Management’s Discussion (Unaudited)
|
Management’s Discussion
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 goal is to provide a 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 typically generate unrelated business taxable income (UBTI) and our stock may therefore be suitable for holding by pension funds, IRAs and mutual funds, as well as taxable accounts. We invest primarily in MLPs through private and public market purchases. MLPs are publicly traded partnerships whose equity interests are traded in the form of units on public exchanges, such as the NYSE or NASDAQ.
Company Update
Market values of our MLP investments increased during 2nd quarter 2009 from their levels at February 28, 2009, having a positive impact on our capital structure and increasing the existing cushion on our leverage coverage ratios. We have entered into an amendment to our bank credit facility that extends through June 20, 2010. Additional information on our leverage is disclosed below and in our Notes to Financial Statements.
While we expect the current year to be challenging for almost every industry, including the energy infrastructure sector, we continue to believe the flow of energy commodities remains critical to our economy and that the long-term prospect for MLPs is attractive.
Critical Accounting Policies
The financial statements are based on the selection and application of critical accounting policies, which require management to make significant estimates and assumptions. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex, or subjective judgments. Our critical accounting policies are those applicable to the valuation of investments, tax matters and certain revenue recognition matters as discussed in Note 2 in the Notes to Financial Statements.
Determining Distributions to Stockholders
Our portfolio generates cash flow from which we pay distributions to stockholders. Our Board of Directors considers our distributable cash flow (“DCF”) in determining distributions to stockholders. Our Board of Directors reviews the distribution rate quarterly, and may adjust the quarterly distribution throughout the year. Our goal is to declare what we believe to be sustainable increases in our regular quarterly distributions. We have targeted to pay at least 95 percent of DCF on an annualized basis.
Determining DCF
DCF is simply distributions received from investments less expenses. The total distributions received from our investments include the amount received by us as cash distributions from MLPs, paid-in-kind distributions, and dividend and interest payments. The total expenses include current or anticipated operating expenses, leverage costs and current income taxes. Each are summarized for you in the table on page 2 and are discussed in more detail below.
The Key Financial Data table discloses the calculation of DCF and should be read in conjunction with this discussion. The difference between distributions received from investments in the DCF calculation and total investment income as reported in the Statement of Operations, is reconciled as follows: GAAP recognizes that a significant portion of the cash distributions received from MLPs are treated as a return of capital and therefore excluded from investment income, whereas the DCF calculation includes the return of capital; and, distributions received from investments in the DCF calculation include the value of dividends paid-in-kind (additional stock or MLP units), whereas such amounts are not included as income for GAAP purposes. The treatment of expenses in the DCF calculation also differs from what is reported in the Statement of Operations. In addition to the total operating expenses as disclosed in the Statement of Operations, the DCF calculation reflects interest expense, recurring agent fees, distributions to preferred stockholders and realized and unrealized gains (losses) on interest rate swap settlements as leverage costs, as well as current taxes paid.
Distributions Received from Investments
Our ability to generate cash is dependent on the ability of our portfolio of investments to generate cash flow from their operations. In order to maintain and grow distributions to our stockholders, we evaluate each holding based upon its contribution to our investment income, our expectation for its growth rate, and its risk relative to other potential investments.
We concentrate on MLPs we believe can expect an increasing demand for services from economic and population growth. We seek well-managed businesses with hard assets and stable recurring revenue streams. Our focus remains primarily on investing in fee-based service providers that operate long-haul, interstate pipelines. We further diversify among issuers, geographies and energy commodities to seek a distribution payment which approximates an investment directly in energy infrastructure MLPs. In addition, most energy infrastructure companies are regulated and utilize an inflation escalator index that factors in inflation as a cost pass-through. So, over the long-term, we believe MLPs’ distributions will outpace inflation and interest rate increases, and produce positive returns. However, during the last year the economy has been retrenching which may lead some MLPs to slow distribution growth or possibly reduce distributions.
Total distributions received from our investments for the 2nd quarter 2009 was approximately $10.7 million, representing a 29 percent decrease as compared to 2nd quarter 2008 and a 2 percent decrease as compared to 1st quarter 2009. These changes reflect the result of net portfolio sales over the last 12 months to fund leverage redemptions and net distribution increases from our MLP investments.
Expenses
We incur two types of expenses: (1) operating expenses, consisting primarily of the advisory fee; and (2) leverage costs. On a percentage basis, operating expenses before leverage costs and current taxes were an annualized 1.11 percent of average total assets for the 2nd quarter 2009 as compared to 1.07 percent for the 2nd quarter 2008 and 1.10 percent for the 1st quarter 2009. Advisory fees for the 2nd quarter 2009 increased 13 percent from 1st quarter 2009 as a result of increased average managed assets from increasing MLP asset values. If yields on our MLP investments continue to revert more to their historical norm, all else being equal, MLP asset values will increase as will our managed assets and advisory fees. Other operating expenses were relatively unchanged as compared to 1st quarter 2009.
Leverage costs consist of four major components: (1) the direct interest expense on our Tortoise Notes and short-term credit facility; (2) the agent fees, which are the marketing and rating agency costs for the leverage; (3) the realized and unrealized gain or loss on interest rate swap settlements (if any); and (4) distributions to preferred stockholders.
Total leverage costs for DCF purposes were approximately $1.6 million for the 2nd quarter 2009 as compared to $5.7 million for the 2nd quarter 2008 and $1.8 million for the 1st quarter 2009, as detailed below.
| | 2Q 08 | | | 1Q 09 | | | 2Q 09 |
| Interest expense | $ | 2,943,691 | | $ | 1,383,996 | | $ | 1,377,090 |
| Agent fees | | 74,125 | | | 24,158 | | | 9,532 |
| Net realized and unrealized loss | | | | | | | | |
| on interest rate swap settlements | | 1,129,490 | | | — | | | — |
| Distributions to preferred stockholders | | 1,571,595 | | | 361,368 | | | 204,920 |
| Total leverage costs | $ | 5,718,901 | | $ | 1,769,522 | | $ | 1,591,542 |
| Average outstanding leverage (in millions) | $ | 322.6 | | $ | 185.0 | | $ | 185.0 |
The decrease in total leverage costs from 2nd quarter 2008 to 2nd quarter 2009 reflects the reduction in average outstanding leverage of approximately $138 million during the period. The average annualized total cost of leverage (total leverage costs divided by average outstanding leverage) was 3.41 percent for the 2nd quarter 2009 as compared to 3.88 percent for the 1st quarter 2009, and 7.05 percent for 2nd quarter 2008. The decrease of 47 basis points from 1st quarter 2009 to 2nd quarter 2009 is the result of lower LIBOR-based borrowing costs on our auction rate preferred.
2009 2nd Quarter Report 3
Management’s Discussion (Unaudited)
(Continued)
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Our effective cost of leverage as of May 31, 2009 was 3.25 percent including the $90 million aggregate Series D, E and F Notes (weighted average maturity of approximately 4.3 years), $95 million notional amount of outstanding auction rate preferred shares, and agent fees. This 16 basis point decrease as compared to the 2nd quarter 2009 is the result of lower LIBOR-based borrowing costs on our auction rate preferred. This all-in rate will vary as Notes are redeemed or mature and as our auction rate securities are reset every 7 or 28 days.
At May 31, 2009, borrowing costs on our 7 and 28 day auction rate preferred reflected LIBOR of 0.29 percent and 0.32 percent, respectively. In recent months, both the 1-week and 1-month rates have been less than 0.50 percent, substantially decreasing our current cost of leverage. We expect these rates to return to higher levels as economic conditions improve and LIBOR increases to more historical levels.
In 2008, our auctions, like most others, began resetting at their maximum rate, which in our case has been 200 percent of the applicable LIBOR. Additional information on our leverage is included in the Liquidity and Capital Resources section below.
At May 31, 2009, approximately 49 percent of our leverage was at a fixed rate. Additional information on our leverage is disclosed below in Liquidity and Capital Resources and in our Notes to Financial Statements.
Distributable Cash Flow
For 2nd quarter 2009, our DCF was approximately $7.8 million, an increase of 14 percent as compared to 2nd quarter 2008 and a decrease of 2 percent as compared to 1st quarter 2009. The increase from 2nd quarter 2008 is the net result of lower total distributions received from investments which were more than offset by reduced expenses, primarily advisory fees and leverage costs. The decrease from 1st quarter 2009 is the net result of a decrease in distributions received from investments, an increase in asset-based advisory fees and a decrease in leverage costs. We paid a distribution of $7.0 million, or 89.6 percent of DCF, during the quarter. On a per share basis, we declared a $0.40 distribution on May 12, 2009. This is a decrease of $0.02 or 4.8 percent as compared to 2nd quarter 2008 and unchanged from 1st quarter 2009.
