UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-22040
Name of Fund: MLP & Strategic Equity Fund Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Mitchell M. Cox, Chief Executive Officer,
MLP & Strategic Equity Fund Inc., 4 World Financial Center, 6th Floor, New
York, New York 10080.
Registrant's telephone number, including area code: (877) 449-4742
Date of fiscal year end: 10/31/2007
Date of reporting period: 11/01/2006 - 10/31/2007
Item 1 - Report to Stockholders
MLP & Strategic Equity Fund Inc.
--------------------------------------------------------------------------------
Annual Report
October 31, 2007
[LOGO] IQ INVESTMENT [LOGO] FAMCO
ADVISORS FIDUCIARY ASSET MANAGEMENT
MLP & Strategic Equity Fund Inc.
Portfolio Information as of October 31, 2007
Percent of
Ten Largest MLP & MLP Affiliates Holdings Net Assets
--------------------------------------------------------------------------------
Kinder Morgan Management LLC ......................................... 8.1%
Enterprise Products Partners LP ...................................... 7.6
Plains All American Pipeline LP ...................................... 6.1
ONEOK Partners LP .................................................... 5.0
Energy Transfer Equity LP ............................................ 4.1
Boardwalk Pipeline Partners LP ....................................... 3.3
Energy Transfer Partners LP .......................................... 3.0
TEPPCO Partners LP ................................................... 3.0
Nustar Energy LP ..................................................... 2.7
Cheniere Energy Partners LP .......................................... 2.7
--------------------------------------------------------------------------------
The Fund enters into variable prepaid forward contracts to seek to enhance the
return on its master limited partnership ("MLP") investments. One effect of
entering into the forward contracts is an increase in the Fund's total assets.
As a result, the Fund's MLP investments currently represent 21.2% of the Fund's
total assets. Due to the limited risk of the forward contracts, however, the
Fund derives its performance primarily from the MLP Portfolio.
2 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
A Discussion With Your Fund's Portfolio Managers
We are pleased to provide you with the initial shareholder report for MLP
& Strategic Equity Fund Inc. While the Fund is advised by IQ Investment Advisors
LLC, the following discussion is provided by Fiduciary Asset Management
("FAMCO"), the Fund's subadviser.
The investment objective of MLP & Strategic Equity Fund Inc. (the "Fund") is to
provide a high level of after-tax total return by investing substantially all of
its net assets in a portfolio of publicly traded master limited partnerships
("MLPs") operating in the energy infrastructure sector of the market. To enhance
its returns, the Fund enters into variable prepaid forward contracts ("Forward
Contracts") with terms of approximately one year, to sell particular equity
securities that the Fund will strategically purchase with the proceeds of the
Forward Contracts.
Performance of Fund During the Period
From the inception of the Fund on June 29, 2007 through October 31, 2007, the
Common Stock of the Fund had a total investment return of -3.77%, based on the
change per share in net asset value of $19.10 to $18.06 and the reinvestment of
all dividends and distributions.
The Fund's negative net asset value ("NAV") return was largely attributable to
the performance of the MLP asset class. The most commonly referenced index of
publicly-traded MLP securities had a total investment return of -3.44% during
the same period.
The downturn in the MLP market was largely the result of broader liquidity and
credit problems in the capital markets.
Over longer periods of time the MLP asset class has exhibited limited
correlation to other asset classes. However, in shorter periods, MLPs have
correlated with other asset classes due to common features that MLPs share with
both the broader fixed income and equity markets. MLPs are similar to many
credit-based fixed income securities in that they offer yield-focused investors
a higher current payout than U.S. Treasury issues. In the third quarter, most
credit-based fixed income securities performed very poorly as investors demanded
higher compensation for the additional risk of credit-based fixed income
securities versus U.S. Treasury issues. The initial selling pressure in the
housing portion of the asset-backed fixed income market quickly spilled over
into other credit-based fixed income securities. As other high yielding
alternatives came under selling pressure in the third quarter, MLPs became
relatively less attractive in the eyes of yield-focused buyers. Similar to other
public equity securities, MLPs typically trade daily on securities exchanges.
Although price volatility was high in the third quarter, we believe the
underlying fundamentals of MLPs generally remain strong. During the period,
distribution growth has continued.
What separates MLPs from traditional fixed income securities is this
distribution growth. MLPs have been generally growing their distributions at
double digit annual rates over the last few years. MLP distribution growth stems
from both organic and acquisition-driven growth. The market appears to have
concerns that MLP growth rates may come under pressure as acquisition activity
slows. The concern does not appear to be availability of attractive acquisition
targets; we believe that they are still abundant in the constrained U.S. energy
infrastructure system. The concern is financing those opportunities, which has
become more expensive and therefore more difficult. A lack of reasonably priced
financing may limit an MLP's ability to grow at more than a modest rate.
Fund Outlook at the End of the Period
Our long-term outlook for the MLP asset class remains positive. For the
remainder of 2007 we believe it is likely that many MLP investors will be more
interested in realizing tax losses than adding to existing MLP positions. We
also expect a significant supply of new MLP Initial Public Offerings and
secondary equity offerings to come to market over the near term. These offerings
will compete for investors' dollars and likely limit the price appreciation of
existing MLPs.
It is important to note that we believe the longer term fundamental thesis for
owning MLPs remains intact. MLP assets, many of them critical parts of the U.S.
energy infrastructure system, are known to produce a high and stable level of
cash flow relative to other security types. It is our opinion that U.S.
infrastructure spending will be robust for the next several years and that may
provide growth opportunities for MLPs. We believe the correlation to other asset
classes will likely remain low over the next few years as the credit markets are
expected to settle into more normalized patterns and the acquisition market
re-accelerates.
The Fund has had an emphasis in small-capitalization and higher growth MLPs.
During the period, smaller-capitalization and higher growth MLPs generally
underperformed larger-capitalization and lower growth MLPs. We believe this
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 3
A Discussion With Your Fund's Portfolio Managers (concluded)
emphasis on smaller-capitalization and higher growth MLPs may enhance the
opportunity for stronger distribution growth for the Fund and its shareholders.
Comparison of NAV to Market Value
For more detail with regard to the Fund's total investment return based on a
change in the per share market value of the Fund's Common Stock (as measured by
the trading price of the Fund's shares on the New York Stock Exchange), please
refer to the Financial Highlights section of this report.
As a closed-end fund, the Fund's shares may trade in the secondary market at a
premium or discount to the Fund's net asset value. As a result, total investment
returns based on changes in the market value of the Fund's Common Stock can vary
significantly from total investment returns based on changes in the Fund's NAV.
James Cunnane Jr. & Quinn Kiley
Portfolio Managers
December 3, 2007
4 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
Schedule of Investments as of October 31, 2007
Master Limited Partnerships Units
Industry & MLP Affiliates Held Value
==============================================================================
Energy Equipment & Services -- 0.4%
Exterran Partners LP 39,000 $ 1,181,700
------------------------------------------------------------------------------
Gas Utilities -- 11.0%
Amerigas Partners LP 124,180 4,706,422
Ferrellgas Partners LP 144,430 3,233,788
ONEOK Partners LP 207,650 13,084,027
Spectra Energy Partners LP 168,710 4,327,412
Suburban Propane Partners LP 72,945 3,512,302
--------------
28,863,951
------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels -- 84.7%
Alliance Resource Partners LP 82,935 3,189,680
Atlas Energy Resources LLC 129,000 4,431,150
Atlas Pipeline Holdings LP 116,065 4,160,930
Boardwalk Pipeline Partners LP 267,990 8,709,675
BreitBurn Energy Partners LP 63,070 2,123,567
Buckeye Partners LP 100,670 5,586,178
Calumet Specialty Products
Partners LP 66,120 3,074,580
Capital Product Partners LP 49,525 1,332,718
Cheniere Energy Partners LP 377,312 7,180,247
Constellation Energy Partners LLC 31,925 1,238,690
Copano Energy LLC Class E Units (a)(d) 11,804 385,663
Copano Energy LLC Common Units 107,375 4,156,486
Copano Energy LLC Common Units (a)(d) 10,819 387,827
Crosstex Energy LP 64,790 2,218,410
DCP Midstream Partners LP 56,890 2,448,546
Duncan Energy Partners LP 52,890 1,253,493
EV Energy Partner LP 32,120 1,237,262
Eagle Rock Energy Partners LP 178,265 4,100,095
Enbridge Energy Management LLC (c) 108,782 5,963,429
Enbridge Energy Partners LP 64,030 3,399,353
Encore Energy Partners LP 50,000 991,000
Energy Transfer Equity LP 304,457 10,835,625
Energy Transfer Partners LP 140,000 7,786,800
Enterprise Products Partners LP 623,830 19,956,322
Genesis Energy LP 66,685 1,700,468
Global Partners LP 25,900 805,749
Hiland Partners LP 22,805 1,168,984
Holly Energy Partners LP 39,095 1,845,284
Inergy LP 108,035 3,768,261
K-Sea Transportation Partners LP 22,570 896,255
Kinder Morgan Management LLC (c) 420,974 21,385,456
Legacy Reserves LP 54,370 1,217,888
Linn Energy LLC Class D (d) 174,986 4,627,884
Linn Energy LLC Common Units (d) 65,001 1,775,770
Magellan Midstream Partners LP 162,340 6,834,514
MarkWest Energy Partners LP 88,030 2,884,743
Martin Midstream Partners LP 35,085 1,322,705
Natural Resource Partners LP 130,475 4,451,407
Nustar Energy LP 116,000 7,211,720
Penn Virginia Resource Partners LP 97,215 2,800,764
Plains All American Pipeline LP 292,595 16,139,540
Regency Energy Partners LP 144,875 4,599,781
SemGroup Energy Partners LP 65,530 1,967,866
Sunoco Logistics Partners LP 71,485 4,196,170
TC PipeLines LP 89,025 3,277,010
TEPPCO Partners LP 192,910 7,766,557
Targa Resources Partners LP 109,585 3,014,683
Teekay LNG Partners LP 81,665 2,719,444
Teekay Offshore Partners LP 45,715 1,327,106
Transmontaigne Partners LP 30,065 974,407
U.S. Shipping Partners LP 39,410 746,031
Vanguard Natural Resources LLC 25,000 466,250
Williams Partners LP 97,285 4,450,789
--------------
222,491,212
------------------------------------------------------------------------------
Total Master Limited
Partnerships & MLP Affiliates
(Cost -- $260,415,976) -- 96.1% 252,536,863
==============================================================================
Shares
Common Stocks Held
==============================================================================
Aerospace & Defense -- 2.1%
Alliant Techsystems, Inc. (a) 17,121 1,889,987
Precision Castparts Corp. 24,087 3,608,473
--------------
5,498,460
------------------------------------------------------------------------------
Air Freight & Logistics -- 3.6%
FedEx Corp. 92,019 9,509,243
------------------------------------------------------------------------------
Auto Components -- 1.0%
The Goodyear Tire & Rubber Co. (a) 23,050 694,958
TRW Automotive Holdings Corp. (a) 61,357 1,821,689
--------------
2,516,647
------------------------------------------------------------------------------
Automobiles -- 1.0%
Ford Motor Co. (a) 283,032 2,510,494
------------------------------------------------------------------------------
Biotechnology -- 26.9%
Amgen, Inc. (a) 493,977 28,705,003
Genentech, Inc. (a) 457,467 33,912,029
Genzyme Corp. (a) 106,485 8,089,665
--------------
70,706,697
------------------------------------------------------------------------------
Building Products -- 0.1%
USG Corp. (a) 4,770 189,607
------------------------------------------------------------------------------
Capital Markets -- 16.1%
E*Trade Financial Corp. (a) 693,225 7,722,526
Franklin Resources, Inc. 50,112 6,498,524
GFI Group, Inc. (a) 29,252 2,525,033
The Goldman Sachs Group, Inc. 72,461 17,964,531
Lehman Brothers Holdings, Inc. 46,290 2,932,009
TD Ameritrade Holding Corp. (a) 236,269 4,522,189
--------------
42,164,812
------------------------------------------------------------------------------
Chemicals -- 0.8%
The Mosaic Co. (a) 17,522 1,223,036
OM Group, Inc. (a) 18,471 978,594
--------------
2,201,630
------------------------------------------------------------------------------
Commercial Services & Supplies -- 1.3%
Allied Waste Industries, Inc. (a) 3,117 39,399
Monster Worldwide, Inc. (a) 2,829 114,801
Stericycle, Inc. (a) 57,668 3,363,774
--------------
3,517,974
------------------------------------------------------------------------------
Communications Equipment -- 20.1%
Cisco Systems, Inc. (a) 1,434,382 47,420,669
Corning, Inc. 183,746 4,459,515
Motorola, Inc. 50,527 949,402
--------------
52,829,586
------------------------------------------------------------------------------
Computers & Peripherals -- 27.7%
Apple Computer, Inc. (a) 195,553 37,145,292
Dell, Inc. (a) 731,035 22,369,671
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 5
Schedule of Investments (continued)
Shares
Industry Common Stocks Held Value
==============================================================================
Computers & Peripherals (concluded)
EMC Corp. (a) 310,361 $ 7,880,066
NCR Corp. (a) 95,114 2,624,195
Teradata Corp. (a) 95,114 2,713,602
--------------
72,732,826
------------------------------------------------------------------------------
Construction & Engineering -- 3.0%
Foster Wheeler Ltd. (a) 8,226 1,219,504
Jacobs Engineering Group, Inc. (a) 63,177 5,505,876
The Shaw Group, Inc. (a) 15,717 1,172,488
--------------
7,897,868
------------------------------------------------------------------------------
Consumer Finance -- 9.3%
AmeriCredit Corp. (a) 159,174 2,245,945
Capital One Financial Corp. 337,388 22,129,279
--------------
24,375,224
------------------------------------------------------------------------------
Containers & Packaging -- 1.7%
Pactiv Corp. (a) 163,537 4,492,361
------------------------------------------------------------------------------
Diversified Consumer Services -- 5.8%
Apollo Group, Inc. Class A (a) 193,079 15,303,442
------------------------------------------------------------------------------
