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UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
N-CSR
CERTIFIED
SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT
INVESTMENT COMPANIES
Investment
Company Act file number 811-21713
Madison
Strategic Sector Premium Fund
(Exact
name of registrant as specified in charter)
550
Science Drive, Madison, WI 53711
(Address
of principal executive offices)(Zip code)
Pamela M.
Krill
Madison/Mosaic
Legal and Compliance Department
550
Science Drive
Madison,
WI 53711
(Name and
address of agent for service)
Registrant's
telephone number, including area code: 608-274-0300
Date of
fiscal year end: December 31
Date of
reporting period: December 31, 2009
Form
N-CSR is to be used by management investment companies to file reports with the
Commission not later than 10 days after the transmission to stockholders of any
report that is required to be transmitted to stockholders under Rule 30e-1 under
the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A
registrant is required to disclose the information specified by Form N-CSR, and
the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of
the information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. s
3507.
Item
1
Annual
Report
December
31, 2009
Madison
Strategic Sector
Premium
Fund (MSP)
Active
Equity Management combined with a
Covered
Call Option Strategy
Madison
Investment Advisors, Inc.
www.madisonfunds.com
MSP
/Madison Strategic Sector
Premium Fund
Table of
Contents
Management’s
Discussion of Fund Performance
|
1
|
Portfolio
of Investments
|
4
|
Statement
of Assets and Liabilities
|
7
|
Statement
of Operations
|
8
|
Statements
of Changes in Net Assets
|
9
|
Financial
Highlights
|
10
|
Notes
to Financial Statements
|
11
|
Report
of Independent Registered Public Accounting Firm
|
16
|
Other
Information
|
17
|
Trustees
and Officers
|
18
|
Dividend
Reinvestment Plan
|
21
|
MSP
/Madison Strategic Sector Premium
Fund
Management’s
Discussion of Fund Performance
What
happened in the market during 2009?
With a
sense of relief, U.S. equity markets ended the year in much better form than
they began. In the first months of 2009, the U.S. economy was in a very deep
recession, which some were characterizing as the start of a new depression.
Housing was in disarray, the auto market had serious problems, unemployment was
rising and the credit markets were deteriorating. There was widespread fear that
the major banks would be nationalized and by early March, these factors had
driven the market down by some 25%. Since then, we’ve experienced a sizable
recovery, a record rally in a very short time. Massive government stimulus has
unfrozen credit markets, economic recovery is underway and market psychology has
shifted from fear to optimism, some would say hyper-optimism. As a result, the
S&P 500 managed a very strong 26.46% return in 2009 with a 6% boost coming
in the fourth quarter.
Although
defensive sectors led the way in the early portion of the year as the market
continued to swoon, once the recovery gathered steam, cyclical sectors began to
assert leadership. The technology, consumer discretionary and materials sectors
were the ultimate leaders over the full year as expectations grew for a global
economic recovery. The financial sector, which had been decimated in late 2008
and early 2009, rebounded sharply in the second and third quarter as a semblance
of stability returned to the banking system. Despite its defensive nature and
the specter of dramatic reform, the health care sector also rebounded strongly,
particularly late in the year as reform efforts seemed to lose momentum.
Given the
dire environment as the year began, investor fear was very high and as a result,
market volatility was near the all-time highs reached in late 2008. The CBOE
Market Volatility Index (VIX) traded in the range of 40 to 50 early in the year
but trended lower as the stock market recovered and fear subsided, ending the
year just above 20.
How
did the fund perform given the marketplace conditions during 2009?
We are
very pleased to report that MSP had a tremendous year, outperforming through the
market declines in the first quarter and the rally that followed. For the year
ended December 31, 2009, the fund provided a total return of 55.81% based on
market price. This compared highly favorably to the S&P 500 Index which
returned 26.46% and the CBOE S&P BuyWrite Index (BXM) which posted a 25.91%
return over the same period. Closed-end funds in general, and MSP specifically,
were pushed to deep discounts by the fear-inspired selling environment of 2008
and early 2009. A significant portion of the fund’s total return for this annual
period was a reduction of the trading discount. The underlying Net Asset Value
(ÒNAVÓ) showed a robust return of 41.21%, so that about a quarter of the trading
price total return in 2009 was due to a reduction of trading discount. The
fund’s strong performance during the period was powered by a combination of very
favorable underlying stock performance coupled with an option strategy that
allowed the fund to participate in the market rally.
Much
transpired throughout the year from a portfolio strategy standpoint. Early in
the year, the portfolio was structured to provide the most protection possible
by taking advantage of the extremely high option premiums that resulted from the
excessively high level of market volatility. As the market bottomed, call
options were written meaningfully out-of-the-money in order for the portfolio to
participate in the market rebound. This strategy worked extremely well and
allowed the fund’s NAV to recover as the market advanced. Through mid-year, as
the market continued its recovery, the fund shifted to a more defensive posture
as concerns grew that the market may have moved too far ahead of actual
underlying economic and corporate fundamentals. Call options were written
closer-to-the-money and on a larger portion of the portfolio holdings and
proceeds from option assignments were used to steadily reduce the fund’s
leverage, which began the year at approximately 13% of total investments and was
ultimately eliminated in October.
Describe
the fund’s portfolio equity and option structure:
As of
December 31, 2009, the fund held 48 equity securities and unexpired covered call
options had been
MSP
| Madison Strategic Sector Premium Fund |
Management’s
Discussion of Fund Performance
| continued
written
against 82% of the fund’s stock holdings. During 2009, the fund generated
premiums of $8.6 million from its covered call writing activities. It is the
strategy of the fund to write Òout-of-the-moneyÓ call options and as of December
31, 49.3% of the fund’s call options (37 of 75 different options) remained
Òout-of-the-money.Ó (Out-of-the-money means the stock price is below the strike
price at which the shares could be called away by the option holder.) The number
of Òout-of-the-moneyÓ options has declined from the beginning of the year as the
strength of the market rally has moved many share prices above their
corresponding option strike prices. The fund’s managers have also begun writing
options Òcloser-to-the-moneyÓ in order to capture higher premium income and
provide the fund added protection from a reversal in the market’s upward surge.
Which
sectors are prevalent in the fund?
From a
sector perspective, MSP’s largest exposure as of December 31, 2009 was to
industries in the health care sector, followed by those in technology (and
technology related), consumer discretionary, financials and energy sectors. The
fund was not invested in industries in the materials, consumer staples,
telecommunication services and utilities sectors of the economy as of
year-end.
Discuss
the fund’s security and option selection process.
The fund
is supported by two teams of investment professionals. We like to think of these
teams as a Òright handÓ and Òleft handÓ meaning they work together to make
common stock and option decisions. We use fundamental analysis to select solid
companies with good growth prospects and attractive valuations. We then seek
attractive call options to write on those stocks. It is our belief that this
partnership of active management between the equity and option teams provides
investors with an innovative, risk-moderated approach to equity investing. The
fund’s portfolio managers seek to invest in a portfolio of common stocks that
have favorable PEG ratios (Price-Earnings ratio to Growth rate) as well as
financial strength and industry leadership. As bottom-up investors, we focus on
the fundamental businesses of our companies. Our stock selection philosophy
strays away from the Òbeat the streetÓ mentality, as we seek companies that have
sustainable competitive advantages, predictable cash flows, solid balance sheets
and high-quality management teams. By concentrating on long-term prospects and
circumventing the Òinstant gratificationÓ school of thought,
MSP
| Madison Strategic Sector Premium Fund |
Management’s
Discussion of Fund Performance
| concluded
we
believe we bring elements of consistency, stability and predictability to our
shareholders.
Once we
have selected attractive and solid names for the fund, we employ our call
writing strategy. This procedure entails selling calls that are primarily out-of
the-money, meaning that the strike price is higher than the common stock price,
so that the fund can participate in some stock appreciation. By receiving option
premiums, the fund receives a high level of investment income and adds an
element of downside protection. Call options may be written over a number of
time periods and at differing strike prices in an effort to maximize the
protective value to the strategy and spread income evenly throughout the
year.
What
is management’s outlook for the market and fund in 2010?
With 2009
providing a turning point in the stock market and economy, our outlook for 2010
is optimistic, although tempered by the fact that the market has already enjoyed
such a strong recovery. We expect the economy to improve in 2010, especially
internationally. Corporate profitability should continue to expand behind solid
margins, productivity gains and improving revenue growth. Even though interest
rates may move upward, they should remain at a relatively low level, which is
positive for valuations. We also see substantial assets still in cash and lower
yielding bonds which could come back into the stock market, providing support.
Although deep recessions, such as the one we have recently experienced, are
historically followed by steep recoveries, we believe the current recovery will
likely be slower than history might suggest due to some lingering headwinds.
High unemployment, stagnant wage growth and the prospect of higher taxes are
causing consumers to save more and spend less, crimping a key economic driver.
Additionally, the financial system, while recovering, remains wounded as does
the housing market. In general, we expect economic growth to be moderately
positive but below the long-term trend line of 3-4%.
The
explosive rally from the March 2009 lows was focused on lower quality and
economically sensitive areas with the expectation that the economy would bounce
back. This is characteristic of the first leg of a recovery. As we move to the
next leg, the market should take its direction from actual signs of improving
economic and company fundamentals which should bring the spotlight to higher
quality, blue chip companies which remain the focus within MSP’s portfolio.
Over the
near term, we expect the stock market to consolidate its significant gains from
the market lows with increasing risk relating to the possibility that lofty
expectations of economic growth may be overly optimistic. While we wait for
economic and corporate reality to catch up with expectations, we remain
relatively defensively postured.