Factoring in portfolio sales in fiscal year 2008 to fund leverage reductions and assuming moderate to no increases in projected distribution income from MLPs, operating expense projections and a more normalized cost of leverage, we currently expect to pay quarterly distributions to our stockholders of not less than $0.38 during fiscal year 2009. This represents a current estimate and is subject to change based upon actual results and Board approval.
Liquidity and Capital Resources
We had total assets of $497 million at quarter-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, a net deferred tax asset and any expenses that may have been prepaid. During 2nd quarter 2009, total assets increased from $446 million to $497 million, an increase of $51 million. This change was primarily the result of unrealized appreciation of investments of approximately $81 million during the quarter (excluding return of capital on distributions during the quarter) and a reduction in our deferred tax asset of approximately $26 million.
Total leverage outstanding at May 31, 2009 of $185 million is comprised of $90 million in senior notes and $95 million in preferred shares. Total leverage represented 37.3 percent of total assets, above our target ratio of 33 percent of total assets, but a decrease of 4.1 percent as compared to February 28, 2009. 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.
Subsequent to quarter-end, we entered into an amendment to our bank credit facility that extends the facility through June 20, 2010. Terms of the amendment provide for an unsecured facility of $50 million. During the extension, outstanding balances generally will accrue interest at a variable rate equal to one-month LIBOR plus 2.00 percent with a fee of 0.25 percent on any unused balance.
On June 29, 2009, we announced our intent to redeem a total of $30 million of the remaining $95 million in preferred shares. We will redeem $20 million of Series I on July 14, 2009 and $10 million of Series II on July 16, 2009. We will utilize existing cash and our bank credit facility to complete the redemptions. After the redemption, we will have $65 million in preferred shares comprised of $40 million of Series I and $25 million of Series II.
We have used leverage to acquire MLPs consistent with our investment philosophy. The terms of our leverage are governed by regulatory and contractual asset coverage requirements that arise from the use of leverage. Under the 1940 Act, we may not pay distributions to our common stockholders if we do not meet a 300 percent asset coverage ratio for debt and 200 percent asset coverage ratio for debt and preferred shares after payment of the distribution, and we may not pay distributions on our preferred shares if we fail to meet a 200 percent asset coverage ratio on our debt. Under the agreement with our bank lenders, if portfolio values decline such that we no longer meet the asset coverage ratios under the 1940 Act, we must repay a portion of our bank line until we meet the coverage requirement. Further, under the terms of our institutional senior notes and preferred shares, if we fail to meet basic maintenance ratios as of any valuation date (generally Fridays) or fail to satisfy the 1940 Act asset coverage as of the last business day of any month, we could be subject to mandatory redemption of the senior notes or preferred shares if such failure is not waived or cured. In some cases we may be delayed in paying common stock or preferred share distributions until such coverage ratios can be met.
As disclosed in Section 18 of the 1940 Act, the 300 percent asset coverage ratio for debt is equal to total assets less all liabilities and indebtedness not represented by debt divided by debt. The 200 percent asset coverage ratio for preferred shares is equal to the same numerator as the 300 percent test divided by the sum of debt and preferred shares. Deferred tax assets are a component of total assets in calculation of these ratios. Our coverage ratios are currently updated each week and available on our web site at www.tortoiseadvisors.com.
Taxation of our Distributions and Deferred Taxes
We invest in partnerships which generally have larger distributions of cash than the accounting income which they generate. Accordingly, the distributions include a return of capital component for accounting and tax purposes. Distributions declared and paid by us in a year generally differ from taxable income for that year, as such distributions may include the distribution of current year taxable income or return of capital.
The taxability of the distribution you receive depends on whether we have annual earnings and profits. If so, those earnings and profits are first allocated to the preferred shares and then to the common shares.
In the event we have earnings and profits allocated to the common shares, all or a portion of our distribution will be taxable at the 15 percent Qualified Dividend Income (“QDI”) rate, assuming various holding requirements are met by the stockholder. The 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-1s we receive and become 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 result is undeterminable until the year is over.
For book and tax purposes, distributions to stockholders for the fiscal year ended 2008 were comprised of 100 percent return of capital. We currently expect that a substantial portion of our 2009 distributions will consist of return of capital, although the ultimate determination will not be made until January 2010, after determining our earnings and profits.
The unrealized gain or loss we have in the portfolio is reflected in the Statement of Assets and Liabilities. At May 31, 2009, our investments at value are $491 million, with an adjusted cost of $438 million. The $53 million difference reflects unrealized appreciation that would be realized for financial statement purposes if those investments were sold at those values. The Statement of Assets and Liabilities reflects either a deferred tax liability or deferred tax asset depending primarily upon unrealized gains (losses) on investments, realized gains (losses) on investments, capital loss carryforward and net operating losses. At May 31, 2009, the balance sheet reflects a net deferred tax asset of approximately $2.5 million or $0.14 per share.
The net deferred tax asset of approximately $2.5 million reflects the net benefit we have determined will be realized in future periods under generally accepted accounting principles. Realization of a deferred tax asset is dependent on whether there will be sufficient future taxable income within the carryforward periods to realize a portion or all of the deferred tax benefit. The carryforward period for ordinary losses to offset ordinary income is 20 years while capital losses can be carried forward 5 years to offset capital gains. A valuation allowance against the deferred tax asset is needed when, based on the weight of the available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Our valuation allowance policy is in conformity with generally accepted accounting principles and is based upon our estimation of potential future taxable income. If we do not believe we can use a deferred tax asset in a relatively short period, in our case three years or less, we create a valuation allowance against the current gross deferred tax asset. At May 31, 2009, we had no valuation allowance against our deferred tax asset. Our Adviser does not charge an advisory fee based upon net deferred tax assets. Details of our deferred taxes are disclosed in Note 5 in our Notes to Financial Statements.
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4 | | Tortoise Energy Capital Corp. | | | |
Schedule of Investments
May 31, 2009
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| (Unaudited) | | | | | | |
| | Shares | | Fair Value |
| Master Limited Partnerships and | | | | | | |
| Related Companies — 156.4%(1) | | | | | | |
| | |
| Crude/Refined Products Pipelines — 82.4%(1) | | | | |
| United States — 82.4%(1) | | | | | | |
| Buckeye Partners, L.P. | | 168,900 | | $ | 7,261,011 | |
| Enbridge Energy Partners, L.P. | | 739,200 | | | 29,826,720 | |
| Enbridge Energy Partners, L.P.(2)(3) | | 342,833 | | | 13,781,887 | |
| Holly Energy Partners, L.P. | | 155,000 | | | 4,665,500 | |
| Kinder Morgan Management, LLC(3) | | 926,806 | | | 41,604,321 | |
| Magellan Midstream Partners, L.P. | | 768,800 | | | 26,869,560 | |
| NuStar Energy L.P. | | 572,900 | | | 30,953,787 | |
| Plains All American Pipeline, L.P. | | 860,100 | | | 38,085,228 | |
| SemGroup Energy Partners, L.P. | | 436,674 | | | 2,727,903 | |
| Sunoco Logistics Partners L.P. | | 690,100 | | | 36,175,042 | |
| TEPPCO Partners, L.P. | | 525,800 | | | 15,684,614 | |
| | | | | | 247,635,573 | |
| Natural Gas/Natural Gas Liquids Pipelines — 51.0%(1) | | | | |
| United States — 51.0%(1) | | | | | | |
| Boardwalk Pipeline Partners, LP | | 508,496 | | | 10,495,357 | |
| El Paso Pipeline Partners, L.P. | | 817,426 | | | 15,694,579 | |
