nv30bv2
Company at a Glance
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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 units trade 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. 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 mid-stream (mostly 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 Corporationaccruing 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:
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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.
· |
October 25, 2005
Dear Fellow Stockholders,
We are pleased to submit to you our report for Tortoise Energy Infrastructure Corporation for the
quarter ended August 31, 2005. As of quarter end, total assets of Tortoise Energy were
approximately $746.8 million.
Tortoise Energy paid its third dividend for fiscal year 2005 of $0.45 per share to stockholders on
September 1, 2005. This represents the third consecutive dividend increase since our full dividend
of $0.43 per share last December, the first dividend to reflect full investment of IPO proceeds.
This increase was due to the successful investment of proceeds from the preferred shares offering,
and continued growth in the distributions we received from MLPs. We continue to expect that a
significant portion of dividends paid in 2005 will be treated as return of capital for income tax
purposes.
Calculation of Distributable Cash Flow (DCF)(1)
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Q4 2004 |
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Q1 2005 |
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Q2 2005 |
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Q3 2005 |
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Distributions received from MLPs |
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$ |
7,273,590 |
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$ |
7,642,832 |
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$ |
8,546,046 |
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$ |
9,863,994 |
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Plus: Stock dividend |
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633,690 |
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1,001,416 |
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1,050,924 |
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1,153,584 |
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Interest and dividend income |
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237,239 |
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297,857 |
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346,928 |
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258,301 |
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Total from investments |
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$ |
8,144,519 |
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$ |
8,942,105 |
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$ |
9,943,898 |
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$ |
11,275,879 |
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Net operating
expenses(2) |
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(2,468,641 |
) |
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(2,478,064 |
) |
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(3,414,882 |
) |
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(3,962,423 |
) |
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Distributable cash flow |
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$ |
5,675,878 |
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$ |
6,464,041 |
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$ |
6,529,016 |
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$ |
7,313,456 |
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Shares outstanding |
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12,684,154 |
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14,744,095 |
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14,787,324 |
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14,831,611 |
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Dividend per share |
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$ |
0.43 |
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$ |
0.44 |
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$ |
0.445 |
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$ |
0.45 |
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Dividend as a % of DCF |
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96.1 |
% |
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100.4 |
% |
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100.8 |
% |
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91.3 |
% |
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(1) |
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For complete financial information, refer to the financial statements and footnotes included in this report. |
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(2) |
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Current and anticipated operating expenses for the period, including leverage costs, less the expense reimbursement and waiver from the
adviser. |
Investment Review
Tortoise Energy was particularly active in the direct placement market this quarter, closing four
investments totaling $46 million. Direct placements account for approximately 40% of the funds
invested to date. We are fully invested as of this report.
MLP Overview and Investment Outlook
For the quarter ended August 31, 2005, the MLP sector once again outperformed the S&P 500 Index.
The success of the sector has been driven by the ability of MLP companies to continue to increase
their quarterly distributions due to organic growth and accretive acquisitions.
1
In August, President Bush signed the Energy Policy Act of 2005. The bill, which is the first
broad overhaul of energy policies in 13 years, will create more incentives to:
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Develop domestic oil and gas production; |
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Encourage importation of liquefied natural gas; and |
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Advance coal burning technology. |
We believe the net effect of this legislation will be positive for investors in MLPs, and especially
the infrastructure sector in which we invest.
We do not expect recent hurricane activity in the Gulf of Mexico to adversely affect
the distributions to investors or diminish the long-term growth prospects of the industry.
Hurricane activity has, however, highlighted the sensitive balance between supply and demand
that exists today in the U.S., underscoring the need for significant energy infrastructure
investment to deliver additional supplies from areas in and outside the Gulf of Mexico.
It is our belief that MLPs are likely to play a key role in the development of these areas.
