nvcsrs
As filed
with the Securities and Exchange Commission on August 8, 2005
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 811-21462
Tortoise Energy Infrastructure Corporation
(Exact name of registrant as specified in charter)
10801 Mastin Blvd., Suite 222, Overland Park, KS 66210
(Address of principal executive offices) (Zip code)
David J. Schulte
10801 Mastin Blvd., Suite 222, Overland Park, KS 66210
(Name and address of agent for service)
913-981-1020
Registrants
telephone number, including area code
Date of fiscal year end: November 30
Date of reporting period: May 31, 2005
Item 1. Report to Stockholders.
Company at a Glance
|
|
A pioneering closed-end investment company investing primarily in equity securities of
Master Limited Partnerships (MLPs) operating energy infrastructure assets |
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|
Objectives: Yield, Growth, Quality |
About Master Limited Partnerships
MLPs are limited partnerships whose interests are traded in the form of units on public
exchanges such as the New York Stock Exchange, the NASDAQ and the American Stock Exchange. Buying
MLP units makes an investor a limited partner in the MLP. There are currently more than 50 MLPs on
the market, mostly in industries related to energy, natural resources, and real estate.
Tortoise Energy Infrastructure Corporations Investment Objective: Yield, Growth and Quality
Tortoise Energy invests primarily in MLPs in the energy infrastructure sector. Our goal is to
provide our stockholders with a high level of total return with an emphasis on current
distributions paid to stockholders and dividend growth. Energy infrastructure MLPs are engaged in
the transportation, storage and processing of crude oil, natural gas, and refined products from
production points to the end users. Our investments are primarily in midstream and pipeline
operations, which produce steady cash flows with less exposure to commodity prices than many
alternative investments in the broader energy industry. With the growth potential of this sector
along with our disciplined investment approach, we endeavor to generate a predictable and
increasing dividend stream for our investors.
A Tortoise Energy Investment Versus a Direct Investment in MLPs
The Company provides its stockholders with an efficient alternative to investing directly in MLPs.
A direct investment in an MLP offers the opportunity to receive an attractive distribution that is
approximately 80% tax deferred with a low correlation to stocks and bonds. However, the tax
characteristics of a direct MLP investment are generally undesirable for tax-exempt investors such
as retirement plans. Tortoise Energy is structured as a C Corporation accruing federal and state
income taxes, based on taxable earnings and profits. Because of this innovative structure,
pioneered by Tortoise Capital Advisors, institutions and retirement accounts are able to join
individual stockholders as investors in MLPs.
Additional features of Tortoise Energy include:
|
|
One Form 1099 per stockholder at the end of the year, thus avoiding multiple K-1s and
multiple state filings for individual partnership investments; |
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A professional management team, with nearly 100 years combined investment experience,
to select and manage the portfolio on your behalf; |
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The ability to access investment grade credit markets to enhance the portfolio size and
dividend rate, and |
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Access to direct placements and other investments not available through the public markets. |
July 29, 2005
Dear
Fellow Stockholders,
We are pleased to submit to you our report for Tortoise Energy Infrastructure Corporation for the
quarter ended May 31, 2005. Since the last report, we raised an additional $90 million of
investment funds through the issuance of Tortoise Notes and Money Market Preferred Stock. As of May
31, 2005, total assets of Tortoise Energy were approximately $671 million.
Tortoise Energy paid its second dividend for fiscal year 2005 of $0.445 per share to stockholders
on June 1, 2005. This increase was due to the successful investment of the Tortoise Notes offering
proceeds, and growth in the distributions we received from MLPs. We continue to expect that a
significant portion of dividends paid in 2005 will be treated as return of capital for income tax
purposes.
Calculation of Distributable Cash Flow (DCF)(1)
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q3 2004 |
|
Q4 2004 |
|
Q1 2005 |
|
Q2 2005 |
|
Distributions received from
MLPs |
|
$ |
4,609,442 |
|
|
$ |
7,273,590 |
|
|
$ |
7,642,832 |
|
|
$ |
8,546,046 |
|
Plus: Stock dividend |
|
|
537,548 |
|
|
|
633,690 |
|
|
|
1,001,416 |
|
|
|
1,050,924 |
|
Interest and dividend income |
|
|
337,638 |
|
|
|
237,239 |
|
|
|
297,857 |
|
|
|
346,928 |
|
|
Total from investments |
|
$ |
5,484,628 |
|
|
$ |
8,144,519 |
|
|
$ |
8,942,105 |
|
|
$ |
9,943,898 |
|
Net
operating expenses(2) |
|
|
(1,072,871 |
) |
|
|
(2,468,641 |
) |
|
|
(2,478,064 |
) |
|
|
(3,414,882 |
) |
|
Distributable cash flow |
|
$ |
4,411,757 |
|
|
$ |
5,675,878 |
|
|
$ |
6,464,041 |
|
|
$ |
6,529,016 |
|
|
Shares outstanding |
|
|
12,644,882 |
|
|
|
12,684,154 |
|
|
|
14,744,095 |
|
|
|
14,787,324 |
|
Dividend per share |
|
$ |
0.34 |
|
|
$ |
0.43 |
|
|
$ |
0.44 |
|
|
$ |
0.445 |
|
Dividend as a % of DCF |
|
|
97.5 |
% |
|
|
96.1 |
% |
|
|
100.4 |
% |
|
|
100.8 |
% |
|
|
|
|
(1) |
|
For complete financial information refer to the financial statements and footnotes included in this report. |
|
(2) |
|
Current and anticipated operating expenses for the period, including leverage costs, less the expense
reimbursement and waiver from the adviser. |
Investment Review
Since inception to May 31, 2005, we have invested $183 million in 12 separate direct
placements. Subsequent to quarter end, Tortoise Energy completed two direct purchases from MLP
issuers. Tortoise Energy purchased 500,000 common units of K-Sea Transportation Partners L.P. for a
purchase price of approximately $ 16 million. K-Sea will use the proceeds to repay indebtedness
incurred in connection with the acquisition of vessels from Bay Gulf Trading, and also for fleet
expansion projects. K-Sea Transportation is a provider of refined petroleum products marine
transportation, distribution and logistics services in the northeastern United States and the Gulf
of Mexico.
Tortoise Energy also purchased approximately $5,350,000 of Senior Subordinated Units of Crosstex
Energy, L.P. The Senior Subordinated Units were purchased at $33.44 each, and convert to Common
Units (on a one-for-one basis) on February 24, 2006. Until their conversion to Common Units, the
Senior Subordinated Units will receive no distributions from the Partnership. The proceeds will
fund the construction of Crosstexs North Texas Pipeline. Crosstex is a mid-stream natural gas
company headquartered in Dallas, Texas.
1
MLP Overview and Investment Outlook
We continue to believe that MLPs offer a relatively low risk investment, due to the
critical role of energy infrastructure to the U.S. economy. Overall positive performance in the
MLP sector for the first half of 2005 was driven by:
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Strong distribution growth fueled by solid earnings despite volatility in
energy commodity prices; |
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Increased flow of funds into the sector, driven by increased demand for safe investments
with attractive yields, and |
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Contributions from accretive acquisitions. |
We look for these trends to continue to contribute to growth in distributions for the remainder
of the year.
Financing Activity
In late April 2005, Tortoise Energy issued $55 million of Tortoise Notes, rated Aaa and AAA
by Moodys Investors Services, Inc. and Fitch Ratings, respectively. We entered into an interest
rate swap arrangement to hedge our interest payment obligations on these Tortoise Notes through
April 2014. We also used favorable market conditions to extend our interest rate swap
arrangements with respect to outstanding Series A and Series B Tortoise Notes ($110mm aggregate
principal amount) through June 2011.
After quarter ending May 31, 2005, Tortoise Energy successfully completed an offering of Series
II Money Market Cumulative Preferred Shares (Series II MMP Shares) raising a total of $35 million
before fees and expenses of the transaction. The Series II MMP Shares were rated Aa2 and AA
by Moodys Investors Services, Inc. and Fitch Ratings, respectively. After the closing of this
last offering of Preferred Stock, total assets were approximately $745 million.