| Energy Transfer Equity, L.P. | | 314,061 | | | 8,253,523 | |
| Energy Transfer Partners, L.P. | | 671,538 | | | 28,412,773 | |
| Enterprise GP Holdings L.P. | | 282,774 | | | 7,654,692 | |
| Enterprise Products Partners L.P. | | 1,145,055 | | | 29,771,430 | |
| ONEOK Partners, L.P. | | 130,822 | | | 6,330,477 | |
| Spectra Energy Partners, LP | | 303,900 | | | 6,445,719 | |
| TC PipeLines, LP | | 887,700 | | | 30,794,313 | |
| Williams Pipeline Partners L.P. | | 481,642 | | | 9,319,773 | |
| | | | | | 153,172,636 | |
| Natural Gas Gathering/Processing — 17.1%(1) | | | | |
| United States — 17.1%(1) | | | | | | |
| Copano Energy, L.L.C. | | 984,736 | | | 15,568,676 | |
| Crosstex Energy, L.P. | | 382,500 | | | 1,197,225 | |
| DCP Midstream Partners, LP | | 274,250 | | | 5,276,570 | |
| Duncan Energy Partners L.P. | | 26,400 | | | 508,200 | |
| Exterran Partners, L.P. | | 133,168 | | | 1,804,426 | |
| MarkWest Energy Partners, L.P. | | 832,500 | | | 14,976,675 | |
| Targa Resources Partners LP | | 701,861 | | | 9,229,472 | |
| Western Gas Partners LP | | 141,430 | | | 2,144,079 | |
| Williams Partners L.P. | | 45,300 | | | 838,956 | |
| | | | | | 51,544,279 | |
| Propane Distribution — 3.8%(1) | | | | | | |
| United States — 3.8%(1) | | | | | | |
| Inergy, L.P. | | 451,250 | | | 11,461,750 | |
| Shipping — 2.1%(1) | | | | | | |
| Republic of the Marshall Islands — 0.6%(1) | | | | | | |
| Teekay LNG Partners L.P. | | 98,200 | | | 1,885,440 | |
| United States — 1.5%(1) | | | | | | |
| K-Sea Transportation Partners L.P. | | 230,128 | | | 4,452,977 | |
| | | | | | 6,338,417 | |
| Total Master Limited Partnerships and | | | | | | |
| Related Companies (Cost $417,307,374) | | | | | 470,152,655 | |
| Short-Term Investments — 6.9%(1) | | | | | | |
| United States Investment Companies — 6.9%(1) | | | | | | |
| FFI Premier Institutional Fund, 0.60%(5) | | 20,299,722 | | | 20,299,722 | |
| First American Government Obligations Fund — | | | | | | |
| Class Y, 0.01%(5) | | 442,239 | | | 442,239 | |
| Total Short-Term Investments | | | | | | |
| (Cost $20,741,961) | | | | | 20,741,961 | |
| Total Investments — 163.3%(1) | | | | | | |
| (Cost $438,049,335) | | | | | 490,894,616 | |
| Other Assets and Liabilities — (1.8%)(1) | | | | | (5,293,342 | ) |
| Long-Term Debt Obligations — (29.9%)(1) | | | | | (90,000,000 | ) |
| Preferred Shares at Redemption Value — (31.6%)(1) | | | (95,000,000 | ) |
| Total Net Assets Applicable to | | | | | | |
| Common Stockholders — 100.0%(1) | | | | $ | 300,601,274 | |
| (1) | | Calculated as a percentage of net assets applicable to common stockholders. |
| (2) | | Restricted securities have been fair valued in accordance with procedures approved by the Board of Directors and have a total fair value of $13,781,887, which represents 4.6% of net assets. See Note 7 to the financial statements for further disclosure. |
| (3) | | Security distributions are paid-in-kind. |
| (4) | | Non-income producing. |
| (5) | | Rate indicated is the current yield as of May 31, 2009. |
See accompanying Notes to Financial Statements.
| 2009 2nd Quarter Report | | 5 |
Statement of Assets & Liabilities
May 31, 2009
|
| (Unaudited) | | | | |
| | | | | |
| Assets | | | | |
| Investments at fair value (cost $438,049,335) | | $ | 490,894,616 | |
| Receivable for investments sold | | | 2,677,913 | |
| Dividend receivable | | | 111 | |
| Deferred tax asset | | | 2,462,200 | |
| Prepaid expenses and other assets | | | 608,819 | |
| Total assets | | | 496,643,659 | |
| Liabilities | | | | |
| Payable to Adviser | | | 708,610 | |
| Distributions payable to common stockholders | | | 6,988,269 | |
| Distributions payable to preferred stockholders | | | 15,949 | |
| Payable for investments purchased | | | 2,055,830 | |
| Accrued expenses and other liabilities | | | 1,273,727 | |
| Long-term debt obligations | | | 90,000,000 | |
| Total liabilities | | | 101,042,385 | |
| Preferred Stock | | | | |
| $25,000 liquidation value per share applicable to | | | | |
| 3,800 outstanding shares (4,400 shares authorized) | | | 95,000,000 | |
| Net assets applicable to common stockholders | | $ | 300,601,274 | |
| Net Assets Applicable to Common Stockholders Consist of: | | | | |
| Capital stock, $0.001 par value; 17,470,673 shares issued | | | | |
| and outstanding (100,000,000 shares authorized) | | $ | 17,471 | |
| Additional paid-in capital | | | 304,526,311 | |
| Accumulated net investment loss, net of income taxes | | | (35,179,745 | ) |
| Accumulated realized loss, net of income taxes | | | (8,570,762 | ) |
| Net unrealized appreciation of investments, net of income taxes | | | 39,807,999 | |
| Net assets applicable to common stockholders | | $ | 300,601,274 | |
| Net Asset Value per common share outstanding | | | | |
| (net assets applicable to common stock, | | | | |
| divided by common shares outstanding) | | $ | 17.21 | |
| STATEMENT OF OPERATIONS |
Period from December 1, 2008 through May 31, 2009
|
| (Unaudited) | | | | |
| | | | | |
| Investment Income | | | | |
| Distributions from master limited partnerships | | $ | 18,660,107 | |
| Less return of capital on distributions | | | (16,726,075 | ) |
| Net distributions from master limited partnerships | | | 1,934,032 | |
| Dividends from money market mutual funds | | | 59,006 | |
| Total Investment Income | | | 1,993,038 | |
| Operating Expenses | | | | |
| Advisory fees | | | 1,938,437 | |
| Professional fees | | | 189,164 | |
| Administrator fees | | | 87,522 | |
| Directors’ fees | | | 58,639 | |
| Reports to stockholders | | | 46,782 | |
| Registration fees | | | 33,583 | |
| Fund accounting fees | | | 29,463 | |
| Custodian fees and expenses | | | 22,049 | |
| Stock transfer agent fees | | | 5,072 | |
| Other expenses | | | 43,530 | |
| Total Operating Expenses | | | 2,454,241 | |
| Interest expense | | | 2,761,085 | |
| Agent fees | | | 33,690 | |
| Amortization of debt issuance costs | | | 31,666 | |
| Total Interest, Agent and Debt Issuance Costs | | | 2,826,441 | |
| Total Expenses | | | 5,280,682 | |
| Net Investment Loss, before Income Taxes | | | (3,287,644 | ) |
| Current tax benefit | | | 346,526 | |
| Deferred tax benefit | | | 716,639 | |
| Income tax benefit | | | 1,063,165 | |
| Net Investment Loss | | | (2,224,479 | ) |
| Realized and Unrealized Gain (Loss) on Investments | | | | |
| Net realized loss on investments, before income taxes | | | (21,298,902 | ) |
| Deferred tax benefit | | | 4,969,658 | |
| Net realized loss on investments | | | (16,329,244 | ) |
| Net unrealized appreciation of investments, before income taxes | | | 142,453,171 | |
| Deferred tax expense | | | (33,238,497 | ) |
| Net unrealized appreciation of investments | | | 109,214,674 | |
| Net Realized and Unrealized Gain on Investments | | | 92,885,430 | |
| Distributions to Preferred Stockholders | | | (566,288 | ) |
| Net Increase in Net Assets Applicable to Common | | | | |
| Stockholders Resulting from Operations | | $ | 90,094,663 | |
See accompanying Notes to Financial Statements.
| | | | | |
6 | | Tortoise Energy Capital Corp. | | | |
Statement of Changes in Net Assets
|
| | | Period from | | | | |
| | | December 1, 2008 | | | | |
| | | through | | Year Ended |
| | | May 31, 2009 | | November 30, 2008 |
| | | (Unaudited) | | | | |
| Operations | | | | | | | | |
| Net investment loss | | $ | (2,224,479 | ) | | $ | (14,757,582 | ) |
| Net realized loss on investments and interest rate swaps | | | (16,329,244 | ) | | | (13,878,321 | ) |
| Net unrealized appreciation (depreciation) of investments and interest rate swap contracts | | | 109,214,674 | | | | (196,524,707 | ) |
| Distributions to preferred stockholders | | | (566,288 | ) | | | (6,161,055 | ) |
| Net increase (decrease) in net assets applicable to common stockholders resulting from operations | | | 90,094,663 | | | | (231,321,665 | ) |
| Distributions to Common Stockholders | | | | | | | | |
| Net investment income | | | — | | | | — | |
| Return of capital | | | (13,976,538 | ) | | | (29,574,603 | ) |
| Total distributions to common stockholders | | | (13,976,538 | ) | | | (29,574,603 | ) |
| Capital Stock Transactions | | | | | | | | |
| Underwriting discounts and offering expenses associated with the issuance of preferred stock | | | — | | | | (14,000 | ) |
| Issuance of 64,587 common shares from reinvestment of distributions to stockholders | | | — | | | | 1,525,365 | |
| Net increase in net assets, applicable to common stockholders, from capital stock transactions | | | — | | | | 1,511,365 | |
| Cumulative effect of adopting Financial Accounting Standards Board Interpretation No. 48 (Note 5) | | | — | | | | (776,852 | ) |
| Total increase (decrease) in net assets applicable to common stockholders | | | 76,118,125 | | | | (260,161,755 | ) |
| Net Assets | | | | | | | | |
| Beginning of period | | | 224,483,149 | | | | 484,644,904 | |
| End of period | | $ | 300,601,274 | | | $ | 224,483,149 | |
| Accumulated net investment loss, net of income taxes, at the end of period | | $ | (35,179,745 | ) | | $ | (32,955,266 | ) |
See accompanying Notes to Financial Statements.