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 Managing Directors
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 |
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August 31, 2005 |
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Market value per share |
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$ |
32.10 |
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Net asset value per share |
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29.16 |
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Total net assets |
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432,552,735 |
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Unrealized appreciation on investments before deferred taxes |
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100,358,796 |
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After taxes |
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60,518,987 |
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Net investment loss |
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(2,118,513 |
) |
Total realized gain |
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2,415,545 |
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Total return (based on market value) |
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24.29 |
% |
Ratio of expenses to average net assets(1) |
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2.60 |
% |
Ratio of expenses to average net assets, excluding interest
and auction agent
fees(2) |
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1.47 |
% |
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(1) |
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Annualized. Represents expenses, after fee reimbursement. |
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(2) |
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Annualized. Represents expenses, after fee reimbursement, excluding interest and auction agent fees. |
Allocation of Portfolio
Assets
August 31, 2005
(Percentages based on total
investment portfolio)
3
Schedule of Investments (Unaudited)
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August 31,2005 |
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Shares |
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Value |
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Common Stock0.84%+ |
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Natural Gas Gathering/Processing0.84%+ |
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Crosstex Energy, Inc. (Cost $2,280,917) |
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56,536 |
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$ |
3,626,137 |
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Master Limited Partnerships165.96%+ |
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Coal1.89%+ |
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Natural Resource Partners, L.P. |
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132,800 |
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8,167,200 |
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Crude/Refined Products Pipelines99.14%+ |
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Buckeye Partners, L.P. |
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631,682 |
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29,846,974 |
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Enbridge Energy Partners, L.P. |
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920,500 |
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49,651,770 |
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Holly Energy Partners, L.P. |
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427,070 |
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17,915,587 |
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Kinder Morgan Management, LLC# |
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1,413,286 |
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67,244,148 |
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Magellan Midstream Partners, L.P. |
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1,683,274 |
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55,548,042 |
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Magellan Midstream Partners, L.P.^ |
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521,739 |
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15,975,648 |
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Pacific Energy Partners, L.P. |
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656,500 |
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21,520,070 |
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Plains All American Pipeline, L.P. |
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1,280,955 |
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60,012,742 |
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Sunoco Logistics Partners, L.P. |
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934,625 |
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36,319,527 |
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TEPPCO Partners, L.P. |
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812,745 |
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33,615,133 |
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Valero, L.P. |
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709,874 |
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41,193,988 |
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428,843,629 |
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Natural Gas/Natural Gas Liquid
Pipelines14.61%+ |
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Enterprise GP Holdings, L.P. |
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71,400 |
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2,277,660 |
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Enterprise Products Partners, L.P. |
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1,852,300 |
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44,973,844 |
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Enterprise Products Partners, L.P.^ |
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396,640 |
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9,003,728 |
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Northern Border Partners, L.P. |
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144,600 |
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|
6,919,110 |
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63,174,342 |
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Natural Gas Gathering/Processing31.75%+ |
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Copano Energy, LLC |
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91,950 |
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3,631,106 |
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Copano Energy, LLC^ |
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117,639 |
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|
4,552,629 |
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Copano Energy, LLCClass B^ |
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414,062 |
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15,614,278 |
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Crosstex Energy L.P.^ |
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160,009 |
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|
6,070,741 |
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Energy Transfer Partners, L.P. |
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1,804,600 |
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66,752,154 |
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Hiland Partners, L.P. |
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36,548 |
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|
1,407,098 |
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Markwest Energy Partners, L.P. |
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226,100 |
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11,282,390 |
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Markwest Energy Partners, L.P.^ |
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579,710 |
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26,469,559 |
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Williams Partners, L.P. |
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59,750 |
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1,552,305 |
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137,332,260 |
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4
Schedule of Investments (Unaudited)
(Continued)
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August 31, 2005 |
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Shares |
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Value |
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Shipping5.46%+ |
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K-Sea Transportation Partners, L.P. |
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71,300 |
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$ |
2,855,565 |
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K-Sea Transportation Partners, L.P.^ |
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500,000 |
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18,635,000 |
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Teekay LNG Partners, L.P. |
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67,200 |
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2,140,320 |
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23,630,885 |
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Propane Distribution13.11%+ |
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Inergy, L.P. |
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1,767,979 |
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52,632,735 |
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Inergy, L.P. ^ |
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82,655 |
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2,180,439 |
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Inergy Holdings, L.P. |
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61,761 |
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1,912,121 |
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56,725,295 |
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Total Master Limited Partnerships (Cost $540,275,045) |
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717,873,611 |
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Principal |
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Promissory Notes1.51%+ |
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Amount |
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Shipping1.51%+ |
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E.W. Transportation, LLCUnregistered, 8.48%, Due
03/31/2009 (Cost $6,533,999)^@ |
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$ |
6,610,864 |
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|
6,533,999 |
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Short-Term Investments2.27% + |
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Shares |
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First American Prime Obligations Money Market
FundClass Z (Cost $9,793,529)* |
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9,793,529 |
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9,793,529 |
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|
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Total
Investments170.58%+(Cost $558,883,490) |
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|
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|
737,827,276 |
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Auction Rate Senior Notes(38.15%)+ |
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(165,000,000 |
) |
Interest Rate Swap Contracts(0.29%)+ |
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$165,000,000 notionalUnrealized Depreciation |
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(1,248,872 |
) |
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Liabilities in Excess of Other Assets(15.96%)+ |
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(69,025,669 |
) |
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Preferred Shares at Redemption Value(16.18%)+ |
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(70,000,000 |
) |
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Total Net Assets Applicable to Common
Stockholders100.00%+ |
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$ |
432,552,735 |
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Footnotes and Abbreviations |
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+ |
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Calculated as a percentage of net assets applicable to common stockholders. |
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^ |
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Fair valued securities represent a total market value of $105,036,021 which
represents 24.28% of net assets. These securities are deemed to be restricted; see note 6 for
further disclosure. |
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# |
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Security distributions are paid in kind. |
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@ |
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Security is a variable rate instrument. Interest rate is as of August 31, 2005. |
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* |
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All or a portion of the security is segregated as collateral for the unrealized depreciation
on interest rate swap contracts. |
See Accompanying Notes to the Financial Statements.