Diversified Financial Services -- 1.4%
Intercontinental Exchange, Inc. (a) 8,282 1,475,852
The NASDAQ Stock Market, Inc. (a) 46,948 2,192,472
--------------
3,668,324
------------------------------------------------------------------------------
Diversified Telecommunication Services -- 0.7%
Qwest Communications
International Inc. (a) 244,948 1,758,727
------------------------------------------------------------------------------
Electric Utilities -- 6.8%
Allegheny Energy, Inc. (a) 162,654 9,866,592
Mirant Corp. (a) 188,670 7,992,061
--------------
17,858,653
------------------------------------------------------------------------------
Electronic Equipment & Instruments -- 4.4%
Agilent Technologies, Inc. (a) 200,498 7,388,351
Arrow Electronics, Inc. (a) 14,957 597,981
Ingram Micro, Inc. Class A (a) 81,179 1,724,242
Mettler Toledo International, Inc. (a) 11,565 1,229,938
Vishay Intertechnology, Inc. (a) 49,954 628,921
--------------
11,569,433
------------------------------------------------------------------------------
Energy Equipment & Services -- 26.8%
Cameron International Corp. (a) 99,428 9,680,310
FMC Technologies, Inc. (a) 109,733 6,653,112
Grant Prideco, Inc. (a) 1,569 77,132
Nabors Industries Ltd. (a) 163,692 4,596,471
National Oilwell Varco, Inc. (a) 39,738 2,910,411
Noble Corp. 68,880 3,647,196
SEACOR Holdings, Inc. (a) 29,124 2,669,215
Schlumberger Ltd. 17,195 1,660,521
Transocean, Inc. (a) 181,333 21,645,720
Weatherford International Ltd. (a) 259,507 16,844,599
--------------
70,384,687
------------------------------------------------------------------------------
Food Products -- 2.9%
Dean Foods Co. 114,029 3,166,585
Smithfield Foods, Inc. (a) 155,813 4,467,159
--------------
7,633,744
------------------------------------------------------------------------------
Health Care Equipment & Supplies -- 4.8%
Hospira, Inc. (a) 28,909 1,194,809
St. Jude Medical, Inc. (a) 30,834 1,255,869
Zimmer Holdings, Inc. (a) 145,914 10,139,564
--------------
12,590,242
------------------------------------------------------------------------------
Health Care Providers & Services -- 38.3%
Aetna, Inc. 66,558 3,738,563
Cigna Corp. 165,162 8,669,353
Coventry Health Care, Inc. (a) 36,896 2,225,198
Express Scripts, Inc. (a) 81,785 5,160,634
Health Net, Inc. (a) 20,121 1,078,687
Humana, Inc. (a) 21,508 1,612,025
Laboratory Corp. of
America Holdings (a) 76,452 5,256,075
Lincare Holdings, Inc. (a) 7,205 250,518
Medco Health Solutions, Inc. (a) 121,564 11,473,210
UnitedHealth Group, Inc. 375,262 18,444,127
WellPoint, Inc. (a) 538,259 42,646,261
--------------
100,554,651
------------------------------------------------------------------------------
Health Care Technology -- 0.1%
Cerner Corp. (a) 3,329 198,275
------------------------------------------------------------------------------
Hotels, Restaurants & Leisure -- 6.2%
Jack in the Box, Inc. (a) 7,564 237,283
Las Vegas Sands Corp. (a) 17,406 2,316,390
MGM Mirage (a) 41,661 3,816,564
Starbucks Corp. (a) 372,072 9,926,881
--------------
16,297,118
------------------------------------------------------------------------------
Household Durables -- 0.9%
Mohawk Industries, Inc. (a) 28,788 2,456,768
------------------------------------------------------------------------------
Household Products -- 1.0%
Energizer Holdings, Inc. (a) 26,319 2,745,072
------------------------------------------------------------------------------
IT Services -- 2.3%
Cognizant Technology
Solutions Corp. (a) 23,920 991,723
Computer Sciences Corp. (a) 48,955 2,858,482
DST Systems, Inc. (a) 17,404 1,474,293
Fiserv, Inc. (a) 14,142 783,467
--------------
6,107,965
------------------------------------------------------------------------------
Independent Power Producers & Energy
Traders -- 10.2%
The AES Corp. (a) 777,967 16,656,273
NRG Energy, Inc. (a) 220,401 10,063,510
--------------
26,719,783
------------------------------------------------------------------------------
Insurance -- 11.5%
American International Group, Inc. 353,029 22,283,190
Arch Capital Group Ltd. (a) 49,769 3,721,228
Conseco, Inc. (a) 84,846 1,339,718
The Progressive Corp. 160,937 2,977,334
--------------
30,321,470
------------------------------------------------------------------------------
Internet Software & Services -- 12.2%
eBay, Inc. (a) 280,897 10,140,382
Google, Inc. Class A (a) 31,096 21,984,872
--------------
32,125,254
------------------------------------------------------------------------------
Life Sciences Tools & Services -- 1.7%
Thermo Fisher Scientific, Inc. (a) 76,065 4,473,383
------------------------------------------------------------------------------
Machinery -- 2.9%
Danaher Corp. 71,743 6,146,223
Terex Corp. (a) 19,505 1,447,661
--------------
7,593,884
------------------------------------------------------------------------------
Media -- 25.8%
Comcast Corp. Class A (a) 1,084,807 22,835,187
The DIRECTV Group, Inc. (a) 376,189 9,961,485
6 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
Schedule of Investments (continued)
Shares
Industry Common Stocks Held Value
==============================================================================
Media (concluded)
EchoStar Communications Corp.
Class A (a) 150,692 $ 7,377,880
Liberty Media Holding
Corp. -- Capital (a) 46,327 5,789,948
Walt Disney Co. 625,751 21,669,757
--------------
67,634,257
------------------------------------------------------------------------------
Metals & Mining -- 1.9%
Century Aluminum Co. (a) 16,077 935,521
Freeport-McMoRan Copper &
Gold, Inc. Class B 6,066 713,847
Nucor Corp. 20,564 1,275,379
United States Steel Corp. 17,984 1,940,474
--------------
4,865,221
------------------------------------------------------------------------------
Multiline Retail -- 17.7%
Dollar Tree Stores, Inc. (a) 11,219 429,688
Kohl's Corp. (a) 430,974 23,690,641
Sears Holdings Corp. (a) 164,932 22,231,184
--------------
46,351,513
------------------------------------------------------------------------------
Office Electronics -- 2.4%
Xerox Corp. (a) 369,038 6,436,023
------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels --2.5%
Forest Oil Corp. (a) 4,349 211,318
Newfield Exploration Co. (a) 120,284 6,476,091
--------------
6,687,409
------------------------------------------------------------------------------
Pharmaceuticals -- 2.3%
Forest Laboratories, Inc. (a) 151,514 5,919,652
------------------------------------------------------------------------------
Semiconductors & Semiconductor
Equipment -- 0.9%
Lam Research Corp. (a) 48,851 2,452,320
------------------------------------------------------------------------------
Software -- 18.7%
Adobe Systems, Inc. (a) 72,065 3,451,914
Autodesk, Inc. (a) 27,011 1,320,838
Cadence Design Systems, Inc. (a) 89,274 1,749,770
Electronic Arts, Inc. (a) 166,786 10,193,960
Intuit, Inc. (a) 44,799 1,441,184
Oracle Corp. (a) 1,396,672 30,964,218
--------------
49,121,884
------------------------------------------------------------------------------
Specialty Retail -- 8.0%
AutoNation, Inc. (a) 116,776 2,065,767
AutoZone, Inc. (a) 20,771 2,584,120
Bed Bath & Beyond, Inc. (a) 399,924 13,573,421
Office Depot, Inc. (a) 144,827 2,716,955
--------------
20,940,263
------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods -- 0.3%
Coach, Inc. (a) 20,871 763,044
------------------------------------------------------------------------------
Wireless Telecommunication Services -- 2.2%
American Tower Corp. Class A (a) 38,606 1,705,613
Crown Castle International Corp. (a) 59,172 2,430,194
Leap Wireless International, Inc. (a) 16,931 1,207,350
NII Holdings, Inc. (a) 6,287 364,646
--------------
5,707,803
------------------------------------------------------------------------------
Total Common Stocks
(Cost -- $853,413,607) -- 338.3% 888,383,693
==============================================================================
==============================================================================
Shares
Short-Term Securities Held
==============================================================================
SSgA Prime Money Market Fund,
5.207% (b) 2,766,743 2,766,743
------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $2,766,743) -- 1.1% 2,766,743
==============================================================================
Total Investments
(Cost -- $1,116,596,326*) -- 435.5% 1,143,687,299
Liabilities in Excess of
Other Assets -- (335.5%) (881,083,953)
--------------
Net Assets -- 100.0% $ 262,603,346
==============
* The cost and unrealized appreciation (depreciation) of investments as of
October 31, 2007, as computed for federal income tax purposes, were as
follows:
Aggregate cost ...................................... $ 1,116,596,326
===============
Gross unrealized appreciation ....................... $ 79,386,004
Gross unrealized depreciation ....................... (52,295,031)
---------------
Net unrealized appreciation ......................... $ 27,090,973
===============
(a) Non-income producing security.
(b) Represents the current yield as of October 31, 2007.
(c) Represents a pay-in-kind security which may pay dividends in additional
units.
(d) Restricted securities as to resale representing approximately 2.7% of net
assets, were as follows:
--------------------------------------------------------------------------
Acquisition Fair
Issue Date(s) Cost Value+
--------------------------------------------------------------------------
Copano Energy LLC Class E Units 10/19/2007 $ 375,013 $ 385,663
Copano Energy LLC Common Units 10/19/2007 374,987 387,827
Linn Energy LLC Class D Units 8/31/2007 5,320,292 4,627,884
Linn Energy LLC Common Units 8/31/2007 2,042,981 1,775,770
--------------------------------------------------------------------------
Total $8,113,273 $7,177,144
========================
+ Please see Notes to Financial Statements, Note 1(a).
o For Fund portfolio compliance purposes, the Fund's industry
classifications refer to any one or more of the industry
sub-classifications used by one or more widely recognized market indexes
or ratings group indexes, and/or as defined by Fund management. This
definition may not apply for the purposes of this report, which may
combine industry sub-classifications for reporting ease. Industries are
shown as a percent of net assets. These industry classifications are
unaudited.
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 7
Schedule of Investments (concluded)
o Variable prepaid forward contracts as of October 31, 2007 were as follows:
-------------------------------------------------------------------------------------------------------------------
Notional Valuation
Amount Issue (a) Counterparty Date Value
-------------------------------------------------------------------------------------------------------------------
$183,000,279 Basket of Securities Banc of America, NA 7/18/2008 $(178,503,230)
$ 50,001,141 Basket of Securities, Tranche 1 HSBC Bank USA, NA 7/18/2008 (48,850,665)
$ 50,001,141 Basket of Securities, Tranche 2 HSBC Bank USA, NA 7/19/2008 (48,850,665)
$ 50,001,141 Basket of Securities, Tranche 3 HSBC Bank USA, NA 7/20/2008 (48,850,665)
$ 50,001,141 Basket of Securities, Tranche 4 HSBC Bank USA, NA 7/23/2008 (48,850,665)
$ 50,001,141 Basket of Securities, Tranche 5 HSBC Bank USA, NA 7/24/2008 (48,850,665)
$ 44,000,000 Basket of Securities, Tranche 1 HSBC Bank USA, NA 7/29/2008 (47,701,192)
$ 44,000,000 Basket of Securities, Tranche 2 HSBC Bank USA, NA 7/30/2008 (47,701,192)
$ 44,000,000 Basket of Securities, Tranche 3 HSBC Bank USA, NA 7/31/2008 (47,701,192)
$ 44,000,000 Basket of Securities, Tranche 4 HSBC Bank USA, NA 8/01/2008 (47,701,192)
$ 44,000,000 Basket of Securities, Tranche 5 HSBC Bank USA, NA 8/04/2008 (47,701,192)
$ 40,064,922 Basket of Securities, Tranche 1 HSBC Bank USA, NA 8/07/2008 (44,166,168)
$ 40,064,922 Basket of Securities, Tranche 2 HSBC Bank USA, NA 8/08/2008 (44,166,168)
$ 40,064,922 Basket of Securities, Tranche 3 HSBC Bank USA, NA 8/11/2008 (44,166,168)
$ 40,064,922 Basket of Securities, Tranche 4 HSBC Bank USA, NA 8/12/2008 (44,166,168)
$ 40,064,922 Basket of Securities, Tranche 5 HSBC Bank USA, NA 8/13/2008 (44,166,168)
-------------------------------------------------------------------------------------------------------------------
Total (Proceeds -- $844,797,291) $(882,093,355)
=============
(a) Non-income producing securities.
See Notes to Financial Statements.
8 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
Statement of Assets, Liabilities and Capital
As of October 31, 2007
===================================================================================================================================
Assets
-----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost -- $1,116,596,326) $ 1,143,687,299
Receivables:
Dividends ...................................................................... $ 1,789,330
Offering cost reimbursed by investment adviser ................................. 109,593 1,898,923
---------------
Prepaid expenses and other assets .................................................. 76,409
---------------
Total assets ....................................................................... 1,145,662,631
---------------
===================================================================================================================================
Liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Variable prepaid forward contracts, at value (proceeds -- $844,797,291) ............ 882,093,355
Payables:
Dividends to shareholders ...................................................... 570,935
Investment adviser ............................................................. 259,158
Accrued expenses ................................................................... 135,837
---------------
Total liabilities .................................................................. 883,059,285
---------------
===================================================================================================================================
Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
Net assets ......................................................................... $ 262,603,346
===============
===================================================================================================================================
Capital
-----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share, 100,000,000 shares authorized ............. $ 14,538
Paid-in capital in excess of par ................................................... 273,292,317
Accumulated distributions in excess of investment income -- net .................... $ (72,650)
Accumulated realized capital losses -- net ......................................... (425,768)
Unrealized depreciation -- net ..................................................... (10,205,091)
---------------
Total accumulated losses -- net .................................................... (10,703,509)
---------------
Total capital -- Equivalent to $18.06 per share based on 14,537,638 shares
of Common Stock outstanding (market price -- $16.24) ............................. $ 262,603,346
===============
See Notes to Financial Statements.
