UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act
file number
811-21725
Tortoise Energy Capital Corporation
(Exact name
of registrant as specified in charter)
11550 Ash Street, Suite 300, Leawood, KS
66211
(Address
of principal executive offices) (Zip code)
David J. Schulte
11550 Ash Street, Suite 300, Leawood, KS
66211
(Name and
address of agent for service)
913-981-1020
Registrant's telephone number, including area
code
Date of fiscal year
end:
November 30
Date of reporting
period:
November 30, 2011
Item 1. Report to
Stockholders.
Company at a Glance
Tortoise Energy Capital Corp. (NYSE:
TYY) is a closed-end investment company investing primarily in equity securities
of publicly-traded Master Limited Partnerships (MLPs) and their affiliates in
the energy infrastructure sector.
Investment Goals: Yield, Growth and
Quality
TYY seeks a high level of total return
with an emphasis on current distributions paid to stockholders.
In seeking to achieve
yield,
we target
distributions to our stockholders that are roughly equal to the underlying yield
on a direct investment in MLPs. In order to accomplish this, we maintain our
strategy of investing primarily in energy infrastructure companies with
attractive current yields and growth potential.
We seek to achieve distribution
growth
as
revenues of our underlying companies grow with the economy, with the population
and through rate increases. This revenue growth generally leads to increased
operating profits, and when combined with internal expansion projects and
acquisitions, is expected to provide attractive growth in distributions to us.
We also seek distribution growth through timely debt and equity
offerings.
TYY seeks to achieve
quality
by investing in
companies operating energy infrastructure assets that are critical to the U.S.
economy. Often these assets would be difficult to replicate. We also back
experienced management teams with successful track records. By investing in us,
our stockholders have access to a portfolio that is diversified through
geographic regions and across product lines, including natural gas, natural gas
liquids, crude oil and refined products.
About Energy Infrastructure Master
Limited Partnerships
MLPs are limited partnerships whose units trade on public exchanges such as the
New York Stock Exchange (NYSE), NYSE Alternext US and NASDAQ. Buying MLP units makes an investor a limited partner in the MLP.
There are currently more than 70 MLPs in the market, mostly
in industries related to energy and natural resources.
We primarily invest in MLPs and their
affiliates in the energy infrastructure sector. Energy infrastructure MLPs are
engaged in the transportation, storage and processing of crude oil, natural gas
and refined products from production points to the end users. Our investments
are primarily in mid-stream (mostly pipeline) operations, which typically
produce steady cash flows with less exposure to
commodity
prices than many alternative investments in the broader energy industry. With
the growth potential of this sector along with our disciplined investment
approach, we endeavor to generate a predictable and increasing distribution
stream for our investors.
A TYY Investment Versus a Direct
Investment in MLPs
We provide our stockholders an alternative
to investing directly in MLPs and their affiliates. A direct MLP investment
potentially offers an attractive distribution with a significant portion treated
as return of capital, and a historically low correlation to returns on stocks
and bonds. However, the tax characteristics of a direct MLP investment are
generally undesirable for tax-exempt investors such as retirement plans. We are
structured as a C Corporation accruing federal and state income taxes, based
on taxable earnings and profits. Because of this innovative structure, pioneered
by Tortoise Capital Advisors, institutions and retirement accounts are able to
join individual stockholders as investors in MLPs.
Additional features include:
-
One Form 1099 per stockholder at the
end of the year, thus avoiding multiple K-1s and multiple state filings
for individual partnership
investments;
-
A professional management team, with more than 130
years combined investment experience, to select
and manage the portfolio on your behalf;
-
The ability to access investment grade credit
markets to enhance stockholder return; and
-
Access to direct placements and other investments
not available through the public
markets.
January 12, 2012
Dear Fellow Stockholders,
Our fiscal year ended Nov. 30, 2011 marked
a year of memorable headlines in the broader markets. Macroeconomic events such
as Eurozone debt concerns, the U.S. sovereign debt downgrade and slower than
anticipated economic growth generated short-term volatility across all asset
classes. Fortunately, the market recognized quality over longer periods, as
evidenced by the performance of MLPs.
Master Limited Partnership Sector
Review and Outlook
Notwithstanding a strong absolute return
in the first half of the year, MLPs underperformed the S&P 500; however,
MLPs significantly outperformed the S&P 500 during the second half of the
year. Despite macro uncertainty, key business fundamentals of midstream MLPs
remained steady, resulting in a solid return posted over the course of the
fiscal year. The Tortoise MLP Index
®
achieved a total return of 9.9 percent for
the fiscal year ended Nov. 30, 2011, as compared to the S&P 500 total return
of 7.8 percent for the same period.
During the year, large global energy
companies continued to make significant investment in North American oil and gas
shales. These deals validated the game-changing events taking place in North
American energy production and transportation. Approximately $27.5 billion was
invested in shale-related acquisitions in 2011 focused on the Marcellus, Eagle
Ford and Fayetteville shales, as well as the Canadian oil sands. This activity
drove pipeline infrastructure build-out with $12 billion in MLP pipeline
projects completed in 2011. Additionally, acquisition activity remained
elevated, with over $30 billion in MLP acquisitions announced this year. This
years transactions particularly reflected natural gas pipeline MLP activity
and the potential for asset migration into MLPs,
with Energy Transfer Equitys pending $9 billion acquisition of Southern Union
being the largest MLP deal announced during the year. We expect additional need
for growth capital for fiscal 2012, with accompanying MLP distribution growth of
6 percent to 8 percent.
One example that illustrates how growing
North American production requires new pipeline infrastructure investment is the
current crude oil supply glut in Cushing, Okla., a major hub for petroleum.
Additional infrastructure is needed to alleviate the oversupply as
transportation alternatives such as truck, rail or barge are logistically
challenging and expensive. The ultimate resolution could take many forms,
depending on the outcome of TransCanadas Keystone XL project, which would serve
to move crude oil out of Cushing to Texas refineries. Some relief is expected to
come from Enterprise Product Partners and Enbridge Inc.s planned reversal of
the Seaway pipeline flow between Cushing and Houston.
Company Performance Review and
Outlook
Our total assets increased from $765.8
million on Nov. 30, 2010, to more than $804.5 million on Nov. 30, 2011. This
increase resulted primarily from net realized and unrealized gains on
investments as well as approximately $11 million in new equity and leverage
proceeds. Our market-based total return was 3.9 percent and our NAV-based total
return was 6.0 percent (both including the reinvestment of distributions) for
the fourth fiscal quarter ended Nov. 30, 2011. For fiscal year 2011, our
market-based total return was 3.1 percent and our NAV-based total return was 7.6
percent.
(Unaudited)
2011 Annual
Report
1
During the fiscal year, our performance
was positively impacted by refined product pipeline MLPs, driven by higher
volumes and an increased tariff. Gathering and processing MLPs as well as
natural gas pipeline MLPs benefited from growth projects, offset slightly by the
performance of propane and gas storage MLPs.
We paid a distribution of $0.4075 per
common share ($1.63 annualized) to our stockholders on Nov. 30, 2011, an
increase of 0.6 percent quarter-over-quarter and an increase of 1.9 percent
year-over-year. This represented an annualized yield of 6.2 percent based on our
fiscal year closing price of $26.21. Our distribution coverage (distributable
cash flow divided by distributions) for the fiscal year was 105 percent. For tax
purposes, distributions to stockholders for 2011 were 100 percent qualified
dividend income.
We ended our fiscal year with leverage
(including bank debt, senior notes and preferred stock), at 20.8 percent of
total assets, below our long term target of 25 percent. As of Nov. 30, 2011, our
leverage had a weighted average maturity of 3.9 years and a weighted average
cost of leverage of 5.0 percent, with nearly 90 percent at fixed rates, While
our cost of leverage is higher than current short-term rates, we believe a
primarily fixed-rate strategy with laddered maturities enhances the
predictability and sustainability of our distributable cash flow across interest
rate environments.
Additional information about our financial
performance is available in the Key Financial Data and Managements Discussion
of this report.
Conclusion
We continue to expect substantial growth
activity in our nations shales to drive infrastructure build-out. New domestic
resources are becoming a more important part of our economy as we reduce
dependence on foreign sources. We believe the investment merits of the energy
infrastructure sector are particularly attractive as a result of this
opportunity. We look forward to serving you as your professional MLP investment
adviser to navigate the course ahead, with a strategy anchored in quality
midstream MLPs.
Sincerely,
The Managing Directors
Tortoise
Capital Advisors, L.L.C.
The adviser to
Tortoise Energy Capital Corp.
|
|
|
H. Kevin Birzer
|
Zachary A. Hamel
|
Kenneth P. Malvey
|
|
|
|
|
|
|
Terry Matlack
|
David J. Schulte
|
|
(Unaudited)
|
2
|
Tortoise Energy
Capital Corp.
|
Key
Financial Data
(Supplemental Unaudited Information)
(dollar amounts in
thousands unless otherwise indicated)
|
The information presented below
regarding Distributable Cash Flow and Selected Operating Ratios is supplemental
non-GAAP financial information, which we believe is meaningful to understanding
our operating performance. The Selected Operating Ratios are the functional
equivalent of EBITDA for non-investment companies, and we believe they are an
important supplemental measure of performance and promote comparisons from
period-to-period. Supplemental non-GAAP measures should be read in conjunction
with our full financial statements.