5
Statement of Assets & Liabilities (Unaudited)
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August 31, 2005 |
|
Assets |
|
|
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Investments at value (Cost $558,883,490) |
|
$ |
737,827,276 |
|
Cash |
|
|
6,104,571 |
|
Receivable for Adviser reimbursement |
|
|
285,848 |
|
Interest and dividend receivable |
|
|
58,121 |
|
Prepaid expenses and other assets |
|
|
2,521,610 |
|
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|
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Total assets |
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746,797,426 |
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Liabilities |
|
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Payable to Adviser |
|
|
1,180,677 |
|
Dividend payable on common shares |
|
|
6,674,225 |
|
Dividend payable on preferred shares |
|
|
112,633 |
|
Accrued expenses and other liabilities |
|
|
706,693 |
|
Unrealized depreciation on interest rate swap contracts |
|
|
1,248,872 |
|
Deferred tax liability |
|
|
69,321,591 |
|
Auction rate senior notes payable: |
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Series A, due July 15, 2044 |
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|
60,000,000 |
|
Series B, due July 15, 2044 |
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|
50,000,000 |
|
Series C, due April 10, 2045 |
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|
55,000,000 |
|
|
|
|
|
Total liabilities |
|
|
244,244,691 |
|
|
|
|
|
Preferred Shares |
|
|
|
|
$25,000 liquidation value per share applicable to 2,800 outstanding
shares (7,500 shares authorized) |
|
|
70,000,000 |
|
|
|
|
|
Net assets applicable to common stockholders |
|
$ |
432,552,735 |
|
|
|
|
|
Net Assets Applicable to Common Stockholders Consist of |
|
|
|
|
Capital stock, $0.001 par value; 14,831,611 shares issued and
outstanding (100,000,000 shares authorized) |
|
$ |
14,832 |
|
Additional paid-in capital |
|
|
324,130,057 |
|
Accumulated net investment loss, net of deferred tax benefit |
|
|
(2,361,801 |
) |
Undistributed realized gain, net of deferred tax expense |
|
|
2,381,518 |
|
Net unrealized gain on investments and interest rate swap contracts,
net of deferred tax expense |
|
|
108,388,129 |
|
|
|
|
|
Net assets applicable to common stockholders |
|
$ |
432,552,735 |
|
|
|
|
|
Net Asset Value per common share outstanding (net assets applicable
to common shares, divided by common shares outstanding) |
|
$ |
29.16 |
|
|
|
|
|
See Accompanying Notes to the Financial Statements.