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 9
Statement of Operations
For the Period June 29, 2007+ to October 31, 2007
===================================================================================================================================
Investment Income
-----------------------------------------------------------------------------------------------------------------------------------
Dividends ............................................................................ $ 1,718,049
------------
===================================================================================================================================
Expenses
-----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................................. $ 979,317
Professional fees .................................................................... 92,150
Accounting services .................................................................. 32,133
Directors' fees and expenses ......................................................... 22,446
Custodian fees ....................................................................... 13,643
Printing and shareholder reports ..................................................... 13,550
Listing fees ......................................................................... 12,135
Transfer agent fees .................................................................. 9,431
Other ................................................................................ 4,712
------------
Total expenses ....................................................................... 1,179,517
------------
Investment income -- net ............................................................. 538,532
------------
===================================================================================================================================
Realized & Unrealized Gain (Loss) -- Net
-----------------------------------------------------------------------------------------------------------------------------------
Realized loss on:
Investments -- net ............................................................... (104,402)
Variable prepaid forward contracts -- net ........................................ (321,366) (425,768)
------------
Unrealized appreciation/depreciation on:
Investments -- net ............................................................... 27,090,973
Variable prepaid forward contracts -- net ........................................ (37,296,064) (10,205,091)
-----------------------------
Total realized and unrealized loss -- net ............................................ (10,630,859)
------------
Net Decrease in Net Assets Resulting from Operations ................................. $(10,092,327)
============
+ Commencement of operations.
See Notes to Financial Statements.
10 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
Statement of Changes in Net Assets
For the Period
June 29, 2007+
to October 31,
Increase (Decrease) in Net Assets: 2007
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ............................................................................. $ 538,532
Realized loss -- net ................................................................................. (425,768)
Unrealized appreciation/depreciation -- net .......................................................... (10,205,091)
-------------
Net decrease in net assets resulting from operations ................................................. (10,092,327)
-------------
===================================================================================================================================
Dividends and Distributions to Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ............................................................................. (611,182)
Tax return of capital ................................................................................ (3,746,919)
-------------
Net decrease in net assets resulting from dividends and distributions to shareholders ................ (4,358,101)
-------------
===================================================================================================================================
Common Stock Transactions
-----------------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of Common Stock ............................................................... 276,959,530
Value of shares issued to Common Stock shareholders in reinvestment of dividends and distributions ... 574,236
Offering costs resulting from issuance of Common Stock ............................................... (580,000)
-------------
Net increase in net assets resulting from Common Stock transactions .................................. 276,953,766
=============
===================================================================================================================================
Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ......................................................................... 262,503,338
Beginning of period .................................................................................. 100,008
-------------
End of period* ....................................................................................... $ 262,603,346
=============
* Accumulated distributions in excess of investment income -- net ................................ $ (72,650)
=============
+ Commencement of operations.
See Notes to Financial Statements.
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 11
Statement of Cash Flows
For the Period
June 29, 2007+
to October 31,
2007
===================================================================================================================================
Cash Used for Operating Activities
-----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations ............................................... $ (10,092,327)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used
for operating activities:
Increase in receivables and prepaid expenses ................................................. (1,865,739)
Increase in payables and accrued expenses .................................................... 394,995
Realized and unrealized loss -- net .......................................................... 10,630,859
Return of capital distributions .............................................................. 3,639,469
Proceeds from sales of long-term securities .................................................. 3,530,195
Purchases of long-term securities -- net ..................................................... (1,121,103,649)
Purchases of short-term investments -- net ................................................... (2,766,743)
---------------
Cash used for operating activities ................................................................. (1,117,632,940)
---------------
===================================================================================================================================
Cash Provided by Financing Activities
-----------------------------------------------------------------------------------------------------------------------------------
Proceeds from variable prepaid forward contracts ................................................... 844,475,925
Proceeds from issuance of Common Stock ............................................................. 276,959,530
Payments on offering costs ......................................................................... (689,593)
Dividends and distributions paid to shareholders ................................................... (3,212,930)
---------------
Cash provided by financing activities .............................................................. 1,117,532,932
---------------
===================================================================================================================================
Cash
-----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash ............................................................................... (100,008)
Cash at beginning of period ........................................................................ 100,008
---------------
Cash at end of period .............................................................................. --
===============
===================================================================================================================================
Non-Cash Financing Activities
-----------------------------------------------------------------------------------------------------------------------------------
Capital share proceeds issued in reinvestment of dividends paid to shareholders .................... $ 574,236
===============
+ Commencement of operations.
See Notes to Financial Statements.
12 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
Financial Highlights
For the Period
June 29, 2007+
The following per share data and ratios have been derived to October 31,
from information provided in the financial statements. 2007
================================================================================================================================
Per Share Operating Performance
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ................................................................ $ 19.10
-----------
Investment income -- net*** ......................................................................... .04
Realized and unrealized loss -- net ................................................................. (.74)
-----------
Total from investment operations .................................................................... (.70)
-----------
Less dividends and distributions from:
Investment income -- net ...................................................................... (.03)
Tax return of capital ......................................................................... (.27)
-----------
Total dividends and distributions to Common Stock shareholders ...................................... (.30)
-----------
Offering costs resulting from the issuance of Common Stock .......................................... (.04)
-----------
Net asset value, end of period ...................................................................... $ 18.06
-----------
Market price per share, end of period ............................................................... $ 16.24
===========
================================================================================================================================
Total Investment Return**
--------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .................................................................. (3.77%)++
===========
Based on market price per share ..................................................................... (17.37%)++
===========
================================================================================================================================
Ratios to Average Net Assets
--------------------------------------------------------------------------------------------------------------------------------
Expenses ............................................................................................ 1.35%*
===========
Investment income -- net ............................................................................ .62%*
===========
================================================================================================================================
Supplemental Data
--------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ............................................................ $ 262,603
===========
Portfolio turnover .................................................................................. --+++
===========
* Annualized.
** Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales charges.
*** Based on average shares outstanding.
+ Commencement of operations.
++ Aggregate total investment return.
+++ Amount is less than 1%.
See Notes to Financial Statements.
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 13
Notes to Financial Statements
1. Significant Accounting Policies:
The MLP & Strategic Equity Fund Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Fund pursues its investment objective by
investing substantially all of its net assets in publicly traded master limited
partnerships ("MLPs"). To enhance its returns, the Fund enters into variable
prepaid forward contracts ("Forward Contracts") with terms of approximately one
year, to sell particular equity securities that the Fund will strategically
purchase with the proceeds of the Forward Contracts. Prior to commencement of
operations on June 29, 2007, the Fund had no operations other than those
relating to organizational matters and the sale of 5,236 shares of Common Stock
on May 18, 2007 to IQ Investment Advisors LLC ("IQ"), an indirect, wholly owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), for $100,008. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. The Fund determines
and makes available for publication the net asset value of its Common Stock on a
daily basis. The Fund's Common Stock shares are listed on the New York Stock
Exchange ("NYSE") under the symbol MTP. The following is a summary of
significant accounting policies followed by the Fund:
(a) Valuation of investments -- Portfolio securities that are held by the Fund
that are traded on stock exchanges or the NASDAQ Global Market are valued at the
last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available asked
price for short positions. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by or under the authority of the Board of Directors of the Fund. Long
positions traded in the over-the-counter ("OTC") market, NASDAQ Capital Market
or Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Directors of the Fund. Short positions traded in the OTC market are valued at
the last available asked price. Portfolio securities that are traded both in the
OTC market and on an exchange are valued according to the broadest and most
representative market. Other investments are valued at market value.
Exchange traded options are valued at the mean price. Options traded in the OTC
market are valued at the last asked price (options written) or the last bid
price (options purchased). Swap agreements and variable prepaid forward
contracts are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Valuation of short-term investment
vehicles is generally based on the net asset value of the underlying investment
vehicle or amortized cost.
The Fund may employ pricing services to provide certain securities prices for
the Fund. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund, including valuations furnished
by the pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the Fund's Board of
Directors. Such valuations and procedures will be reviewed periodically by the
Board of Directors of the Fund.
Generally, trading in foreign securities, as well as money market instruments is
substantially completed each day at various times prior to the close of business
on the NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of such times. Foreign currency exchange
rates will generally be determined as of the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
business on the NYSE that may not be reflected in the computation of the Fund's
net asset value. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities will be valued
at their fair value as determined in good faith by the Fund's Board of Directors
or by the Investment Adviser using a pricing service and/or procedures approved
by the Fund's Board of Directors.
(b) Master Limited Partnerships -- The Fund will purchase both domestic and
international MLPs. The Fund's investment in MLPs may include ownership of MLP
common units and MLP subordinated units. The Fund also may purchase MLP I-Shares
(together with the MLPs, the "MLP Entities"). MLP I-Shares are pay-in-kind
securities created as a means to facilitate institutional ownership of MLPs by
simplifying the tax and administrative implications of the MLP structure.
Generally, when an MLP pays its quarterly cash distribution
14 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
Notes to Financial Statements (continued)
to unitholders, holders of I-Shares do not receive a cash distribution; rather,
they receive a dividend of additional I-Shares from the MLP of comparable value
to the cash distribution paid to each unitholder. The Fund may purchase
interests in MLP Entities on an exchange or may utilize non-public market
transactions to obtain its holdings, including but not limited to privately
negotiated purchases of securities from the issuers themselves, commonly
referred to as "PIPE" ("Private Investment in Public Entities") investments,
broker-dealers, or other qualified institutional buyers.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund may invest in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. entities.
(d) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies to increase the return of the Fund. Losses may arise due
to changes in the value of the contract due to an unfavorable change in the
price of the underlying security, or index, or if the counterparty does not
perform under the contract. The counterparty for certain instruments may pledge
cash or securities as collateral.
o Variable prepaid forward contracts -- The Fund will enter into variable
prepaid forward contracts ("forward contracts") with terms of
approximately one year to sell particular equity securities that the Fund
will strategically purchase with the proceeds of the forward contracts.
The strategic equity securities that are the subject of the Forward
Contracts ("the Contract Securities") may be the subject of a Forward
Contract individually, or grouped together as a basket of multiple
Contract Securities. In a variable prepaid forward contract, the amount of
shares (or their cash equivalent) that the seller is required to deliver
at maturity varies as a function of the stock's performance. The variable
prepaid forward contracts will be prepaid by the counterparties to these
transactions and as a result the Fund will not be exposed to any risk that
counterparties to these transactions will be unable to meet their
obligations under the arrangements. The equity securities may serve as
collateral for the Fund's obligation under the variable prepaid forward
contracts. The proceeds of the forward contracts are reflected as a
liability. The amount of the liability is subsequently marked-to-market to
reflect the current market value of the forward contracts.
o Options -- The Fund may purchase and write call and put options. When the
Fund writes an option, an amount equal to the premium received by the Fund
is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market
value of the option written. When a security is purchased or sold through
an exercise of an option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a gain
or loss on the option to the extent of the premiums received or paid (or
gain or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
o Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such financial futures contracts.
Financial futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed.
(e) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(f) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 15
Notes to Financial Statements (continued)
on security transactions are determined on the identified cost basis. Dividend
income is recorded on the ex-dividend dates. Interest income is recognized on
the accrual basis.
(g) Dividends and distributions -- Dividends paid by the Fund will be paid on a
monthly basis. The Fund expects that its dividends primarily will consist of a
return of capital. Initially a significant portion of any dividend the Fund
receives from the MLP entities will be deferred from taxation until the Fund
sells its interest in such MLP entities. The Fund will distribute net realized
capital gains, if any, at least annually.
(h) Offering expenses -- Direct expenses relating to the public offering of the
Fund's Common Stock were charged to capital at the time of issuance of the
shares.
(i) Recent accounting pronouncements -- For financial statement reporting
purposes, the Fund has adopted the provisions of Financial Accounting Standards
Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN
48") beginning with its initial registration. FIN 48 requires an analysis of tax
positions taken or to be taken on a tax return and whether such positions are
"more likely than not" to be sustained upon examination based on their technical
merit. To the extent they would not be sustained, tax expense (and related
interest and penalties) would be recognized for financial statement reporting
purposes. As discussed in the registration statement, the Fund intends to
qualify for Regulated Investment Company ("RIC") status pursuant to Subchapter M
of the Code. In determining the eligibility of the Fund to claim such status,
management of the Fund relies upon the statutory language of the Code,
regulations issued thereunder and the actual mechanical tests of Code Section
851. As little case law or regulatory explanations exist clarifying certain
aspects of such testing, management has received an opinion from special tax
counsel to the Fund indicating the Fund will qualify as a RIC pursuant to
Subchapter M of the Code. Thus, management believes the recognition threshold of
"more likely than not" has been met and no provision for income taxes is
necessary in the Fund.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. At this time, management is evaluating the implications
of FAS 157 and its impact on the Fund's financial statements, if any, has not
been determined.
In February 2007, the Financial Accounting Standards Board Statement of
Financial Accounting Standard No. 159, "The Fair Value Option for Financial
Assets and Financial Liabilities" ("FAS 159"), was issued and is effective for
fiscal years beginning after November 15, 2007. Early adoption is permitted as
of the beginning of a fiscal year that begins on or before November 15, 2007,
provided the entity also elects to apply the provisions of FAS 157. FAS 159
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair
value. FAS 159 also establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. At this
time, management is evaluating the implications of FAS 159 and its impact on the
Fund's financial statements, if any, has not been determined.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with IQ. IQ is
responsible for the investment advisory, management and administrative services
to the Fund. In addition, IQ provides the necessary personnel, facilities,
equipment and certain other services necessary to the operations of the Fund.
For such services, the Fund will pay a monthly fee at an annual rate equal to
1.12% of the average daily value of the Fund's net assets. IQ has entered into a
Subadvisory Agreement with Fiduciary Asset Management, LLC ("FAMCO") pursuant to
which FAMCO provides certain investment advisory services to IQ with respect to
the Fund. For such services, IQ will pay FAMCO a monthly fee at an annual rate
equal to .50% of the average daily value of the Fund's net assets.
IQ has entered into an Administration Agreement with Princeton Administrators,
LLC (the "Administrator"). The Administration Agreement provides that IQ will
pay the Administrator a fee at the annual rate of .12% of the average daily
value of the Fund's net assets for the performance of administrative and other
services necessary for the operation of the Fund. The Administrator is an
indirect subsidiary of BlackRock, Inc. ML & Co. is a principal owner of
BlackRock, Inc.
For the period June 29, 2007 to October 31, 2007, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), an affiliate of IQ, received gross fees from
underwriting of $10,069,958 in connection with the issuance of the Fund's Common
Stock. In addition, the Fund reimbursed MLPF&S
16 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
Notes to Financial Statements (concluded)
$74,492, as a partial reimbursement of expenses incurred in connection with the
issuance of the Fund's Common Stock.
Certain officers of the Fund are officers and/or directors of IQ and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period June 29, 2007 to October 31, 2007, were $1,121,103,649 and $3,530,195,
respectively.
4. Common Stock Transactions:
The Fund is authorized to issue 100,000,000 shares of stock, all of which are
initially classified as Common Stock par value $.001. The Board of Directors is
authorized, however, to classify and reclassify any unissued shares of Common
Stock without approval of the holders of Common Stock.