In Conclusion
With the strength of the energy infrastructure sector and the innovative investment structure
pioneered by Tortoise Capital Advisors, we believe Tortoise Energy is well positioned to deliver
Yield, Growth and Quality to its stockholders. We will communicate with you regularly through
quarterly reports, conference calls and press releases. In addition, we invite you to visit our
website at www.tortoiseenergy.com for the latest updates.
Sincerely,
The Managers of
Tortoise Capital Advisors, L.L.C.
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H. Kevin Birzer
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Zachary A. Hamel
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Kenneth P. Malvey |
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Terry Matlack
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David J. Schulte |
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Steady Wins
2
Summary
Financial Information
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|
Period Ended |
|
|
May 31, 2005 |
Market value per share |
|
$ |
28.33 |
|
Net asset value per share |
|
|
27.75 |
|
Total net assets |
|
|
410,284,465 |
|
Unrealized appreciation before deferred taxes |
|
|
53,229,854 |
|
After taxes |
|
|
31,282,124 |
|
Net investment loss |
|
|
(1,655,204 |
) |
Total realized gain |
|
|
2,433,470 |
|
Total return (based on market value) |
|
|
8.02 |
% |
Ratio of
expenses to average net assets(1) |
|
|
2.40 |
% |
Ratio of expenses to average net assets, excluding interest
and auction agent fees(2) |
|
|
1.43 |
% |
|
|
|
(1) |
|
Annualized. Represents expenses, after fee reimbursement. |
|
(2) |
|
Annualized. Represents expenses, after fee reimbursement, excluding interest and auction agent fees. |
3
Schedule
of Investments(Unaudited)
|
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|
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|
May 31, 2005 |
|
|
|
Shares |
|
Value |
Common Stock 0.63% + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Gathering/Processing 0.63% +
|
|
|
|
|
|
|
|
|
Crosstex Energy, Inc. (Cost $2,263,977) |
|
|
56,536 |
|
|
$ |
2,587,087 |
|
|
|
|
|
|
|
|
|
|
Master Limited Partnerships 153.45% + |
|
|
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|
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|
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|
|
Coal 1.88% +
|
|
|
|
|
|
|
|
|
Natural Resource Partners, L.P. |
|
|
132,800 |
|
|
|
7,724,976 |
|
|
|
|
|
|
|
|
|
|
Shipping 1.02% + |
|
|
|
|
|
|
|
|
K-Sea Transportation Partners, L.P. |
|
|
71,300 |
|
|
|
2,374,290 |
|
U.S. Shipping Partners, L.P. |
|
|
2,000 |
|
|
|
51,200 |
|
Teekay LNG Partners, L.P. |
|
|
67,200 |
|
|
|
1,772,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,197,554 |
|
|
|
|
|
|
|
|
|
|
Crude/Refined Products Pipelines 99.35% + |
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|
|
|
|
|
|
|
Buckeye Partners, L.P. |
|
|
641,282 |
|
|
|
28,537,049 |
|
Enbridge Energy Partners, L.P. |
|
|
419,200 |
|
|
|
21,626,528 |
|
Enbridge Energy Partners, L.P. ^ |
|
|
501,300 |
|
|
|
24,247,881 |
|
Holly Energy Partners, L.P. |
|
|
427,070 |
|
|
|
17,381,749 |
|
Kaneb Pipe Line Partners, L.P. |
|
|
414,500 |
|
|
|
25,421,285 |
|
Kinder Morgan Management, LLC # |
|
|
1,390,743 |
|
|
|
61,985,416 |
|
Magellan Midstream Partners, L.P. |
|
|
1,683,274 |
|
|
|
52,888,469 |
|
Magellan Midstream Partners, L.P. ^ |
|
|
521,739 |
|
|
|
15,213,909 |
|
Pacific Energy Partners, L.P. |
|
|
656,500 |
|
|
|
20,417,150 |
|
Plains All American Pipeline, L.P. |
|
|
794,100 |
|
|
|
33,534,843 |
|
Plains All American Pipeline, L.P. ^ |
|
|
486,855 |
|
|
|
20,253,168 |
|
Sunoco Logistics Partners, L.P. |
|
|
934,625 |
|
|
|
34,721,319 |
|
TEPPCO Partners, L.P. |
|
|
812,245 |
|
|
|
33,586,331 |
|
Valero, L.P. |
|
|
294,700 |
|
|
|
17,817,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407,632,659 |
|
|
|
|
|
|
|
|
|
|
Natural Gas/Natural Gas Liquid Pipelines 13.41%+ |
|
|
|
|
|
|
|
|
Enterprise Products Partners, L.P. |
|
|
1,852,300 |
|
|
|
47,604,110 |
|
Northern Border Partners, L.P. |
|
|
155,200 |
|
|
|
7,387,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,991,630 |
|
|
|
|
|
|
|
|
|
|
Natural Gas Gathering/Processing 23.76% + |
|
|
|
|
|
|
|
|
Copano Energy, LLC |
|
|
91,950 |
|
|
|
2,744,708 |
|
Energy Transfer Partners, L.P. |
|
|
1,804,600 |
|
|
|
57,007,314 |
|
Hiland Partners, L.P. |
|
|
36,548 |
|
|
|
1,279,180 |
|
Markwest Energy Partners, L.P. |
|
|
226,100 |
|
|
|
10,898,020 |
|
Markwest Energy Partners, L.P. ^ |
|
|
579,710 |
|
|
|
25,565,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,494,433 |
|
|
|
|
|
|
|
|
|
|
4
Schedule
of Investments(Unaudited)
(Continued)
|
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|
|
|
|
|
|
|
|
|
May 31, 2005 |
|
|
Shares |
|
Value |
|
|
|
Propane Distribution 14.03%* |
|
|
|
|
|
|
|
|
Inergy, L.P. |
|
|
1,732,220 |
|
|
$ |
54,253,130 |
|
Inergy,
L.P.^ |
|
|
118,414 |
|
|
|
3,285,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,539,118 |
|
|
|
|
|
|
|
|
|
|
Total Master Limited Partnerships (Cost $498,088,636) |
|
|
|
|
|
|
629,580,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory Notes 1.71%* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipping 1.71%* |
|
|
|
|
|
|
|
|
K-Sea Transportation Partners L.P. Unregistered,
8.320%, Due 03/31/2009 (Cost $7,018,741)^ @ |
|
$ |
7,106,259 |
|
|
|
7,018,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
Term Investments 5.69% + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First American Prime Obligations Money Market Fund
Class Z |
|
|
11,665,034 |
|
|
|
11,665,034 |
|
First American Treasury Obligations Money Market Fund
Class Z |
|
|
11,665,034 |
|
|
|
11,665,034 |
|
|
Total Short-Term Investments (Cost $23,330,068) |
|
|
|
|
|
|
23,330,068 |
|
|
|
|
|
|
|
|
|
|
|
Total
Investments 161.48% + (Cost $530,701,422) |
|
|
|
|
|
|
662,516,266 |
|
Auction Rate
Senior Notes (40.22%) + |
|
|
|
|
|
|
(165,000,000 |
) |
Interest
Rate Swap Contracts (0.50%) + |
|
|
|
|
|
|
|
|
$165,000,000 notional Unrealized Depreciation |
|
|
|
|
|
|
(2,045,510 |
) |
|
|
|
|
|
|
|
|
|
Liabilities
in Excess of Other Assets (12.23%) + |
|
|
|
|
|
|
(50,186,291 |
) |
|
|
|
|
|
|
|
|
|
Preferred
Shares at Redemption Value (8.53%) + |
|
|
|
|
|
|
(35,000,000 |
) |
|
|
|
|
|
|
|
|
|
|
Total Net Assets Applicable to Common Stockholders
100. 00% + |
|
|
|
|
|
$ |
410,284,465 |
|
|
|
|
|
|
|
|
|
|
Footnotes and Abbreviations
|
|
|
+ |
|
Calculated as a percentage of net assets. |
|
^ |
|
Fair valued securities represent a total market value of $95,584,898 which represents 23.30% of
net assets. |
|
# |
|
Security distributions are paid in kind. |
|
@ |
|
Security is a variable rate instrument. Interest rate is as of May 31, 2005. |
See Accompanying Notes to the Financial Statements.