6
Statement of Operations (Unaudited)
|
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|
|
|
|
|
Nine Months |
|
|
|
Ended |
|
|
|
August 31, 2005 |
|
Investment Income |
|
|
|
|
Distributions received from master limited partnerships |
|
$ |
26,052,873 |
|
Less: return of capital on distributions |
|
|
(22,376,906 |
) |
|
|
|
|
Distribution income from master limited partnerships |
|
|
3,675,967 |
|
Dividends from money market mutual funds |
|
|
415,745 |
|
Interest |
|
|
487,341 |
|
|
|
|
|
Total Investment Income |
|
|
4,579,053 |
|
|
|
|
|
Expenses |
|
|
|
|
Advisory fees |
|
|
4,624,554 |
|
Professional fees |
|
|
302,565 |
|
Administrator fees |
|
|
320,014 |
|
Directors fees |
|
|
60,647 |
|
Custodian fees and expenses |
|
|
51,313 |
|
Reports to stockholders |
|
|
130,528 |
|
Registration fees |
|
|
36,645 |
|
Fund accounting fees |
|
|
45,872 |
|
Stock transfer agent fees |
|
|
9,080 |
|
Other expenses |
|
|
96,635 |
|
|
|
|
|
Total Expenses before Interest Expense and Auction Agent Fees |
|
|
5,677,853 |
|
|
|
|
|
Interest expense on auction rate senior notes |
|
|
3,192,178 |
|
Auction agent fees |
|
|
300,523 |
|
|
|
|
|
|
|
|
3,492,701 |
|
|
|
|
|
Total Expenses |
|
|
9,170,554 |
|
|
|
|
|
Less expense reimbursement by Adviser |
|
|
(1,119,629 |
) |
|
|
|
|
Net Expenses |
|
|
8,050,925 |
|
|
|
|
|
Net Investment Loss, before Deferred Tax Benefit |
|
|
(3,471,872 |
) |
Deferred tax benefit |
|
|
1,353,359 |
|
|
|
|
|
Net Investment Loss |
|
|
(2,118,513 |
) |
|
|
|
|
7
Statement of Operations (Unaudited)
(Continued)
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended August 31, |
|
|
|
2005 |
|
Realized and Unrealized Gain (Loss) on Investments |
|
|
|
|
Net realized gain on investments |
|
$ |
4,769,035 |
|
Net realized loss on interest rate swap
settlements |
|
|
(808,025 |
) |
|
|
|
|
Net realized gain, before deferred tax expense |
|
|
3,961,010 |
|
Deferred tax expense |
|
|
(1,545,465 |
) |
|
|
|
|
Net realized gain on investments and interest rate swap settlements |
|
|
2,415,545 |
|
|
|
|
|
Net unrealized appreciation of investments |
|
|
100,358,796 |
|
Net
unrealized depreciation of interest rate swap contracts |
|
|
(1,040,342 |
) |
|
|
|
|
Net unrealized gain, before deferred tax expense |
|
|
99,318,454 |
|
Deferred tax expense |
|
|
(38,799,467 |
) |
|
|
|
|
Net unrealized appreciation of investments and interest rate swap
contracts |
|
|
60,518,987 |
|
|
|
|
|
Net Realized and Unrealized Gain on Investments |
|
|
62,934,532 |
|
|
|
|
|
Dividends to Preferred Stockholders |
|
|
(971,186 |
) |
|
|
|
|
Net Increase in Net Assets Applicable to Common Stockholders Resulting from
Operations |
|
$ |
59,844,833 |
|
|
|
|
|
See Accompanying Notes to the Financial Statements.
8
Statement of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
Nine Months |
|
|
February 27, 2004(1) |
|
|
|
Ended |
|
|
through |
|
|
|
August 31, 2005 |
|
|
November 30, 2004 |
|
|
|
(Unaudited) |
|
|
|
|
|
Operations |
|
|
|
|
|
|
|
|
Net investment loss |
|
$ |
(2,118,513 |
) |
|
$ |
(243,288 |
) |
Net realized gain (loss) on investments and
interest rate swap settlements |
|
|
2,415,545 |
|
|
|
(34,027 |
) |
Net unrealized appreciation of investments and
interest rate swap contracts |
|
|
60,518,987 |
|
|
|
47,869,142 |
|
Dividends to preferred stockholders |
|
|
(971,186 |
) |
|
|
(152,568 |
) |
|
|
|
|
|
|
|
Net increase in net assets applicable
to common stockholders resulting
from operations |
|
|
59,844,833 |
|
|
|
47,439,259 |
|
|
|
|
|
|
|
|
Dividends and Distributions to
Common Stockholders |
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
Return of capital |
|
|
(19,742,039 |
) |
|
|
(12,278,078 |
) |
|
|
|
|
|
|
|
Total dividends to common stockholders |
|
|
(19,742,039 |
) |
|
|
(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 |
|
|
(419,335 |
) |
|
|
(725,000 |
) |
Issuance of 129,176 and 61,107 common shares
from reinvestment of dividend distributions to
stockholders, respectively |
|
|
3,560,436 |
|
|
|
1,453,105 |
|
|
|
|
|
|
|
|
Net increase in net assets, applicable to common
stockholders, from capital share transactions |
|
|
55,897,398 |
|
|
|
301,022,940 |
|
|
|
|
|
|
|
|
Total increase in net assets applicable to common
stockholders |
|
|
96,000,192 |
|
|
|
336,184,121 |
|
Net Assets |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
336,552,543 |
|
|
|
368,422 |
|
|
|
|
|
|
|
|
End of period |
|
$ |
432,552,735 |
|
|
$ |
336,552,543 |
|
|
|
|
|
|
|
|
Accumulated net investment loss, net of deferred
tax benefit, at the end of period |
|
$ |
(2,361,801 |
) |
|
$ |
(243,288 |
) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Commencement of Operations. |
See Accompanying Notes to the Financial Statements.