| 2009 2nd Quarter Report | | 7 |
Statement of Cash Flows
Period from December 1, 2008 through May 31, 2009
|
| (Unaudited) | | | | |
| | | | | |
| Cash Flows From Operating Activities | | | | |
| Distributions received from master | | | | |
| limited partnerships | | $ | 18,660,107 | |
| Dividend income received | | | 64,440 | |
| Purchases of long-term investments | | | (24,234,531 | ) |
| Proceeds from sales of long-term investments | | | 38,357,748 | |
| Purchases of short-term investments, net | | | (18,187,951 | ) |
| Interest expense paid | | | (2,904,282 | ) |
| Income taxes paid | | | (263,372 | ) |
| Operating expenses paid | | | (2,711,141 | ) |
| Net cash provided by operating activities | | | 8,781,018 | |
| Cash Flows From Financing Activities | | | | |
| Distributions paid to common stockholders | | | (8,142,472 | ) |
| Distributions paid to preferred stockholders | | | (769,352 | ) |
| Net cash used in financing activities | | | (8,911,824 | ) |
| Net decrease in cash | | | (130,806 | ) |
| Cash — beginning of period | | | 130,806 | |
| Cash — end of period | | $ | — | |
| 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 | | $ | 90,094,663 | |
| 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 | | | (26,290,361 | ) |
| Return of capital on distributions received | | | 16,726,075 | |
| Proceeds from sales of long-term investments | | | 30,125,063 | |
| Purchases of short-term investments, net | | | (18,187,951 | ) |
| Deferred tax expense | | | 27,552,200 | |
| Net unrealized appreciation of investments | | | (142,453,171 | ) |
| Net realized loss on investments | | | 21,298,902 | |
| Amortization of debt issuance costs | | | 31,666 | |
| Distributions to preferred stockholders | | | 566,288 | |
| Changes in operating assets and liabilities: | | | | |
| Decrease in interest, dividend and distribution receivable | | | 5,434 | |
| Decrease in receivable for investments sold | | | 8,232,685 | |
| Increase in prepaid expenses and other assets | | | (95,386 | ) |
| Decrease in current tax liability | | | (609,897 | ) |
| Decrease in payable to Adviser | | | (105,731 | ) |
| Increase in payable for investments purchased | | | 2,055,830 | |
| Decrease in accrued expenses and other liabilities | | | (165,291 | ) |
| Total adjustments | | | (81,313,645 | ) |
| Net cash provided by operating activities | | $ | 8,781,018 | |
See accompanying Notes to Financial Statements.
| | | | | |
8 | | Tortoise Energy Capital Corp. | | | |
| Period from | | | | | | | | | | | | | | Period from |
| December 1, 2008 | | Year Ended | | Year Ended | | Year Ended | | May 31, 2005(1) |
| through | | November 30, | | November 30, | | November 30, | | through |
| May 31, 2009 | | 2008 | | 2007 | | 2006 | | November 30, 2005 |
| (Unaudited) | | | | | | | | | | | | | | | | |
| Per Common Share Data(2) | | | | | | | | | | | | | | | | | | | |
| Net Asset Value, beginning of period | $ | 12.85 | | | $ | 27.84 | | | $ | 26.79 | | | $ | 23.23 | | | $ | — | |
| Public offering price | | — | | | | — | | | | — | | | | — | | | | 25.00 | |
| Underwriting discounts and offering costs on issuance | | | | | | | | | | | | | | | | | | | |
| of common and preferred stock(3) | | — | | | | — | | | | (0.03 | ) | | | (0.06 | ) | | | (1.18 | ) |
| Premiums less underwriting discounts and offering costs | | | | | | | | | | | | | | | | | | | |
| on offering of common stock(4) | | — | | | | — | | | | (0.12 | ) | | | — | | | | — | |
| Income (loss) from Investment Operations: | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(5)(6) | | (0.13 | ) | | | (0.89 | ) | | | (0.64 | ) | | | (0.36 | ) | | | 0.04 | |
| Net realized and unrealized gains (losses) on investments and | | | | | | | | | | | | | | | | | | | |
| interest rate swap contracts(5)(6) | | 5.32 | | | | (12.05 | ) | | | 3.80 | | | | 5.68 | | | | (0.05 | ) |
| Total increase (decrease) from investment operations | | 5.19 | | | | (12.94 | ) | | | 3.16 | | | | 5.32 | | | | (0.01 | ) |
| Less Distributions to Preferred Stockholders: | | | | | | | | | | | | | | | | | | | |
| Net investment income | | — | | | | — | | | | — | | | | — | | | | — | |
| Return of capital | | (0.03 | ) | | | (0.35 | ) | | | (0.33 | ) | | | (0.19 | ) | | | — | |
| Total distributions to preferred stockholders | | (0.03 | ) | | | (0.35 | ) | | | (0.33 | ) | | | (0.19 | ) | | | — | |
| Less Distributions to Common Stockholders: | | | | | | | | | | | | | | | | | | | |
| Net investment income | | — | | | | — | | | | — | | | | — | | | | (0.03 | ) |
| Return of capital | | (0.80 | ) | | | (1.70 | ) | | | (1.63 | ) | | | (1.51 | ) | | | (0.55 | ) |
| Total distributions to common stockholders | | (0.80 | ) | | | (1.70 | ) | | | (1.63 | ) | | | (1.51 | ) | | | (0.58 | ) |
| Net Asset Value, end of period | $ | 17.21 | | | $ | 12.85 | | | $ | 27.84 | | | $ | 26.79 | | | $ | 23.23 | |
| Per common share market value, end of period | $ | 17.77 | | | $ | 11.11 | | | $ | 25.47 | | | $ | 26.50 | | | $ | 22.09 | |
| Total Investment Return Based on Market Value(7) | | 68.24 | % | | | (52.44 | )% | | | 1.73 | % | | | 27.67 | % | | | (8.33 | )% |
See accompanying Notes to Financial Statements.
