|
Year Ended November
30,
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
Q4
(1)
|
|
Q1
(1)
|
|
Q2
(1)
|
|
Q3
(1)
|
|
Q4
(1)
|
Total Distributions Received from
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received from
master limited partnerships
|
$
|
49,616
|
|
$
|
37,890
|
|
$
|
10,781
|
|
$
|
9,264
|
|
$
|
9,396
|
|
$
|
9,407
|
|
$
|
9,823
|
|
Dividends paid in stock
|
|
8,458
|
|
|
5,184
|
|
|
1,744
|
|
|
1,597
|
|
|
1,279
|
|
|
1,313
|
|
|
995
|
|
Dividends from common
stock
|
|
48
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Short-term interest and
dividend income
|
|
638
|
|
|
67
|
|
|
230
|
|
|
35
|
|
|
24
|
|
|
8
|
|
|
—
|
|
Total from investments
|
|
58,760
|
|
|
43,141
|
|
|
12,755
|
|
|
10,896
|
|
|
10,699
|
|
|
10,728
|
|
|
10,818
|
|
Operating Expenses Before Leverage
Costs and Current Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory fees
|
|
7,400
|
|
|
4,379
|
|
|
1,357
|
|
|
911
|
|
|
1,027
|
|
|
1,184
|
|
|
1,257
|
|
Other operating
expenses
|
|
1,197
|
|
|
1,051
|
|
|
336
|
|
|
251
|
|
|
265
|
|
|
251
|
|
|
284
|
|
|
|
8,597
|
|
|
5,430
|
|
|
1,693
|
|
|
1,162
|
|
|
1,292
|
|
|
1,435
|
|
|
1,541
|
|
Distributable cash flow before
leverage costs and current taxes
|
|
50,163
|
|
|
37,711
|
|
|
11,062
|
|
|
9,734
|
|
|
9,407
|
|
|
9,293
|
|
|
9,277
|
|
Leverage costs
(2)
|
|
20,903
|
|
|
6,533
|
|
|
4,167
|
|
|
1,769
|
|
|
1,592
|
|
|
1,571
|
|
|
1,601
|
|
Current income tax
expense
|
|
660
|
|
|
71
|
|
|
165
|
|
|
16
|
|
|
17
|
|
|
19
|
|
|
19
|
|
Distributable Cash
Flow
(3)
|
$
|
28,600
|
|
$
|
31,107
|
|
$
|
6,730
|
|
$
|
7,949
|
|
$
|
7,798
|
|
$
|
7,703
|
|
$
|
7,657
|
|
|
Distributions paid on common
stock
|
$
|
29,575
|
|
$
|
28,135
|
|
$
|
7,512
|
|
$
|
6,988
|
|
$
|
6,988
|
|
$
|
7,022
|
|
$
|
7,137
|
|
Distributions paid on common stock per share
|
|
1.6975
|
|
|
1.6000
|
|
|
0.4300
|
|
|
0.4000
|
|
|
0.4000
|
|
|
0.4000
|
|
|
0.4000
|
|
Payout percentage for period
(4)
|
|
103.4
|
%
|
|
90.4
|
%
|
|
111.6
|
%
|
|
87.9
|
%
|
|
89.6
|
%
|
|
91.2
|
%
|
|
93.2
|
%
|
Net realized gain (loss), net of income taxes
|
(13,878
|
)
|
(19,885
|
)
|
(20,895
|
)
|
(14,383
|
)
|
(1,946
|
)
|
|
(7,068
|
)
|
|
3,512
|
|
Total assets, end of
period
|
413,669
|
|
558,496
|
|
413,669
|
|
446,491
|
|
496,644
|
|
501,607
|
|
558,496
|
|
Average total assets during period
(5)
|
780,767
|
|
480,781
|
|
607,056
|
|
427,616
|
|
463,344
|
|
502,957
|
|
529,804
|
|
Leverage (long-term debt
obligations, preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and short-term
borrowings)
(6)
|
|
185,000
|
|
164,600
|
|
185,000
|
|
185,000
|
|
185,000
|
|
162,300
|
|
164,600
|
|
Leverage as a percent of total assets
|
|
44.7
|
%
|
|
29.5
|
%
|
|
44.7
|
%
|
|
41.4
|
%
|
|
37.3
|
%
|
|
32.4
|
%
|
|
29.5
|
%
|
Unrealized appreciation
(depreciation), net of income taxes,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
end of period
|
(69,407
|
)
|
107,305
|
|
|
(69,407
|
)
|
(18,876
|
)
|
|
39,808
|
|
|
69,135
|
|
107,305
|
|
Net assets, end of period
|
224,483
|
|
356,015
|
|
224,483
|
|
251,975
|
|
300,601
|
|
316,841
|
|
356,015
|
|
Average net assets during
period
(7)
|
402,149
|
|
289,712
|
|
285,225
|
|
235,948
|
|
268,053
|
|
312,710
|
|
341,531
|
|
Net asset value per common share
|
|
12.85
|
|
|
19.90
|
|
|
12.85
|
|
|
14.42
|
|
|
17.21
|
|
|
18.01
|
|
19.90
|
|
Market value per share
|
|
11.11
|
|
|
22.38
|
|
|
11.11
|
|
|
15.85
|
|
|
17.77
|
|
|
18.23
|
|
|
22.38
|
|
Shares outstanding
|
17,470,673
|
|
17,892,957
|
|
17,470,673
|
|
17,470,673
|
|
17,470,673
|
|
17,595,214
|
|
17,892,957
|
|
|
Selected Operating Ratios
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percent of Average Total
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions received
from investments
|
|
7.53
|
%
|
|
8.97
|
%
|
|
8.45
|
%
|
|
10.33
|
%
|
|
9.16
|
%
|
|
8.46
|
%
|
|
8.19
|
%
|
Operating expenses before
leverage costs and current taxes
|
|
1.10
|
%
|
|
1.13
|
%
|
|
1.12
|
%
|
|
1.10
|
%
|
|
1.11
|
%
|
|
1.13
|
%
|
|
1.17
|
%
|
Distributable cash flow before
leverage costs and current taxes
|
|
6.43
|
%
|
|
7.84
|
%
|
|
7.33
|
%
|
|
9.23
|
%
|
|
8.05
|
%
|
|
7.33
|
%
|
|
7.02
|
%
|
As a Percent of Average Net
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable Cash Flow
(3)
|
|
7.11
|
%
|
|
10.74
|
%
|
|
9.49
|
%
|
|
13.66
|
%
|
|
11.54
|
%
|
|
9.77
|
%
|
|
8.99
|
%
|
(1)
|
|
Q1 is the period from December
through February. Q2 is the period from March through May. Q3 is the
period from June through August. Q4 is the period from September through
November.
|
(2)
|
|
Leverage costs include interest
expense, recurring agent fees, interest rate swap expenses and
distributions to preferred stockholders.
|
(3)
|
|
“Net investment income (loss),
before income taxes” on the Statement of Operations is adjusted as follows
to reconcile to Distributable Cash Flow (DCF): increased by the return of
capital on MLP distributions, the value of paid-in-kind distributions,
premium on redemption of long-term debt obligations, non-recurring agent
fees and amortization of debt issuance costs; and decreased by
distributions to preferred stockholders, current taxes paid, and realized
and unrealized gains (losses) on interest rate swap
settlements.
|
(4)
|
|
Distributions paid as a percentage
of Distributable Cash Flow.
|
(5)
|
|
Computed by averaging month-end
values within each period.
|
(6)
|
|
The balance on the short-term
credit facility was $14,600,000 as of November 30,
2009.
|
(7)
|
|
Computed by averaging daily values
within each period.
|
(8)
|
|
Annualized for periods less than
one full year. Operating ratios contained in our Financial Highlights are
based on net assets and include current and deferred income tax expense
and leverage costs.
|
2009 Annual
Report
3
Management’s Discussion
(Unaudited)
|
The information contained in this section
should be read in conjunction with our Financial Statements and the Notes
thereto. In addition, this report contains certain forward-looking statements.
These statements include the plans and objectives of management for future
operations and financial objectives and can be identified by the use of
forward-looking terminology such as “may,” “will,” “expect,” “intend,”
“anticipate,” “estimate,” or “continue” or the negative thereof or other
variations thereon or comparable terminology. These forward-looking statements
are subject to the inherent uncertainties in predicting future results and
conditions. Certain factors that could cause actual results and conditions to
differ materially from those projected in these forward-looking statements are
set forth in the “Risk Factors” section of our public filings with the
SEC.
Overview
Tortoise Energy
Capital Corp’s (the “Company”) goal is to provide a stable and growing
distribution stream to our investors. We seek to provide our stockholders with
an efficient vehicle to invest in the energy infrastructure sector. While we are
a registered investment company under the Investment Company Act of 1940, as
amended (the “1940 Act”), we are not a “regulated investment company” for
federal tax purposes. Our distributions do not generate unrelated business
taxable income (UBTI) and our stock may therefore be suitable for holding by
pension funds, IRAs and mutual funds, as well as taxable accounts. We invest
primarily in MLPs through private and public market purchases. MLPs are publicly
traded partnerships whose equity interests are traded in the form of units on
public exchanges, such as the NYSE or NASDAQ.
Company Update
Market values of
our MLP investments increased during 4th quarter 2009 from their levels at
August 31, 2009. This had a positive impact on our capital structure and
increased the existing cushion on our leverage coverage ratios, while also
increasing asset-based expenses. On November 30, 2009, we defeased and provided
notice to redeem our remaining auction rate securities and completed a public
offering of Mandatory Redeemable Preferred (“MRP”) stock. Subsequent to our
fiscal year end, we established a lower leverage target of up to 25 percent of
total assets at the time of incurrence and provided guidance that we expect to
maintain a $0.40 quarterly distribution for fiscal year 2010. Additional
information on these events and results of our operations are discussed in more
detail below.
Critical Accounting
Policies
The financial
statements are based on the selection and application of critical accounting
policies, which require management to make significant estimates and
assumptions. Critical accounting policies are those that are both important to
the presentation of our financial condition and results of operations and
require management’s most difficult, complex, or subjective judgments. Our
critical accounting policies are those applicable to the valuation of
investments, tax matters and certain revenue recognition matters as discussed in
Note 2 in the Notes to Financial Statements.
Determining Distributions to
Stockholders
Our portfolio
generates cash flow from which we pay distributions to stockholders. Our Board
of Directors considers our distributable cash flow (“DCF”) in determining
distributions to stockholders. Our Board of Directors reviews the distribution
rate quarterly, and may adjust the quarterly distribution throughout the year.
Our goal is to declare what we believe to be sustainable increases in our
regular quarterly distributions. We have targeted to pay at least 95 percent of
DCF on an annualized basis.
Determining DCF
DCF is simply
distributions received from investments less expenses. The total distributions
received from our investments include the amount received by us as cash
distributions from MLPs, paid-in-kind distributions, and dividend and interest
payments. The total expenses include current or anticipated operating expenses,
leverage costs and current income taxes. Each are summarized for you in the
table on page 3 and are discussed in more detail below.
The Key Financial
Data table discloses the calculation of DCF and should be read in conjunction
with this discussion. The difference between distributions received from
investments in the DCF calculation and total investment income as reported in
the Statement of Operations, is reconciled as follows: GAAP recognizes that a
significant portion of the cash distributions received from MLPs are
characterized as a return of capital and therefore excluded from investment
income, whereas the DCF calculation includes the return of capital; and,
distributions received from investments in the DCF calculation include the value
of dividends paid-in-kind (additional stock or MLP units), whereas such amounts
are not included as income for GAAP purposes. The treatment of expenses in the
DCF calculation also differs from what is reported in the Statement of
Operations. In addition to the total operating expenses as disclosed in the
Statement of Operations, the DCF calculation reflects interest expense,
recurring agent fees, distributions to preferred stockholders, as well as
current taxes paid.
Distributions Received from
Investments
Our ability to
generate cash is dependent on the ability of our portfolio of investments to
generate cash flow from their operations. In order to maintain and grow
distributions to our stockholders, we evaluate each holding based upon its
contribution to our investment income, our expectation for its growth rate, and
its risk relative to other potential investments.
We concentrate on
MLPs we believe can expect an increasing demand for services from economic and
population growth. We seek well-managed businesses with hard assets and stable
recurring revenue streams. Our focus remains primarily on investing in fee-based
service providers that operate long-haul, interstate pipelines. We further
diversify among issuers, geographies and energy commodities to seek a
distribution payment which approximates an investment directly in energy
infrastructure MLPs. In addition, most energy infrastructure companies are
regulated and utilize an inflation escalator index that factors in inflation as
a cost pass-through. So, over the long-term, we believe MLPs’ distributions will
outpace inflation and interest rate increases, and produce positive
returns.
4
Tortoise Energy
Capital Corp.
Management’s Discussion
(Unaudited)
(Continued)
|
Total distributions received from our
investments for the 4th quarter 2009 was approximately $10.8 million,
representing a 15 percent decrease as compared to 4th quarter 2008 and 1 percent
increase as compared to 3rd quarter 2009. These changes reflect the result of
net portfolio sales over the last 12 months to fund leverage redemptions and net
distribution increases from our MLP investments.
Expenses
We incur two types
of expenses: (1) operating expenses, consisting primarily of the advisory fee;
and (2) leverage costs. On a percentage basis, operating expenses before
leverage costs and current taxes were an annualized 1.17 percent of average
total assets for the 4th quarter 2009 as compared to 1.12 percent for the 4th
quarter 2008 and 1.13 percent for the 3rd quarter 2009. The increase for 4th
quarter 2009 is primarily the result of one-time expenses incurred during the
quarter related to professional and stockholder reporting expenses. Advisory
fees for the 4th quarter 2009 increased 6 percent from 3rd quarter 2009 as a
result of increased average managed assets from increasing MLP asset values. If
yields on our MLP investments continue to revert more to their historical norm,
all else being equal, MLP asset values will increase as will our managed assets
and advisory fees.
Leverage costs
consist of three major components: (1) the direct interest expense on our
Tortoise Notes and short-term credit facility; (2) the agent fees, which are the
marketing and rating agency costs for the leverage; and (3) distributions to
preferred stockholders.
Total leverage
costs for DCF purposes were approximately $1.6 million for the 4th quarter 2009
as compared to $4.2 million for the 4th quarter 2008 and $1.6 million for the
3rd quarter 2009, as detailed in the following table.
|
|
4Q 08
|
|
3Q 09
|
|
4Q 09
|
Interest expense
|
|
$
|
2,692,964
|
|
$
|
1,443,730
|
|
$
|
1,478,636
|
Agent fees
|
|
|
30,727
|
|
|
8,312
|
|
|
13,910
|
Distributions to preferred
stockholders
|
|
|
1,442,896
|
|
|
118,574
|
|
|
108,346
|
Total
leverage costs
|
|
$
|
4,166,587
|
|
$
|
1,570,616
|
|
$
|
1,600,892
|
|
Average outstanding leverage (in
millions)
|
|
$
|
276.8
|
|
$
|
176.4
|
|
$
|
165.7
|
Average annualized total cost of
|
|
|
|
|
|
|
|
|
|
leverage (total leverage costs
divided
|
|
|
|
|
|
|
|
|
|
by average outstanding leverage)
|
|
|
6.05%
|
|
|
3.53%
|
|
|
3.88%
|
The decrease in
total leverage costs from 4th quarter 2008 to 4th quarter 2009 reflects the
reduction in average outstanding leverage of approximately $111 million during
the period. The increase of 35 basis points from 3rd quarter 2009 to 4th quarter
2009 is the result of higher utilization of our bank line of credit associated
with our redemption of our lower cost auction rate preferred
shares.