5
Statement
of Assets &
Liabilities (Unaudited)
|
|
|
|
|
|
|
May 31, 2005 |
Assets |
|
|
|
|
Investments at value (cost $530,701,422) |
|
$ |
662,516,266 |
|
Cash |
|
|
5,642,583 |
|
Receivable for Adviser reimbursement |
|
|
252,337 |
|
Receivable for investments sold |
|
|
59,092 |
|
Interest and dividend receivable |
|
|
106,528 |
|
Prepaid expenses and other assets |
|
|
2,821,896 |
|
|
|
|
|
|
Total assets |
|
|
671,398,702 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
Payable to Adviser |
|
|
1,042,262 |
|
Dividend payable on common shares |
|
|
6,580,360 |
|
Dividend payable on preferred shares |
|
|
16,280 |
|
Accrued expenses and other liabilities |
|
|
491,478 |
|
Unrealized depreciation on interest rate swap contracts |
|
|
2,045,510 |
|
Deferred tax liability |
|
|
50,938,347 |
|
Auction rate senior notes payable: |
|
|
|
|
Series A, due July 15, 2044 |
|
|
60,000,000 |
|
Series B, due July 15, 2044 |
|
|
50,000,000 |
|
Series C, due April 10, 2045 |
|
|
55,000,000 |
|
|
|
|
|
|
Total liabilities |
|
|
226,114,237 |
|
|
|
|
|
|
Preferred Shares |
|
|
|
|
$25,000 liquidation value per share applicable to 1,400
outstanding shares (7,500 shares authorized) |
|
|
35,000,000 |
|
|
|
|
|
|
Net assets applicable to common stockholders |
|
$ |
410,284,465 |
|
|
|
|
|
|
|
|
|
|
|
Net Assets Applicable to Common Stockholders Consist of |
|
|
|
|
Capital stock, $0.001 par value; 14,787,324 shares issued and
outstanding (100,000,000 shares authorized) |
|
$ |
14,787 |
|
Additional paid-in capital |
|
|
330,617,461 |
|
Accumulated net investment loss, net of deferred tax benefit |
|
|
(1,898,492 |
) |
Undistributed realized gain, net of deferred tax expense |
|
|
2,399,443 |
|
Net unrealized gain on investments and interest rate swap
contracts, net of deferred tax expense |
|
|
79,151,266 |
|
|
|
|
|
|
Net assets applicable to common stockholders |
|
$ |
410,284,465 |
|
|
|
|
|
|
Net Asset Value per common share outstanding (net assets
applicable to common shares, divided by common shares
outstanding) |
|
$ |
27.75 |
|
|
|
|
|
|
See Accompanying Notes to the Financial Statements.
6
Statement
of Operations (Unaudited)
|
|
|
|
|
|
|
Six Months Ended |
|
|
May 31, 2005 |
Investment Income |
|
|
|
|
Distributions received from master limited partnerships |
|
$ |
16,188,878 |
|
Less: return of capital on distributions |
|
|
(14,734,460 |
) |
|
|
|
|
|
Distribution income from master limited partnerships |
|
|
1,454,418 |
|
Dividends from money market mutual funds |
|
|
314,919 |
|
Interest |
|
|
329,866 |
|
|
|
|
|
|
Total Investment Income |
|
|
2,099,203 |
|
|
|
|
|
|
|
Expenses |
|
|
|
|
Advisory fees |
|
|
2,917,155 |
|
Professional fees |
|
|
168,773 |
|
Administrator fees |
|
|
201,013 |
|
Directors fees |
|
|
30,400 |
|
Custodian fees and expenses |
|
|
34,678 |
|
Reports to stockholders |
|
|
94,035 |
|
Registration fees |
|
|
26,283 |
|
Fund accounting fees |
|
|
30,749 |
|
Stock transfer agent fees |
|
|
5,860 |
|
Other expenses |
|
|
63,449 |
|
|
|
|
|
|
Total Expenses before Interest Expense and Auction Agent Fees |
|
|
3,572,395 |
|
|
|
|
|
|
Interest expense on auction rate senior notes |
|
|
1,779,549 |
|
Auction agent fees |
|
|
166,968 |
|
|
|
|
|
|
|
|
|
1,946,517 |
|
|
|
|
|
|
Total Expenses |
|
|
5,518,912 |
|
|
|
|
|
|
Less expense reimbursement by Adviser |
|
|
(706,259 |
) |
|
|
|
|
|
Net Expenses |
|
|
4,812,653 |
|
|
|
|
|
|
Net Investment Loss, before Deferred Tax Benefit |
|
|
(2,713,450 |
) |
Deferred tax benefit |
|
|
1,058,246 |
|
|
|
|
|
|
Net Investment Loss |
|
|
(1,655,204 |
) |
|
|
|
|
|
7
Statement
of Operations (Unaudited)
(Continued)
|
|
|
|
|
|
|
Six Months Ended |
|
|
May 31, 2005 |
Realized and Unrealized Gain (Loss) on Investments |
|
|
|
|
Net realized gain on investments |
|
$ |
4,512,108 |
|
Net realized loss on interest rate swap contracts |
|
|
(522,813 |
) |
|
|
|
|
|
Net realized gain, before deferred tax expense |
|
|
3,989,295 |
|
Deferred tax expense |
|
|
(1,555,825 |
) |
|
|
|
|
|
Net realized gain on investments and interest rate swap
settlements |
|
|
2,433,470 |
|
|
|
|
|
|
Net unrealized appreciation of investments |
|
|
53,229,854 |
|
Net unrealized depreciation of interest rate swap contracts |
|
|
(1,836,980 |
) |
|
|
|
|
|
Net unrealized gain, before deferred tax expense |
|
|
51,392,874 |
|
Deferred tax expense |
|
|
(20,110,750 |
) |
|
|
|
|
|
Net unrealized appreciation of investments and interest
rate swap contracts |
|
|
31,282,124 |
|
|
|
|
|
|
Net Realized and Unrealized Gain on Investments |
|
|
33,715,594 |
|
|
|
|
|
|
Dividends to Preferred Stockholders |
|
|
(506,214 |
) |
|
|
|
|
|
Net Increase in Net Assets Applicable to Common Stockholders
Resulting from Operations |
|
$ |
31,554,176 |
|
|
|
|
|
|
See Accompanying Notes to the Financial Statements.