|
|
Year Ended November
30,
|
|
2010
|
|
2011
|
|
|
|
2010
|
|
2011
|
|
Q4
(1)
|
|
Q1
(1)
|
|
Q2
(1)
|
|
Q3
(1)
|
|
Q4
(1)
|
|
Total Distributions Received from Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received from master limited
partnerships
|
|
$
|
42,564
|
|
$
|
46,036
|
|
$
|
10,891
|
|
$
|
11,192
|
|
$
|
11,470
|
|
$
|
11,605
|
|
$
|
11,769
|
|
Dividends paid in stock
|
|
|
4,113
|
|
|
4,004
|
|
|
1,081
|
|
|
1,016
|
|
|
1,103
|
|
|
1,043
|
|
|
842
|
|
Other income
|
|
|
11
|
|
|
266
|
|
|
|
|
|
61
|
|
|
205
|
|
|
|
|
|
|
|
Total from
investments
|
|
46,688
|
|
50,306
|
|
11,972
|
|
12,269
|
|
12,778
|
|
|
12,648
|
|
12,611
|
|
Operating Expenses
Before Leverage Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Current
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory fees, net of expense
reimbursement
|
|
|
6,381
|
|
|
7,460
|
|
|
1,755
|
|
|
1,842
|
|
|
1,934
|
|
|
1,857
|
|
|
1,827
|
|
Other operating expenses
|
|
|
1,118
|
|
|
1,095
|
|
|
289
|
|
|
284
|
|
|
297
|
|
|
260
|
|
|
254
|
|
|
|
|
7,499
|
|
|
8,555
|
|
|
2,044
|
|
|
2,126
|
|
|
2,231
|
|
|
2,117
|
|
|
2,081
|
|
Distributable cash flow before leverage
costs and current taxes
|
|
|
39,189
|
|
|
41,751
|
|
|
9,928
|
|
10,143
|
|
|
10,547
|
|
|
10,531
|
|
10,530
|
|
Leverage costs
(2)
|
|
|
9,422
|
|
|
8,728
|
|
|
2,318
|
|
|
2,352
|
|
|
2,120
|
|
|
2,136
|
|
|
2,120
|
|
Current income tax expense
|
|
|
319
|
|
|
225
|
|
|
107
|
|
|
81
|
|
|
50
|
|
|
47
|
|
|
47
|
|
Distributable Cash Flow
(3)
|
|
$
|
29,448
|
|
$
|
32,798
|
|
$
|
7,503
|
|
$
|
7,710
|
|
$
|
8,377
|
|
$
|
8,348
|
|
$
|
8,363
|
|
Distributions paid on common stock
|
|
$
|
30,748
|
|
$
|
31,396
|
|
$
|
7,724
|
|
$
|
7,738
|
|
$
|
7,809
|
|
$
|
7,884
|
|
$
|
7,965
|
|
Distributions paid on common stock per share
|
|
|
1.6000
|
|
|
1.6150
|
|
0.4000
|
|
0.4000
|
|
0.4025
|
|
0.4050
|
|
0.4075
|
|
Payout percentage for period
(4)
|
|
|
104.4
|
%
|
|
95.7
|
%
|
|
102.9
|
%
|
|
100.4
|
%
|
|
93.2
|
%
|
|
94.4
|
%
|
|
95.2
|
%
|
Net
realized gain, net of income taxes, for the period
|
|
|
28,765
|
|
|
57,610
|
|
|
6,241
|
|
|
7,530
|
|
|
17,738
|
|
|
2,331
|
|
30,011
|
|
Total assets, end of period
|
|
765,797
|
|
804,539
|
|
765,797
|
|
831,655
|
|
792,460
|
|
770,803
|
|
804,539
|
|
Average
total assets during period
(5)
|
|
672,937
|
|
797,274
|
|
737,466
|
|
796,660
|
|
819,736
|
|
789,509
|
|
783,965
|
|
Leverage
(6)
|
|
162,400
|
|
167,000
|
|
162,400
|
|
157,400
|
|
162,000
|
|
160,300
|
|
167,000
|
|
Leverage as a percent of total assets
|
|
|
21.2
|
%
|
|
20.8
|
%
|
|
21.2
|
%
|
|
18.9
|
%
|
|
20.4
|
%
|
|
20.8
|
%
|
|
20.8
|
%
|
Unrealized appreciation, net of income taxes, end of
period
|
|
220,924
|
|
214,425
|
|
220,924
|
|
261,429
|
|
224,761
|
|
213,471
|
|
214,425
|
|
Net
assets, end of period
|
|
488,835
|
|
500,129
|
|
488,835
|
|
524,758
|
|
494,492
|
|
476,629
|
|
500,129
|
|
Average net assets during period
(7)
|
|
435,781
|
|
495,831
|
|
477,029
|
|
504,702
|
|
509,480
|
|
485,972
|
|
483,227
|
|
Net
asset value per common share
|
|
|
25.27
|
|
|
25.54
|
|
|
25.27
|
|
|
27.13
|
|
|
25.49
|
|
|
24.48
|
|
|
25.54
|
|
Market value per share
|
|
|
27.06
|
|
|
26.21
|
|
|
27.06
|
|
|
28.79
|
|
|
26.72
|
|
|
25.64
|
|
|
26.21
|
|
Shares
outstanding
|
|
19,345,016
|
|
19,581,174
|
|
19,345,016
|
|
19,345,016
|
|
19,400,238
|
|
19,466,356
|
|
19,581,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Operating
Ratios
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percent of
Average Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions received from
investments
|
|
|
6.94
|
%
|
|
6.31
|
%
|
|
6.51
|
%
|
|
6.25
|
%
|
|
6.18
|
%
|
|
6.36
|
%
|
|
6.45
|
%
|
Operating expenses before leverage costs
and current taxes
|
|
|
1.11
|
%
|
|
1.07
|
%
|
|
1.11
|
%
|
|
1.08
|
%
|
|
1.08
|
%
|
|
1.06
|
%
|
|
1.06
|
%
|
Distributable cash flow before leverage
costs and current taxes
|
|
|
5.83
|
%
|
|
5.24
|
%
|
|
5.40
|
%
|
|
5.17
|
%
|
|
5.10
|
%
|
|
5.30
|
%
|
|
5.39
|
%
|
As a Percent of
Average Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable Cash
Flow
(3)
|
|
|
6.76
|
%
|
|
6.61
|
%
|
|
6.31
|
%
|
|
6.20
|
%
|
|
6.52
|
%
|
|
6.82
|
%
|
|
6.94
|
%
|
(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, other recurring leverage 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, distributions included in direct placement
discounts, premium on redemption of MRP stock and amortization of debt
issuance costs; and decreased by current taxes paid on net investment
income.
|
(4)
|
Distributions paid as a percentage of Distributable Cash
Flow.
|
(5)
|
Computed
by averaging month-end values within each period.
|
(6)
|
Leverage
consists of long-term debt obligations, preferred stock and short-term
borrowings.
|
(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 average net
assets.
|
2011 Annual
Report
3
Managements 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. Tortoise Capital Advisors, L.L.C. serves as our investment
adviser.
Company Update
Total assets increased approximately $34
million during the 4th quarter primarily as a result of increased market values
of our MLP investments. Distribution increases from our MLP investments were
in-line with our expectations and asset-based and other operating expenses
declined from the previous quarter. Total leverage as a percent of total assets
was relatively unchanged and we increased our quarterly distribution to $0.4075
per share. 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 managements 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
current and estimated future 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 with
increases safely covered by earned DCF.
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 (excluding taxes generated from realized gains). Realized gains, expected
tax benefits and deferred taxes are not included in our DCF.
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: the Statement of Operations, in conformity
with U.S. generally accepted accounting principles (GAAP), recognizes
distribution income from MLPs and common stock on their ex-dates, whereas the
DCF calculation reflects distribution income on their pay dates; 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, and includes distributions related
to direct investments when the purchase price is reduced in lieu of receiving
cash distributions. 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, other recurring leverage expenses,
distributions to preferred stockholders, as well as current taxes paid on net
investment income. A reconciliation of Net Investment Loss, before Income Taxes
to DCF is included below.
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.
4
Tortoise Energy Capital Corp.
Managements Discussion
(Unaudited)
(Continued)
|
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,
many energy infrastructure companies are regulated and currently benefit from a
tariff inflation escalation index of PPI + 2.65 percent. Over the long-term, we
believe MLPs distributions will outpace inflation and interest rate increases,
and produce positive real returns.
Total distributions received from our
investments for the 4th quarter 2011 was approximately $12.6 million,
representing a 5 percent increase as compared to 4th quarter 2010 and was
virtually unchanged as compared to 3rd quarter 2011. These changes reflect
increases in per share distribution rates on our MLP investments and the
distributions received from additional investments funded from equity and
leverage proceeds, offset by the impact of trading activity wherein certain
investments with higher current yields and lower expected future growth were
sold and replaced with investments that had lower current yields and higher
expected future growth.
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 1.06 percent of average total assets for the
4th quarter 2011, a decrease of 0.05 percent as compared to the 4th quarter 2010
and unchanged as compared to 3rd quarter 2011. Advisory fees for the 4th quarter
2011 decreased 2 percent from 3rd quarter 2011 as a result of decreased average
managed assets for the quarter. Yields on our MLP investments are currently
below their 5-year historical average of approximately 7 percent. All else being
equal, if MLP yields decrease and distributions remain constant or grow, MLP
asset values will increase as will our managed assets and advisory fees. Other
operating expenses decreased approximately $6,000 as compared to 3rd quarter
2011.
Leverage costs consist of two major
components: (1) the direct interest expense on our senior notes and short-term
credit facility, and (2) distributions to preferred stockholders. Other leverage
expenses include rating agency fees and commitment fees. Total leverage costs
for DCF purposes were approximately $2.1 million for the 4th quarter 2011,
relatively unchanged as compared to 3rd quarter 2011.
The weighted average annual rate of our
leverage at November 30, 2011 was 5.01 percent. This rate includes balances on
our bank credit facility which accrue interest at a variable rate equal to
one-month LIBOR plus 1.25 percent. Our weighted average rate may vary in future
periods as a result of changes in LIBOR, the utilization of our credit facility
and as our leverage matures or is redeemed. Additional information on our
leverage and amended credit facility is disclosed below in Liquidity and Capital
Resources and in our Notes to Financial Statements.
Distributable Cash Flow
For 4th quarter 2011, our DCF was
approximately $8.4 million, an increase of 11 percent as compared to 4th quarter
2010 and a slight increase as compared to 3rd quarter 2011. These changes are
the net result of distributions and expenses as outlined above. We declared a
distribution of $8.0 million, or $0.4075 per share, during the quarter. This
represents an increase of $0.0075 per share as compared to 4th quarter 2010 and
an increase of $0.0025 per share as compared to 3rd quarter 2011.
Our distribution payout ratio as a
percentage of DCF was 95.2 percent for 4th quarter 2011. Our goal is to pay what
we believe to be sustainable distributions with any increases safely covered by
earned DCF. A payout of less than 100 percent of DCF provides cushion for
on-going management of the portfolio, changes in leverage costs and other
expenses. An on-going payout ratio in excess of 100 percent will, over time,
erode the earning power of a portfolio and may lead to lower distributions or
portfolio managers taking on more risk than they otherwise would.
Net investment loss before income taxes on
the Statement of Operations is adjusted as follows to reconcile to DCF for 2011
YTD and the 4th quarter 2011 (in thousands):
|
2011
YTD
|
|
4th Qtr
2011
|
Net
Investment Loss, before Income Taxes
|
$
|
(19,866
|
)
|
|
$
|
(3,495
|
)
|
Adjustments to
reconcile to DCF:
|
|
|
|
|
|
|
|
Dividends paid in stock
|
|
4,004
|
|
|
|
842
|
|
Distributions characterized as return of
capital
|
|
46,589
|
|
|
|
11,006
|
|
Distribution included in direct placement
discount
|
|
95
|
|
|
|
|
|
Amortization of debt issuance
costs
|
|
1,551
|
|
|
|
57
|
|
Premium on redemption of MRP
stock
|
|
650
|
|
|
|
|
|
Current income tax expenses
|
|
(225
|
)
|
|
|
(47
|
)
|
DCF
|
$
|
32,798
|
|
|
$
|
8,363
|
|
Liquidity and Capital
Resources
We had total assets of $805 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
2011, total assets increased $34 million. This change was primarily the result
of a $38 million increase in the value of our investments as reflected by the
change in realized and unrealized gains on investments (excluding return of
capital on distributions) and a decrease in receivables for investments sold of
$3 million.
We issued 44,215 shares of our common
stock during the quarter under our at-the-market equity program and 70,603
shares under our dividend reinvestment plan for a net total of approximately
$2.9 million. We used the proceeds to reduce the balance on our bank credit
facility. We are waiving our advisory fees on the net proceeds from shares
issued under our at-the-market equity program for six months.