Our effective cost
of longer-term fixed-rate leverage as of November 30, 2009 was 5.82 percent
reflecting the redemption of our auction rate preferred and issuance of MRP
shares. This rate does not include balances on our bank line of credit which
accrues interest at a variable rate equal to one-month LIBOR plus 2.00 percent.
At November 30, 2009, approximately 91 percent of our leverage costs are fixed
as compared to 55 percent at August 31, 2009.
Our all-in
financing rate may vary in future periods as our leverage matures or is
redeemed. Additional information on our leverage and refinancing activity is
disclosed below in Liquidity and Capital Resources and in our Notes to Financial
Statements.
Distributable Cash
Flow
For 4th quarter
2009, our DCF was approximately $7.7 million, an increase of 14 percent as
compared to 4th quarter 2008 and relatively unchanged as compared to 3rd quarter
2009. The increase from 4th quarter 2008 is the net result of lower total
distributions received from investments which were more than offset by reduced
expenses, primarily leverage costs. We declared and paid a distribution of $7.1
million, or 93.2 percent of DCF, during the quarter. On a per share basis, we
declared a $0.40 distribution on November 9, 2009. This is a decrease of $0.03
as compared to 4th quarter 2008 and unchanged from 3rd quarter 2009. For the
fiscal year ended November 30, 2009, we paid a total distribution of $1.60 per
share representing 90.4 percent of DCF.
We anticipate the
cushion we built into our distribution payout percentage in early 2009 will be
eliminated in the short term as a result of the increase in asset-based expenses
exceeding the distributions from our MLPs and the increased leverage costs from
the redemption of our auction rate preferred and issuance of MRP shares.
Accounting for moderate increases in projected distribution income from MLPs in
2010, projected expenses and our desire to reestablish a cushion in our
distribution payout percentage, we expect to maintain quarterly distributions to
our stockholders of $0.40 per share during 2010.
Liquidity and Capital
Resources
We had total assets
of $558 million at year end. Our total assets reflect the value of our
investments, which are itemized in the Schedule of Investments. It also reflects
cash, interest and receivables and any expenses that may have been prepaid.
During 4th quarter 2009, total assets increased from $502 million to $558
million, an increase of $56 million. This change was primarily the result of a
net realized and unrealized gain on investments of approximately $57 million
during the quarter (excluding return of capital on distributions received during
the quarter). In addition, we issued 247,943 shares of common stock during the
quarter under our at-the-market equity program for net proceeds of approximately
$4.8 million.
Total leverage
outstanding at November 30, 2009 of $164.6 million is comprised of $90 million
in senior notes, $60 million in MRP stock and $14.6 million under the credit
facility. Total leverage represented 29.5 percent of total assets at November
30, 2009, as compared to 32.4 percent as of August 31, 2009 and 44.7 percent as
of November 30, 2008. Subsequent to year end, we established a new long-term
leverage target ratio of up to 25 percent of total assets at time of incurrence,
a reduction from our previous target ratio of 33 percent. Further, temporary
increases of up to 30 percent of our total assets may be permitted, provided
that such leverage is consistent with the limits set forth in the 1940 Act, and
that such leverage is expected to be reduced over time in an orderly fashion to
reach our long-term target. Our leverage ratio is impacted by increases or
decreases in MLP values, issuance of equity and/or the sale of securities where
proceeds are used to reduce leverage.
2009 Annual
Report
5
Management’s Discussion
(Unaudited)
(Continued)
|
On November 30, 2009, we issued 6,000,000
MRP shares with a liquidation value of $10.00 per share. The MRP stock is
mandatorily redeemable on November 30, 2016 and pays a monthly distribution at
an annual rate of 5.60 percent. The MRP stock is listed on the NYSE under the
symbol TYY Pr A and rated AA and A1 by Fitch Ratings and Moody’s Investor
Services, Inc., respectively. On November 30, 2009, we used the proceeds from
the MRP share issuance and our bank credit facility to fund the paying agent for
the complete redemption of our $65 million in auction rate preferred shares. The
paying agent completed the $40 million Series I redemption on December 29, 2009,
and the $25 million Series II redemption on December 17, 2009. On December 4,
2009, we issued an additional 500,000 MRP shares pursuant to the exercise of the
over-allotment option and used the proceeds to reduce our bank credit
facility.
As a result of
these transactions, we no longer have any outstanding auction rate securities.
Our longer-term leverage (excluding our bank credit facility) of $155,000,000 is
comprised of 58 percent private placement debt and 42 percent publicly placed
preferred equity with a weighted average fixed rate of 5.81 percent and weighted
average laddered maturity of 5.2 years.
We have used
leverage to acquire MLPs consistent with our investment philosophy. The terms of
our leverage are governed by regulatory and contractual asset coverage
requirements that arise from the use of leverage. Under the 1940 Act, we may not
pay distributions to our common stockholders if we do not meet a 300 percent
asset coverage ratio for debt and 200 percent asset coverage ratio for debt and
preferred shares after payment of the distribution, and we may not pay
distributions on our preferred shares if we fail to meet a 200 percent asset
coverage ratio on our debt. Under the agreement with our bank lenders, if
portfolio values decline such that we no longer meet the asset coverage ratios
under the 1940 Act, we must repay a portion of our bank line until we meet the
coverage requirement. Further, under the terms of our institutional senior notes
and preferred shares, if we fail to meet basic maintenance ratios as of any
valuation date (generally Fridays) or fail to satisfy the 1940 Act asset
coverage as of the last business day of any month, we could be subject to
mandatory redemption of the senior notes or preferred shares if such failure is
not waived or cured. In some cases we may be delayed in paying common stock or
preferred share distributions until such coverage ratios can be
met.
As disclosed in
Section 18 of the 1940 Act, the 300 percent asset coverage ratio for debt is
equal to total assets less all liabilities and indebtedness not represented by
debt divided by debt. The 200 percent asset coverage ratio for preferred shares
is equal to the same numerator as the 300 percent test divided by the sum of
debt and preferred shares. Deferred tax assets, if any, are a component of total
assets in calculation of these ratios. Our coverage ratios are currently updated
each week and available on our web site at
www.tortoiseadvisors.com.
Taxation of our Distributions and
Deferred Taxes
We invest in
partnerships which generally have larger distributions of cash than the
accounting income which they generate. Accordingly, the distributions include a
return of capital component for accounting and tax purposes. Distributions
declared and paid by us in a year generally differ from taxable income for that
year, as such distributions may include the distribution of current year taxable
income or return of capital.
The taxability of
the distribution you receive depends on whether we have annual earnings and
profits. If so, those earnings and profits are first allocated to the preferred
shares and then to the common shares.
In the event we
have earnings and profits allocated to the common shares, all or a portion of
our distribution will be taxable at the 15 percent Qualified Dividend Income
(“QDI”) rate, assuming various holding requirements are met by the stockholder.
The 15 percent QDI rate is currently effective through 2010. The portion of our
distribution that is taxable may vary for either of two reasons: first, the
characterization of the distributions we receive from MLPs could change annually
based upon the K-1 allocations and result in less return of capital and more in
the form of income. Second, we could sell an MLP investment and realize a gain
or loss at any time. It is for these reasons that we inform you of the tax
treatment after the close of each year as the ultimate characterization of our
distributions is undeterminable until the year is over.
For book and tax
purposes, distributions to stockholders for the fiscal year ended 2009 were
comprised of 100 percent return of capital. This information will be reported to
stockholders on Form 1099-DIV and is available on our web site at
www.tortoiseadvisors.com.
The unrealized gain
or loss we have in the portfolio is reflected in the Statement of Assets and
Liabilities. At November 30, 2009, our investments are valued at $556 million,
with an adjusted cost of $393 million. The $163 million difference reflects
unrealized appreciation that would be realized for financial statement purposes
if those investments were sold at those values. The Statement of Assets and
Liabilities reflects either a deferred tax liability or deferred tax asset
depending primarily upon unrealized gains (losses) on investments, realized
gains (losses) on investments, capital loss carryforward and net operating
losses. At November 30, 2009, the balance sheet reflects a net deferred tax
liability of approximately $35.2 million or $1.97 per share. Details of our
deferred taxes are disclosed in Note 5 in our Notes to Financial
Statements.
6
Tortoise Energy
Capital Corp.
S
CHEDULE OF
I
NVESTMENTS
November 30,
2009
|
|
|
Shares
|
|
Fair Value
|
|
|
Master Limited Partnerships
and
|
|
|
|
|
|
|
Related
Companies — 156.1%
(1)
|
|
|
|
|
|
|
|
|
Crude/Refined Products Pipelines —
75.6%
(1)
|
|
|
|
|
United States — 75.6%
(1)
|
|
|
|
|
|
|
Buckeye Partners, L.P.
|
|
168,900
|
|
$
|
8,901,030
|
|
Enbridge Energy Partners, L.P.
|
|
978,533
|
|
|
48,231,892
|
|
Holly Energy Partners,
L.P.
|
|
262,700
|
|
|
9,641,090
|
|
Kinder Morgan Management, LLC
(2)
|
|
946,271
|
|
|
47,569,043
|
|
Magellan Midstream Partners,
L.P.
|
|
828,634
|
|
|
34,056,857
|
|
NuStar Energy L.P.
|
|
583,557
|
|
|
30,607,565
|
|
Plains All American Pipeline,
L.P.
|
|
862,684
|
|
|
43,651,810
|
|
SemGroup Energy Partners, L.P.
(3)
|
|
436,674
|
|
|
4,104,736
|
|
Sunoco Logistics Partners
L.P.
|
|
690,100
|
|
|
42,613,675
|
|
|
|
|
|
|
269,377,698
|
|
|
|
Natural Gas/Natural Gas Liquids
Pipelines — 56.7%
(1)
|
|
|
|
|
United States — 56.7%
(1)
|
|
|
|
|
|
|
Boardwalk Pipeline Partners,
LP
|
|
835,000
|
|
|
23,572,050
|
|
Duncan Energy Partners L.P.
|
|
446,600
|
|
|
10,035,102
|
|
El Paso Pipeline Partners,
L.P.
|
|
875,500
|
|
|
20,749,350
|
|
Energy Transfer Equity, L.P.
|
|
314,061
|
|
|
9,264,800
|
|
Energy Transfer Partners,
L.P.
|
|
720,900
|
|
|
31,207,761
|
|
Enterprise Products Partners L.P.
|
|
1,537,000
|
|
|
45,787,230
|
|
ONEOK Partners, L.P.
|
|
242,000
|
|
|
14,202,980
|
|
Spectra Energy Partners, LP
|
|
303,900
|
|
|
8,427,147
|
|
TC PipeLines, LP
|
|
842,800
|
|
|
30,500,932
|
|
Williams Pipeline Partners L.P.
|
|
372,200
|
|
|
8,132,570
|
|
|
|
|
|
|
201,879,922
|
|
|
|
Natural Gas Gathering/Processing —
18.1%
(1)
|
|
|
|
|
United States — 18.1%
(1)
|
|
|
|
|
|
|
Copano Energy, L.L.C.
|
|
807,836
|
|
|
16,318,287
|
|
DCP Midstream Partners, LP
|
|
404,100
|
|
|
10,159,074
|
|
MarkWest Energy Partners,
L.P.
|
|
612,600
|
|
|
15,713,190
|
|
Targa Resources Partners LP
|
|
970,238
|
|
|
19,385,355
|
|
Western Gas Partners LP
|
|
141,430
|
|
|
2,749,399
|
|
|
|
|
|
|
64,325,305
|
|
|
Propane Distribution — 5.0%
(1)
|
|
|
|
|
|
|
United States — 5.0%
(1)
|
|
|
|
|
|
|
Inergy, L.P.
|
|
538,000
|
|
|
17,786,280
|
|
|
Shipping — 0.7%
(1)
|
|
|
|
|
|
|
Republic of the Marshall Islands —
0.7%
(1)
|
|
|
|
|
|
|
Teekay LNG Partners L.P.
|
|
98,200
|
|
|
2,392,152
|
|
Total Master Limited Partnerships and
|
|
|
|
|
|
|
Related Companies (Cost
$392,905,219)
|
|
|
|
|
555,761,357
|
|
|
Short-Term Investment — 0.0%
(1)
|
|
|
|
|
|
|
United States Investment Company —
0.0%
(1)
|
|
|
|
|
|
|
Fidelity Institutional Government
Portfolio —
|
|
|
|
|
|
|
Class I,
0.07%
(4)
(Cost $24,393)
|
|
24,393
|
|
|
24,393
|
|
|
|
|
|
|
|
|
Total Investments — 156.1%
(1)
|
|
|
|
|
|
|
(Cost
$392,929,612)
|
|
|
|
|
555,785,750
|
|
Other Assets and Liabilities —
(14.0%)
(1)
|
|
|
|
|
(49,770,957
|
)
|
Long-Term Debt Obligations —
(25.3%)
(1)
|
|
|
|
|
(90,000,000
|
)
|
Preferred Shares at Redemption
Value — (16.8%)
(1)
|
|
|
|
|
(60,000,000
|
)
|
Total Net Assets Applicable
to
|
|
|
|
|
|
|
Common Stockholders —
100.0%
(1)
|
|
|
|
$
|
356,014,793
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated as a percentage of net
assets applicable to common stockholders.
|
(2)
|
|
Security distributions are
paid-in-kind.
|
(3)
|
|
Non-income
producing.
|
(4)
|
|
Rate indicated is the current yield
as of November 30, 2009.
|
See accompanying Notes to Financial
Statements.
