounted in accordance with guidelines set forth by the Rating Agency, at least equal to the aggregate liquidation preference of the Series F MRP Shares, plus specified liabilities, payment obligations and other amounts as set forth by the Rating Agency (the “Series F MRP Shares Basic Maintenance Amount”); and (2) we must satisfy the 1940 Act asset coverage requirements. Further details about the components of the Series F MRP Shares Basic Maintenance Amount can be found in the Articles Supplementary. The Rating Agency may amend its guidelines from time to time.

In order to meet the 1940 Act asset coverage requirements, we must maintain, with respect to our outstanding preferred stock, asset coverage of at least 200%. Notwithstanding the foregoing, we have agreed, while the Series F MRP Shares are outstanding, to maintain the Series F MRP Shares Asset Coverage (or asset coverage of at least 225%). We estimate that based on the composition of our portfolio as of February 28, 2013, our asset coverage, after giving effect to this offering (and the associated redemption of Series D MRP Shares), would be:

 

     ($ in millions)                

Value of Company assets less all liabilities and indebtedness not represented by senior securities

         $4,035             =         312
  

 

 

       

Senior securities representing indebtedness (including borrowings on our credit facility), plus the aggregate liquidation preference of all outstanding Preferred Shares

         $1,295             

A copy of the current Rating Agency Guidelines will be provided to any holder of Series F MRP Shares promptly upon written request by such holder to the Company at 717 Texas Avenue, Suite 3100, Houston, Texas 77002. See “Rating Agency Guidelines” in the accompanying prospectus for a more detailed description of our asset maintenance requirements.

 

S-11


Table of Contents

DESCRIPTION OF MANDATORY REDEEMABLE PREFERRED SHARES

The following is a brief description of the terms of the Series F MRP Shares. This description does not purport to be complete and is subject to and qualified in its entirety by reference to the more detailed description of the Mandatory Redeemable Preferred Shares in the Articles Supplementary, a copy of which is filed as an exhibit to our registration statement.

General

As of February 28, 2013, our authorized capital consisted of 185,040,000 shares of common stock, $0.001 par value per share; 4,160,000 shares of Series A Mandatory Redeemable Preferred Stock, $0.001 par value per share (the “Series A MRP Shares”); 320,000 shares of Series B Mandatory Redeemable Preferred Stock, $0.001 par value per share (the “Series B MRP Shares”); 1,680,000 shares of Series C Mandatory Redeemable Preferred Stock, $0.001 par value per share (the “Series C MRP Shares”); 4,000,000 shares of Series D Mandatory Redeemable Preferred Stock, $0.001 par value per share (the “Series D MRP Shares”); and 4,800,000 of Series E Mandatory Redeemable Preferred Stock, $0.001 par value per share (the “Series E MRP Shares”). In addition, the Articles Supplementary provide that 5,000,000 shares of common stock shall be classified and designated as an aggregate of 5,000,000 Series F MRP Shares with the rights, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption as set forth in the Articles Supplementary.

As of February 28, 2013, there were no outstanding options or warrants to purchase our stock. In connection with the March 7, 2013 common stock offering, we granted the underwriters for such offering an option exercisable through April 21, 2013 to purchase up to an additional 675,000 shares of common stock to cover overallotments, if any. As of March 26, 2013, the underwriters have partially exercised this option and purchased 43,995 shares of common stock. No stock has been authorized for issuance under any equity compensation plans.

Under Maryland law, our stockholders generally are not personally liable for our debts or obligations.

Under our Charter, our Board of Directors is authorized to classify and reclassify any unissued shares of stock into other classes or series of stock and authorize the issuance of shares of stock on a parity with the Series A MRP Shares, Series B MRP Shares, Series C MRP Shares, the Series D MRP Shares, the Series E MRP Shares and the Series F MRP Shares with preferences, rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption as determined by the Board of Directors without obtaining stockholder approval. As permitted by the Maryland General Corporation Law, our Charter provides that the Board of Directors, without any action by our stockholders, may amend the Charter from time to time to increase or decrease the aggregate number of shares or stock or the number of shares of stock of any class or series that we have authority to issue.

Series F MRP Shares

The Series F MRP Shares have a liquidation preference of $25.00 per share, plus all accumulated but unpaid dividends (whether or not earned or declared) to the date of final distribution. The Series F MRP Shares when issued and sold through this offering (1) will be fully paid and non-assessable, (2) will not be convertible into shares of our common stock or any other security and (3) will have no preemptive rights. The Series F MRP Shares will be subject to optional and mandatory redemption as described below under “— Redemption.”

Holders of Series F MRP Shares will not receive certificates representing their ownership interest in such shares. The Depository Trust Company will initially act as Securities Depository with respect to the Series F MRP Shares.

American Stock Transfer & Trust Company will act as the transfer agent, registrar and paying agent (“paying agent”) for the Series F MRP Shares. Furthermore, the paying agent will send notices to holders of Series F MRP Shares of any meeting at which holders of Series F MRP Shares have the right to vote. See “—Voting Rights” below. However, the paying agent generally will serve merely as our agent, acting in accordance with our instructions.

 

S-12


Table of Contents

We will have the right (to the extent permitted by applicable law and our Charter) to purchase or otherwise acquire any Series F MRP Shares, so long as we are current in the payment of dividends on the Series F MRP Shares and on any of our other preferred shares.

Dividends and Dividend Periods

General.    Holders of Series F MRP Shares will be entitled to receive monthly cumulative cash dividends, when, as and if authorized by the Board of Directors and declared by us, out of funds legally available therefor, on the initial Dividend Payment Date with respect to the initial Dividend Period and, thereafter, on each Dividend Payment Date with respect to a subsequent Dividend Period at the rate per annum (the “Dividend Rate”) equal to the Applicable Rate (or the “Default Rate”) for each Dividend Period. The Applicable Rate is computed on the basis of a 360 day year consisting of twelve 30 day months. Dividends so authorized and declared and payable shall be paid to the extent permitted under Maryland law and to the extent available and in preference to and priority over any distribution declared and payable on our common stock. For a description of the tax treatment of distributions paid on the Series F MRP Shares, see “Federal Income Tax Matters” in this prospectus supplement.

Fixed Dividend Rate.    The Applicable Rate is an annual rate of 3.500% for Series F MRP Shares and may be adjusted upon a change in the credit rating of the Series F MRP Shares.

Payment of Dividends and Dividend Periods.    Dividends on the Series F MRP Shares will be payable on the first business day of each month, beginning May 1, 2013 and upon redemption of the Series F MRP Shares. The initial Dividend Period for the Series F MRP Shares will commence on April 3, 2013 and end on April 30, 2013 and each subsequent Dividend Period will be a one month period (or the portion thereof occurring prior to the redemption of such Series F MRP Shares). Dividends with respect to any monthly Dividend Period will be declared and paid to holders of record of Series F MRP Shares as their names shall appear on our books and records, at the close of business on the 15th day of such Dividend Period (or if such day is not a business day, the next preceding business day) or, with respect to the initial Dividend Period, to holders of record of Series F MRP Shares as their names shall appear on our books and records at the close of business on April 15, 2013 (each, a “Record Date”). Dividends payable on any Series F MRP Shares for any period of less than a full monthly Dividend Period or upon any redemption of such shares on any redemption date other than on a Dividend Payment Date, will be computed on the basis of the actual number of days elapsed for any period divided by 360.

Adjustment to Fixed Dividend RateRatings.    So long as the Series F MRP Shares are rated on any date no less than “A” by Fitch (or no less than the equivalent of such rating by another Rating Agency), then the Dividend Rate for such series of shares will be equal to the Applicable Rate. If the highest credit rating assigned by Fitch (or any other rating agency) on any date to the outstanding Series F MRP Shares is equal to one of the ratings set forth in the table below, the Dividend Rate applicable to such outstanding shares for such date will be adjusted by adding the respective enhanced dividend amount (which shall not be cumulative) set forth opposite such rating to the Applicable Rate.

Dividend Rate Adjustment Schedule

 

Fitch Rating

   Enhanced
Dividend
Amount
 

“A-”

     0.75

“BBB+”

     1.00

“BBB”

     1.25

“BBB-”

     1.50

“BB+” or lower

     4.00

 

S-13


Table of Contents

We shall use our reasonable best efforts to cause at least one Rating Agency to maintain a current rating on the outstanding Series F MRP Shares. If no Rating Agency is rating the outstanding Series F MRP Shares, the Dividend Rate (so long as no such rating exists) applicable to the Series F MRP Shares for such date shall be a rate equal to the Applicable Rate plus 4.00%, unless the Dividend Rate is the Default Rate, in which case the Dividend Rate shall remain the Default Rate.

The Board of Directors has the right to terminate the designation of Fitch or any other Rating Agency as a Rating Agency for purposes of the Series F MRP Shares. In such event, any rating of such terminated Rating Agency, to the extent it would have been taken into account in any of the provisions of the Series F MRP Shares which are described in this prospectus supplement or included in the Articles Supplementary, will be disregarded, and only the rating of the then-designated Rating Agency will be taken into account. If a Rating Agency replaces any credit rating used in the determination of the Dividend Rate with a replacement credit rating, references to the replaced credit rating shall thereafter refer to the replacement credit rating. No adjustment to the Dividend Rate shall result in the Dividend Rate being less than the Applicable Rate.

Default RateDefault Period.    The Dividend Rate will be the Default Rate in the following circumstances. Subject to the cure provisions below, a “Default Period” with respect to Series F MRP Shares will commence on any Dividend Payment Date or any date on which the Company would be required to redeem any Series F MRP Shares assuming none of the conditions of the Special Proviso (as defined below) were applicable if we fail to deposit irrevocably in trust in same-day funds, with the paying agent by 3:00 p.m., New York City time, (i) the full amount of any dividends on the Series F MRP Shares payable on the Dividend Payment date (a “Dividend Default”) or (ii) the full amount of any redemption price payable with respect to any redemption required assuming none of the conditions of the Special Proviso exist (the “Redemption Date”) (a “Redemption Default” and, together with a Dividend Default, hereinafter referred to as a “Default”). Subject to the cure provisions in the next paragraph below, a Default Period with respect to a Default or a Redemption Default shall end on the business day on which, by 12:00 noon, New York City time, an amount equal to all unpaid dividends and any unpaid redemption price shall have been deposited irrevocably in trust in same-day funds with the paying agent. In the case of a Dividend Default, the Dividend Rate for each day during the Default Period will be equal to the Default Rate. The “Default Rate” for any calendar day shall be equal to the Applicable Rate in effect on such day plus five percent (5.00%) per annum.

No Default Period with respect to a Dividend Default or Redemption Default will be deemed to commence if the amount of any dividend or any redemption price due (if such default is not solely due to our willful failure) is deposited irrevocably in trust, in same-day funds with the paying agent by 12:00 noon, New York City time, within three business days after the applicable Dividend Payment Date or Redemption Date, together with an amount equal to the Default Rate applied to the amount and period of such non-payment based on the number of days comprising such period divided by 360.

Mechanics of Payment of Dividends.    Not later than 3:00 p.m., New York City time, on the business day next preceding each Dividend Payment Date, we are required to deposit with the paying agent sufficient funds for the payment of dividends. We do not intend to establish any reserves for the payment of dividends. All amounts paid to the paying agent for the payment of dividends will be held irrevocably in trust for the payment of such dividends to the holders of Series F MRP Shares. Dividends will be paid by the paying agent to the holders of Series F MRP Shares as their names appear on our books and records on the Record Date. Dividends that are in arrears for any past Dividend Period may be declared and paid at any time, without reference to any regular Dividend Payment Date. Such payments are made to holders of Series F MRP Shares as their names appear on our books and records at the close of business on the 15th day of such Dividend Period (or if such day is not a business day, the next preceding business day) or, with respect to the initial Dividend Period, to holders of record of Series F MRP Shares as their names appear on our books and records at the close of business on April 15, 2013. Any payment of dividends in arrears will first be credited against the earliest accumulated but unpaid dividends. No interest will be payable in respect of any dividend payment or payments on any Series F MRP Shares which may be in arrears. See “— Default Rate—Default Period” above.

 

S-14


Table of Contents

Upon failure to pay dividends for two years or more, the holders of Series F MRP Shares will acquire certain additional voting rights. See “—Voting Rights” below. Such rights shall be the exclusive remedy of the holders of Series F MRP Shares upon any failure to pay dividends on Series F MRP Shares.

Redemption

Term Redemption.    We are required to redeem all of the Series F MRP Shares on the Term Redemption Date, at the Redemption Price.

Optional Redemption.    To the extent permitted under the 1940 Act and Maryland law, we may, at our option, redeem Series F MRP Shares, in whole or in part, out of funds legally available therefor, at any time and from time to time, upon not less than 30 calendar days’ nor more than 40 calendar days’ prior notice. This optional redemption is limited during the first year the Series F MRP Shares are outstanding to situations in which the Series F MRP Shares Asset Coverage is greater than 225%, but less than or equal to 235% for any five business days within a 10 business day period. The amount of Series F MRP Shares that may be redeemed during the first year may not exceed an amount that results in a Series F MRP Share Asset Coverage of more than 250% pro forma for such redemption. At any time on or prior to April 14, 2014, subject to the foregoing conditions, we may redeem Series F MRP Shares at a price per share equal to 102% of the liquidation preference per share, plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared but excluding interest thereon) to (but excluding) the date fixed for redemption. After April 14, 2014, subject to the foregoing conditions and to the extent permitted under the 1940 Act, we may redeem the Series F MRP Shares at the Optional Redemption Price per share. The “Optional Redemption Price” shall equal the product of the percentage provided below, as applicable, and the liquidation preference per share, plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared but excluding interest thereon) to (but excluding) the date fixed for redemption:

 

Time Periods

   Percentage  

After April 14, 2014 and on or before April 14, 2015

     101.0

After April 14, 2015 and on or before April 14, 2016

     100.5

After April 14, 2016 and on or before the Term Redemption Date

     100.0

If fewer than all of the outstanding Series F MRP Shares are to be redeemed in an optional redemption, we shall allocate the number of shares required to be redeemed pro rata among the holders of Series F MRP Shares in proportion to the number of shares they hold, by lot or by such other method as we shall deem fair and equitable.