TOP
TEN STOCK HOLDINGS AS OF DECEMBER 31, 2009
FOR
MADISON STRATEGIC SECTOR PREMIUM FUND
%
of net assets
|
Cisco
Systems, Inc.
|
5.08%
|
EMC
Corp.
|
4.02%
|
eBay
Inc.
|
3.73%
|
Apache
Corp.
|
3.60%
|
Bed
Bath & Beyond Inc.
|
3.37%
|
UnitedHealth
Group, Inc.
|
3.27%
|
Capital
One Financial Corp.
|
3.24%
|
Lowe's
Companies, Inc.
|
3.21%
|
Target
Corp.
|
3.02%
|
Transocean
Inc
|
2.99%
|
Portfolio
of Investments |
December
31, 2009
|
|
|
|
|
|
COMMON STOCKS:
96.5% of net assets
|
|
|
|
CONSUMER
DISCRETIONARY:
16.3%
|
|
33,100
|
|
American
Eagle Outfitters, Inc.
|
$
562,038
|
70,000
|
|
Bed
Bath & Beyond Inc.*
|
2,704,100
|
30,100
|
|
Best
Buy Co., Inc.
|
1,187,746
|
30,300
|
|
Home
Depot Inc.
|
876,579
|
29,000
|
|
Kohls
Corp.*
|
1,563,970
|
110,000
|
|
Lowe’s
Companies, Inc.
|
2,572,900
|
28,500
|
|
Starbucks
Corp.*
|
657,210
|
50,000
|
|
Target
Corp.
|
2,418,500
|
25,000
|
|
Williams-Sonoma,
Inc.
|
519,500
|
|
|
|
|
|
|
CONSUMER
SERVICES:
7.2%
|
|
127,000
|
|
eBay
Inc.*
|
2,989,580
|
60,000
|
|
Garmin
Ltd.
|
1,842,000
|
30,000
|
|
Intuit
Inc.*
|
921,300
|
|
|
|
|
|
|
ENERGY:
11.8%
|
|
28,000
|
|
Apache
Corp.
|
2,888,760
|
22,000
|
|
Schlumberger
Ltd.
|
1,431,980
|
29,000
|
|
Transocean
Ltd.*
|
2,401,200
|
50,000
|
|
Weatherford
International Ltd.*
|
895,500
|
40,000
|
|
XTO
Energy Inc.
|
1,861,200
|
|
|
|
|
|
|
EXCHANGE
TRADED FUNDS:
4.1%
|
|
35,000
|
|
Powershares
QQQ
|
1,607,200
|
15,000
|
|
SPDR
Trust Series 1
|
1,671,600
|
|
|
|
|
|
|
FINANCIALS:
14.1%
|
|
16,300
|
|
Affiliated
Managers Group, Inc.*
|
1,097,805
|
61,867
|
|
Bank
of America Corp.
|
931,717.02
|
67,800
|
|
Capital
One Financial Corp.
|
2,599,452
|
190,000
|
|
Citigroup
Inc.
|
628,900
|
95,000
|
|
Marshall
& Ilsley Corp.
|
517,750
|
68,000
|
|
Morgan
Stanley
|
2,012,800
|
50,000
|
|
State
Street Corp.
|
2,177,000
|
50,000
|
|
Wells
Fargo & Co.
|
1,349,500
|
|
|
|
|
|
|
HEALTH
CARE:
21.6%
|
|
43,100
|
|
Biogen
Idec*
|
2,305,850
|
36,000
|
|
Genzyme
Corp.*
|
1,764,360
|
45,000
|
|
Gilead
Sciences, Inc.*
|
1,947,600
|
35,000
|
|
Medtronic
Inc.
|
1,539,300
|
121,600
|
|
Mylan,
Inc.*
|
2,241,088
|
109,800
|
|
Pfizer
Inc.
|
1,997,262
|
|
|
|
|
86,000
|
|
UnitedHealth
Group, Inc.
|
$
2,621,280
|
12,900
|
|
Waters
Corp.*
|
799,284
|
35,000
|
|
Zimmer
Holdings Inc.*
|
2,068,850
|
|
|
|
|
|
|
INSURANCE:
2.0%
|
|
32,000
|
|
Aflac
Inc.
|
1,480,000
|
25,000
|
|
MGIC
Investment Corp.*
|
144,500
|
|
|
|
|
|
|
SOFTWARE:
1.7%
|
|
700
|
|
Check
Point Software Technologies Ltd.*
|
23,716
|
75,000
|
|
Symantec
Corp.*
|
1,341,750
|
|
|
|
|
|
|
TECHNOLOGY:
17.7%
|
|
40,000
|
|
Applied
Materials, Inc.
|
557,600
|
170,000
|
|
Cisco
Systems, Inc.*
|
4,069,800
|
100,000
|
|
Dell
Inc.*
|
1,436,000
|
184,400
|
|
EMC
Corp.*
|
3,221,468
|
260,000
|
|
Flextronics
International Ltd.*
|
1,900,600
|
38,100
|
|
Microsoft
Corp.
|
1,161,669
|
60,000
|
|
Yahoo!
Inc.*
|
1,006,800
|
30,000
|
|
Zebra
Technologies Corp.-Class A*
|
|
|
|
|
|
|
|
TOTAL
COMMON STOCKS
(Cost
$102,123,369)
|
$77,367,364
|
|
|
|
|
|
|
SHORT-TERM
INVESTMENTS:
|
|
|
|
|
|
|
|
Repurchase
Agreement -
18.4%
|
|
|
|
US
Bank issued 12/31/09 at 0.01%, due 1/4/10, collateralized by $15,033,612
in Fannie Mae MBS #555745 due 9/1/18. Proceeds at maturity are $14,738,629
(Cost
$14,738,613).
|
|
|
|
|
|
|
|
TOTAL
INVESTMENTS:
114.9%
of net assets (Cost $116,861,981)
|
$92,105,977
|
|
|
|
|
|
|
CASH
AND OTHER ASSETS LESS LIABILITIES:
(7.1%)
|
(5,667,982)
|
|
|
TOTAL
CALL OPTIONS WRITTEN:
(7.8%)
|
|
|
|
|
|
|
|
NET
ASSETS:
100%
|
|
*Non-income
producing
|
See notes
to financial statements.
MSP
| Madison Strategic Sector Premium Fund |
Portfolio
of Investments
| continued
Contracts
(100
shares
per
contract)
|
|
|
|
|
|
53.00
|
|
Affiliated
Managers Group, Inc.
|
January
2010
|
$50.00
|
$91,955
|
110.00
|
|
Affiliated
Managers Group, Inc.
|
March
2010
|
70.00
|
36,850
|
150.00
|
|
Aflac
Inc.
|
January
2010
|
30.00
|
244,500
|
170.00
|
|
Aflac
Inc.
|
May
2010
|
49.00
|
41,650
|
17.00
|
|
American
Eagle Outfitters, Inc.
|
January
2010
|
12.50
|
7,650
|
149.00
|
|
American
Eagle Outfitters, Inc.
|
January
2010
|
15.00
|
31,290
|
165.00
|
|
American
Eagle Outfitters, Inc.
|
May
2010
|
17.50
|
24,750
|
146.00
|
|
Apache
Corp.
|
April
2010
|
95.00
|
170,090
|
134.00
|
|
Apache
Corp.
|
April
2010
|
105.00
|
77,720
|
400.00
|
|
Applied
Materials, Inc.
|
January
2010
|
12.50
|
61,000
|
400.00
|
|
Bed
Bath & Beyond, Inc.
|
January
2010
|
30.00
|
346,000
|
50.00
|
|
Bed
Bath & Beyond, Inc.
|
January
2010
|
32.00
|
33,500
|
246.00
|
|
Bed
Bath & Beyond, Inc.
|
February
2010
|
38.00
|
50,430
|
3.00
|
|
Best
Buy Co., Inc.
|
January
2010
|
35.00
|
1,372
|
150.00
|
|
Best
Buy Co., Inc.
|
March
2010
|
39.00
|
39,300
|
148.00
|
|
Best
Buy Co., Inc.
|
June
2010
|
48.00
|
13,024
|
295.00
|
|
Biogen
Idec
|
January
2010
|
55.00
|
19,175
|
136.00
|
|
Biogen
Idec
|
July
2010
|
50.00
|
90,440
|
178.00
|
|
Capital
One Financial Corp.
|
March
2010
|
38.00
|
53,756
|
300.00
|
|
Capital
One Financial Corp.
|
June
2010
|
40.00
|
105,000
|
1,000.00
|
|
Cisco
Systems, Inc.
|
January
2010
|
20.00
|
397,500
|
400.00
|
|
Cisco
Systems, Inc.
|
April
2010
|
24.00
|
52,600
|
400.00
|
|
Dell
Inc.
|
January
2010
|
15.00
|
5,600
|
620.00
|
|
eBay
Inc.
|
January
2010
|
20.00
|
220,100
|
200.00
|
|
eBay
Inc.
|
April
2010
|
24.00
|
29,100
|
250.00
|
|
eBay
Inc.
|
July
2010
|
25.00
|
42,625
|
464.00
|
|
EMC
Corp.
|
January
2010
|
12.50
|
230,840
|
380.00
|
|
EMC
Corp.
|
January
2010
|
16.00
|
57,190
|
700.00
|
|
EMC
Corp.
|
July
2010
|
18.00
|
95,200
|
500.00
|
|
Flextronics
International Ltd.
|
January
2010
|
5.00
|
116,000
|
200.00
|
|
Garmin
Ltd.
|
January
2010
|
30.00
|
26,000
|
200.00
|
|
Garmin
Ltd.
|
April
2010
|
34.00
|
28,500
|
200.00
|
|
Garmin
Ltd.
|
July
2010
|
33.00
|
57,500
|
200.00
|
|
Genzyme
Corp.
|
January
2010
|
55.00
|
2,500
|
160.00
|
|
Genzyme
Corp.
|
April
2010
|
52.50
|
30,800
|
350.00
|
|
Gilead
Sciences, Inc.
|
February
2010
|
49.00
|
10,500
|
300.00
|
|
Home
Depot Inc.
|
February
2010
|
28.00
|
46,050
|
300.00
|
|
Intuit
Inc.
|
January
2010
|
27.50
|
96,000
|
290.00
|
|
Kohl’s
Corp.
|
January
2010
|
50.00
|
121,800
|
400.00
|
|
Lowe’s
Companies, Inc.
|
January
2010
|
24.00
|
8,000
|
700.00
|
|
Lowe’s
Companies, Inc.
|
July
2010
|
25.00
|
94,500
|
350.00
|
|
Medtronic
Inc
|
May
2010
|
46.00
|
73,500
|
381.00
|
|
Microsoft
Corp.
|
January
2010
|
25.00
|
210,503
|
300.00
|
|
Morgan
Stanley
|
July
2010
|
32.00
|
62,550
|
200.00
|
|
Morgan
Stanley
|
July
2010
|
34.00
|
28,700
|
666.00
|
|
Mylan,
Inc.
|
January
2010
|
12.50
|
399,600
|
250.00
|
|
Mylan,
Inc.
|
January
2010
|
15.00
|
86,250
|
See notes
to financial statements.