9
Statement of Cash Flows (Unaudited)
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended |
|
|
|
August 31, 2005 |
|
Cash Flows from Operating Activities |
|
|
|
|
Distributions received from master limited partnerships |
|
$ |
26,052,873 |
|
Interest and dividend income received |
|
|
854,203 |
|
Purchases of long-term investments |
|
|
(158,164,991 |
) |
Proceeds from sale of long-term investments |
|
|
22,258,158 |
|
Net purchases of short-term investments |
|
|
(6,584,203 |
) |
Payments for interest rate swap contracts |
|
|
(808,025 |
) |
Interest expense paid |
|
|
(3,485,191 |
) |
Commitment fee received |
|
|
99,999 |
|
Operating expenses paid |
|
|
(4,385,400 |
) |
|
|
|
|
Net cash used in operating activities |
|
|
(124,162,577 |
) |
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
Issuance of common stock |
|
|
55,199,985 |
|
Issuance of preferred stock |
|
|
35,000,000 |
|
Issuance of auction rate senior notes payable |
|
|
55,000,000 |
|
Common and preferred stock issuance costs |
|
|
(2,544,975 |
) |
Debt issuance costs |
|
|
(804,099 |
) |
Dividends paid to preferred stockholders |
|
|
(901,039 |
) |
Dividends paid to common stockholders |
|
|
(14,961,564 |
) |
|
|
|
|
Net cash provided by financing activities |
|
|
125,988,308 |
|
|
|
|
|
Net increase in cash |
|
|
1,825,731 |
|
Cashbeginning of period |
|
|
4,278,840 |
|
|
|
|
|
Cashend of period |
|
$ |
6,104,571 |
|
|
|
|
|
10
Statement of Cash Flows (Unaudited)
(Continued)
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended |
|
|
|
August 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 |
|
$ |
59,844,833 |
|
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 |
|
|
(135,788,085 |
) |
Proceeds from sales of long-term investments |
|
|
22,258,158 |
|
Purchases of short-term investments, net |
|
|
(6,584,203 |
) |
Deferred income taxes |
|
|
38,991,573 |
|
Net unrealized appreciation on investments and interest
rate swap contracts |
|
|
(99,318,454 |
) |
Realized gains on investments and interest rate
swap settlements |
|
|
(3,961,010 |
) |
Accretion of discount on investments |
|
|
(14,793 |
) |
Amortization of debt issuance costs |
|
|
36,965 |
|
Dividends to preferred stockholders |
|
|
971,186 |
|
Changes in operating assets and liabilities: |
|
|
|
|
Increase in interest and dividend receivable |
|
|
(34,090 |
) |
Increase in prepaid expenses and other assets |
|
|
(668,889 |
) |
Increase in payable to Adviser, net of expense reimbursement |
|
|
(321,531 |
) |
Increase in accrued expenses and other liabilities |
|
|
425,763 |
|
|
|
|
|
Total adjustments |
|
|
(184,007,410 |
) |
|
|
|
|
Net cash used in operating activities |
|
$ |
(124,162,577 |
) |
|
|
|
|
Non-Cash Financing Activities |
|
|
|
|
Reinvestment of distributions by common stockholders in
additional common shares |
|
$ |
3,560,436 |
|
|
|
|
|
See Accompanying Notes to the Financial Statements.