2009 2nd Quarter Report 9
FINANCIAL HIGHLIGHTS
(Continued)
|
| Period from | | | | | | | | | | | | | | Period from |
| December 1, 2008 | | Year Ended | | Year Ended | | Year Ended | | May 31, 2005(1) |
| through | | November 30, | | November 30, | | November 30, | | through |
| May 31, 2009 | | 2008 | | 2007 | | 2006 | | November 30, 2005 |
| (Unaudited) | | | | | | | | | | | | | | | | |
| Supplemental Data and Ratios | | | | | | | | | | | | | | | | | | | |
| Net assets applicable to common stockholders, end of period (000’s) | $ | 300,601 | | | $ | 224,483 | | | $ | 484,645 | | | $ | 429,010 | | | $ | 370,455 | |
| Ratio of expenses (including net current and deferred income tax (benefit) expense) | | | | | | | | | | | | | | | | | | | |
| to average net assets(8)(9)(10) | | 25.84 | % | | | (21.81 | )% | | | 10.51 | % | | | 17.38 | % | | | 1.29 | % |
| Ratio of expenses (excluding net current and deferred income tax (benefit) expense) | | | | | | | | | | | | | | | | | | | |
| to average net assets(8)(10)(11) | | 4.20 | % | | | 6.51 | % | | | 4.46 | % | | | 3.47 | % | | | 1.39 | % |
| Ratio of net investment income (loss) to average net assets (including net current | | | | | | | | | | | | | | | | | | | |
| and deferred income tax (benefit) expense)(8)(9)(10) | | (24.25 | )% | | | 23.33 | % | | | (9.84 | )% | | | (16.31 | )% | | | 0.60 | % |
| Ratio of net investment income (loss) to average net assets (excluding net current | | | | | | | | | | | | | | | | | | | |
| and deferred income tax (benefit) expense)(8)(10)(11) | | (2.61 | )% | | | (4.99 | )% | | | (3.79 | )% | | | (2.40 | )% | | | 0.50 | % |
| Portfolio turnover rate(8) | | 13.06 | % | | | 6.44 | % | | | 9.90 | % | | | 5.56 | % | | | 0.08 | % |
| Short-term borrowings, end of period (000’s) | | — | | | | — | | | $ | 24,700 | | | $ | 28,000 | | | | — | |
| Long-term debt obligations, end of period (000’s) | $ | 90,000 | | | $ | 90,000 | | | $ | 190,000 | | | $ | 120,000 | | | $ | 120,000 | |
| Preferred stock, end of period (000’s) | $ | 95,000 | | | $ | 95,000 | | | $ | 110,000 | | | $ | 70,000 | | | | — | |
| Per common share amount of long-term debt obligations outstanding, | | | | | | | | | | | | | | | | | | | |
| at end of period | $ | 5.15 | | | $ | 5.15 | | | $ | 10.92 | | | $ | 7.49 | | | $ | 7.52 | |
| Per common share amount of net assets, excluding long-term debt obligations, | | | | | | | | | | | | | | | | | | | |
| at end of period | $ | 22.36 | | | $ | 18.00 | | | $ | 38.76 | | | $ | 34.28 | | | $ | 30.75 | |
| Asset coverage, per $1,000 of principal amount of long-term debt obligations | | | | | | | | | | | | | | | | | | | |
| and short-term borrowings(12) | $ | 5,396 | | | $ | 4,550 | | | $ | 3,770 | | | $ | 4,372 | | | $ | 4,087 | |
| Asset coverage ratio of long-term debt obligations and short-term borrowings(12) | | 540 | % | | | 455 | % | | | 377 | % | | | 437 | % | | | 409 | % |
| Asset coverage, per $25,000 liquidation value per share of preferred stock(13) | $ | 104,106 | | | $ | 84,075 | | | $ | 135,147 | | | $ | 178,218 | | | | — | |
| Asset coverage, per $25,000 liquidation value per share of preferred stock(14) | $ | 65,622 | | | $ | 55,336 | | | $ | 62,315 | | | $ | 74,198 | | | | — | |
| Asset coverage ratio of preferred stock(14) | | 262 | % | | | 221 | % | | | 249 | % | | | 297 | % | | | — | |
| (1) | | Commencement of Operations. |
| (2) | | Information presented relates to a share of common stock outstanding for the entire period. |
| (3) | | Represents the issuance of preferred stock for the years ended November 30, 2007 and 2006. Represents the issuance of common stock for the period from May 31, 2005 through November 30, 2005. |
| (4) | | Represents the premium on the shelf offering of less than $0.01 per share, less the underwriting and offering costs of $0.13 per share. |
| (5) | | The per common share data for the periods ended November 30, 2008, 2007, 2006 and 2005 do not reflect the change in estimate of investment income and return of capital, for the respective period. See Note 2C to the financial statements for further disclosure. |
| (6) | | The per common share data for the year ended November 30, 2008 reflects the cumulative effect of adopting FIN 48, which was a $776,852 increase to the beginning balance of accumulated net investment loss, or $(0.04) per share. See Note 5 to the financial statements for further disclosure. |
| (7) | | Not annualized. Total investment return is calculated assuming a purchase of common stock at the beginning of period (or initial public offering price) and a sale at the closing price on the last day of the period reported (excluding brokerage commissions). The calculation also assumes reinvestment of distributions at actual prices pursuant to the Company’s dividend reinvestment plan. |
| (8) | | Annualized for periods less than one full year. |
| (9) | | For the period from December 1, 2008 through May 31, 2009, the Company accrued $346,526 for current tax benefit and $27,552,200 for net deferred income tax expense. For the year ended November 30, 2008, the Company accrued $427,891 for current tax expense and $114,309,765 for net deferred income tax benefit. The Company accrued $30,376,674 and $54,292,114 for the years ended November 30, 2007 and 2006, respectively, for current and deferred income tax expense. For the period from May 31, 2005 through November 30, 2005, the Company accrued $192,462 in net deferred income tax benefit. |
| (10) | | The expense ratios and net investment income (loss) ratios do not reflect the effect of distributions to preferred stockholders. |
| (11) | | This ratio excludes the impact of current and deferred income taxes. |
| (12) | | Represents value of total assets less all liabilities and indebtedness not represented by long-term debt obligations, short-term borrowings and preferred stock at the end of the period divided by long-term debt obligations and short-term borrowings outstanding at the end of the period. |
| (13) | | Represents value of total assets less all liabilities and indebtedness not represented by preferred stock at the end of the period divided by preferred stock outstanding at the end of the period, assuming the retirement of all long-term debt obligations and short-term borrowings. |
| (14) | | Represents value of total assets less all liabilities and indebtedness not represented by long-term debt obligations, short-term borrowings and preferred stock at the end of the period divided by the sum of long-term debt obligations, short-term borrowings and preferred stock outstanding at the end of the period. |
See accompanying Notes to Financial Statements.
10 Tortoise Energy Capital Corp.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
May 31, 2009
|
1. Organization
Tortoise Energy Capital Corporation (the “Company”) was organized as a Maryland corporation on March 4, 2005, and is a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company’s investment objective is to seek a high level of total return with an emphasis on current distributions to stockholders. The Company seeks to provide its stockholders with an efficient vehicle to invest in the energy infrastructure sector. The Company received the proceeds of its initial public offering and commenced operations on May 31, 2005. The Company’s stock is listed on the New York Stock Exchange under the symbol “TYY.”
2. Significant Accounting Policies
A. Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of distribution income, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
B. Investment Valuation
The Company primarily owns securities that are listed on a securities exchange or over-the-counter market. The Company values those securities at their last sale price on that exchange or over-the-counter market on the valuation date. If the security is listed on more than one exchange, the Company uses the price from the exchange that it considers to be the principal exchange on which the stock 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 bid and ask price on such day.
The Company may invest up to 50 percent of its total assets in restricted securities. Restricted securities are subject to statutory or contractual restrictions on their public resale, which may make it more difficult to obtain a valuation and may limit the Company’s ability to dispose of them. Investments in restricted securities and other securities for which market quotations are not readily available will be valued in good faith by using fair value procedures approved by the Board of Directors. Such fair value procedures consider factors such as discounts to publicly traded issues, time until conversion date, securities with similar yields, quality, type of issue, coupon, duration and rating. If events occur that affect the value of the Company’s portfolio securities before the net asset value has been calculated (a “significant event”), the portfolio securities so affected will generally be priced using a fair value procedure.
An equity security of a publicly traded company acquired in a direct placement transaction may be subject to restrictions on resale that can affect the security’s liquidity and fair value. Such securities that are convertible into or otherwise will become freely tradable will be valued based on the market value of the freely tradable security less an applicable discount. Generally, the discount will initially be equal to the discount at which the Company purchased the securities. To the extent that such securities are convertible or otherwise become freely tradable within a time frame that may be reasonably determined, an amortization schedule may be used to determine the discount.
The Company determines fair value in accordance with Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is applicable in conjunction with other accounting pronouncements that require or permit fair value measurements, but does not expand the use of fair value to any new circumstances. More specifically, SFAS 157 emphasizes that fair value is a market based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority given to quoted prices in active markets and the lowest priority to unobservable inputs. See Note 6 — Fair Value of Financial Instruments for further disclosure.
The Company generally values short-term debt securities at prices based on market quotations for such securities, except those securities purchased with 60 days or less to maturity are valued on the basis of amortized cost, which approximates market value.
C. Security Transactions and Investment Income
Security transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses are reported on an identified cost basis. Interest income is recognized on the accrual basis, including amortization of premiums and accretion of discounts. Dividend and distribution income is recorded on the ex-dividend date. Distributions received from the Company’s investments in master limited partnerships (“MLPs”) generally are comprised of ordinary income, capital gains and return of capital from the MLPs. The Company allocates distributions between investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are based on historical information available from each MLP and other industry sources. These estimates may subsequently be revised based on actual allocations received from MLPs after their tax reporting periods are concluded, as the actual character of these distributions is not known until after the fiscal year end of the Company.
For the period from December 1, 2007 through November 30, 2008, the Company estimated the allocation of investment income and return of capital for the distributions received from MLPs within the Statement of Operations. For this period, the Company had estimated approximately 13 percent of total distributions as investment income and approximately 87 percent as return of capital.
Subsequent to November 30, 2008, the Company reallocated the amount of investment income and return of capital it recognized based on the 2008 tax reporting information received from the individual MLPs. This reallocation amounted to a decrease in pre-tax net investment income of approximately $576,000 or $0.033 per share ($364,000 or $0.021 per share, net of deferred tax benefit); an increase in unrealized appreciation of investments of approximately $116,000 or $0.007 per share ($74,000 or $0.004 per share, net of deferred tax expense) and an increase in realized gains of approximately $460,000 or $0.026 per share ($290,000 or $0.017 per share, net of deferred tax expense) for the period from December 1, 2008 through May 31, 2009.