MSP
| Madison Strategic Sector Premium Fund |
Portfolio
of Investments
| concluded
Contracts
(100
shares
per
contract)
|
|
|
|
|
|
300.00
|
|
Mylan,
Inc.
|
April
2010
|
$17.50
|
$54,750
|
350.00
|
|
Powershares
QQQ
|
March
2010
|
47.00
|
42,350
|
150.00
|
|
Schlumberger
Ltd
|
February
2010
|
65.00
|
47,250
|
70.00
|
|
Schlumberger
Ltd
|
May
2010
|
65.00
|
40,075
|
150.00
|
|
SPDR
Trust Series 1
|
February
2010
|
114.00
|
30,150
|
285.00
|
|
Starbucks
Corp.
|
January
2010
|
12.50
|
302,100
|
100.00
|
|
State
Street Corp.
|
January
2010
|
55.00
|
500
|
200.00
|
|
State
Street Corp.
|
May
2010
|
46.00
|
60,000
|
200.00
|
|
State
Street Corp.
|
August
2010
|
47.00
|
72,000
|
500.00
|
|
Symantec
Corp.
|
January
2010
|
15.00
|
146,250
|
250.00
|
|
Symantec
Corp.
|
July
2010
|
18.00
|
40,625
|
200.00
|
|
Target
Corp.
|
January
2010
|
45.00
|
71,000
|
300.00
|
|
Target
Corp.
|
April
2010
|
49.00
|
74,700
|
290.00
|
|
Transocean
Ltd
|
February
2010
|
90.00
|
34,800
|
400.00
|
|
UnitedHealth
Group, Inc.
|
March
2010
|
30.00
|
94,600
|
200.00
|
|
UnitedHealth
Group, Inc.
|
June
2010
|
33.00
|
38,800
|
129.00
|
|
Waters
Corp.
|
January
2010
|
45.00
|
218,655
|
400.00
|
|
Weatherford
International Ltd
|
August
2010
|
20.00
|
64,000
|
300.00
|
|
Wells
Fargo & Co.
|
January
2010
|
30.00
|
2,850
|
200.00
|
|
Wells
Fargo & Co.
|
April
2010
|
29.00
|
27,300
|
250.00
|
|
Williams-Sonoma,
Inc.
|
February
2010
|
17.50
|
87,500
|
320.00
|
|
XTO
Energy Inc.
|
February
2010
|
44.00
|
105,600
|
80.00
|
|
XTO
Energy Inc.
|
May
2010
|
47.00
|
20,000
|
300.00
|
|
Yahoo!
Inc.
|
April
2010
|
19.00
|
9,000
|
300.00
|
|
Zebra
Technologies Corp. - Class A
|
February
2010
|
25.00
|
106,500
|
140.00
|
|
Zimmer
Holdings Inc.
|
January
2010
|
45.00
|
197,400
|
110.00
|
|
Zimmer
Holdings Inc.
|
March
2010
|
55.00
|
61,600
|
100.00
|
|
Zimmer
Holdings Inc.
|
June
2010
|
60.00
|
|
|
|
|
|
|
|
|
|
TOTAL
CALL OPTIONS WRITTEN
(Premiums Received $4,874,874)
|
|
|
|
See notes
to financial statements.
Statement of
Assets and Liabilities
|
December
31, 2009
ASSETS
|
|
Investments,
at value (Note 2)
|
|
Short
term investments
|
$14,738,613
|
Investment
securities
|
|
Total
investments
(cost
$116,861,981)
|
92,105,977
|
Receivables
|
|
Investment
securities sold
|
1,282,420
|
Dividends
and interest
|
|
Total
assets
|
93,406,045
|
|
|
LIABILITIES
|
|
Options
written, at value (premiums received of $4,874,874)
|
6,259,815
|
Payables
|
|
Investment
securities purchased
|
6,948,103
|
Auditor
fees
|
15,200
|
Independent
trustee fees
|
4,500
|
Other
expenses
|
|
Total
liabilities
|
|
|
|
NET
ASSETS
|
$80,178,180
|
|
|
Net
assets consist of:
|
|
Paid
in capital
|
110,544,278
|
Accumulated
net realized loss on investments and options transactions
|
(4,225,153)
|
Accumulated
net unrealized depreciation on investments and options
transactions
|
|
Net
assets
|
|
|
|
CAPITAL
SHARES ISSUED AND OUTSTANDING
|
|
An
unlimited number of capital shares authorized,$.01 par value per share
(Note 8)
|
5,798,291
|
|
|
NET
ASSETS VALUE PER SHARE
|
|
See notes
to financial statements.
Statement
of
Operations
|
For the year ended
December 31, 2009
INVESTMENT INCOME
(Note
2)
|
|
Interest
income
|
$
2,219
|
Dividend
income
|
|
Total
investment income
|
670,918
|
|
|
EXPENSES
(Note 3)
|
|
Investment
advisory
|
609,407
|
Interest
on loan
|
128,454
|
Administration
|
19,041
|
Fund
accounting
|
19,387
|
Auditor
fees
|
22,700
|
Independent
trustee fees
|
18,000
|
Other
|
|
Total
expenses
|
864,760
|
|
|
NET
INVESTMENT LOSS
|
(193,842)
|
|
|
REALIZED
AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
|
|
Net
realized gain (loss) on:
|
|
Investments
|
(7,684,228)
|
Options
|
3,459,075
|
Net
unrealized appreciation (depreciation) on:
|
|
Investments
|
30,828,452
|
Options
|
|
|
|
NET
GAIN ON INVESTMENTS AND OPTIONS TRANSACTIONS
|
|
|
|
NET
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
See notes
to financial statements.
Statements
of Changes in Net Assets
|
Year
Ended December 31,
|
|
|
|
INCREASE
(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
|
|
|
Net
investment income (loss)
|
$
(193,842)
|
$
170,259
|
Net
realized gain (loss) on investments and options
transactions
|
(4,225,153)
|
13,461,989
|
Net
unrealized appreciation (depreciation) on investments and options
transactions
|
|
|
Net
Increase (decrease) in net assets resulting from
operations
|
24,501,987
|
(30,576,241)
|
|
|
|
DISTRIBUTION
TO SHAREHOLDERS
|
|
|
From
net investment income
|
--
|
(170,259)
|
From
net capital gains
|
|
|
Total
distributions
|
(6,656,638)
|
(8,697,436)
|
|
|
|
CAPITAL
SHARE TRANSACTIONS
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN NET ASSETS
|
17,845,349
|
(39,273,677)
|
|
|
|
NET
ASSETS
|
|
|
Beginning
of period
|
|
|
End
of period
|
|
|
See notes
to financial statements.
Financial
Highlights
Per Share
Operating Performance for One Share Outstanding Throughout the
Period
|
Year
Ended December 31,
|
For
the Period April 27, 2005
1
through
December
31,
|
|
|
|
|
|
|
Net
asset value, beginning of period
|
$10.75
|
$17.52
|
$20.25
|
$19.87
|
$19.10
2
|
Investment
operations:
|
|
|
|
|
|
Net
investment income (loss)
|
(0.03)
|
0.03
|
0.28
|
0.06
|
0.03
|
Net
realized and unrealized gain (loss) on investments
and
options transactions
|
|
|
|
|
|
Total
from investment operations
|
4.23
|
(5.27)
|
(0.93)
|
2.18
|
1.71
|
Less
distributions from:
|
|
|
|
|
|
Net
investment income
|
--
|
(0.03)
|
(0.28)
|
(0.06)
|
(0.03)
|
Capital
gains
|
|
|
|
|
|
Total
distributions
|
(1.15)
|
(1.50)
|
(1.80)
|
(1.80)
|
(0.90)
|
Net
asset value, end of period
|
$13.83
|
$10.75
|
$17.52
|
$20.25
|
$19.87
|
Market
value, end of period
|
$12.23
|
$8.75
|
$15.53
|
$20.60
|
$20.28
|
Total
investment return
|
|
|
|
|
|
Net
asset value (%)
|
41.21
|
(31.94)
|
(5.07)
|
11.61
|
8.83
|
Market
value (%)
|
55.81
|
(36.18)
|
(16.85)
|
11.30
|
5.29
|
Ratios
and supplemental data
|
|
|
|
|
|
Net assets, end of
period
(thousands)
|
$80,178
|
$62,333
|
$101,607
|
$116,223
|
$111,507
|
Ratios
to Average Net Assets:
|
|
|
|
|
|
Total
expenses, excluding interest expense (%)
|
1.04
|
1.07
|
0.98
|
0.98
|
0.97
3
|
Total
expenses, including interest expense (%)
|
1.23
|
1.50
|
0.98
|
0.98
|
0.97
3
|
Net
investment income, including interest expense (%)
|
(0.27)
|
0.19
|
1.41
|
0.33
|
0.25
3
|
Ratios
to Average Managed Assets:
4
|
|
|
|
|
|
Total
expenses, excluding interest expense (%)
|
0.97
|
0.96
|
--
|
--
|
--
|
Total
expenses, including interest expense (%)
|
1.13
|
1.35
|
--
|
--
|
--
|
Net
investment income, including interest expense (%)
|
(0.25)
|
0.17
|
--
|
--
|
--
|
Portfolio
turnover (%)
|
25
|
41
|
93
|
64
|
49
|
Senior
Indebtedness
|
|
|
|
|
|
Outstanding
balance, end of period (thousands)
|
--
|
10,000
|
--
|
--
|
--
|
Average
outstanding balance during the period (thousands)
|
5,671
|
9,706
|
--
|
--
|
--
|
Average
fund shares during the period (thousands)
|
5,798
|
5,798
|
--
|
--
|
--
|
Average
indebtedness per share
|
0.98
|
1.67
|
--
|
--
|
--
|
Asset
coverage per $1,000 of indebtedness
|
--
|
7,233
5
|
--
|
--
|
--
|
1
Commencement
of operations.