2009 Annual
Report
7
S
TATEMENT OF
A
SSETS
& L
IABILITIES
November 30,
2009
|
Assets
|
|
|
|
|
Investments at fair value (cost
$392,929,612)
|
|
$
|
555,785,750
|
|
Receivable
for investments sold
|
|
|
709,083
|
|
Prepaid expenses and other
assets
|
|
|
2,001,348
|
|
Total
assets
|
|
|
558,496,181
|
|
Liabilities
|
|
|
|
|
Payable to
Adviser
|
|
|
859,525
|
|
Payable for investments
purchased
|
|
|
184,082
|
|
Accrued
expenses and other liabilities
|
|
|
1,609,586
|
|
Deferred tax liability
|
|
|
35,228,195
|
|
Short-term
borrowings
|
|
|
14,600,000
|
|
Long-term debt obligations
|
|
|
90,000,000
|
|
Mandatory
redeemable preferred stock ($10.00 liquidation
|
|
|
|
|
value per
share; 6,000,000 shares outstanding)
|
|
|
60,000,000
|
|
Total liabilities
|
|
|
202,481,388
|
|
Net assets applicable to common stockholders
|
|
$
|
356,014,793
|
|
|
Net Assets Applicable to Common
Stockholders Consist of:
|
|
|
|
|
Capital stock, $0.001 par value;
17,892,957 shares issued
|
|
|
|
|
and
outstanding (100,000,000 shares authorized)
|
|
$
|
17,893
|
|
Additional
paid-in capital
|
|
|
298,214,311
|
|
Accumulated net investment loss, net of
income taxes
|
|
|
(37,396,281
|
)
|
Accumulated realized loss, net of income taxes
|
|
|
(12,126,426
|
)
|
Net unrealized appreciation of
investments, net of income taxes
|
|
|
107,305,296
|
|
Net assets
applicable to common stockholders
|
|
$
|
356,014,793
|
|
|
Net Asset
Value per common share outstanding
|
|
|
|
|
(net assets
applicable to common stock,
|
|
|
|
|
divided by
common shares outstanding)
|
|
$
|
19.90
|
|
|
|
|
|
|
S
TATEMENT OF
O
PERATIONS
|
Year Ended
November 30, 2009
|
Investment Income
|
|
|
|
|
Distributions from master limited
partnerships
|
|
$
|
37,889,725
|
|
Less
return of capital on distributions
|
|
|
(33,359,511
|
)
|
Net distributions from master limited
partnerships
|
|
|
4,530,214
|
|
Dividends
from money market mutual funds
|
|
|
67,453
|
|
Total Investment
Income
|
|
|
4,597,667
|
|
Operating Expenses
|
|
|
|
|
Advisory fees
|
|
|
4,378,566
|
|
Professional fees
|
|
|
385,631
|
|
Administrator fees
|
|
|
202,295
|
|
Directors’
fees
|
|
|
115,799
|
|
Reports to
stockholders
|
|
|
100,866
|
|
Registration fees
|
|
|
67,384
|
|
Fund accounting fees
|
|
|
60,798
|
|
Custodian
fees and expenses
|
|
|
60,795
|
|
Stock transfer agent fees
|
|
|
10,844
|
|
Other
expenses
|
|
|
91,130
|
|
Total Operating
Expenses
|
|
|
5,474,108
|
|
Interest
expense
|
|
|
5,692,785
|
|
Agent fees
|
|
|
95,912
|
|
Amortization of debt issuance costs
|
|
|
64,076
|
|
Total Interest, Agent and Debt
Issuance Costs
|
|
|
5,852,773
|
|
Total Expenses
|
|
|
11,326,881
|
|
Net Investment Loss, before Income
Taxes
|
|
|
(6,729,214
|
)
|
Current
tax benefit
|
|
|
302,906
|
|
Deferred tax benefit
|
|
|
1,985,293
|
|
Income tax
benefit
|
|
|
2,288,199
|
|
Net Investment
Loss
|
|
|
(4,441,015
|
)
|
Realized and Unrealized Gain (Loss)
on Investments
|
|
|
|
|
Net realized loss on investments, before
income taxes
|
|
|
(28,409,077
|
)
|
Deferred tax
benefit
|
|
|
8,524,169
|
|
Net realized loss on investments
|
|
|
(19,884,908
|
)
|
Net unrealized
appreciation of investments, before income taxes
|
|
|
252,464,028
|
|
Deferred tax expense
|
|
|
(75,752,057
|
)
|
Net unrealized appreciation of investments
|
|
|
176,711,971
|
|
Net Realized and Unrealized Gain on
Investments
|
|
|
156,827,063
|
|
Distributions to Preferred
Stockholders
|
|
|
(783,875
|
)
|
Net Increase in Net Assets
Applicable to Common
|
|
|
|
|
Stockholders Resulting from
Operations
|
|
$
|
151,602,173
|
|
|
|
|
|
|
See accompanying Notes to Financial
Statements.
8
Tortoise Energy
Capital Corp.
S
TATEMENT OF
C
HANGES IN
N
ET
A
SSETS
Year Ended November 30
|
|
|
2009
|
|
2008
|
Operations
|
|
|
|
|
|
|
|
|
Net investment loss
|
|
$
|
(4,441,015
|
)
|
|
$
|
(14,757,582
|
)
|
Net realized loss on
investments and interest rate swaps
|
|
|
(19,884,908
|
)
|
|
|
(13,878,321
|
)
|
Net unrealized appreciation
(depreciation) of investments and interest rate swap contracts
|
|
|
176,711,971
|
|
|
|
(196,524,707
|
)
|
Distributions to preferred
stockholders
|
|
|
(783,875
|
)
|
|
|
(6,161,055
|
)
|
Net increase (decrease) in net assets applicable to common stockholders
resulting from operations
|
|
|
151,602,173
|
|
|
|
(231,321,665
|
)
|
Distributions to Common
Stockholders
|
|
|
|
|
|
|
|
|
Net investment
income
|
|
|
—
|
|
|
|
—
|
|
Return of capital
|
|
|
(28,135,706
|
)
|
|
|
(29,574,603
|
)
|
Total distributions to common stockholders
|
|
|
(28,135,706
|
)
|
|
|
(29,574,603
|
)
|
Capital Stock
Transactions
|
|
|
|
|
|
|
|
|
Proceeds from shelf offering
of 310,701 common shares
|
|
|
6,220,926
|
|
|
|
—
|
|
Underwriting discounts and
offering expenses associated with the issuance of common stock
|
|
|
(282,725
|
)
|
|
|
—
|
|
Underwriting discounts and
offering expenses associated with the issuance of preferred
stock
|
|
|
—
|
|
|
|
(14,000
|
)
|
Issuance of 111,583 and 64,587
common shares from reinvestment of distributions to stockholders,
respectively
|
|
|
2,126,976
|
|
|
|
1,525,365
|
|
Net increase in net assets, applicable to common stockholders, from
capital stock transactions
|
|
|
8,065,177
|
|
|
|
1,511,365
|
|
Cumulative effect of adopting
ASC 740-10
|
|
|
—
|
|
|
|
(776,852
|
)
|
Total increase (decrease) in
net assets applicable to common stockholders
|
|
|
131,531,644
|
|
|
|
(260,161,755
|
)
|
Net Assets
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
224,483,149
|
|
|
|
484,644,904
|
|
End of year
|
|
$
|
356,014,793
|
|
|
$
|
224,483,149
|
|
Accumulated net investment
loss, net of income taxes, at the end of year
|
|
$
|
(37,396,281
|
)
|
|
$
|
(32,955,266
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial
Statements.
2009 Annual
Report
9
S
TATEMENT OF
C
ASH
F
LOWS
Year Ended November 30,
2009
|
Cash Flows From Operating
Activities
|
|
|
|
|
Distributions received from
master
|
|
|
|
|
limited
partnerships
|
|
$
|
37,889,725
|
|
Dividend
income received
|
|
|
72,980
|
|
Purchases of long-term
investments
|
|
|
(67,488,360
|
)
|
Proceeds
from sales of long-term investments
|
|
|
82,367,166
|
|
Proceeds from sales of short-term
investments, net
|
|
|
2,529,617
|
|
Interest
expense paid
|
|
|
(6,002,936
|
)
|
Income taxes paid
|
|
|
(276,573
|
)
|
Operating
expenses paid
|
|
|
(5,408,952
|
)
|
Net cash
provided by operating activities
|
|
|
43,682,667
|
|
Cash Flows From Financing
Activities
|
|
|
|
|
Advances from revolving line of
credit
|
|
|
38,100,000
|
|
Repayments
on revolving line of credit
|
|
|
(23,500,000
|
)
|
Issuance of common stock
|
|
|
6,220,926
|
|
Issuance
of preferred stock
|
|
|
60,000,000
|
|
Preferred stock issuance costs
|
|
|
(1,217,981
|
)
|
Redemption
of preferred stock
|
|
|
(95,000,000
|
)
|
Common stock issuance costs
|
|
|
(250,876
|
)
|
Distributions paid to common stockholders
|
|
|
(27,162,654
|
)
|
Distributions paid to preferred
stockholders
|
|
|
(1,002,888
|
)
|
Net cash
used in financing activities
|
|
|
(43,813,473
|
)
|
Net change in cash
|
|
|
(130,806
|
)
|
Cash —
beginning of year
|
|
|
130,806
|
|
Cash — end of year
|
|
$
|
—
|
|
|
|
|
|
|
Reconciliation of net increase in
net assets applicable to
|
|
|
|
|
common stockholders resulting
from operations to net cash
|
|
|
provided by operating
activities
|
|
|
|
|
Net increase in net assets applicable to
common
|
|
|
|
|
stockholders
resulting from operations
|
|
$
|
151,602,173
|
|
Adjustments to reconcile net increase in net assets
|
|
|
|
|
applicable
to common stockholders resulting from
|
|
|
|
|
operations
to net cash provided by operating activities:
|
|
|
|
|
Purchases of long-term investments
|
|
|
(67,672,442
|
)
|
Return of capital on distributions received
|
|
|
33,359,511
|
|
Proceeds from sales of long-term investments
|
|
|
72,165,651
|
|
Proceeds from sales of short-term investments, net
|
|
|
2,529,617
|
|
Deferred tax expense
|
|
|
65,242,595
|
|
Net unrealized appreciation of investments
|
|
|
(252,464,028
|
)
|
Net realized loss on investments
|
|
|
28,409,077
|
|
Amortization of debt issuance costs
|
|
|
64,076
|
|
Distributions to preferred stockholders
|
|
|
783,875
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Decrease in interest and dividend receivable
|
|
|
5,545
|
|
Decrease in receivable for investments sold
|
|
|
10,201,515
|
|
Increase in prepaid expenses and other assets
|
|
|
(117,227
|
)
|
Increase in payable to Adviser
|
|
|
45,184
|
|
Increase in payable for investments purchased
|
|
|
184,082
|
|
Decrease in current tax liability
|
|
|
(559,136
|
)
|
Decrease in accrued expenses and other liabilities
|
|
|
(97,401
|
)
|
Total adjustments
|
|
|
(107,919,506
|
)
|
Net cash provided by operating
activities
|
|
$
|
43,682,667
|
|
|
|
|
|
|
Non-Cash Financing
Activities
|
|
|
|
|
Reinvestment of distributions by common
stockholders
|
|
|
|
|
in
additional common shares
|
|
$
|
2,126,976
|
|
|
|
|
|
|
See accompanying Notes to Financial
Statements.
10
Tortoise Energy
Capital Corp.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
May 31, 2005
(1)
|
|
|
November 30,
|
|
November 30,
|
|
November 30,
|
|
November 30,
|
|
through
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
November 30,
2005
|
Per Common Share Data
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of
period
|
|
$
|
12.85
|
|
|
$
|
27.84
|
|
|
$
|
26.79
|
|
|
$
|
23.23
|
|
|
$
|
—
|
|
Public offering
price
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25.00
|
|
Underwriting discounts and
offering costs on issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of common and preferred stock
(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.03
|
)
|
|
|
(0.06
|
)
|
|
|
(1.18
|
)
|
Premiums less underwriting
discounts and offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on issuance of common stock
(4)
|
|
|
0.01
|
|
|
|
—
|
|
|
|
(0.12
|
)
|
|
|
—
|
|
|
|
—
|
|
Income (loss) from Investment
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
(5)(6)
|
|
|
(0.20
|
)
|
|
|
(0.89
|
)
|
|
|
(0.64
|
)
|
|
|
(0.36
|
)
|
|
|
0.04
|
|
Net realized and unrealized gains (losses) on investments and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest rate swap contracts
(5)(6)
|
|
|
8.88
|
|
|
|
(12.05
|
)
|
|
|
3.80
|
|
|
|
5.68
|
|
|
|
(0.05
|
)
|
Total increase (decrease) from investment operations
|
|
|
8.68
|
|
|
|
(12.94
|
)
|
|
|
3.16
|
|
|
|
5.32
|
|
|
|
(0.01
|
)
|
Less Distributions to
Preferred Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Return of capital
|
|
|
(0.04
|
)
|
|
|
(0.35
|
)
|
|
|
(0.33
|
)
|
|
|
(0.19
|
)
|
|
|
—
|
|
Total distributions to preferred stockholders
|
|
|
(0.04
|
)
|
|
|
(0.35
|
)
|
|
|
(0.33
|
)
|
|
|
(0.19
|
)
|
|
|
—
|
|
Less Distributions to Common
Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.03
|
)
|
Return of capital
|
|
|
(1.60
|
)
|
|
|
(1.70
|
)
|
|
|
(1.63
|
)
|
|
|
(1.51
|
)
|
|
|
(0.55
|
)
|
Total distributions to common stockholders
|
|
|
(1.60
|
)
|
|
|
(1.70
|
)
|
|
|
(1.63
|
)
|
|
|
(1.51
|
)
|
|
|
(0.58
|
)
|
Net Asset Value, end of
period
|
|
$
|
19.90
|
|
|
$
|
12.85
|
|
|
$
|
27.84
|
|
|
$
|
26.79
|
|
|
$
|
23.23
|
|
Per common share market value,
end of period
|
|
$
|
22.38
|
|
|
$
|
11.11
|
|
|
$
|
25.47
|
|
|
$
|
26.50
|
|
|
$
|
22.09
|
|
Total Investment Return Based
on Market Value
(7)
|
|
|
120.32
|
%
|
|
|
(52.44
|
)%
|
|
|
1.73
|
%
|
|
|
27.67
|
%
|
|
|
(8.33
|
)%
|
See accompanying Notes to Financial
Statements.
2009 Annual
Report
11
F
INANCIAL
H
IGHLIGHTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
May 31, 2005
(1)
|
|
|
November 30,
|
|
November 30,
|
|
November 30,
|
|
November 30,
|
|
through
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
November 30,
2005
|
Supplemental Data and
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets applicable to
common stockholders, end of period (000’s)
|
|
$
|
356,015
|
|
|
$
|
224,483
|
|
|
$
|
484,645
|
|
|
$
|
429,010
|
|
|
$
|
370,455
|
|
Ratio of expenses (including
net current and deferred income tax (benefit) expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to average net assets
(8)(9)(10)
|
|
|
26.33
|
%
|
|
|
(21.81
|
)%
|
|
|
10.51
|
%
|
|
|
17.38
|
%
|
|
|
1.29
|
%
|
Ratio of expenses (excluding
net current and deferred income tax (benefit) expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to average net assets
(8)(10)(11)
|
|
|
3.91
|
%
|
|
|
6.51
|
%
|
|
|
4.46
|
%
|
|
|
3.47
|
%
|
|
|
1.39
|
%
|
Ratio of net investment income
(loss) to average net assets (including net current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and deferred income tax (benefit) expense)
(8)(9)(10)
|
|
|
(24.74
|
)%
|
|
|
23.33
|
%
|
|
|
(9.84
|
)%
|
|
|
(16.31
|
)%
|
|
|
0.60
|
%
|
Ratio of net investment income
(loss) to average net assets (excluding net current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and deferred income tax (benefit) expense)
(8)(10)(11)
|
|
|
(2.32
|
)%
|
|
|
(4.99
|
)%
|
|
|
(3.79
|
)%
|
|
|
(2.40
|
)%
|
|
|
0.50
|
%
|
Portfolio turnover rate
(8)
|
|
|
14.86
|
%
|
|
|
6.44
|
%
|
|
|
9.90
|
%
|
|
|
5.56
|
%
|
|
|
0.08
|
%
|
Short-term borrowings, end of
period (000’s)
|
|
$
|
14,600
|
|
|
|
—
|
|
|
$
|
24,700
|
|
|
$
|
28,000
|
|
|
|
—
|
|
Long-term debt obligations,
end of period (000’s)
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
|
$
|
190,000
|
|
|
$
|
120,000
|
|
|
$
|
120,000
|
|
Preferred stock, end of period
(000’s)
|
|
$
|
60,000
|
|
|
$
|
95,000
|
|
|
$
|
110,000
|
|
|
$
|
70,000
|
|
|
|
—
|
|
Per common share amount of
long-term debt obligations outstanding,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at end of period
|
|
$
|
5.03
|
|
|
$
|
5.15
|
|
|
$
|
10.92
|
|
|
$
|
7.49
|
|
|
$
|
7.52
|
|
Per common share amount of net
assets, excluding long-term debt obligations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at end of period
|
|
$
|
24.93
|
|
|
$
|
18.00
|
|
|
$
|
38.76
|
|
|
$
|
34.28
|
|
|
$
|
30.75
|
|
Asset coverage, per $1,000 of
principal amount of long-term debt obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and short-term borrowings
(12)
|
|
$
|
4,977
|
|
|
$
|
4,550
|
|
|
$
|
3,770
|
|
|
$
|
4,372
|
|
|
$
|
4,087
|
|
Asset coverage ratio of
long-term debt obligations and short-term borrowings
(12)
|
|
|
498
|
%
|
|
|
455
|
%
|
|
|
377
|
%
|
|
|
437
|
%
|
|
|
409
|
%
|
Asset coverage, per $25,000
liquidation value per share of auction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate preferred stock
(13)
|
|
|
—
|
|
|
$
|
55,336
|
|
|
$
|
62,315
|
|
|
$
|
74,198
|
|
|
|
—
|
|
Asset coverage, per $10
liquidation value per share of mandatory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
redeemable preferred stock
(13)
|
|
$
|
32
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Asset coverage ratio of
preferred stock
(13)
|
|
|
316
|
%
|
|
|
221
|
%
|
|
|
249
|
%
|
|
|
297
|
%
|
|
|
—
|
|
(1)
|
|
Commencement of
Operations.