8
Statement
of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Six Months |
|
February 27, 2004(1) |
|
|
Ended |
|
through |
|
|
May 31, 2005 |
|
November 30, 2004 |
|
|
(Unaudited) |
|
|
|
|
Operations |
|
|
|
|
|
|
|
|
Net investment loss |
|
$ |
(1,655,204 |
) |
|
$ |
(243,288 |
) |
Net realized gain (loss) on investments and interest
rate swap settlements |
|
|
2,433,470 |
|
|
|
(34,027 |
) |
Net unrealized appreciation of investments and
interest rate swap contracts |
|
|
31,282,124 |
|
|
|
47,869,142 |
|
Dividends to preferred stockholders |
|
|
(506,214 |
) |
|
|
(152,568 |
) |
|
|
|
Net increase in net assets applicable to common
stockholders resulting from operations |
|
|
31,554,176 |
|
|
|
47,439,259 |
|
|
|
|
Dividends and Distributions to Common Stockholders |
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
Return of capital |
|
|
(13,067,813 |
) |
|
|
(12,278,078 |
) |
|
|
|
Total dividends to common stockholders |
|
|
(13,067,813 |
) |
|
|
(12,278,078 |
) |
|
|
|
Capital Share Transactions |
|
|
|
|
|
|
|
|
Proceeds from initial public offering of 11,000,000
common shares |
|
|
|
|
|
|
275,000,000 |
|
Proceeds from issuance of 1,600,000 common shares in
connection with exercising an overallotment option
granted to underwriters of the initial public
offering |
|
|
|
|
|
|
40,000,000 |
|
Proceeds from secondary offering of 1,755,027 common
shares |
|
|
47,999,988 |
|
|
|
|
|
Proceeds from issuance of 263,254 common shares in
connection with exercising an overallotment option
granted to underwriters of the secondary offering |
|
|
7,199,997 |
|
|
|
|
|
Underwriting discounts and offering expenses
associated with the issuance of common shares |
|
|
(2,443,688 |
) |
|
|
(14,705,165 |
) |
Underwriting discounts and offering expenses
associated with the issuance of preferred shares |
|
|
157,715 |
|
|
|
(725,000 |
) |
Issuance of 84,889 and 61,107 common shares from
reinvestment of dividend distributions to stockholders,
respectively |
|
|
2,331,547 |
|
|
|
1,453,105 |
|
|
|
|
Net increase in net assets, applicable to common
stockholders, from capital share transactions |
|
|
55,245,559 |
|
|
|
301,022,940 |
|
|
|
|
Total increase in net assets applicable to common
stockholders |
|
|
73,731,922 |
|
|
|
336,184,121 |
|
Net Assets |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
336,552,543 |
|
|
|
368,422 |
|
|
|
|
End of period |
|
$ |
410,284,465 |
|
|
$ |
336,552,543 |
|
|
|
|
Accumulated net investment loss, net of deferred tax
benefit, at the end of period |
|
$ |
(1,898,492 |
) |
|
$ |
(243,288 |
) |
|
|
|
|
|
|
(1) |
|
Commencement of Operations. |
See Accompanying Notes to the Financial Statements.
9
Statement
of Cash Flows (Unaudited)
|
|
|
|
|
|
|
Six Months Ended |
|
|
May 31, 2005 |
Cash Flows from Operating Activities |
|
|
|
|
Distributions received from master limited partnerships |
|
$ |
16,188,878 |
|
Interest and dividend income received |
|
|
552,344 |
|
Purchases of long-term investments |
|
|
(107,023,840 |
) |
Proceeds from sale of long-term investments |
|
|
20,157,193 |
|
Net purchases of short-term investments |
|
|
(20,120,742 |
) |
Payments for interest rate swap contracts |
|
|
(522,813 |
) |
Interest expense paid |
|
|
(2,036,481 |
) |
Operating expenses paid |
|
|
(2,963,222 |
) |
|
|
|
|
|
Net cash used in operating activities |
|
|
(95,768,683 |
) |
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
Issuance of common stock |
|
|
55,199,985 |
|
Issuance of auction rate senior notes payable |
|
|
55,000,000 |
|
Common and preferred stock issuance costs |
|
|
(2,164,703 |
) |
Debt issuance costs |
|
|
(760,344 |
) |
Dividends paid to preferred stockholders |
|
|
(532,420 |
) |
Dividends paid to common stockholders |
|
|
(9,610,092 |
) |
|
|
|
|
|
Net cash provided by financing activities |
|
|
97,132,426 |
|
|
|
|
|
|
Net increase in cash |
|
|
1,363,743 |
|
Cash beginning of period |
|
|
4,278,840 |
|
|
|
|
|
|
Cash end of period |
|
$ |
5,642,583 |
|
|
|
|
|
|
10
Statement
of Cash Flows (Unaudited)
(Continued)
|
|
|
|
|
|
|
Six Months Ended |
|
|
May 31, 2005 |
Reconciliation of net increase in net assets applicable to
common stockholders resulting from operations to net cash
used in operating activities |
|
|
|
|
Net increase in net assets applicable to common stockholders
resulting from operations |
|
$ |
31,554,176 |
|
Adjustments to reconcile net increase in net assets applicable to
common stockholders resulting from operations to net cash
used in operating activities
|
|
|
|
|
Purchases of
long-term investments, net of return of
capital adjustments |
|
|
(92,289,380 |
) |
Proceeds from sales of long-term investments |
|
|
20,157,193 |
|
Purchases of short-term investments, net |
|
|
(20,120,742 |
) |
Deferred income taxes |
|
|
20,608,329 |
|
Net unrealized appreciation on investments and interest rate
swap contracts |
|
|
(51,392,874 |
) |
Realized gains on investments and interest rate swap contracts |
|
|
(3,989,295 |
) |
Accretion of discount on investments |
|
|
(9,943 |
) |
Amortization of debt issuance costs |
|
|
22,626 |
|
Dividends to preferred stockholders |
|
|
506,214 |
|
Changes in operating assets and liabilities: |
|
|
|
|
Increase in receivable for investments sold |
|
|
(59,092 |
) |
Increase in interest and dividend receivable |
|
|
(82,497 |
) |
Increase in prepaid expenses and other assets |
|
|
(954,837 |
) |
Increase in payable to Adviser, net of expense reimbursement |
|
|
(216,627 |
) |
Decrease in accrued expenses and other liabilities |
|
|
498,066 |
|
|
|
|
|
|
Total adjustments |
|
|
(127,322,859 |
) |
|
|
|
|
|
Net cash used in operating activities |
|
$ |
(95,768,683 |
) |
|
|
|
|
|
Non-Cash Financing Activities |
|
|
|
|
Reinvestment of distributions by common stockholders in additional
common shares |
|
$ |
2,331,547 |
|
|
|
|
|
|
See Accompanying Notes to the Financial Statements.