2
Before
deduction of offering costs charged to capital.
3
Annualized.
4
Managed
assets is equal to net assets plus average outstanding leverage.
5
Calculated
by subtracting the fund’s total liabilities (not including borrowings) from the
fund’s total assets and dividing by the total borrowings at
year-end.
Net asset
value figures are based on average daily shares outstanding during the
year.
See notes
to financial statements.
Notes to
Financial Statements
|
December
31, 2009
Note 1 –
Organization.
Madison
Strategic Sector Premium Fund (the ÒFundÓ) was organized as a Delaware statutory
trust on February 4, 2005. The Fund is registered as a diversified, closed-end
management investment company under the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended. The Fund commenced
operations on April 27, 2005. The Fund’s primary investment objective is to
provide a high level of current income and current gains, with a secondary
objective of long-term capital appreciation.
The Fund
will pursue its investment objectives by investing in a portfolio consisting
primarily of common stocks of large and mid-capitalization issuers that are, in
the view of the Fund’s Investment Adviser, selling at a reasonable price in
relation to their long-term earnings growth rates. Under normal market
conditions, the Fund will seek to generate current earnings from option premiums
by writing (selling) covered call options on a substantial portion of its
portfolio securities. There can be no assurance that the Fund will achieve its
investment objectives. The Fund’s investment objectives are considered
fundamental and may not be changed without shareholder approval.
Note 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 requires management to make
estimates and assumptions. Such estimates affect the reported amounts of assets
and liabilities and reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
(b)
Valuation of Investments
The Fund
adopted Financial Accounting Standards Board (ÒFASBÓ) guidance on fair value
measurements effective January 2008. In accordance with this guidance, fair
value is defined as the price that the Fund would receive to sell an investment
or pay to transfer a liability in an orderly transaction with an independent
buyer in the principal market, or in the absence of a principal market the most
advantageous market for the investment or liability. This guidance establishes a
three-tier hierarchy to distinguish between (1) inputs that reflect the
assumptions market participants would use in pricing an asset or liability
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (2) inputs that reflect the reporting
entity’s own assumptions about the assumptions market participants would use in
pricing an asset or liability developed based on the best information available
in the circumstances (unobservable inputs) and to establish classification of
fair value measurements for disclosure purposes.
Various
inputs as noted above are used in determining the value of the Fund’s
investments and other financial instruments. These inputs are summarized in the
three broad levels listed below.
|
Level
1: Quoted prices in active markets for identical
securities
|
|
Level
2: Other significant observable inputs (including quoted prices for
similar securities, interest rates, prepayment speeds, credit risk,
etc.)
|
|
Level
3: Significant unobservable inputs (including the Fund’s own assumptions
in determining the fair value of
investments)
|
The
inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
MSP
| Madison Strategic Sector Premium Fund |
Notes
to Financial Statements
| continued
The
following table represents the Fund’s investments carried on the Statement of
Assets and Liabilities by caption and by level within the fair value hierarchy
as of December 31, 2009:
|
|
|
|
|
Assets:
|
|
|
|
|
Common
Stocks
|
$77,367,364
|
$
--
|
$
--
|
$77,367,364
|
Repurchase
Agreement
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Written
optons
|
|
|
|
|
Total
|
|
|
|
|
Please
see Portfolio of Investments for common stock sector breakdown and listing
of all securities within each
caption.
|
In March
2008, the FASB issued guidance intended to enhance financial statement
disclosures for derivative instruments and hedging activities and enable
investors to understand: a) how and why a fund uses derivative instruments, b)
how derivative instruments and related hedge fund items are accounted for, and
c) how derivative instruments and related hedge items affect a fund’s financial
position, results of operations and cash flows. This guidance is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Fund adopted this guidance effective January
2009.
The
following table presents the types of derivatives in the Fund by location as
presented on the Statement of Assets and Liabilities as of December 31,
2009:
Statement
of Asset & Liability Presentation of Fair Values of Derivative
Instruments
|
|
|
|
Derivatives
not accounted
for
as hedging instruments
|
Statement
of Assets and Liabilities Location
|
|
Statement
of Assets
and
Liabilities Location
|
|
Equity
contracts
|
--
|
--
|
Options
written
|
|
The
following table presents the effect of Derivative Instruments on the Statement
of Operations for the year ended December 31, 2009:
|
Realized Gain on
Derivatives
:
|
Change
in Unrealized Depreciation on Derivatives
|
Derivatives
not accounted
for
as hedging instruments
|
|
|
Equity
contracts – options
|
|
|
In
January 2010, amended guidance was issued by FASB for fair value measurement
disclosures about transfers into and out of Levels 1 and 2 and separate
disclosures about purchases, sales, issuances and settlements relating to Level
3 measurements. It also clarifies existing fair value disclosures about the
level of disaggregation, inputs and valuation techniques used to measure fair
value. The amended guidance is effective for financial statements for fiscal
years and interim periods beginning after December 15, 2009 except for
disclosures about purchases, sales, issuances and settlements relating to Level
3 measurements, which are effective for fiscal years beginning after December
15, 2010, and for interim periods within those fiscal years. Earlier adoption is
permitted. In the period of initial adoption, the Fund will not be required to
provide the amended disclosures for any previous periods presented for
comparative purposes. However, those disclosures are required for periods ending
after initial adoption. The impact of this guidance on the Fund’s financial
statements and disclosures, if any, is currently being assessed.
MSP
| Madison Strategic Sector Premium Fund |
Notes
to Financial Statements
| continued
(c)
Investment Transactions and Investment Income
Investment
transactions are accounted for on the trade date. Realized gains and losses on
investments are determined on the identified cost basis. Dividend income is
recorded net of applicable withholding taxes on the ex-dividend date and
interest income is recorded on an accrual basis.
(d)
Repurchase Agreements
The Fund
may invest in repurchase agreements, which are short-term investments in which
the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. The Fund
will make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller is required
to maintain the value of the underlying security at not less than the repurchase
proceeds due the Fund.
Note 3 –
Investment
Advisory Agreement and Other Transactions with Affiliates.
Pursuant
to an Investment Advisory Agreement between the Fund and Madison Asset
Management, LLC, a controlled subsidiary of Madison Investment Advisors, Inc.
(the ÒAdviserÓ), the Adviser, under the supervision of the Fund’s Board of
Trustees, will provide a continuous investment program for the Fund’s portfolio;
provide investment research and make and execute recommendations for the
purchase and sale of securities; and provide certain facilities and personnel,
including officers required for the Fund’s administrative management and
compensation of all officers and trustees of the Fund who are its affiliate. For
these services, the Fund will pay the Adviser a fee, payable monthly, in an
amount equal to 0.80% of the Fund’s average daily managed assets.
Under a
separate Services Agreement, effective April 26, 2005, the Adviser provides fund
administration services, fund accounting services, and arranges to have all
other necessary operational and support services, for a fee, to the Fund. Such
services include transfer agent, custodian, legal, and other operational
expenses. These fees are accrued daily and shall not exceed 0.18% of the Fund’s
average daily net assets. The Adviser assumes responsibility for payment of all
expenses greater than 0.18% of average daily net assets for the first five years
of the Fund’s operations, other than investment expenses such as brokerage
commission costs or interest and fees on loans. The Adviser has agreed to renew
this expense limit for another year through April 26, 2011.
Note 4 –
Federal
Income Taxes.
No
provision is made for federal income taxes since it is the intention of the Fund
to comply with the provisions of Subchapter M of the internal Revenue Code
available to investment companies and to make the requisite distribution to
shareholders of taxable income which will be sufficient to relieve it from all
or substantially all federal income taxes.
The Fund
adopted the provisions of FASB guidance on accounting for uncertainty in income
taxes. The implementation of this guidance resulted in no material liability for
unrecognized tax benefits and no material change to the beginning net asset
value of the Fund.
As of and
during the year ended December 31, 2009, the Fund did not have a liability for
any unrecognized tax benefits. The Fund recognizes interest and penalties, if
any, related to unrecognized tax benefits as income tax expense in the statement
of operations. During the period, the Fund did not incur any interest or
penalties.
As of
December 31, 2009, the Fund had available for federal income tax purposes
$3,853,762 of capital loss carryovers which will expire December 31,
2017.
Information
on the tax components of investments, excluding option contracts, as of December
31, 2009 is as follows:
Aggregate
Cost
|
|
Gross
unrealized appreciation
|
2,507,833
|
Gross
unrealized depreciation
|
|
Net
unrealized depreciation
|
|
Net
realized gains or losses may differ for financial reporting and tax purposes
primarily as a result of the deferral of losses relating to wash sale
transactions and post-October transactions.
Due to
inherent differences in the recognition of income, expenses, and realized
gains/losses under U.S. generally accepted accounting principles and federal
MSP
| Madison Strategic Sector Premium Fund |
Notes
to Financial Statements
| continued
income
tax purposes, permanent differences between book and tax basis reporting have
been identified and appropriately reclassified on the Statement of Assets and
Liabilities. A permanent book and tax difference relating to net investment
losses in the amount of $193,842 was reclassified from accumulated undistributed
net investment income to paid in capital.
For the
years ended December 31, 2009 and 2008, the tax character of distributions paid
to shareholders was $6,656,638 of short-term capital gains for 2009 and
$8,697,436 of ordinary income for 2008, respectively. The Fund designates 7.48%
of dividends declared from net investment income and short-term capital gains
during the year ended December 31, 2009 as qualified income under the Jobs and
Growth Tax Relief Reconciliation Act of 2003.
As of
December 31, 2009, the components of distributable earnings on a tax basis were
as follows:
Accumulated
net realized losses
|
$
(3,853,762)
|
Net
unrealized depreciation on investments
|
|
|
|
Note 5 –
Investment
Transactions.