2011 Annual
Report
5
Managements Discussion
(Unaudited)
(Continued)
|
Total leverage outstanding at November 30,
2011 was $167.0 million, an increase of $6.7 million as compared to August 31,
2011. On an adjusted basis to reflect the payment of the 3rd quarter 2011
distribution at the beginning of the 4th quarter 2011, total leverage decreased
by approximately $0.4 million. Outstanding leverage is comprised of $104.1
million in senior notes, $50 million in MRP stock and $12.9 million outstanding
under the credit facility, with 89.3 percent of leverage with fixed rates and a
weighted average maturity of 3.9 years. Total leverage represented 20.8 percent
of total assets at November 30, 2011, as compared to 20.8 percent as of August
31, 2011 and 21.2 percent as of November 30, 2010. Our leverage as a percent of
total assets remains below our long-term target level of 25 percent of total
assets, allowing the opportunity to add leverage when compelling investment
opportunities arise. Temporary increases to 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.
Our longer-term leverage (excluding our
bank credit facility) of $154.1 million on November 30, 2011 was comprised of 68
percent private placement debt and 32 percent publicly traded preferred equity
with a weighted average rate of 5.27 percent and weighted average laddered
maturity of 4.1 years.
Our Mandatory Redeemable Preferred stock
has an optional redemption feature allowing us to redeem all or a portion of the
stock after March 1, 2012 and on or prior to March 1, 2013 at $10.10 per share.
Any optional redemption after March 1, 2013 and on or prior to March 1, 2014
will be at $10.05 per share. Any redemption after March 1, 2014 will be at the
liquidation preference amount of $10.00 per share.
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. Additional information on our leverage and asset
coverage requirements is discussed in Note 9 and Note 10 in the Notes to
Financial Statements. Our coverage ratios are updated each week on our Web site
at www.tortoiseadvisors.com.
Taxation of our Distributions and
Income Taxes
We invest in partnerships that generally
have cash distributions in excess of their income for accounting and tax
purposes. 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 (E&P).
E&P is primarily comprised of the taxable income from MLPs with certain
specified adjustments as reported on annual K-1s, fund operating expenses and
net realized gains. If we have E&P, it is first allocated to the preferred
shares and then to the common shares.
In the event we have E&P 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 2012. 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 tax purposes, distributions to common
stockholders for the fiscal year ended 2011 were 100 percent qualified dividend
income. This information is reported to stockholders on Form 1099-DIV and is
available on our Web site at www.tortoiseadvisors.com. For book purposes, the
source of distributions to common stockholders for the fiscal year ended 2011
was 100 percent return of capital.
The unrealized gain or loss we have in the
portfolio is reflected in the Statement of Assets and Liabilities. At November
30, 2011, our investments are valued at $803 million, with an adjusted cost of
$472 million. The $331 million difference reflects unrealized gain that would be
realized for financial statement purposes if those investments were sold at
those values. The Statement of Assets and Liabilities also reflects either a net
deferred tax liability or net deferred tax asset depending primarily upon
unrealized gains (losses) on investments, realized gains (losses) on
investments, capital loss carryforwards and net operating losses. At November
30, 2011, the balance sheet reflects a net deferred tax liability of
approximately $134 million or $6.87 per share. Accordingly, our net asset value
per share represents the amount which would be available for distribution to
stockholders after payment of taxes.
As of November 30, 2011, we had
approximately $29 million in capital loss carryforwards and $24 million in net
operating losses. To the extent we have taxable income that is not offset by
either capital loss carryforwards or net operating losses, we will owe federal
and state income taxes. Tax payments can be funded from investment earnings,
fund assets or borrowings. Details of our taxes are disclosed in Note 5 in our
Notes to Financial Statements.
6
Tortoise Energy Capital Corp.
Schedule of Investments
November 30,
2011
|
|
Shares
|
|
Fair
Value
|
|
|
Master Limited Partnerships and
|
|
|
|
|
|
Related Companies
160.5%
(1)
|
|
|
|
|
|
|
|
Crude/Refined Products Pipelines
64.6%
(1)
|
|
|
|
|
United States
64.6%
(1)
|
|
|
|
|
|
Blueknight Energy Partners, L.P.
(2)
|
427,100
|
|
$
|
2,677,917
|
|
Buckeye Partners,
L.P.
|
715,800
|
|
|
45,668,040
|
|
Enbridge Energy Partners, L.P.
|
1,372,700
|
|
|
42,512,519
|
|
Holly Energy Partners,
L.P.
|
312,000
|
|
|
17,384,640
|
|
Kinder
Morgan Management, LLC
(3)
|
592,418
|
|
|
41,925,403
|
|
Magellan Midstream
Partners, L.P.
|
753,400
|
|
|
48,202,532
|
|
NuStar
Energy L.P.
|
508,300
|
|
|
27,875,172
|
|
Oiltanking Partners,
L.P.
|
82,100
|
|
|
2,364,480
|
|
Plains
All American Pipeline, L.P.
|
554,000
|
|
|
35,932,440
|
|
Sunoco Logistics
Partners L.P.
|
532,800
|
|
|
55,016,928
|
|
Tesoro
Logistics LP
|
125,700
|
|
|
3,426,582
|
|
|
|
|
|
322,986,653
|
|
Natural Gas/Natural Gas Liquids Pipelines
69.1%
(1)
|
|
|
United States
69.1%
(1)
|
|
|
|
|
|
Boardwalk Pipeline Partners, LP
|
1,282,700
|
|
|
33,298,892
|
|
El Paso Pipeline
Partners, L.P.
|
1,253,700
|
|
|
41,083,749
|
|
Energy
Transfer Equity, L.P.
|
101,300
|
|
|
3,574,877
|
|
Energy Transfer
Partners, L.P.
|
842,400
|
|
|
36,863,424
|
|
Enterprise Products Partners L.P.
|
1,270,400
|
|
|
57,790,496
|
|
Niska Gas Storage
Partners LLC
|
172,800
|
|
|
1,672,704
|
|
ONEOK
Partners, L.P.
|
776,600
|
|
|
39,264,896
|
|
PAA Natural Gas
Storage, L.P.
|
280,308
|
|
|
4,902,587
|
|
Regency
Energy Partners LP
|
1,593,567
|
|
|
36,667,977
|
|
Spectra
Energy Partners, LP
|
478,800
|
|
|
14,493,276
|
|
TC
PipeLines, LP
|
633,400
|
|
|
30,137,172
|
|
Williams Partners
L.P.
|
794,600
|
|
|
46,134,476
|
|
|
|
|
|
345,884,526
|
|
Natural
Gas Gathering/Processing 24.0%
(1)
|
|
|
|
|
United States 24.0%
(1)
|
|
|
|
|
|
Chesapeake Midstream
Partners, L.P.
|
730,200
|
|
|
19,138,542
|
|
Copano
Energy, L.L.C.
|
484,200
|
|
|
16,027,020
|
|
Crestwood Midstream
Partners LP
(3)
|
343,507
|
|
|
10,260,554
|
|
DCP
Midstream Partners, LP
|
386,100
|
|
|
16,567,551
|
|
MarkWest Energy
Partners, L.P.
|
327,900
|
|
|
17,588,556
|
|
Targa
Resources Partners LP
|
619,520
|
|
|
23,250,586
|
|
Western Gas Partners
LP
|
451,100
|
|
|
16,997,448
|
|
|
|
|
|
119,830,257
|
|
Propane Distribution
2.8%
(1)
|
|
|
|
|
|
United States 2.8%
(1)
|
|
|
|
|
|
Inergy, L.P.
|
573,200
|
|
|
13,859,976
|
|
Total
Master Limited Partnerships and
|
|
|
|
|
|
Related Companies (Cost
$471,957,559)
|
|
|
|
802,561,412
|
|
|
|
|
|
|
|
Short-Term Investment 0.0%
(1)
|
|
|
|
|
|
|
|
|
|
|
|
United States Investment Company 0.0%
(1)
|
|
|
|
|
|
Fidelity Institutional
Money Market Portfolio
|
|
|
|
|
|
Class I, 0.18%
(4)
(Cost
$131,090)
|
131,090
|
|
|
131,090
|
|
Total Investments 160.5%
(1)
|
|
|
|
|
|
(Cost $472,088,649)
|
|
|
802,692,502
|
|
Other Assets and
Liabilities (29.7%)
(1)
|
|
|
(148,463,666
|
)
|
Long-Term Debt
Obligations (20.8%)
(1)
|
|
|
(104,100,000
|
)
|
Mandatory Redeemable
Preferred Stock
|
|
|
|
|
|
at Liquidation Value
(10.0%)
(1)
|
|
|
|
(50,000,000
|
)
|
Total Net
Assets Applicable to
|
|
|
|
|
|
Common Stockholders 100.0%
(1)
|
|
|
$
|
500,128,836
|
|
(1)
|
Calculated as a percentage of
net assets applicable to common stockholders.
|
(2)
|
Non-income
producing.
|
(3)
|
Security distributions are
paid-in-kind.
|
(4)
|
Rate indicated is the current
yield as of November 30, 2011.
|
See accompanying Notes to Financial
Statements.
2011 Annual
Report
7
Statement of Assets & Liabilities
|
|
|
|
|
|
November 30,
2011
|
|
Assets
|
|
|
|
Investments at fair value (cost
$472,088,649)
|
$
|
802,692,502
|
|
Receivable for investments sold
|
|
390,900
|
|
Receivable for Adviser expense
reimbursement
|
|
2,384
|
|
Prepaid expenses and other
assets
|
|
1,453,121
|
|
Total assets
|
|
804,538,907
|
|
|
Liabilities
|
|
|
|
Payable to Adviser
|
|
1,244,383
|
|
Accrued expenses and other
liabilities
|
|
1,693,204
|
|
Deferred tax liability
|
|
134,472,484
|
|
Short-term borrowings
|
|
12,900,000
|
|
Long-term debt obligations
|
|
104,100,000
|
|
Mandatory redeemable preferred stock
($10.00 liquidation
|
|
|
|
value per
share; 5,000,000 shares outstanding)
|
|
50,000,000
|
|
Total liabilities
|
|
304,410,071
|
|
Net assets applicable to common stockholders
|
$
|
500,128,836
|
|
|
Net Assets Applicable to Common Stockholders Consist
of:
|
|
|
Capital stock, $0.001 par value;
19,581,174 shares issued
|
|
|
|
and
outstanding (100,000,000 shares authorized)
|
$
|
19,581
|
|
Additional paid-in capital
|
|
274,876,082
|
|
Accumulated net investment loss, net of
income taxes
|
|
(63,440,875
|
)
|
Undistributed realized gain, net of income
taxes
|
|
74,248,853
|
|
Net unrealized appreciation of
investments, net of income taxes
|
|
214,425,195
|
|
Net assets
applicable to common stockholders
|
$
|
500,128,836
|
|
Net Asset Value per common share
outstanding
|
|
|
|
(net assets
applicable to common stock,
|
|
|
|
divided by
common shares outstanding)
|
$
|
25.54
|
|
|
|
|
|
Statement of
Operations
|
|
|
|
Year Ended
November 30, 2011
|
|
Investment Income
|
|
|
|
Distributions from master limited
partnerships
|
$
|
45,940,800
|
|
Less return of capital on
distributions
|
|
(46,588,677
|
)
|
Net distributions from master limited
partnerships
|
|
(647,877
|
)
|
Other income
|
|
266,360
|
|
Dividends from money market mutual
funds
|
|
167
|
|
Total Investment Loss
|
|
(381,350
|
)
|
Operating
Expenses
|
|
|
|
Advisory fees
|
|
7,467,524
|
|
Administrator fees
|
|
314,429
|
|
Professional fees
|
|
196,796
|
|
Franchise fees
|
|
109,279
|
|
Directors fees
|
|
107,563
|
|
Stockholder communication
expenses
|
|
100,034
|
|
Fund accounting fees
|
|
67,205
|
|
Registration fees
|
|
53,929
|
|
Custodian fees and expenses
|
|
36,428
|
|
Stock transfer agent fees
|
|
23,256
|
|
Other operating expenses
|
|
86,078
|
|
Total Operating Expenses
|
|
8,562,521
|
|
Leverage Expenses
|
|
|
|
Interest expense
|
|
5,880,056
|
|
Distributions to mandatory redeemable
preferred stockholders
|
2,765,302
|
|
Amortization of debt issuance
costs
|
|
1,551,287
|
|
Premium on redemption of mandatory
redeemable preferred stock
|
650,000
|
|
Other leverage expenses
|
|
83,043
|
|
Total Leverage Expenses
|
|
10,929,688
|
|
Total Expenses
|
|
19,492,209
|
|
Less expense reimbursement by
Adviser
|
|
(7,053
|
)
|
Net
Expenses
|
|
19,485,156
|
|
Net
Investment Loss, before Income Taxes
|
|
(19,866,506
|
)
|
Current tax expense
|
|
(47,681
|
)
|
Deferred tax benefit
|
|
5,417,116
|
|
Income tax
benefit, net
|
|
5,369,435
|
|
Net
Investment Loss
|
|
(14,497,071
|
)
|
Realized and
Unrealized Gain on Investments
|
|
|
|
Net realized gain on investments, before
income taxes
|
|
90,144,034
|
|
Current tax
expense
|
|
(442,591
|
)
|
Deferred tax
expense
|
|
(32,091,444
|
)
|
Income tax expense
|
|
(32,534,035
|
)
|
Net realized gain on investments
|
|
57,609,999
|
|
Net unrealized depreciation of
investments, before income taxes
|
(10,169,583
|
)
|
Deferred tax
benefit
|
|
3,670,321
|
|
Net unrealized depreciation of investments
|
|
(6,499,262
|
)
|
Net
Realized and Unrealized Gain on Investments
|
|
51,110,737
|
|
Net
Increase in Net Assets Applicable to Common Stockholders
|
|
|
Resulting from
Operations
|
$
|
36,613,666
|
|
See accompanying Notes to Financial
Statements.
