mspnq0910.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM N-Q
 
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
 
Investment Company Act file number 811-21713
 
Madison Strategic Sector Premium Fund
(Exact name of registrant as specified in charter)
 
550 Science Drive, Madison, WI  53711
(Address of principal executive offices)(Zip code)
 
W. Richard Mason
Madison/Mosaic Legal and Compliance Department
8777 N. Gainey Center Drive, Suite 220
Scottsdale, AZ  85258
(Name and address of agent for service)
 
Registrant's telephone number, including area code:  608-274-0300
 
Date of fiscal year end:  December 31
 
Date of reporting period:  September 30, 2010
 
Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (ss 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5).  The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.
 
A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public.  A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget ("OMB") control number.  Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC  20549-0609.  The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. s 3507.
 

 
 
 

Item 1.  Schedule of Investments.

 
Madison Strategic Sector Premium Fund
        
Portfolio of Investments -- September 30, 2010 (unaudited)
      
 
Shares
Value
    
COMMON STOCK - 91.6%
  
 (Note 1)
    
         
Consumer Discretionary - 14.5%
        
American Eagle Outfitters Inc.
             30,900
         $462,264
    
Bed Bath & Beyond Inc.*
             30,000
        1,302,300
    
Best Buy Co. Inc.
             70,000
        2,858,100
    
Garmin Ltd.
             19,600
           594,860
    
Home Depot Inc.
             30,000
           950,400
    
Kohl's Corp.*
             11,500
           605,820
    
Lowe's Cos. Inc.
           110,000
        2,451,900
    
Target Corp.
             25,000
        1,336,000
    
Williams-Sonoma Inc.
             24,300
           770,310
    
   
      11,331,954
    
Energy - 9.6%
        
Apache Corp.
             13,400
        1,309,984
    
Exxon Mobil Corp.
             28,392
        1,754,342
    
Schlumberger Ltd.
             22,000
        1,355,420
    
Transocean Ltd.*
             29,000
        1,864,410
    
Weatherford International Ltd.*
             70,000
        1,197,000
    
   
        7,481,156
    
Financials - 20.2%
        
Affiliated Managers Group Inc.*
             25,000
        1,950,250
    
Aflac Inc.
             17,000
           879,070
    
Bank of America Corp.
             61,867
           811,076
    
Capital One Financial Corp.
             67,800
        2,681,490
    
Citigroup Inc.*
           190,000
           741,000
    
Goldman Sachs Group Inc./The
             16,000
        2,313,280
    
Marshall & Ilsley Corp.
             95,000
           668,800
    
MGIC Investment Corp.*
             25,000
           230,750
    
Morgan Stanley
             68,000
        1,678,240
    
State Street Corp.
             50,000
        1,883,000
    
T Rowe Price Group Inc.
             20,000
        1,001,300
    
Wells Fargo & Co.
             40,000
        1,005,200
    
   
      15,843,456
    
Health Care - 20.8%
        
Biogen Idec Inc.*
             43,100
        2,418,772
    
Celgene Corp.*
             30,000
        1,728,300
    
Genzyme Corp.*
             23,600
        1,670,644
    
Gilead Sciences Inc.*
             55,000
        1,958,550
    
Medtronic Inc.
             35,000
        1,175,300
    
Mylan Inc./PA*
             70,000
        1,316,700
    
Pfizer Inc.
           109,800
        1,885,266
    
UnitedHealth Group Inc.
             86,000
        3,019,460
    
Zimmer Holdings Inc.*
             21,000
        1,098,930
    
   
      16,271,922
    
Information Technology - 23.8%
        
Adobe Systems Inc.*
             55,000
        1,438,250
    
Applied Materials Inc.
             60,000
           700,800
    
Cisco Systems Inc.*
           130,000
        2,847,000
    
Dell Inc.*
           100,000
        1,296,000
    
eBay Inc.*
           127,000
        3,098,800
    
EMC Corp./Massachusetts*
             30,000
           609,300
    
Flextronics International Ltd.*
           234,900
        1,418,796
    
Google Inc., Class A*
               3,500
        1,840,265
    
Microsoft Corp.
             50,000
        1,224,500
    
QUALCOMM Inc.
             32,000
        1,443,840
    
Symantec Corp.*
             25,000
           379,250
    
Visa Inc., Class A
             20,000
        1,485,200
    
Yahoo! Inc.*
             60,000
           850,200
    
   
      18,632,201
    
Materials - 2.7%
        
Freeport-McMoRan Copper & Gold Inc.
             25,000
        2,134,750
    
         
    Total Common Stock
        
    (Cost $96,614,519)
  
71,695,439
    
         
INVESTMENT COMPANIES - 6.1%
        
Powershares QQQ Nasdaq 100
             50,000
        2,454,000
    
SPDR S&P 500 ETF Trust
             20,000
        2,282,400
    
    Total Investment Companies
        
    (Cost $4,445,366)
  