During
the year ended December 31, 2009, the cost of purchases and proceeds from sales
of investments, excluding short-term investments, were $17,413,567 and
$31,938,304, respectively. No long term U.S. Government securities were
purchased or sold during the period.
Note 6 –
Covered
Call Options.
The Fund
will pursue its primary objective by employing an option strategy of writing
(selling) covered call options on common stocks. The number of call options the
Fund can write (sell) is limited by the amount of equity securities the Fund
holds in its portfolio. The Fund will not write (sell) ÒnakedÓ or uncovered call
options. The Fund seeks to produce a high level of current income and gains
generated from option writing premiums and, to a lesser extent, from
dividends.
Transactions
in option contracts during the year ended
December
31, 2009 were as follows:
|
|
|
Options
outstanding
beginning
of period
|
|
|
Options
written
|
33,290
|
8,585,553
|
Options
expired
|
(9,738)
|
(2,358,483)
|
Options
closed
|
(18,424)
|
(4,789,121)
|
Options
assigned
|
|
|
Options
outstanding end of period
|
|
|
Note 7 –
Capital.
The Fund
has an unlimited amount of common shares, $0.01 par value, authorized and
5,798,291 shares issued and outstanding as of December 31, 2009.
In
connection with the Fund’s dividend reinvestment plan, there were no shares
reinvested for the years ended December 31, 2009 and 2008,
respectively.
Note 8 –
Indemnifications.
In the
normal course of business, the Fund enters into contracts that provide general
indemnifications. The Fund’s maximum exposure under these arrangements is
dependent upon claims that may be made against the Fund in the future and,
therefore cannot be estimated; however, the risk of material loss from such
claims is considered remote.
Note 9 –
Leverage.
The Fund
has a $25 million revolving credit facility with a bank to permit it to leverage
its portfolio under favorable market conditions. The interest rate on the
outstanding principal amount is equal to the prime rate less 1%. During the year
ended December 31, 2009, the Fund did not draw on the facility and has paid back
$10,000,000 of previously made draws. The Fund paid interest of $128,454 during
2009. The full facility is available to draw upon as of December 31,
2009.
MSP
| Madison Strategic Sector Premium Fund |
Notes
to Financial Statements
| concluded
Note 10 –
Subsequent Events.
Management has evaluated the impact of all subsequent events on the Fund’s
financial statements through February 25, 2010, the date the financial
statements were issued, and has determined that there were no subsequent events
requiring adjustment or disclosure in the financial statements.
Report of
Independent
Registered
Public Accounting Firm |
December
31, 2009
To the
Board of Trustees and Shareholders of Madison Strategic Sector Premium
Fund
We have
audited the accompanying statement of assets and liabilities, including the
portfolio of investments of the Madison Strategic Sector Premium Fund (the
ÒFundÓ), as of December 31, 2009 and the related statement of operations for the
year then ended and the statements of changes in net assets for each of the two
years in the period then ended, and financial highlights for the four years in
the period then ended and for the period from April 27, 2005 (commencement of
operations) through December 31, 2005. These financial statements and financial
highlights are the responsibility of the Fund’s management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Fund is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund’s internal control over financial reporting.
Accordingly we express no such opinion. An audit also 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, as well as evaluating the overall financial statement
presentation. Our procedures included confirmation of securities owned as of
December 31, 2009 by correspondence with the Fund’s custodian and brokers. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements and financial highlights referred to above
present fairly, in all material respects, the financial position of the Fund as
of December 31, 2009, and the results of its operations for the year then ended
and the changes in its net assets for each of the two years in the period then
ended, and financial highlights for the four years in the period then ended and
for the period from April 27, 2005 (commencement of operations) through December
31, 2005, in conformity with accounting principles generally accepted in the
United States of America.
Grant
Thornton LLP
(signature)
Chicago,
Illinois
February
25, 2010
Other
Information
Results of Shareholder
Vote.
The Annual Meeting of shareholders of the Fund was held on July 22,
2009. At the meeting, shareholders voted on the election of one trustee, Philip
E. Blake. The votes cast in favor of election for Mr. Blake were 4,417,902 with
711,742 shares withheld. The other trustees of the Fund whose terms did not
expire in 2009 are James R. Imhoff, Jr., Katherine L. Frank, Frank E. Burgess
and Lorence D. Wheeler.
Additional
Information.
Notice
is hereby given in accordance with Section 23(c) of the Investment Company Act
of 1940 that from time to time, the Fund may purchase shares of its common stock
in the open market at prevailing market prices.
Forward-Looking
Statement Disclosure.
One of
our most important responsibilities as investment company managers is to
communicate with shareholders in an open and direct manner. Some of our comments
in our letters to shareholders are based on current management expectations and
are considered Òforward-looking statements.Ó Actual future results, however, may
prove to be different from our expectations. You can identify forward-looking
statements by words such as Òestimate,Ó Òmay,Ó Òwill,Ó Òexpect,Ó Òbelieve,Ó
ÒplanÓ and other similar terms. We cannot promise future returns. Our opinions
are a reflection of our best judgment at the time this report is compiled, and
we disclaim any obligation to update or alter forward-looking statements as a
result of new information, future events, or otherwise.
Proxy
Voting Information.
The Fund
adopted policies that provide guidance and set forth parameters for the voting
of proxies relating to securities held in the Fund’s portfolios. Additionally,
information regarding how the Fund voted proxies related to portfolio
securities, if applicable, during the period ended June 20, 2009, is available
upon request and free of charge, by writing to Madison Strategic Sector Premium
Fund, 550 Science Drive, Madison, WI 53711 or by calling toll-free at
1-800-368-3195. The Fund’s proxy voting policies and voting information may also
be obtained by visiting the Securities and Exchange Commission (ÒSECÓ) web site
at www.sec.gov. The Fund will respond to shareholder requests for copies of our
policies within two business days of request by first-class mail or other means
designed to ensure prompt delivery.
N-Q
Disclosure.
The Fund
files its complete schedule of portfolio holdings with the SEC for the first and
third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are
available on the SEC’s website. The Fund’s Forms N-Q may be reviewed and copied
at the SEC’s Public Reference Room in Washington, DC. Information about the
operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. Form N-Q and other information about the Fund are available on
the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. Copies of
this information may also be obtained, upon payment of a duplicating fee, by
electronic request at the following email address: publicinfo@sec.gov, or by
writing the SEC’s Public Reference Section, Washington, DC 20549-0102. Finally,
you may call the Fund at 800-368-3195 if you would like a copy of Form N-Q and
we will mail one to you at no charge.
Trustees
and Officers
Interested
Trustees and Officers
Name
and
Year
of Birth
|
Position(s)
and
Length of Time Served
|
Principal
Occupation(s)
During
Past Five Years
|
Other
Directorships/Trusteeships
|
Katherine
L. Frank
1
1960
|
President,
2005 -
Present,
and Trustee, 2005- Present
|
Madison
Investment Advisors, Inc. (ÒMIAÓ), Managing Director and Vice President,
1986 - Present; Madison Asset Management, LLC (ÒMAMÓ), Director and Vice
President, 2004 - Present; Madison Mosaic, LLC, President, 1996 - Present;
Madison Mosaic Funds (13 funds) and Madison Strategic Sector Premium Fund
(closed end fund), President, 1996 - Present; Madison/Claymore Covered
Call and Equity Strategy Fund (closed end fund), Vice President, 2005 -
Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (19) (mutual
funds), President, 2009 - Present
|
Madison
Mosaic Funds (all but Equity Trust) and Madison Strategic Sector Premium
Fund, 1996 - Present; MEMBERS Mutual Funds (13) and Ultra Series Fund
(19), 2009 - Present
|
Frank
E. Burgess
1
1942
|
Trustee
and Vice President, 2005 - Present
|
MIA,
Founder, President and Director, 1973 - Present; MAM, President and
Director, 2004 - Present; Madison Mosaic Funds (13 funds) and Madison
Strategic Sector Premium Fund, Vice President, 1996 - Present; MEMBERS
Mutual Funds (13) and Ultra Series Fund (19), Vice President, 2009 -
Present
|
Madison
Mosaic Funds (13), Madison Strategic Sector Premium Fund, and
Madison/Claymore Covered Call & Equity Strategy Fund, 1996 - Present;
Capitol Bank of Madison, WI, 1995 - Present; American Riviera Bank of
Santa Barbara, CA, 2006 - Present
|
Jay
R. Sekelsky
1959
|
Vice
President,
2005
- Present
|
MIA,
Managing Director and Vice President, 1990 - Present; MAM, Director, 2009
- Present; Madison Mosaic, LLC, Vice President, 1996 - Present; Madison
Mosaic Funds (13 funds) and Madison Strategic Sector Premium Fund, Vice
President, 1996 - Present; Madison/Claymore Covered Call & Equity
Strategy Fund, Vice President, 2004 - Present; MEMBERS Mutual Funds (13)
and Ultra Series Fund (19), Vice President, 2009 - Present
|
N/A
|
Paul
Lefurgey
1964
|
Vice
President,
2010
- Present
|
MIA,
Managing Director, Head of Fixed Income, 2005 - Present; Madison Mosaic
Funds (13 funds, including the Trust), Vice President, 2009 - Present;
Madison Strategic Sector Premium Fund, Vice President, 2010 - Present;
MEMBERS Capital Advisors, Inc. (ÒMCAÓ) (investment advisory firm),
Madison, WI, Vice President 2003 - 2005; MEMBERS Mutual Funds (13) and
Ultra Series Fund (19), Vice President, 2009 - Present
|
N/A
|
Ray
DiBernardo
1959
|
Vice
President,
2005
- Present
|
MIA,
Vice President - Present; Madison Strategic Sector Premium Fund, Vice
President, 2005 - Present
|
N/A
|
Greg
D. Hoppe
1969
|
Treasurer,
2009
- Present
Chief
Financial
Officer,
2005 -
2009
|
MIA,
Vice President, 1999 - Present; MAM, Vice President, 2009 - Present;
Madison Mosaic, LLC, Vice President, 1999 - Present; Madison Mosaic Funds
(13 funds), Treasurer, 2009 - Present; Chief Financial Officer, 1999 -
2009; Madison Strategic Sector Premium Fund, Treasurer, 2005 - Present;
Chief Financial Officer, 2005 - 2009; Madison/Claymore Covered Call &
Equity Strategy Fund, Vice President, 2008 - Present; MEMBERS Mutual Funds
(13) and Ultra Series Fund (19), Treasurer, 2009 - Present
|
N/A
|
1
ÒInterested personÓ as defined in the Investment Company Act of 1940. Considered
an interested Trustee because of the position held with the investment adviser
of the Fund.