We shall not effect any optional redemption unless (i) on the date of such notice and on the date fixed for redemption we have available either (A) cash or cash equivalents or (B) any other Deposit Securities with a maturity or tender date not later than one day preceding the applicable redemption date, or any combination thereof, having an aggregate value not less than the amount, including any applicable premium, due to holders of the Series F MRP Shares by reason of the redemption of the Series F MRP Shares on such date fixed for the redemption and (ii) we would satisfy the Series F MRP Shares Basic Maintenance Amount.

We also reserve the right to repurchase Series F MRP Shares in market or other transactions from time to time in accordance with applicable law and our Charter and at a price that may be more or less than the liquidation preference of the Series F MRP Shares, but we are under no obligation to do so.

Mandatory Redemption.    If, while any Series F MRP Shares are outstanding, we fail to maintain the Series F MRP Shares Asset Coverage as of the last day of any month or the Series F MRP Shares Basic Maintenance Amount as of any valuation date (any such day, an “Asset Coverage Cure Date”), and such failure is not cured as of the date that is 30 days from such Asset Coverage Cure Date (any such day, a “Cure Date”), the Series F MRP Shares will be subject to mandatory redemption out of funds legally available therefor at the

 

S-15


Table of Contents

Redemption Price; provided, however, that if a redemption of the Series A MRP Shares is required as a result of our failure to maintain either (i) asset coverage of at least 225% or (ii) the basic maintenance amount required by the rating agency rating the Series A MRP Shares under its specific rating agency guideline in effect at such time, a pro rata redemption of the Series F MRP Shares shall also be required. See “Rating Agency Guidelines—1940 Act Asset Coverage” in the accompanying prospectus, but note that we have agreed, while the Series F MRP Shares are outstanding, to maintain asset coverage of at least 225% instead of 200%.

The number of Series F MRP Shares to be redeemed under these circumstances will be equal to the product of (1) the quotient of the number of outstanding Series F MRP Shares divided by the aggregate number of our outstanding Preferred Shares, including the Series F MRP Shares, and (2) the minimum number of Preferred Shares, including the Series F MRP Shares, the redemption of which would result in our satisfying the Series F MRP Shares Asset Coverage or Series F MRP Shares Basic Maintenance Amount, as the case may be, in each case as of the relevant Cure Date (provided that, if there is no such minimum number of shares the redemption of which would have such result, all Series F MRP Shares then outstanding will be redeemed).

We shall allocate the number of shares required to be redeemed to satisfy the Series F MRP Shares Asset Coverage or Series F MRP Shares Basic Maintenance Amount, as the case may be, pro rata among the holders of Series F MRP Shares in proportion to the number of shares they hold, by lot or by such other method as we shall deem fair and equitable, subject to any mandatory redemption provisions.

We are required to effect such a mandatory redemption not sooner than 30 days and not later than 40 days after the Cure Date (the “Mandatory Redemption Date”) except that if we (1) do not have funds legally available for the redemption of, (2) are not permitted under any agreement or instrument relating to or evidencing indebtedness of the Company to redeem, or (3) are not otherwise legally permitted to redeem, all of the required number of Series F MRP Shares and shares of any other class or series of Preferred Stock that are subject to mandatory redemption (we refer to clauses (1), (2) and (3) of this sentence as the “Special Proviso”), or we otherwise are unable to effect such redemption on or prior to such Mandatory Redemption Date; then we shall redeem those Series F MRP Shares and shares of any other class or series of Preferred Stock on the earliest practical date on which we will have such funds available and are not otherwise prohibited from redeeming pursuant to any agreements or instruments or applicable law, upon notice to record holders of the Preferred Shares that are subject to mandatory redemption and the paying agent. Our ability to make a mandatory redemption may be limited by the provisions of the 1940 Act or Maryland law.

Redemption Procedure.    In the event of a redemption, we will file a notice of our intention to redeem any Series F MRP Shares with the SEC under Rule 23c-2 under the 1940 Act or any successor provision, to the extent applicable.

We also shall deliver a notice of redemption to the paying agent and the holders of Series F MRP Shares to be redeemed not less than 30 days nor more than 40 days prior to the applicable redemption date (“Notice of Redemption”). The Notice of Redemption will be addressed to the registered owners of the Series F MRP Shares at their addresses appearing on our books or records. Such notice will set forth (1) the redemption date, (2) the number and identity of Series F MRP Shares to be redeemed, (3) the redemption price (specifying the amount of accumulated dividends to be included therein and the amount of the redemption premium, if any), (4) that dividends on the shares to be redeemed will cease to accumulate on such redemption date, and (5) the provision under the Articles Supplementary by which redemption shall be made. No defect in the Notice of Redemption or in the transmittal or mailing thereof will affect the validity of the redemption proceedings, except as required by applicable law.

If less than all of the Series F MRP Shares are to be redeemed on any date, the shares per holder to be redeemed on such date will be selected by us on a pro rata basis in proportion to the number of shares held by such holder, by lot or by such other method as is determined by us to be fair and equitable.

 

S-16


Table of Contents

If Notice of Redemption has been given, then upon the deposit with the paying agent of funds sufficient to effect such redemption, dividends on such shares will cease to accumulate and such shares will be no longer deemed to be outstanding for any purpose and all rights of the holders of the shares so called for redemption will cease and terminate, except the right of the holders of such shares to receive the redemption price, but without any interest or additional amount. Upon written request, we shall be entitled to receive from the paying agent, promptly after the date fixed for redemption, any cash deposited with the paying agent in excess of (1) the aggregate redemption price of the Series F MRP Shares called for redemption on such date and (2) such other amounts, if any, to which holders of Series F MRP Shares called for redemption may be entitled. Any funds so deposited that are unclaimed two years after such redemption date will be paid, to the extent permitted by law, by the paying agent to us upon our request. Subsequent to such payment, holders of Series F MRP Shares called for redemption may look only to us for payment.

To the extent that any redemption for which a Notice of Redemption has been given is not made by reason of the Special Proviso, such redemption shall be made as soon as practicable to the extent such funds become legally available or such redemption is no longer otherwise prohibited. Failure to redeem Series F MRP Shares shall be deemed to exist when we shall have failed, for any reason whatsoever, to deposit with the Paying Agent on or prior to the date fixed for redemption the redemption price with respect to any shares for which such Notice of Redemption has been given in accordance with the Articles Supplementary. Notwithstanding the fact that we may not have redeemed Series F MRP Shares for which a Notice of Redemption has been given, dividends may be declared and paid on Series F MRP Shares and shall include those Series F MRP Shares for which Notice of Redemption has been given but for which deposit of funds has not been made.

So long as any Series F MRP Shares are held of record by the nominee of the Securities Depository, the redemption price for such shares will be paid on the redemption date to the nominee of the Securities Depository. The Securities Depository’s normal procedures provide for it to distribute the amount of the redemption price to its agent members who, in turn, are expected to distribute such funds to the persons for whom they are acting as agent.

Notwithstanding the provisions for redemption described above, no Series F MRP Shares may be redeemed unless all dividends in arrears on the outstanding Series F MRP Shares, and any of our shares ranking on a parity with the Series F MRP Shares with respect to the payment of dividends or upon liquidation, have been or are being contemporaneously paid or set aside for payment, except in connection with our liquidation, in which case all Series F MRP Shares and all shares ranking in parity with the Series F MRP Shares must receive proportionate amounts. At any time we may purchase or acquire all the outstanding Series F MRP Shares pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to, and accepted by, holders of all outstanding Series F MRP Shares.

Except for the provisions described above, nothing contained in the Articles Supplementary limits any legal right of ours to purchase or otherwise acquire any Series F MRP Shares at any price, whether higher or lower than the price that would be paid in connection with an optional or mandatory redemption, so long as, at the time of any such purchase, there is no arrearage in the payment of dividends on, or the mandatory or optional redemption price with respect to, any Series F MRP Shares for which Notice of Redemption has been given and we are in compliance with the Series F MRP Shares Asset Coverage and the Series F MRP Shares Basic Maintenance Amount after giving effect to such purchase or acquisition on the date thereof. Any shares purchased, redeemed or otherwise acquired by us shall be returned to the status of authorized but unissued shares of common stock. If less than all outstanding Series F MRP Shares are redeemed or otherwise acquired by us, we shall give notice of such transaction to the paying agent, in accordance with the procedures agreed upon by the Board of Directors.

Term Redemption Liquidity Account

On or prior to December 15, 2019 (the “Liquidity Account Initial Date”), we will cause the custodian to segregate, by means of appropriate identification on its books and records or otherwise in accordance with the

 

S-17


Table of Contents

custodian’s normal procedures, from our other assets (the “Term Redemption Liquidity Account”) Deposit Securities (each a “Liquidity Account Investment” and collectively, the “Liquidity Account Investments”) with an aggregate Market Value equal to at least 110% of the Term Redemption Amount (as defined below) with respect to such Series F MRP Shares.

The “Term Redemption Amount” for Series F MRP Shares is equal to the Redemption Price to be paid on the Term Redemption Date, based on the number of Series F MRP Shares then outstanding, assuming for this purpose that the Dividend Rate in effect at the Liquidity Account Initial Date will be the Dividend Rate in effect until the Term Redemption Date. If, on any date after the Liquidity Account Initial Date, the aggregate Market Value of the Liquidity Account Investments included in the Term Redemption Liquidity Account for Series F MRP Shares as of the close of business on any business day is less than 110% of the Term Redemption Amount, then we will cause the custodian to take all such necessary actions, including segregating our assets as Liquidity Account Investments, so that the aggregate Market Value of the Liquidity Account Investments included in the Term Redemption Liquidity Account is at least equal to 110% of the Term Redemption Amount not later than the close of business on the next succeeding business day.

We may instruct the custodian on any date to release any Liquidity Account Investments from segregation with respect to the Series F MRP Shares and to substitute therefor other Liquidity Account Investments not so segregated, so long as the assets segregated as Liquidity Account Investments at the close of business on such date have a Market Value equal to 110% of the Term Redemption Amount. We will cause the custodian not to permit any lien, security interest or encumbrance to be created or permitted to exist on or in respect of any Liquidity Account Investments included in the Term Redemption Liquidity Account, other than liens, security interests or encumbrances arising by operation of law and any lien of the custodian with respect to the payment of its fees or repayment for its advances.

The Liquidity Account Investments included in the Term Redemption Liquidity Account may be applied by us, in our discretion, towards payment of the Redemption Price. The Series F MRP Shares shall not have any preference or priority claim with respect to the Term Redemption Liquidity Account or any Liquidity Account Investments deposited therein. Upon the deposit by us with the Paying Agent of Liquidity Account Investments having an initial combined Market Value sufficient to effect the redemption of the Series F MRP Shares on the Term Redemption Date, the requirement to maintain the Term Redemption Liquidity Account as described above will lapse and be of no further force and effect.

Voting Rights

Except as otherwise indicated in our Charter or Bylaws, or as otherwise required by applicable law, holders of our preferred stock (including our Series F MRP Shares) have one vote per share and vote together with holders of common stock as a single class on all matters submitted to our stockholders. See “Description of Capital Stock—Preferred Stock—Voting Rights” in the accompanying prospectus.

The 1940 Act requires that the holders of any preferred stock (including our Series F MRP Shares), voting separately as a single class, have the right to elect at least two directors at all times. The remaining directors will be elected by holders of common stock and preferred stock (including our Series F MRP Shares), voting together as a single class. In addition, the holders of any shares of our preferred stock (including our Series F MRP Shares) have the right to elect a majority of the directors at any time two years’ accumulated dividends on our preferred stock (including our Series F MRP Shares) are unpaid or at any other time provided for under the 1940 Act. The 1940 Act also requires that, in addition to any approval by stockholders that might otherwise be required, the approval of the holders of a majority of shares of our outstanding preferred stock (including our Series F MRP Shares), voting separately as a class, would be required to (i) adopt any plan of reorganization that would adversely affect our Series F MRP Shares, and (ii) take any action requiring a vote of security holders under Section 13(a) of the 1940 Act, including, among other things, changes in our subclassification as a closed-end investment company or changes in our fundamental investment restrictions. See “Description of Capital Stock — Certain Provisions of the Maryland General Corporation Law and Our Charter and Bylaws” in the accompanying prospectus.

 

S-18


Table of Contents

The affirmative vote of the holders of a majority of our outstanding preferred stock (including our Series F MRP Shares) determined with reference to a 1940 Act Majority (as defined in our Charter), voting as a separate class, will be required to (1) approve any plan of reorganization (as such term is used in the 1940 Act) adversely affecting such shares or any action requiring a vote of our security holders under Section 13(a) of the 1940 Act, (2) amend, alter or repeal any of the preferences, rights or powers of holders of our preferred stock (including our Series F MRP Shares) so as to affect materially and adversely such preferences, rights or powers, (3) approve the issuance of shares of any class of stock (or the issuance of a security convertible into, or a right to purchase, shares of a class or series) ranking senior to our preferred stock (including our Series F MRP Shares) with respect to the payment of dividends or the distribution of assets, (4) approve our liquidation or dissolution, (5) approve, in certain circumstances, the creation, incurrence or existence of any material lien, mortgage, pledge, charge, security interest, security agreement, conditional sale or trust receipt or other material encumbrance of any kind upon any of our assets as a whole and (6) create, authorize, issue, incur or suffer to exist any indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness, except as may be permitted by our investment restrictions or the 1940 Act.

The affirmative vote of the holders of a majority of our outstanding Series F MRP Shares determined with reference to a 1940 Act Majority, voting separately as a series, will be required with respect to any matter that materially and adversely affects the rights, preferences, or powers of the Series F MRP Shares in a manner different from that of our other separate series or classes of stock.

The foregoing voting provisions will not apply with respect to the Series F MRP Shares if, at or prior to the time when a vote is required, such shares have been (i) redeemed or (ii) called for redemption and sufficient funds shall have been deposited in trust to effect such redemption.

The class vote of holders of our preferred stock described above will in each case be in addition to any other vote required to authorize the action in question.