11
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
Nine Months |
|
|
February 27, 2004(1) |
|
|
|
Ended |
|
|
through |
|
|
|
August 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 |
|
|
(0.03 |
) |
|
|
(0.06 |
) |
Premiums and underwriting discounts and offering
costs on secondary offering(7) |
|
|
|
|
|
|
|
|
Income (loss) from Investment Operations: |
|
|
|
|
|
|
|
|
Net investment loss(8) |
|
|
(0.13 |
) |
|
|
(0.03 |
) |
Net realized and unrealized gain on investments(8) |
|
|
4.20 |
|
|
|
3.77 |
|
|
|
|
|
|
|
|
Total increase from investment operations |
|
|
4.07 |
|
|
|
3.74 |
|
|
|
|
|
|
|
|
Less Dividends to Preferred Stockholders: |
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
Return of capital |
|
|
(0.07 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
Total dividends to preferred stockholders |
|
|
(0.07 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
Less Dividends to Common Stockholders: |
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
Return of capital |
|
|
(1.34 |
) |
|
|
(0.97 |
) |
|
|
|
|
|
|
|
Total dividends to common stockholders |
|
|
(1.34 |
) |
|
|
(0.97 |
) |
|
|
|
|
|
|
|
Net Asset Value, end of period |
|
$ |
29.16 |
|
|
$ |
26.53 |
|
|
|
|
|
|
|
|
Per common share market value, end of period |
|
$ |
32.10 |
|
|
$ |
27.06 |
|
Total Investment Return Based on Market Value(3) |
|
|
24.29 |
% |
|
|
12.51 |
% |
Supplemental Data and Ratios |
|
|
|
|
|
|
|
|
Net assets applicable to common stockholders, end of period (000s) |
|
$ |
432,553 |
|
|
$ |
336,553 |
|
Ratio of expenses to average net assets before waiver(4)(6)(9) |
|
|
2.96 |
% |
|
|
2.01 |
% |
Ratio of expenses to average net assets after waiver(4)(6)(9) |
|
|
2.60 |
% |
|
|
1.73 |
% |
Ratio of expenses, without regard to non-recurring organizational expenses,
to average net assets before waiver(4)(6)(9) |
|
|
2.96 |
% |
|
|
1.90 |
% |
Ratio of expenses, without regard to non-recurring organizational
expenses, to average net assets after waiver(4)(6)(9) |
|
|
2.60 |
% |
|
|
1.62 |
% |
Ratio of net investment loss to average net assets before
waiver(4)(6) |
|
|
(1.04 |
)% |
|
|
(0.45 |
)% |
Ratio of net investment loss to average net assets after
waiver(4)(6) |
|
|
(0.68 |
)% |
|
|
(0.17 |
)% |
Portfolio turnover rate |
|
|
3.62 |
% |
|
|
1.39 |
% |
12
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
Nine Months |
|
|
February 27, 2004(1) |
|
|
|
Ended |
|
|
through |
|
|
|
August 31, 2005 |
|
|
November 30, 2004 |
|
|
|
(Unaudited) |
|
|
|
|
|
Tortoise Auction Rate Senior Notes, end of period (000s) |
|
$ |
165,000 |
|
|
$ |
110,000 |
|
Tortoise Preferred Shares, end of period (000s) |
|
$ |
70,000 |
|
|
$ |
35,000 |
|
Per common share amount of auction rate senior notes
outstanding at end of period |
|
$ |
11.12 |
|
|
$ |
8.67 |
|
Per common share amount of net assets, excluding auction rate
senior notes, at end of period |
|
$ |
40.28 |
|
|
$ |
35.21 |
|
Asset coverage, per $1,000 of principal amount of auction
rate senior notes |
Series A |
|
$ |
4,046 |
|
|
$ |
4,378 |
|
Series B |
|
$ |
4,046 |
|
|
$ |
4,378 |
|
Series C |
|
$ |
4,046 |
|
|
$ |
|
|
Asset coverage, per $25,000 liquidation value per share
of preferred shares |
|
$ |
179,483 |
|
|
$ |
265,395 |
|
Asset coverage ratio of auction rate senior
notes(5) |
|
|
405 |
% |
|
|
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 for the period ending August 31, 2005. |
|
(8) |
|
The ratios for the period ended November 30, 2004 do not reflect the change
in estimate of investment income and return of capital. See Note 2. |
|
(9) |
|
The ratios of expenses to average net assets do not include deferred income taxes.
Had deferred income taxes been included, the expense ratios would have been as follows: |
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
Ratio of expenses to average net assets before waiver |
|
|
2.52 |
% |
|
|
1.94 |
% |
Ratio of expenses to average net assets after waiver |
|
|
2.16 |
% |
|
|
1.66 |
% |
Ratio of expenses, without regard to non-recurring
organizational expenses, to average net assets
before waiver |
|
|
2.52 |
% |
|
|
1.83 |
% |
Ratio of expenses, without regard to non-recurring
organizational expenses, to average net assets after
waiver |
|
|
2.16 |
% |
|
|
1.55 |
% |
13
Notes to Financial Statements (Unaudited)
August 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 shareholders.
The Company seeks to provide its shareholders 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 are subject to statutory or 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 August 31,
2005. The reclassification is reflected in the accompanying financial statements.
D. Dividends to Shareholders
Dividends to common shareholders are recorded on the ex-dividend date. The character of dividends
to common shareholders made during the year may differ from their ultimate characterization for
federal income tax purposes. For the periods ended August 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
shareholders is also comprised of 100% return of capital.
Dividends to preferred shareholders 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
15
Notes
To Financial Statements (Unaudited)
(Continued)
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. Organizational Expenses, Offering and Debt Issuance Costs
The Company is responsible for paying all organizational 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 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.