Shares issued and outstanding during the period June 29, 2007 to October 31,
2007 increased by 14,500,500 from shares sold and 31,902 from dividend
reinvestments.
5. Distributions to Shareholders:
The tax character of distributions paid during the fiscal year ended October 31,
2007 was as follows:
--------------------------------------------------------------------------------
10/31/2007
--------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ................................................ $ 611,182
Tax return of capital .......................................... 3,746,919
----------
Total taxable distributions ...................................... $4,358,101
==========
As of October 31, 2007, the components of accumulated losses on a tax basis were
as follows:
-----------------------------------------------------------------------------
Undistributed ordinary income -- net ........................ $ --
Undistributed long-term capital gains -- net ................ --
------------
Total undistributed earnings -- net ......................... --
Capital loss carryforward ................................... (425,768)*
Unrealized losses -- net .................................... (10,277,741)**
------------
Total accumulated losses -- net ............................. $(10,703,509)
============
* On October 31, 2007, the Fund had a net capital loss carryforward of
$425,768, all of which expires in 2015.
** The difference between book-basis and tax-basis unrealized losses is
attributable to the timing of the deduction of certain expenses.
6. Subsequent Event:
The Fund paid an ordinary income dividend to holders of Common Stock in the
amount of $.1000 per share on November 30, 2007 to shareholders of record on
November 20, 2007.
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 17
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of MLP & Strategic Equity Fund Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MLP & Strategic Equity Fund Inc. as of
October 31, 2007, and the related statements of operations, changes in net
assets and cash flows, and the financial highlights for the period June 29, 2007
(commencement of operations) through October 31, 2007. 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 and financial highlights based on our audit.
We conducted our audit 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 and financial highlights 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 audit 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 October 31, 2007, by correspondence with the
custodian. We believe that our audit provides 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 MLP &
Strategic Equity Fund Inc. as of October 31, 2007, the results of its
operations, the changes in its net assets, its cash flows, and its financial
highlights for the period June 29, 2007 through October 31, 2007, in conformity
with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, NJ
December 27, 2007
Fund Certification (unaudited)
MLP & Strategic Equity Fund, Inc. (the "Fund") is listed on the New York Stock
Exchange ("NYSE") and is subject to certain corporate governance listing
standards. As such, the Fund must include information in this report regarding
certain certifications. The Fund's Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act ("Section 302
Certifications") will file certifications with the Fund's initial Form N-CSR.
This filing will be available on the Securities and Exchange Commission's Web
site at http://www.sec.gov. In addition, in June 2007, the Fund filed its Chief
Executive Officer Certification with the New York Stock Exchange pursuant to
Section 303A.12(a) of the New York Stock Exchange Corporate Governance Listing
Standards.
18 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
Investment Advisory and Management Agreements
The Board of Directors (the "Board" or the "Directors") of the MLP & Strategic
Equity Fund Inc. (the "Fund"), consisting solely of Directors that are not
"interested persons" of the Fund (the "non-interested Directors"), as such term
is defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended
(the "Investment Company Act"), approved the management agreement between the
Fund and IQ Investment Advisors LLC ("IQ Advisors" or the "Adviser") (the
"Management Agreement") at a meeting held on March 6, 2007.
Approval of Management Agreement
The Board of Directors of the Fund has the responsibility under the Investment
Company Act to approve the Fund's proposed Management Agreement for its initial
two-year term and for any renewal thereafter at meetings of the Board called for
the purpose of voting on such approvals or renewals. In addition, the Fund's
Board of Directors generally receives, reviews and evaluates information
concerning the services and personnel of the Adviser and its affiliates at
quarterly meetings of the Board. While particular emphasis might be placed on
information concerning profitability, comparability of fees, total expenses and
the Fund's investment performance at any future meeting at which a renewal of
the Management Agreement is considered, the process of evaluating the Adviser
and the Fund's investment advisory arrangements is an ongoing one. In this
regard, the Board's consideration of the nature, extent and quality of the
services to be provided by the Adviser under the Management Agreement will
include deliberations at future quarterly meetings.
At a Board meeting held on March 6, 2007, all of the Directors present at the
meeting, including all of the non-interested Directors, approved the Management
Agreement for an initial two-year term. In considering whether to approve the
Management Agreement, the Fund's Board of Directors reviewed an organizational
meeting book and other materials from counsel to the Fund and from the Adviser
which: (i) included information concerning the services that will be rendered to
the Fund by the Adviser and the Adviser's affiliates, and the fees that will be
paid by the Fund to the Adviser and the Adviser's affiliates; and (ii) outlined
the legal duties of the Board under the Investment Company Act. The Board also
received information from Lipper, Inc. ("Lipper") comparing the Fund's fee rate
for advisory and administrative services to those of other closed-end funds
chosen by Lipper. In particular, the Board considered the following:
(a) The nature, extent and quality of services to be provided by the Adviser --
The Directors reviewed the services that the Adviser would provide to the Fund
under the Management Agreement. The Board considered the size and experience of
the Adviser's staff, its use of technology, and the degree to which the Adviser
would exercise supervision over the actions of the Fund's subadviser, Fiduciary
Asset Management, LLC ("FAMCO" or the "Subadviser"). In connection with the
investment advisory services to be provided to the Fund, the Directors took into
account detailed discussions they had with officers of the Adviser regarding the
management of the Fund's investments in accordance with the Fund's stated
investment objective and policies and the types of transactions that would be
entered into on behalf of the Fund. During these discussions, the Directors
asked detailed questions of, and received answers from, the officers of the
Adviser regarding the formulation and proposed implementation of the Fund's
investment strategy, its efficacy and potential risks.
In addition to the investment advisory services to be pro-vided to the Fund, the
Board of Directors considered that the Adviser and its affiliates also will
provide administrative services, stockholder services, oversight of Fund
accounting, marketing services, assistance in meeting legal and regulatory
requirements and other services necessary for the operation of the Fund. In
particular, the Board of Directors reviewed the compliance and administrative
services to be provided to the Fund
by the Adviser, including its oversight of the Fund's day-to-day operations and
its oversight of Fund accounting. The Board noted that the Adviser has an
administrative, legal and compliance staff to ensure a high level of quality in
the compliance and administrative services to be provided to the Fund. Based on
the presentations on March 6, 2007 and the Board members' experience as Board
members of other investment companies advised by the Adviser, the Board of
Directors concluded that the services to be provided to the Fund by the Adviser
under the Management Agreement were likely to be of a high quality and would
benefit the Fund.
(b) Investment performance of the Fund and the Adviser -- Because the Fund is
newly formed, the Directors did not consider the investment performance of the
Fund. The Board based its review of the Adviser's performance primarily on the
experience of the Adviser in managing other registered investment companies,
noting that other funds the Adviser manages might have investment objectives,
policies or restrictions different from those of the Fund. The Board also
considered the experience, resources and strengths of the Adviser and its
affiliates with respect to the investment strategies proposed for the Fund. The
Board of Directors considered the innovative
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 19
Investment Advisory and Management Agreements (continued)
nature of the investment product and the creativity of the Adviser in developing
the Fund's investment program. Based on these factors, the Directors determined
that the Adviser would be an appropriate investment manager for the Fund.
(c) Cost of the services to be provided and profits to be realized by the
Adviser from the relationship with the Fund -- The Board of Directors considered
the anticipated cost of the services to be provided by the Adviser. Because the
Fund is newly formed, it had not commenced operations as of March 6, 2007, and
the eventual aggregate amount of Fund assets was uncertain, the Adviser was not
able to provide the Directors with specific information concerning the cost of
services to be provided to the Fund and the expected profits to be realized by
the Adviser and its affiliates from their relationships with the Fund. The
Directors, however, did discuss with the Adviser its general level of
anticipated profitability and noted that the Adviser would provide the Directors
with profitability information from time to time after the Fund commences
operations.
(d) Economies of scale and whether fee levels reflect these economies of scale
-- Because the Fund is newly formed and had not commenced operations as of March
6, 2007, and the eventual aggregate amount of Fund assets was uncertain, the
Adviser was not able to provide the Directors with specific information
concerning the extent to which economies of scale would be realized as the Fund
grows and whether fee levels would reflect such economies of scale, if any. The
Directors also discussed the renewal requirements for investment advisory
agreements, and determined that they would revisit this issue no later than when
they next review the investment advisory fee after the initial two-year term of
the Management Agreement.
(e) Comparison of services to be rendered and fees to be paid to those under
other investment advisory contracts, such as contracts of the same and other
investment advisers or other clients -- The Directors compared both the services
to be rendered and the fees to be paid under the Management Agreement to other
contracts of the Adviser and to other contracts of other investment advisers
with respect to other closed-end registered investment companies with similar
investment programs as the Fund. In particular, the Board of Directors evaluated
the Fund's proposed contractual fee rate for advisory and administrative
services as compared to the contractual fee rate of other closed-end funds
chosen by Lipper. In considering this information, the Board of Directors took
into account the nature of the investment strategies of the Fund and the fact
that the peer group of closed-end sector equity funds with an energy or utility
focus provided by Lipper for comparison might have investment strategies and
restrictions different from those of the Fund. The Board did not consider
compensation paid with respect to accounts other than registered investment
companies since the Adviser only utilizes the Fund's strategy in connection with
the Fund. The Board of Directors also considered that, including
investment-related expenses and taxes, the Fund's projected total expense ratio
at an estimated asset level placed it in the second quartile for the group (that
is, at least 66% of funds in the group had a total expense ratio that was higher
than the Fund's total expense ratio).
The Fund's Board of Directors then considered the potential direct and indirect
benefits to the Adviser and its affiliates from its relationship with the Fund,
including the underwriting arrangements relating to the initial distribution of
Fund shares. The Board of Directors concluded that the Fund would benefit from
those services.
Conclusion
No single factor was determinative to the decision of the Board. Based on the
foregoing and such other matters as were deemed relevant, all of the Directors,
including all of the non-interested Directors, concluded that the proposed
advisory fee rate and projected total expense ratio are reasonable in relation
to the services to be provided by the Adviser to the Fund, as well as the costs
to be incurred and benefits to be gained by the Adviser and its affiliates in
providing such services, including the investment advisory and administrative
components. The Board also found the proposed investment advisory fee to be
reasonable in comparison to the fees charged by advisers to other comparable
funds of similar, actual or anticipated size. As a result, all of the Directors
present at the March 6, 2007 Board meeting, including the non-interested
Directors, approved the Management Agreement. The non-interested Directors were
represented by independent counsel who assisted them in their deliberations.
Approval of Subadvisory Agreement
At a Board meeting held on March 6, 2007, all of the Directors present at the
meeting, including all of the non-interested Directors, approved the subadvisory
agreement between the Adviser and the Subadviser (the "Subadvisory Agreement")
for an initial two-year term. In considering whether to approve the Subadvisory
Agreement, the Fund's Board of Directors reviewed an organizational meeting book
and other materials from counsel to the Fund, the Adviser and the Subadviser
which: (i) included information describing the services of the Subadviser; (ii)
included information concerning the proposed portfolio managers; (iii) included
information concerning the
20 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
Investment Advisory and Management Agreements (continued)
Subadviser's experience with managing portfolios with similar investment
objectives and strategies as the Fund; and (iv) outlined the legal duties of the
Board under the Investment Company Act. As part of its review of the selection
of the Subadviser, the Board engaged in a detailed discussion with the Adviser
regarding its selection of the Subadviser. The Board considered the Subadviser's
experience in managing other portfolios and, in the Adviser's judgment, the
Subadviser had the experience and expertise necessary to implement the Fund's
investment program. In particular, the Board also considered the following:
(a) The nature, extent and quality of services to be provided by the Subadviser
-- The Directors reviewed the services that the Subadviser would provide to the
Fund. The Directors considered their detailed discussions with officers of the
Adviser and members of the Subadviser's portfolio management team, the
management of the Fund's investments in accordance with the Fund's stated
investment objective and policies and the types of transactions that would be
entered into on behalf of the Fund. The Directors noted that,
drawing on their collective industry experience, they had discussed the Fund's
investment strategy with representatives from the Subadviser, including
discussions regarding the premises underlying the Fund's investment strategy,
its efficacy and potential risks. The Directors also considered the favorable
history, reputation and background of the Subadviser and its personnel, and the
substantial experience of such Subadviser's portfolio management team. The
Directors discussed the compliance program of the Subadviser and the report of
the Fund's chief compliance officer. Following consideration of this
information, and based on management presentations during the Board meeting and
their discussion during an Executive Session, the Directors concluded that the
nature, extent and quality of services to be provided to the Fund by the
Subadviser under the Subadvisory Agreement were likely to be of a high quality
and would benefit the Fund.
(b) Investment performance of the Fund and the Subadviser -- Because the Fund is
newly formed, the Directors did not consider the investment performance of the
Fund. The Board considered the performance history of other funds managed by the
Subadviser with similar investment strategies as the Fund. The Board did not
consider the Subadviser's performance with respect to most other accounts it
manages, because these accounts might have investment objectives, policies or
restrictions different from those of the Fund. The Board further considered the
experience, compliance program and record, resources and strengths of the
Subadviser, its affiliates and the portfolio manager in energy and
infrastructure investments. As a result, the Directors determined that the
Subadviser would be an appropriate Subadviser for the Fund.
(c) Cost of the services to be provided and profits to be realized by the
Subadviser from the relationship with the Fund -- The Directors also considered
the anticipated cost of the services to be provided by the Subadviser. Because
the Fund is newly formed, the Board did not review and consider any information
relating to the Subadviser's anticipated profitability. Because the Board viewed
anticipated profitability as highly speculative given the early stage of the
relationship, the Board did not consider the anticipated profitability to the
Subadviser separately from its consideration of the appropriateness of the
overall fee being charged to the Fund for the totality of services being
provided.
(d) Economies of scale and whether fee levels reflect these economies of scale
-- Because the Fund is newly formed and had not commenced operations as of March
6, 2007, and the eventual aggregate amount of Fund assets was uncertain, the
Adviser was not able to provide the Directors with specific information
concerning the extent to which economies of scale might be realized as the Fund
grows and whether fee levels would reflect such economies of sale, if any. The
Directors also noted that the Subadviser's fees are paid by the Adviser out of
its fees and not by the Fund directly. The Directors also discussed the renewal
requirements for the Subadvisory Agreement, and determined that they would
revisit this issue no later than when they next review the subadvisory fee after
the initial two-year term of the Subadvisory Agreement.