 

S-19


Table of Contents

FEDERAL INCOME TAX MATTERS

The following is a general summary of certain federal income tax considerations regarding the ownership and disposition of Series F MRP Shares. This discussion is based on the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), the applicable Treasury regulations promulgated thereunder, judicial authority and current administrative rulings and practice, all of which are subject to change, possibly on a retroactive basis. There can be no assurance that the Internal Revenue Service (the “IRS”) will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS with respect to such consequences. This discussion does not purport to be complete or to deal with all aspects of federal income taxation that may be relevant to holders in light of their particular circumstances or who are subject to special rules, such as banks, thrift institutions and certain other financial institutions, real estate investment trusts, regulated investment companies, insurance companies, brokers and dealers in securities or currencies, certain securities traders, tax-exempt investors, individual retirement accounts, certain tax-deferred accounts, and foreign investors. Tax matters are very complicated, and the tax consequences of an investment in and holding of Series F MRP Shares will depend on the particular facts of each investor’s situation. Investors are urged to consult their own tax advisors with respect to the application to their own circumstances of the general federal income taxation rules described below and with respect to other federal, state, local or foreign tax consequences to them before making an investment in Series F MRP Shares. Unless otherwise noted, this discussion assumes that investors are U.S. persons for federal income tax purposes and hold Series F MRP Shares as capital assets. For more detailed information regarding the federal income tax consequences of investing in our securities see “Tax Matters” in the accompanying prospectus.

If an entity that is classified as a partnership for federal income tax purposes is a beneficial owner of Series F MRP Shares, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Partnerships and other entities that are classified as partnerships for federal income tax purposes and persons holding Series F MRP Shares through a partnership or other entity classified as a partnership for federal income tax purposes are urged to consult their own tax advisors.

Federal Income Tax Treatment of Holders of Series F MRP Shares

Under present law, we believe that the Series F MRP Shares will constitute equity, and thus distributions with respect to the Series F MRP Shares (other than distributions in redemption of Series F MRP Shares subject to Section 302(b) of the Code) will generally constitute dividends to the extent of our allocable current or accumulated earnings and profits, as calculated for federal income tax purposes. Such dividends generally will be taxable as ordinary income to holders but are expected to be treated as “qualified dividend income” that is generally subject to reduced rates of federal income taxation for noncorporate investors and are also expected to be eligible for the dividends received deduction available to corporate stockholders under Section 243 of the Code. Under federal income tax law, qualified dividend income received by individual and other noncorporate stockholders is taxed at long-term capital gain rates, which currently reach a maximum of 20%. Qualified dividend income generally includes dividends from domestic corporations and dividends from non-U.S. corporations that meet certain criteria. To be treated as qualified dividend income, the stockholder must hold the Series F MRP Shares paying otherwise qualifying dividend income more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. A stockholder’s holding period may be reduced for purposes of this rule if the stockholder engages in certain risk reduction transactions with respect to the Series F MRP Shares. In addition, beginning in 2013, a 3.8% Medicare contribution tax generally applies to dividend income and net capital gains for taxpayers whose adjusted gross incomes exceed $200,000 for single filers and $250,000 for married joint filers.

Corporate holders should be aware that certain limitations apply to the availability of the dividends received deduction, including limitations on the aggregate amount of the deduction that may be claimed and limitations based on the holding period of the Series F MRP Shares on which the dividend is paid, which holding period may be reduced if the holder engages in risk reduction transactions with respect to its Series F MRP Shares. Corporate holders are urged to consult their own tax advisors regarding the application of these limitations to their particular situation.

 

S-20


Table of Contents

Generally, a corporation’s earnings and profits are computed based upon taxable income, with certain specified adjustments. We anticipate that the cash distributions received from MLPs in our portfolio will exceed the earnings and profits associated with owning such MLPs.

Earnings and profits are generally treated, for federal income tax purposes, as first being used to pay distributions on Series F MRP Shares, and then to the extent remaining, if any, to pay distributions on our common stock. Distributions in excess of our earnings and profits, if any, will first reduce a stockholder’s adjusted tax basis in his or her Series F MRP Shares and, after the adjusted tax basis is reduced to zero, will constitute capital gains to a stockholder.

Sale, Exchange or Redemption of Series F MRP Shares.    The sale or exchange of Series F MRP Shares by holders will generally be a taxable transaction for federal income tax purposes. Holders of shares of stock who sell or exchange such shares will generally recognize gain or loss in an amount equal to the difference between the net proceeds of the sale or exchange and their adjusted tax basis in the shares sold or exchanged. The gain or loss from the sale or exchange of Series F MRP Shares will generally be capital gain or loss if you hold your Series F MRP Shares as a capital asset. Similarly, a redemption by us (including a redemption resulting from our liquidation), if any, of all the shares actually and constructively held by a stockholder generally will give rise to capital gain or loss under Section 302(b) of the Code, except to the extent that the redemption proceeds represent declared but unpaid dividends. Other redemptions may also give rise to capital gain or loss, but certain conditions imposed by Section 302(b) of the Code must be satisfied as to the redeeming stockholder to achieve such treatment. If a redemption by us does not satisfy the conditions imposed by Section 302(b) of the Code for a redeeming stockholder, the redemption will constitute a distribution on the Series F MRP Shares to the stockholder subject to the rules set forth in the paragraphs above.

Capital gain or loss will generally be long-term capital gain or loss if the Series F MRP Shares were held for more than one year and will be short-term capital gain or loss if the disposed Series F MRP Shares were held for one year or less. Net long-term capital gain recognized by a noncorporate holder generally will be subject to federal income tax at a lower rate (currently a maximum rate of 20%) than net short-term capital gain or ordinary income (currently a maximum rate of 39.6%). For corporate holders, capital gain is generally taxed at the same rate as ordinary income, that is, currently at a maximum rate of 35%. A holder’s ability to deduct capital losses may be limited.

Backup Withholding.    We may be required to withhold, for federal income tax purposes, a portion of all distributions (including redemption proceeds) payable to stockholders who fail to provide us with their correct taxpayer identification number, who fail to make required certifications or who have been notified by the IRS that they are subject to backup withholding (or if we have been so notified). Certain corporate and other stockholders specified in the Code and the applicable Treasury regulations are exempt from backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against the stockholder’s federal income tax liability provided the appropriate information is furnished to the IRS in a timely manner.

Other Taxation

Non-U.S. stockholders, including stockholders who are nonresident alien individuals, may be subject to U.S. withholding tax on certain distributions at a rate of 30% or such lower rates as may be prescribed by any applicable treaty. In addition, recently enacted legislation may impose additional U.S. reporting and withholding requirements on certain foreign financial institutions and other foreign entities with respect to distributions on and proceeds from the sale or disposition of our stock. This legislation will generally be effective for payments of dividends made on or after January 1, 2014 and payments of gross proceeds from sales of Series F MRP Shares made on or after January 1, 2017. Foreign stockholders should consult their tax advisors regarding the possible implications of this legislation as well as the other U.S. federal, state, local and foreign tax consequences of an investment in our stock.

 

S-21


Table of Contents

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus supplement, the Underwriters named below for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and UBS Securities LLC are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of Series F MRP Shares indicated below:

 

Name of Underwriters

       

Number of
Securities

 

Merrill Lynch, Pierce, Fenner & Smith
                Incorporated

     1,246,668   

Citigroup Global Markets Inc.

     1,246,666   

UBS Securities LLC

     1,246,666   

RBC Capital Markets, LLC

     660,000   
  

 

 

 

    Total

     4,400,000   
  

 

 

 

The Underwriters are offering the Series F MRP Shares subject to their acceptance of the Series F MRP Shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the Series F MRP Shares offered by this prospectus supplement are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the Series F MRP Shares offered by this prospectus supplement if any such Series F MRP Shares are taken.

We have granted the Underwriters an option to purchase up to an aggregate of 600,000 additional Series F MRP Shares. The Underwriters may exercise this option for the purpose of covering overallotments, if any, made in connection with this offering. The Underwriters have 15 days from the date of this prospectus supplement to exercise this option. If the Underwriters exercise this option, they will each purchase additional shares approximately in proportion to the amounts specified in the table above.

The Underwriters initially propose to offer part of the Series F MRP Shares directly to the public at the public offering price listed on the cover page of this prospectus supplement and to certain dealers at that price less a concession not in excess of $0.30 per Series F MRP Share under the public offering price. Any Underwriter may allow, and such dealers may reallow, a concession not in excess of $0.25 per Series F MRP Share to other Underwriters or to certain dealers. After the initial offering of the Series F MRP Shares, the offering price and other selling terms may from time to time be varied by the representatives. The underwriting discount of $0.50 per Series F MRP Share is equal to 2.00% of the public offering price. Investors must pay for any Series F MRP Shares purchased on or before April 3, 2013.

The following table shows the per share and total underwriting discount we will pay to the Underwriters.

 

     

No Exercise

    

Full Exercise

 

Per share

   $ 0.50       $ 0.50   

Total

   $ 2,200,000       $ 2,500,000   

We estimate that the total expenses of this offering payable by us, not including the underwriting discount, will be approximately $200,000.

Application has been made to list the Series F MRP Shares, subject to official notice of issuance, on the NYSE under the symbol “KYN Pr F”. Prior to this offering, there has been no public market for Series F MRP Shares. If the application is approved, trading on the NYSE will begin within 30 days from the date of this prospectus supplement. We have been advised by the Underwriters that they intend to make a market in the Series F MRP Shares, but they are not obligated to do so and may discontinue market-making at any time without notice.

 

S-22


Table of Contents

Consequently, it is anticipated that, prior to the commencement of trading on the NYSE, an investment in Series F MRP Shares may be illiquid and holders of Series F MRP Shares may not be able to sell their shares. If a secondary market does develop prior to the commencement of trading on the NYSE holders of Series F MRP Shares may be able to sell such shares only at substantial discounts from liquidation preference.

We and our Adviser have each agreed that, without the prior written consent of the Underwriters, we will not, during the period ending 30 days after the date of this prospectus supplement:

 

   

offer, sell, contract to sell, pledge, or otherwise dispose of any of our preferred stock or any securities convertible into, or exercisable or exchangeable for, our preferred stock;

 

   

enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by us, our Adviser or any of our or its affiliates, directly or indirectly, including the filing (or participation in the filing) of a registration statement with the SEC in respect of any of our preferred stock or any securities convertible into, or exercisable or exchangeable for, our preferred stock;

 

   

establish or increase a put equivalent position or liquidate or decrease a call equivalent position (within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) in any of our preferred stock or any securities convertible into, or exercisable or exchangeable for, our preferred stock; or

 

   

publicly announce an intention to effect any such transaction described above.

In order to facilitate the offering of the Series F MRP Shares, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Series F MRP Shares. Specifically, the Underwriters may overallot in connection with the offering, creating a short position in the Series F MRP Shares for their own account. In addition, to cover overallotments or to stabilize the price of the Series F MRP Shares, the Underwriters may bid for, and purchase, Series F MRP Shares in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an Underwriter or a dealer for distributing the Series F MRP Shares in the offering, if the syndicate repurchases previously distributed Series F MRP Shares in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Series F MRP Shares above independent market levels. The Underwriters are not required to engage in these activities and may end any of these activities at any time.

We anticipate that the Underwriters may from time to time act as brokers and dealers in connection with the execution of its portfolio transactions after they have ceased to be Underwriters and, subject to certain restrictions, may act as such brokers while they are Underwriters. From time to time, certain Underwriters have provided, and may continue to provide, investment banking and commercial banking services to us, the Adviser and its affiliates for which they have received, and may receive, customary fees and expenses. The Underwriters may, from time to time, engage in transactions with or perform services for us, the Adviser and its affiliates in the ordinary course of business.

We and the Adviser have agreed to indemnify the Underwriters against certain liabilities relating to this offering, including liabilities under the Securities Act of 1933, as amended, and to contribute to payments that the Underwriters may be required to make for those liabilities; provided that such indemnification shall not extend to any liability or action resulting directly from the gross negligence, willful misconduct or bad faith of the Underwriters.

It is expected that delivery of the Series F MRP Shares will be made against payment therefor on or about the date specified on the cover of this prospectus supplement, which is the fifth business day following the date of pricing of the Series F MRP Shares (such settlement cycle being referred to as “T+5”). Under rule 15c6-1

 

S-23


Table of Contents

under the Exchange Act, trades in the secondary market are required to settle in three business days (such settlement being referred to as “T+3”), unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Series F MRP Shares on the date of this prospectus supplement or the next succeeding business day will be required, by virtue of the fact that the Series F MRP Shares initially will settle in T+5, to specify an alternate settlement arrangement at the time of any such trade to prevent a failed settlement. Purchasers of the Series F MRP Shares who wish to trade the Series F MRP Shares on the date of this prospectus supplement or the next succeeding business day should consult their advisors.

Affiliations—Conflicts of Interests

Some of the Underwriters and their affiliates may from time to time in the future engage in transactions with us and perform services for us in the ordinary course of their business.

In addition, in the ordinary course of their business activities, the Underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The Underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

Affiliates of some of the Underwriters are lenders under our revolving credit facility and will receive a pro rata portion of the net proceeds from this offering, if any, used to reduce amounts outstanding thereunder. See “Use of Proceeds.” Affiliates of the Underwriters that have a lending relationship with us routinely hedge their credit exposure to us consistent with their customary risk management policies. Typically, such affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities, including potentially the Series F MRP Shares offered hereby. Any such short positions could adversely affect future trading prices of the Series F MRP Shares offered hereby.

The respective addresses of the representatives are Merrill Lynch, Pierce, Fenner & Smith Incorporated, One Bryant Park, New York, New York 10036; Citigroup Global Markets Inc., 388 Greenwich Street, New York, New York 10013; and UBS Securities LLC, 677 Washington Boulevard, Stamford, Connecticut 06901.

 

S-24


Table of Contents

LEGAL MATTERS

Certain legal matters in connection with the securities offered hereby will be passed upon for us by Paul Hastings LLP, Costa Mesa, California. Paul Hastings LLP may rely as to certain matters of Maryland law on the opinion of Venable LLP, Baltimore, Maryland. Certain legal matters in connection with this offering will be passed upon for the Underwriters by Sidley Austin LLP, New York, New York.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Exchange Act and the 1940 Act and are required to file reports (including our annual and semi-annual reports), proxy statements and other information with the SEC. We voluntarily file quarterly shareholder reports. Our most recent shareholder report filed with the SEC is for the period ended November 30, 2012. These documents are available on the SEC’s EDGAR system and can be inspected and copied for a fee at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Additional information about the operation of the public reference room facilities may be obtained by calling the SEC at (202) 551-5850.