Subsequent to the period ended February 28, 2009, the Company reallocated the amount of investment income and return of capital reported in the current fiscal year based on its revised 2009 estimates. This reallocation amounted to a decrease in pre-tax net investment income of approximately $57,000 or $0.003 per share ($36,000 or $0.002 per share, net of deferred tax benefit); an increase in unrealized appreciation of investments of approximately $320,000 or $0.018 per share ($202,000 or $0.012 per share, net of deferred tax expense) and a decrease in realized gains of approximately $263,000 or $0.015 per share ($166,000 or $0.010 per share, net of deferred tax benefit).
D. Distributions to Stockholders
Distributions to common stockholders are recorded on the ex-dividend date. The Company may not declare or pay distributions to its common stockholders if it does not meet asset coverage ratios required under the 1940 Act or the rating agency guidelines for its debt and preferred stock following such distribution. The character of distributions to common stockholders made during the year may differ from their ultimate characterization for federal income tax purposes. For the year ended November 30, 2008 and the period ended May 31, 2009, the Company’s distributions to common stockholders for book purposes were comprised of 100 percent return of capital. For the year ended November 30, 2008, the Company’s distributions to common stockholders for tax purposes were comprised of 100 percent return of capital. The tax character of distributions paid for the current year will be determined subsequent to November 30, 2009.
2009 2nd Quarter Report 11
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Continued)
|
Distributions to preferred stockholders are based on variable rates set at auctions, normally held every 7 or 28 days unless a special rate period is designated. The Company may not declare or pay distributions to its preferred stockholders if it does not meet a 200 percent asset coverage ratio for its debt or the rating agency basic maintenance amount for the debt following such distribution. Distributions to preferred stockholders are accrued on a daily basis for the subsequent rate period at a rate determined on the auction date. Distributions to preferred stockholders are payable on the first day following the end of the rate period or the first day of month if the rate period is longer than one month. For the year ended November 30, 2008 and the period ended May 31, 2009, the Company’s distributions to preferred stockholders for book purposes were comprised of 100 percent return of capital. The tax character of distributions paid for the current year will be determined subsequent to November 30, 2009.
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; however, the Company anticipates a marginal effective rate of 34.5 percent due to expectations of the level of taxable income relative to the federal graduated tax rates, including the tax rate anticipated when temporary differences reverse. The Company may be subject to a 20 percent federal alternative minimum tax on its federal alternative minimum taxable income to the extent that its alternative minimum tax exceeds its regular federal income tax.
The Company invests its assets primarily in MLPs, which generally are treated as partnerships for federal income tax purposes. As a limited partner in the MLPs, the Company reports its allocable share of the MLP’s taxable income in computing its own taxable income. The Company’s tax expense or benefit is included in the Statement of Operations based on the component of income or gains (losses) to which such expense or benefit relates. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.
F. Organization Expenses, Offering and Debt Issuance Costs
The Company is responsible for paying all organizational expenses, which were expensed as incurred. Offering costs related to the issuance of common and preferred stock is charged to additional paid-in capital when the stock is issued. Debt issuance costs related to long-term debt obligations are capitalized and amortized over the period the debt is outstanding.
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 derivative instruments included as unrealized gains or losses in the accompanying Statement of Operations. Monthly cash settlements under the terms of the derivative instruments and termination of such contracts are recorded as realized gains or losses in the accompanying Statement of Operations.
H. Indemnifications
Under the Company’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Company. In addition, in the normal course of business, the Company may enter into contracts that provide general indemnifications to other parties. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred, and may not occur. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
I. Recent Accounting Pronouncements
On April 9, 2009, the FASB issued Staff Position No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”). FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of FSP 157-4 is not expected to have a significant impact on the Company’s financial statements.
On April 9, 2009, the FASB issued FASB Staff Position (FSP) No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, which amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments (“FSP 107-1”), to require disclosures about fair value of financial instruments for interim financial statements of publicly traded companies as well as in annual financial statements. FSP 107-1 also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP 107-1 is effective for interim reporting periods ending after June 15, 2009. The adoption of FSP 107-1 is not expected to have a significant impact on the Company’s financial statements.
3. Concentration of Risk
The Company’s investment objective is to seek a high level of total return with an emphasis on current distributions paid to its stockholders. 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 Company’s 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 Company has engaged U.S. Bancorp Fund Services, LLC to serve as the Company’s administrator. The Company pays the administrator a monthly fee computed at an annual rate of 0.04 percent of the first $1,000,000,000 of the Company’s Managed Assets, 0.03 percent on the next $1,000,000,000 of Managed Assets and 0.02 percent on the balance of the Company’s Managed Assets.
12 Tortoise Energy Capital Corp.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Continued)
|
Computershare Trust Company, N.A. serves as the Company’s transfer agent, dividend paying agent, and agent for the automatic dividend reinvestment plan.
U.S. Bank, N.A. serves as the Company’s custodian. The Company pays the custodian a monthly fee computed at an annual rate of 0.015 percent on the first $100,000,000 of the Company’s portfolio assets and 0.01 percent on the balance of the Company’s portfolio assets.
5. Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of the Company’s deferred tax assets and liabilities as of May 31, 2009, are as follows:
| Deferred tax assets: | | |
| Net operating loss carryforwards | $ | 16,691,004 |
| Capital loss carryforwards | | 22,674,792 |
| Deferred expense associated with interest rate swap terminations | | 1,337,973 |
| Alternative minimum tax credit carryforward | | 122,000 |
| Organization costs | | 16,585 |
| | 40,842,354 |
| Deferred tax liabilities: | | |
| Basis reduction of investment in MLPs | | 18,927,806 |
| Net unrealized gains on investment securities | | 19,452,348 |
| | 38,380,154 |
| Total net deferred tax asset | $ | 2,462,200 |
At May 31, 2009, a valuation allowance on deferred tax assets was not deemed necessary because the Company believes that it is more likely than not that there is an ability to realize its deferred tax assets based upon existence of sufficient evidence, primarily regarding the amount and timing of distributions to be received from portfolio companies. Any adjustments to such estimates will be made in the period such determination is made.
Management determined that no reserve for unrecognized tax benefits is necessary when temporary differences represent net future deductible amounts rather than net future taxable amounts. The Company does not expect any change in such amount of unrecognized tax benefits over the next twelve months subsequent to November 30, 2008. The Company’s policy is to record interest and penalties on uncertain tax positions as part of tax expense. No interest or penalties were accrued at May 31, 2009. 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 34.5 percent to net investment loss, realized loss and unrealized gains on investments before taxes for the period ended May 31, 2009, as follows:
| Application of statutory income tax rate | $ | 40,663,986 | |
| State income taxes, net of federal tax benefit | | 2,722,719 | |
| Foreign tax benefit, net of federal tax effect | | (296,062 | ) |
| Change in valuation allowance | | (15,884,969 | ) |
| Total income tax expense | $ | 27,205,674 | |
Total income taxes are computed by applying the federal statutory rate plus a blended state income tax rate.
For the period from December 1, 2008 to May 31, 2009, the components of income tax expense include current foreign tax benefit (for which the federal tax effect is reflected in deferred tax expense) of $468,526, alternative minimum tax for U.S. tax purposes of $122,000, and deferred federal and state income tax expense (net of federal tax benefit) of $25,823,170 and $1,729,030, respectively. The deferred income tax expense of $27,552,200 for the period ended May 31, 2009 is net of the reduction in valuation allowance of $15,884,969.
As of November 30, 2008, the Company had a net operating loss for federal income tax purposes of approximately $30,825,000. The net operating loss may be carried forward for 20 years. If not utilized, this net operating loss will expire as follows: $12,450,000 and $18,375,000 in the years ending November 30, 2026, and 2027 respectively. As of November 30, 2008, the Company had a capital loss carryforward of approximately $48,000,000, which may be carried forward for 5 years and if not utilized expires in the year ending November 30, 2013. The amount of the deferred tax asset for these items at May 31, 2009 also includes amounts for the period from December 1, 2008 through May 31, 2009. For corporations, capital losses can only be used to offset capital gains and cannot be used to offset ordinary income. As of November 30, 2008, an alternative minimum tax credit of $120,201 was available, which may be credited in the future against regular income tax. This credit may be carried forward indefinitely.
As of May 31, 2009, the aggregate cost of securities for federal income tax purposes was $386,629,054. At May 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of fair value over tax cost was $128,573,381, the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over fair value was $24,307,819 and the net unrealized appreciation was $104,265,562.