(e) Comparison of services to be rendered and fees to be paid to those under
other subadvisory contracts, such as contracts of the same and other investment
advisers or other clients -- The Board discussed the services that would be
rendered by the Subadviser, and, based on its experience overseeing other
subadvised funds, determined that such services were consistent with those
provided by subadvisers generally and sufficient for the management of the Fund.
Taking into account the totality of the information and materials provided to
the Board as noted above, including the fact that the subadvisory fee was
negotiated with the Adviser on an arm's-length basis, the Board concluded that
the subadvisory fee was reasonable for the services being rendered.
The Fund's Board of Directors then considered the potential direct and indirect
benefits to the Subadviser and its affiliates
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 21
Investment Advisory and Management Agreements (continued)
from its relationship with the Fund, including the reputational benefits from
managing the Fund. The Board of Directors concluded that the potential benefits
to the Subadviser were consistent with those obtained by other subadvisers in
similar types of arrangements.
Conclusion
No single factor was determinative to the decision of the Board. Based on the
foregoing and such other matters as were deemed relevant, all of the Directors,
including all of the non-interested Directors, concluded that the proposed
subadvisory fee rate and projected total expense ratio are reasonable in
relation to the services to be provided by the Subadviser. As a result, all of
the Directors present at the March 6, 2007 Board meeting, including all of the
non-interested Directors, approved the Subadvisory Agreement. The non-interested
Directors were represented by independent counsel who assisted them in their
deliberations.
Approval of New Subadvisory Agreement
At a Board meeting held on June 14, 2007, all of the Directors, including all of
the non-interested Directors approved a new subadvisory agreement between the
Adviser and the Subadviser (the "New Subadvisory Agreement"). The New
Subadvisory Agreement was necessary because the Subadviser had entered into an
agreement with the Piper Jaffray Companies ("Piper Jaffray"), pursuant to which
the Subadviser would be acquired by Piper Jaffray (the "Transaction"). The
Transaction, when consummated, would cause a change of control of the
Subadviser, which would, in turn, result in an assignment and automatic
termination of the existing Subadvisory Agreement for Fund. The Directors
discussed the approval of the New Subadvisory Agreement, which would take effect
only upon consummation of the Transaction. The Directors noted that the New
Subadvisory Agreement contained substantially the same terms (including the same
subadvisory fee) as the existing Subadvisory Agreement.
At this meeting, the Directors discussed, among other things, the factors below
in approving the New Subadvisory Agreement, as well as the information
considered and the conclusions drawn in connection with the recent approval of
the existing Subadvisory Agreement:
(a) Nature, Extent and Quality of Services -- In connection with their
consideration of the New Subadvisory Agreement, the Directors considered
representations by representatives of the Adviser and the Subadviser that there
would be no diminution in the services to be rendered by the Adviser and the
Subadviser, respectively, to the Fund as a result of the change in control of
the Subadviser and the effectiveness of the New Subadvisory Agreement. The
Directors noted that representatives of the Subadviser previously advised the
Directors that they did not anticipate any change in the personnel of the
Subadviser responsible for providing services to the Fund, and in particular
that the investment and compliance personnel of the Subadviser were not expected
to change as a result of the change in control.
(b) Investment performance of the Fund and the Subadviser -- Because the Fund is
newly formed, the Directors did not consider the investment performance of the
Fund. The Board noted that it previously reviewed the performance history of
other funds managed by the Subadviser with similar investment strategies as the
Fund. The Board considered other information that it deemed relevant and the
information and the conclusions drawn in the Board's recent approval of the
existing Subadvisory Agreement at the March 6, 2007 Board meeting. As a result,
the Directors determined that the Subadviser continued to be the appropriate
Subadviser for the Fund.
(c) Cost of the services to be provided and profits to be realized by the
Subadviser from the relationship with the Fund -- The Board of Directors
considered representations by representatives of the Adviser and the Subadviser
that there would be no change in the allocation of the management fee between
the Adviser and the Subadviser in relation to the services provided by the
Subadviser as a result of the Transaction. In considering the compensation to be
paid to the Subadviser pursuant to the New Subadvisory Agreement, noting that no
change to such compensation from that payable pursuant to the existing
Subadvisory Agreement was proposed, the Directors referred to the materials
presented and to the discussions held at the March 6, 2007 Board meeting in
connection with the Board's consideration of the existing Subadvisory Agreement
for the Fund. The Directors noted that in connection with such considerations,
they had received and reviewed fee comparison data from Lipper and concluded
that such information continued to be relevant to their current deliberations.
In reviewing that data, the Directors noted that the subadvisory fee with
respect to the Fund was set at a reasonable level. Taking into account the
totality of the information and materials provided to it at the March 6, 2007
Board meeting and at the June 14, 2007 Board meeting, including, among other
things, the fact that the subadvisory fee was negotiated by the Adviser on an
arm's-length basis, the Directors concluded that the subadvisory fee proposed
under the New Subadvisory Agreement was reasonable for the services to be
rendered.
22 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
Investment Advisory and Management Agreements (concluded)
(d) Economies of scale and whether fee levels reflect these economies of scale
-- Because the Fund is newly formed and had not commenced operations as of June
14, 2007, and the eventual aggregate amount of Fund assets was uncertain, the
Adviser was not able to provide the Directors with specific information
concerning the extent to which economies of scale might be realized as the Fund
grows and whether fee levels would reflect such economies of sale, if any. The
Directors also noted that the Subadviser's fees are paid by the Adviser out of
its fees and not by the Fund directly. The Directors also discussed the renewal
requirements for subadvisory agreements in general, and determined that they
would revisit this issue no later than when they next review the subadvisory fee
after the initial two-year term of the New Subadvisory Agreement.
(e) Comparison of services to be rendered and fees to be paid to those under
other subadvisory contracts, such as contracts of the same and other investment
advisers or other clients -- The Board discussed that the terms and conditions
of the New Subadvisory Agreement, including the fact that the services to be
provided under the New Subadvisory Agreement and the subadvisory fee were
identical to those under the existing Subadvisory Agreement. Taking into account
the totality of the information and materials provided to the Board both at the
March 6, 2007 and June 14, 2007 Board meetings, including the fact that the
subadvisory fee was negotiated with the Adviser on an arm's-length basis, the
Board concluded that the subadvisory fee was reasonable for the services to be
rendered to the Fund.
Conclusion
No single factor was determinative to the decision of the Board. Based on the
foregoing and such other matters as were deemed relevant and the information and
conclusions drawn in the Board's recent approval of the existing Subadvisory
Agreement at the March 6, 2007 Board meeting, all of the Directors present at
the June 14, 2007 Board meeting, including all of the non-interested Directors,
concluded that the proposed subadvisory fee rate and projected total expense
ratio were reasonable in relation to the services to be provided by the
Subadviser. As a result, all of the Directors present at the June 14, 2007 Board
meeting, including all of the non-interested Directors, approved the New
Subadvisory Agreement. The non-interested Directors were represented by
independent counsel who assisted them in their deliberations.
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 23
Automatic Dividend Reinvestment Plan
How the Plan Works -- The Fund offers a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by the Fund are
automatically reinvested in additional shares of Common Stock of the Fund. The
Plan is administered on behalf of the shareholders by The Bank of New York
Mellon (the "Plan Agent"). Under the Plan, whenever the Fund declares a
dividend, participants in the Plan will receive the equivalent in shares of
Common Stock of the Fund. The Plan Agent will acquire the shares for the
participant's account either (i) through receipt of additional unissued but
authorized shares of the Fund ("newly issued shares") or (ii) by purchase of
outstanding shares of Common Stock on the open market on the New York Stock
Exchange or elsewhere. If, on the dividend payment date, the Fund's net asset
value per share is equal to or less than the market price per share plus
estimated brokerage commissions (a condition often referred to as a "market
premium"), the Plan Agent will invest the dividend amount in newly issued
shares. If the Fund's net asset value per share is greater than the market price
per share (a condition often referred to as a "market discount"), the Plan Agent
will invest the dividend amount by purchasing on the open market additional
shares. If the Plan Agent is unable to invest the full dividend amount in open
market purchases, or if the market discount shifts to a market premium during
the purchase period, the Plan Agent will invest any uninvested portion in newly
issued shares. The shares acquired are credited to each shareholder's account.
The amount credited is determined by dividing the dollar amount of the dividend
by either (i) when the shares are newly issued, the net asset value per share on
the date the shares are issued or (ii) when shares are purchased in the open
market, the average purchase price per share.
Participation in the Plan -- Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Fund unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan, must advise the Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by writing to the Plan Agent.
Benefits of the Plan -- The Plan provides an easy, convenient way for
shareholders to make additional, regular investments in the Fund. The Plan
promotes a long-term strategy of investing at a lower cost. All shares acquired
pursuant to the Plan receive voting rights. In addition, if the market price
plus commissions of the Fund's shares is above the net asset value, participants
in the Plan will receive shares of the Fund for less than they could otherwise
purchase them and with a cash value greater than the value of any cash
distribution they would have received. However, there may not be enough shares
available in the market to make distributions in shares at prices below the net
asset value. Also, since the Fund does not redeem shares, the price on resale
may be more or less than the net asset value.
Plan Fees -- There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agent's service fees for handling the reinvestment of
distributions are paid for by the Fund. However, brokerage commissions may be
incurred when the Fund purchases shares on the open market and shareholders will
pay a pro rata share of any such commissions.
Tax Implications -- The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income tax that may
be payable (or required to be withheld) on such dividends. Therefore, income and
capital gains may still be realized even though shareholders do not receive
cash. Participation in the Plan generally will not affect the tax-exempt status
of exempt interest dividends paid by the Fund. If, when the Fund's shares are
trading at a market premium, the Fund issues shares pursuant to the Plan that
have a greater fair market value than the amount of cash reinvested, it is
possible that all or a portion of the discount from the market value (which may
not exceed 5% of the fair market value of the Fund's shares) could be viewed as
a taxable distribution. If the discount is viewed as a taxable distribution, it
is also possible that the taxable character of this discount would be allocable
to all the shareholders, including shareholders who do not participate in the
Plan. Thus, shareholders who do not participate in the Plan might be required to
report as ordinary income a portion of their distributions equal to their
allocable share of the discount.
Contact Information -- All correspondence concerning the Plan, including any
questions about the Plan, should be directed to the Plan Agent at The Bank of
New York Mellon, Church Street Station, P.O. Box 11258, New York, NY 10286-1258,
Telephone: 800-432-8224.
24 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
Directors and Officers
Number of
IQ Advisors-
Affiliate
Advised Funds Other Public
Position(s) Length of and Portfolios Directorships
Held with Time Overseen By Held by
Name Address & Age Fund Served** Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Non-Interested Directors*
------------------------------------------------------------------------------------------------------------------------------------
Paul P.O. Box 9095 Director & 2007 to Professor, Columbia University Business 11 None
Glasserman Princeton, NJ Chairman of present School since 1991; Senior Vice Dean since
08543-9095 the Audit July 2004.
Age: 45 Committee
------------------------------------------------------------------------------------------------------------------------------------
Steven W. P.O. Box 9095 Director & 2007 to Retired since August 2002; Managing Director, 11 Ametek, Inc. and
Kohlhagen Princeton, NJ Chairman of present Wachovia National Bank and its predecessors Reval Holdings,
08543-9095 Nominating (1992 - 2002). Inc.*** (software)
Age: 60 & Corporate
Governance
Committee
------------------------------------------------------------------------------------------------------------------------------------
William J. P.O. Box 9095 Director & 2007 to Retired since November 2004; Chairman and 11 None
Rainer Princeton, NJ Chairman of present Chief Executive Officer, OneChicago, LLC, a
08543-9095 the Board designated contract market (2001 - 2004);
Age: 61 Chairman, U.S. Commodity Futures Trading
Commission (1999 - 2001).
------------------------------------------------------------------------------------------------------------------------------------
Laura S. P.O. Box 9095 Director 2007 to Independent Consultant; Commissioner of the 11 CA, Inc.
Unger Princeton, NJ present Securities and Exchange Commission (1997 - (software) and
08543-9095 including Acting Chairperson of the SEC Ambac Financial
Age: 46 from February to August 2001; Regulatory Group, Inc.
Expert for CNBC (2002 - 2003).
------------------------------------------------------------------------------------------------------------------------
* Each of the Non-Interested Directors is a member of the Audit Committee and the Nominating and Corporate
Governance Committee.
** Each Director will serve for a term of one year and until his successor is elected and qualifies, or his earlier
death, resignation or removal as provided in the Fund's Bylaws, charter or by statute.
*** As of December 6, 2007.
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 25
Directors and Officers (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund Served** Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
------------------------------------------------------------------------------------------------------------------------------------
Mitchell M. Cox P.O. Box 9011 President 2007 to IQ Investment Advisors LLC, President since April 2004;
Princeton, NJ 08543-9011 present MLPF&S, Managing Director, Head of Financial Products Group
Age: 42 since 2007; Head of Global Wealth Management Market
Investments & Origination (2003 - 2007); MLPF&S, Managing
Director, Head of Structured Products Origination and Sales
(2001 - 2003); MLPF&S, FAM Distributors ("FAMD"), Director
since 2006; IQ Financial Products LLC, Director since 2006.
------------------------------------------------------------------------------------------------------------------------------------
Justin C. Ferri P.O. Box 9011 Vice 2007 to IQ Investment Advisors LLC, Vice President since 2005; MLPF&S,
Princeton, NJ 08543-9011 President present Director, Structured and Alternative Solutions since 2007;
Age: 32 Director, Global Wealth Management Market Investments &
Origination (2005 - 2007); MLPF&S, Vice President, Global
Private Client Market Investments & Origination (2005);
MLPF&S, Vice President, Head of Global Private Client Rampart
Equity Derivatives (2004 - 2005); MLPF&S, Vice President,
Co-Head Global Private Client Domestic Analytic Development
(2002 - 2004); mPower Advisors LLC, Vice President,
Quantitative Development (1999 - 2002).
------------------------------------------------------------------------------------------------------------------------------------
Donald C. Burke P.O. Box 9011 Vice 2007 to IQ Investment Advisors LLC, Secretary and Treasurer (2004 -
Princeton, NJ 08543-9011 President present March 2007); BlackRock, Inc., Managing Director since 2006;
Age: 47 and Merrill Lynch Investment Managers, L.P. ("MLIM") and Fund
Secretary Asset Management ("FAM") Managing Director (2006); MLIM and
FAM, First Vice President (1997 - 2005) and Treasurer (1999 -
2006); Princeton Services, Inc., Senior Vice President and
Treasurer (1999 - 2006).