This prospectus supplement and the accompanying prospectus do not contain all of the information in our registration statement, including amendments, exhibits, and schedules. Statements in this prospectus supplement and the accompanying prospectus about the contents of any contract or other document are not necessarily complete and in each instance reference is made to the copy of the contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by this reference. Additional information about us can be found in our registration statement (including amendments, exhibits, and schedules) on Form N-2 filed with the SEC. The SEC maintains a web site (http://www.sec.gov) that contains our registration statement, other documents incorporated by reference, and other information we have filed electronically with the SEC, including proxy statements and reports filed under the Exchange Act.

 

S-25


Table of Contents

FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED NOVEMBER 30, 2012

AND FINANCIAL HIGHLIGHTS FOR THE PERIOD SEPTEMBER 28, 2004

THROUGH NOVEMBER 30, 2004 AND FOR THE FISCAL YEARS ENDED

NOVEMBER 30, 2005 THROUGH 2012

CONTENTS

 

      Page  

Portfolio Summary

     F-2   

Management Discussion

     F-3   

Schedule of Investments

     F-8   

Statement of Assets and Liabilities

     F-11   

Statement of Operations

     F-12   

Statement of Changes in Net Assets Applicable to Common Stockholders

     F-13   

Statement of Cash Flows

     F-14   

Financial Highlights

     F-15   

Notes to Financial Statements

     F-18   

Report of Independent Registered Public Accounting Firm

     F-37   

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS:    This report of Kayne Anderson MLP Investment Company (the “Company”) contains “forward-looking statements” as defined under the U.S. federal securities laws. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to materially differ from the Company’s historical experience and its present expectations or projections indicated in any forward-looking statements. These risks include, but are not limited to, changes in economic and political conditions; regulatory and legal changes; master limited partnership industry risk; leverage risk; valuation risk; interest rate risk; tax risk; and other risks discussed in the Company’s filings with the Securities and Exchange Commission (“SEC”). You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. The Company undertakes no obligation to update or revise any forward-looking statements made herein. There is no assurance that the Company’s investment objectives will be attained.

 

F-1


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

PORTFOLIO SUMMARY

(UNAUDITED)

 

Portfolio Investments by Category

 

 

November 30, 2012   November 30, 2011
LOGO   LOGO

Top 10 Holdings by Issuer

 

            Percent of Total
Investments* as of
November 30,
Holding    Sector      2012      2011

  1.  Enterprise Products Partners L.P.

   Midstream MLP          8.9 %          9.3 %

  2.  Kinder Morgan Management, LLC

   Midstream MLP          7.5            7.4  

  3.  Plains All American Pipeline, L.P.

   Midstream MLP          7.1            5.3  

  4.  MarkWest Energy Partners, L.P.

   Midstream MLP          5.6            5.6  

  5.  Energy Transfer Equity, L.P.

   General Partner MLP          4.9            3.8  

  6.  El Paso Pipeline Partners, L.P.

   Midstream MLP          4.4            3.5  

  7.  Williams Partners L.P.

   Midstream MLP          4.3            4.6  

  8.  Regency Energy Partners LP

   Midstream MLP          3.9            4.1  

  9.  Enbridge Energy Partners, L.P.

   Midstream MLP          3.7            2.9  

10.  ONEOK Partners, L.P.

   Midstream MLP          3.7            3.3  

 

* Includes cash and repurchase agreement (if any).

 

F-2


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

MANAGEMENT DISCUSSION

(UNAUDITED)

 

Company Overview

Kayne Anderson MLP Investment Company is a non-diversified, closed-end fund that commenced operations in September 2004. Our investment objective is to obtain a high after-tax total return by investing at least 85% of our total assets in energy-related master limited partnerships and their affiliates (“MLPs”) and in other companies that operate assets used in the gathering, transporting, processing, storing, refining, distributing, mining or marketing of natural gas, natural gas liquids, crude oil, refined petroleum products or coal (collectively with MLPs, “Midstream Energy Companies”).

As of November 30, 2012, we had total assets of $4.5 billion, net assets applicable to our common stock of $2.5 billion (net asset value per share of $28.51), and 88.4 million shares of common stock outstanding.

Our investments are principally in equity securities issued by MLPs, but we also invest in debt securities of MLPs and debt/equity securities of Midstream Energy Companies. As of November 30, 2012, we held $4.5 billion in equity investments and no debt investments.

Results of Operations — For the Three Months Ended November 30, 2012

Investment Income.    Investment income totaled $9.8 million for the quarter and consisted primarily of net dividends and distributions and interest income on our investments. We received $65.0 million of cash dividends and distributions, of which $54.8 million was treated as return of capital and $1.1 million were distributions in excess of cost basis. Interest and other income was $0.7 million. We received $7.4 million of paid-in-kind dividends during the quarter, which are not included in investment income, but are reflected as an unrealized gain.

Operating Expenses.    Operating expenses totaled $30.7 million, including $15.2 million of investment management fees, $9.9 million of interest expense (including non-cash amortization of debt issuance costs of $0.5 million), and $0.8 million of other operating expenses. Preferred stock distributions for the quarter were $4.8 million (including non-cash amortization of $0.2 million).

Net Investment Loss.    Our net investment loss totaled $14.7 million and included a current and deferred income tax benefit of $6.2 million.

Net Realized Gains.    We had net realized gains from our investments of $26.5 million, net of $15.6 million of current and deferred tax expense.

Net Change in Unrealized Gains.    We had a net change in unrealized gains of $21.6 million. The net change consisted of $34.2 million of unrealized gains from investments and a deferred tax expense of $12.6 million.

Net Increase in Net Assets Resulting from Operations.    We had an increase in net assets resulting from operations of $33.4 million. This increase was comprised of a net investment loss of $14.7 million; net realized gains of $26.5 million; and net change in unrealized gains of $21.6 million, as noted above.

Results of Operations — For the Fiscal Year Ended November 30, 2012

Investment Income.    Investment income totaled $32.7 million for the fiscal year and consisted primarily of net dividends and distributions and interest income on our investments. We received $233.3 million of cash dividends and distributions, of which $203.5 million was treated as return of capital and $1.1 million were distributions in excess of cost basis. Return of capital was increased by $3.3 million during the fiscal year due to 2011 tax reporting information that we received in fiscal 2012. Interest and other income was $4.0 million. We received $29.9 million of paid-in-kind dividends during the fiscal year, which are not included in investment income, but are reflected as an unrealized gain.

Operating Expenses.    Operating expenses totaled $117.2 million, including $57.2 million of investment management fees, $38.3 million of interest expense (including non-cash amortization of debt issuance costs of

 

F-3


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

MANAGEMENT DISCUSSION

(UNAUDITED)

 

$1.9 million), and $3.4 million of other operating expenses. Preferred stock distributions for the fiscal year were $18.3 million (including non-cash amortization of $0.9 million).

Net Investment Loss.    Our net investment loss totaled $58.6 million and included a current and deferred income tax benefit of $25.9 million.

Net Realized Gains.    We had net realized gains from our investments of $94.9 million, net of $56.2 million of current and deferred tax expense.

Net Change in Unrealized Gains.    We had a net change in unrealized gains of $235.1 million. The net change consisted of $374.3 million of unrealized gains from investments and a deferred tax expense of $139.2 million.

Net Increase in Net Assets Resulting from Operations.    We had an increase in net assets resulting from operations of $271.4 million. This increase was comprised of a net investment loss of $58.6 million; net realized gains of $94.9 million; and net change in unrealized gains of $235.1 million, as noted above.

Distributions to Common Stockholders

We pay quarterly distributions to our common stockholders, funded generally by net distributable income (“NDI”) generated from our portfolio investments. NDI is the amount of income received by us from our portfolio investments less operating expenses, subject to certain adjustments as described below. NDI is not a financial measure under the accounting principles generally accepted in the United States of America (“GAAP”). Refer to the “Reconciliation of NDI to GAAP” section below for a reconciliation of this measure to our results reported under GAAP.

Income from portfolio investments includes (a) cash dividends and distributions, (b) paid-in-kind dividends received (i.e., stock dividends), (c) interest income from debt securities and commitment fees from private investments in public equity (“PIPE investments”) and (d) net premiums received from the sale of covered calls.

Operating expenses include (a) investment management fees paid to our investment adviser, (b) other expenses (mostly due to fees paid to other service providers), (c) interest expense and preferred stock distributions and (d) current and deferred income tax expense/benefit on net investment income/loss.

 

F-4


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

MANAGEMENT DISCUSSION

(UNAUDITED)

 

Net Distributable Income (NDI)

(amounts in millions, except for per share amounts)

 

      Three Months
Ended
November 30,
2012
    Fiscal Year
Ended
November 30,
2012
 

Distributions and Other Income from Investments

    

Dividends and Distributions

   $ 65.0      $ 233.3   

Paid-In-Kind Dividends

     7.4        29.9   

Interest and Other Income

     0.6        4.1   

Net Premiums Received from Call Options Written

     0.5        2.8   
  

 

 

   

 

 

 

Total Distributions and Other Income from Investments

     73.5        270.1   

Expenses

    

Investment Management Fee

     (15.2     (57.2

Other Expenses

  

 

 

 

(0.8

 

 

 

 

 

(3.4

 

Interest Expense

     (9.4     (36.7

Preferred Stock Distributions

     (4.6     (16.9

Income Tax Benefit

     6.2        25.8   
  

 

 

   

 

 

 

Net Distributable Income (NDI)

   $ 49.7      $ 181.7   
  

 

 

   

 

 

 

Weighted Shares Outstanding

     88.3        82.8   

NDI per Weighted Share Outstanding

   $ 0.56      $ 2.19   
  

 

 

   

 

 

 

Adjusted NDI per Weighted Share Outstanding(1)

   $ 0.57      $ 2.19   
  

 

 

   

 

 

 

Distributions paid per Common Share(2)

   $ 0.55        2.1325   

 

(1) In each of the last three years, The Williams Companies paid two dividends during our fiscal third quarter and no dividends during our fiscal fourth quarter. For the purposes of determining our dividend, we calculate “Adjusted NDI”, which treats the dividend received late in our fiscal third quarter as if it was received during our fiscal fourth quarter.

 

(2) The distribution of $0.55 per share for the fourth quarter of fiscal 2012 was paid to common stockholders on January 11, 2013. Distributions for fiscal 2012 include the distributions paid in April 2012, July 2012, October 2012 and January 2013.

Payment of future distributions is subject to Board of Directors approval, as well as meeting the covenants of our debt agreements and terms of our preferred stock. In determining our quarterly distribution to common stockholders, our Board of Directors considers a number of factors that include, but are not limited to:

 

   

NDI generated in the current quarter;

 

   

Expected NDI over the next twelve months; and

 

   

Realized and unrealized gains generated by the portfolio.

Reconciliation of NDI to GAAP

The difference between distributions and other income from investments in the NDI calculation and total investment income as reported in our Statement of Operations is reconciled as follows:

 

   

GAAP recognizes that a significant portion of the cash distributions received from MLPs is characterized as a return of capital and therefore excluded from investment income, whereas the NDI calculation includes the return of capital portion of such distributions.

 

F-5


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

MANAGEMENT DISCUSSION

(UNAUDITED)

 

 

   

NDI includes the value of dividends paid-in-kind, whereas such amounts are not included as investment income for GAAP purposes, but rather are recorded as unrealized gains upon receipt.

 

   

NDI includes commitment fees from PIPE investments, whereas such amounts are generally not included in investment income for GAAP purposes, but rather are recorded as a reduction to the cost of the investment.

 

   

Many of our investments in debt securities were purchased at a discount or premium to the par value of such security. When making such investments, we consider the security’s yield to maturity, which factors in the impact of such discount (or premium). Interest income reported under GAAP includes the non-cash accretion of the discount (or amortization of the premium) based on the effective interest method. When we calculate interest income for purposes of determining NDI, in order to better reflect the yield to maturity, the accretion of the discount (or amortization of the premium) is calculated on a straight-line basis to the earlier of the expected call date or the maturity of the debt security.

 

   

We may sell covered call option contracts to generate income or to reduce our ownership of certain securities that we hold. In some cases, we are able to repurchase these call option contracts at a price less than the fee that we received, thereby generating a profit. The amount we received from selling call options, less the amount that we pay to repurchase such call option contracts is included in NDI. For GAAP purposes, premiums received from call option contracts sold is not included in investment income. See Note 2 — Significant Accounting Policies for a full discussion of the GAAP treatment of option contracts.

The treatment of expenses included in NDI also differs from what is reported in the Statement of Operations as follows:

 

   

The non-cash amortization or write-offs of capitalized debt issuance costs and preferred stock offering costs related to our financings is included in interest expense and distributions on mandatory redeemable preferred stock for GAAP purposes, but is excluded from our calculation of NDI. Interest or dividend premiums paid associated with the redemption of senior unsecured notes or preferred stock are included in interest expense and distributions on mandatory redeemable preferred stock for GAAP purposes, but excluded from our calculation of NDI.

 

   

NDI also includes recurring payments (or receipts) on interest rate swap contracts (excluding termination payments) whereas for GAAP purposes, these amounts are included in the realized gains/losses section of the Statement of Operations.

Liquidity and Capital Resources

Total leverage outstanding at November 30, 2012 of $1,283.0 million was comprised of $890.0 million of senior unsecured notes (“Senior Notes”), $19.0 million outstanding under our senior unsecured revolving credit facility (the “Credit Facility”) and $374.0 million of mandatory redeemable preferred stock. Total leverage represented 29% of total assets at November 30, 2012. As of January 24, 2013, we had $74.0 million borrowed under our Credit Facility, and we had $1.1 million of cash.

The Credit Facility has a $200.0 million commitment amount and matures on June 11, 2013. The interest rate may vary between LIBOR plus 1.75% and LIBOR plus 3.00%, depending on our asset coverage ratios. Outstanding loan balances accrue interest daily at a rate equal to one-month LIBOR plus 1.75% based on current asset coverage ratios. We pay a commitment fee of 0.40% per annum on any unused amounts of the Credit Facility. We expect to renew our Credit Facility prior to its maturity date. A full copy of our Credit Facility is available on our website, www.kaynefunds.com.

 

F-6


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

MANAGEMENT DISCUSSION

(UNAUDITED)

 

At November 30, 2012, our asset coverage ratios under the Investment Company Act of 1940, as amended (the “1940 Act”), were 418% and 296% for debt and total leverage (debt plus preferred stock), respectively. We currently target an asset coverage ratio with respect to our debt of 375%, but at times may be above or below our target depending on market conditions.