8
Tortoise Energy Capital Corp.
Statement of
Changes in Net Assets
|
Year Ended
November 30
|
|
2011
|
|
2010
|
Operations
|
|
|
|
|
|
|
|
Net investment loss
|
$
|
(14,497,071
|
)
|
|
$
|
(11,547,523
|
)
|
Net realized gain on investments
|
|
57,609,999
|
|
|
|
28,765,280
|
|
Net unrealized appreciation (depreciation)
of investments
|
|
(6,499,262
|
)
|
|
|
113,619,161
|
|
Net increase
in net assets applicable to common stockholders resulting from
operations
|
|
36,613,666
|
|
|
|
130,836,918
|
|
Distributions to
Common Stockholders
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
Return of capital
|
|
(31,395,854
|
)
|
|
|
(30,747,800
|
)
|
Total
distributions to common stockholders
|
|
(31,395,854
|
)
|
|
|
(30,747,800
|
)
|
Capital Stock
Transactions
|
|
|
|
|
|
|
|
Proceeds from shelf offerings of 93,715
and 1,293,095 common shares, respectively
|
|
2,515,946
|
|
|
|
29,448,376
|
|
Underwriting discounts and offering
expenses associated with the issuance of
common stock
|
|
(101,308
|
)
|
|
|
(465,710
|
)
|
Issuance of 142,443 and 158,964 common
shares from reinvestment of distributions
to stockholders, respectively
|
|
3,661,823
|
|
|
|
3,747,986
|
|
Net increase
in net assets applicable to common stockholders from capital stock
transactions
|
|
6,076,461
|
|
|
|
32,730,652
|
|
Total increase in net assets applicable to
common stockholders
|
|
11,294,273
|
|
|
|
132,819,770
|
|
Net
Assets
|
|
|
|
|
|
|
|
Beginning of year
|
|
488,834,563
|
|
|
|
356,014,793
|
|
End of year
|
$
|
500,128,836
|
|
|
$
|
488,834,563
|
|
Accumulated net investment loss, net of
income taxes, end of year
|
$
|
(63,440,875
|
)
|
|
$
|
(48,943,804
|
)
|
See accompanying Notes to Financial
Statements.
2011 Annual
Report
9
Statement of
Cash Flows
|
Year Ended November 30,
2011
|
Cash
Flows From Operating Activities
|
|
|
|
Distributions received from master limited
partnerships
|
$
|
45,940,800
|
|
Dividend income received
|
|
158
|
|
Other income received
|
|
266,360
|
|
Purchases of long-term
investments
|
|
(158,820,178
|
)
|
Proceeds from sales of long-term
investments
|
|
153,285,857
|
|
Purchases of short-term investments,
net
|
|
(86,840
|
)
|
Interest expense paid
|
|
(5,816,039
|
)
|
Distributions to mandatory redeemable
preferred stockholders
|
|
(2,860,303
|
)
|
Other leverage expenses paid
|
|
(110,136
|
)
|
Income taxes paid
|
|
(672,373
|
)
|
Premium on redemption of mandatory
redeemable preferred stock
|
(650,000
|
)
|
Operating expenses paid
|
|
(8,510,265
|
)
|
Net cash
provided by operating activities
|
|
21,967,041
|
|
Cash
Flows From Financing Activities
|
|
|
|
Advances from revolving line of
credit
|
|
147,350,000
|
|
Repayments on revolving line of
credit
|
|
(141,850,000
|
)
|
Issuance of long-term debt
obligations
|
|
30,000,000
|
|
Redemption of long-term debt
obligations
|
|
(15,900,000
|
)
|
Debt issuance costs
|
|
(1,243,389
|
)
|
Issuance of mandatory redeemable preferred
stock
|
|
50,000,000
|
|
Redemption of mandatory redeemable
preferred stock
|
|
(65,000,000
|
)
|
Issuance of common stock
|
|
2,515,946
|
|
Common stock issuance costs
|
|
(105,562
|
)
|
Distributions paid to common
stockholders
|
|
(27,734,036
|
)
|
Net cash
used in financing activities
|
|
(21,967,041
|
)
|
Net change in cash
|
|
|
|
Cash beginning of year
|
|
|
|
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
|
$
|
36,613,666
|
|
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
|
|
(158,820,178
|
)
|
Proceeds from sales of long-term investments
|
|
153,676,757
|
|
Purchases of short-term investments, net
|
|
(86,840
|
)
|
Return of capital on distributions received
|
|
46,588,677
|
|
Deferred tax expense
|
|
23,004,007
|
|
Net unrealized depreciation of investments
|
|
10,169,583
|
|
Net realized gain on investments
|
|
(90,144,034
|
)
|
Amortization of debt issuance costs
|
|
1,551,287
|
|
Changes in operating assets and liabilities:
|
|
|
|
Increase in receivable for investments sold
|
|
(390,900
|
)
|
Increase in prepaid expenses and other assets
|
|
(40,395
|
)
|
Increase in payable to Adviser, net of
|
|
|
|
expense reimbursement
|
|
38,754
|
|
Decrease in current tax liability
|
|
(180,000
|
)
|
Decrease in accrued expenses and other liabilities
|
|
(13,343
|
)
|
Total adjustments
|
|
(14,646,625
|
)
|
Net cash provided by operating
activities
|
$
|
21,967,041
|
|
Non-Cash Financing Activities
|
|
|
|
Reinvestment of distributions by common
stockholders
|
|
|
|
in
additional common shares
|
$
|
3,661,823
|
|
See accompanying Notes to Financial
Statements.
10
Tortoise Energy Capital Corp.
Financial
Highlights
|
Year Ended November
30
|
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
Per
Common Share Data
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of
year
|
|
$
|
25.27
|
|
|
$
|
19.90
|
|
|
$
|
12.85
|
|
|
$
|
27.84
|
|
|
$
|
26.79
|
|
Income (Loss) from Investment
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment loss
(2)(3)
|
|
|
(0.75
|
)
|
|
|
(0.60
|
)
|
|
|
(0.20
|
)
|
|
|
(0.89
|
)
|
|
|
(0.64
|
)
|
Net realized
and unrealized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on investments and interest rate swap
contracts
(2)(3)
|
|
|
2.64
|
|
|
|
7.50
|
|
|
|
8.88
|
|
|
|
(12.05
|
)
|
|
|
3.80
|
|
Total income (loss) from investment
operations
|
|
|
1.89
|
|
|
|
6.90
|
|
|
|
8.68
|
|
|
|
(12.94
|
)
|
|
|
3.16
|
|
Distributions to Auction Preferred
Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of
capital
|
|
|
|
|
|
|
|
|
|
|
(0.04
|
)
|
|
|
(0.35
|
)
|
|
|
(0.33
|
)
|
Total distributions to auction preferred
stockholders
|
|
|
|
|
|
|
|
|
|
|
(0.04
|
)
|
|
|
(0.35
|
)
|
|
|
(0.33
|
)
|
Distributions to Common
Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of
capital
|
|
|
(1.62
|
)
|
|
|
(1.60
|
)
|
|
|
(1.60
|
)
|
|
|
(1.70
|
)
|
|
|
(1.63
|
)
|
Total distributions to common
stockholders
|
|
|
(1.62
|
)
|
|
|
(1.60
|
)
|
|
|
(1.60
|
)
|
|
|
(1.70
|
)
|
|
|
(1.63
|
)
|
Capital Stock Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting
discounts and offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on issuance of auction preferred stock
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.03
|
)
|
Premiums less underwriting discounts and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
offering costs on issuance of common
stock
(5)(6)
|
|
|
0.00
|
|
|
|
0.07
|
|
|
|
0.01
|
|
|
|
|
|
|
|
(0.12
|
)
|
Total capital stock transactions
|
|
|
0.00
|
|
|
|
0.07
|
|
|
|
0.01
|
|
|
|
|
|
|
|
(0.15
|
)
|
Net Asset Value, end of year
|
|
$
|
25.54
|
|
|
$
|
25.27
|
|
|
$
|
19.90
|
|
|
$
|
12.85
|
|
|
$
|
27.84
|
|
|
Per common share market value, end of
year
|
|
$
|
26.21
|
|
|
$
|
27.06
|
|
|
$
|
22.38
|
|
|
$
|
11.11
|
|
|
$
|
25.47
|
|
Total Investment Return Based on Market
Value
(7)
|
|
|
3.10
|
%
|
|
|
29.31
|
%
|
|
|
120.32
|
%
|
|
|
(52.44
|
)%
|
|
|
1.73
|
%
|
|
Supplemental Data and Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets applicable to common
stockholders,
end of year (000s)
|
|
$
|
500,129
|
|
|
$
|
488,835
|
|
|
$
|
356,015
|
|
|
$
|
224,483
|
|
|
$
|
484,645
|
|
Average net assets (000s)
|
|
$
|
495,831
|
|
|
$
|
435,781
|
|
|
$
|
289,712
|
|
|
$
|
402,149
|
|
|
$
|
501,668
|
|
Ratio of Expenses to Average Net
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory
fees
|
|
|
1.51
|
%
|
|
|
1.46
|
%
|
|
|
1.51
|
%
|
|
|
1.84
|
%
|
|
|
1.69
|
%
|
Other
operating expenses
|
|
|
0.22
|
|
|
|
0.26
|
|
|
|
0.38
|
|
|
|
0.30
|
|
|
|
0.25
|
|
Expense
reimbursement
(6)
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1.73
|
|
|
|
1.72
|
|
|
|
1.89
|
|
|
|
2.14
|
|
|
|
1.94
|
|
Leverage expenses
(8)
|
|
|
2.20
|
|
|
|
2.23
|
|
|
|
2.02
|
|
|
|
4.37
|
|
|
|
2.51
|
|
Income tax expense
(benefit)
(9)
|
|
|
4.74
|
|
|
|
17.59
|
|
|
|
22.42
|
|
|
|
(28.32
|
)
|
|
|
6.06
|
|
Total expenses
|
|
|
8.67
|
%
|
|
|
21.54
|
%
|
|
|
26.33
|
%
|
|
|
(21.81
|
)%
|
|
|
10.51
|
%
|
See accompanying Notes to Financial
Statements.