------------------------------------------------------------------------------------------------------------------------------------
James E. Hillman P.O. Box 9011 Vice 2007 to IQ Investment Advisors LLC, Treasurer since March 2007;
Princeton, NJ 08543-9011 President present MLPF&S, Director, Structured and Alternative Solutions since
Age: 50 and 2007; Director, Global Wealth Management Market Investments &
Treasurer Origination (September 2006 - 2007); Managed Account Advisors
LLC, Vice President and Treasurer since November 2006;
Director, Citigroup Alternative Investments Tax Advantaged
Short Term Fund in 2006; Director, Korea Equity Inc. Fund in
2006; Independent Consultant, January to September 2006;
Managing Director, The Bank of New York, Inc. (1999 - 2006).
------------------------------------------------------------------------------------------------------------------------------------
Catherine Johnston P.O. Box 9011 Chief 2007 to IQ Investment Advisors LLC, Chief Compliance Officer since
Princeton, NJ 08543-9011 Compliance present April 2007; Merrill Lynch & Co., Inc., Director, Corporate
Age: 53 Officer Compliance since September 2007; BlackRock, Inc., Director
(2006 - 2007); MLIM, Director (2003 - 2006), Vice President
(1998 - 2003).
------------------------------------------------------------------------------------------------------------------------------------
Martin G. Byrne P.O. Box 9011 Chief 2007 to IQ Investment Advisors LLC, Chief Legal Officer since June
Princeton, NJ 08543-9011 Legal present 2006; Merrill Lynch & Co., Inc., Office of General Counsel,
Age: 45 Officer Managing Director since 2006, First Vice President (2002 -
2006), Director (2000 - 2002); Managed Account Advisors LLC,
Chief Legal Officer since November 2006; FAMD, Director since
2006.
------------------------------------------------------------------------------------------------------------------------------------
Jay M. Fife P.O. Box 9011 Vice 2007 to IQ Investment Advisors LLC, Vice President (2005 - March
Princeton, NJ 08543-9011 President present 2007); BlackRock, Inc., Managing Director since 2007;
Age: 37 BlackRock, Inc., Director in 2006; MLIM, Director (2000 -
2006); MLPF&S, Director (2000) and Vice President (1997 -
2000).
------------------------------------------------------------------------------------------------------------------------------------
Colleen R. Rusch P.O. Box 9011 Vice 2007 to IQ Investment Advisors LLC, Chief Administrative Officer and
Princeton, NJ 08543-9011 President present Secretary since 2007, Vice President since 2005; MLPF&S,
Age: 40 and Director, Structured and Alternative Solutions since 2007;
Assistant MLPF&S, Director, Global Wealth Management Market Investments
Secretary & Origination (2005 - 2007); MLIM, Director from January 2005
to July 2005; Vice President of MLIM (1998 - 2004).
----------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
------------------------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
The Bank of New York Mellon
101 Barclay Street -- 11 East
New York, NY 10286
NYSE Symbol
MTP
26 MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("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 Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification number
(PIN). You will need this PIN should you wish to update your e-mail address,
choose to discontinue this service and/or make any other changes to the service.
This service is not available for certain retirement accounts at this time.
Contact Information
For more information regarding the Fund, please visit www.IQIAFunds.com or
contact us at 1-877-449-4742.
MLP & STRATEGIC EQUITY FUND INC. OCTOBER 31, 2007 27
[LOGO]
IQ INVESTMENT
ADVISORS www.IQIAFunds.com
MLP & Strategic Equity Fund Inc. seeks to provide a high level of after-tax
total return.
This report, including the financial information herein, is transmitted to
shareholders of MLP & Strategic Equity Fund Inc. for their information. It is
not a prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Statements and other
information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge at
www.IQIAFunds.com/proxyvoting.asp or upon request by calling toll-free
1-877-449-4742 or through the Securities and Exchange Commission's Web site at
http://www.sec.gov. Information about how the Fund voted proxies relating to
securities held in the Fund's portfolio during the most recent 12-month period
ended June 30 is available (1) at www.IQIAFunds.com/proxyvoting.asp; and (2) on
the Securities and Exchange Commission's Web site at http://www.sec.gov.
MLP & Strategic Equity Fund Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
#IQMTP -- 10/07
Item 2 - Code of Ethics - The registrant (or the "Fund") has adopted a code
of ethics, as of the end of the period covered by this report, that
applies to the registrant's principal executive officer, principal
financial officer and principal accounting officer, or persons
performing similar functions. During the period covered by this
report, there have been no amendments to or waivers granted under
the code of ethics. A copy of the code of ethics is available
without charge upon request by calling toll-free 1-877-449-4742.
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors has determined that (i) the registrant has the following
audit committee financial expert serving on its audit committee and
(ii) the audit committee financial expert is independent: (1) Steven
W. Kohlhagen.
Under applicable securities laws, a person determined to be an audit
committee financial expert will not be deemed an "expert" for any
purpose, including without limitation for the purposes of Section 11
of the Securities Act of 1933, as a result of being designated or
identified as an audit committee financial expert. The designation
or identification as an audit committee financial expert does not
impose on such person any duties, obligations, or liabilities
greater than the duties, obligations, and liabilities imposed on
such person as a member of the audit committee and board of
directors in the absence of such designation or identification.
Item 4 - Principal Accountant Fees and Services
----------------------------------------------------------------------------------------------------------------------------------
(a) Audit Fees (b) Audit-Related Fees(1) (c) Tax Fees(2) (d) All Other Fees
----------------------------------------------------------------------------------------------------------------------------------
Current Previous Current Previous Current Previous Current Previous
Fiscal Year Fiscal Fiscal Year Fiscal Fiscal Year Fiscal Fiscal Year Fiscal
Entity Name End Year End End Year End End Year End End Year End
----------------------------------------------------------------------------------------------------------------------------------
MLP & Strategic
Equity Fund Inc. $54,600 N/A $0 N/A $6,100 N/A $0 N/A
----------------------------------------------------------------------------------------------------------------------------------
1 The nature of the services include assurance and related services reasonably
related to the performance of the audit of financial statements not included in
Audit Fees.
2 The nature of the services include tax compliance, tax advice and tax
planning.
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to
the registrant's affiliated service providers that relate directly
to the operations and the financial reporting of the registrant.
Certain of these non-audit services that the Committee believes are
a) consistent with the SEC's auditor independence rules and b)
routine and recurring services that will not impair the independence
of the independent accountants may be approved by the Committee
without consideration on a specific case-by-case basis ("general
pre-approval"). However, such services will only be deemed
pre-approved provided that any individual project does not exceed
$5,000 attributable to the registrant or $50,000 for all of the
registrants the Committee oversees. Any proposed services exceeding
the pre-approved cost levels will require specific pre-approval by
the Committee, as will any other services not subject to general
pre-approval (e.g., unanticipated but permissible services). The
Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) None of the services described in each of Items 4(b) through
(d) were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not Applicable
(g) Affiliates' Aggregate Non-Audit Fees:
--------------------------------------------------------------------
Current Fiscal Previous Fiscal
Entity Name Year End Year End
--------------------------------------------------------------------
MLP & Strategic Equity Fund Inc. $6,100 N/A
--------------------------------------------------------------------
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser(not including any non-affiliated
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by the registrant's investment
adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services
to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $2,094,000, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals
are members of the registrant's 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)):
Steven W. Kohlhagen
Paul Glasserman
William J. Rainer
Laura S. Unger (effective September 12, 2007)
Item 6 - Schedule of Investments - The registrant's Schedule of Investments
is included as part of the Report to Stockholders filed under Item 1
of this form.
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - The Registrant has delegated the
voting of proxies relating to its voting securities to its
investment sub-adviser, Fiduciary Asset Management, LLC (the
"Sub-Adviser"). The Proxy Voting Policies and Procedures of the
Sub-Adviser (the "Proxy Voting Policies") are attached as an Exhibit
99.PROXYPOL hereto.
Proxy Voting Policies and Procedures
For BlackRock Advisors, LLC
And Its Affiliated SEC Registered Investment Advisers
September 30, 2006
Table of Contents
Page
----
Introduction.................................................................
Scope of Committee Responsibilities..........................................
Special Circumstances........................................................
Voting Guidelines............................................................
Boards of Directors....................................................
Auditors...............................................................
Compensation and Benefits..............................................
Capital Structure......................................................
Corporate Charter and By-Laws..........................................
Corporate Meetings.....................................................
Investment Companies...................................................
Environmental and Social Issues........................................
Notice to Clients............................................................
Proxy Voting Policies and Procedures
These Proxy Voting Policies and Procedures ("Policy") for BlackRock
Advisors, LLC and its affiliated U.S. registered investment advisers(1)
("BlackRock") reflect our duty as a fiduciary under the Investment Advisers Act
of 1940 (the "Advisers Act") to vote proxies in the best interests of our
clients. BlackRock serves as the investment manager for investment companies,
other commingled investment vehicles and/or separate accounts of institutional
and other clients. The right to vote proxies for securities held in such
accounts belongs to BlackRock's clients. Certain clients of BlackRock have
retained the right to vote such proxies in general or in specific
circumstances.(2) Other clients, however, have delegated to BlackRock the right
to vote proxies for securities held in their accounts as part of BlackRock's
authority to manage, acquire and dispose of account assets.
When BlackRock votes proxies for a client that has delegated to BlackRock
proxy voting authority, BlackRock acts as the client's agent. Under the Advisers
Act, an investment adviser is a fiduciary that owes each of its clients a duty
of care and loyalty with respect to all services the adviser undertakes on the
client's behalf, including proxy voting. BlackRock is therefore subject to a
fiduciary duty to vote proxies in a manner BlackRock believes is consistent with
the client's best interests,(3) whether or not the client's proxy voting is
subject to the fiduciary standards of the Employee Retirement Income Security
Act of 1974 ("ERISA").(4) When voting proxies for client accounts (including
investment companies), BlackRock's primary objective is to make voting decisions
solely in the best interests of clients and ERISA clients' plan beneficiaries
and participants. In fulfilling its obligations to clients, BlackRock will seek
to act in a manner that it believes is most likely to enhance the economic value
of the underlying securities held in client accounts.(5) It is imperative that
BlackRock considers the interests of its clients, and not the interests of
BlackRock, when voting proxies and that real (or perceived) material conflicts
that may arise between BlackRock's interest and those of BlackRock's clients are
properly addressed and resolved.
----------
(1) The Policy does not apply to BlackRock Asset Management U.K. Limited and
BlackRock Investment Managers International Limited, which are U.S. registered
investment advisers based in the United Kingdom.
(2) In certain situations, a client may direct BlackRock to vote in accordance
with the client's proxy voting policies. In these situations, BlackRock will
seek to comply with such policies to the extent it would not be inconsistent
with other BlackRock legal responsibilities.
(3) Letter from Harvey L. Pitt, Chairman, SEC, to John P.M. Higgins, President,
Ram Trust Services (February 12, 2002) (Section 206 of the Investment Advisers
Act imposes a fiduciary responsibility to vote proxies fairly and in the best
interests of clients); SEC Release No. IA-2106 (February 3, 2003).
(4) DOL Interpretative Bulletin of Sections 402, 403 and 404 of ERISA at 29
C.F.R. 2509.94-2.
(5) Other considerations, such as social, labor, environmental or other
policies, may be of interest to particular clients. While BlackRock is cognizant
of the importance of such considerations, when voting proxies it will generally
take such matters into account only to the extent that they have a direct
bearing on the economic value of the underlying securities. To the extent that a
BlackRock client desires to pursue a particular social, labor, environmental or
other agenda through the proxy votes made for its securities held through
BlackRock as investment adviser, BlackRock encourages the client to consider
retaining direct proxy voting authority or to appoint independently a special
proxy voting fiduciary other than BlackRock.
1
Advisers Act Rule 206(4)-6 was adopted by the SEC in 2003 and requires,
among other things, that an investment adviser that exercises voting authority
over clients' proxy voting adopt policies and procedures reasonably designed to
ensure that the adviser votes proxies in the best interests of clients,
discloses to its clients information about those policies and procedures and
also discloses to clients how they may obtain information on how the adviser has
voted their proxies.
In light of such fiduciary duties, the requirements of Rule 206(4)-6, and
given the complexity of the issues that may be raised in connection with proxy
votes, BlackRock has adopted these policies and procedures. BlackRock's Equity
Investment Policy Oversight Committee, or a sub-committee thereof (the
"Committee"), addresses proxy voting issues on behalf of BlackRock and its
clients.(6) The Committee is comprised of senior members of BlackRock's
Portfolio Management Group and advised by BlackRock's Legal and Compliance
Department.
----------
(6) Subject to the Proxy Voting Policies of Merrill Lynch Bank & Trust Company
FSB, the Committee may also function jointly as the Proxy Voting Committee for
Merrill Lynch Bank & Trust Company FSB trust accounts managed by personnel
dually-employed by BlackRock.
2
I. Scope of Committee Responsibilities
The Committee shall have the responsibility for determining how to address
proxy votes made on behalf of all BlackRock clients, except for clients who have
retained the right to vote their own proxies, either generally or on any
specific matter. In so doing, the Committee shall seek to ensure that proxy
votes are made in the best interests of clients, and that proxy votes are
determined in a manner free from unwarranted or inappropriate influences. The
Committee shall also oversee the overall administration of proxy voting for
BlackRock accounts.(7)
The Committee shall establish BlackRock's proxy voting guidelines, with
such advice, participation and research as the Committee deems appropriate from
portfolio managers, proxy voting services or other knowledgeable interested
parties. As it is anticipated that there will not necessarily be a "right" way
to vote proxies on any given issue applicable to all facts and circumstances,
the Committee shall also be responsible for determining how the proxy voting
guidelines will be applied to specific proxy votes, in light of each issuer's
unique structure, management, strategic options and, in certain circumstances,
probable economic and other anticipated consequences of alternative actions. In
so doing, the Committee may determine to vote a particular proxy in a manner
contrary to its generally stated guidelines.