We had $890.0 million of Senior Notes outstanding at November 30, 2012. During 2013, we have $125.0 million of Senior Notes that mature, which we expect to refinance with new notes. The remaining Senior Notes mature between 2014 and 2022. As of November 30, 2012, we had $374.0 million of mandatory redeemable preferred stock outstanding, which is subject to mandatory redemption at various dates from 2017 through 2020.

As of November 30, 2012, our total leverage consisted of both fixed rate (86%) and floating rate (14%) obligations. At such date, the weighted average interest rate on our total leverage was 4.3%.

 

F-7


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

SCHEDULE OF INVESTMENTS

NOVEMBER 30, 2012

(amounts in 000’s, except number of option contracts)

 

Description

             No. of
Shares/Units
     Value  

Long-Term Investments — 177.5%

           

Equity Investments(1) — 177.5%

           

Midstream MLP(2) — 137.6%

           

Access Midstream Partners, L.P.

     1,961       $ 68,627   

Boardwalk Pipeline Partners, LP

     1,215         31,328   

Buckeye Partners, L.P.(3)

     1,770         88,972   

Buckeye Partners, L.P. — Class B Units(3)(4)(5)

     926         44,048   

Copano Energy, L.L.C.

     1,446         45,590   

Crestwood Midstream Partners LP

     2,473         57,730   

Crestwood Midstream Partners LP — Class C Units(4)(5)

     1,200         27,284   

Crosstex Energy, L.P.

     5,499         82,920   

DCP Midstream Partners, LP

     2,660         111,408   

El Paso Pipeline Partners, L.P.

     5,284         197,240   

Enbridge Energy Management, L.L.C.(5)

     399         11,768   

Enbridge Energy Partners, L.P.

     5,670         164,537   

Energy Transfer Partners, L.P.

     805         35,324   

Enterprise Products Partners L.P.

     7,674         397,721   

Global Partners LP

     2,054         51,137   

Inergy, L.P.

     4,321         81,538   

Inergy Midstream, L.P.

     1,127         26,502   

Kinder Morgan Management, LLC(5)

     4,443         337,208   

Lehigh Gas Partners LP(6)

     123         2,389   

Magellan Midstream Partners, L.P.(7)

     3,084         137,186   

MarkWest Energy Partners, L.P.(3)

     4,833         249,745   

MPLX LP(6)

     372         10,748   

Niska Gas Storage Partners LLC

     1,904         21,330   

NuStar Energy L.P.

     990         45,369   

ONEOK Partners, L.P.(7)

     2,808         163,547   

Plains All American Pipeline, L.P.(3)

     6,852         319,156   

PVR Partners, L.P.(3) 

     4,750         114,422   

Regency Energy Partners LP

     7,773         173,880   

Southcross Energy Partners, L.P.(6)

     75         1,761   

Summit Midstream Partners, LP(6)

     722         14,265   

Targa Resources Partners L.P.

     1,661         62,566   

Tesoro Logistics LP

     616         28,416   

Western Gas Partners, LP

     1,472         72,081   

Williams Partners L.P.

     3,768         191,815   
     

 

 

 
        3,469,558   
           

 

 

 

General Partner MLP — 12.1%

     

Alliance Holdings GP L.P.

     1,885         86,506   

Energy Transfer Equity, L.P.(7)

     4,808         218,612   
           

 

 

 
        305,118   
           

 

 

 

Midstream — 9.4%

     

Kinder Morgan, Inc.(7)

     1,164         39,348   

ONEOK, Inc.

     1,510         67,731   

 

See accompanying notes to financial statements.

 

F-8


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

SCHEDULE OF INVESTMENTS

NOVEMBER 30, 2012

(amounts in 000’s, except number of option contracts)

 

Description

             No. of
Shares/Units
     Value  

Midstream (continued)

     

Plains All American GP LLC — Unregistered(3)(4)

     24       $ 55,989   

Targa Resources Corp.

     214         10,720   

The Williams Companies, Inc.

     1,920         63,049   
           

 

 

 
        236,837   
           

 

 

 

Shipping MLP — 7.8%

     

Capital Product Partners L.P.

     2,841         19,233   

Golar LNG Partners LP

     216         6,473   

Navios Maritime Partners L.P.

     1,876         25,120   

Teekay LNG Partners L.P.

     1,552         58,746   

Teekay Offshore Partners L.P.

     3,263         86,903   
           

 

 

 
        196,475   
           

 

 

 

Upstream MLP & Income Trust — 4.9%

     

BreitBurn Energy Partners L.P.

     2,520         46,577   

Legacy Reserves L.P.

     323         7,951   

Memorial Production Partners LP

     339         6,316   

Mid-Con Energy Partners, LP

     848         17,537   

Pacific Coast Oil Trust

     578         10,179   

SandRidge Mississippian Trust II

     808         13,535   

SandRidge Permian Trust

     893         15,480   

VOC Energy Trust

     347         4,819   
           

 

 

 
        122,394   
           

 

 

 

Other — 5.7%

     

Alliance Resource Partners, L.P.

     163         9,290   

Alon USA Partners, LP(6)

     281         5,307   

Clearwater Trust(3)(4)(8)

     N/A         1,990   

Exterran Partners, L.P.

     2,903         63,198   

Hi-Crush Partners LP

     1,337         20,677   

Northern Tier Energy LP

     212         4,938   

PetroLogistics LP

     1,597         18,721   

Seadrill Partners LLC(6)

     68         1,773   

Suburban Propane Partners, L.P.

     449         17,668   
           

 

 

 
        143,562   
           

 

 

 

Total Equity Investments (Cost — $2,823,894)

        4,473,944   
           

 

 

 
     No. of
Contracts
        

Liabilities

     

Call Option Contracts Written(9)

     

Midstream MLP

     

Magellan Midstream Partners, L.P., call option expiring 12/21/12 @ $42.50

     1,000         (180

ONEOK Partners, L.P., call option expiring 12/21/12 @ $60.00

     700         (18
           

 

 

 
        (198
           

 

 

 

 

See accompanying notes to financial statements.

 

F-9


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

SCHEDULE OF INVESTMENTS

NOVEMBER 30, 2012

(amounts in 000’s, except number of option contracts)

 

Description

             No. of
Contracts
     Value  

General Partner MLP

     

Energy Transfer Equity, L.P., call option expiring 12/21/12 @ $45.00

     1,400       $ (154
           

 

 

 

Midstream

     

Kinder Morgan, Inc., call option expiring 12/21/12 @ $35.00

     1,000         (27
           

 

 

 

Total Call Option Contracts Written (Premiums Received — $406)

  

     (379
           

 

 

 

Credit Facility

  

     (19,000

Senior Unsecured Notes

  

     (890,000

Mandatory Redeemable Preferred Stock at Liquidation Value

  

     (374,000

Deferred Tax Liability

  

     (654,501

Other Liabilities

 

     (39,095
           

 

 

 

Total Liabilities

 

     (1,976,975

Other Assets

 

     23,852   
           

 

 

 

Total Liabilities in Excess of Other Assets

 

     (1,953,123
           

 

 

 

Net Assets Applicable to Common Stockholders

  

   $ 2,520,821   
           

 

 

 

 

(1) Unless otherwise noted, equity investments are common units/common shares.

 

(2) Includes limited liability companies.

 

(3) The Company believes that it is an affiliate of Buckeye Partners, L.P., the Clearwater Trust, MarkWest Energy Partners, L.P., PVR Partners, L.P., Plains All American Pipeline, L.P. and Plains All American GP LLC. See Note 5 — Agreements and Affiliations.

 

(4) Fair valued securities, restricted from public sale. See Notes 2, 3 and 7 in Notes to Financial Statements.

 

(5) Distributions are paid-in-kind.

 

(6) Security is not currently paying cash distributions but is expected to pay cash distributions within the next 12 months.

 

(7) Security or a portion thereof is segregated as collateral on option contracts written.

 

(8) The Company owns an interest in the Creditors Trust of Miller Bros. Coal, LLC (“Clearwater Trust”) consisting of a coal royalty interest. See Notes 5 and 7 in Notes to Financial Statements.

 

(9) Security is non-income producing.

 

See accompanying notes to financial statements.

 

F-10


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

STATEMENT OF ASSETS AND LIABILITIES

NOVEMBER 30, 2012

(amounts in 000’s, except share and per share amounts)

 

ASSETS

  

Investments at fair value:

  

Non-affiliated (Cost — $2,345,982)

   $ 3,599,622   

Affiliated (Cost — $477,912)

     874,322   
  

 

 

 

Total investments (Cost — $2,823,894)

     4,473,944   

Cash

     6,118   

Deposits with brokers

     216   

Receivable for securities sold

     6,679   

Interest, dividends and distributions receivable

     88   

Deferred debt issuance and preferred stock offering costs and other assets

     10,751   
  

 

 

 

Total Assets

     4,497,796   
  

 

 

 

LIABILITIES

  

Payable for securities purchased

     4,551   

Investment management fee payable

     15,187   

Accrued directors’ fees and expenses

     94   

Call option contracts written (Premiums received — $406)

     379   

Accrued expenses and other liabilities

     19,263   

Current tax liability

     539   

Deferred tax liability

     653,962   

Credit facility

     19,000   

Senior unsecured notes

     890,000   

Mandatory redeemable preferred stock, $25.00 liquidation value per share (14,960,000 shares issued and outstanding)

     374,000   
  

 

 

 

Total Liabilities

     1,976,975   
  

 

 

 

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

   $ 2,520,821   
  

 

 

 

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS CONSIST OF

  

Common stock, $0.001 par value (88,431,413 shares issued and outstanding, 185,040,000 shares authorized)

   $ 88   

Paid-in capital

     1,716,276   

Accumulated net investment loss, net of income taxes, less dividends

     (521,715

Accumulated realized gains on investments, options, and interest rate swap contracts, net of income taxes

     290,599   

Net unrealized gains on investments and options, net of income taxes

     1,035,573   
  

 

 

 

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

   $ 2,520,821   
  

 

 

 

NET ASSET VALUE PER COMMON SHARE

   $ 28.51   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-11


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

STATEMENT OF OPERATIONS

FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2012

(amounts in 000’s)

 

INVESTMENT INCOME

  

Income

  

Dividends and distributions:

  

Non-affiliated investments

   $ 187,897   

Affiliated investments

     45,390   
  

 

 

 

Total dividends and distributions

     233,287   

Return of capital

     (203,488

Distributions in excess of cost basis

     (1,055
  

 

 

 

Net dividends and distributions

     28,744   

Interest and other income

     3,999   
  

 

 

 

Total Investment Income

     32,743   
  

 

 

 

Expenses

  

Investment management fees

     57,187   

Administration fees

     834   

Professional fees

     586   

Custodian fees

     445   

Reports to stockholders

     413   

Directors’ fees and expenses

     362   

Insurance

     214   

Other expenses

     552   
  

 

 

 

Total expenses — before interest expense, preferred distributions and taxes

     60,593   

Interest expense and amortization of debt issuance costs

     38,282   

Distributions on mandatory redeemable preferred stock and amortization of offering costs

     18,328   
  

 

 

 

Total expenses — before taxes

     117,203   
  

 

 

 

Net Investment Loss — Before Taxes

     (84,460

Current tax benefit

     1,473   

Deferred tax benefit

     24,376   
  

 

 

 

Net Investment Loss

     (58,611
  

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES)

  

Net Realized Gains (Losses)

  

Investments — non-affiliated

     151,486   

Investments — affiliated

     1,095   

Options

     1,198   

Payments on interest rate swap contracts

     (2,606

Current tax expense

     (3,204

Deferred tax expense

     (53,025
  

 

 

 

Net Realized Gains

     94,944   
  

 

 

 

Net Change in Unrealized Gains (Losses)

  

Investments — non-affiliated

     266,343   

Investments — affiliated

     107,988   

Options

     (66

Deferred tax expense

     (139,207
  

 

 

 

Net Change in Unrealized Gains

     235,058   
  

 

 

 

Net Realized and Unrealized Gains

     330,002   
  

 

 

 

NET INCREASE IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS RESULTING FROM OPERATIONS

   $ 271,391   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-12


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

STATEMENT OF CHANGES IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

(amounts in 000’s, except share amounts)

 

      For the Fiscal Year Ended
November 30,
 
      2012     2011  

OPERATIONS

    

Net investment loss, net of tax(1)

   $ (58,611   $ (49,953

Net realized gains, net of tax

     94,944        110,193   

Net change in unrealized gains, net of tax

     235,058        91,626   
  

 

 

   

 

 

 

Net Increase in Net Assets Resulting from Operations

     271,391        151,866   
  

 

 

   

 

 

 

DIVIDENDS AND DISTRIBUTIONS TO COMMON STOCKHOLDERS(1)(2)

    

Dividends

     (127,330     (89,963 ) 

Distributions — return of capital

     (45,115     (51,663 ) 
  

 

 

   

 

 

 

Dividends and Distributions to Common Stockholders

     (172,445     (141,626
  

 

 

   

 

 

 

CAPITAL STOCK TRANSACTIONS

    

Issuance of common stock offerings of 12,500,000 and 5,700,000 shares of common stock, respectively

     385,075        174,306   

Underwriting discounts and offering expenses associated with the issuance of common stock

     (16,085     (7,322

Issuance of 801,204 and 958,808 newly issued shares of common stock from reinvestment of dividends and distributions, respectively

     23,282        26,488   
  

 

 

   

 

 

 

Net Increase in Net Assets Applicable to Common Stockholders from Capital Stock Transactions

     392,272        193,472   
  

 

 

   

 

 

 

Total Increase in Net Assets Applicable to Common Stockholders

     491,218        203,712   
  

 

 

   

 

 

 

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

    

Beginning of year

     2,029,603        1,825,891   
  

 

 

   

 

 

 

End of year

   $ 2,520,821      $ 2,029,603   
  

 

 

   

 

 

 

 

(1) Distributions on the Company’s mandatory redeemable preferred stock are treated as an operating expense under GAAP and are included in the calculation of net investment loss. See Note 2 — Significant Accounting Policies. Distributions in the amount of $17,409 and $11,451 paid to mandatory redeemable preferred stockholders for the fiscal years ended November 30, 2012 and 2011, respectively, were characterized as qualified dividend income. This characterization is based on the Company’s earnings and profits.