MSP
| Madison Strategic Sector Premium Fund |
Trustees and Officers
| continued
|
Position(s)
and
Length of
Time
Served
|
Principal
Occupation(s)
During
Past Five Years
|
Other
Directorships/Trusteeships
|
Holly
S. Baggot
1960
|
Secretary
and Assistant Treasurer, 2009 - Present
|
MAM,
Vice President, 2009 - Present; MCA, Director-Mutual Funds, 2008 - 2009;
Director-Mutual Fund Operations, 2006 - 2008; Operations Officer-Mutual
Funds, 2005 - 2006; Senior Manager-Product & Fund Operations, 2001 -
2005; Madison Mosaic Funds (13 funds), Secretary and Assistant Treasurer,
2009 - Present; Madison Strategic Sector Premium Fund, Secretary and
Assistant Treasurer, 2010 - Present; MEMBERS Mutual Funds (13) and Ultra
Series Fund (19), Assistant Treasurer, 2009 - Present; Secretary, 1999 -
Present; Treasurer, 2008 - 2009; Assistant Treasurer, 1997 -
2007
|
N/A
|
W.
Richard Mason
1960
|
Chief
Compliance Officer, 2005 - Present
Corporate
Counsel and Assistant Secretary, 2009 - Present
General
Counsel
and
Secretary,
2005
- 2009
|
MIA,
MAM, Madison Scottsdale, LC (an affiliated investment advisory firm of
MIA) and Madison Mosaic, LLC, General Counsel and Chief Compliance
Officer, 1996 - 2009; Chief Compliance Officer and Corporate Counsel, 2009
- Present; Mosaic Funds Distributor, LLC (an affiliated brokerage firm of
MIA), Principal, 1998 - Present; Concord Asset Management (ÒConcordÓ) (an
affiliated investment advisory firm of MIA), LLC, General Counsel, 1996 -
2009; Madison Mosaic Funds (13 funds) and Madison Strategic Sector Premium
Fund, General Counsel, Chief Compliance Officer, 1992 - 2009; Chief
Compliance Officer, Corporate Counsel, Secretary and Assistant Secretary,
2009 - Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (19),
Chief Compliance Officer, Corporate Counsel and Assistant Secretary, 2009
- Present
|
N/A
|
Pamela
M. Krill
1966
|
General
Counsel,
Chief
Legal Officer
and
Assistant Secretary,
2009
- Present
|
MIA,
MAM, Madison Scottsdale, LC, Madison Mosaic, LLC, Mosaic Funds
Distributor, and Concord, General Counsel and Chief Legal Officer, 2009 -
Present; Madison Mosaic Funds (13 funds), General Counsel, Chief Legal
Officer and Assistant Secretary, 2009 - Present; Madison Strategic Sector
Premium Fund, General Counsel, Chief Legal Officer and Assistant
Secretary, 2010 - Present; MEMBERS Mutual Funds (13) and Ultra Series Fund
(19), General Counsel, Chief Legal Officer and Assistant Secretary, 2009 -
Present; CUNA Mutual Insurance Society (insurance company with affiliated
investment advisory, brokerage and mutual fund operations), Madison, WI,
Managing Associate General Counsel-Securities & Investments, 2007 -
2009; Godfrey & Kahn, S.C. (law firm), Madison and Milwaukee, WI,
Shareholder, Securities Practice Group, 1994-2007
|
N/A
|
MSP
| Madison Strategic Sector Premium Fund |
Trustees and Officers
| concluded
Independent
Trustees
Name
and
Year
of Birth
|
Position(s)
and
Length of Time Served
1
|
Principal
Occupation(s)
During
Past Five Years
|
Portfolios
Overseen
in
Fund
Complex
2
|
Other
Directorships/Trusteeships
|
Philip
E. Blake
1944
|
Trustee,
2005 - Present
|
Retired
investor; Lee Enterprises, Inc (news and advertising publisher), Madison,
WI, Vice President, 1998 - 2001; Madison Newspapers, Inc., Madison, WI,
President and Chief Executive Officer, 1993 - 2000
|
46
|
Madison
Newspapers, Inc., 1993 - Present; Meriter Hospital & Health Services,
2000 - Present; Edgewood College, 2003 - Present; Madison Mosaic Funds (13
funds) and Madison Strategic Sector Premium Fund, 1996 - Present; MEMBERS
Mutual Funds (13) and Ultra Series Fund (19), 2009 -
Present
|
James
R Imhoff, Jr.
1944
|
Trustee,
2005 - Present
|
First
Weber Group (real estate brokers), Madison, WI, Chief Executive Officer,
1996 - Present
|
46
|
Park
Bank, 1978 - Present; Madison Mosaic Funds (13 funds) and Madison
Strategic Sector Premium Fund, 1996 - Present; Madison/Claymore Covered
Call and Equity Strategy Fund, 1996 - Present; MEMBERS Mutual Funds (13)
and Ultra Series Fund (19), 2009 - Present
|
Lorence
D. Wheeler
1938
|
Trustee,
2005 - Present
|
Retired
investor; Credit Union Benefits Services, Inc. (a provider of retirement
plans and related services for credit union employees nationwide),
Madison, WI, President, 1997 - 2001
|
46
|
Grand
Mountain Bank FSB and Grand Mountain Bancshares, Inc. 2003 - Present;
Madison Mosaic Funds (13 funds) and Madison Strategic Sector Premium Fund,
1996 - Present; Madison/Claymore Covered Call and Equity Strategy Fund,
1996 - Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (19), 2009
- Present
|
1
Independent Trustees serve in such capacity until the Trustee reaches the age of
76, unless retirement is waived by unanimous vote of the remaining Trustees on
an annual basis.
2
As of
the date of this Annual Report, the Fund Complex consists of the Fund, the
MEMBERS Mutual Funds with 13 portfolios, the Ultra Series Fund with 19
portfolios, and the Madison Mosaic Equity, Income, Tax-Free and Government Money
Market Trusts, which together have 13 portfolios, for a grand total of 46
separate portfolios in the Fund Complex.
The
Statement of Additional Information contains more information about the Trustees
and is available upon request. To request a free copy, call Madison Mosaic Funds
at 1-800-368-3195.
Dividend
Reinvestment Plan |
December
31, 2009
Unless
the registered owner of common shares elects to receive cash by contacting
Computershare Trust Company, Inc. (the ÒPlan AdministratorÓ), all dividends
declared on common shares of the Fund will be automatically reinvested by the
Plan Administrator in the Fund’s Dividend Reinvestment Plan (the ÒPlanÓ) in
additional common shares of the Fund. Participation in the Plan is completely
voluntary and may be terminated or resumed at any time without penalty by notice
if received and processed by the Plan Administrator prior to the dividend record
date; otherwise such termination or resumption will be effective with respect to
any subsequently declared dividend or other distribution. Some brokers may
automatically elect to receive cash on your behalf and may re-invest that cash
in additional common shares of the Fund for you. If you wish for all dividends
declared on your common shares of the Fund to be automatically reinvested
pursuant to the Plan, please contact your broker.
The Plan
Administrator will open an account for each common shareholder under the Plan in
the same name in which such common shareholder’s common shares are registered.
Whenever the Fund declares a dividend or other distribution (together, a
ÒDividendÓ) payable in cash, non-participants in the Plan will receive cash and
participants in the Plan will receive the equivalent in common shares. The
common shares will be acquired by the Plan Administrator for the participants’
accounts, depending upon the circumstances described below, either (i) through
receipt of additional unissued but authorized common shares from the Fund
(ÒNewly Issued Common SharesÓ) or (ii) by purchase of outstanding common shares
on the open market (ÒOpen-Market PurchasesÓ) on the New York Stock Exchange or
elsewhere. If, on the payment date for any Dividend, the closing market price
plus estimated brokerage commission per common share is equal to or greater than
the net asset value per common share, the Plan Administrator will invest the
Dividend amount in Newly Issued Common Shares on behalf of the participants. The
number of Newly Issued Common Shares to be credited to each participant’s
account will be determined by dividing the dollar amount of the Dividend by the
net asset value per common share on the payment date; provided that, if the net
asset value is less than or equal to 95% of the closing market value on the
payment date, the dollar amount of the Dividend will be divided by 95% of the
closing market price per common share on the payment date. If, on the payment
date for any Dividend, the net asset value per common share is greater than the
closing market value plus estimated brokerage commission, the Plan Administrator
will invest the Dividend amount in common shares acquired on behalf of the
participants in Open-Market Purchases.
If,
before the Plan Administrator has completed its Open-Market Purchases, the
market price per common share exceeds the net asset value per common share, the
average per common share purchase price paid by the Plan Administrator may
exceed the net asset value of the common shares, resulting in the acquisition of
fewer common shares than if the Dividend had been paid in Newly Issued Common
Shares on the Dividend payment date. Because of the foregoing difficulty with
respect to Open-Market Purchases, the Plan provides that if the Plan
Administrator is unable to invest the full Dividend amount in Open-Market
Purchases during the purchase period or if the market discount shifts to a
market premium during the purchase period, the Plan Administrator may cease
making Open-Market Purchases and may invest the uninvested portion of the
Dividend amount in Newly Issued Common Shares at net asset value per common
share at the close of business on the Last Purchase Date provided that, if the
net asset value is less than or equal to 95% of the then current market price
per common share; the dollar amount of the Dividend will be divided by 95% of
the market price on the payment date.
The Plan
Administrator maintains all shareholders’ accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by shareholders for tax records. Common shares in the account of each
Plan participant will be held by the Plan Administrator on behalf of the Plan
participant, and each shareholder proxy will include those shares purchased or
received pursuant to the Plan. The Plan Administrator will forward all proxy
solicitation materials to participants and vote proxies for shares held under
the Plan in accordance with the instruction of the participants.