The Committee may determine that the subject matter of certain proxy
issues are not suitable for general voting guidelines and requires a
case-by-case determination, in which case the Committee may elect not to adopt a
specific voting guideline applicable to such issues. BlackRock believes that
certain proxy voting issues - such as approval of mergers and other significant
corporate transactions - require investment analysis akin to investment
decisions, and are therefore not suitable for general guidelines. The Committee
may elect to adopt a common BlackRock position on certain proxy votes that are
akin to investment decisions, or determine to permit portfolio managers to make
individual decisions on how best to maximize economic value for the accounts for
which they are responsible (similar to normal buy/sell investment decisions made
by such portfolio managers).(8)
While it is expected that BlackRock, as a fiduciary, will generally seek
to vote proxies over which BlackRock exercises voting authority in a uniform
manner for all BlackRock clients, the Committee, in conjunction with the
portfolio manager of an account, may determine that the specific circumstances
of such account require that such account's proxies be voted differently due to
such account's investment objective or other factors that differentiate it from
other accounts. In addition, on proxy votes that are akin to investment
decisions, BlackRock believes portfolio managers may from time to time
----------
(7) The Committee may delegate day-to-day administrative responsibilities to
other BlackRock personnel and/or outside service providers, as appropriate.
(8) The Committee will normally defer to portfolio managers on proxy votes that
are akin to investment decisions except for proxy votes that involve a material
conflict of interest, in which case it will determine, in its discretion, the
appropriate voting process so as to address such conflict.
3
legitimately reach differing but equally valid views, as fiduciaries for
BlackRock's clients, on how best to maximize economic value in respect of a
particular investment.
The Committee will also be responsible for ensuring the maintenance of
records of each proxy vote, as required by Advisers Act Rule 204-2.(9) All
records will be maintained in accordance with applicable law. Except as may be
required by applicable legal requirements, or as otherwise set forth herein, the
Committee's determinations and records shall be treated as proprietary,
nonpublic and confidential.
The Committee shall be assisted by other BlackRock personnel, as may be
appropriate. In particular, the Committee has delegated to the BlackRock
Operations Department responsibility for monitoring corporate actions and
ensuring that proxy votes are submitted in a timely fashion. The Operations
Department shall ensure that proxy voting issues are promptly brought to the
Committee's attention and that the Committee's proxy voting decisions are
appropriately disseminated and implemented.
To assist BlackRock in voting proxies, the Committee may retain the
services of a firm providing such services. BlackRock has currently retained
Institutional Shareholder Services ("ISS") in that role. ISS is an independent
adviser that specializes in providing a variety of fiduciary-level proxy-related
services to institutional investment managers, plan sponsors, custodians,
consultants, and other institutional investors. The services provided to
BlackRock may include, but are not limited to, in-depth research, voting
recommendations (which the Committee is not obligated to follow), vote
execution, and recordkeeping.
----------
(9) The Committee may delegate the actual maintenance of such records to an
outside service provider. Currently, the Committee has delegated the maintenance
of such records to Institutional Shareholder Services.
4
II. Special Circumstances
Routine Consents. BlackRock may be asked from time to time to consent to
an amendment to, or grant a waiver under, a loan agreement, partnership
agreement, indenture or other governing document of a specific financial
instrument held by BlackRock clients. BlackRock will generally treat such
requests for consents not as "proxies" subject to these Proxy Voting Policies
and Procedures but as investment matters to be dealt with by the responsible
BlackRock investment professionals would, provided that such consents (i) do not
relate to the election of a board of directors or appointment of auditors of a
public company, and (ii) either (A) would not otherwise materially affect the
structure, management or control of a public company, or (B) relate to a company
in which BlackRock clients hold only interests in bank loans or debt securities
and are consistent with customary standards and practices for such instruments.
Securities on Loan. Registered investment companies that are advised by
BlackRock as well as certain of our advisory clients may participate in
securities lending programs. Under most securities lending arrangements,
securities on loan may not be voted by the lender (unless the loan is recalled).
BlackRock believes that each client has the right to determine whether
participating in a securities lending program enhances returns, to contract with
the securities lending agent of its choice and to structure a securities lending
program, through its lending agent, that balances any tension between loaning
and voting securities in a matter that satisfies such client. If client has
decided to participate in a securities lending program, BlackRock will therefore
defer to the client's determination and not attempt to seek recalls solely for
the purpose of voting routine proxies as this could impact the returns received
from securities lending and make the client a less desirable lender in a
marketplace. Where a client retains a lending agent that is unaffiliated with
BlackRock, BlackRock will generally not seek to vote proxies relating to
securities on loan because BlackRock does not have a contractual right to recall
such loaned securities for the purpose of voting proxies. Where BlackRock or an
affiliate acts as the lending agent, BlackRock will also generally not seek to
recall loaned securities for proxy voting purposes, unless the portfolio manager
responsible for the account or the Committee determines that voting the proxy is
in the client's best interest and requests that the security be recalled.
Voting Proxies for Non-US Companies. While the proxy voting process is
well established in the United States, voting proxies of non-US companies
frequently involves logistical issues which can affect BlackRock's ability to
vote such proxies, as well as the desirability of voting such proxies. These
issues include (but are not limited to): (i) untimely notice of shareholder
meetings, (ii) restrictions on a foreigner's ability to exercise votes, (iii)
requirements to vote proxies in person, (iv) "shareblocking" (requirements that
investors who exercise their voting rights surrender the right to dispose of
their holdings for some specified period in proximity to the shareholder
meeting), (v) potential difficulties in translating the proxy, and (vi)
requirements to provide local agents with unrestricted powers of attorney to
facilitate voting instructions.
5
As a consequence, BlackRock votes proxies of non-US companies only on a
"best-efforts" basis. In addition, the Committee may determine that it is
generally in the best interests of BlackRock clients not to vote proxies of
companies in certain countries if the Committee determines that the costs
(including but not limited to opportunity costs associated with shareblocking
constraints) associated with exercising a vote generally are expected to
outweigh the benefit the client will derive by voting on the issuer's proposal.
If the Committee so determines in the case of a particular country, the
Committee (upon advice from BlackRock portfolio managers) may override such
determination with respect to a particular issuer's shareholder meeting if the
Committee believes the benefits of seeking to exercise a vote at such meeting
outweighs the costs, in which case BlackRock will seek to vote on a best-efforts
basis.
Securities Sold After Record Date. With respect to votes in connection
with securities held on a particular record date but sold from a client account
prior to the holding of the related meeting, BlackRock may take no action on
proposals to be voted on in such meeting.
Conflicts of Interest. From time to time, BlackRock may be required to
vote proxies in respect of an issuer that is an affiliate of BlackRock (a
"BlackRock Affiliate"), or a money management or other client of BlackRock (a
"BlackRock Client").(10) In such event, provided that the Committee is aware of
the real or potential conflict, the following procedures apply:
o The Committee intends to adhere to the voting guidelines set forth
herein for all proxy issues including matters involving BlackRock
Affiliates and BlackRock Clients. The Committee may, in its
discretion for the purposes of ensuring that an independent
determination is reached, retain an independent fiduciary to advise
the Committee on how to vote or to cast votes on behalf of
BlackRock's clients; and
o if the Committee determines not to retain an independent fiduciary,
or does not desire to follow the advice of such independent
fiduciary, the Committee shall determine how to vote the proxy after
consulting with the BlackRock Legal and Compliance Department and
concluding that the vote cast is in the client's best interest
notwithstanding the conflict.
----------
(10) Such issuers may include investment companies for which BlackRock provides
investment advisory, administrative and/or other services.
6
III. Voting Guidelines
The Committee has determined that it is appropriate and in the best
interests of BlackRock's clients to adopt the following voting guidelines, which
represent the Committee's usual voting position on certain recurring proxy
issues that are not expected to involve unusual circumstances. With respect to
any particular proxy issue, however, the Committee may elect to vote differently
than a voting guideline if the Committee determines that doing so is, in the
Committee's judgment, in the best interest of its clients. The guidelines may be
reviewed at any time upon the request of any Committee member and may be amended
or deleted upon the vote of a majority of voting Committee members present at a
Committee meeting for which there is a quorum.
7
A. Boards of Directors
These proposals concern those issues submitted to shareholders relating to
the composition of the Board of Directors of companies other than investment
companies. As a general matter, the Committee believes that a company's Board of
Directors (rather than shareholders) is most likely to have access to important,
nonpublic information regarding a company's business and prospects, and is
therefore best-positioned to set corporate policy and oversee management. The
Committee therefore believes that the foundation of good corporate governance is
the election of qualified, independent corporate directors who are likely to
diligently represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over time.
In individual cases, the Committee may look at a Director nominee's history of
representing shareholder interests as a director of other companies, or other
factors to the extent the Committee deems relevant.
The Committee's general policy is to vote:
--------------------------------------------------------------------------------
# VOTE and DESCRIPTION
--------------------------------------------------------------------------------
A.1 FOR nominees for director of United States companies in uncontested
elections, except for nominees who
o have missed at least two meetings and, as a result, attended less
than 75% of meetings of the Board of Directors and its committees
the previous year, unless the nominee missed the meeting(s) due to
illness or company business
o voted to implement or renew a "dead-hand" poison pill
o ignored a shareholder proposal that was approved by either a
majority of the shares outstanding in any year or by the majority of
votes cast for two consecutive years
o failed to act on takeover offers where the majority of the
shareholders have tendered their shares
o are corporate insiders who serve on the audit, compensation or
nominating committees or on a full Board that does not have such
committees composed exclusively of independent directors
o on a case-by-case basis, have served as directors of other companies
with allegedly poor corporate governance
o sit on more than six boards of public companies
--------------------------------------------------------------------------------
A.2 FOR nominees for directors of non-U.S. companies in uncontested elections,
except for nominees from whom the Committee determines to withhold votes
due to the nominees' poor records of representing shareholder interests,
on a case-by-case basis
--------------------------------------------------------------------------------
A.3 FOR proposals to declassify Boards of Directors, except where there exists
a legitimate purpose for classifying boards
--------------------------------------------------------------------------------
A.4 AGAINST proposals to classify Boards of Directors, except where there
exists a legitimate purpose for classifying boards
--------------------------------------------------------------------------------
8
--------------------------------------------------------------------------------
A.5 AGAINST proposals supporting cumulative voting
--------------------------------------------------------------------------------
A.6 FOR proposals eliminating cumulative voting
--------------------------------------------------------------------------------
A.7 FOR proposals supporting confidential voting
--------------------------------------------------------------------------------
A.8 FOR proposals seeking election of supervisory board members
--------------------------------------------------------------------------------
A.9 AGAINST shareholder proposals seeking additional representation of women
and/or minorities generally (i.e., not specific individuals) to a Board of
Directors
--------------------------------------------------------------------------------
A.10 AGAINST shareholder proposals for term limits for directors
--------------------------------------------------------------------------------
A.11 FOR shareholder proposals to establish a mandatory retirement age for
directors who attain the age of 72 or older
--------------------------------------------------------------------------------
A.12 AGAINST shareholder proposals requiring directors to own a minimum amount
of company stock
--------------------------------------------------------------------------------
A.13 FOR proposals requiring a majority of independent directors on a Board of
Directors
--------------------------------------------------------------------------------
A.14 FOR proposals to allow a Board of Directors to delegate powers to a
committee or committees
--------------------------------------------------------------------------------
A.15 FOR proposals to require audit, compensation and/or nominating committees
of a Board of Directors to consist exclusively of independent directors
--------------------------------------------------------------------------------
A.16 AGAINST shareholder proposals seeking to prohibit a single person from
occupying the roles of chairman and chief executive officer
--------------------------------------------------------------------------------
A.17 FOR proposals to elect account inspectors
--------------------------------------------------------------------------------
A.18 FOR proposals to fix the membership of a Board of Directors at a specified
size
--------------------------------------------------------------------------------
A.19 FOR proposals permitting shareholder ability to nominate directors
directly
--------------------------------------------------------------------------------
A.20 AGAINST proposals to eliminate shareholder ability to nominate directors
directly
--------------------------------------------------------------------------------
A.21 FOR proposals permitting shareholder ability to remove directors directly
--------------------------------------------------------------------------------
A.22 AGAINST proposals to eliminate shareholder ability to remove directors
directly
--------------------------------------------------------------------------------
9
B. Auditors
These proposals concern those issues submitted to shareholders related to
the selection of auditors. As a general matter, the Committee believes that
corporate auditors have a responsibility to represent the interests of
shareholders and provide an independent view on the propriety of financial
reporting decisions of corporate management. While the Committee will generally
defer to a corporation's choice of auditor, in individual cases, the Committee
may look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
The Committee's general policy is to vote:
--------------------------------------------------------------------------------
B.1 FOR approval of independent auditors, except for
o auditors that have a financial interest in, or material association
with, the company they are auditing, and are therefore believed by
the Committee not to be independent
o auditors who have rendered an opinion to any company which in the
Committee's opinion is either not consistent with best accounting
practices or not indicative of the company's financial situation
o on a case-by-case basis, auditors who in the Committee's opinion
provide a significant amount of non-audit services to the company
--------------------------------------------------------------------------------
B.2 FOR proposals seeking authorization to fix the remuneration of auditors
--------------------------------------------------------------------------------
B.3 FOR approving internal statutory auditors
--------------------------------------------------------------------------------
B.4 FOR proposals for audit firm rotation, except for proposals that would
require rotation after a period of less than 5 years
--------------------------------------------------------------------------------
10
C. Compensation and Benefits
These proposals concern those issues submitted to shareholders related to
management compensation and employee benefits. As a general matter, the
Committee favors disclosure of a company's compensation and benefit policies and
opposes excessive compensation, but believes that compensation matters are
normally best determined by a corporation's board of directors, rather than
shareholders. Proposals to "micro-manage" a company's compensation practices or
to set arbitrary restrictions on compensation or benefits will therefore
generally not be supported.
The Committee's general policy is to vote:
--------------------------------------------------------------------------------
C.1 IN ACCORDANCE WITH THE RECOMMENDATION OF ISS on compensation plans if the
ISS recommendation is based solely on whether or not the company's plan
satisfies the allowable cap as calculated by ISS. If the recommendation of
ISS is based on factors other than whether the plan satisfies the
allowable cap the Committee will analyze the particular proposed plan.
This policy applies to amendments of plans as well as to initial
approvals.
--------------------------------------------------------------------------------
C.2 FOR proposals to eliminate retirement benefits for outside directors
--------------------------------------------------------------------------------
C.3 AGAINST proposals to establish retirement benefits for outside directors
--------------------------------------------------------------------------------
C.4 FOR proposals approving the remuneration of directors or of supervisory
board members
--------------------------------------------------------------------------------
C.5 AGAINST proposals to reprice stock options
--------------------------------------------------------------------------------
C.6 FOR proposals to approve employee stock purchase plans that apply to all
employees. This policy applies to proposals to amend ESPPs if the plan as
amended applies to all employees.