6. Fair Value of Financial Instruments
Various inputs are used in determining the value of the Company’s investments. These inputs are summarized in the three broad levels listed below:
Level 1 — | | quoted prices in active markets for identical investments |
| | | |
Level 2 — | | other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.) |
| | | |
Level 3 — | | significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments) |
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 May 31, 2009. These assets are measured on a recurring basis.
| | | | Fair Value Measurements at Reporting Date Using |
| | | | Quoted Prices in | | | | Significant |
| | | | Active Markets for | | Significant Other | | Unobservable |
| | Fair Value at | | Identical Assets | | Observable Inputs | | Inputs |
| Description | | May 31, 2009 | | (Level 1) | | (Level 2) | | (Level 3) |
| Investments | | $490,894,616 | | $477,112,729 | | $13,781,887 | | $ — |
| |
| Fair Value Measurements Using Significant Unobservable Inputs |
| (Level 3) for Investments |
| For the period ended |
| May 31, 2009 |
| Fair value beginning balance | $ | 3,313,416 | |
| Total unrealized losses included in net increase in net assets | | | |
| applicable to common stockholders | | (1,220,732 | ) |
| Net purchases, issuances and settlements | | — | |
| Return of capital adjustments impacting cost basis of security | | — | |
| Transfers out of Level 3 | | (2,092,684 | ) |
| Fair value ending balance | $ | — | |
2009 2nd Quarter Report 13
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Continued)
|
The Company utilizes the beginning of reporting period method for determining transfers into or out of Level 3. Accordingly, this method is the basis for presenting the rollforward in the preceding table. Under this method, the fair value of the asset at the beginning of the period will be disclosed as a transfer into or out of Level 3, gains or losses for an asset that transfers into Level 3 during the period will be included in the reconciliation, and gains or losses for an asset that transfers out of Level 3 will be excluded from the reconciliation.
7. Restricted Securities
Certain of the Company’s investments are restricted and are valued as determined in accordance with procedures established by the Board of Directors, as more fully described in Note 2. The table below shows the number of units held, acquisition date, acquisition cost, fair value per share and percent of net assets which the securities comprise at May 31, 2009.
| | | | | | | | Fair | | Fair |
| | | | | | | | Value | | Value as |
| | Number | | Acquisition | | Acquisition | | Per | | Percent of |
| Investment Security | | | of Shares | | Date | | Cost | | Share | | Net Assets |
| Enbridge Energy Partners, L.P. Class C Common Units | | 342,833 | | 4/02/07 | | $15,000,000 | | $40.20 | | 4.6% |
8. Investment Transactions
For the period ended May 31, 2009, the Company purchased (at cost) and sold securities (proceeds received) in the amount of $26,290,361 and $30,125,063 (excluding short-term debt securities), respectively.
9. Long-Term Debt Obligations
The Company has $90,000,000 aggregate principal amount of private senior notes, Series D, Series E and Series F (collectively, the “Notes”) outstanding.
The Notes are unsecured obligations of the Company and, upon liquidation, dissolution or winding up of the Company, will rank: (1) senior to all of the Company’s outstanding preferred stock; (2) senior to all of the Company’s outstanding common stock; (3) on parity with any unsecured creditors of the Company and any unsecured senior securities representing indebtedness of the Company and (4) junior to any secured creditors of the Company.
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 May 31, 2009, the Company was in compliance with asset coverage covenants and basic maintenance covenants for its senior notes.
Estimated fair values of the Notes were calculated using the spread between the AAA corporate finance debt rate and the U.S. Treasury rate with an equivalent maturity date plus the average spread between the fixed rates of the Notes and the AAA corporate finance debt rate. At May 31, 2009, the total spread was applied to the equivalent U.S. Treasury rate for the series and future cash flows were discounted to determine the estimated fair value. The following table shows the issue date, maturity date, notional/carrying amount, estimated fair value and fixed rate for each series of Notes outstanding at May 31, 2009.
| | | | | | Notional/ | | | | | |
| | Issue | | Maturity | | Carrying | | Estimated | | Fixed |
| Series | | Date | | Date | | Amount | | Fair Value | | Rate |
| Series D | | December 21, 2007 | | December 21, 2014 | | $ | 39,400,000 | | $ | 39,214,461 | | 6.07% |
| Series E | | June 17, 2008 | | June 17, 2011 | | | 15,900,000 | | | 16,369,434 | | 5.56% |
| Series F | | June 17, 2008 | | June 17, 2013 | | | 34,700,000 | | | 35,066,403 | | 6.02% |
| | | | | | $ | 90,000,000 | | $ | 90,650,298 | | |
10. Preferred Stock
The Company has 4,400 authorized shares of Money Market Preferred (“MMP”) Stock, of which 3,800 shares are currently outstanding. The MMP Stock has rights determined by the Board of Directors. The holders of MMP Stock have voting rights equal to the holders of common stock (one vote per MMP 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 MMP Stock has a liquidation value of $25,000 per share plus any accumulated but unpaid distributions, whether or not declared. Holders of the MMP Stock are entitled to receive cash distribution payments at an annual rate that may vary for each rate period as determined by the auction. In the event that there are not enough bidders in the auction at rates below the maximum rate as prescribed by the terms of the preferred stock, the auction fails. When an auction fails, the rate paid to continuing or new bidders is set at the maximum rate. A failed auction does not cause a mandatory redemption or affect the security’s liquidation preference. In the event of a failed auction, distributions continue to be paid at the maximum rates and times determined in the articles supplementary. The maximum rate on preferred stock based on current ratings is 200 percent of the greater of: (i) the applicable AA Composite Commercial Paper Rate or the applicable Treasury Index Rate or (ii) the applicable LIBOR as of the date of the auction. The distribution rates for the MMP I and MMP II Stock as of May 31, 2009 are 200 percent of the applicable LIBOR as of the respective auction dates.
The MMP 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 MMP Stock would be less than 200 percent. The preferred stock is 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 May 31, 2009, the Company was in compliance with asset coverage covenants and basic maintenance covenants for its preferred stock.
At May 31, 2009, fair value of the MMP Stock approximates the carrying amount because the distribution rate fluctuates with changes in interest rates available in the current market. The table below shows the number of shares outstanding, aggregate liquidation preference, current rate as of May 31, 2009, the weighted-average rate for period ended May 31, 2009 and the typical rate period for each series of MMP Stock outstanding at May 31, 2009. The Company may designate a rate period that is different than the rate period indicated in the table below.
| | | | Aggregate | | | | Weighted- | | |
| | Shares | | Liquidation | | Current | | Average | | |
| Series | | Outstanding | | Preference | | Rate | | Rate | | Rate Period |
| MMP I Stock | | 2,400 | | $ | 60,000,000 | | 0.63% | | 1.40% | | 28 days |
| MMP II Stock | | | 1,400 | | | | 35,000,000 | | 0.57% | | 0.79% | | 7 days |
| | | 3,800 | | | $ | 95,000,000 | | | | | | |
The rates in the preceding table do not include commissions paid to the auction agent, which are included in agent fees in the accompanying Statement of Operations.
11. Common Stock
The Company has 100,000,000 shares of capital stock authorized and 17,470,673 shares outstanding at May 31, 2009 and November 30, 2008.
14 Tortoise Energy Capital Corp.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Continued)
|
12. Credit Facility
On March 20, 2008, the Company entered into an agreement establishing an unsecured credit facility maturing on March 20, 2009. The credit agreement provided for a revolving credit facility of up to $92,500,000 that could be increased to $160,000,000 if certain conditions were met. Under the terms of the credit facility, U.S. Bank, N.A. served as a lender and the lending syndicate agent on behalf of other lenders participating in the credit facility. Outstanding balances generally accrued interest at a variable annual rate equal to one-month LIBOR plus 0.75 percent and unused portions of the credit facility accrued a non-usage fee equal to an annual rate of 0.15 percent.
On March 20, 2009, the Company entered into an extension of its credit facility through June 20, 2009. The terms of the extension provide for an unsecured revolving credit facility of up to $40,000,000. During the extension, outstanding balances accrue interest at a variable rate equal to one-month LIBOR plus 2.00 percent and unused portions of the credit facility accrue a non-usage fee equal to an annual rate of 0.25 percent. The Company did not utilize the credit facility during the period ended May 31, 2009.
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.
13. Subsequent Events
On June 1, 2009, the Company paid a distribution in the amount of $0.40 per common share, for a total of $6,988,269. Of this total, the dividend reinvestment amounted to $1,068,228.
On June 19, 2009, the Company entered into an amendment to its credit facility that extends the credit facility through June 20, 2010. The terms of the amendment provide for an unsecured revolving credit facility of $50,000,000. During the extension, outstanding balances will accrue interest at a variable rate equal to one-month LIBOR plus 2.00 percent and unused portions of the credit facility will accrue a non-usage fee equal to an annual rate of 0.25 percent.
The Company partially redeemed $20,000,000 of MMP I Stock on July 14, 2009 and $10,000,000 of MMP II Stock on July 16, 2009.