There
will be no brokerage charges with respect to common shares issued directly by
the Fund. However, each participant will pay a pro rata share of brokerage
commission incurred in connection with Open-Market Purchases. The automatic
reinvestment of Dividends will not relieve participants of any Federal, state or
local income tax that may be payable (or required to be withheld) on such
Dividends.
The Fund
reserves the right to amend or terminate the Plan. There is no direct service
charge to participants with regard to purchases in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the
participants.
All
correspondence or questions concerning the Plan should be directed to the Plan
Administrator, Computershare Trust Company, Inc., 250 Royall St., Canton, MA
02021, Phone Number: (781) 575-4523.
Board of
Trustees
Philip E.
Blake
Frank
Burgess
James
Imhoff, Jr.
Katherine
Frank
Lorence
Wheeler
Officers
Katherine
L. Frank
President
Frank
Burgess
Senior
Vice President
Ray
DiBernardo
Vice
President
Paul
Lefurgey
Vice
President
Jay
Sekelsky
Vice
President
Holly
Baggot
Secretary
Greg
Hoppe
Chief
Financial Officer & Treasurer
Pamela M.
Krill
General
Counsel , CLO & Asst Secretary
W.
Richard Mason
Chief
Compliance Officer & Asst Secretary
Investment
Advisor
Madison
Asset Management, LLC
550
Science Drive
Madison,
WI 53711
Administrator
Madison
Investment Advisors, Inc.
550
Science Drive
Madison,
WI 53711
Custodian
US Bank
NA
Milwaukee,
Wisconsin
Transfer
Agent
Computershare
Investor Services, LLC
Canton,
Massachusetts
Independent
Registered Public Accounting Firm
Grant
Thornton LLP
Chicago,
Illinois
Privacy
Principles of Madison Strategic Sector Premium Fund for
Shareholders
The Fund
is committed to maintaining the privacy of shareholders and to safeguarding its
non-public information. The following information is provided to help you
understand what personal information the Fund collects, how we protect that
information and why, in certain cases, we may share information with select
other parties.
Generally,
the Fund does not receive any nonpublic personal information relating to its
shareholders, although certain nonpublic personal information of its
shareholders may become available to the Fund. The Fund does not disclose any
nonpublic personal information about its shareholders or former shareholders to
anyone, except as permitted by law or as is necessary in order to service
shareholder accounts (for example, to a transfer agent or third party
administrator).
The Fund
restricts access to nonpublic personal information about the shareholders to
Madison Asset Management, LLC and Madison Investment Advisors, Inc. employees
with a legitimate business need for the information. The Fund maintains
physical, electronic and procedural safeguards designed to protect the nonpublic
personal information of its shareholders.
Question concerning your shares of
Madison Strategic Sector Premium Fund?
·
|
If
your shares are held in a Brokerage Account, contact your
Broker
|
·
|
If
you have physical possession of your shares in certificate form, contact
the Fund's Transfer Agent:
Computershare Investor
Services, LLC, 2 North LaSalle Street, Chicago, Illinois 60602
781-575-4523
|
This
report is sent to shareholders of Madison Strategic Sector Premium Fund for
their information. It is not a Prospectus, circular or representation intended
for use in the purchase or sale of shares of the Fund or of any securities
mentioned in this report.
In July
2009, the Fund submitted a CEO annual certification to the NYSE in which the
Fund's principle executive officer certified that she was not aware, as of the
date of the certification, of any violation by the Fund of the NYSE's Corporate
Governance listing standards. In addition, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and related SEC rules, the Fund's principle executive
and principle financial officer have made quarterly certifications, including in
filings with the SEC on forms N-CSR and N-Q, relating to, among other things,
the Fund's disclosure controls and procedures and internal control over
financial reporting.
Madison
Investment Advisors, Inc.
550
SCIENCE DRIVE
MADISON,
WISCONSIN 53711
1-800-767-0300
www.madisonfunds.com
Item
2. Code of Ethics.
(a) The
Madison Strategic Sector Premium Fund (hereinafter referred to either as the
"Trust" or the "Fund") has adopted a code of ethics that applies to the Trust’s
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions, regardless of
whether these individuals are employed by the Trust or a third party. The code
was first adopted during the fiscal year ended December 31, 2005.
(c) The
code has not been amended since it was initially adopted.
(d) The
Trust granted no waivers from the code during the period covered by this
report.
(f) Any
person may obtain a complete copy of the code without charge by calling the
Trust at 800-767-0300 and requesting a copy of the "Madison Strategic Sector
Premium Fund Sarbanes Oxley Code of Ethics."
Item
3. Audit Committee Financial Expert.
In July
2009, James R. Imhoff, Jr., an “independent” Trustee and a member of the Trust’s
audit committee, was elected to serve as the Trust’s audit committee financial
expert among the three Madison Mosaic independent Trustees who so qualify to
serve in that capacity. He succeeded Lorence D. Wheeler who served in that
capacity from August 2008 through July 2009.
Item
4. Principal Accountant Fees and Services.
(a) Total
audit fees paid to the registrant's principal accountant for the fiscal year
ended December 31, 2009 were approved not to exceed $22,700 (plus typical
expenses in connection with the audit such as postage, photocopying,
etc.). For the fiscal year ended December 31, 2008, this amount was
$25,250. The registrant is affiliated with the Madison Mosaic family of open-end
investment companies which paid the registrant's principal accountant an
additional $85,300 and $88,500, respectively, for audit services provided to
such funds for such periods.
(b)
Audit-Related
Fees
. None.
(c)
Tax-Fees
. None
incurred during the period covered by this report.
(d)
All Other Fees
.
None.
(e) (1)
Before any accountant is engaged by the registrant to render audit or non-audit
services, the engagement must be approved by the audit committee as contemplated
by paragraph (c)(7)(i)(A) of Rule 2-01of Regulation S-X.
(2) Not applicable.
(f) Not
applicable.
(g) Not
applicable.
(h) Not
applicable.
Item
5. Audit Committee of Listed Registrants.
(a) The
registrant has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C.
78c(a)(58)(A)). The members of the committee include all the disinterested
Trustees of the registrant, namely, Philip Blake, James Imhoff and Lorence
Wheeler.
(b) Not
applicable.
Item
6. Schedule of Investments
Included
in report to shareholders (Item 1) above.
Item
7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management
Investment Companies.
The
following discloses our current policies and procedures that we use to determine
how to vote proxies relating to portfolio securities. Because we manage
portfolios for clients in addition to the registrant, the policies and
procedures are not specific to the registrant except as indicated.
Proxy
Voting Policies
Our
policies regarding voting the proxies of securities held in client accounts
depend on the nature of our relationship to the client. When we are an ERISA
fiduciary of an account, there are additional considerations and procedures than
for all other (regular) accounts. In all cases, when we vote client proxies, we
must do so in the client's best interests as described below by these
policies.
Regular
Accounts
We
do not assume the role of an active shareholder when managing client accounts.
If we are dissatisfied with the performance of a particular company, we will
generally reduce or terminate our position in the company rather than attempt to
force management changes through shareholder activism.
Making
the Initial Decision on How to Vote the Proxy
As
stated above, our goal and intent is to vote all proxies in the client's best
interests. For practical purposes, unless we make an affirmative decision to the
contrary, when we vote a proxy as the Board of Directors of a company
recommends, it means we agree with the Board that voting in such manner is in
the interests of our clients as shareholders of the company for the reasons
stated by the Board. However, if we believe that voting as the Board of
Directors recommends would not be in a client's best interests, then we must
vote against the Board's recommendation.
As
a matter of standard operating procedure, all proxies received shall be voted
(by telephone or Internet or through a proxy voting service), unless we are not
authorized to vote proxies. When the client has reserved the right to vote
proxies in his/her/its account, we must make arrangements for proxies to be
delivered directly to such client from its custodian and, to the extent any such
proxies are received by us inadvertently, promptly forward them to the
client.
Documenting our
Decisions
In
cases where a proxy will NOT be voted or, as described below, voted against the
Board of Directors recommendation, our policy is to make a notation to the file
containing the records for such security (e.g., Corporation X research file,
since we may receive numerous proxies for the same company and it is impractical
to keep such records in the file of each individual client) explaining our
action or inaction, as the case may be. Alternatively, or in addition to such
notation, we may include a copy of the rationale for such decision in the
appropriate equity correspondence file.
Why
would voting as the Board recommends NOT be in the client's best
interests?
Portfolio
management must, at a minimum, consider the following questions before voting
any proxy:
1.
Is the Board of Directors recommending an action that could dilute or otherwise
diminish the value of our position? (This question is more complex than it
looks: We must consider the time frames involved for both the client and the
issuer. For example, if the Board of Directors is recommending an action that
might initially cause the position to lose value but will increase the value of
the position in the long-term, we would vote as the Board recommended for if we
are holding the security for clients as a long-term investment. However, if the
investment is close to our valuation limits and we are anticipating eliminating
the position in the short-term, then it would be in our clients' best interests
to vote against management's recommendation.)
2.
If so, would we be unable to liquidate the affected securities without incurring
a loss that would not otherwise have been recognized absent management's
proposal?
3.
Is the Board of Directors recommending an action that could cause the securities
held to lose value, rights or privileges and there are no comparable replacement
investments readily available on the market? (For example, a company can be
uniquely positioned in the market because of its valuation compared with
otherwise comparable securities such that it would not be readily replaceable if
we were to liquidate the position. In such a situation, we might vote against
management's recommendation if we believe a "No" vote could help prevent future
share price depreciation resulting from management's proposal or if we believe
the value of the investment will appreciate if management's proposal fails. A
typical recent example of this type of decision is the case of a Board
recommendation not to expense stock options, where we would vote against
management's recommendation because we believe expensing such options will do
more to enhance shareholder value going forward.)
4.