 

(2) The information presented in each of these items is a characterization of a portion of the total dividends and distributions paid to common stockholders for the fiscal years ended November 30, 2012 and 2011 as either dividends (eligible to be treated as qualified dividend income) or distributions (return of capital). This characterization is based on the Company’s earnings and profits.

 

See accompanying notes to financial statements.

 

F-13


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

STATEMENT OF CASH FLOWS

FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2012

(amounts in 000’s)

 

CASH FLOWS FROM OPERATING ACTIVITIES

  

Net increase in net assets resulting from operations

   $ 271,391   

Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:

  

Net deferred tax expense

     167,856   

Return of capital distributions

     203,488   

Distributions in excess of cost basis

     1,055   

Net realized gains

     (151,173

Net unrealized gains

     (374,265

Accretion of bond discounts, net

     (143

Purchase of long-term investments

     (1,479,644

Proceeds from sale of long-term investments

     850,335   

Decrease in deposits with brokers

     58   

Increase in receivable for securities sold

     (5,427

Decrease in interest, dividends and distributions receivable

     796   

Amortization of deferred debt issuance costs

     1,870   

Amortization of mandatory redeemable preferred stock issuance costs

     919   

Decrease in other assets, net

     120   

Decrease in payable for securities purchased

     (4,131

Increase in investment management fee payable

     3,273   

Increase in accrued directors’ fees and expenses

     15   

Increase in call option contracts written, net

     285   

Increase in accrued expenses and other liabilities

     1,354   

Increase in current tax liability

     539   
  

 

 

 

Net Cash Used in Operating Activities

     (511,429
  

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

  

Proceeds from credit facility

     19,000   

Issuance of shares of common stock, net of offering costs

     368,990   

Proceeds from offering of senior unsecured notes

     175,000   

Proceeds from issuance on mandatory redeemable preferred stock

     120,000   

Redemption of senior unsecured notes

     (60,000

Redemption of mandatory redeemable preferred stock

     (6,000

Costs associated with issuance of credit facility

     (99

Costs associated with issuance of senior unsecured notes

     (1,411

Costs associated with issuance of mandatory redeemable preferred stock

     (2,600

Cash distributions paid to common stockholders, net

     (149,163
  

 

 

 

Net Cash Provided by Financing Activities

     463,717   
  

 

 

 

NET DECREASE IN CASH

     (47,712

CASH — BEGINNING OF YEAR

     53,830   
  

 

 

 

CASH — END OF YEAR

   $ 6,118   
  

 

 

 

 

Supplemental disclosure of cash flow information:

Non-cash financing activities not included herein consist of reinvestment of distributions of $23,282 pursuant to the Company’s dividend reinvestment plan.

During the fiscal year ended November 30, 2012, interest paid was $35,186 and income tax paid was $1,192.

The Company received $29,856 paid-in-kind dividends during the fiscal year ended November 30, 2012. See Note 2 — Significant Accounting Policies.

 

See accompanying notes to financial statements.

 

F-14


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

FINANCIAL HIGHLIGHTS

(amounts in 000’s, except share and per share amounts)

 

     For the Fiscal Year Ended
November 30,
    For the
Period
September 28,
2004(1)
through
November 30,
2004
 
     2012     2011     2010     2009     2008     2007     2006     2005    
                                                       

Per Share of Common Stock(2)

                 

Net asset value, beginning of period

  $       27.01      $       26.67      $       20.13      $       14.74      $       30.08      $       28.99      $       25.07      $       23.91      $         23.70 (3) 

Net investment income (loss)(4)

    (0.71     (0.69     (0.44     (0.33     (0.73     (0.73     (0.62     (0.17     0.02   

Net realized and unrealized gain (loss)

    4.27        2.91        8.72        7.50        (12.56     3.58        6.39        2.80        0.19   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total income (loss) from operations

    3.56        2.22        8.28        7.17        (13.29     2.85        5.77        2.63        0.21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends and distributions — auction rate preferred(4)(5)

                         (0.01     (0.10     (0.10     (0.10     (0.05       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Common dividends(5)

    (1.54     (1.26     (0.84                   (0.09            (0.13       

Common distributions — return of capital(5)

    (0.55     (0.72     (1.08     (1.94     (1.99     (1.84     (1.75     (1.37       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions — common

    (2.09     (1.98     (1.92     (1.94     (1.99     (1.93     (1.75     (1.50       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting discounts and offering costs on the issuance of auction rate preferred stock

                                                     (0.03       

Effect of issuance of common stock

    0.02        0.09        0.16        0.12               0.26               0.11          

Effect of shares issued in reinvestment of distributions

    0.01        0.01        0.02        0.05        0.04        0.01                        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total capital stock transactions

    0.03        0.10        0.18        0.17        0.04        0.27               0.08          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

  $ 28.51      $ 27.01      $ 26.67      $ 20.13      $ 14.74      $ 30.08      $ 28.99      $ 25.07      $ 23.91   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Market value per share of common stock, end of
period

  $ 31.13      $ 28.03      $ 28.49      $ 24.43      $ 13.37      $ 28.27      $ 31.39      $ 24.33      $ 24.90   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investment return based on common stock market value(6)

    19.3 %      5.6     26.0     103.0     (48.8 )%      (4.4 )%      37.9     3.7     (0.4 )%(7) 

 

 

See accompanying notes to financial statements.

 

F-15


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

FINANCIAL HIGHLIGHTS

(amounts in 000’s, except share and per share amounts)

 

 

     For the Fiscal Year Ended
November 30,
    For the
Period
September 28,
2004(1)
through
November 30,
2004
 
     2012     2011     2010     2009     2008     2007     2006     2005    
                 

Supplemental Data and Ratios(8)

                 

Net assets applicable to common stockholders, end of period

  $ 2,520,821      $ 2,029,603      $ 1,825,891      $ 1,038,277      $ 651,156      $ 1,300,030      $ 1,103,392      $ 932,090      $ 792,836   

Ratio of expenses to average net assets

                 

Management fees

    2.4     2.4     2.1     2.1     2.2     2.3     3.2     1.2     0.8

Other expenses

    0.2        0.2        0.2        0.4        0.3        0.2        0.2        0.3        0.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

    2.6        2.6        2.3        2.5        2.5        2.5        3.4        1.5        1.2   

Interest expense and distributions on mandatory redeemable preferred stock(4)

    2.4        2.3        1.9        2.5        3.4        2.3        1.7        0.8        0.0   

Income tax expense

    7.2        4.8        20.5        25.4        (9)      3.5        13.8        6.4        3.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    12.2     9.7     24.7     30.4     5.9     8.3     18.9     8.7     4.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ratio of net investment income/(loss) to average net assets(4)

    (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

    11.6 %      7.7     34.6     43.2     (51.2 )%      7.3     21.7     10.0     0.9 %(7) 

Portfolio turnover rate

    20.4 %      22.3     18.7     28.9     6.7     10.6     10.0     25.6     11.8 %(7) 

Average net assets

  $ 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

    890,000        775,000        620,000        370,000        304,000        505,000        320,000        260,000          

Credit facility outstanding, end of period

    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

    374,000        260,000        160,000                                             

Average shares of common stock outstanding

    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)

    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)

    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)

  $ 10.80      $ 10.09      $ 7.70      $ 6.79      $ 11.52      $ 12.14      $ 8.53      $ 5.57          

 

See accompanying notes to financial statements.

 

F-16


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

FINANCIAL HIGHLIGHTS

(amounts in 000’s, 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 Company’s 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 each period 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 Company’s 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 Company’s dividend reinvestment plan.

 

  (7) Not annualized.

 

  (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 is dependent on whether there will 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.

 

F-17


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

1.    Organization

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 Company’s 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 Company’s 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 year’s 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 Company’s 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.

 

F-18


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

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 end of the month in which the investment was made.

 

   

Investment Team Valuation Documentation.    Preliminary valuation conclusions will be determined by senior management of KAFA. Such valuations are submitted to the Valuation Committee (a committee of the Company’s Board of Directors) or the Board of Directors on a monthly or quarterly basis, as appropriate.

 

   

Valuation Committee.    The Valuation Committee meets to consider the valuations submitted by KAFA (1) at the end of each 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 November 30, 2012, the Company held 5.1% of its net assets applicable to common stockholders (2.9% of total assets) in securities valued at fair value pursuant to procedures adopted by the Board of Directors, with fair value of $129,311. 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 seller’s 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 November 30, 2012, 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

 

F-19


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

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 Company’s 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 fiscal year ended November 30, 2012, 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 Company’s 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. Such estimates are based on historical information available from each MLP 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 (a) the estimated return of capital and (b) the distributions in excess of cost basis. For the fiscal year ended November 30, 2012, the Company had $203,488 of return of capital and $1,055 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 Company’s 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 Company’s 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 Company’s estimated total return of capital portion of the distributions received from its investments.

 

      Fiscal Year  Ended
November 30,
2012
 

Return of capital portion of dividends and distributions received

     87

Return of capital — attributable to net realized gains (losses)

   $ 27,462   

Return of capital — attributable to net change in unrealized gains (losses)

     176,026   
  

 

 

 

Total return of capital

   $ 203,488   
  

 

 

 

For the fiscal year ended November 30, 2012, the Company estimated the return of capital portion of distributions received to be $200,166 (86%). This amount was increased by $3,322 attributable to 2011 tax reporting information received by the Company in fiscal 2012. As a result, the return of capital percentage for the fiscal year ended November 30, 2012 was 88%.

 

F-20


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

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 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. During the fiscal year ended November 30, 2012, the Company did not have a reserve against interest income, since all interest income accrued is expected to be received.

Many of the debt securities that the Company holds were 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 premiums are based on the effective interest method. The amount of these non-cash adjustments can be found in the Company’s 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. In connection with the purchase of units directly from PVR Partners, L.P. (“PVR”) in a private investment in public equity (“PIPE investment”) transaction, the Company was entitled to the distribution paid to unitholders of record on May 8, 2012, even though such investment had not closed at such date. Pursuant to the purchase agreement, the purchase price for the PVR units was reduced by the amount of such dividend, which had the effect of paying such distribution in additional units. The additional units are not reflected in investment income during the period received but are recorded as unrealized gains. During the fiscal year ended November 30, 2012, the Company received the following paid-in-kind dividends.

 

      Fiscal Year  Ended
November 30,
2012
 

Buckeye Partners, L.P. (Class B Units)

   $ 3,631   

Crestwood Midstream Partners LP (Class C Units)

     2,291   

Enbridge Energy Management, L.L.C. 

     3,542   

Kinder Morgan Management, LLC

     19,663   

PVR Partners, L.P.

     729   
  

 

 

 

Total paid-in-kind dividends

   $ 29,856   
  

 

 

 

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 Company’s 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 (ordinary income) or distribution (return of capital). This estimate is based on the Company’s 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.

 

F-21


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

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 Company’s 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 share of the MLP’s 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 Company’s 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 Company’s 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 fiscal year ended November 30, 2012, 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 Company’s leverage. Such interest rate swaps would principally be used to protect the Company against higher costs on its leverage resulting from increases in short term 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. At November 30, 2012, the Company had no interest rate swap contracts outstanding. See Note 8 — Derivative Financial Instruments.

 

F-22


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

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 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 Company’s 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 Company’s 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.

 

3.    Fair Value

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.

 

F-23


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

The adoption of ASU No. 2011-04 did not have an impact on the measurement of fair value for the Company’s assets, but it does require 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.

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 Company’s own assumptions that market participants would use to price the asset or liability based on the best available information.

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at November 30, 2012 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

   $ 4,473,944       $ 4,344,633       $       $ 129,311   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities at Fair Value

           

Call option contracts written

   $ 379       $       $ 379       $   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the fiscal year ended November 30, 2012, there were no transfers between Level 1 and Level 2.

As of November 30, 2012, the Company had senior unsecured notes (“Senior Notes”) outstanding with aggregate principal amount of $890,000 and 14,960,000 shares of mandatory redeemable preferred stock outstanding with a total liquidation value of $374,000. See Note 11 — Senior Unsecured Notes and Note 12 — Preferred Stock.

Of the $374,000 of mandatory redeemable preferred stock, Series D ($100,000 liquidation value) and Series E ($120,000 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 ($890,000 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.

 

F-24


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

The Company records these instruments on its Statement of Assets and Liabilities at principal amount or liquidation value, and as of November 30, 2012, the estimated fair values of these leverage instruments are as follows.

 

Instrument

   Principal Amount/
Liquidation  Value
     Fair Value  

Senior Notes

   $ 890,000       $ 935,000   

Mandatory redeemable preferred stock

   $ 374,000       $ 388,056   

The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the fiscal year ended November 30, 2012.

 

      Equity
Investments
 

Balance — November 30, 2011

   $ 164,129   

Purchases

     102,500   

Issuances

     6,651   

Transfers out

     (143,940

Realized gains (losses)

       

Unrealized losses, net

     (29
  

 

 

 

Balance — November 30, 2012

   $ 129,311   
  

 

 

 

The $29 of unrealized losses presented in the table above for the fiscal year ended November 30, 2012 relate to investments that are still held at November 30, 2012, and the Company includes these unrealized losses on the Statement of Operations — Net Change in Unrealized Gains (Losses).

The purchases of $102,500 for the fiscal year ended November 30, 2012 relate to the Company’s investment in Crosstex Energy, L.P., DCP Midstream Partners, LP and PVR Partners, L.P. The issuances of $6,651 for the fiscal year ended November 30, 2012 relate to additional units received from Buckeye Partners, L.P. (Class B Units), Crestwood Midstream Partners LP (Class C Units) and PVR Partners, L.P. The Company’s investments in the common units of Crosstex Energy, L.P., DCP Midstream Partners, LP, PVR Partners, L.P. and Teekay Offshore Partners L.P., which are noted as transfers out of Level 3 in the table above, became readily marketable during the fiscal year ended November 30, 2012.

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 Company’s 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.

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 Company’s analysis focuses on the ratio of enterprise value (“EV”) to earnings

 

F-25


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

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 calendar year. 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 company’s EBITDA and DCF to estimate the portfolio company’s enterprise value and equity value. When calculating these values, the Company applies a discount to the portfolio company’s estimated equity value for the lack of marketability in the portfolio company’s 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 Company’s 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 company’s EBITDA to estimate the portfolio company’s 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 Company’s estimate for required equity rate of return for such portfolio company).