--------------------------------------------------------------------------------
C.7 FOR proposals to pay retirement bonuses to directors of Japanese companies
unless the directors have served less than three years
--------------------------------------------------------------------------------
C.8 AGAINST proposals seeking to pay outside directors only in stock
--------------------------------------------------------------------------------
C.9 FOR proposals seeking further disclosure of executive pay or requiring
companies to report on their supplemental executive retirement benefits
--------------------------------------------------------------------------------
C.10 AGAINST proposals to ban all future stock or stock option grants to
executives
--------------------------------------------------------------------------------
C.11 AGAINST option plans or grants that apply to directors or employees of
"related companies" without adequate disclosure of the corporate
relationship and justification of the option policy
--------------------------------------------------------------------------------
C.12 FOR proposals to exclude pension plan income in the calculation of
earnings used in determining executive bonuses/compensation
--------------------------------------------------------------------------------
11
D. Capital Structure
These proposals relate to various requests, principally from management,
for approval of amendments that would alter the capital structure of a company,
such as an increase in authorized shares. As a general matter, the Committee
will support requests that it believes enhance the rights of common shareholders
and oppose requests that appear to be unreasonably dilutive.
The Committee's general policy is to vote:
--------------------------------------------------------------------------------
D.1 AGAINST proposals seeking authorization to issue shares without preemptive
rights except for issuances up to 10% of a non-US company's total
outstanding capital
--------------------------------------------------------------------------------
D.2 FOR management proposals seeking preemptive rights or seeking
authorization to issue shares with preemptive rights
--------------------------------------------------------------------------------
D.3 FOR management proposals approving share repurchase programs
--------------------------------------------------------------------------------
D.4 FOR management proposals to split a company's stock
--------------------------------------------------------------------------------
D.5 FOR management proposals to denominate or authorize denomination of
securities or other obligations or assets in Euros
--------------------------------------------------------------------------------
D.6 FOR proposals requiring a company to expense stock options (unless the
company has already publicly committed to do so by a certain date).
--------------------------------------------------------------------------------
12
E. Corporate Charter and By-Laws
These proposals relate to various requests for approval of amendments to a
corporation's charter or by-laws, principally for the purpose of adopting or
redeeming "poison pills". As a general matter, the Committee opposes poison pill
provisions.
The Committee's general policy is to vote:
--------------------------------------------------------------------------------
E.1 AGAINST proposals seeking to adopt a poison pill
--------------------------------------------------------------------------------
E.2 FOR proposals seeking to redeem a poison pill
--------------------------------------------------------------------------------
E.3 FOR proposals seeking to have poison pills submitted to shareholders for
ratification
--------------------------------------------------------------------------------
E.4 FOR management proposals to change the company's name
--------------------------------------------------------------------------------
13
F. Corporate Meetings
These are routine proposals relating to various requests regarding the
formalities of corporate meetings.
The Committee's general policy is to vote:
--------------------------------------------------------------------------------
F.1 AGAINST proposals that seek authority to act on "any other business that
may arise"
--------------------------------------------------------------------------------
F.2 FOR proposals designating two shareholders to keep minutes of the meeting
--------------------------------------------------------------------------------
F.3 FOR proposals concerning accepting or approving financial statements and
statutory reports
--------------------------------------------------------------------------------
F.4 FOR proposals approving the discharge of management and the supervisory
board
--------------------------------------------------------------------------------
F.5 FOR proposals approving the allocation of income and the dividend
--------------------------------------------------------------------------------
F.6 FOR proposals seeking authorization to file required documents/other
formalities
--------------------------------------------------------------------------------
F.7 FOR proposals to authorize the corporate board to ratify and execute
approved resolutions
--------------------------------------------------------------------------------
F.8 FOR proposals appointing inspectors of elections
--------------------------------------------------------------------------------
F.9 FOR proposals electing a chair of the meeting
--------------------------------------------------------------------------------
F.10 FOR proposals to permit "virtual" shareholder meetings over the Internet
--------------------------------------------------------------------------------
F.11 AGAINST proposals to require rotating sites for shareholder meetings
--------------------------------------------------------------------------------
14
G. Investment Companies
These proposals relate to proxy issues that are associated solely with
holdings of shares of investment companies, including, but not limited to,
investment companies for which BlackRock provides investment advisory,
administrative and/or other services. As with other types of companies, the
Committee believes that a fund's Board of Directors (rather than its
shareholders) is best-positioned to set fund policy and oversee management.
However, the Committee opposes granting Boards of Directors authority over
certain matters, such as changes to a fund's investment objective, that the
Investment Company Act of 1940 envisions will be approved directly by
shareholders.
The Committee's general policy is to vote:
--------------------------------------------------------------------------------
G.1 FOR nominees for director of mutual funds in uncontested elections, except
for nominees who
o have missed at least two meetings and, as a result, attended less
than 75% of meetings of the Board of Directors and its committees
the previous year, unless the nominee missed the meeting due to
illness or fund business
o ignore a shareholder proposal that was approved by either a majority
of the shares outstanding in any year or by the majority of votes
cast for two consecutive years
o are interested directors who serve on the audit or nominating
committees or on a full Board that does not have such committees
composed exclusively of independent directors
o on a case-by-case basis, have served as directors of companies with
allegedly poor corporate governance
--------------------------------------------------------------------------------
G.2 FOR the establishment of new series or classes of shares
--------------------------------------------------------------------------------
G.3 AGAINST proposals to change a fund's investment objective to
nonfundamental
--------------------------------------------------------------------------------
G.4 FOR proposals to establish a master-feeder structure or authorizing the
Board to approve a master-feeder structure without a further shareholder
vote
--------------------------------------------------------------------------------
G.5 AGAINST a shareholder proposal for the establishment of a director
ownership requirement
--------------------------------------------------------------------------------
G.6 FOR classified boards of closed-end investment companies
--------------------------------------------------------------------------------
15
H. Environmental and Social Issues
These are shareholder proposals to limit corporate conduct in some manner
that relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are inappropriate
forums for the discussion of larger social issues, and opposes shareholder
resolutions "micromanaging" corporate conduct or requesting release of
information that would not help a shareholder evaluate an investment in the
corporation as an economic matter. While the Committee is generally supportive
of proposals to require corporate disclosure of matters that seem relevant and
material to the economic interests of shareholders, the Committee is generally
not supportive of proposals to require disclosure of corporate matters for other
purposes.
The Committee's general policy is to vote:
--------------------------------------------------------------------------------
H.1 AGAINST proposals seeking to have companies adopt international codes of
conduct
--------------------------------------------------------------------------------
H.2 AGAINST proposals seeking to have companies provide non-required reports
on:
o environmental liabilities;
o bank lending policies;
o corporate political contributions or activities;
o alcohol advertising and efforts to discourage drinking by minors;
o costs and risk of doing business in any individual country;
o involvement in nuclear defense systems
--------------------------------------------------------------------------------
H.3 AGAINST proposals requesting reports on Maquiladora operations or on CERES
principles
--------------------------------------------------------------------------------
H.4 AGAINST proposals seeking implementation of the CERES principles
--------------------------------------------------------------------------------
16
Notice to Clients
BlackRock will make records of any proxy vote it has made on behalf of a
client available to such client upon request.(11) BlackRock will use its best
efforts to treat proxy votes of clients as confidential, except as it may decide
to best serve its clients' interests or as may be necessary to effect such votes
or as may be required by law.
BlackRock encourage clients with an interest in particular proxy voting
issues to make their views known to BlackRock, provided that, in the absence of
specific written direction from a client on how to vote that client's proxies,
BlackRock reserves the right to vote any proxy in a manner it deems in the best
interests of its clients, as it determines in its sole discretion.
These policies are as of the date indicated on the cover hereof. The
Committee may subsequently amend these policies at any time, without notice.
----------
(11) Such request may be made to the client's portfolio or relationship manager
or addressed in writing to Secretary, BlackRock Equity Investment Policy
Oversight Committee, Legal and Compliance Department, BlackRock Inc., 40 East
52nd Street, New York, New York 10022.
17
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
as of October 31, 2007.
(a)(1) The following individuals at the Subadviser (the "Portfolio
Managers") have primary responsibility for the day-to-day
implementation of the Fund's investment strategy:
James J. Cunnane Jr., CFA - Managing Director, Senior Portfolio
Manager and Member of Strategy Committee & Investment Committee
Mr. Cunnane joined Fiduciary Asset Management in 1996 and has 14
years of portfolio management and securities research experience. He
manages institutional and private client equity portfolios and is
senior portfolio manager of FAMCO's MLP assets. He is actively
involved with the Strategy Committee's macroeconomic assessment and
top-down approach to portfolio management. Prior to joining FAMCO,
Mr. Cunnane worked as a research analyst with A.G. Edwards & Sons.
Mr. Cunnane also worked as an analyst for Maguire Investment
Advisors, where he gained extensive experience in the development of
master limited partnership and small- and mid-cap stock portfolios.
Mr. Cunnane holds a B.S. in finance from Indiana University, is a
Chartered Financial Analyst (CFA), and serves on the investment
committee of the Archdiocese of St. Louis.
Quinn T. Kiley - Senior Vice President, Portfolio Manager and Member
of Investment Committee
Mr. Kiley is responsible for private placement and private equity
transactions and portfolio management as they relate to various
energy infrastructure assets. Prior to joining FAMCO in 2005, Mr.
Kiley was Vice President of Corporate & Investment Banking at Banc
of America Securities in New York. He was responsible for executing
strategic advisory and financing transactions for clients in the
Energy & Power sectors. Mr. Kiley holds a B.S. with Honors in
Geology from Washington & Lee University, a M.S. in Geology from the
University of Montana, a Juris Doctorate from Indiana University
School of Law, and a M.B.A. from the Kelley School of Business at
Indiana University. Mr. Kiley has been admitted to the New York
State Bar.
(a)(2) As of October 31, 2007:
-----------------------------------------------------------------------------------------------------------------------
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
-----------------------------------------------------------------------------------------------------------------------
Other Other Other Other
(i) Name of Registered Pooled Registered Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
-----------------------------------------------------------------------------------------------------------------------
James Cunnane 1 1 119 0 0 0
-----------------------------------------------------------------------------------------------------------------------
$712,870,916 $8,802,512 $593,060,907 $0 $0 $0
-----------------------------------------------------------------------------------------------------------------------
Quinn T. Kiley 0 1 64 0 0 0
-----------------------------------------------------------------------------------------------------------------------
$0 $8,802,512 $466,327,270 $0 $0 $0
-----------------------------------------------------------------------------------------------------------------------
(iv) Potential Material Conflicts of Interest
Actual or apparent conflicts of interest may arise when a portfolio
manager has day-to-day management responsibilities with respect to
more than one fund or other account. More specifically, portfolio
managers who manage multiple funds and /or other accounts may be
presented with one or more of the following potential conflicts:
The management of multiple funds and/or other accounts may result in
a portfolio manager devoting unequal time and attention to the
management of each fund and/or other account. The Sub-Adviser seeks
to manage such competing interests for the time and attention of a
portfolio manager by having the portfolio manager focus on a
particular investment discipline. Most other accounts managed by a
portfolio manager are managed using the same investment models that
are used in connection with the management of the Fund.
If a portfolio manager identifies a limited investment opportunity
which may be suitable for more than one fund or other account, a
fund may not be able to take full advantage of that opportunity due
to an allocation of filled purchase or sale orders across all
eligible funds and other accounts. To deal with these situations,
the Sub-Adviser has adopted procedures for allocating portfolio
transactions across multiple accounts. With respect to securities
transactions for the Fund, the Sub-Adviser determines which broker
to use to execute each order, consistent with its duty to seek best
execution of the transaction. However, with respect to certain other
accounts (such as pooled investment vehicles that are not registered
mutual funds, and other accounts managed for organizations and
individuals), the Sub-Adviser may be limited by the client with
respect to the selection of brokers or may be instructed to direct
trades through a particular broker. In these cases, trades for a
fund in a particular security may be placed separately from, rather
than aggregated with, such other accounts. Having separate
transactions with respect to a security may temporarily affect the
market price of the security or the execution of the transaction, or
both, to the possible detriment of a fund or other account(s)
involved.
The Sub-Adviser has adopted certain compliance procedures which are
designed to address these types of conflicts. However, there is no
guarantee that such procedures will detect each and every situation
in which a conflict arises.
(a)(3) As of October 31, 2007:
Compensation Structure. The primary portfolio managers' compensation
is as follows:
James J. Cunnane, Jr.--The portfolio manager is paid a fixed base
salary and a quarterly bonus. The base salary is set at a level
determined to be appropriate based upon the individual's experience
and responsibilities. The quarterly bonus is discretionary and is
determined by the CEO of FAMCO. It is based in part on the amount of
assets under management of FAMCO, but not on the performance of any
fund or managed accounts.
Quinn T. Kiley-- The portfolio manager is paid a fixed base salary
and a quarterly bonus. The base salary is set at a level determined
to be appropriate based upon the individual's experience and
responsibilities. The quarterly bonus is discretionary and is
determined by the CEO of FAMCO. It is based in part on certain
portions of the assets under management of FAMCO, but not on the
performance of any fund or managed accounts.
The portfolio managers also participate in benefit plans and
programs generally available to all employees.
(a)(4) Beneficial Ownership of Securities. As of October 31,
2007, neither of Messrs. Cunnane or Kiley beneficially
owned any stock issued by the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable due to no such
purchases during the period covered by this report.
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send nominations
which include biographical information and set forth the
qualifications of the proposed nominee to the registrant's
Secretary. There have been no material changes to these procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's principal executive and principal financial
officers or persons performing similar functions have concluded that
the registrant's disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act")) are effective as of a date within 90 days of the
filing of this report based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act and Rule
13a-15(b) under the Securities and Exchange Act of 1934, as amended.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act)
that occurred during the second fiscal quarter of the period covered
by this report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
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.
MLP & Strategic Equity Fund Inc.
By: /s/ Mitchell M. Cox
-------------------
Mitchell M. Cox,
Chief Executive Officer (principal executive officer) of
MLP & Strategic Equity Fund Inc.
Date: December 19, 2007
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: /s/ Mitchell M. Cox
-------------------
Mitchell M. Cox,
Chief Executive Officer (principal executive officer) of
MLP & Strategic Equity Fund Inc.
Date: December 19, 2007
By: /s/ James E. Hillman
--------------------
James E. Hillman,
Chief Financial Officer (principal financial officer) of
MLP & Strategic Equity Fund Inc.
Date: December 19, 2007