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.
16
Notes to Financial Statements (Unaudited)
(Continued)
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 shareholders. 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 will not
invest more than 10% of its total assets in any single issuer as of the time of purchase. 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.
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.
17
Notes to Financial Statements (Unaudited)
(Continued)
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 August 31, 2005 are as follows:
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
Net operating loss carryforwards |
|
$ |
7,133,234 |
|
Organization costs |
|
|
67,898 |
|
|
|
|
|
|
|
|
7,201,132 |
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
Unrealized gains on investment securities and interest rate swap contracts |
|
|
69,301,017 |
|
Basis reduction of investment in MLPs |
|
|
7,221,706 |
|
|
|
|
|
|
|
|
76,522,723 |
|
|
|
|
|
Total net deferred tax liability |
|
$ |
69,321,591 |
|
|
|
|
|
For the period from December 1, 2004 to August 31, 2005, the components of income tax expense
include $34,992,437 and $3,999,136 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.
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 |
|
$ |
34,932,657 |
|
State income taxes, net of federal tax benefit |
|
|
3,992,304 |
|
Other, net |
|
|
66,612 |
|
|
|
|
|
Total |
|
$ |
38,991,573 |
|
|
|
|
|
At August 31, 2005, the cost basis of investments for federal income tax purposes was
$540,366,295 and gross unrealized appreciation and depreciation of investments for federal
income tax purposes were as follows:
|
|
|
|
|
Gross unrealized appreciation |
|
$ |
197,460,981 |
|
Gross unrealized depreciation |
|
|
|
|
|
|
|
|
Net unrealized appreciation |
|
$ |
197,460,981 |
|
|
|
|
|
18
Notes to Financial Statements (Unaudited)
(Continued)
6. Restricted Securities
Certain of the Companys investments are restricted and are valued as determined in accordance
with procedures established by the Board of Directors and more fully described in Note 2. The
table below shows the number of units held, the acquisition dates, acquisition costs, value per
unit of such securities and percent of net assets which the securities comprise.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Net |
|
Partnership |
|
Security |
|
|
Number of Units |
|
|
Acquisition Date |
|
|
Acquisition Cost |
|
|
Value Per Unit |
|
|
Assets |
|
K-Sea Transportation
Partners, L.P. |
|
Common Units |
|
|
500,000 |
|
|
|
06/01/05 |
|
|
$ |
16,080,000 |
|
|
$ |
37.27 |
|
|
|
4.3 |
% |
Magellan Midstream
Partners, L.P. |
|
Subordinated Units |
|
|
521,739 |
|
|
|
04/13/05 |
|
|
|
14,999,996 |
|
|
|
30.62 |
|
|
|
3.7 |
|
Enterprise Products
Partners, L.P. |
|
Common Units |
|
|
396,640 |
|
|
|
07/22/05 |
|
|
|
10,000,000 |
|
|
|
22.70 |
|
|
|
2.1 |
|
Copano Energy, LLC |
|
Common Units |
|
|
117,639 |
|
|
|
08/01/05 |
|
|
|
3,385,650 |
|
|
|
38.70 |
|
|
|
1.1 |
|
Copano Energy, LLC |
|
Class B Units |
|
|
414,062 |
|
|
|
08/01/05 |
|
|
|
11,614,439 |
|
|
|
37.71 |
|
|
|
3.6 |
|
Crosstex Energy, L.P. |
|
Subordinated Units |
|
|
160,009 |
|
|
|
06/24/05 |
|
|
|
5,350,004 |
|
|
|
37.94 |
|
|
|
1.4 |
|
Markwest Energy
Partners, L.P. |
|
Common Units |
|
|
579,710 |
|
|
|
07/30/04 |
|
|
|
20,199,995 |
|
|
|
45.66 |
|
|
|
6.1 |
|
Inergy, L.P. |
|
Subordinated Units |
|
|
82,655 |
|
|
|
09/14/04-02/04/05 |
|
|
|
2,232,123 |
|
|
|
26.38 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
83,862,207 |
|
|
|
|
|
|
|
22.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below shows the principal amount, acquisition date, acquisition cost, value
and percent of net assets which the security comprises.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
Principal |
|
|
Acquisition |
|
|
Acquisition |
|
|
|
|
|
|
of Net |
|
Company |
|
Security |
|
|
Amount |
|
|
Date |
|
|
Cost |
|
|
Value |
|
|
Assets |
|
|
|
Promissory |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E.W. Transportation, LLC |
|
Note |
|
$ |
6,610,864 |
|
|
|
05/03/04 |
|
|
$ |
8,569,500 |
|
|
$ |
6,533,999 |
|
|
|
1.5 |
% |
7. Investment Transactions
For the period ended August 31, 2005, the Company purchased (at cost) and sold securities (at
proceeds) in the amount of $158,164,991 and $22,258,158 (excluding short-term debt securities
and interest rate swaps), respectively.