11
Financial
Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Six Months |
|
February 27, 2004(1) |
|
|
Ended |
|
through |
|
|
May 31, 2005 |
|
November 30, 2004 |
|
|
(Unaudited) |
|
|
|
|
Per Common Share Data(2) |
|
|
|
|
|
|
|
|
Net Asset Value, beginning of period |
|
$ |
26.53 |
|
|
$ |
|
|
Public offering price |
|
|
|
|
|
|
25.00 |
|
Underwriting discounts and offering costs on
initial public offering |
|
|
|
|
|
|
(1.17 |
) |
Underwriting discounts and offering costs on
issuance of preferred shares |
|
|
|
|
|
|
(0.06 |
) |
Premiums and underwriting discounts and offering
costs on secondary offering (7) |
|
|
|
|
|
|
|
|
Income (loss) from Investment Operations: |
|
|
|
|
|
|
|
|
Net investment loss |
|
|
(0.11 |
) |
|
|
(0.03 |
) |
Net realized and unrealized gain on investments |
|
|
2.25 |
|
|
|
3.77 |
|
|
|
|
Total increase from investment operations |
|
|
2.14 |
|
|
|
3.74 |
|
|
|
|
Less Dividends to Preferred Stockholders: |
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
Return of capital |
|
|
(0.03 |
) |
|
|
(0.01 |
) |
|
|
|
Total dividends to preferred stockholders |
|
|
(0.03 |
) |
|
|
(0.01 |
) |
|
|
|
Less Dividends to Common Stockholders: |
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
Return of capital |
|
|
(0.89 |
) |
|
|
(0.97 |
) |
|
|
|
Total dividends to common stockholders |
|
|
(0.89 |
) |
|
|
(0.97 |
) |
|
|
|
Net Asset Value, end of period |
|
$ |
27.75 |
|
|
$ |
26.53 |
|
|
|
|
Per common share market value, end of period |
|
$ |
28.33 |
|
|
$ |
27.06 |
|
Total Investment Return Based on Market Value (3) |
|
|
8.02 |
% |
|
|
12.51 |
% |
Supplemental Data and Ratios |
|
|
|
|
|
|
|
|
Net assets applicable to common stockholders,
end of period (000s) |
|
$ |
410,284 |
|
|
$ |
336,553 |
|
Ratio of expenses to average net assets
before waiver: (4)(6)(8) |
|
|
2.75 |
% |
|
|
2.01 |
% |
Ratio of expenses to average net assets
after waiver: (4)(6)(8) |
|
|
2.40 |
% |
|
|
1.73 |
% |
Ratio of expenses, without regard to non-recurring
organizational expenses, to average net assets
before waiver: (4)(6)(8) |
|
|
2.75 |
% |
|
|
1.90 |
% |
Ratio of expenses, without regard to non-recurring
organizational expenses, to average net assets
after waiver: (4)(6)(8) |
|
|
2.40 |
% |
|
|
1.62 |
% |
12
Financial
Highlights
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Six Months |
|
February 27, 2004(1) |
|
|
Ended |
|
through |
|
|
May 31, 2005 |
|
November 30, 2004 |
|
|
(Unaudited) |
|
|
|
|
Ratio of net investment loss to average net assets
before waiver: (4)(6) |
|
|
(1.17 |
)% |
|
|
(0.45 |
)% |
Ratio of net investment loss to average net assets
after waiver: (4)(6) |
|
|
(0.82 |
)% |
|
|
(0.17 |
)% |
Portfolio turnover rate |
|
|
3.51 |
% |
|
|
1 .39 |
% |
Tortoise Auction Rate Senior Notes, end of
period (000s) |
|
$ |
165,000 |
|
|
$ |
110,000 |
|
Tortoise Preferred Shares, end of period (000s) |
|
$ |
35,000 |
|
|
$ |
35,000 |
|
Per common share amount of borrowings
outstanding at end of period |
|
$ |
11.16 |
|
|
$ |
8.67 |
|
Per common share amount of net assets, excluding
borrowings, at end of period |
|
$ |
38.91 |
|
|
$ |
35.21 |
|
Asset coverage, per $1,000 of principal amount of
auction rate senior notes |
|
|
|
|
|
|
|
|
Series A |
|
$ |
3,699 |
|
|
$ |
4,378 |
|
Series B |
|
$ |
3,699 |
|
|
$ |
4,378 |
|
Series C |
|
$ |
3,699 |
|
|
$ |
|
|
Asset coverage, per $25,000 liquidation value per
share of preferred shares |
|
$ |
318,060 |
|
|
$ |
265,395 |
|
Asset coverage ratio of auction rate senior notes(5) |
|
|
370 |
% |
|
|
438 |
% |
|
|
|
(1) |
|
Commencement of Operations. |
|
(2) |
|
Information presented relates to a share of common stock outstanding for the entire period. |
|
(3) |
|
Not Annualized. Total investment return is calculated assuming a purchase of common stock at
the market price on the first day and a sale at the current market price on the last day of the period
reported. The calculation also assumes reinvestment of dividends at actual prices pursuant to the Companys
dividend reinvestment plan. Total investment return does not reflect brokerage commissions. |
|
(4) |
|
Annualized for periods less than one full year. |
|
(5) |
|
Represents value of total assets less all liabilities and indebtedness not represented by
Auction rate senior
notes and MMP shares at the end of the period divided by Auction rate senior notes outstanding
at the end of the period. |
|
(6) |
|
The expense ratios and net investment ratios do not reflect the effect of dividend
payments to preferred
stockholders. |
|
(7) |
|
The amount is less than $0.01 per share, and represents the premium on the secondary offering
of $0.14 per
share, less the underwriting discounts and offering costs of $0.14 per share. |
|
(8) |
|
The ratios of expenses to average net assets do not include deferred income taxes. Had
deferred income taxes
been incorporated, the expense ratios would have been as follows: |
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
|
Before waiver |
|
|
2.22 |
% |
|
|
1.94 |
% |
After waiver |
|
|
1.87 |
% |
|
|
1.66 |
% |
See Accompanying Notes to the Financial Statements.
13
Notes
to Financial Statements (Unaudited)
May 31, 2005
1. Organization
Tortoise Energy Infrastructure Corporation (the Company) was organized as a Maryland
corporation on October 29, 2003, and is a non-diversified, closed-end management investment company
under the Investment Company Act of 1940, as amended (the 1940 Act). The Companys investment
objective is to seek a high level of total return with an emphasis on current dividends paid to
stockholders. The Company seeks to provide its stockholders with an efficient vehicle to invest in
the energy infrastructure sector. The Company commenced operations on February 27, 2004. The
Companys shares are listed on the New York Stock Exchange under the symbol TYG.
2. Significant Accounting Policies
A. Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amount of
assets and liabilities, recognition of distribution income and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results could differ from those
estimates.
B. Investment Valuation
The Company primarily owns securities that are listed on a securities exchange. The Company values
those securities at their last sale price on that exchange on the valuation date. If the security
is listed on more than one exchange, the Company will use the price of the exchange that it
generally considers to be the principal exchange on which the security is traded. Securities listed
on the NASDAQ Stock Market, Inc. (NASDAQ) will be valued at the NASDAQ Official Closing Price,
which may not necessarily represent the last sale price. If there has been no sale on such exchange
or NASDAQ on such day, the security will be valued at the mean between bid and ask price on such
day.
The Company may invest up to 30% of its total assets in restricted securities. Restricted
securities may be subject to statutory and contractual restrictions on their public resale, which
may make it more difficult to obtain a valuation and may limit the Companys ability to dispose of
them. Investments in private placement securities and other securities for which market quotations
are not readily available will be valued in good faith by using fair value procedures approved by
the Board of Directors. Such fair value procedures consider factors such as discounts to publicly
traded issues, securities with similar yields, quality, type of issue, coupon, duration and rating.
The Company generally values short-term debt securities at prices based on market quotations for
such securities, except those securities purchased with 60 days or less to maturity are valued on
the basis of amortized cost, which approximates market value. If events occur that will affect the
value of the Companys portfolio securities before the net asset value has been calculated (a
significant event), the portfolio securities so affected will generally be priced using a fair
value procedure.
14
Notes
to Financial Statements (Unaudited)
(Continued)
The Company generally values its interest rate swap contracts by discounting the future
cash flows from the stated terms of the interest rate swap agreement by using interest rates
currently available in the market, or based on dealer quotations, if available.
C. Security Transactions and Investment Income
Security transactions are accounted for on the date the securities are purchased or sold (trade
date). Realized gains and losses are reported on an identified cost basis. Interest income is
recognized on the accrual basis, including amortization of premiums and accretion of discounts.
Distributions are recorded on the ex-dividend date. Distributions received from the Companys
investments in master limited partnerships (MLPs) generally are comprised of ordinary income,
capital gains and return of capital from the MLP. The Company records investment income and return
of capital based on estimates made at the time such distributions are received. Such estimates are
based on historical information available from each MLP and other industry sources. These estimates
may subsequently be revised based on information received from MLPs after their tax reporting
periods are concluded, as the actual character of these distributions are not known until after the
fiscal year-end of the Company.
For the period from February 27, 2004 (commencement of operations) through November 30, 2004, the
Company estimated the allocation of investment income and return of capital for the distributions
received from MLPs within the Statement of Operations. Previously, the Company had estimated
approximately 18% as investment income and approximately 82% as return of capital.
Subsequent to November 30, 2004, the Company adjusted the amount of investment income and return of
capital it recognized based on the 2004 tax reporting information received from the individual
MLPs. This reclassification amounted to a decrease in pre-tax net investment income of
approximately $2.2 million ($1.3 million net of deferred tax benefit), and corresponding increase
in unrealized appreciation of investments for the period from December 1, 2004 through May 31,
2005. The reclassification is reflected in the accompanying financial statements.
D. Dividends to Stockholders
Dividends to common stockholders are recorded on the ex-dividend date. The character of dividends
to common stockholders made during the year may differ from their ultimate characterization for
federal income tax purposes. For the periods ended May 31, 2005 and November 30, 2004, the
Companys dividend, for book purposes, was comprised entirely of return of capital as a result of
the net investment loss incurred by the Company in each reporting period. For the period ended
November 30, 2004, for tax purposes, the Company determined the current dividend to common
stockholders is also comprised of 100% return of capital.