2011 Annual
Report
11
Financial
Highlights
(Continued)
|
Year Ended November
30
|
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
Ratio of net investment loss to average net assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before expense
reimbursement
(8)
|
|
|
(2.93
|
)%
|
|
|
(2.65
|
)%
|
|
|
(1.53
|
)%
|
|
|
(3.67
|
)%
|
|
|
(2.33
|
)%
|
Ratio of net
investment loss to average net assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
after expense
reimbursement
(8)
|
|
|
(2.92
|
)%
|
|
|
(2.65
|
)%
|
|
|
(1.53
|
)%
|
|
|
(3.67
|
)%
|
|
|
(2.33
|
)%
|
Portfolio turnover rate
|
|
|
19.37
|
%
|
|
|
12.92
|
%
|
|
|
14.86
|
%
|
|
|
6.44
|
%
|
|
|
9.90
|
%
|
Short-term
borrowings, end of year (000s)
|
|
$
|
12,900
|
|
|
$
|
7,400
|
|
|
$
|
14,600
|
|
|
|
|
|
|
$
|
24,700
|
|
Long-term debt obligations, end of year (000s)
|
|
$
|
104,100
|
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
|
$
|
190,000
|
|
Preferred stock,
end of year (000s)
|
|
$
|
50,000
|
|
|
$
|
65,000
|
|
|
$
|
60,000
|
|
|
$
|
95,000
|
|
|
$
|
110,000
|
|
Per common share amount of long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations outstanding, end of
year
|
|
$
|
5.32
|
|
|
$
|
4.65
|
|
|
$
|
5.03
|
|
|
$
|
5.15
|
|
|
$
|
10.92
|
|
Per common share
amount of net assets,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
excluding long-term debt obligations, end
of year
|
|
$
|
30.86
|
|
|
$
|
29.92
|
|
|
$
|
24.93
|
|
|
$
|
18.00
|
|
|
$
|
38.76
|
|
Asset coverage, per $1,000 of principal amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
long-term debt obligations and
short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
borrowings
(10)
|
|
$
|
5,702
|
|
|
$
|
6,686
|
|
|
$
|
4,977
|
|
|
$
|
4,550
|
|
|
$
|
3,770
|
|
Asset coverage
ratio of long-term debt obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and short-term
borrowings
(10)
|
|
|
570
|
%
|
|
|
669
|
%
|
|
|
498
|
%
|
|
|
455
|
%
|
|
|
377
|
%
|
Asset coverage, per $25,000 liquidation value per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share of auction preferred
stock
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,336
|
|
|
$
|
62,315
|
|
Asset coverage,
per $10 liquidation value per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share of mandatory redeemable preferred
stock
(11)
|
|
$
|
40
|
|
|
$
|
40
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
Asset coverage ratio of preferred stock
(11)
|
|
|
399
|
%
|
|
|
401
|
%
|
|
|
316
|
%
|
|
|
221
|
%
|
|
|
249
|
%
|
(1)
|
Information presented relates
to a share of common stock outstanding for the entire
year.
|
(2)
|
The per common share data for
the years ended November 30, 2010, 2009, 2008, and 2007 do not reflect the
change in estimate of investment income and return of capital, for the
respective year. See Note 2C to the financial statements for further
disclosure.
|
(3)
|
The per common share data for
the year ended November 30, 2008 reflects the cumulative effect of
adopting ASC 740-10, which was a $776,852 increase to the beginning
balance of accumulated net investment loss, or $(0.04) per
share.
|
(4)
|
Represents the issuance of
auction preferred stock for the year ended November 30,
2007.
|
(5)
|
Represents the premiums on the
shelf offerings of less than $0.01 per share, less the underwriter
discount and offering costs of less than $0.01 per share for the year
ended November 30, 2011. Represents the premiums on the shelf offerings of
$0.10 per share, less the underwriting discount and offering costs of
$0.03 per share for the year ended November 30, 2010. Represents the
premiums on the shelf offerings 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.
|
(6)
|
Less than $0.01 or 0.01% for
the year ended November 30, 2011.
|
(7)
|
Total investment return is
calculated assuming a purchase of common stock at the beginning of the
year and a sale at the closing price on the last day of the year reported
(excluding brokerage commissions). The calculation also assumes
reinvestment of distributions at actual prices pursuant to the Companys
dividend reinvestment plan.
|
(8)
|
The expense ratios and net
investment loss ratios do not reflect the effect of distributions to
auction preferred stockholders.
|
(9)
|
For the year ended November
30, 2011, the Company accrued $490,272 for current income tax expense and
$23,004,007 for net deferred income tax expense. For the year ended
November 30, 2010, the Company accrued $409,606 for net current income tax
expense and $76,240,282 for net deferred income tax expense. 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 net
current income tax expense and $114,309,765 for net deferred income tax
benefit. For the year ended November 30, 2007, the Company accrued
$152,988 for current income tax expense and $30,223,686 for net deferred
tax expense.
|
(10)
|
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 year divided by long-term debt obligations and short-term borrowings
outstanding at the end of the year.
|
(11)
|
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 year divided by the sum of long-term debt obligations, short-term
borrowings and preferred stock outstanding at the end of the
year.
|
See accompanying Notes to Financial
Statements.
12
Tortoise Energy Capital Corp.
Notes
to Financial Statements
November 30, 2011
|
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 Companys 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 Companys 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 Companys
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 Companys 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 securitys liquidity and fair value.
Such securities that are convertible 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 Companys investments in
master limited partnerships (MLPs) generally are comprised of ordinary income
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 information provided by
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,
2011, the Company reallocated the amount of 2010 investment income and return of
capital it recognized based on the 2010 tax reporting information received from
the individual MLPs. This reclassification amounted to a decrease in pre-tax net
investment income of approximately $3,596,000 or $0.184 per share ($2,275,000 or
$0.116 per share, net of deferred tax benefit); an increase in unrealized
appreciation of investments of approximately $3,407,000 or $0.174 per share
($2,155,000 or $0.110 per share, net of deferred tax expense) and an increase in
realized gains of approximately $189,000 or $0.010 per share ($120,000 or $0.006
per share, net of deferred tax expense) for the year ended November 30,
2011.
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 tax purposes, the
Companys distributions to common stockholders for the year ended November 30,
2011 were 100 percent qualified dividend income. For book purposes, the source
of the Companys distributions to common stockholders for the year ended
November 30, 2011 was 100 percent return of capital.
Distributions to mandatory redeemable
preferred (MRP) stockholders are accrued daily based on a fixed annual rate
and are paid on the first business day of each month. The Company may not
declare or pay distributions to its 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. The character of
distributions to MRP stockholders made during the year may differ from their
ultimate characterization for federal income tax purposes. For tax purposes, the
Companys distributions to MRP stockholders for the year ended November 30, 2011
were 100 percent qualified dividend income. For book purposes, the source of the
Companys
2011 Annual
Report
13
Notes
to Financial Statements
(Continued)
|
distributions
to MRP stockholders for the year ended November 30, 2011 was 100 percent return
of capital.
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 MLPs taxable income in computing its own taxable income.
The Companys 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. Offering and Debt Issuance
Costs
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 discounts and
commissions) of $63,569 related to the issuance of common stock were recorded to
additional paid-in capital during the year ended November 30, 2011. 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 B Stock issued in February 2011, the Series
G and Series H Notes issued in April 2011, and the Series I Notes issued in June
2011 were $223,816, $10,713, $26,570, and $26,442, respectively.
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. The Company did not hold any derivative
financial instruments during the year ended November 30, 2011.
H. Indemnifications
Under the Companys organizational
documents, its officers and directors are indemnified against certain
liabilities arising out of the performance of their duties
to the Company. In addition, in the normal course of
business, the Company may enter into contracts that provide general
indemnifications to other parties. The Companys maximum exposure under these
arrangements is unknown, as this would involve future claims that may be made
against the Company that have not yet occurred, and may not occur. However, the
Company has not had prior claims or losses pursuant to these contracts and
expects the risk of loss to be remote.
I. Recent Accounting
Pronouncement
In May 2011, the FASB issued ASU No.
2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in GAAP and the International Financial Reporting Standards
(IFRSs). ASU No. 2011-04 amends FASB ASC Topic 820, Fair Value Measurements
and Disclosures, to establish common requirements for measuring fair value and
for disclosing information about fair value measurements in accordance with GAAP
and IFRSs. ASU No. 2011-04 is effective for fiscal years beginning after
December 15, 2011 and for interim periods within those fiscal years. Management
is currently evaluating the impact of these amendments and does not believe they
will have a material impact on the Companys financial statements.
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
The Company has entered into an
Investment Advisory Agreement with Tortoise Capital Advisors, L.L.C. (the
Adviser). Under the terms of the agreement, the Company pays the Adviser a fee
equal to an annual rate of 0.95 percent of the Companys average monthly total
assets (including any assets attributable to leverage and excluding any net
deferred tax asset) minus 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. The Adviser has
contractually agreed to waive all fees due under the Investment Advisory
Agreement related to the net proceeds received from the issuance of additional
common stock under the at-the-market equity program for a six month period
following the date of issuance.
U.S. Bancorp Fund Services, LLC
serves as the Companys 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 Companys Managed Assets, 0.01 percent on the
14
Tortoise Energy Capital Corp.
Notes
to Financial Statements
(Continued)
|
next
$500,000,000 of Managed Assets and 0.005 percent on the balance of the Companys
Managed Assets.
Computershare Trust Company, N.A.
serves as the Companys transfer agent and registrar and Computershare Inc.
serves as the Companys dividend paying agent and agent for the automatic
dividend reinvestment plan.
U.S. Bank, N.A. serves as the
Companys custodian. The Company pays the custodian a monthly fee computed at an
annual rate of 0.004 percent of the Companys portfolio assets, plus portfolio
transaction fees.