19
Notes to Financial Statements (Unaudited)
(Continued)
8. 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 August 31, 2005
were 3.80%, 3.85%, and 3.80%, respectively. The weighted average interest rates for Series A and
Series B for the period from December 1, 2004 through August 31, 2005, were 3.17% and 3.20%,
respectively. The weighted average interest rate for Series C for the period from April 11, 2005
through August 31, 2005 was 3.50%. 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.
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.
20
Notes to Financial Statements (Unaudited)
(Continued)
9. Preferred Shares
The Company has 7,500 authorized preferred shares, of which 2,800 shares (1,400 MMP Shares and
1,400 MMP II Shares) are currently outstanding. The MMP and MMP II Shares have rights determined by
the Board of Directors. The MMP and MMP II Shares have a liquidation value of $25,000 per share
plus any accumulated, but unpaid dividends, whether or not declared.
Holders of the MMP and MMP II Shares are entitled to receive cash dividend payments at an annual
rate that may vary for each rate period. The dividend rates for MMP and MMP II Shares as of August
31, 2005 were 3.90% and 3.95%, respectively. The weighted average dividend rate for MMP shares for
the period from December 1, 2004 through August 31, 2005 was 3.30%. The weighted average dividend
rate for MMP II shares for the period from July 11, 2005 through August 31, 2005 was 3.79%. 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%. 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 and MMP II Shares are redeemable in certain circumstances at the option of the Company. The
MMP and MMP II 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 and MMP II 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.
21
Notes to Financial Statements (Unaudited)
(Continued)
10. 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 August 31, 2005, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
|
|
|
|
Unrealized |
|
|
|
Maturity |
|
|
Notional |
|
|
Paid by the |
|
|
Floating Rate Received |
|
|
Appreciation/ |
|
Counterparty |
|
Date |
|
|
Amount |
|
|
Company |
|
|
by the Company |
|
|
(Depreciation) |
|
U.S. Bank, N.A. |
|
|
7/10/2007 |
|
|
$ |
60,000,000 |
|
|
|
3.54 |
% |
|
1 month U.S. Dollar LIBOR |
|
$ |
586,919 |
|
U.S. Bank, N.A.* |
|
|
7/10/2011 |
|
|
|
60,000,000 |
|
|
|
4.63 |
% |
|
1 month U.S. Dollar LIBOR |
|
|
(701,449 |
) |
U.S. Bank, N.A. |
|
|
7/17/2007 |
|
|
|
50,000,000 |
|
|
|
3.56 |
% |
|
1 month U.S. Dollar LIBOR |
|
|
(47,865 |
) |
U.S. Bank, N.A.* |
|
|
7/17/2011 |
|
|
|
50,000,000 |
|
|
|
4.64 |
% |
|
1 month U.S. Dollar LIBOR |
|
|
(59,795 |
) |
U.S. Bank, N.A. |
|
|
5/01/2014 |
|
|
|
55,000,000 |
|
|
|
4.54 |
% |
|
1 week U.S. Dollar LIBOR |
|
|
(1,026,682 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,248,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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.
22
Notes to Financial Statements (Unaudited)
(Continued)
11. Common Stock
The Company has 100,000,000 shares of capital stock authorized and 14,831,611 shares
outstanding at August 31, 2005. Transactions in common shares for the period February 27, 2004
to November 30, 2004 and from December 1, 2004 to August 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 |
|
|
129,176 |
|
|
|
|
|
Shares at August 31, 2005 |
|
|
14,831,611 |
|
|
|
|
|
12. Subsequent Events
On September 1, 2005, the Company paid a dividend in the amount of $0.45 per share, for a total
of $6,674,225. Of this total, the dividend reinvestment amounted to $1,019,757.
23
Additional Information (Unaudited)
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Securities Act of
1933 and the Securities Exchange 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 Energy
Infrastructure Corporations actual results are the performance of the portfolio of investments
held by Tortoise Energy Infrastructure Corporation, the conditions in the U.S. and international
financial, petroleum and other markets, the price at which shares of Tortoise Energy Infrastructure
Corporation will trade in the public markets and other factors discussed in Tortoise Energy
Infrastructure Corporations periodic filings with the U.S. 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, 2005 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 U.S. 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, DC.
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
Managing Directors 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, WI 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:
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.