15
Notes
to Financial Statements (Unaudited)
(Continued)
Dividends to preferred stockholders are based on variable rates set at auctions, normally
held every 28 days. Dividends on preferred shares are accrued on a daily basis for the subsequent
28 day period at a rate as determined on the auction date. Dividends on preferred shares are
payable every 28 days, on the first day following the end of the dividend period.
E. Federal Income Taxation
The Company, as a corporation, is obligated to pay federal and state income tax on its taxable
income. The Company invests its assets primarily in MLPs, which generally are treated as
partnerships for federal income tax purposes. As a limited partner in the MLPs, the Company reports
its allocable share of the MLPs taxable income in computing its own taxable income. The Companys
tax expense or benefit will be included in the Statement of Operations based on the component of
income or gains (losses) to which such expense or benefit relates. Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
F. Organization Expenses, Offering and Debt Issuance Costs
The Company is responsible for paying all organization expenses, which are expensed as incurred.
Offering costs related to the issuance of common and preferred stock are charged to additional
paid-in capital when the shares are issued. Debt issuance costs related to the auction rate senior
notes payable are capitalized and amortized over the period the notes are outstanding.
G. Derivative Financial Instruments
The Company uses derivative financial instruments (principally interest rate swap contracts) to
manage interest rate risk. The Company has established policies and procedures for risk assessment
and the approval, reporting and monitoring of derivative financial instrument activities. The
Company does not hold or issue derivative financial instruments for speculative purposes. All
derivative financial instruments are recorded at fair value with changes in value during the
reporting period, and amounts accrued under the agreements, included as unrealized gains or losses
in the Statement of Operations. Monthly cash settlements under the terms of the interest rate swap
agreements are recorded as realized gains or losses in the Statement of Operations.
16
Notes
to Financial Statements (Unaudited)
(Continued)
H. Indemnifications
Under the Companys organizational documents, its Officers and Directors are indemnified
against certain liabilities arising out of the performance of their duties to the Company. In
addition, in the normal course of business, the Company may enter into contracts that provide
general indemnification to other parties. The Companys maximum exposure under these arrangements
is unknown, as this would involve future claims that may be made against the Company that have not
yet occurred, and may not occur. However, the Company has not had prior claims or losses pursuant
to these contracts and expects the risk of loss to be remote.
3. Concentration of Risk
The Companys investment objective is to seek a high level of total return with an emphasis on
current dividends paid to its stockholders. Under normal circumstances, the Company intends to
invest at least 90% of its total assets in securities of domestic energy infrastructure companies,
and will invest at least 70% of its total assets in equity securities of MLPs. The Company may
invest up to 25% of its assets in debt securities, which may include below investment grade
securities. Companies that primarily invest in a particular sector may experience greater
volatility than companies investing in a broad range of industry sectors. The Company may, for
defensive purposes, temporarily invest all or a significant portion of its assets in investment
grade securities, short-term debt securities and cash or cash equivalents. To the extent the
Company uses this strategy, it may not achieve its investment objectives.
4. Agreements
The Company has entered into an Investment Advisory Agreement with Tortoise Capital Advisors, LLC
(the Adviser). Under the terms of the agreement, the Company will pay the Adviser a fee equal to
an annual rate of 0.95% of the Companys average monthly total assets (including any assets
attributable to leverage) minus the sum of accrued liabilities (other than deferred income taxes,
debt entered into for purposes of leverage and the aggregate liquidation preference of outstanding
preferred shares) (Managed Assets), in exchange for the investment advisory services provided.
For the period following the commencement of the Companys operations through February 28, 2006,
the Adviser has agreed to waive or reimburse the Company for fees and expenses in an amount equal
to 0.23% of the average monthly Managed Assets of the Company. For years ending February 28, 2007,
2008 and 2009, the Adviser has agreed to waive or reimburse the Company for fees and expenses in an
amount equal to 0.10% of the average monthly Managed Assets of the Company.
17
Notes
to Financial Statements (Unaudited)
(Continued)
The Company has engaged U.S. Bancorp Fund Services, LLC to serve as the Companys
administrator. The Company will pay the administrator a monthly fee computed at an annual rate of
0.07% of the first $300 million of the Companys Managed Assets, 0.06% on the next $500 million of
Managed Assets and 0.04% on the balance of the Companys Managed Assets, subject to a minimum
annual fee of $45,000.
U.S. Bank N.A. serves as the Companys custodian. The Company pays the custodian a monthly fee
computed at an annual rate of 0.015% on the first $100 million of the Companys Managed Assets and
0.01% on the balance of the Companys Managed Assets, subject to a minimum annual fee of $4,800.
5. Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying
amount of assets and liabilities for financial reporting and tax purposes. Components of the
Companys deferred tax assets and liabilities as of May 31, 2005 are as follows:
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
Net operating loss carryforwards |
|
$ |
5,962,229 |
|
Organization costs |
|
|
72,794 |
|
|
|
|
|
|
|
|
|
6,035,023 |
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
Unrealized gains on investment securities and interest rate swap contracts |
|
|
50,618,068 |
|
Basis reduction of investment in MLPs |
|
|
6,355,302 |
|
|
|
|
|
|
|
|
|
56,973,370 |
|
|
|
|
|
|
Total net deferred tax liability |
|
$ |
50,938,347 |
|
|
|
|
|
|
For the period from December 1, 2004 to May 31, 2005, the components of income tax expense
include $18,494,654 and $2,113,675 for deferred federal and state income taxes (net of federal tax
benefit), respectively. For the fiscal year ended November 30, 2004, the Company had a net
operating loss for federal income tax purposes of approximately $2,786,000. This net operating loss
may be carried forward for 20 years, and accordingly would expire after the year ending November
30, 2024.
18
Notes
to Financial Statements (Unaudited)
(Continued)
Total income taxes differ from the amount computed by applying the federal statutory
income tax rate of 35% to net investment income and realized and unrealized gains on
investments and interest rate swap contracts before taxes as follows:
|
|
|
|
|
Application of statutory income tax rate |
|
$ |
18,434,052 |
|
State income taxes, net of federal tax benefit |
|
|
2,106,749 |
|
Other, net |
|
|
67,528 |
|
|
|
|
|
|
Total |
|
$ |
20,608,329 |
|
|
|
|
|
|
At May 31, 2005, the cost basis of investments for federal income tax purposes was $514,405,776
and gross unrealized appreciation and depreciation of investments for federal income tax purposes
were as follows:
|
|
|
|
|
Gross unrealized appreciation |
|
$ |
148,110,490 |
|
Gross unrealized depreciation |
|
|
|
|
|
|
|
|
|
Net unrealized appreciation |
|
$ |
148,110,490 |
|
|
|
|
|
|
6. Investment Transactions
For the period ended May 31, 2005, the Company purchased (at cost) and sold securities (at
proceeds) in the amount of $107,023,840 and $20,216,285 (excluding short-term debt securities and
interest rate swaps), respectively.
7. Auction Rate Senior Notes
The Company has issued $60,000,000, $50,000,000, and $55,000,000 aggregate principal amount of
auction rate senior notes Series A, Series B, and Series C, respectively (collectively, the
Notes). The Notes were issued in denominations of $25,000. The principal amount of the Notes will
be due and payable on July 15, 2044 for Series A and Series B, and April 10, 2045 for Series C.
Fair value of the notes approximates carrying amount because the interest rate fluctuates with
changes in interest rates available in the current market.