Would accepting the Board of Directors recommendation cause us to violate our
client's investment guidelines? (For example, a Board may recommend merging the
company into one that is not permitted by client investment guidelines, e.g. a
tobacco product company, a foreign security that is not traded on any US
exchange or in US dollars, etc., restrictions often found in client investment
guidelines. This would be an unusual situation and it is possible we would,
nevertheless, vote in favor of a Board's recommendation in anticipation of
selling the investment prior to the date any vote would effectively change the
nature of the investment as described. Moreover, this does not mean we will
consider any client-provided proxy voting guidelines. Our policy is that client
investment guidelines may not include proxy voting guidelines if our firm will
vote account proxies. Rather, we will only vote client proxies in accordance
with these guidelines. Clients who wish their account proxies to be voted in
accordance with their own proxy voting guidelines must retain proxy voting
authority for themselves.)
Essentially,
we must "second guess" the Board of Directors to determine if their
recommendation is in the best interests of our clients, regardless of whether
the Board thinks their recommendation is in the best interests of shareholders
in general. The above questions should apply no matter the type of action
subject to the proxy. For example, changes in corporate governance structures,
adoption or amendments to compensation plans (including stock options) and
matters involving social issues or corporate responsibility should all be
reviewed in the context of how it will affect our clients'
investment.
In
making our decisions, to the extent we rely on any analysis outside of the
information contained in the proxy statements, we must retain a record of such
information in the same manner as other books and records (2 years in the
office, 5 years in an easily accessible place). Also, if a proxy statement is
NOT available on the SEC's EDGAR database, we must keep a copy of the proxy
statement.
Addressing
Conflicts of Interest
Although
it is not likely, in the event there is a conflict of interest between us and
our client in connection with a material proxy vote (for example, (1) the issuer
or an affiliate of the issuer is also a client or is actively being sought as a
client or (2) we have a significant business relationship with the issuer such
that voting in a particular manner could jeopardize this client and/or business
relationship), our policy is to alert affected client(s) of the conflict before
voting and indicate the manner in which we will vote. In such circumstances, our
client(s) may instruct us to vote in a different manner. In any case, we must
obtain client consent to vote the proxy when faced with a conflict of interest.
If the conflict involves a security held by a mutual fund we manage, then we
must present the material conflict to the Board of the applicable fund for
consent or direction to vote the proxies. If the conflict involves a security
held by wrap accounts, then we may present the conflict to the wrap sponsor, as
our agent, to obtain wrap client consent or direction to vote the proxies. Note
that no conflict generally exists for routine proxy matters such as approval of
the independent auditor (unless, of course, the auditor in question is a client,
we are seeking the auditor as a client or we have a significant business
relationship with the auditor), electing an uncontested Board of Directors,
etc.
In
the event it is impractical to obtain client consent to vote a proxy when faced
with a conflict of interest, or at the request of the applicable fund Board, the
firm will employ the services of an independent third party "proxy services
firm" to make the proxy voting decision in accordance with Rule 206(4)-6 under
the Investment Advisors Act of 1940, as amended. The firm has retained the
firm of Glass Lewis & Co. to serve in this capacity. All investment
company Boards for which we provide investment management services have
requested we utilize the recommendations of Glass Lewis & Co. in cases of
conflicts of interest.
Once
any member of the relevant portfolio management team determines that it would be
in our clients' best interests to vote AGAINST management recommendations (or,
for Madison Scottsdale and Concord Asset Management, any particular portfolio
manager makes such determination), then the decision should be brought to the
attention of the Investment Committee, or any subcommittee appointed by the
Investment Committee from among its members (such subcommittee may be a single
person), to ratify the decision to stray from our general policy of voting with
management. Such ratification need not be in writing.
The
Investment Committee or any subcommittee appointed by the Investment Committee
from among its members (such subcommittee may be a single person) shall monitor
potential conflicts of interest between our firm and clients that would affect
the manner by which we vote a proxy. We maintain a "conflicted list" for proxy
voting purposes.
As
of January 1, 2004, Jay Sekelsky represents the Investment Committee
subcommittee described above...
Item
8. Portfolio Managers of Closed-End Management Investment
Companies.
(a) (1)
Frank E. Burgess, the President and founder of the adviser to the registrant and
Madison Investment Advisors, Inc., and Ray Di Bernardo, Portfolio Manager of the
adviser to the registrant and Vice President of Madison Investment Advisors,
Inc., are jointly responsible for the day-to-day management of the
registrant. The adviser to the registrant, Madison Asset Management, LLC,
is a wholly owned subsidiary of Madison Investment Advisors, Inc., founded by
Mr. Burgess in 1974.
(a) (2)
Other portfolios managed.
As of the
end of the registrant's most recent fiscal year, the portfolio managers were
involved in the management of the following accounts (assets are rounded to the
nearest million):
Frank
Burgess:
Types
of Accounts
|
Number
of Other Accounts Managed
|
Total
Assets in Accounts
|
Accounts
with Performance-Based Advisory Fees
|
Total
Assets in Accounts with Performance-Based Advisory Fees
|
Registered
Investment Companies
|
4
(including the Trust)
|
297
million
|
1
|
$6
million
|
Other
Pooled Investment Vehicles
|
0
|
$0
|
0
|
$0
|
Other
Accounts
|
0
|
$0
|
0
|
$0
|
Ray
DiBernardo
Types
of Accounts
|
Number
of Other Accounts Managed
|
Total
Assets in Accounts
|
Accounts
with Performance-Based Advisory Fees
|
Total
Assets in Accounts with Performance-Based Advisory Fees
|
Registered
Investment Companies
|
4
(including the Trust)
|
297
million
|
1
|
$6
million
|
Other
Pooled Investment Vehicles
|
0
|
$0
|
0
|
$0
|
Other
Accounts
|
0
|
$0
|
0
|
$0
|
Material conflicts of interest that
may arise in connection with the manager's management of the Trust's investments
and the investments of the other accounts
: Note that of the four funds
managed, the Madison Institutional Equity Option Fund, an open-end series of
Madison Mosaic Equity Trust ("MADOX"), with investment strategies similar to the
Trust, contains a fulcrum fee that rewards the adviser to the Trust if MADOX
outperforms the BXM Index and penalizes the adviser for underperforming such
index. As of the date of this filing, MADOX assets were approximately $4
million. The adviser's compliance program includes procedures to monitor
trades by MADOX, the Trust and other funds managed by the portfolio manager. In
addition, potential conflicts of interest may arise because the adviser engages
in portfolio management activities for clients other than the
funds. However, Madison has adopted a variety of portfolio security
aggregation and allocation policies which are designed to provide reasonable
assurance that buy and sell opportunities are allocated fairly among
clients.
(a) (3)
Compensation.
The
adviser believes investment professionals should receive compensation for the
performance of the firm’s client accounts, their individual effort, and the
overall profitability of the firm. As such, investment professionals
receive a base salary, as well as an incentive bonus based on the attainment of
certain goals and objectives in the portfolio management process (described
below). The manager also participates in the overall profitability of
the firm directly, through an ownership interest in the firm, or indirectly,
through a firm-sponsored profit sharing plan. The adviser believes its portfolio
managers’ goals are aligned with those of long-term investors, recognizing
client goals to outperform over the long-term, rather than focused on short-term
performance contests.
With
regard to incentive compensation, the incentive pools are calculated based on
revenue from each investment strategy. Managers are rewarded for
performance relative to their benchmark(s) over both one and three year
periods. Incentive compensation earned is paid out over a three year
period, so that if a portfolio manager leaves the employ of the Madison
organization, he or she forfeits a percentage of his or her incentive
compensation. The purpose of this structured payout is to aid in the
retention of investment personnel. With the exception of Mr. Burgess,
all investment professionals are eligible to participate in the incentive
compensation pool.
The
incentive compensation pool shared by the members of the firm’s equity
management team (all portfolio managers listed above except Mr. Burgess) is
based on the performance of the firm’s various equity composites measured
against the appropriate index benchmarks. All firm equity accounts,
including mutual funds, regardless of whether they are included in such
composites, are managed with the same general investment philosophy, approach
and applicable allocations, quality and other portfolio
characteristics.
There is
no difference in terms of the way the firm compensates portfolio managers for
managing a mutual fund or a private client account (or any other type of account
for that matter). Instead, compensation is based on the entire
employment relationship, not based on the performance of any single account or
type of account.
(a) (4)
Ownership of Securities.
As of
December 31, 2009, the portfolio manager beneficially owned the following
amounts of the registrant:
Name
of Manager
|
Name
of Registrant
|
Range
of Ownership Interest
|
Frank
Burgess
|
Madison
Strategic Sector Premium Fund
|
$100,001
- $500,000
|
Ray
DiBernardo
|
Madison
Strategic Sector Premium Fund
|
None
|
(b) Not
applicable.
Item
9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
(a)
None*
(b)
None*
*Note to
Item 9: As announced and disclosed in the registrant's prospectus, the
registrant maintains a Dividend Reinvestment Plan. The plan has no expiration
date and no limits on the dollar amount of securities that may be purchased by
the registrant to satisfy the plan's dividend reinvestment
requirements.
Item
10. Submission of Matters to a Vote of Security Holders.
Not
applicable.
Item
11. Controls and Procedures.
(a) The
Trust’s principal executive officer and principal financial officer determined
that the registrant’s disclosure controls and procedures are effective, based on
their evaluation of these controls and procedures within 90 days of the date of
this report. There were no significant changes in the registrant’s internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation. The officers identified no
significant deficiencies or material weaknesses.
(b) There
have been no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 12.
Exhibits
.
(a)(1)
Code of ethics referred to in Item 2 (no change from the previously filed
Code).
(a)(2)
Certifications of principal executive and principal financial officers as
required by Rule 30a-2(a) under the Act.
(b)
Certification of principal executive and principal financial officers as
required by Rule 30a-2(b) under the Act.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934 and the Investment
Company Act of 1940, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Madison
Strategic Sector Premium Fund
By:
(signature)
W.
Richard Mason, Chief Compliance Officer
Date:
February 22, 2010
Pursuant
to the requirements of the Securities Exchange Act of 1934 and the Investment
Company Act of 1940, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated.
By:
(signature)
Katherine
L. Frank, Chief Executive Officer
Date:
February 22, 2010
By:
(signature)
Greg
Hoppe, Chief Financial Officer
Date:
February 22, 2010
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