5. Income Taxes
Deferred income taxes reflect the net
tax effect of temporary differences between the carrying amount of assets and
liabilities for financial reporting and tax purposes. Components of the
Companys deferred tax assets and liabilities as of November 30, 2011, are as
follows:
Deferred tax
assets:
|
|
|
Net
operating loss carryforwards
|
$
|
9,509,867
|
Capital loss
carryforwards
|
|
10,644,079
|
Alternative minimum tax credit
|
|
502,392
|
Organization
costs
|
|
12,766
|
|
|
20,669,104
|
Deferred tax
liabilities:
|
|
|
Basis
reduction of investment in MLPs
|
|
33,644,672
|
Net unrealized gains on
investment securities
|
|
121,496,916
|
|
|
155,141,588
|
Total net
deferred tax liability
|
$
|
134,472,484
|
At November 30, 2011, 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 through future taxable income of the appropriate character.
Any adjustments to the Companys estimates of future taxable income will be made
in the period such determination is made. The Companys policy is to record
interest and penalties on uncertain tax positions as part of tax expense. As of
November 30, 2011, the Company had no uncertain tax positions and no penalties
and interest were accrued. The Company does not expect any change to its
unrecognized tax positions in the twelve months subsequent to November 30, 2011.
All tax years since inception remain open to examination by federal and state
tax authorities.
Total income tax expense differs from
the amount computed by applying the federal statutory income tax rate of 35
percent to net investment loss and net realized gains and unrealized losses on
investments for the year ended November 30, 2011, as follows:
Application of
statutory income tax rate
|
$
|
21,037,781
|
|
State income taxes, net of
federal tax benefit
|
|
1,090,091
|
|
Foreign tax
expense, net of federal tax benefit
|
|
30,158
|
|
Change in deferred tax liability
due to change in overall tax rate
|
|
(216,907
|
)
|
Nondeductible
payments on preferred stock
|
|
1,802,780
|
|
Dividends received
deduction
|
|
(249,624
|
)
|
Total income tax
expense
|
$
|
23,494,279
|
|
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 blended state income tax rate, decreasing
the overall rate from 36.78 percent to 36.75 percent due to anticipated state
apportionment of income and gains.
For the year ended November 30, 2011,
the components of income tax expense include the following:
Current tax
expense
|
|
|
State
(reflects a federal tax benefit in deferred tax expense)
|
$
|
60,400
|
AMT
|
|
382,191
|
Foreign
(reflects a federal tax benefit in deferred tax expense)
|
|
47,681
|
Total current
tax expense
|
|
490,272
|
Deferred tax expense
|
|
|
Federal
|
|
21,908,578
|
State
(net of federal tax benefit)
|
|
1,095,429
|
Total deferred
tax expense
|
|
23,004,007
|
Total income tax
expense
|
$
|
23,494,279
|
As of November 30, 2011, the Company
had a net operating loss for federal income tax purposes of approximately
$24,333,000. The net operating loss may be carried forward for 20 years. If not
utilized, this net operating loss will expire as follows: $13,265,000, $31,000,
$10,079,000, and $958,000 in the years ending November 30, 2027, 2028, 2029, and
2030, respectively. As of November 30, 2011, the Company had a capital loss
carryforward of approximately $29,000,000, which may be carried forward for 5
years. If not utilized, this capital loss will expire in the year ending
November 30, 2014. The capital gains for the year ended November 30, 2011 have
been estimated based on information currently available. Such estimate is
subject to revision upon receipt of the 2011 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,
2011, an alternative minimum tax credit of $502,392 was available, which may be
credited in the future against regular income tax. This credit may be carried
forward indefinitely.
As of November 30, 2011, the
aggregate cost of securities for federal income tax purposes was $380,538,517.
The aggregate gross unrealized appreciation for all securities in which there
was an excess of fair value over tax cost was $428,970,023, the aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over fair value was $6,816,038 and the net unrealized appreciation was
$422,153,985.
6. Fair Value of Financial
Instruments
Various inputs are used in
determining the value of the Companys 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 Companys own assumptions in determining the fair value of
investments)
|
2011 Annual
Report
15
Notes
to Financial Statements
(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, 2011. These assets are measured on a recurring
basis.
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
Description
|
|
November 30,
2011
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Limited
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Related Companies
(a)
|
|
|
$
|
802,561,412
|
|
|
$
|
802,561,412
|
|
$
|
|
|
$
|
|
Total Equity Securities
|
|
|
|
802,561,412
|
|
|
|
802,561,412
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term
Investment
(b)
|
|
|
|
131,090
|
|
|
|
131,090
|
|
|
|
|
|
|
Total
Other
|
|
|
|
131,090
|
|
|
|
131,090
|
|
|
|
|
|
|
Total
|
|
|
$
|
802,692,502
|
|
|
$
|
802,692,502
|
|
$
|
|
|
$
|
|
(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, 2011.
|
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 Companys 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 securitys 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 and categorized as Level 2 in the
fair value hierarchy. 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.
The Company utilizes the beginning of
reporting period method for determining transfers between levels. There were no
transfers between levels for the year ended November 30, 2011.
7. Investment
Transactions
For the period ended November 30,
2011, the Company purchased (at cost) and sold securities (proceeds received) in
the amount of $158,820,178 and $153,676,757 (excluding short-term debt
securities), respectively.
8. Long-Term Debt
Obligations
The Company has $104,100,000
aggregate principal amount of private senior notes, Series D, Series F, Series
G, Series H, and Series I (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 Companys
outstanding preferred shares; (2) senior to all of the Companys 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 until maturity. The
Series D, Series F, Series H and Series I Notes accrue interest at fixed rates
and the Series G Notes accrue interest at an annual rate that resets each
quarter based on 3-month LIBOR plus 1.35 percent. The Notes are not listed on
any exchange or automated quotation system.
The Notes are redeemable in certain
circumstances at the option of the Company. The Notes are also subject to a
mandatory redemption if the Company fails to meet asset coverage ratios required
under the 1940 Act or the rating agency guidelines if such failure is not waived
or cured. At November 30, 2011, the Company was in compliance with asset
coverage covenants and basic maintenance covenants for its senior
notes.
The Company had $15,900,000 aggregate
principal amount of Series E Notes outstanding for the period from December 1,
2010 through the maturity date on June 17, 2011. Holders of the Series E Notes
received cash interest payments each quarter at a fixed annual rate of 5.56
percent.
The estimated fair value of each
series of fixed-rate Notes was calculated, for disclosure purposes, by
discounting future cash flows by a rate equal to the current U.S. Treasury rate
with an equivalent maturity date, plus either 1) the spread between the interest
rate on recently issued debt and the U.S. Treasury rate with a similar maturity
date or 2) if there has not been a recent debt issuance, the spread between the
AAA corporate finance debt rate and the U.S. Treasury rate with an equivalent
maturity date plus the spread between the fixed rates of the Notes and the AAA
corporate finance debt rate. The estimated fair value of the Series G Notes
approximates the carrying amount because the interest rate fluctuates with
changes in interest rates available in the current market. The following table
shows the maturity date, interest rate, notional/carrying amount and estimated
fair value for each series of Notes outstanding at November 30, 2011.
|
|
|
|
|
|
|
Notional/
|
|
|
|
|
|
Maturity
|
|
Interest
|
|
|
Carrying
|
|
Estimated
|
Series
|
|
Date
|
|
Rate
|
|
|
Amount
|
|
Fair Value
|
Series
D
|
|
December 21,
2014
|
|
6.07
|
%
|
|
$
|
39,400,000
|
|
$
|
44,022,605
|
Series F
|
|
June 17, 2013
|
|
6.02
|
%
|
|
|
34,700,000
|
|
|
37,430,739
|
Series
G
|
|
June 15,
2014
|
|
1.70
|
%
(1)
|
|
|
5,000,000
|
|
|
5,000,000
|
Series H
|
|
June 15, 2016
|
|
3.88
|
%
|
|
|
12,500,000
|
|
|
13,129,173
|
Series
I
|
|
June 15,
2018
|
|
4.55
|
%
|
|
|
12,500,000
|
|
|
13,415,242
|
|
|
|
|
|
|
|
$
|
104,100,000
|
|
$
|
112,997,759
|
(1)
|
Floating rate;
rate effective for period from September 15, 2011 through December 15,
2011. The weighted-average interest rate for the period from April 26,
2011 through November 30, 2011 was 1.65
percent.
|
16
Tortoise Energy Capital Corp.
Notes
to Financial Statements
(Continued)
|
9.
Preferred Stock
The Company has 10,000,000 shares of
preferred stock authorized. Of that amount, the Company has 5,000,000 authorized
shares of Mandatory Redeemable Preferred (MRP) B Stock and all 5,000,000
shares are outstanding at November 30, 2011. The MRP B Stock has a liquidation
value of $10.00 per share plus any accumulated but unpaid distributions, whether
or not declared. The Company issued 5,000,000 shares of MRP B Stock on February
10, 2011, and they are mandatorily redeemable on March 1, 2018. The MRP B Stock
pays cash distributions on the first business day of each month at an annual
rate of 5.00 percent. The shares of MRP B Stock trade on the NYSE under the
symbol TYY Pr B.
The MRP Stock has rights determined
by the Board of Directors. Except as otherwise indicated in the Companys
Charter or Bylaws, or as otherwise required by law, 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. The 1940 Act requires that the holders of any preferred
stock (including MRP Stock), voting separately as a single class, have the right
to elect at least two directors at all times.
At November 30, 2011, the estimated
fair value of the MRP B Stock is based on the closing market price of $10.25 per
share. The following table shows the mandatory redemption date, fixed rate,
number of shares outstanding, aggregate liquidation preference and estimated
fair value as of November 30, 2011.
|
Mandatory
|
|
|
|
|
|
Aggregate
|
|
|
|
Redemption
|
|
Fixed
|
|
Shares
|
|
Liquidation
|
|
Estimated
|
Series
|
Date
|
|
Rate
|
|
Outstanding
|
|
Preference
|
|
Fair Value
|
MRP B
Stock
|
March 1, 2018
|
|
5.00%
|
|
5,000,000
|
|
$50,000,000
|
|
$51,250,000
|
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, 2011, the Company was in compliance with asset coverage
covenants and basic maintenance covenants for its MRP Stock.
The Company partially redeemed its
MRP A Stock at liquidation value in the amount of $20,000,000 on December 13,
2010. The Company defeased the remaining MRP A Stock at liquidation value in the
amount of $45,000,000 on February 10, 2011 and distributions were paid through
March 13, 2011. The MRP A Stock paid monthly distributions based on a fixed
annual rate of 5.60 percent. The Company paid a premium of $200,000 and
$450,000, respectively, upon redemption. The unamortized balance of allocated
capital costs was expensed and resulted in a total loss on early redemption of
$413,277 and $904,696, respectively, which is included in amortization of debt
issuance costs in the accompanying Statement of Operations.
10. Credit Facility
On June 20, 2010, the Company entered
into an amendment to its credit facility that extended the credit facility
through June 20, 2011. U.S. Bank, N.A. serves as a lender and the lending
syndicate agent on behalf of other lenders participating in the credit facility.
The terms of the amendment provided for an unsecured revolving credit facility
of $35,000,000. On March 9, 2011, the Company entered into an amendment that
increased the amount available under its unsecured revolving credit facility to
$40,000,000. During the extension, outstanding balances accrued interest at a
variable rate equal to one-month LIBOR plus 1.25 percent and unused portions of
the credit facility accrued a non-usage fee equal to an annual rate of 0.20
percent.