Holders of the Notes are entitled to receive cash interest payments at an annual rate that may vary
for each rate period. Interest rates for Series A, Series B, and Series C as of May 31, 2005 were
3.40%, 3.44%, and 3.35%, respectively. The weighted average interest rates for Series A, Series B,
and Series C for the period from December 1, 2004 through May 31, 2005, were 2.97%, 2.99%, and
3.38%, respectively. These rates include the applicable rate based on the latest results of the
auction, plus commissions paid to the auction agent in the amount of 0.25%. For each subsequent
rate period, the interest rate will be determined by an auction conducted in accordance with the
procedures described in the Notes prospectus. Generally, the rate period will be 28 days for
Series A and Series B, and 7 days for Series C. The Notes will not be listed on any exchange or
automated quotation system.
19
Notes
to Financial Statements (Unaudited)
(Continued)
The Notes are redeemable in certain circumstances at the option of the Company. The Notes are
also subject to a mandatory redemption if the Company fails to meet an asset coverage ratio
required by law, or fails to cure a deficiency as stated in the Companys rating agency guidelines
in a timely manner.
The Notes are unsecured obligations of the Company and, upon liquidation, dissolution or winding up
of the Company, will rank: (1) senior to all the Companys outstanding preferred shares; (2) senior
to all of the Companys outstanding common shares; (3) on a parity with any unsecured creditors of
the Company and any unsecured senior securities representing indebtedness of the Company; and (4)
junior to any secured creditors of the Company.
8. Preferred Shares
The Company has 7,500 authorized preferred shares, of which 1,400 shares (MMP Shares) are
currently outstanding. The MMP Shares have rights determined by the Board of Directors. The MMP
Shares have a liquidation value of $25,000 per share plus any accumulated, but unpaid dividends,
whether or not declared.
Holders of the MMP Shares are entitled to receive cash dividend payments at an annual rate that may
vary for each rate period. The dividend rate as of May 31, 2005 was 3.45%. The weighted average
dividend rate for the period from December 1, 2004 through May 31, 2005, was 3.12%. This rate
includes the applicable rate based on the latest results of the auction, plus commissions paid to
the auction agent in the amount of 0.25%. Under the Investment Company Act of 1940, the Company may
not declare dividends or make other distribution on shares of common stock or purchases of such
shares if, at the time of the declaration, distribution or purchase, asset coverage with respect to
the outstanding Preferred Shares would be less than 200%.
The MMP Shares are redeemable in certain circumstances at the option of the Company. The MMP Shares
are also subject to a mandatory redemption if the Company fails to meet an asset coverage ratio
required by law, or fails to cure a deficiency as stated in the Companys rating agency guidelines
in a timely manner.
The holders of MMP Shares have voting rights equal to the holders of common stock (one vote per
share) and will vote together with the holders of shares of common stock as a single class except
on matters affecting only the holders of preferred stock or the holders of common stock.
20
Notes
to Financial Statements (Unaudited)
(Continued)
9. Interest Rate Swap Contracts
The Company has entered into interest rate swap contracts to protect itself from increasing
interest expense on its leverage resulting from increasing short-term interest rates. A decline in
interest rates may result in a decline in the value of the swap contracts, which may result in a
decline in the net assets of the Company. In addition, if the counterparty to the interest rate
swap contracts defaults, the Company would not be able to use the anticipated receipts under the
swap contracts to offset the interest payments on the Companys leverage. At the time the interest
rate swap contracts reach their scheduled termination, there is a risk that the Company would not
be able to obtain a replacement transaction or that the terms of the replacement would not be as
favorable as on the expiring transaction. In addition, if the Company is required to terminate any
swap contract early due to the Company failing to maintain a required 300% asset coverage of the
liquidation value of the outstanding auction rate senior notes or if the Company loses its credit
rating on its auction rate senior notes, then the Company could be required to make a termination
payment, in addition to redeeming all or some of the auction rate senior notes. Details of the
interest rate swap contracts outstanding as of May 31, 2005, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
Floating Rate |
|
Unrealized |
|
|
Maturity |
|
Notional |
|
Paid by the |
|
Received by |
|
Appreciation/ |
Counterparty |
|
Date |
|
Amount |
|
Company |
|
the Company |
|
(Depreciation) |
|
U.S. Bank, N.A. |
|
|
7/10/2007 |
|
|
$ |
60,000,000 |
|
|
|
3.54 |
% |
|
1 month U.S. Dollar LIBOR |
|
$ |
389,664 |
|
U.S. Bank, N.A* |
|
|
7/10/2011 |
|
|
|
60,000,000 |
|
|
|
4.63 |
% |
|
1 month U.S. Dollar LIBOR |
|
|
(776,012 |
) |
U.S. Bank, N.A. |
|
|
7/17/2007 |
|
|
|
50,000,000 |
|
|
|
3.56 |
% |
|
1 month U.S. Dollar LIBOR |
|
|
320,448 |
|
U.S. Bank, N.A* |
|
|
7/17/2011 |
|
|
|
50,000,000 |
|
|
|
4.64 |
% |
|
1 month U.S. Dollar LIBOR |
|
|
(651,695 |
) |
U.S. Bank, N.A. |
|
|
5/01/2014 |
|
|
|
55,000,000 |
|
|
|
4.54 |
% |
|
1 week U.S. Dollar LIBOR |
|
|
(1,327,915 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,045,510 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The Company has entered into additional interest rate swap contracts for Series A and Series
B notes with settlements commencing on 7/10/2007 and 7/17/2007, respectively. |
The Company is exposed to credit risk on the interest rate swap contracts if the counterparty
should fail to perform under the terms of the interest rate swap contracts. The amount of credit
risk is limited to the net appreciation of the interest rate swap contract, as no collateral is
pledged by the counterparty.
21
Notes
to Financial Statements (Unaudited)
(Continued)
10. Common Stock
The Company has 100,000,000 shares of capital stock authorized and 14,787,324 common shares
outstanding at May 31, 2005. Transactions in common shares for the period February 27, 2004
to November 30, 2004 and from December 1, 2004 to May 31, 2005, were as follows:
|
|
|
|
|
Shares at February 27, 2004 |
|
|
23,047 |
|
Shares sold through initial public offering and exercise of over allotment options |
|
|
12,600,000 |
|
Shares issued through reinvestment of dividends |
|
|
61,107 |
|
|
|
|
|
|
Shares at November 30, 2004 |
|
|
12,684,154 |
|
Shares sold through secondary offering and exercise of over allotment options |
|
|
2,018,281 |
|
Shares issued through reinvestment of dividends |
|
|
84,889 |
|
|
|
|
|
|
Shares at May 31, 2005 |
|
|
14,787,324 |
|
|
|
|
|
|
11. Subsequent Events
On June 1, 2005 the Company paid a dividend in the amount of $0.445 per share, for a total of
$6,580,360. Of this total, the dividend reinvestment amounted to $1,228,447.
The Company issued $35,000,000 of Series II Money Market Cumulative Preferred shares. The issuance
closed in July 2005.
22
Additional
Information (Unaudited)
Stockholder Proxy Voting Results
The Annual Meeting of stockholders was held on April 15, 2005. The matters considered at
the meeting, together with the actual vote tabulations relating to such matters are as
follows:
1. |
|
To elect Conrad S. Ciccotello as Director of the Company, to hold office for a term of
three years and until his successor is duly elected and qualified. |
|
|
|
|
|
|
|
No. of Shares |
Affirmative |
|
|
14,117,457 |
|
Withhold |
|
|
414,746 |
|
TOTAL |
|
|
14,532,203 |
|
|
|
Charles E. Heath and Terry C. Matlack continued as directors and their terms
expire on the date of the 2006 annual meeting of stockholders and John R. Graham and H.
Kevin Birzer continued as directors and their terms expire on the date of the 2007
annual meeting of stockholders. |
|
2. |
|
To grant the Company the authority to sell a limited number of its common shares for
less than net asset value, subject to certain conditions. |
|
|
|
Vote of Common Stockholders of Record |
|
|
|
|
|
|
|
No. of Recordholders |
Affirmative |
|
|
47 |
|
Against |
|
|
1 |
|
Abstain |
|
|
4 |
|
TOTAL |
|
|
52 |
|
|
|
Vote of Common Stockholders and Preferred Stockholders voting together as
separate class |
|
|
|
|
|
|
|
No. of Shares |
Affirmative |
|
|
3,200,966 |
|
Against |
|
|
1,293,341 |
|
Abstain |
|
|
87,422 |
|
Broker Non-votes |
|
|
9,950,394 |
|
TOTAL |
|
|
14,532,123 |
|
3. |
|
To ratify the selection of Ernst & Young LLP as independent registered certified
public accountants of the Company for its fiscal year ending November 30, 2005. |
|
|
|
|
|
|
|
No. of Shares |
Affirmative |
|
|
14,102,577 |
|
Against |
|
|
394,485 |
|
Abstain |
|
|
35,061 |
|
TOTAL |
|
|
14,532,123 |
|
23
Additional
Information (Unaudited)
(Continued)
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Securities Act of 1933
and the Securities Act of 1934. By their nature, all forward-looking statements involve risks and
uncertainties, and actual results could differ materially from those contemplated by the
forward-looking statements. Several factors that could materially affect Tortoise Energys actual
results are the performance of the portfolio of stocks held by Tortoise Energy, the conditions in
the U.S. and international financial, petroleum and other markets, the price at which shares of
Tortoise Energy will trade in the public markets and other factors discussed in Tortoise Energys
periodic filings with the Securities and Exchange Commission.
Proxy Voting Policies
A description of the policies and procedures that Tortoise Energy uses to determine how to vote
proxies relating to portfolio securities owned by Tortoise Energy and information regarding how
Tortoise Energy voted proxies relating to the portfolio of securities during the period ended
June 30, 2004 is available to stockholders (i.e., without charge, upon request) (i) by calling
Tortoise Energy at (913) 981-1020 or toll-free at 1-888-728-8784; and (ii) on the Securities and
Exchange Commissions website at www.sec.gov.
Form N-Q
The Company files its complete schedule of portfolio holdings for the first and third quarters of
each fiscal year with the Securities and Exchange Commission on Form N-Q. The Companys Form N-Q
and statement of additional information are available without charge upon request by calling the
Company at 1-888-728-8784 or by visiting the U.S. Securities and Exchange Commissions website at
www.sec.gov. In addition, you may review and copy the Companys Forms N-Q at the Commissions Public
Reference Room in Washington, D.C. You may obtain information on the operation of the Public
Reference Room by calling 1-800-SEC-0330.
24
Investment Adviser
Tortoise Capital Advisors, L.L.C.
10801 Mastin Boulevard, Suite 222
Overland Park, KS 66210
p: (913) 981-1020
f: (913) 981-1021
www.tortoiseadvisors.com
Executive Management of
Tortoise Capital Advisors, L.L.C.
H. Kevin Birzer
Zachary A. Hamel
Kenneth P. Malvey
Terry Matlack
David J. Schulte
Board of Directors of
Tortoise Energy Infrastructure
Corporation
H. Kevin Birzer, Chairman
Tortoise Capital Advisors, L.L.C.
Terry Matlack
Tortoise Capital Advisors, L.L.C.
Conrad S. Ciccotello
Independent
John R. Graham
Independent
Charles E. Heath
Independent
ADMINISTRATOR
U.S. Bancorp Fund Services, L.L.C.
615 East Michigan Street
Milwaukee, Wl 53202
TRANSFER AGENT
Computershare Investor Services, L.L.C.
2 North LaSalle Street
Chicago, IL 60602
CUSTODIAN
U.S. Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
LEGAL COUNSEL
Blackwell Sanders Peper Martin LLP
4801 Main Street, Suite 1000
Kansas City, MO 64112
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
One Kansas City Place
1200 Main Street
Kansas City, MO 64105
TOLL FREE TELEPHONE NUMBER
1-888-728-8784
WEBSITE
www.tortoiseenergy.com
CORPORATE ADDRESS
Tortoise Energy Infrastructure
Corporation
10801 Mastin Boulevard, Suite 222
Overland Park, KS 66210
(913) 981-1020
STOCK SYMBOL
Listed NYSE Symbol : TYG
STOCKHOLDER COMMUNICATION
AND ASSISTANCE
(913) 981-1020
www.tortoiseenergy.com
This report is for stockholder information. This is not a prospectus intended
for use in the purchase or sale of fund shares. Past performance is of course no
guarantee of future results and your investment may be worth more or less at the
time you sell.
TABLE OF CONTENTS
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. Schedule of Investments.
Schedule of Investments is included as part of the report to shareholders filed under Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable for semi-annual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
A. |
|
Not applicable for semi-annual reports. |
|
B. |
|
None. |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchases.
|
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(d) |
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|
|
|
Maximum Number |
|
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|
|
|
|
|
|
|
|
(c) |
|
|
(or Approximate |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Dollar Value) of |
|
|
|
|
|
|
|
|
|
|
|
Shares (or Units) |
|
|
Shares (or Units) |
|
|
|
(a) |
|
|
|
|
|
|
Purchased as Part |
|
|
that May Yet Be |
|
|
|
Total Number of |
|
|
(b) |
|
|
of Publicly |
|
|
Purchased Under |
|
|
|
Shares (or Units) |
|
|
Average Price Paid |
|
|
Announced Plans |
|
|
the Plans or |
|
Period |
|
Purchased |
|
|
per Share (or Unit) |
|
|
or Programs |
|
|
Programs |
|
Month #1
12/1/04-12/31/04 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Month #2
1/1/05-1/31/05 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Month #3
2/1/05-2/28/05 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number |
|
|
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(c) |
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(or Approximate |
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Total Number of |
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Dollar Value) of |
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Shares (or Units) |
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Shares (or Units) |
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(a) |
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Purchased as Part |
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that May Yet Be |
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Total Number of |
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(b) |
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of Publicly |
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Purchased Under |
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Shares (or Units) |
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Average Price Paid |
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Announced Plans |
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the Plans or |
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Period |
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Purchased |
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per Share (or Unit) |
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or Programs |
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Programs |
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Month #4
3/1/05-3/31/05 |
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0 |
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0 |
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0 |
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0 |
|
Month #5
4/1/05-4/30/05 |
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0 |
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0 |
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0 |
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0 |
|
Month #6
5/1/05-5/31/05 |
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0 |
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0 |
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0 |
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0 |
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Total |
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0 |
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0 |
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0 |
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0 |
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Item 10. Submission of Matters to a Vote of Security Holders.
No such applicable matters were voted on during the period covered by this report.
Item 11. Controls and Procedures.
(a) |
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The Registrants President/Chief Executive Officer and Treasurer/Chief Financial Officer have
concluded that the Registrants disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940 (the 1940 Act)) are effective as of a date
within 90 days of the filing date of the report, based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under
the Securities Exchange Act of 1934, as amended. |
(b) |
|
There were no significant changes in the Registrants internal controls over financial
reporting (as defined in rule 30a-3(d)) that occurred during the Registrants most recent
fiscal half-year that have materially affected, or are reasonably likely to materially affect,
the Registrants internal control over financial reporting. |
Item 12. Exhibits.
(a) |
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(1) Any code of ethics or amendment thereto, that is subject of the disclosure required by
Item 2, to the extent that the Registrant intends to satisfy Item 2 requirements through
filing an exhibit. Not Applicable. |
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(2) |
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Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. |
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(3) |
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Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given
during the period covered by the report by or on behalf of the Registrant to 10 or more persons.
None. |
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(b) |
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company
Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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(Registrant) Tortoise Energy Infrastructure Corporation |
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By (Signature and Title)*
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/s/ David J. Schulte |
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David J. Schulte, President |
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Date August 5, 2005 |
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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.
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By (Signature and Title)*
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/s/ |
David J. Schulte |
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David J. Schulte, President |
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Date August 5, 2005 |
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By (Signature and Title)*
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/s/ |
Terry C. Matlack, Treasurer |
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Terry C. Matlack, Treasurer |
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Date August 5, 2005 |
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* Print the name and title of each signing officer under his or her signature.
3