|
(2)
|
|
Information presented relates to a
share of common stock outstanding for the entire
period.
|
(3)
|
|
Represents the issuance of
preferred stock for the years ended November 30, 2007 and 2006. Represents
the issuance of common stock for the period from May 31, 2005 through
November 30, 2005.
|
(4)
|
|
Represents the premium of $0.02 per
share, less the underwriting discount and offering costs of $0.01 per
share for the year ended November 30, 2009. Represents the premium on the
shelf offering of less than $0.01 per share, less the underwriting and
offering costs of $0.13 per share for the year ended November 30,
2007.
|
(5)
|
|
The per common share data for the
periods ended November 30, 2008, 2007, 2006 and 2005 do not reflect the
change in estimate of investment income and return of capital, for the
respective period. See Note 2C to the financial statements for further
disclosure.
|
(6)
|
|
The per common share data for the
year ended November 30, 2008 reflects the cumulative effect of adopting
FIN 48, which was a $776,852 increase to the beginning balance of
accumulated net investment loss, or $(0.04) per share.
|
(7)
|
|
Not annualized. Total investment
return is calculated assuming a purchase of common stock at the beginning
of period (or initial public offering price) and a sale at the closing
price on the last day of the period reported (excluding brokerage
commissions). The calculation also assumes reinvestment of distributions
at actual prices pursuant to the Company’s dividend reinvestment
plan.
|
(8)
|
|
Annualized for periods less than
one full year.
|
(9)
|
|
For the year ended November 30,
2009, the Company accrued $302,906 for net current income tax benefit and
$65,242,595 for net deferred income tax expense. For the year ended
November 30, 2008, the Company accrued $427,891 for current income tax
expense and $114,309,765 for net deferred income tax benefit. The Company
accrued $30,376,674 and $54,292,114 for the years ended November 30, 2007
and 2006, respectively, for current and deferred income tax expense. For
the period from May 31, 2005 through November 30, 2005, the Company
accrued $192,462 in net deferred income tax benefit.
|
(10)
|
|
The expense ratios and net
investment income (loss) ratios do not reflect the effect of distributions
to preferred stockholders.
|
(11)
|
|
This ratio excludes the impact of
current and deferred income taxes.
|
(12)
|
|
Represents value of total assets
less all liabilities and indebtedness not represented by long-term debt
obligations, short-term borrowings and preferred stock at the end of the
period divided by long-term debt obligations and short-term borrowings
outstanding at the end of the period.
|
(13)
|
|
Represents value of total assets
less all liabilities and indebtedness not represented by long-term debt
obligations, short-term borrowings and preferred stock at the end of the
period divided by the sum of long-term debt obligations, short-term
borrowings and preferred stock outstanding at the end of the
period.
|
See accompanying Notes to Financial
Statements.
12
Tortoise Energy
Capital Corp.
N
OTES
TO
F
INANCIAL
S
TATEMENTS
November 30,
2009
|
1. Organization
Tortoise Energy
Capital Corporation (the “Company”) was organized as a Maryland corporation on
March 4, 2005, and is a non-diversified, closed-end management investment
company under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Company’s investment objective is to seek a high level of total return with
an emphasis on current distributions to stockholders. The Company seeks to
provide its stockholders with an efficient vehicle to invest in the energy
infrastructure sector. The Company received the proceeds of its initial public
offering and commenced operations on May 31, 2005. The Company’s stock is listed
on the New York Stock Exchange under the symbol “TYY.”
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 or
over-the-counter market. The Company values those securities at their last sale
price on that exchange or over-the-counter market on the valuation date. If the
security is listed on more than one exchange, the Company uses the price from
the exchange that it considers to be the principal exchange on which the
security is traded. Securities listed on the 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 over-the-counter market on such
day, the security will be valued at the mean between the last bid price and last
ask price on such day.
The Company may
invest up to 50 percent 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
Company’s ability to dispose of them. Investments in restricted 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, time until conversion date, securities with similar
yields, quality, type of issue, coupon, duration and rating. If events occur
that affect the value of the Company’s portfolio securities before the net asset
value has been calculated (a “significant event”), the portfolio securities so
affected will generally be priced using fair value procedures.
An equity security
of a publicly traded company acquired in a direct placement transaction may be
subject to restrictions on resale that can affect the security’s liquidity and
fair value. Such securities that are convertible into or otherwise will become
freely tradable will be valued based on the market value of the freely tradable
security less an applicable discount. Generally, the discount will initially be
equal to the discount at which the Company purchased the securities. To the
extent that such securities are convertible or otherwise become freely tradable
within a time frame that may be reasonably determined, an amortization schedule
may be used to determine the discount.
The Company
generally values 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.
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. Dividend and distribution
income is recorded on the ex-dividend date. Distributions received from the
Company’s investments in master limited partnerships (“MLPs”) generally are
comprised of ordinary income, capital gains and return of capital from the MLPs.
The Company allocates distributions between 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
actual allocations received from MLPs after their tax reporting periods are
concluded, as the actual character of these distributions is not known until
after the fiscal year end of the Company.
During the year
ended November 30, 2009, the Company reallocated the amount of 2008 investment
income and return of capital it recognized based on the 2008 tax reporting
information received from the individual MLPs. This reclassification amounted to
a decrease in pre-tax net investment income of approximately $576,000 or $0.032
per share ($358,000 or $0.020 per share, net of deferred tax benefit); an
increase in unrealized appreciation of investments of approximately $116,000 or
$0.006 per share ($72,000 or $0.004 per share, net of deferred tax expense) and
an increase in realized gains of approximately $460,000 or $0.026 per share
($286,000 or $0.016 per share, net of deferred tax expense) for the year ended
November 30, 2009.
D. Distributions to Stockholders
Distributions to
common stockholders are recorded on the ex-dividend date. The Company may not
declare or pay distributions to its common stockholders if it does not meet
asset coverage ratios required under the 1940 Act or the rating agency
guidelines for its debt and preferred stock following such distribution. The
character of distributions to common stockholders made during the year may
differ from their ultimate characterization for federal income tax purposes. For
the year ended November 30, 2009, the Company’s distributions to common
stockholders for book purposes and tax purposes were comprised of 100 percent
return of capital.
Distributions to
money market preferred stockholders are based on variable rates set at auctions,
normally held every 7 or 28 days unless a special rate period is designated. The
Company may not declare or pay distributions to its money market preferred
stockholders if it does not meet a 200 percent asset coverage ratio for its debt
or the rating agency basic maintenance amount for the debt following such
distribution. Distributions to money market preferred stockholders are accrued
on a daily basis for the subsequent rate period at a rate determined on the
auction date. Distributions to money market preferred stockholders are payable
on the first day following the end of the rate period or the first day of month
if the rate period is longer than one month. The character of distributions to
money market preferred stockholders made during the year may differ from their
ultimate characterization for federal income tax purposes. For the year ended
November 30, 2009, the Company’s distributions to money market preferred
stockholders for book and tax purposes were comprised of 100 percent return of
capital.
Distributions to
mandatory redeemable preferred stockholders are paid on the first business day
of each month. These distributions are accrued daily based on a fixed annual
rate of 5.60 percent. The Company may not declare or pay distributions to its
mandatory redeemable preferred stockholders if it does not meet a 200 percent
asset coverage ratio for its debt or the rating agency basic maintenance amount
for the debt following such distribution.
N
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F
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TATEMENTS
(Continued)
|
E. Federal Income
Taxation
The Company, as a
corporation, is obligated to pay federal and state income tax on its taxable
income. Currently, the highest regular marginal federal income tax rate for a
corporation is 35 percent. The Company may be subject to a 20 percent federal
alternative minimum tax on its federal alternative minimum taxable income to the
extent that its alternative minimum tax exceeds its regular federal income tax.
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 MLP’s taxable income in computing its own
taxable income. The Company’s tax expense or benefit is 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. A valuation allowance is recognized if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred income tax asset will not be realized.
F. Organization Expenses, Offering and
Debt Issuance Costs
The Company was
responsible for paying all organizational expenses, which were expensed as
incurred. Offering costs related to the issuance of common and preferred stock
are charged to additional paid-in capital when the stock is issued. Offering
costs (excluding underwriter commissions) of $95,999 related to the issuance of
common stock from August through November 2009 were recorded to additional
paid-in capital during the year ended November 30, 2009. Debt issuance costs
related to long-term debt obligations and Mandatory Redeemable Preferred (“MRP”)
Stock are capitalized and amortized over the period the debt and MRP Stock is
outstanding. The amount of such capitalized costs (excluding underwriter
commissions) for the MRP Stock issued in November 2009 was
$260,000.
G. Derivative Financial
Instruments
The Company may use
derivative financial instruments (principally interest rate swap contracts) in
an attempt 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 fair value
during the reporting period, and amounts accrued under the agreements, included
as unrealized gains or losses in the accompanying Statement of Operations.
Monthly cash settlements under the terms of the derivative instruments and
termination of such contracts are recorded as realized gains or losses in the
accompanying Statement of Operations.
H. Indemnifications
Under the Company’s
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 indemnifications to other parties. The
Company’s 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.
I. Recent Accounting Pronouncements
Codification of Accounting Standards
In June 2009, the
Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No. 168,
The FASB Accounting Standards
Codification
TM
and
Hierarchy of Generally Accepted
Accounting Principles
(“SFAS 168”). SFAS 168 introduced a new Accounting Standard Codification (“ASC”
or “Codification”) which organizes current and future accounting standards into
a single codified system. The Codification became the source of authoritative
U.S. generally accepted accounting
principles (“GAAP”) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. The Codification supersedes all existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature
not included in the Codification is nonauthoritative. GAAP was not changed as a
result of this statement, but changed the way the guidance is organized and
presented. The Company has implemented the Codification in the financial
statements by providing references to the ASC topics.
Standard on Subsequent Events
In May 2009, FASB
issued ASC 855-10,
Subsequent Events.
ASC 855-10 provides guidance on
management’s assessment of subsequent events and requires additional disclosure
about the timing of management’s assessment of subsequent events. ASC 855-10 did
not significantly change the accounting requirements for the reporting of
subsequent events. ASC 855-10 was effective for interim or annual financial
periods ending after June 15, 2009. The adoption of ASC 855-10 did not have a
material impact on the Company’s financial statements.
Standard on Financial Instruments
In April 2009, FASB
issued ASC Topic 825,
Financial Instruments.
The April 2009
guidance requires disclosures about financial instruments, including fair value,
carrying amount, and method and significant assumptions used to estimate the
fair value. The adoption of this standard did not affect the Company’s financial
position or results of operations.
Standard on Fair Value Measurement
In August 2009,
FASB issued Accounting Standard Update No. 2009-05 (“ASU 2009-05”),
Measuring Liabilities at Fair Value.
The August 2009
update provides clarification to ASC 820,
Fair Value Measurements and
Disclosures,
for the
valuation techniques required to measure the fair value of liabilities. ASU
2009-05 also provides clarification around required inputs to the fair value
measurement of a liability and definition of a Level 1 liability. ASU 2009-05 is
effective for interim and annual periods beginning after August 28, 2009. The
Company does not anticipate that the adoption of this standard will have a
material effect on the Company’s financial position and results of
operations.
3. Concentration of Risk
Under normal
circumstances, the Company will have at least 80 percent of its net assets, plus
any borrowings for investment purposes, invested in equity securities of
entities in the energy sector and at least 80 percent of its total assets in
equity securities of MLPs and their affiliates in the energy infrastructure
sector. The Company will not invest more than 15 percent of its total assets in
any single issuer as of the time of purchase. The Company may invest up to 50
percent of its total assets in restricted securities, all of which may be
illiquid securities. The Company may invest up to 20 percent of its total assets
in debt securities, including securities rated below investment grade. In
determining application of these policies, the term “total assets” includes
assets obtained through leverage. 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
objective.
4. Agreements
For the period from
December 1, 2008 through September 14, 2009, the Company had an Investment
Advisory Agreement with Tortoise Capital Advisors, L.L.C. (the “Adviser”). Under
the terms of the agreement, the Company paid the Adviser a fee equal to an
annual rate of 0.95 percent of the Company’s average monthly total assets
(including any assets attributable to leverage and excluding any net deferred
tax asset) minus
14
|
|
Tortoise Energy Capital Corp.
|
N
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F
INANCIAL
S
TATEMENTS
(Continued)
|
accrued liabilities
(other than net deferred tax liability, debt entered into for purposes of
leverage and the aggregate liquidation preference of outstanding preferred
stock) (“Managed Assets”), in exchange for the investment advisory services
provided.
On September 15,
2009, the Company entered into a new Investment Advisory Agreement with the
Adviser as a result of a change in control of the Adviser and the previous
Investment Advisory Agreement with the Adviser automatically terminated. The
terms of the new Investment Advisory Agreement are substantially identical to
the terms of the previous Investment Advisory Agreement, except for the
effective and termination dates, and simply continue the relationship between
the Company and the Adviser.
The Company has
engaged U.S. Bancorp Fund Services, LLC to serve as the Company’s administrator.
The Company pays the administrator a monthly fee computed at an annual rate of
0.04 percent of the first $1,000,000,000 of the Company’s Managed Assets, 0.03
percent on the next $1,000,000,000 of Managed Assets and 0.02 percent on the
balance of the Company’s Managed Assets.
Computershare Trust
Company, N.A. serves as the Company’s transfer agent, dividend paying agent, and
agent for the automatic dividend reinvestment plan.
U.S. Bank, N.A.
serves as the Company’s custodian. The Company pays the custodian a monthly fee
computed at an annual rate of 0.015 percent on the first $100,000,000 of the
Company’s portfolio assets and 0.01 percent on the balance of the Company’s
portfolio assets.