On June 20, 2011, the Company entered
into an amendment to its credit facility that extends the credit facility
through June 18, 2012. The terms of the amendment provide for an unsecured
revolving credit facility of $40,000,000. During the extension, outstanding
balances generally will accrue interest at a variable annual rate equal to
one-month LIBOR plus 1.25 percent and unused portions of the credit facility
will accrue a non-usage fee equal to an annual rate of 0.20 percent.
The average principal balance and
interest rate for the period during which the credit facility was utilized
during the year ended November 30, 2011 was approximately $18,300,000 and 1.48
percent, respectively. At November 30, 2011, the principal balance outstanding
was $12,900,000 at an interest rate of 1.52 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. At November 30, 2011, the Company was in compliance with the terms of
the credit facility.
11. Common Stock
The Company has 100,000,000 shares of
capital stock authorized and 19,581,174 shares outstanding at November 30, 2011.
Transactions in common stock for the year ended November 30, 2011, were as
follows:
Shares at
November 30, 2010
|
19,345,016
|
Shares sold through shelf
offerings
|
93,715
|
Shares issued
through reinvestment of distributions
|
142,443
|
Shares at November 30,
2011
|
19,581,174
|
12. Subsequent
Events
During the period from December 1,
2011 through the date the financial statements were issued, the Company issued
21,200 shares of common stock under its at-the-market equity offering program
for gross proceeds of approximately $0.6 million.
The Company has performed an
evaluation of subsequent events through the date the financial statements were
issued and has determined that no additional items require recognition or
disclosure.
2011 Annual
Report
17
Report of Independent Registered Public Accounting
Firm
|
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, 2011, 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 each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Companys 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 Companys 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
Companys 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, 2011, 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, 2011, 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 five years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
Kansas City, Missouri
January 24, 2012
18
Tortoise Energy Capital Corp.
Company Officers and Directors
(Unaudited)
November 30,
2011
|
|
|
Position(s) Held with
|
|
|
|
Number of
|
|
Other Public
|
|
|
Company, Term of
|
|
|
|
Portfolios in Fund
|
|
Company
|
|
|
Office and Length of
|
|
|
|
Complex Overseen
|
|
Directorships
|
Name and Age*
|
|
Time Served
|
|
Principal Occupation During Past Five
Years
|
|
by Director
(1)
|
|
Held
|
Independent
Directors
|
|
|
|
|
Conrad S. Ciccotello
(Born
1960)
|
|
Director since
2005
|
|
Associate Professor of Risk
Management and Insurance, Robinson College of Business, Georgia State
University (faculty member since 1999); Director of Personal Financial
Planning Program; Investment Consultant to the University System of
Georgia for its defined contribution retirement plan; Formerly Faculty
Member, Pennsylvania State University (1997-1999); Published a number of
academic and professional journal articles on investment company
performance and structure, with a focus on
MLPs.
|
|
6
|
|
Tortoise Capital Resources
Corporation
|
|
|
|
|
|
|
|
|
|
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; 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
|
|
Tortoise Capital Resources
Corporation
|
|
|
|
|
|
|
|
|
|
Charles E. Heath
(Born
1942)
|
|
Director since
2005
|
|
Retired in 1999, Formerly Chief
Investment Officer, GE Capitals Employers Reinsurance Corporation
(1989-1999). Chartered Financial Analyst (CFA) designation since
1974.
|
|
6
|
|
Tortoise Capital Resources
Corporation
|
|
|
|
|
|
|
|
|
|
(1)
|
This number includes Tortoise Energy Infrastructure
Corporation (TYG), Tortoise North American Energy Corporation (TYN),
Tortoise Power and Energy Infrastructure Fund, Inc. (TPZ), Tortoise MLP
Fund, Inc. (NTG), Tortoise Pipeline & Energy Fund, Inc. (TTP) and
the Company. Our Adviser also serves as the investment adviser to TYG,
TYN, TPZ, NTG and TTP.
|
*
|
The address of each director and officer is 11550 Ash
Street, Suite 300, Leawood, Kansas
66211.
|
2011 Annual
Report
19
Company Officers and Directors
(Unaudited)
(Continued)
November 30, 2011
|
|
|
Position(s) Held with
|
|
|
|
Number of
|
|
Other Public
|
|
|
Company, Term of
|
|
|
|
Portfolios in Fund
|
|
Company
|
|
|
Office and Length of
|
|
|
|
Complex Overseen
|
|
Directorships
|
Name and Age*
|
|
Time Served
|
|
Principal Occupation During Past
Five Years
|
|
by Director
(1)
|
|
Held
|
Interested Director and
Officers
(2)
|
|
|
|
|
H. Kevin Birzer
(Born
1959)
|
|
Director and
Chairman of
the
Board since 2005
|
|
Managing Director of the Adviser
since 2002; Member, Fountain Capital Management, LLC (Fountain Capital),
a registered investment adviser, (1990-May 2009); Director and Chairman of
the Board of each of TYG, TYN, TPZ, NTG and TTP since its inception;
Director and Chairman of the Board of Tortoise Capital Resources
Corporation (TTO) from its inception through November 30, 2011; Vice
President, Corporate Finance Department, Drexel Burnham Lambert
(1986-1989); Vice President, F. Martin Koenig & Co., an investment
management firm (1983-1986). CFA designation since
1988.
|
|
6
|
|
Tortoise
Capital
Resources
Corporation
(3)
|
|
|
|
|
|
|
|
|
|
Terry Matlack
(Born
1956)
|
|
Chief Executive Officer
since
May 2011
|
|
Managing Director of the Adviser
since 2002; Full-time Managing Director, Kansas City Equity Partners, LC
(KCEP) (2001-2002); Formerly President, GreenStreet Capital, a private
investment firm (1998-2001); Director of each of the Company, TYG, TYN,
TPZ and TTO from its inception to September 15, 2009; Chief Executive
Officer of NTG since 2010, of each of TYG, TYN and TPZ since May 2011, and
of TTP since inception; Chief Financial Officer of each of the Company,
TYG, TYN, TPZ from its inception to May 2011, and of TTO 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, and of TTO from its inception to April 2008.
CFA designation since 1985.
|
|
N/A
|
|
Epiq
Systems,
Inc.
|
|
|
|
|
|
|
|
|
|
P. Bradley Adams
(Born
1960)
|
|
Chief Financial Officer since May
2011
|
|
Director of Financial Operations of
the Adviser since 2005; Chief Financial Officer of NTG since 2010, of each
of TYG, TYN and TPZ since May 2011, and of TTP since inception; Assistant
Treasurer of the Company, TYG and TYN from April 2008 to May 2011, of TPZ
from inception to May 2011, and of TTO since April
2008.
|
|
N/A
|
|
None
|
|
|
|
|
|
|
|
|
|
Zachary A. Hamel
(Born
1965)
|
|
President since
May
2011
|
|
Managing Director of the Adviser
since 2002; Partner, Fountain Capital (1997-present). President of NTG
since 2010, of each of TYG and TPZ since May 2011, and of TTP since
inception, Senior Vice President of TTO from 2005 to December 2011, of the
Company from 2005 to May 2011, of TYG from 2007 to May 2011, of TYN since
2007 and of TPZ from inception to May 2011; 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 the Adviser
since 2002; Partner, Fountain Capital (2002-present); formerly, Investment
Risk Manager and member of the Global Office of Investments, GE Capitals
Employers Reinsurance Corporation (1996-2002); Treasurer of each of TYG
and TYN since 2005, of TTO from 2005 to December 2011, and of each of TPZ,
NTG and TTP since their inception; Senior Vice President of TTO from 2005
to December 2011, of each of TYG and TYN since 2007 and of each of TPZ,
NTG and TTP since their inception; Assistant Treasurer of each of the
Company, TYG and TYN from their inception to November 2005; CFA
designation since 1996.
|
|
N/A
|
|
None
|
|
|
|
|
|
|
|
|
|
David J. Schulte
(Born
1961)
|
|
Senior Vice President since May
2011
|
|
Managing Director of the Adviser
since 2002; Full-time Managing Director, KCEP (1993-2002); President and
Chief Executive Officer of TYG from 2003 to May 2011, of the Company from
2005 to May 2011 and of TPZ from inception to May 2011; Chief Executive
Officer of TYN from 2005 to May 2011 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; Senior Vice President of NTG since 2010, of
each of TYG, TYN and TPZ since May 2011, and of TTP since inception; CFA
designation since 1992.
|
|
N/A
|
|
None
(3)
|
|
|
|
|
|
|
|
|
|
(1)
|
This
number includes TYG, TYN, TPZ, NTG, TTP and the Company. Our Adviser also
serves as the investment adviser to TYG, TYN, TPZ, NTG and
TTP.
|
(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.
|
(3)
|
Effective
December 1, 2011, H. Kevin Birzer resigned as a director of Tortoise
Capital Resources Corporation and David J. Schulte was appointed as a
director of Tortoise Capital Resources Corporation.
|
*
|
The
address of each director and officer is 11550 Ash Street, Suite 300,
Leawood, Kansas 66211.
|
20
Tortoise Energy Capital Corp.
Additional Information
(Unaudited)
|
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, 2011, the aggregate compensation paid
by the Company to the independent directors was $106,000. 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 Companys 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, 2011 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 Companys Web site at www.tortoiseadvisors.com; and
(ii) on the SECs 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 Companys Form N-Q is available without charge upon request by
calling the Company at (866) 362-9331 or by visiting the SECs Web site at
www.sec.gov. In addition, you may review and copy the Companys Form N-Q at the
SECs 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 Companys Form N-Qs are also
available on the Companys Web site at www.tortoiseadvisors.com.
Statement of Additional
Information
The Statement of
Additional Information (SAI) includes additional information about the
Companys directors and is available upon request without charge by calling the
Company at (866) 362-9331 or by visiting the SECs Web site at
www.sec.gov.
Certifications
The Companys Chief Executive Officer has submitted to
the New York Stock Exchange 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 Companys securities.
This information includes the stockholders 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 Companys other stockholders or the
Companys 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
Companys 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 stockholders shares are
registered directly with the Company or with a brokerage firm that participates
in the Companys 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 brokerage commissions incurred with respect to the Plan Agents
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.
2011 Annual
Report
21
Additional Information
(Unaudited)
(Continued)
|
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 (800) 426-5523 or visit their Web
site at www.computershare.com.
Approval of the Investment
Advisory Agreement
In approving the
renewal of the Investment Advisory Agreement in November 2011, the directors who
are not interested persons (as defined in the Investment Company Act of 1940)
of the Company (Independent Directors) requested and received extensive data
and information from the Adviser concerning the Company and the services
provided to it by the Adviser under the Investment Advisory Agreement. In
addition, the Independent Directors requested and received data and information
from the Adviser, which also included information from independent, third-party
sources, regarding the factors considered in their evaluation.
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 Independent Director may have attributed different
levels of importance to different factors. In deciding to renew the agreement,
the Independent Directors decision was based on the following
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 Advisers 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 advisor. Further, the Independent Directors recognized that the Advisers 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 Companys performance
(including quarterly, last twelve months, and from 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 Companys 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
Advisers financial condition, its ability to continue to provide services under
the 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
Independent Directors concluded that the fees and expenses that the Company is
paying under the Investment Advisory Agreement are reasonable given the quality
of services provided under the 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 Companys 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 Companys 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
continuation of the 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
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 Investment Advisory Agreement between the Company and the Adviser is fair
and reasonable in light of the services provided and should be
renewed.