Under all of 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 Company’s 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 Company’s portfolio investments.

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 Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s 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.

 

F-26


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

The following table summarizes the significant unobservable inputs that the Company uses to value its portfolio investments categorized as Level 3 as of November 30, 2012:

Quantitative Table for Valuation Techniques

 

                  Range     Weighted
Average(1)
 

Assets at Fair Value

  Fair Value    

Valuation Technique

 

Unobservable Inputs

  Low         High    

Equity securities of

  $ 71,332      - Discount to publicly traded   - Current discount     2.6%          5.4%        4.3%   

public companies

   

securities

         

(PIPE)

      - Remaining restricted period     122 days          414 days        302 days   
             

Equity securities of

    57,979      - Public company analysis   - Selected valuation multiples:        

private companies

     

EV / 2013E EBITDA

    17.0x          19.0x        18.0x   

common units /

common equity

      - Discount for marketability     15.0%          15.0%        15.0%   
             
    - M&A analysis  

- Selected EV / EBITDA

multiples

    16.0x          18.0x        17.0x   
    - Discounted cash flow   - Equity rate of return     18.0%          25.0%        20.2%   
             
 

 

 

             

Total

  $ 129,311               
 

 

 

             

 

(1) Weighted average based on the fair value of investments in each category.

 

4.    Concentration of Risk

The Company’s investment objective is to obtain a high after-tax total return by investing at least 85% of total assets in public and private investments 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 the portfolio company’s 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 net asset value of the Company. The Company may invest up to 20% of its total assets in debt securities of MLP’s 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.

 

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 Company’s 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

 

F-27


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

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 Company’s Board of Directors (including a majority of the Company’s 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. Effective October 1, 2012, KAFA agreed to waive 0.125% of its 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 fiscal year ended November 30, 2012, the Company paid management fees at an annual rate of 1.375% of the Company’s 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 Company’s total assets are equal to the Company’s gross asset value (which includes assets attributable to or proceeds from the Company’s use of preferred stock, commercial paper or notes and other borrowings and excludes any net deferred tax asset), minus the sum of the Company’s 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 Company’s 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 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.

 

F-28


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

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 arm’s 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 November 30, 2012, the Company believes that Buckeye Partners, L.P., 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 November 30, 2012, 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.

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 Company’s and other affiliated Kayne Anderson funds’ ownership interests in Plains GP and (ii) Mr. Sinnott’s participation on the board of Plains GP.

 

6.    Income Taxes

The Company’s 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 purposes and the amounts used for income tax purposes and (iii) the net tax benefit of accumulated net operating losses.

In August 2012, upon filing its income tax returns for the fiscal year ended November 30, 2011, the Company paid federal alternative minimum tax (“AMT”) of $1,028. At November 30, 2012, the Company had a current income tax payable of $539. The payable is the result of estimated taxable income under AMT for fiscal 2012. Components of the Company’s deferred tax assets and liabilities as of November 30, 2012 are as follows:

 

Current tax liability

   $ (539

Deferred tax assets:

  

Net operating loss carryforwards — Federal

     51,669   

Net operating loss carryforwards — State

     4,373   

AMT credit carryforwards

     1,687   

Deferred tax liabilities:

  

Net unrealized gains on investment securities, interest rate swap contracts and option contracts

     (711,691
  

 

 

 

Total deferred tax liability, net

   $ (653,962
  

 

 

 

 

F-29


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

At November 30, 2012, the Company had federal net operating loss carryforwards of $152,310 (deferred tax asset of $51,669). 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. If not utilized, $12,535, $52,182, $26,118, $33,413, $19,217 and $8,845 of the net operating loss carryforward will expire in 2026, 2027, 2028, 2029, 2030 and 2032, respectively. In addition, the Company has state net operating loss carryforwards of $142,129 (deferred tax asset of $4,373). These state net operating loss carryforwards begin to expire in 2012 through 2032.

At November 30, 2012, the Company had AMT 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 MLP’s income or loss. During the fiscal year ended November 30, 2011, the Company received $174,040 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 $113,567 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 Company’s 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 Company’s 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 Company’s 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 Company’s net asset value and results of operations in the period it is recorded.

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 fiscal year ended November 30, 2012 , as follows:

 

      Fiscal Year
Ended
November 30,
2012
 

Computed federal income tax at 35%

   $ 154,342   

State income tax, net of federal tax

     9,267   

Non-deductible distributions on mandatory redeemable preferred stock and other

     5,978   
  

 

 

 

Total income tax expense (benefit)

   $ 169,587   
  

 

 

 

At November 30, 2012, the cost basis of investments for federal income tax purposes was $2,576,528. The cost basis for federal income tax purposes is $247,366 lower than the cost basis for GAAP reporting purposes primarily due to the additional basis adjustments attributable to the Company’s share of the allocated losses from

 

F-30


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

its MLP investments. At November 30, 2012, gross unrealized appreciation and depreciation of investments and options for federal income tax purposes were as follows:

 

Gross unrealized appreciation of investments (including options)

   $ 1,920,869   

Gross unrealized depreciation of investments (including options)

     (23,426
  

 

 

 

Net unrealized appreciation of investments

   $ 1,897,443   
  

 

 

 

 

7.    Restricted Securities

From time to time, certain of the Company’s investments may be restricted as to resale. For instance, private investments that are not registered under the Securities Act of 1933, as amended, cannot be offered for public sale in a non-exempt transaction without first being registered. In other cases, certain of the Company’s investments have restrictions such as lock-up agreements that preclude the Company from offering these securities for public sale.

At November 30, 2012, the Company held the following restricted investments:

 

Investment

  Acquisition
Date
  Type of
Restriction
  Number of
Units,
Principal ($)
(in 000’s)
    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)     926      $ 45,006      $ 44,048      $ 47.56        1.7     1.0

Clearwater Trust

               

Trust Interest

  (4)   (5)     N/A        3,266        1,990        n/a        0.1          

Crestwood Midstream Partners LP

               

Class C Units

  (2)   (3)     1,200        26,007        27,284        22.74        1.1        0.6   

Plains All American GP LLC(6)

               

Common Units

  (2)   (5)     24        30,820        55,989        2,304        2.2        1.3   
       

 

 

   

 

 

     

 

 

   

 

 

 

Total

  

  $ 105,099      $ 129,311          5.1     2.9
       

 

 

   

 

 

     

 

 

   

 

 

 

 

(1) Securities are valued using inputs reflecting the Company’s 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 fiscal year ended November 30, 2012 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.

 

(5) Unregistered security of a private company or trust.

 

(6) In determining the fair value for Plains GP, the Company’s valuation is based on publicly available information. Robert V. Sinnott, the CEO of KACALP, sits on Plains GP’s board of directors (see Note 5 — Agreements and Affiliations for more detail). 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 Company’s 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 November 30, 2012 is indicative of the volume of this type of option activity during the period. See Note 2 — Significant Accounting Policies.

 

F-31


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

Option Contracts  Transactions in option contracts for the fiscal year ended November 30, 2012 were as follows:

 

      Number of
Contracts
    Premium  
Call Options Written             

Options outstanding at November 30, 2011

     1,119      $ 121   

Options written

     35,793        3,456   

Options subsequently repurchased(1)

     (16,104     (1,623

Options exercised

     (15,008     (1,432

Options expired

     (1,700     (116
  

 

 

   

 

 

 

Options outstanding at November 30, 2012(2)

     4,100      $ 406   
  

 

 

   

 

 

 

 

(1) The price at which the Company subsequently repurchased the options was $541, which resulted in a realized gain of $1,082.

 

(2) The percentage of total investments subject to call options written was 0.4% at November 30, 2012.

Interest Rate Swap Contracts  The Company may enter into interest rate swap contracts to partially hedge itself from increasing interest expense on its leverage resulting from increasing short-term interest rates. A decline in future 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 the interest rate swap contracts defaults, the Company would not be able to use the anticipated receipts under the swap contracts to offset the interest payments on the Company’s leverage. 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 November 30, 2012, the Company did not have any interest rate swap contracts outstanding.

During the fiscal second quarter of 2012, the Company entered into interest rate swap contracts ($150,000 notional amount) in anticipation of the private placements of senior unsecured notes. On April 17, 2012, these interest rate swap contracts were terminated in conjunction with the pricing of the private placements, and resulted in a $2,606 realized loss.

The following table sets forth the fair value of the Company’s 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

November 30, 2012

 

Call options

    

Call option contracts written

   $ (379

The following table sets forth the effect of the Company’s 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 Fiscal Year Ended
November 30, 2012
 
      Net  Realized
Gains/(Losses)  on
Derivatives
Recognized  in
Income
    Change  in
Unrealized
Gains/(Losses)  on
Derivatives
Recognized  in
Income
 

Call options

   Options    $ 1,198      $ (66

Interest rate swap contracts

   Interest rate swap contracts      (2,606       
     

 

 

   

 

 

 
      $ (1,408   $ (66
     

 

 

   

 

 

 

 

F-32


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

 

9.    Investment Transactions

For the fiscal year ended November 30, 2012, the Company purchased and sold securities in the amounts of $1,479,644 and $850,335 (excluding short-term investments and options), respectively.

 

10.     Credit Facility

At November 30, 2012, the Company had a $200,000 unsecured revolving credit facility (the “Credit Facility”) with a syndicate of lenders. During the fiscal second quarter of 2012, the Company increased the size of its Credit Facility from $175,000 to $200,000 by adding a new lender to the syndicate. The Credit Facility matures on June 11, 2013. The interest rate may vary between LIBOR plus 1.75% to LIBOR plus 3.00%, depending on the Company’s asset coverage ratios. Outstanding loan balances accrue interest daily at a rate equal to one-month LIBOR plus 1.75% based on current asset coverage ratios. The Company pays a fee of 0.40% per annum on any unused amounts of the Credit Facility. See Financial Highlights for the Company’s asset coverage ratios under the 1940 Act.

For the fiscal year ended November 30, 2012, the average amount outstanding under the Credit Facility was $52,475 with a weighted average interest rate of 2.22%. As of November 30, 2012, the Company had $19,000 outstanding under the Credit Facility at an interest rate of 2.28%.

 

11.    Senior Unsecured Notes

At November 30, 2012, the Company had $890,000 aggregate principal amount of Senior Notes outstanding. On May 3, 2012, the Company completed a private placement of $175,000 of Senior Notes. Net proceeds from such offering were used to repay borrowings under the Company’s Credit Facility, to refinance the Series I Senior Notes, to make new portfolio investments and for general corporate purposes.

The table below sets forth the key terms of each series of the Senior Notes.

 

Series
   Principal
Outstanding,
November 30,
2011
     Principal
Redeemed(1)
     Principal
Issued
     Principal
Outstanding,
November 30,
2012
     Estimated
Fair Value,
November 30,
2012
    

Fixed/Floating
Interest Rate

   Maturity  
I    $ 60,000       $ 60,000       $       $       $       5.847%      6/19/12   
K      125,000                         125,000         130,900       5.991%      6/19/13   
M      60,000                         60,000         63,800       4.560%      11/4/14   
N      50,000                         50,000         50,100       3-month LIBOR + 185 bps      11/4/14   
O      65,000                         65,000         69,100       4.210%      5/7/15   
P      45,000                         45,000         44,700       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         65,700       4.400%      11/9/20   
T      40,000                         40,000         43,500       4.500%      11/9/22   
U      60,000                         60,000         59,100       3-month LIBOR + 145 bps      5/26/16   
V      70,000                         70,000         74,100       3.710%      5/26/16   
W      100,000                         100,000         109,900       4.380%      5/26/18   
X                      14,000         14,000         14,200       2.460%      5/3/15   
Y                      20,000         20,000         20,500       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         79,500       3.950%      5/3/22   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       
   $ 775,000       $ 60,000       $ 175,000       $ 890,000       $ 935,000         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

(1) The Company redeemed $60,000 of Series I Senior Notes on May 18, 2012.

 

F-33


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

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 fiscal year ended November 30, 2012, the weighted average interest rate on the outstanding Senior Notes was 4.05%.

As of November 30, 2012, 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 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. Before the third fiscal quarter of 2012, Series K, M and N Senior Notes were rated by Moody’s Investor Service, Inc. (“Moody’s”). On July 2, 2012, the Company requested that Moody’s withdraw its ratings of the Company’s Series K, M and N Senior Notes. On July 12, 2012, Moody’s downgraded the Company’s Series K, M and N Senior Notes from “Aa1” to “A1” and on August 3, 2012, Moody’s withdrew its ratings.

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 Company’s 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 Company’s 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 Company’s outstanding preferred shares; (2) senior to all of the Company’s 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 November 30, 2012, the Company was in compliance with all covenants under the Senior Notes agreements.

 

12.    Preferred Stock

At November 30, 2012, the Company had 14,960,000 shares of mandatory redeemable preferred stock outstanding, with a total liquidation value of $374,000 ($25.00 per share). On March 21, 2012, the Company completed a public offering of 4,800,000 shares of Series E mandatory redeemable preferred stock at a price of $25.00 per share. Net proceeds from the offering were approximately $117,400. The net proceeds of the preferred stock offering were used to repay borrowings under the Credit Facility and to redeem $6,000 of Series A mandatory redeemable preferred stock at 108% of par value ($480 of dividend premium paid). The Company recognized $64 of expense for the write-off of issuance costs associated with this redemption.

 

F-34


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

The table below sets forth the key terms of each series of the mandatory redeemable preferred stock.

 

Series
  Liquidation
Value
November 30,
2011
     Liquidation
Value
Shares
Redeemed
     Liquidation
Value
Shares
Issued
     Liquidation
Value
November 30,
2012
     Estimated
Fair Value,
November 30,
2012
    

Rate

   Maturity
Redemption
Date
 
A   $ 110,000       $ 6,000       $       $ 104,000       $ 112,200       5.57%      5/7/17   
B     8,000                         8,000         8,300       4.53%      11/9/17   
C     42,000                         42,000         44,500       5.20%      11/9/20   
D(1)     100,000                         100,000         101,280       4.95%      6/1/18   
E(2)                     120,000         120,000         121,776       4.25%      4/1/19   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       
  $ 260,000       $ 6,000       $ 120,000       $ 374,000       $ 388,056         
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

(1) Series D mandatory redeemable preferred shares are publicly traded on the NYSE under the symbol “KYNPRD”. The fair value is based on the price of $25.32 as of November 30, 2012.