        4,736,400
    
         
U.S. GOVERNMENT AND AGENCY BONDS - 5.1%
        
         
U.S. Treasury Note - 5.1%
        
0.875%, 2/28/2011
        4,000,000
        4,011,876
    
    Total U.S. Government and Agency Bonds
        
    (Cost $4,008,942)
        
         
Repurchase Agreement - 2.3%
        
With U.S. Bank National Association issued 9/30/10 at
        
0.01%, due 10/01/10, collateralized by $1,839,402 in
        
Freddie Mac Pool #G11440 due 08/01/10.  Proceeds
        
Proceeds at maturity are $1,803,223 (Cost $1,803,223)
  
1,803,223
    
         
TOTAL INVESTMENTS - 105.1% (Cost $106,872,049)
  
82,246,938
    
NET OTHER ASSETS AND LIABILITIES -
  
3,360
    
Total Call & Put Options Written - (5.1%)
  
(3,994,704)
    
TOTAL NET ASSETS - 100%
  
$78,255,594
    
         
   *      Non-income Producing
        
ETF    Exchange Traded Fund
        
         
Call Options
        
Underlying Security
 Contracts
Expiration
Strike Price
 Market Value
Adobe Systems Inc.
                 250
January 2011
34.00
          $4,000
Adobe Systems Inc.
                 300
April 2011
33.00
            15,900
Affiliated Managers Group Inc.
                 150
January 2011
75.00
          118,500
Affiliated Managers Group Inc.
                 100
January 2011
85.00
            31,500
Aflac Inc.
                 170
January 2011
47.00
          116,875
American Eagle Outfitters Inc.
                 165
January 2011
15.00
            21,450
Apache Corp.
                 134
January 2011
105.00
            42,210
Applied Materials Inc.
                 200
October 2010
12.00
              3,000
Applied Materials Inc.
                 200
January 2011
12.50
              9,000
Applied Materials Inc.
                 200
January 2011
15.00
              1,200
Bank of America Corp.
                 618
October 2010
13.00
            25,647
Bed Bath & Beyond Inc.
                 200
January 2011
39.00
          119,000
Bed Bath & Beyond Inc.
                 100
January 2011
40.00
            52,250
Best Buy Co. Inc.
                 100
January 2011
40.00
            33,750
Biogen Idec Inc.
                 431
January 2011
60.00
          102,363
Capital One Financial Corp.
                 278
December 2010
41.00
            52,959
Celgene Corp.
                 300
January 2011
57.50
          124,500
Cisco Systems Inc.
                 300
October 2010
25.00
                 150
Cisco Systems Inc.
                 500
January 2011
25.00
            18,000
Citigroup Inc.
                 500
December 2010
4.00
              9,250
Dell Inc.
                 327
November 2010
13.00
            22,563
eBay Inc.
                 300
October 2010
21.00
          105,000
eBay Inc.
                 370
October 2010
25.00
            11,470
eBay Inc.
                 300
January 2011
24.00
            59,550
eBay Inc.
                 300
April 2011
26.00
            50,400
EMC Corp./Massachusetts
                 300
October 2010
19.00
            42,750
Exxon Mobil Corp.
                   80
January 2011
45.00
              9,680
Flextronics International Ltd.
                 500
October 2010
6.00
            10,750
Freeport-McMoRan Copper & Gold Inc.
                 250
January 2011
65.00
          542,500
Garmin Ltd.
                 164
January 2011
35.00
            13,612
Genzyme Corp.
                 236
January 2011
52.50
          450,760
Gilead Sciences Inc.
                 150
November 2010
34.00
            39,825
Goldman Sachs Group Inc./The
                 160
January 2011
145.00
          153,200
Google Inc.
                   35
January 2011
530.00
          106,925
Home Depot Inc.
                 300
November 2010
30.00
            69,600
Kohl's Corp.
                 115
January 2011
50.00
            56,925
Lowe's Cos. Inc.
                 400
October 2010
24.00
              2,400
Lowe's Cos. Inc.
                 200
January 2011
25.00
              9,600
Marshall & Ilsley Corp.
                 300
December 2010
7.50
            14,250
Medtronic Inc.
                 200
January 2011
40.00
              3,800
Microsoft Corp.
                 200
April 2011
25.00
            32,700
Morgan Stanley
                 280
October 2010
33.00
                 280
Pfizer Inc.
                 400
December 2010
17.00
            31,600
Powershares QQQ Nasdaq 100
                 250
December 2010
48.00
            70,625
Powershares QQQ Nasdaq 100
                 250
January 2011
47.00
            98,625
QUALCOMM Inc.
                 200
October 2010
40.00
          103,500
QUALCOMM Inc.
                 120
January 2011
38.00
            94,800
SPDR S&P 500 ETF Trust
                   50
October 2010
113.00
            12,950
SPDR S&P 500 ETF Trust
                 150
January 2011
112.00
          103,725
State Street Corp.
                 500
November 2010
39.00
            72,000
T Rowe Price Group Inc.
                 200
January 2011
50.00
            73,000
Target Corp.
                 250
January 2011
55.00
            48,750
Transocean Ltd.
                   90
November 2010
57.50
            73,575
Transocean Ltd.
                 200
January 2011
90.00
              5,600
UnitedHealth Group Inc.
                 400
December 2010
34.00
            98,600
UnitedHealth Group Inc.
                 260
March 2011
35.00
            74,490
Visa Inc.
                 200
January 2011
80.00
            48,200
Weatherford International Ltd.
                 580
January 2011
17.50
            73,660
Weatherford International Ltd.
                 120
February 2011
17.00
            20,820
Wells Fargo & Co.
                 200
January 2011
30.00
            10,100
Williams-Sonoma Inc.
                 243
February 2011
30.00
          104,490
Yahoo! Inc.
                 300
January 2011
17.50
              6,300
Zimmer Holdings Inc.
                 100
January 2011
60.00
              7,500
     Total Call Options
        
     (Premiums received $3,891,240)
      
   $3,942,954
         
Put Options
        
Goldman Sachs Group Inc./The
                   50
January 2011
130.00
            23,125
Target Corp.
                 250
January 2011
47.50
            28,625
     Total Put Options
        
     (Premiums received $141,670)
      
        $51,750

1. Portfolio Valuation: Securities traded on a national securities exchange are valued at their closing sale price.  Repurchase agreements and other securities having maturities of 60 days or less are valued at amortized cost, which approximates market value.  Securities having longer maturities, for which quotations are readily available, are valued at the mean between their closing bid and ask prices.  Securities for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures approved by the Board of Trustees.
2. Fair Value Measurements:  The Fund has adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures. Fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data “inputs” and minimize the use of unobservable “inputs” and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk (for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique). Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
Level 1 –quoted prices in active markets for identical investments
Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
 
In April 2009, the FASB also issued guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability have significantly decreased as well as guidance on identifying circumstances that indicate a transaction is not orderly. The valuation techniques used by the funds to measure fair value for the period ended September 30, 2010 maximized the use of observable inputs and minimized the use of unobservable inputs.
 
The following is a summary of the inputs used as of September 30, 2010 in valuing the funds’ investments carried at fair value:
 
Quoted Prices in Active Markets for Identical Securities
 Significant Other Observable Inputs
Significant Unobservable Inputs
Value at
  
Fund
(Level 1)
(Level 2)
(Level 3)
9/30/2010
  
Madison Strategic Sector Premium Fund
        
Assets:
          
   Common Stocks
             $71,695,439
 $               -
 $                -
       $71,695,439
  
   Investment Companies
                 4,736,400
    
           4,736,400
  
   U.S. Government and Agency Obligations
    4,011,876
  
           4,011,876
  
   Repurchase Agreement
  
    1,803,223
  
           1,803,223
  
 
               71,695,439
    5,815,099
                   -
          82,246,938
  
Liabilities:
          
   Written Options
                 3,994,704
                  -
                   -
           3,994,704
  
 
                 3,994,704
                  -
                   -
           3,994,704
  

 
 
At September 30, 2010 and for the year then ended, the Fund held no Level 3 securities. Please see the Portfolio of Investments for the listing of all securities within each category.
 
The Fund has adopted the Accounting Standard Update, Fair Value Measurements and Disclosures; Improving Disclosures about Fair Value Measurements which provides guidance on how investment assets and liabilities are to be valued and disclosed. Specifically, the amendment requires reporting entities to disclose i) the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements, for Level 2 or Level 3 positions, ii) transfers between all levels (including Level 1 and Level 2) will be required to be disclosed on a gross basis (i.e. transfers out must be disclosed separately from transfers in) as well as the reason(s) for the transfer and iii) purchases, sales, issuances and settlements must be shown on a gross basis in the Level 3 rollforward rather than as one net number. The effective date of the amendment is for interim and annual periods beginning after December 15, 2009, however, the requirement to provide the Level 3 activity for purchases, sales, issuance and settlements on a gross basis will be effective for interim and annual period beginning after December 15, 2010. There were no transfers between classification levels during the period ended September 30, 2010.
Derivatives: In March 2008, 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 investments, b) how derivative instruments and related hedge fund items are accounted for, and c) how derivative instruments and related hedge fund items affect a fund’s financial position, results of operations and cash flows
The following table presents the types of derivatives in the Madison Strategic Sector Premium Fund (i.e. MSP) and their effect:

 
Asset Derivatives
    
Liability Derivatives
Derivatives not accounted
Fair Value
Derivatives not accounted
Fair Value
for as hedging instruments
  
for as hedging instruments
  
Equity contracts
$-
Options Written
  
$3,994,704


 
 
 

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

 
 
 


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Madison Strategic Sector Premium Fund
 
By: (signature)
 
W. Richard Mason, CCO
 
Date: November 19, 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:  November 19, 2010
 
By:  (signature)
 
Greg Hoppe, Chief Financial Officer
 
Date: November 19, 2010