22
Tortoise Energy Capital Corp.
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. / Computershare
Inc.
P.O. Box 43078
Providence, R.I. 02940-3078
(800) 426-5523
www.computershare.com
LEGAL
COUNSEL
Husch Blackwell 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 Closed-end Funds
|
|
|
|
|
|
Pureplay MLP
Funds
|
|
Broader Funds
|
|
|
Name
|
|
Ticker
|
|
Focus
|
Total
Assets
(1)
($ in millions)
|
|
Name
|
|
Ticker
|
|
Focus
|
Total
Assets
(1)
($ in millions)
|
|
|
Tortoise Energy
Infrastructure
Corp.
|
|
|
|
Midstream Equity
|
$1,660
|
|
Tortoise Pipeline &
Energy
Fund, Inc.
|
|
|
|
Pipeline Equity
|
$336
|
|
|
Tortoise Energy
Capital
Corp.
|
|
|
|
Midstream Equity
|
$860
|
|
Tortoise Power and
Energy Infrastructure
Fund, Inc.
|
|
|
|
Power & Energy Infrastructure
Debt & Dividend Paying
Equity
|
$218
|
|
|
Tortoise MLP
Fund,
Inc.
|
|
|
|
Natural Gas Equity
|
$1,655
|
|
|
|
|
|
|
|
|
|
Tortoise North
American Energy Corp.
|
|
|
|
Midstream/Upstream Equity
|
$218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 2. Code of
Ethics.
The Registrant has adopted a code
of ethics that applies to the Registrants Chief Executive Officer and its Chief
Financial Officer. The Registrant has not made any amendments to this code of
ethics during the period covered by this report, except that Exhibit A to the
Code was updated to reflect the names of the current Principal Executive Officer
and Principal Financial 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 Registrants 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 11/30/2011
|
|
FYE 11/30/2010
|
Audit Fees
|
|
$
|
175,000
|
|
|
$
|
180,000
|
Audit-Related Fees
|
|
|
|
|
|
$
|
2,000
|
Tax Fees
|
|
$
|
53,000
|
|
|
$
|
48,000
|
All Other Fees
|
|
|
|
|
|
|
|
Aggregate
Non-Audit Fees
|
|
$
|
53,000
|
|
|
$
|
50,000
|
The audit committee has adopted
pre-approval policies and procedures that require the audit committee to
pre-approve (i) the selection of the Registrants 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 accountants hours
spent on auditing the Registrants financial statements were attributed to work
performed by full-time permanent employees of the principal
accountant.
In the Registrants fiscal years
ended November 30, 2011 and 2010, the Adviser paid approximately $0 and $88,000
in fees, respectively, for research and consultations relating to fund
structure, tax and accounting, and audit-related fees relating to closed-end
management investment companies prior to its initial public offerings. These
non-audit services were not required to be preapproved by the Registrants 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 Registrants last two fiscal
years. The audit committee has considered whether the principal accountants
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 accountants 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, 2011.
Portfolio Managers
As of the date of this filing,
management of the Registrants 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 Advisers
investment committee and any one member of the Advisers investment committee
can require the Adviser to sell a portfolio company or can veto the investment
committees decision to invest in a portfolio company. Biographical information
about each member of the Advisers investment committee as of the date of this
filing is set forth below.
|
|
Position(s) Held with
|
|
|
|
|
Company and Length
|
|
|
Name and Age*
|
|
of Time Served
|
|
Principal Occupation During Past Five
Years
|
H. Kevin
Birzer
(Born 1959)
|
|
Director
and
Chairman of the
Board since 2005
|
|
Managing Director of the Adviser since 2002;
Member, Fountain Capital Management, LLC
(Fountain Capital), a registered investment
adviser, (1990-May 2009); Director and Chairman
of the Board of each of Tortoise Energy
Infrastructure Corporation (TYG), Tortoise North
American Energy Corporation (TYN), Tortoise
Power and Energy Infrastructure Fund, Inc.
(TPZ), Tortoise MLP Fund, Inc. (NTG) and
Tortoise Pipeline & Energy Fund, Inc. (TTP);
Director and Chairman of the Board of Tortoise
Capital Resources Corporation (TTO) from its
inception through November 30, 2011; Vice
President, Corporate Finance Department, Drexel
Burnham Lambert (1986-1989); Vice President, F.
Martin Koenig & Co., an investment management
firm (1983-1986). CFA designation since 1988.
|
Terry
Matlack
(Born 1956)
|
|
Chief Executive
Officer
since May 2011
|
|
Managing Director of the Adviser since 2002; Fulltime
Managing Director, Kansas City Equity
Partners, LC (KCEP) (2001-2002); Formerly
President, GreenStreet Capital, a private investment
firm (1998-2001); Director of each of the Company,
TYG, TYN, TPZ and TTO from its inception to
September 15, 2009; Chief Executive Officer of
NTG since 2010, of each of TYG, TYN and TPZ
since May 2011, and of TTP since inception; Chief
Financial Officer of each of the Company, TYG,
TYN, TPZ from its inception to May 2011, and of
TTO 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, and of TTO from its inception to April
2008. CFA designation since 1985.
|
Zachary A. Hamel
(Born
1965)
|
|
President since
May
2011
|
|
Managing Director of the Adviser since 2002;
Partner, Fountain Capital (1997-present). President
of NTG since 2010, of each of TYG and TPZ since
May 2011, and of TTP since inception, Senior Vice
President of TTO from 2005 to December 2011, of
the Company from 2005 to May 2011, of TYG
from 2007 to May 2011, of TYN since 2007 and of
TPZ from inception to May 2011; 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 the Adviser since 2002;
Partner, Fountain Capital (2002-present); formerly,
Investment Risk Manager and member of the
Global Office of Investments, GE Capitals
Employers Reinsurance Corporation (1996-2002);
Treasurer of each of TYG and TYN since 2005, of
TTO from 2005 to December 2011, and of each of
TPZ, NTG and TTP since their inception; Senior
Vice President of TTO from 2005 to December
2011, of each of TYG and TYN since 2007 and of
each of TPZ, NTG and TTP since their inception;
Assistant Treasurer of each of the Company, TYG
and TYN from their inception to November 2005;
CFA designation since 1996.
|
David J. Schulte
(Born
1961)
|
|
Senior Vice
President
since May 2011
|
|
Managing Director of the Adviser since 2002; Fulltime
Managing Director, KCEP (1993-2002);
President and Chief Executive Officer of TYG from
2003 to May 2011, of the Company from 2005 to
May 2011 and of TPZ from inception to May 2011;
Chief Executive Officer of TYN from 2005 to May
2011 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; Senior Vice President of NTG since
2010, of each of TYG, TYN and TPZ since May
2011, and of TTP since inception; CFA designation
since 1992.
|
*The address of each director and
officer is 11550 Ash Street, Suite 300, Leawood, Kansas 66211.
The Adviser also serves as the
investment adviser to TYG, TYN, TPZ, NTG and TTP, and as an adviser to TTO
for its securities portfolio.
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, 2011:
|
|
|
|
|
|
|
|
|
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
|
|
|
8
|
|
|
$
|
4,197,539,071
|
|
0
|
|
|
Other pooled investment
vehicles
|
|
|
6
|
|
|
$
|
161,064,690
|
|
2
|
|
$124,205,601
|
Other accounts
|
|
|
513
|
|
|
$
|
2,032,054,434
|
|
0
|
|
|
Zachary A. Hamel
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment
companies
|
|
|
8
|
|
|
$
|
4,197,539,071
|
|
0
|
|
|
Other
pooled investment vehicles
|
|
|
8
|
|
|
$
|
208,982,653
|
|
2
|
|
$124,205,601
|
Other
accounts
|
|
|
524
|
|
|
$
|
3,011,172,237
|
|
0
|
|
|
Kenneth P.
Malvey
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment
companies
|
|
|
8
|
|
|
$
|
4,197,539,071
|
|
0
|
|
|
Other pooled investment
vehicles
|
|
|
8
|
|
|
$
|
208,982,653
|
|
2
|
|
$124,205,601
|
Other accounts
|
|
|
524
|
|
|
$
|
3,011,172,237
|
|
0
|
|
|
Terry Matlack
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment
companies
|
|
|
8
|
|
|
$
|
4,197,539,071
|
|
0
|
|
|
Other
pooled investment vehicles
|
|
|
6
|
|
|
$
|
161,064,690
|
|
2
|
|
$124,205,601
|
Other
accounts
|
|
|
513
|
|
|
$
|
2,032,054,434
|
|
0
|
|
|
David J.
Schulte
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment
companies
|
|
|
8
|
|
|
$
|
4,197,539,071
|
|
0
|
|
|
Other pooled investment
vehicles
|
|
|
6
|
|
|
$
|
161,064,690
|
|
2
|
|
$124,205,601
|
Other accounts
|
|
|
513
|
|
|
$
|
2,032,054,434
|
|
0
|
|
|
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 Registrants
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 Advisers 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 Registrants ability to
participate in volume transactions may produce better execution for it.
The Adviser also serves as
investment adviser for five other publicly traded 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 Registrants
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 Registrants 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. As such, the
Registrant will not co-invest with its affiliates in negotiated private
placement transactions. The Adviser will observe a policy for allocating
negotiated private investment opportunities among its clients that takes into
account the amount of each clients 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 Advisers 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 or to confirm prior to receipt of any material non-public
information that the information will shortly be made public. The Registrants
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 Registrants 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 additional investment funds with the same investment objective as the
Registrants.
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 based on the Advisers 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,
2011:
|
|
|
Aggregate Dollar Range
of
|
|
Portfolio Manager
|
|
Holdings in the
Registrant
|
|
H. Kevin Birzer
|
|
$100,001-$500,000
|
|
Zachary A.
Hamel
|
|
$100,001-$500,000
|
|
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
|
6/1/11-6/30/11
|
|
|
|
|
Month #2
|
0
|
0
|
0
|
0
|
7/1/11-7/31/11
|
|
|
|
|
Month #3
|
0
|
0
|
0
|
0
|
8/1/11-8/31/11
|
|
|
|
|
Month #4
|
0
|
0
|
0
|
0
|
9/1/11-9/30/11
|
|
|
|
|
Month #5
|
0
|
0
|
0
|
0
|
10/1/11-10/31/11
|
|
|
|
|
Month #6
|
0
|
0
|
0
|
0
|
11/1/11-11/30/11
|
|
|
|
|
Total
|
0
|
0
|
0
|
0
|
Item 10. Submission of
Matters to a Vote of Security Holders.
None.
Item 11. Controls and
Procedures.
(a) The Registrants 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
Registrants internal control over financial reporting (as defined in Rule
30a-3(d) under the 1940 Act) that occurred during the Registrants second fiscal
quarter of the period covered by this report that have materially affected, or
are reasonably likely to materially affect, the Registrants 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/ Terry Matlack
|
|
|
Terry Matlack, Chief
Executive Officer
|
Date January 24,
2012
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/ Terry Matlack
|
|
|
Terry Matlack, Chief Executive
Officer
|
Date
January 24, 2012
By (Signature and Title)
|
|
/s/ P. Bradley Adams
|
|
|
P. Bradley Adams, Chief Financial
Officer
|
Date
January 24, 2012
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