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 Company’s deferred tax assets and liabilities as of November
30, 2009, are as follows:
Deferred tax assets:
|
|
|
Net operating loss carryforwards
|
$
|
12,899,549
|
Capital loss
carryforwards
|
|
35,581,417
|
Alternative minimum tax credit carryforward
|
|
135,201
|
Organization
costs
|
|
16,294
|
|
|
48,632,461
|
Deferred tax liabilities:
|
|
|
Basis reduction of investment in
MLPs
|
|
22,138,180
|
Net unrealized
gains on investment securities
|
|
61,722,476
|
|
|
83,860,656
|
Total net
deferred tax liability
|
$
|
35,228,195
|
|
At November 30,
2009, a valuation allowance on deferred tax assets was not deemed necessary
because the Company believes it is more likely than not that there is an ability
to realize its deferred tax assets based on the Company’s estimates of the
timing of the reversal of deferred tax liabilities. Any adjustments to such
estimates will be made in the period such determination is made. All tax years
since inception remain open to examination by federal and state tax authorities.
For the year ended
November 30, 2008, the Company had determined a reserve for unrecognized tax
benefits was not necessary when the net temporary differences represent future
deductible amounts rather than future taxable amounts. For the year ended
November 30, 2009, although future taxable amounts are anticipated, the Company
re-evaluated its tax filing positions during the year and has determined that
there are no unrecognized tax positions and therefore no penalties and interest
are accrued. The Company’s policy is to record interest and penalties on
uncertain tax positions as part of tax expense. The Company does not expect any
change to its unrecognized tax positions over the next twelve months subsequent
to November 30, 2009.
Total income tax
expense differs from the amount computed by applying the federal statutory
income tax rate of 35 percent to net investment loss, realized losses and
unrealized gains on
investments before taxes for the year ended November 30, 2009, as
follows:
Application of statutory income tax
rate
|
$
|
76,064,007
|
|
State income taxes, net of federal tax benefit
|
|
6,302,446
|
|
Foreign tax benefit, net of federal
tax effect
|
|
(272,064
|
)
|
Change in income tax rate
|
|
(1,273,485
|
)
|
Change in valuation
allowance
|
|
(15,884,969
|
)
|
Other
|
|
3,754
|
|
Total income
tax expense
|
$
|
64,939,689
|
|
|
Total income taxes
are computed by applying the federal statutory rate plus a blended state income
tax rate. During the year, the Company re-evaluated its overall federal and
state income tax rate, increasing it from 36.81 percent to 37.90 percent, due to
(1) an anticipated 35 percent federal rate, and (2) anticipated state
apportionment of income and gains.
The Company adopted
ASC 740-10 on December 1, 2007. The impact of adopting ASC 740-10 was a $776,852
increase to the beginning balance of accumulated net investment
loss.
For the year ended
November 30, 2009, the components of income tax expense include current foreign
tax benefit (for which the federal tax effect is reflected in deferred tax
expense) of $438,107, alternative minimum tax of $135,201, and deferred federal
and state income tax expense (net of federal tax benefit) of $60,250,418 and
$4,992,177, respectively. The deferred income tax expense of $65,242,595 for the
year ended November 30, 2009 is net of the reduction in valuation allowance of
$15,884,969.
As of November 30,
2009, the Company had a net operating loss for federal income tax purposes of
approximately $33,674,000. The net operating loss may be carried forward for 20
years. If not utilized, this net operating loss will expire as follows:
$12,452,000 $18,390,000, $31,000 and $2,801,000 in the years ending November 30,
2026, 2027, 2028 and 2029, respectively. As of November 30, 2009, the Company
had a capital loss carryforward of approximately $93,000,000, which may be
carried forward for 5 years. If not utilized, this capital loss will expire as
follows: $48,000,000 and $45,000,000 in the years ending November 30, 2013 and
2014, respectively. For the year ended November 30, 2008, the Company estimated
there would be no capital losses for the year. Upon receipt of the 2008 tax
reporting information from the MLPs, the Company concluded that a portion of its
estimated net operating loss needed to be reclassified to capital losses. The
capital loss for the year ended November 30, 2009 has been estimated based on
information currently available. Such estimate is subject to revision upon
receipt of 2009 tax reporting information from the individual MLPs. For
corporations, capital losses can only be used to offset capital gains and cannot
be used to offset ordinary income. As of November 30, 2009, an alternative
minimum tax credit of $135,201 was available, which may be credited in the
future against regular income tax. This credit may be carried forward
indefinitely.
As of November 30,
2009, the aggregate cost of securities for federal income tax purposes was
$334,517,528. The aggregate gross unrealized appreciation for all securities in
which there was an excess of fair value over tax cost was $227,463,300, the
aggregate gross unrealized depreciation for all securities in which there was an
excess of tax cost over fair value was $6,195,078 and the net unrealized
appreciation was $221,268,222.
6. Fair Value of Financial
Instruments
Various inputs are
used in determining the value of the Company’s investments. These inputs are
summarized in the three broad levels listed below:
Level 1 —
|
|
quoted prices
in active markets for identical investments
|
|
|
|
Level 2 —
|
|
other
significant observable inputs (including quoted prices for similar
investments, market corroborated inputs, etc.)
|
|
|
|
Level 3 —
|
|
significant
unobservable inputs (including the Company’s own assumptions in
determining the fair value of
investments)
|
N
OTES TO
F
INANCIAL
S
TATEMENTS
(Continued)
|
The inputs or
methodology used for valuing securities are not necessarily an indication of the
risk associated with investing in those securities.
The following table
provides the fair value measurements of applicable Company assets by level
within the fair value hierarchy as of November 30, 2009. These assets are
measured on a recurring basis.
|
|
|
|
|
|
|
Fair Value Measurements at
Reporting Date Using
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
Significant
|
|
|
|
|
|
|
|
Active Markets for
|
|
Significant Other
|
|
Unobservable
|
|
|
Fair Value at
|
|
Identical Assets
|
|
Observable Inputs
|
|
Inputs
|
Description
|
|
November 30, 2009
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Limited
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Related Companies
(a)
|
|
|
$
|
555,761,357
|
|
|
|
$
|
555,761,357
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
Total Equity Securities
|
|
|
|
555,761,357
|
|
|
|
|
555,761,357
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term Investment
(b)
|
|
|
|
24,393
|
|
|
|
|
24,393
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Total Other
|
|
|
|
24,393
|
|
|
|
|
24,393
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Total
|
|
|
$
|
555,785,750
|
|
|
|
$
|
555,785,750
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
(a)
|
|
All other industry classifications
are identified in the Schedule of Investments.
|
(b)
|
|
Short-term investment is a sweep
investment for cash balances in the Company at November 30,
2009.
|
|
|
|
Fair Value Measurements Using
Significant Unobservable Inputs
|
|
(Level 3) for
Investments
|
|
For the year
ended
|
|
November 30,
2009
|
Fair value beginning
balance
|
|
$
|
3,313,416
|
|
Total unrealized gains included in net increase in net assets
applicable
|
|
|
|
|
to common
stockholders
|
|
|
—
|
|
Net purchases, issuances and
settlements
|
|
|
—
|
|
Return of capital adjustments impacting cost basis of
security
|
|
|
—
|
|
Transfers out of Level 3
|
|
|
(3,313,416
|
)
|
Fair value ending balance
|
|
$
|
—
|
|
|
The Company
utilizes the beginning of reporting period method for determining transfers into
or out of Level 3. Accordingly, this method is the basis for presenting the
rollforward in the preceding table. Under this method, the fair value of the
asset at the beginning of the period will be disclosed as a transfer into or out
of Level 3, gains or losses for an asset that transfers into Level 3 during the
period will be included in the reconciliation, and gains or losses for an asset
that transfers out of Level 3 will be excluded from the
reconciliation.
For the year ended
November 30, 2009, Crosstex Energy, L.P. Series D Subordinated Units transferred
out of Level 3 when they converted into unrestricted common units of Crosstex
Energy, L.P.
Valuation Techniques
In general, and
where applicable, the Company uses readily available market quotations based
upon the last updated sales price from the principal market to determine fair
value. This pricing methodology applies to the Company’s Level 1 investments.
An equity security
of a publicly traded company acquired in a private placement transaction without
registration under the Securities Act of 1933, as amended (the “1933 Act”), is
subject to restrictions on resale that can affect the security’s fair value. If
such a security is convertible into publicly-traded common shares, the security
generally will be valued at the common share market price adjusted by a
percentage discount due to the restrictions. If the security has characteristics
that are dissimilar to the class
of security that trades on the open market, the security will generally
be valued and categorized as Level 3 in the fair value hierarchy.
7. Investment
Transactions
For the year ended
November 30, 2009, the Company purchased (at cost) and sold securities (proceeds
received) in the amount of $67,672,442 and $72,165,651 (excluding short-term
debt securities), respectively.
8. Long-Term Debt
Obligations
The Company has
$90,000,000 aggregate principal amount of private senior notes, Series D, Series
E and Series F (collectively, the “Notes”) outstanding. The Notes are unsecured
obligations of the Company and, upon liquidation, dissolution or winding up of
the Company, will rank: (1) senior to all of the Company’s outstanding preferred
stock; (2) senior to all of the Company’s outstanding common stock; (3) on
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. Holders of the notes are entitled to receive
cash interest payments each quarter at a fixed annual rate until
maturity.
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 asset
coverage ratios required under the 1940 Act or the rating agency guidelines if
such failure is not waived or cured. At November 30, 2009, the Company was in
compliance with asset coverage covenants and basic maintenance covenants for its
senior notes.
Estimated fair
values of the Notes were calculated, for disclosure purposes, using the spread
between the AAA corporate finance debt rate and the U.S. Treasury rate with an
equivalent maturity date plus the average spread between the fixed rates of the
Notes and the AAA corporate finance debt rate. At November 30, 2009, the total
spread was applied to the equivalent U.S. Treasury rate for the series and
future cash flows were discounted to determine the estimated fair value. The
following table shows the issue date, maturity date, notional/carrying amount,
estimated fair value and fixed rate for each series of Notes outstanding at
November 30, 2009.
|
|
|
|
|
|
Notional/
|
|
|
|
|
|
|
|
Issue
|
|
Maturity
|
|
Carrying
|
|
Estimated
|
|
Fixed
|
Series
|
|
Date
|
|
Date
|
|
Amount
|
|
Fair Value
|
|
Rate
|
Series D
|
|
December 21, 2007
|
|
December 21, 2014
|
|
$
|
39,400,000
|
|
$
|
42,749,036
|
|
6.07%
|
Series E
|
|
June 17, 2008
|
|
June 17, 2011
|
|
|
15,900,000
|
|
|
16,804,705
|
|
5.56%
|
Series F
|
|
June 17, 2008
|
|
June 17, 2013
|
|
|
34,700,000
|
|
|
37,676,407
|
|
6.02%
|
|
|
|
|
|
|
$
|
90,000,000
|
|
$
|
97,230,148
|
|
|
|
9. Preferred Stock
The Company has
10,000,000 shares of preferred stock authorized. Of that amount, the Company has
6,500,000 authorized shares of Mandatory Redeemable Preferred (“MRP”) Stock, of
which 6,000,000 shares are outstanding at November 30, 2009. The MRP Stock has a
liquidation value of $10.00 per share plus any accumulated but unpaid
distributions, whether or not declared. The MRP Stock was issued on November 30,
2009 and is mandatorily redeemable on November 30, 2016. The MRP Stock will pay
cash distributions on the first business day of each month at an annual rate of
5.60 percent. The shares of MRP Stock will trade on the NYSE under the symbol
“TYY PR A.”
The MRP Stock has
rights determined by the Board of Directors. The holders of MRP Stock have
voting rights equal to the holders of common stock (one vote per MRP 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.
16
|
|
Tortoise Energy Capital Corp.
|
N
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TO
F
INANCIAL
S
TATEMENTS
(Continued)
|
At November 30,
2009, the fair value of the MRP Stock is equal to the liquidation preference
because the MRP Stock was issued on that day. The following table shows the
number of shares outstanding, aggregate liquidation preference, estimated fair
value and the fixed rate as of November 30, 2009.
|
|
Shares
|
|
Aggregate
|
|
Estimated
|
|
Fixed
|
Series
|
|
Outstanding
|
|
Liquidation
Preference
|
|
Fair Value
|
|
Rate
|
MRP Stock
|
|
6,000,000
|
|
$60,000,000
|
|
$
|
60,000,000
|
|
5.60%
|
The MRP Stock is
redeemable in certain circumstances at the option of the Company. Under the
Investment Company Act of 1940, the Company may not declare dividends or make
other distributions 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 MRP Stock would be less than 200 percent. The MRP
Stock is also subject to a mandatory redemption if the Company fails to meet an
asset coverage ratio of at least 225 percent as determined in accordance with
the 1940 Act or a rating agency basic maintenance amount if such failure is not
waived or cured. At November 30, 2009, the Company was in compliance with asset
coverage covenants and basic maintenance covenants for its MRP
Stock.
At November 30,
2008, the Company had 2,800 shares of Money Market Preferred (“MMP”) I Stock and
1,400 shares of MMP II Stock outstanding with a total liquidation value of
$95,000,000. On July 14, 2009, the Company redeemed MMP I Stock at liquidation
value in the amount of $20,000,000. On July 16, 2009, the Company redeemed MMP
II Stock at liquidation value in the amount of $10,000,000. On November 30,
2009, the Company defeased MMP I Stock and MMP II Stock in the amounts of
$40,000,000 and $25,000,000, respectively. The MMP I Stock and MMP II Stock were
redeemed on December 29, 2009 and December 17, 2009, respectively.
10. Common Stock
The Company has
100,000,000 shares of capital stock authorized and 17,892,957 shares outstanding
at November 30, 2009. Transactions in common stock for the year ended November
30, 2009, were as follows:
Shares at November 30,
2008
|
17,470,673
|
Shares sold through shelf offerings
|
310,701
|
Shares issued through reinvestment
of distributions
|
111,583
|
Shares at November 30, 2009
|
17,892,957
|
|
11. Credit Facility
The Company had a
revolving loan commitment of $92,500,000 that could be increased to $160,000,000
if certain conditions were met with U.S. Bank, N.A. that matured on March 20,
2009. On March 20, 2009, the Company entered into an extension of its credit
facility through June 20, 2009. The amended credit agreement provided for an
unsecured revolving credit facility of up to $40,000,000. During the extension
period, the credit facility had a variable annual rate equal to one-month LIBOR
plus 2.00 percent and unused portions of the credit facility accrued a non-usage
fee equal to an annual rate of 0.25 percent.
On June 19, 2009,
the Company entered into an amendment to its credit facility that extends the
credit facility through June 20, 2010. The amended credit facility provides for
an unsecured revolving credit facility of $50,000,000. During the extension
period, outstanding balances will accrue interest at a variable annual rate
equal to one-month LIBOR plus 2.00 percent and unused portions of the credit
facility will accrue a non-usage fee equal to an annual rate of 0.25
percent.
The average
principal balance and interest rate for the period during which the credit
facility was utilized during the year ended November 30, 2009 was approximately
$11,700,000 and 2.25 percent, respectively. At November 30, 2009, the principal
balance outstanding was $14,600,000 at an interest rate of 2.24
percent.
Under the terms of
the credit facility, the Company must maintain asset coverage required under the
1940 Act. If the Company fails to maintain the required coverage, it may be
required to repay a portion of an outstanding balance until the coverage
requirement has been met.
12. Subsequent Events
On December 4,
2009, the Company issued 500,000 MRP shares with a liquidation value of $10.00
per share pursuant to the over-allotment option granted to the underwriters of
the MRP Stock transaction that closed on November 30, 2009, as described in Note
9.
On January 7, 2010,
the Company issued 1,226,995 shares of common stock for net proceeds of
approximately $27,479,259.
The Company has
performed an evaluation of subsequent events through January 28, 2010, which is
the date the financial statements were issued.
R
EPORT OF
I
NDEPENDENT
R
EGISTERED
P
UBLIC
A
CCOUNTING
F
IRM
The Board of Directors and
Stockholders
Tortoise Energy Capital Corporation
We have audited the
accompanying statement of assets and liabilities of Tortoise Energy Capital
Corporation (the Company), including the schedule of investments, as of November
30, 2009, and the related statements of operations and cash flows for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our
audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Company’s internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our procedures included confirmation of securities owned as of November 30,
2009, by correspondence with the custodian and brokers or by other appropriate
auditing procedures where replies from brokers were not received. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the
financial statements and financial highlights referred to above present fairly,
in all material respects, the financial position of Tortoise Energy Capital
Corporation at November 30, 2009, the results of its operations and its cash
flows for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein, in conformity with U.S. generally accepted accounting
principles.
As discussed in
Note 5 to the financial statements, the Company adopted the provisions of
Accounting Standard Codification No. 740-10,
Income Taxes,
on December 1, 2007.
Kansas City,
Missouri
January 28, 2010
18
|
|
Tortoise Energy Capital Corp.
|
C
OMPANY
O
FFICERS AND
D
IRECTORS
(Unaudited)
November 30, 2009
|
|
Position(s) Held
with
|
|
|
|
Number of
|
|
Other Board
|
|
|
Company, Term of
|
|
|
|
Portfolios in Fund
|
|
Positions
|
|
|
Office and Length
of
|
|
|
|
Complex Overseen
|
|
Held by
|
Name and Age*
|
|
Time Served
|
|
Principal Occupation During Past
Five Years
|
|
by Director
(1)
|
|
Director
|
Independent
Directors
|
|
|
|
|
|
|
|
|
Conrad S.
Ciccotello
(Born 1960)
|
|
Director
since 2005
|
|
Tenured
Associate Professor of Risk Management and Insurance, Robinson College of
Business, Georgia State University (faculty member since 1999); Director
of Graduate Personal Financial Planning Programs; formerly, Editor,
“Financial Services Review,” (2001-2007) (an academic journal dedicated to
the study of individual financial management); formerly, faculty member,
Pennsylvania State University (1997-1999). Published several academic and
professional journal articles about energy infrastructure and oil and gas
MLPs.
|
|
6
|
|
None
|
John R.
Graham
(Born 1945)
|
|
Director
since 2005
|
|
Executive-in-Residence and Professor of Finance (Part-time),
College of Business Administration, Kansas State University (has served as
a professor or adjunct professor since 1970); Chairman of the Board,
President and CEO, Graham Capital Management, Inc. (primarily a real
estate development, investment and venture capital company) and Owner of
Graham Ventures (a business services and venture capital firm); Part-time
Vice President Investments, FB Capital Management, Inc. (a registered
investment adviser), since 2007. Formerly, CEO, Kansas Farm Bureau
Financial Services, including seven affiliated insurance or financial
service companies (1979-2000).
|
|
6
|
|
Kansas
State
Bank
|
Charles E.
Heath
(Born 1942)
|
|
Director
since 2005
|
|
Retired in
1999. Formerly, Chief Investment Officer, GE Capital’s Employers
Reinsurance Corporation (1989-1999); Chartered Financial Analyst (“CFA”)
designation since 1974.
|
|
6
|
|
None
|
(1)
|
This number includes Tortoise
Energy Infrastructure Corporation (“TYG”), Tortoise North American Energy
Corporation (“TYN”), Tortoise Capital Resources Corporation (“TTO”),
Tortoise Power and Energy Infrastructure Fund, Inc. (“TPZ”), one private
investment company and the Company. Our Adviser also serves as the
investment adviser to TYG, TYN, TTO, TPZ and the private investment
company.
|
*
|
The address of each director and
officer is 11550 Ash Street, Suite 300, Leawood, Kansas
66211.
|
C
OMPANY
O
FFICERS AND
D
IRECTORS
(Unaudited)
(Continued)
November 30, 2009
|
|
Position(s) Held
with
|
|
|
|
Number of
|
|
Other Board
|
|
|
Company, Term of
|
|
|
|
Portfolios in Fund
|
|
Positions
|
|
|
Office and Length
of
|
|
|
|
Complex Overseen
|
|
Held by
|
Name and Age*
|
|
Time Served
|
|
Principal Occupation During Past
Five Years
|
|
by Director
(1)
|
|
Director
|
Interested Directors and
Officers
(2)
|
|
|
|
|
|
|
H.
Kevin Birzer
(Born 1959)
|
|
Director and
Chairman of the
Board since 2005
|
|
Managing Director of our Adviser since 2002; Partner, Fountain
Capital Management (1990-2009); Vice President, Corporate Finance
Department, Drexel Burnham Lambert (1986-1989); formerly, Vice President,
F. Martin Koenig & Co., an investment management firm (1983-1986);
Director and Chairman of the Board of each of TYG, TYN, TTO, TPZ and the
private investment company since its inception; CFA designation since
1988.
|
|
6
|
|
None
|
Terry
Matlack
(Born 1956)
|
|
Chief Financial
Officer
since 2005
|
|
Director of each
of the Company, TYG, TYN, TTO, TPZ and the private investment company form
inception to September 2009; Managing Director of our Adviser since 2002;
Full-time Managing Director, Kansas City Equity Partners, L.C. (“KCEP”)
(2001-2002); formerly, President, GreenStreet Capital, a private
investment firm (1998-2001); Chief Financial Officer of each of TYG, TYN,
TTO, TPZ and the private investment company since its inception; Chief
Compliance Officer of each of the Company and TYN from their inception
through May 2006 and of TYG from 2004 through May 2006; Treasurer of each
of the Company, TYG and TYN from their inception to November 2005;
Assistant Treasurer of the Company, TYG and TYN from November 2005 to
April 2008, of TTO from its inception to April 2008, and of the private
investment company from its inception to April 2009; CFA designation since
1985.
|
|
N/A
|
|
None
|
David J. Schulte
(Born 1961)
|
|
President and Chief
Executive Officer
since 2005
|
|
Managing Director of our Adviser since 2002; Full-time Managing
Director, KCEP (1993-2002); President and Chief Executive Officer of TYG
since 2003 and of TPZ since 2007; Chief Executive Officer of TYN since
2005 and President of TYN from 2005 to September 2008; Chief Executive
Officer of TTO since 2005 and President of TTO from 2005 to April 2007;
President of the private investment company since 2007 and Chief Executive
Officer from 2007 to December 2008; CFA designation since 1992.
|
|
N/A
|
|
None
|
Zachary A.
Hamel
(Born 1965)
|
|
Senior Vice
President
since 2005
|
|
Managing Director
of our Adviser since 2002; Partner, Fountain Capital Management
(1997-present); Senior Vice President of TTO since 2005 and of TYG, TYN,
TPZ and the private investment company since 2007; Secretary of each of
the Company, TYG, TYN and TTO from their inception to April 2007; CFA
designation since 1998.
|
|
N/A
|
|
None
|
Kenneth P. Malvey
(Born 1965)
|
|
Senior Vice President
since inception;
Treasurer
since
November 2005
|
|
Managing Director of our Adviser since 2002; Partner, Fountain
Capital Management (2002-present); formerly Investment Risk Manager and
member of Global Office of Investments, GE Capital’s Employers Reinsurance
Corporation (1996-2002); Treasurer of TYG and TYN since November 2005, of
TTO since September 2005, and of TPZ and the private investment company
since 2007; Senior Vice President of TTO since 2005, and of TYG, TYN, TPZ
and the private investment company since 2007; Assistant Treasurer of the
Company, TYG and TYN from their inception to November 2005; Chief
Executive Officer of the private investment company since December 2008;
CFA designation since 1996.
|
|
N/A
|
|
None
|
(1)
|
his number includes TYG, TYN, TTO,
TPZ, one private investment company and the Company. Our Adviser also
serves as the investment adviser to TYG, TYN, TTO, TPZ and the private
investment company.
|
(2)
|
As a result of their respective
positions held with our Adviser or its affiliates, these individuals are
considered “interested persons” within the meaning of the 1940
Act.
|
*
|
The address of each director and
officer is 11550 Ash Street, Suite 300, Leawood, Kansas
66211.
|
20
|
|
Tortoise Energy Capital Corp.
|
A
DDITIONAL
I
NFORMATION
(Unaudited)
Stockholder Proxy Voting
Results
A special meeting
of stockholders was held on September 11, 2009. The matter considered at the
meeting, together with the actual vote tabulations relating to such matter are
as follows:
To consider and
vote on a new investment advisory agreement between the Company and its current
investment adviser, Tortoise Capital Advisors, L.L.C.
|
No. of Shares
|
Affirmative
|
|
9,207,734
|
Against
|
|
169,660
|
Abstain
|
|
207,969
|
Broker Non-Votes
|
|
0
|
TOTAL
|
|
9,585,363
|
|
Based upon votes
required for approval, this matter passed.
Director and Officer
Compensation
The Company does
not compensate any of its directors who are “interested persons,” as defined in
Section 2(a)(19) of the 1940 Act, nor any of its officers. For the year ended
November 30, 2009, the aggregate compensation paid by the Company to the
independent directors was $120,000. The Company did not pay any special
compensation to any of its directors or officers.
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 the Company’s actual
results are the performance of the portfolio of investments held by it, the
conditions in the U.S. and international financial, petroleum and other markets,
the price at which shares of the Company will trade in the public markets and
other factors discussed in filings with the SEC.
Proxy Voting Policies
A description of
the policies and procedures that the Company uses to determine how to vote
proxies relating to portfolio securities owned by the Company and information
regarding how the Company voted proxies relating to the portfolio of securities
during the 12-month period ended June 30, 2009 are available to stockholders (i)
without charge, upon request by calling the Company at (913) 981-1020 or
toll-free at (866) 362-9331 and on the Company’s Web site at
www.tortoiseadvisors.com; and (ii) on the SEC’s Web site 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 SEC on Form N-Q. The Company’s Form N-Q is available
without charge upon request by calling the Company at (866) 362-9331 or by
visiting the SEC’s Web site at www.sec.gov. In addition, you may review and copy
the Company’s Form N-Q at the SEC’s Public Reference Room in Washington D.C. You
may obtain information on the operation of the Public Reference Room by calling
(800) SEC-0330.
The Company’s Form
N-Qs are also available on the Company’s Web site at
www.tortoiseadvisors.com.
Statement of Additional
Information
The Statement of
Additional Information (“SAI”) includes additional information about the
Company’s directors and is available upon request without charge by calling the
Company at (866) 362-9331 or by visiting the SEC’s Web site at
www.sec.gov.
Certifications
The Company’s Chief
Executive Officer has submitted to the New York Stock Exchange in 2009 the
annual CEO certification as required by Section 303A.12(a) of the NYSE Listed
Company Manual.
The Company has
filed with the SEC, as an exhibit to its most recently filed N-CSR, the
certification of its Chief Executive Officer and Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act.
Privacy Policy
In order to conduct
its business, the Company collects and maintains certain nonpublic personal
information about its stockholders of record with respect to their transactions
in shares of the Company’s securities. This information includes the
stockholder’s address, tax identification or Social Security number, share
balances, and distribution elections. We do not collect or maintain personal
information about stockholders whose share balances of our securities are held
in “street name” by a financial institution such as a bank or
broker.
We do not disclose
any nonpublic personal information about you, the Company’s other stockholders
or the Company’s former stockholders to third parties unless necessary to
process a transaction, service an account, or as otherwise permitted by
law.
To protect your
personal information internally, we restrict access to nonpublic personal
information about the Company’s stockholders to those employees who need to know
that information to provide services to our stockholders. We also maintain
certain other safeguards to protect your nonpublic personal
information.
Automatic Dividend Reinvestment
Plan
If a stockholder’s
shares are registered directly with the Company or with a brokerage firm that
participates in the Company’s Automatic Dividend Reinvestment Plan (the “Plan”),
all distributions are automatically reinvested for stockholders by the Plan
Agent in additional shares of common stock of the Company (unless a stockholder
is ineligible or elects otherwise). Stockholders holding shares that participate
in the Plan in a brokerage account may not be able to transfer the shares to
another broker and continue to participate in the Plan. Stockholders who elect
not to participate in the Plan will receive all distributions payable in cash
paid by check mailed directly to the stockholder of record (or, if the shares
are held in street or other nominee name, then to such nominee) by
Computershare, as dividend paying agent. Distributions subject to tax (if any)
are taxable whether or not shares are reinvested.
If, on the
distribution payment date, the net asset value per share of the common stock is
equal to or less than the market price per share of common stock plus estimated
brokerage commissions, the Company will issue additional shares of common stock
to participants. The number of shares will be determined by the greater of the
net asset value per share or 95 percent of the market price. Otherwise, shares
generally will be purchased on the open market by the Plan Agent as soon as
possible following the payment date or purchase date, but in no event later than
30 days after such date except as necessary to comply with applicable law. There
are no brokerage charges with respect to shares issued directly by the Company
as a result of distributions payable either in shares or in cash. However, each
participant will pay a pro rata share of
A
DDITIONAL
I
NFORMATION
(Unaudited)
(Continued)
brokerage
commissions incurred with respect to the Plan Agent’s open-market purchases in
connection with the reinvestment of distributions. If a participant elects to
have the Plan Agent sell part or all of his or her common stock and remit the
proceeds, such participant will be charged a transaction fee of $15.00 plus his
or her pro rata share of brokerage commissions on the shares sold.
Participation is
completely voluntary. Stockholders may elect not to participate in the Plan, and
participation may be terminated or resumed at any time without penalty, by
giving notice in writing, by telephone or Internet to Computershare, the Plan
Agent, at the address set forth below. Such termination will be effective with
respect to a particular distribution if notice is received prior to such record
date.
Additional
information about the Plan may be obtained by writing to Computershare Trust
Company, N.A., P.O. Box 43078, Providence, R.I. 02940-3078. You may also contact
Computershare by phone at (888) 728-8784 or visit their Web site at
www.computershare.com.
Approval of New Investment Advisory
Agreement
On June 2, 2009,
the Board of Directors approved a new Investment Advisory Agreement (the “New
Investment Advisory Agreement”) with the Adviser in connection with the proposed
transaction (the “Proposed Transaction”) with Mariner Holdings, LLC (“Mariner”),
which upon closing resulted in a change in control of the Adviser. Prior to the
Board of Directors’ approval of the New Investment Advisory Agreement, the
independent directors of the Company (“Independent Directors”), with the
assistance of counsel independent of the Adviser (hereinafter “independent legal
counsel”), requested and evaluated extensive materials about the Proposed
Transaction and Mariner from the Adviser and Mariner, which also included
information from independent, third-party sources, regarding the factors
considered in their evaluation.
The Independent
Directors first learned of the potential Proposed Transaction in January 2009.
Prior to conducting due diligence of the Proposed Transaction and of Mariner,
each Independent Director had a personal meeting with key officials of Mariner.
In February 2009, the Independent Directors consulted with independent legal
counsel regarding the role of the Independent Directors in the Proposed
Transaction. Also in February 2009, the Independent Directors, in conjunction
with independent legal counsel, prepared and submitted their own due diligence
request list to Mariner, so that the Independent Directors could better
understand the effect the change of control would have on the Adviser. In March
2009, the Independent Directors, in conjunction with independent legal counsel,
reviewed the written materials provided by Mariner. In April and May 2009, the
Independent Directors asked for supplemental written due diligence information
and were given such follow-up information about Mariner and the Proposed
Transaction.
In May 2009, the
Independent Directors interviewed key Mariner personnel and asked follow-up
questions after having completed a review of all documents provided in response
to formal due diligence requests. In particular, the follow-up questions focused
on (i) the expected continuity of management and employees at the Adviser, (ii)
compliance and regulatory experience of the Adviser, (iii) plans to maintain the
Adviser’s compliance and regulatory personnel and (iv) benefit and incentive
plans used to maintain the Adviser’s current personnel. On May 22, 2009, the
Independent Directors and Mariner officials jointly attended the annual meetings
of the Companies and at such time met to discuss the Proposed Transaction. The
Independent Directors also met face-to-face with the Mariner officials in May in
the interest of better getting to know key personnel at Mariner. The Independent
Directors also discussed the Proposed Transaction and the findings of the
Mariner diligence investigation with independent legal counsel in private
sessions.
In approving the
New Investment Advisory Agreement, the Independent Directors of the Company
requested and received extensive data and information from the Adviser
concerning the Company and the services provided to it by the Adviser under the
current investment advisory agreement. In addition, the Independent Directors
had approved the continuance of the current investment advisory agreement, the
terms of which are substantially identical to those of the New Investment
Advisory Agreement, in November 2008. The extensive data and information
reviewed, in conjunction with the results of the diligence investigation of the
Proposed Transaction and Mariner, form the basis of the conclusions reached
below.
Factors Considered
The Independent
Directors considered and evaluated all the information provided by the Adviser.
The Independent Directors did not identify any single factor as being
all-important or controlling, and each Director may have attributed different
levels of importance to different factors. In deciding to approve the New
Investment Advisory Agreement, the Independent Directors’ decision was based on
the following factors and what, if any, impact the Proposed Transaction would
have on such factors.
Nature, Extent and Quality of Services
Provided.
The
Independent Directors considered information regarding the history,
qualification and background of the Adviser and the individuals responsible for
the Adviser’s investment program, the adequacy of the number of the Adviser
personnel and other Adviser resources and plans for growth, use of affiliates of
the Adviser, and the particular expertise with respect to energy infrastructure
companies, MLP markets and financing (including private financing). The
Independent Directors concluded that the unique nature of the Company and the
specialized expertise of the Adviser in the niche market of MLPs made it
uniquely qualified to serve as the adviser. Further, the Independent Directors
recognized that the Adviser’s commitment to a long-term investment horizon
correlated well to the investment strategy of the Company.
Investment Performance of the Company and
the Adviser, Costs of the Services To Be Provided and Profits To Be Realized by
the Adviser and its Affiliates from the Relationship, and Fee Comparisons.
The
Independent Directors reviewed and evaluated information regarding the Company’s
performance (including quarterly, last twelve months, and from inception
included in information provided in connection with their November 2008
approval, as well as supplemental information covering the period from November
30, 2008 through April 30, 2009 and since inception) and the performance of the
other Adviser accounts (including other investment companies), and information
regarding the nature of the markets during the performance period, with a
particular focus on the MLP sector. The Independent Directors also considered
the Company’s performance as compared to comparable closed-end funds for the
relevant periods.
The Adviser
provided detailed information concerning its cost of providing services to the
Company, its profitability in managing the Company, its overall profitability,
and its financial condition. The Independent Directors reviewed with the Adviser
the methodology used to prepare this financial information. This financial
information regarding the Adviser is considered in order to evaluate the
Adviser’s financial condition, its ability to continue to provide services under
the New Investment Advisory Agreement, and the reasonableness of the current
management fee, and was, to the extent possible, evaluated in comparison to
other closed-end funds with similar investment objectives and
strategies.
The Independent
Directors considered and evaluated information regarding fees charged to, and
services provided to, other investment companies advised by the Adviser
(including the impact of any fee waiver or reimbursement arrangements and any
expense reimbursement arrangements), fees charged to separate institutional
accounts by the Adviser, and comparisons of fees of closed-end funds with
similar investment objectives and strategies, including other MLP investment
companies, to the Company. The
22
|
|
Tortoise Energy Capital Corp.
|
A
DDITIONAL
I
NFORMATION
(Unaudited)
(Continued)
Independent
Directors concluded that the fees and expenses that the Company will pay under
the New Investment Advisory Agreement are reasonable given the quality of
services to be provided under the New Investment Advisory Agreement and that
such fees and expenses are comparable to, and in many cases lower than, the fees
charged by advisers to comparable funds.
Economies of Scale.
The
Independent Directors considered information from the Adviser concerning whether
economies of scale would be realized as the Company grows, and whether fee
levels reflect any economies of scale for the benefit of the Company’s
stockholders. The Independent Directors concluded that economies of scale are
difficult to measure and predict overall. Accordingly, the Independent Directors
reviewed other information, such as year-over-year profitability of the Adviser
generally, the profitability of its management of the Company specifically, and
the fees of competitive funds not managed by the Adviser over a range of asset
sizes. The Independent Directors concluded the Adviser is appropriately sharing
any economies of scale through its competitive fee structure and through
reinvestment in its business to provide stockholders additional content and
services.
Collateral Benefits Derived by the
Adviser.
The
Independent Directors reviewed information from the Adviser concerning
collateral benefits it receives as a result of its relationship with the
Company. They concluded that the Adviser generally does not use the Company’s or
stockholder information to generate profits in other lines of business, and
therefore does not derive any significant collateral benefits from
them.
The Independent
Directors did not, with respect to their deliberations concerning their approval
of the New Investment Advisory Agreement, consider the benefits the Adviser may
derive from relationships the Adviser may have with brokers through soft dollar
arrangements because the Adviser does not employ any such arrangements in
rendering its advisory services to the Company. Although the Adviser may receive
research from brokers with whom it places trades on behalf of clients, the
Adviser does not have soft dollar arrangements or understandings with such
brokers regarding receipt of research in return for commissions.
Conclusions of the Independent
Directors
As a result of this
process, the Independent Directors, assisted by the advice of legal counsel that
is independent of the Adviser, taking into account all of the factors discussed
above and the information provided by the Adviser, unanimously concluded that
the New Investment Advisory Agreement between the Company and the Adviser is
fair and reasonable in light of the services provided and should be
approved.
Office of the
Company and
of the Investment Adviser
Tortoise Capital Advisors, L.L.C.
11550 Ash Street, Suite 300
Leawood, Kan. 66211
(913) 981-1020
(913) 981-1021 (fax)
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 Capital Corp.
H. Kevin Birzer,
Chairman
Tortoise Capital Advisors, L.L.C.
Conrad S.
Ciccotello
Independent
John R.
Graham
Independent
Charles E.
Heath
Independent
|
ADMINISTRATOR
U.S. Bancorp Fund Services,
LLC
615 East Michigan St.
Milwaukee, Wis. 53202
CUSTODIAN
U.S. Bank, N.A.
1555 North Rivercenter Drive, Suite
302
Milwaukee, Wis. 53212
TRANSFER, DIVIDEND
DISBURSING
AND REINVESTMENT AGENT
Computershare Trust Company,
N.A.
P.O. Box 43078
Providence, R.I.
02940-3078
(888) 728-8784
(312)
588-4990
www.computershare.com
Legal
Counsel
Husch Blackwell Sanders LLP
4801 Main St.
Kansas City, Mo. 64112
INVESTOR
RELATIONS
(866) 362-9331
info@tortoiseadvisors.com
STOCK
SYMBOL
Listed NYSE Symbol: TYY
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 no guarantee of
future results and your investment may be worth
more or less at
the time you sell.
|
Tortoise Capital
Advisors’ Public Investment Companies
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
Ticker/
|
|
Primary Target
|
|
Investor
|
|
as of
12/31/09
|
Name
|
|
Inception Date
|
|
Investments
|
|
Suitability
|
|
($ in
millions)
|
Tortoise Energy
|
|
TYY
|
|
U.S. Energy
Infrastructure
|
|
Retirement Accounts
|
|
$601
|
|
Capital Corp.
|
|
May 2005
|
|
|
|
Pension Plans
|
|
|
|
|
|
|
|
|
|
Taxable Accounts
|
|
|
|
|
|
Tortoise
Energy
|
|
TYG
|
|
U.S. Energy
Infrastructure
|
|
Retirement Accounts
|
|
$1,077
|
|
Infrastructure Corp.
|
|
Feb. 2004
|
|
|
|
Pension Plans
|
|
|
|
|
|
|
|
|
|
Taxable Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tortoise North
|
|
TYN
|
|
U.S. Energy
Infrastructure
|
|
Retirement Accounts
|
|
$157
|
|
American Energy Corp.
|
|
Oct. 2005
|
|
|
|
Pension Plans
|
|
|
|
|
|
|
|
|
|
Taxable Accounts
|
|
|
|
|
|
Tortoise
Capital
|
|
TTO
|
|
U.S. Energy
Infrastructure
|
|
Retirement Accounts
|
|
$86
|
|
Resources
Corp.
|
|
Dec. 2005
|
|
Private and Micro Cap
|
|
Pension Plans
|
|
(as of
8/31/09)
|
|
|
(Feb. 2007 – IPO)
|
|
Public Companies
|
|
Taxable Accounts
|
|
|
|
|
|
|
|
|
|
|
|
Tortoise Power and Energy
|
|
TPZ
|
|
U.S. Power and Energy
Investment
|
|
Retirement Accounts
|
|
$181
|
|
Infrastructure Fund, Inc.
|
|
July 2009
|
|
Grade Debt and
Dividend-Paying
|
|
Pension Plans
|
|
|
|
|
|
|
Equity Securities
|
|
Taxable Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
…Steady Wins
®
Tortoise Capital Advisors, L.L.C.
Investment Adviser to
Tortoise
Energy Capital Corp.
11550 Ash Street, Suite 300
·
Leawood, Kan. 66211
·
(913)
981-1020
·
(913) 981-1021
(fax)
·
www.tortoiseadvisors.com
Item 2. Code of
Ethics.
The Registrant
has adopted a code of ethics that applies to the Registrant’s President and
Chief Executive Officer and its Chief Financial Officer. The
Registrant amended this code of ethics during the period covered by this
report to redesignate the compliance officer under this code of ethics to be the
Company’s Chief Compliance Officer. The Registrant has not granted any waivers
from any provisions of this code of ethics during the period covered by this
report.
Item 3. Audit Committee Financial
Expert.
The Registrant’s
Board of Directors has determined that there is at least one “audit committee
financial expert” serving on its audit committee. Mr. Conrad Ciccotello is the
“audit committee financial expert” and is considered to be “independent” as each
term is defined in Item 3 of Form N-CSR. In addition to his experience
overseeing or assessing the performance of companies or public accountants with
respect to the preparation, auditing or evaluation of financial statements, Mr.
Ciccotello has a Ph.D. in Finance.
Item 4. Principal Accountant Fees and
Services.
The Registrant
has engaged its principal accountant to perform audit services, audit-related
services and tax services during the past two fiscal years. “Audit services”
refer to performing an audit of the Registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years.
“Audit-related services” refer to the assurance and related services by the
principal accountant that are reasonably related to the performance of the
audit. “Tax services” refer to professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning. The following table
details the approximate amounts of aggregate fees billed to the Registrant for
the last two fiscal years for audit fees, audit-related fees, tax fees and other
fees by the principal accountant.
|
|
FYE 11/30/2009
|
|
FYE 11/30/2008
|
Audit
Fees
|
|
$
|
179,000
|
|
$
|
191,000
|
Audit-Related Fees
|
|
$
|
3,000
|
|
$
|
3,000
|
Tax
Fees
|
|
$
|
47,000
|
|
$
|
49,000
|
All
Other Fees
|
|
|
—
|
|
|
—
|
Aggregate
Non-Audit Fees
|
|
$
|
50,000
|
|
$
|
52,000
|
The audit
committee has adopted pre-approval polices and procedures that require the audit
committee to pre-approve (i) the selection of the Registrant’s independent
registered public accounting firm, (ii) the engagement of the independent
registered public accounting firm to provide any non-audit services to the
Registrant, (iii) the engagement of the independent registered public accounting
firm to provide any non-audit services to the Adviser or any entity controlling,
controlled by, or under common control with the Adviser that provides ongoing
services to the Registrant, if the engagement relates directly to the operations
and financial reporting of the Registrant, and (iv) the fees and other
compensation to be paid to the independent registered public accounting firm.
The Chairman of the audit committee may grant the pre-approval of any engagement
of the independent registered public accounting firm for non-audit services of
less than $10,000, and such delegated pre-approvals will be presented to the
full audit committee at its next meeting. Under certain limited circumstances,
pre-approvals are not required under securities law regulations for certain
non-audit services below certain de minimus thresholds. Since the adoption of
these policies and procedures, the audit committee has pre-approved all audit
and non-audit services provided to the Registrant by the principal accountant.
None of these services provided by the principal accountant were approved by the
audit committee pursuant to the de minimus exception under Rule 2.01(c)(7)(i)(C)
or Rule 2.01(c)(7)(ii) of Regulation S-X. All of the principal accountant’s
hours spent on auditing the Registrant’s financial statements were attributed to
work performed by full-time permanent employees of the principal
accountant.
In the
Registrant’s fiscal years ended November 30, 2009 and 2008, the Adviser incurred
approximately $0 and $13,610 in fees, respectively, payable to the principal
accountant in connection with determining the Adviser’s compliance with
GIPS
®
standards in
2006. Additionally, for services delivered in 2009, the Adviser paid $129,633 in
2009 for research and consultations relating to fund structure, tax and
accounting, and audit-related fees relating to closed-end management investment
companies prior to their initial public offerings, and $2,315 in 2008 for
general tax consulting services delivered in 2008.
The non-audit
services were not required to be preapproved by the Registrant’s audit
committee. No entity controlling, controlled by, or under common control with
the Adviser that provides ongoing services to the Registrant, has paid to, or
been billed for fees by, the principal accountant for non-audit services
rendered to the Adviser or such entity during the Registrant’s last two fiscal
years. The audit committee has considered whether the principal accountant’s
provision of services (other than audit services) to the Registrant, the Adviser
or any entity controlling, controlled by, or under common control with the
Adviser that provides services to the Registrant is compatible with maintaining
the principal accountant’s independence in performing audit
services.
Item 5. Audit Committee of Listed
Registrants.
The Registrant
has a separately-designated standing audit committee established in accordance
with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, and is
comprised of Mr. Conrad S. Ciccotello, Mr. John R. Graham and Mr. Charles E.
Heath.
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.
Copies of the
proxy voting policies and procedures of the Registrant and the Adviser are
attached hereto as Exhibit 99.VOTEREG and Exhibit 99.VOTEADV,
respectively.
Item 8. Portfolio Managers of Closed-End
Management Investment Companies.
Unless otherwise
indicated, information is presented as of November 30, 2009.
Portfolio
Managers
As of the date
of this filing, management of the Registrant’s portfolio is the responsibility
of a team of portfolio managers consisting of H. Kevin Birzer, Terry Matlack,
David J. Schulte, Zachary A. Hamel and Kenneth P. Malvey, all of whom are
Managers of the Adviser, comprise the investment committee of the Adviser and
share responsibility for such investment management. All decisions to invest in
a portfolio company must be approved by the unanimous decision of the Adviser’s
investment committee and any one member of the Adviser’s investment committee
can require the Adviser to sell a security or can veto the investment
committee’s decision to invest in a security. Biographical information about
each member of the Adviser’s investment committee as of the date of this filing
is set forth below.
|
|
Position(s) Held
|
|
|
|
|
with Company
|
|
|
|
|
and Length of
|
|
Principal
Occupation
|
Name and Age*
|
|
Time Served
|
|
During Past Five
Years
|
H. Kevin Birzer
(Born 1959)
|
|
Director and
Chairman of the
Board since 2005
|
|
Managing Director of our Adviser since 2002; Member, Fountain
Capital Management (1990-2009); Vice President, Corporate Finance
Department, Drexel Burnham Lambert (1986-1989); formerly, Vice President,
F. Martin Koenig & Co., an investment management firm (1983-1986); CFA
designation since 1988.
|
Terry
Matlack
(Born 1956)
|
|
Chief
Financial
Officer since 2005
|
|
Managing Director
of our Adviser since 2002; Full-time Managing Director, Kansas City Equity
Partners, L.C. (“KCEP”) (2001-2002); formerly, President, GreenStreet
Capital, a private investment firm (1998-2001); Chief Financial Officer of
each of Tortoise Energy Infrastructure Corporation (“TYG”), Tortoise North
American Energy Corporation (“TYN”), Tortoise Capital Resources
Corporation (“TTO”), Tortoise Power and Energy Infrastructure Fund, Inc.
(“TPZ”) and a private investment company managed by our Adviser since its
inception; Director of each of the Company, TYY, TYN, TTO, TPZ and the
private investment company from its inception to September 2009; Chief
Compliance Officer of each of the Company and TYN from their inception
through May 2006 and of TYG from 2004 through May 2006; Treasurer of each
of the Company, TYG and TYN from their inception to November 2005;
Assistant Treasurer of the Company, TYG and TYN from November 2005 to
April 2008, of TTO from its inception to April 2008, and of the private
investment company from its inception to April 2009; CFA designation since
1985.
|
David J. Schulte
(Born 1961)
|
|
President and Chief
Executive Officer
since 2005
|
|
Managing Director of our Adviser since 2002; Full-time Managing
Director, KCEP (1993-2002); President and Chief Executive Officer of TYG
since 2003 and of TPZ since 2007; Chief Executive Officer of TYN since
2005 and President of TYN from 2005 to September 2008; Chief Executive
Officer of TTO since 2005 and President of TTO from 2005 to April 2007;
President of the private investment company since 2007 and Chief Executive
Officer from 2007 to December 2008; CFA designation since
1992.
|
Zachary A.
Hamel
(Born 1965)
|
|
Senior
Vice
President since
2005
|
|
Managing Director
of our Adviser since 2002; Partner, Fountain Capital Management
(1997-present); Senior Vice President of TTO since 2005 and of TYG, TYN,
TPZ and the private investment company since 2007; Secretary of each of
the Company, TYG, TYN and TTO from their inception to April 2007; CFA
designation since 1998.
|
Kenneth P. Malvey
(Born 1965)
|
|
Senior Vice
President since
inception;
Treasurer
since
November 2005
|
|
Managing Director of our Adviser since 2002; Partner, Fountain
Capital Management (2002-present); formerly Investment Risk Manager and
member of Global Office of Investments, GE Capital’s Employers Reinsurance
Corporation (1996-2002); Treasurer of TYG and TYN since November 2005, of
TTO since September 2005, and of TPZ and the private investment company
since 2007; Senior Vice President of TTO since 2005, and of TYG, TYN, TPZ
and the private investment company since 2007; Assistant Treasurer of the
Company, TYG and TYN from their inception to November 2005; Chief
Executive Officer of the private investment company since December 2008;
CFA designation since 1996.
|
*The address of each director and officer is
11550 Ash Street, Suite 300, Leawood, Kansas 66211
.
Mr. Birzer also
serves as director and Chairman of the Board of TYN, TYG, TPZ and the private
investment company advised by our Adviser, registered closed-end management
investment companies, as well as TTO, a closed-end management investment company
that has elected to be regulated as a business development company. The Adviser
also serves as the investment adviser to TYN, TYG, TPZ, TTO, and the private
investment company.
The following
table provides information about the other accounts managed on a day-to-day
basis by each of the portfolio managers as of November 30, 2009:
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
|
|
Total Assets of
|
|
|
|
|
|
|
|
|
|
Paying a
|
|
Accounts Paying
|
|
|
Number of
|
|
Total Assets of
|
|
Performance
|
|
a Performance
|
Name of Manager
|
|
Accounts
|
|
Accounts
|
|
Fee
|
|
Fee
|
H. Kevin Birzer
|
|
|
|
|
|
|
|
|
|
|
|
Registered
investment companies
|
|
|
4
|
|
|
$
|
1,344,175,377
|
|
0
|
|
—
|
Other
pooled investment vehicles
|
|
|
1
|
|
|
$
|
84,048,662
|
|
1
|
|
$84,048,662
|
Other
accounts
|
|
|
270
|
|
|
$
|
639,185,040
|
|
1
|
|
$66,489,092
|
Zachary A. Hamel
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment companies
|
|
|
4
|
|
|
$
|
1,344,175,377
|
|
0
|
|
—
|
Other pooled investment vehicles
|
|
|
3
|
|
|
$
|
148,087,313
|
|
1
|
|
$84,048,662
|
Other accounts
|
|
|
287
|
|
|
$
|
1,908,871,948
|
|
1
|
|
$66,489,092
|
Kenneth P. Malvey
|
|
|
|
|
|
|
|
|
|
|
|
Registered
investment companies
|
|
|
4
|
|
|
$
|
1,344,175,377
|
|
0
|
|
—
|
Other
pooled investment vehicles
|
|
|
3
|
|
|
$
|
148,087,313
|
|
1
|
|
$84,048,662
|
Other
accounts
|
|
|
287
|
|
|
$
|
1,908,871,948
|
|
1
|
|
$66,489,092
|
Terry Matlack
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment companies
|
|
|
4
|
|
|
$
|
1,344,175,377
|
|
0
|
|
—
|
Other pooled investment vehicles
|
|
|
1
|
|
|
$
|
84,048,662
|
|
1
|
|
$84,048,662
|
Other accounts
|
|
|
270
|
|
|
$
|
639,185,040
|
|
1
|
|
$66,489,092
|
David J. Schulte
|
|
|
|
|
|
|
|
|
|
|
|
Registered
investment companies
|
|
|
4
|
|
|
$
|
1,344,175,377
|
|
0
|
|
—
|
Other
pooled investment vehicles
|
|
|
1
|
|
|
$
|
84,048,662
|
|
1
|
|
$84,048,662
|
Other
accounts
|
|
|
270
|
|
|
$
|
639,185,040
|
|
1
|
|
$66,489,092
|
Material Conflicts of
Interest
Conflicts of
interest may arise from the fact that the Adviser and its affiliates carry on
substantial investment activities for other clients, in which the Registrant has
no interest, some of which may have investment strategies similar to the
Registrant. The Adviser or its affiliates may have financial incentives to favor
certain of these accounts over the Registrant. For example, the Adviser may have
an incentive to allocate potentially more favorable investment opportunities to
other funds and clients that pay the Adviser an incentive or performance fee.
Performance and incentive fees also create the incentive to allocate potentially
riskier, but potentially better performing, investments to such funds and other
clients in an effort to increase the incentive fee. The Adviser also may have an
incentive to make investments in one fund, having the effect of increasing the
value of a security in the same issuer held by another fund, which, in turn, may
result in an incentive fee being paid to the Adviser by that other fund. Any of
their proprietary accounts or other customer accounts may compete with the
Registrant for specific trades. The Adviser or its affiliates may give advice
and recommend securities to, or buy or sell securities for, other accounts and
customers, which advice or securities recommended may differ from advice given
to, or securities recommended or bought or sold for, the Registrant, even though
their investment objectives may be the same as, or similar to, the Registrant’s
objectives. When two or more clients advised by the Adviser or its affiliates
seek to purchase or sell the same publicly traded securities, the securities
actually purchased or sold will be allocated among the clients on a good faith
equitable basis by the Adviser in its discretion and in accordance with the
clients’ various investment objectives and the Adviser’s procedures. In some
cases, this system may adversely affect the price or size of the position the
Registrant may obtain or sell. In other cases, the Registrant’s ability to
participate in volume transactions may produce better execution for
it.
The Adviser also
serves as investment adviser for four other publicly traded and one privately
held closed-end management investment companies, all of which invest in the
energy sector.
Situations may
occur when the Registrant could be disadvantaged because of the investment
activities conducted by the Adviser and its affiliates for their other accounts.
Such situations may be based on, among other things, the following: (1) legal or
internal restrictions on the combined size of positions that may be taken for
the Registrant or the other accounts, thereby limiting the size of the
Registrant’s position; (2) the difficulty of liquidating an investment for the
Registrant or the other accounts where the market cannot absorb the sale of the
combined position; or (3) limits on co-investing in private placement securities
under the Investment Company Act of 1940. The Registrant’s investment
opportunities may be limited by affiliations of the Adviser or its affiliates
with energy infrastructure companies.
Under the
Investment Company Act of 1940, the Registrant and its affiliated companies may
be precluded from co-investing in negotiated private placements of securities.
Except as permitted by law, the Registrant will not co-invest with its
affiliates in negotiated private transactions. To the extent the Registrant is
precluded from co-investing, the Adviser will observe a policy for allocating
negotiated private investment opportunities among its clients that takes into
account the amount of each client’s available cash and its investment
objectives. These allocation policies may result in the allocation of investment
opportunities to an affiliated company rather than to the
Registrant.
To the extent
that the Adviser sources and structures private investments in master limited
partnerships (“MLPs”), certain employees of the Adviser may become aware of
actions planned by MLPs, such as acquisitions, which may not be announced to the
public. It is possible that the Registrant could be precluded from investing in
or selling securities of an MLP about which the Adviser has material, non-public
information; however, it is the Adviser’s intention to ensure that any material,
non-public information available to certain employees of the Adviser is not
shared with the employees responsible for the purchase and sale of publicly
traded MLP securities. The Registrant’s investment opportunities also may be
limited by affiliations of the Adviser or its affiliates with energy
infrastructure companies.
The Adviser and
its principals, officers, employees, and affiliates may buy and sell securities
or other investments for their own accounts and may have actual or potential
conflicts of interest with respect to investments made on the Registrant’s
behalf. As a result of differing trading and investment strategies or
constraints, positions may be taken by principals, officers, employees, and
affiliates of the Adviser that are the same as, different from, or made at a
different time than positions taken for the Registrant. Further, the Adviser may
at some time in the future, manage other investment funds with the same
investment objective as the Registrant’s.
Compensation
None of Messrs.
Birzer, Hamel, Malvey, Matlack or Schulte receives any direct compensation from
the Registrant or any other of the managed accounts reflected in the table
above. All such accounts are managed by the Adviser or Fountain Capital. Messrs.
Birzer, Hamel, Malvey, Matlack and Schulte are full-time employees of the
Adviser and receive a fixed salary for the services they provide. They are also
eligible for an annual cash bonus and awards of common interests in the
Adviser’s parent company based on the Adviser’s earnings and the satisfaction of
certain other conditions. Additional benefits received by Messrs. Birzer, Hamel,
Malvey, Matlack and Schulte are normal and customary employee benefits generally
available to all salaried employees. Each of Messrs. Birzer, Hamel, Malvey,
Matlack and Schulte own an equity interest in Tortoise Holdings, LLC which
wholly owns the Adviser, and each thus benefits from increases in the net income
of the Adviser.
Securities Owned in the Registrant by
Portfolio Managers
The following
table provides information about the dollar range of equity securities in the
Registrant beneficially owned by each of the portfolio managers as of November
30, 2009:
|
|
|
Aggregate Dollar Range
of
|
|
Portfolio Manager
|
|
Holdings in the
Registrant
|
|
H. Kevin Birzer
|
|
$100,001-$500,000
|
|
Zachary A. Hamel
|
|
$50,001-$100,000
|
|
Kenneth P. Malvey
|
|
$10,001-$50,000
|
|
Terry Matlack
|
|
$100,001-$500,000
|
|
David J. Schulte
|
|
$50,001-$100,000
|
Item 9. Purchases of Equity Securities by
Closed-End Management Investment Company and
Affiliated
Purchasers.
|
|
|
|
(d)
|
|
|
|
(c)
|
Maximum Number
(or
|
|
|
|
Total Number of
|
Approximate
Dollar
|
|
(a)
|
|
Shares (or
Units)
|
Value) of Shares
(or
|
|
Total Number of
|
(b)
|
Purchased as Part
of
|
Units) that May
Yet
|
|
Shares (or
Units)
|
Average Price
Paid
|
Publicly
Announced
|
Be Purchased
Under
|
Period
|
Purchased
|
per Share (or
Unit)
|
Plans or
Programs
|
the Plans or
Programs
|
Month #1
|
0
|
0
|
0
|
0
|
6/1/09-6/30/09
|
|
|
|
|
Month #2
|
0
|
0
|
0
|
0
|
7/1/09-7/31/09
|
|
|
|
|
Month #3
|
0
|
0
|
0
|
0
|
8/1/09-8/31/09
|
|
|
|
|
Month #4
|
0
|
0
|
0
|
0
|
9/1/09-9/30/09
|
|
|
|
|
Month #5
|
0
|
0
|
0
|
0
|
10/1/09-10/31/09
|
|
|
|
|
Month #6
|
0
|
0
|
0
|
0
|
11/1/09-11/30/09
|
|
|
|
|
Total
|
0
|
0
|
0
|
0
|
Item 10. Submission of Matters to a Vote
of Security Holders.
None.
Item 11. Controls and
Procedures.
(a) The
Registrant’s President and Chief Executive Officer and its Chief Financial
Officer have concluded that the Registrant's 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 this
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 changes in the Registrant’s internal control over financial reporting (as
defined in Rule 30a-3(d) under the 1940 Act) that occurred during the
Registrant’s second fiscal quarter of the period covered by this report that
have materially affected, or are reasonably likely to materially affect, the
Registrant’s internal control over financial reporting.
Item 12.
Exhibits.
(a)(1)
Any code of ethics or amendment thereto,
that is the subject of the disclosure required by Item 2, to the extent that the
Registrant intends to satisfy Item 2 requirements through filing of an exhibit.
Filed
herewith.
(2)
Certifications pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Filed herewith.
(3)
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.
(b)
Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Furnished herewith.
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.
(Registrant)
|
|
Tortoise
Energy Capital Corporation
|
|
By (Signature and Title)
|
|
/s/ David J.
Schulte
|
|
|
David J.
Schulte, President and Chief Executive Officer
|
|
|
|
Date
February 2,
2010
|
|
|
Pursuant to the requirements
of the Securities Exchange Act of 1934 and the Investment Company Act of 1940,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By (Signature and Title)
|
|
/s/ David J.
Schulte
|
|
|
David J.
Schulte, President and Chief Executive Officer
|
|
|
|
Date February 2, 2010
|
|
|
|
|
|
By (Signature and Title)
|
|
/s/ Terry
Matlack
|
|
|
Terry
Matlack, Chief Financial Officer
|
|
|
|
Date February 2, 2010
|
|
|