2009 2nd Quarter Report 15
ADDITIONAL INFORMATION (Unaudited)
|
Stockholder Proxy Voting Results
The annual meeting of stockholders was held on May 22, 2009. The matters considered at the meeting, together with the actual vote tabulations relating to such matters are as follows:
1. To elect two directors of the Company, to hold office for a term of three years and until their successors are duly elected and qualified.
| | No. of Shares |
| Charles E. Heath | |
| Affirmative | 14,566,616 |
| Withheld | 1,127,279 |
| TOTAL | 15,693,895 |
| |
| | No. of Shares |
| Terry C. Matlack* | |
| Affirmative | 2,885 |
| Withheld | 75 |
| TOTAL | 2,960 |
*Only preferred stockholders are entitled to vote on this director.
H. Kevin Birzer and John R. Graham continued as directors and their terms expire on the date of the 2010 annual meeting of stockholders, and Conrad S. Ciccotello continued as a director and his term expires on the date of the 2011 annual meeting of stockholders.
2. To approve a proposal to authorize flexibility to the Company to sell its common shares for less than net asset value, subject to certain conditions.
| Vote of Common Stockholders | No. of |
| of Record (58 Stockholders of | Recordholders |
| Record as of Record Date) | Voting |
| Affirmative | 35 |
| Against | 2 |
| Abstain | 2 |
| Broker Non-votes | 0 |
| TOTAL | 39 |
| |
| Vote of Stockholders | No. of Shares |
| Affirmative | 5,781,122 |
| Against | 518,893 |
| Abstain | 114,748 |
| Broker Non-votes | 9,279,132 |
| TOTAL | 15,693,895 |
3. To ratify the selection of Ernst & Young LLP as the independent registered public accounting firm of the Company for its fiscal year ending November 30, 2009.
| | No. of Shares |
| Affirmative | 15,506,255 |
| Against | 118,744 |
| Abstain | 68,896 |
| TOTAL | 15,693,895 |
Based upon votes required for approval, each of these matters passed.
Director and Officer Compensation
The Company does not compensate any of its directors who are “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, nor any of its officers. For the period ended May 31, 2009, the aggregate compensation paid by the Company to the independent directors was $58,500. The Company did not pay any special compensation to any of its directors or officers.
Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. By their nature, all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several factors that could materially affect the Company’s actual results are the performance of the portfolio of investments held by it, the conditions in the U.S. and international financial, petroleum and other markets, the price at which shares of the Company will trade in the public markets and other factors discussed in filings with the SEC.
Proxy Voting Policies
A description of the policies and procedures that the Company uses to determine how to vote proxies relating to portfolio securities owned by the Company and information regarding how the Company voted proxies relating to the portfolio of securities during the 12-month period ended June 30, 2008 are available to stockholders (i) without charge, upon request by calling the Company at (913) 981-1020 or toll-free at (866) 362-9331 and on the Company’s Web site at www.tortoiseadvisors.com; and (ii) on the SEC’s Web site at www.sec.gov.
Form N-Q
The Company files its complete schedule of portfolio holdings for the first and third quarters of each fiscal year with the SEC on Form N-Q. The Company’s Form N-Q is available without charge upon request by calling the Company at (866) 362-9331 or by visiting the SEC’s Web site at www.sec.gov. In addition, you may review and copy the Company’s Form N-Q at the SEC’s Public Reference Room in Washington D.C. You may obtain information on the operation of the Public Reference Room by calling (800) SEC-0330.
The Company’s Form N-Qs are also available on the Company’s Web site at www.tortoiseadvisors.com.
Statement of Additional Information
The Statement of Additional Information (“SAI”) includes additional information about the Company’s directors and is available upon request without charge by calling the Company at (866) 362-9331 or by visiting the SEC’s Web site at www.sec.gov.
Certifications
The Company’s Chief Executive Officer has submitted to the New York Stock Exchange in 2009 the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual.
The Company has filed with the SEC, as an exhibit to its most recently filed N-CSR, the certification of its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act.
Privacy Policy
In order to conduct its business, the Company collects and maintains certain nonpublic personal information about its stockholders of record with respect to their transactions in shares of the Company’s securities. This information includes the stockholder’s address, tax identification or Social Security number, share balances, and distribution elections. We do not collect or maintain personal information about stockholders whose share balances of our securities are held in “street name” by a financial institution such as a bank or broker.
We do not disclose any nonpublic personal information about you, the Company’s other stockholders or the Company’s former stockholders to third parties unless necessary to process a transaction, service an account, or as otherwise permitted by law.
To protect your personal information internally, we restrict access to nonpublic personal information about the Company’s stockholders to those employees who need to know that information to provide services to our stockholders. We also maintain certain other safeguards to protect your nonpublic personal information.
16 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. Terry Matlack
Tortoise Capital Advisors, L.L.C. Conrad S. Ciccotello
Independent John R. Graham
Independent Charles E. Heath
Independent | ADMINISTRATOR
U.S. Bancorp Fund Services, LLC
615 East Michigan St.
Milwaukee, Wis. 53202 CUSTODIAN
U.S. Bank, N.A.
1555 North Rivercenter Drive, Suite 302
Milwaukee, Wis. 53212 TRANSFER, DIVIDEND DISBURSING
AND REINVESTMENT AGENT
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, R.I. 02940-3078
(312) 588-4990
www.computershare.com Legal Counsel
Husch Blackwell Sanders LLP
4801 Main St.
Kansas City, Mo. 64112 INVESTOR RELATIONS
(866) 362-9331
info@tortoiseadvisors.com STOCK SYMBOL
Listed NYSE Symbol: TYY This report is for stockholder information. This is not a prospectus intended for use in the purchase or sale of fund shares. Past performance is no guarantee of future results and your investment may be worth more or less at the time you sell. |
| Tortoise Capital Advisors’ Public Investment Companies |
| |
| | | | | Total Assets |
| | Ticker/ | Primary Target | Investor | as of 6/30/09 |
| Name | Inception Date | Investments | Suitability | ($ in millions) |
| |
| Tortoise Energy Capital Corp. | TYY | U.S. Energy Infrastructure | Retirement Accounts | $485 |
| | May 2005 | | Pension Plans | |
| | | | Taxable Accounts | |
| | | | | |
| |
| Tortoise Energy Infrastructure Corp. | TYG | U.S. Energy Infrastructure | Retirement Accounts | $834 |
| | Feb. 2004 | | Pension Plans | |
| | | | Taxable Accounts | |
| |
| | | | | |
| Tortoise North American Energy Corp. | TYN | U.S. Energy Infrastructure | Retirement Accounts | $91 |
| | Oct. 2005 | | Pension Plans | |
| | | | Taxable Accounts | |
| | | | | |
| |
| Tortoise Capital Resources Corp. | TTO | U.S. Energy Infrastructure | Retirement Accounts | $101 |
| | Dec. 2005 | Private and Micro Cap | Pension Plans | (as of 5/31/09) |
| | (Feb. 2007 – IPO) | Public Companies | Taxable Accounts | |
| | | | | |
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. Schedule of Investments.
Schedule of Investments is included as part of the report to shareholders filed under Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable for semi-annual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
There have been no changes in the portfolio managers identified in response to this Item in the Registrant’s most recent annual report on Form N-CSR.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
| Period | (a)
Total Number of
Shares (or Units)
Purchased | (b)
Average Price Paid
per Share (or Unit) | (c)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs | (d)
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet
Be Purchased Under
the Plans or Programs |
| Month #1 | 0 | 0 | 0 | 0 |
| 12/1/08-12/31/08 | | | | |
| Month #2 | 0 | 0 | 0 | 0 |
| 1/1/09-1/31/09 | | | | |
| Month #3 | 0 | 0 | 0 | 0 |
| 2/1/09-2/28/09 | | | | |
| Month #4 | 0 | 0 | 0 | 0 |
| 3/1/09-3/31/09 | | | | |
| Month #5 | 0 | 0 | 0 | 0 |
| 4/1/09-4/30/09 | | | | |
| Month #6 | 0 | 0 | 0 | 0 |
| 5/1/09-5/31/09 | | | | |
| Total | 0 | 0 | 0 | 0 |
Item 10. Submission of Matters to a Vote of Security Holders.
None.
Item 11. Controls and Procedures.
(a) The Registrant’s President and Chief Executive Officer and its Chief Financial Officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended.
(b) There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under 1940 Act) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the Registrant intends to satisfy Item 2 requirements through filing of an exhibit. Not applicable.
(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the Registrant to 10 or more persons. None.
(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) | | Tortoise Energy Capital Corporation |
| |
| By (Signature and Title) | | /s/ David J. Schulte |
| | | David J. Schulte, President and Chief Executive Officer |
Date: July 16, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| By (Signature and Title) | | /s/ David J. Schulte |
| | | David J. Schulte, President and Chief Executive Officer |
Date: July 16, 2009
| By (Signature and Title) | | /s/ Terry Matlack |
| | | Terry Matlack, Chief Financial Officer |
Date: July 16, 2009