 

(2) 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 $25.37 on November 30, 2012.

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 Company’s 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 November 30, 2012 (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 Company’s 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 Company’s 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 November 30, 2012, the Company was in compliance with the asset coverage and basic maintenance requirements of its mandatory redeemable preferred stock.

 

F-35


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(amounts in 000’s, except number of option contracts, share and per share amounts)

 

 

13.    Common Stock

At November 30, 2012, the Company had 185,040,000 shares of common stock authorized and 88,431,413 shares outstanding. As of that date, KACALP owned 4,000 shares. Transactions in common shares for the fiscal year ended November 30, 2012 were as follows:

 

Shares outstanding at November 30, 2011

     75,130,209   

Shares issued through reinvestment of distributions

     801,204   

Shares issued in connection with offerings of common stock(1)(2)

     12,500,000   
  

 

 

 

Shares outstanding at November 30, 2012

     88,431,413   
  

 

 

 

 

(1) On February 29, 2012, the Company sold 7,500,000 shares of common stock at a price of $31.51 per share. The public offering was completed on March 5, 2012 and the net proceeds of $226,513 were used by the Company to make additional portfolio investments that are consistent with the Company’s investment objective, and for general corporate purposes.

 

(2) On August 3, 2012, the Company sold 5,000,000 shares of common stock at a price of $29.75 per share. The public offering was completed on August 8, 2012 and the net proceeds of $142,750 were used by the Company to make additional portfolio investments that are consistent with the Company’s investment objective, and for general corporate purposes.

 

14.    Subsequent Events

On December 11, 2012, the Company declared its quarterly distribution of $0.55 per common share for the fiscal fourth quarter for a total quarterly distribution payment of $48,637. The distribution was paid on January 11, 2013 to common stockholders of record on December 28, 2012. Of this total, pursuant to the Company’s dividend reinvestment plan, $5,733 was reinvested into the Company through the issuance of 190,273 shares of common stock.

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.

 

F-36


Table of Contents

KAYNE ANDERSON MLP INVESTMENT COMPANY

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Kayne Anderson MLP Investment Company

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations, of changes in net assets applicable to common stockholders and of cash flows and the financial highlights present fairly, in all material respects, the financial position of Kayne Anderson MLP Investment Company (the “Company”) at November 30, 2012, and the results of its operations and cash flows for the year then ended, the changes in its net assets applicable to common stockholders for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at November 30, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Los Angeles, California

January 28, 2013

 

F-37


Table of Contents

BASE PROSPECTUS

$750,000,000

 

LOGO

Common Stock

Preferred Stock

Kayne Anderson MLP Investment Company (the “Company,” “we,” “us,” or “our”) is a non-diversified, closed-end management investment company that began investment activities on September 28, 2004 following our initial public offering. Our investment objective is to obtain a high after-tax total return by investing at least 85% of our total assets in energy-related partnerships and their affiliates (collectively, “master limited partnerships” or “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, crude oil, refined petroleum products or coal (collectively with MLPs, “Midstream Energy Companies”). We invest in equity securities of (i) master limited partnerships, including preferred, common and subordinated units and general partner interests, (ii) owners of such interests in master limited partnerships, and (iii) other Midstream Energy Companies. Additionally, we may invest in debt securities of MLPs and other Midstream Energy Companies. Substantially all of our total assets consist of publicly traded securities of MLPs and other Midstream Energy Companies. We are permitted to invest up to 50% of our total assets in unregistered or otherwise restricted securities of MLPs and other Midstream Energy Companies, including securities issued by private companies.

We may offer, from time to time, shares of our common stock ($0.001 par value per share) or shares of our preferred stock ($0.001 par value per share), which we refer to in this prospectus collectively as our securities, in one or more offerings. We may offer our common stock or preferred stock, separately or in concurrent separate offerings, in amounts, at prices and on terms set forth in a prospectus supplement to this prospectus. You should read this prospectus and the related prospectus supplement carefully before you decide to invest in any of our securities.

We may offer and sell our securities to or through underwriters, through dealers or agents that we designate from time to time, directly to purchasers or through a combination of these methods. If an offering of our securities involves any underwriters, dealers or agents, then the applicable prospectus supplement will name the underwriters, dealers or agents and will provide information regarding any applicable purchase price, fee, commission or discount arrangements made with those underwriters, dealers or agents or the basis upon which such amount may be calculated. For more information about the manners in which we may offer our securities, see “Plan of Distribution.” We may not sell our securities through agents, underwriters or dealers without delivery of a prospectus supplement.

Investing in our securities may be speculative and involve a high degree of risk and should not constitute a complete investment program. Before buying any securities, you should read the discussion of the material risks of investing in our securities in “Risk Factors” beginning on page 18 of this prospectus. You should consider carefully these risks together with all of the other information contained in this prospectus and any prospectus supplement before making a decision to purchase our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is March 4, 2013.

(continued on the following page)


Table of Contents

(continued from the previous page)

We are managed by KA Fund Advisors, LLC (“KAFA”), a subsidiary of Kayne Anderson Capital Advisors, L.P. (together, with KAFA, “Kayne Anderson”), a leading investor in MLPs. As of December 31, 2012, Kayne Anderson and its affiliates managed approximately $18.0 billion, including approximately $10.8 billion in MLPs and other Midstream Energy Companies.

Shares of our common stock are listed on the New York Stock Exchange (“NYSE”) under the symbol “KYN.” The net asset value of our common stock at the close of business on December 31, 2012 was $27.21 per share, and the last sale price per share of our common stock on the NYSE as of that date was $29.47. See “Market and Net Asset Value Information.”

Shares of common stock of closed-end investment companies, like ours, frequently trade at discounts to their net asset values. If our common stock trades at a discount to our net asset value, the risk of loss may increase for purchasers of our common stock, especially for those investors who expect to sell their common stock in a relatively short period after purchasing shares in this offering. See “Risk FactorsAdditional Risks Related to Our Common Stock—Market Discount From Net Asset Value Risk.”

Our common stock is junior in liquidation and distribution rights to our debt securities and preferred stock. The issuance of our debt securities and preferred stock represents the leveraging of our common stock. See “Use of Leverage—Effects of Leverage,” “Risk Factors—Additional Risks Related to Our Common Stock—Leverage Risk to Common Stockholders” and “Description of Capital Stock.” The issuance of any additional common stock offered by this prospectus will enable us to increase the aggregate amount of our leverage. Our preferred stock is senior in liquidation and distribution rights to our common stock and junior in liquidation and distribution rights to our debt securities. Our debt securities are our unsecured obligations and, upon our liquidation, dissolution or winding up, rank: (1) senior to all of our outstanding common stock and any preferred stock; (2) on a parity with our obligations to any unsecured creditors and any unsecured senior securities representing our indebtedness; and (3) junior to our obligations to any secured creditors.

You should rely only on the information contained or incorporated by reference in this prospectus and any related prospectus supplement. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom it is not permitted to make such offer or sale. You should assume that the information appearing in this prospectus and any prospectus supplement is accurate only as of the respective dates on their front covers, regardless of the time of delivery of this prospectus, any prospectus supplement, or any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.


Table of Contents

TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Forward-Looking Statements

     8   

Kayne Anderson MLP Investment Company

     9   

Fees and Expenses

     10   

Financial Highlights

     12   

Senior Securities

     13   

Market and Net Asset Value Information

     16   

Use of Proceeds

     17   

Risk Factors

     18   

Distributions

     38   

Dividend Reinvestment Plan

     40   

Investment Objective and Policies

     42   

Use of Leverage

     47   

Management

     51   

Net Asset Value

     55   

Description of Capital Stock

     58   

Rating Agency Guidelines

     74   

Our Structure; Common Stock Repurchases and Change in Our Structure

     76   

Tax Matters

     78   

Plan of Distribution

     82   

Transfer Agent and Dividend-Paying Agent

     85   

Administrator, Custodian and Fund Accountant

     86   

Legal Matters

     86   

Table of Contents of Our Statement of Additional Information

     87   

This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission (the “SEC”), using the “shelf” registration process. Under the shelf registration process, we may offer, from time to time, our common stock or preferred stock, separately or in concurrent offerings, in amounts, at prices and on terms set forth in prospectus supplements to this prospectus. The securities may be offered at prices and on terms described in one or more supplements to this prospectus. This prospectus provides you with a general description of the securities that we may offer. Each time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. This prospectus, together with any prospectus supplement, sets forth concisely the information about us that a prospective investor ought to know before investing. You should read this prospectus and the related prospectus supplement before deciding whether to invest and retain them for future reference. A Statement of Additional Information, dated March 4, 2013 (the “SAI”), containing additional information about us, has been filed with the SEC and is incorporated by reference in its entirety into this prospectus.


Table of Contents

You may request a free copy of our SAI, the table of contents of which is on page 87 of this prospectus, request a free copy of our annual, semi-annual and quarterly reports, request other information or make stockholder inquiries, by calling toll-free at (877) 657-3863, or by writing to us at 717 Texas Avenue, Suite 3100, Houston, Texas 77002. Our annual, semi-annual and quarterly reports and the SAI also are available on our website at http://www.kaynefunds.com. Information included on such website does not form part of this prospectus.

We file reports (including our annual, semi-annual and quarterly reports, and the SAI), proxy statements and other information with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Copies of such reports, proxy statements and other information, as well as the registration statement and the amendments, exhibits and schedules thereto, can be obtained from the SEC’s Public Reference Room in Washington, D.C. Information relating to the Public Reference Room may be obtained by calling the SEC at (202) 551-8090. Such materials, as well as the Company’s annual, semi-annual and quarterly reports and other information regarding the Company, are also available on the SEC’s website (http://www.sec.gov). You may also e-mail requests for these documents to publicinfo@sec.gov or make a request in writing to the SEC’s Public Reference Room, 100 F Street, N.E., Room 1580, Washington, D.C. 20549-0112.

Neither our common stock nor our preferred stock represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and they are not federally insured by the Federal Deposit Insurance Corporation, the Federal Board or any other governmental agency.


Table of Contents

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our securities offered by this prospectus. You should carefully read the entire prospectus, any related prospectus supplement and the SAI, including the documents incorporated by reference into them, particularly the section entitled “Risk Factors” and the financial statements and related notes. Except where the context suggests otherwise, the terms the “Company,” “we,” “us,” and “our” refer to Kayne Anderson MLP Investment Company; “KAFA” or the “Adviser” refers to KA Fund Advisors, LLC; “Kayne Anderson” refers to KAFA and its managing member, Kayne Anderson Capital Advisors, L.P., collectively; “midstream energy assets” refers to assets used in the gathering, transporting, processing, storing, refining, distributing, mining or marketing of natural gas, natural gas liquids, crude oil, refined petroleum products or coal; “MLPs” or “master limited partnerships” refers to (i) energy-related partnerships, (ii) energy-related limited liability companies treated as partnerships and (iii) affiliates of those energy-related partnerships, substantially all of whose assets consist of interests in publicly traded partnerships; “Midstream Energy Companies” means (i) MLPs and (ii) other companies that, as their principal business, operate midstream energy assets; and “Energy Companies” means companies that own and operate assets that are used in or provide services to the energy sector, including assets used in exploring, developing, producing, transporting, storing, gathering, processing, refining, distributing, mining or marketing of natural gas, natural gas liquids, crude oil, refined products or coal.

The Company

Kayne Anderson MLP Investment Company, a Maryland corporation, is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). Our outstanding shares of common stock are listed on the New York Stock Exchange (the “NYSE”) under the symbol “KYN.”

We began investment activities in September 2004 following our initial public offering. As of December 31, 2012, we had approximately 88.4 million shares of common stock outstanding, net assets applicable to our common stock of approximately $2.4 billion and total assets of approximately $4.4 billion.

Investment Objective

Our investment objective is to obtain a high after-tax total return by investing at least 85% of our total assets in MLPs and other Midstream Energy Companies.

Investment Policies

We have adopted the following non-fundamental investment policies:

 

   

For as long as the word “MLP” is in our name, it shall be our policy, under normal market conditions, to invest at least 80% of our total assets in MLPs.

 

   

We intend to invest at least 50% of our total assets in publicly traded securities of MLPs and other Midstream Energy Companies.

 

   

Under normal market conditions, we may invest up to 50% of our total assets in unregistered or otherwise restricted securities of MLPs and other Midstream Energy Companies. The types of unregistered or otherwise restricted securities that we may purchase include common units, subordinated units, preferred units, and convertible units of, and general partner interests in, MLPs, and securities of other public and private Midstream Energy Companies.

 

 

1


Table of Contents
   

We may invest up to 15% of our total assets in any single issuer.

 

   

We may invest up to 20% of our total assets in debt securities of MLPs and other Midstream Energy Companies, including below investment grade debt securities (commonly referred to as “junk bonds” or “high yield bonds”) rated, at the time of investment, at least B3 by Moody’s Investors Service, Inc., B- by Standard & Poor’s or Fitch Ratings, comparably rated by another rating agency or, if unrated, determined by Kayne Anderson to be of comparable quality. In addition, up to one-quarter of our permitted investments in debt securities (or up to 5% of our total assets) may be invested in unrated debt securities or debt securities that are rated less than B3/B- of public or private companies.

 

   

Under normal market conditions, our policy is to utilize our Borrowings and our preferred stock (each a “Leverage Instrument” and collectively “Leverage Instrument”) in an amount that represents approximately 30% of our total assets, including proceeds from such Leverage Instruments. However, we reserve the right at any time, if we believe that market conditions are appropriate, to use Leverage Instruments to the extent permitted by the 1940 Act.

 

   

We may, but are not required to, use derivative investments and engage in short sales to hedge against interest rate, market and issuer risks.

Unless otherwise stated, all investment restrictions apply at the time of purchase and we will not be required to reduce a position due solely to market value fluctuations. However, although we may not be required to sell securities due to subsequent changes in value, if such changes cause us to have invested less than 80% of our total assets in securities of MLPs, we will be required to make future purchases of securities in a manner so as to bring us into compliance with this investment policy.

Our Board of Directors may change these investment policies without the approval of the holders of a majority of our voting securities, provided that our securities holders receive at least 60 days’ prior written notice of any change.

Our Portfolio Investments

As of December 31, 2012, we held $4.4 billion in equity investments and no debt investments. Our top 10 largest holdings by issuer as of that date were: