Tortoise Energy Infrastructure Corp. N-30B-2
Company at a Glance
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A pioneering closed-end investment company investing primarily in equity
securities of Master Limited Partnerships (MLPs) operating energy infrastructure
assets |
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Objectives: Yield, Growth, Quality |
About Master Limited
Partnerships
MLPs are limited
partnerships whose units trade on public exchanges such as the New York Stock
Exchange (NYSE), the American Stock Exchange (AMEX) and NASDAQ. Buying MLP units
makes an investor a limited partner in the MLP. There are currently more than 50
MLPs in the market, mostly in industries related to energy, natural resources
and real estate.
Investment Objectives:
Yield, Growth and Quality
Tortoise Energy
invests primarily in MLPs in the energy infrastructure sector. Our goal is to
provide our stockholders with a high level of total return with an emphasis on
current distributions paid to stockholders. Energy infrastructure MLPs are
engaged in the transportation, storage and processing of crude oil, natural gas,
and refined products from production points to the end users. Our investments
are primarily in mid-stream (mostly pipeline) operations, which 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 dividend stream for our
investors.
Tortoise Energy Investment
Versus a Direct Investment in MLPs
Tortoise Energy
provides its stockholders with an efficient alternative to investing directly in
MLPs. A direct investment in an MLP offers the opportunity to receive an
attractive distribution that is approximately 80 percent tax deferred, with 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. Tortoise Energy is structured as
a C Corporation accruing federal and state income taxes, based on taxable
earnings and profits. Because of this innovative structure, pioneered by
Tortoise Capital Advisors, institutions and retirement accounts are able to join
individual stockholders as investors in MLPs.
Additional features
of Tortoise Energy include:
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One Form 1099 per stockholder at the end of the year, thus avoiding multiple
K-1s and multiple state filings for individual partnership investments; |
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A professional management team, with nearly 100 years combined investment
experience, to select and manage the portfolio on your behalf; |
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The ability to access investment grade credit markets to enhance the dividend
rate; and |
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Access to direct placements and other investments not available through the
public markets. |
October 20, 2006
Dear
Stockholders,
We are pleased to
submit the Tortoise Energy Infrastructure Corp. (Tortoise Energy) report for the
quarter ended August 31, 2006.
Performance Review
On August 4, 2006, we
declared a $0.51 per share dividend. This is the companys seventh
consecutive dividend increase since full investment of the initial public
offering proceeds, and represents a 13 percent increase over the same quarter of
the prior year, and a 2 percent increase over the prior quarter. This dividend
represented a 6.7 percent yield based on the closing price of $30.62 on August
31, 2006. We expect that a significant portion of dividends paid in 2006 will be
treated as return of capital for income tax purposes.
For the nine months
ending, August 31, 2006, Tortoise Energy had generated a total return of 12.3
percent based on market value, which includes the reinvestment of quarterly
dividends.
Investment Review
On August 7, 2006,
Tortoise Energy completed a $50 million public offering of common stock. The
proceeds of this offering were used primarily to repay $41 million of
outstanding debt under a revolving credit facility, put into place to provide
temporary funding for direct placement investments. Direct placements are
institutionally placed investments in publicly-traded Master Limited
Partnerships (MLPs). MLPs use this financing to fund internal growth projects
and acquisitions and to provide sponsor liquidity.
In the past quarter,
we completed three direct placement investments totalling just under $40
million. In June, we acquired subordinated units of Crosstex Energy, L.P. which
used the proceeds to help finance the acquisition of natural gas and processing
assets. In July, we acquired common units of Plains All American Pipeline, L.P.
which used the proceeds to help fund a portion of two acquisitions, to repay
outstanding debt under its revolving credit facility and for general partnership
purposes. In August, we acquired common units of MarkWest Energy Partners, L.P.
from an institutional investor.
Master Limited Partnership
Investment Overview and Outlook
The MLP market
continues to produce strong results, with MLP market capitalization of
approximately $85 billion at August 31, 2006. Operating performance during the
quarter resulted in approximately 75 percent of our MLP companies increasing
their distributions.
The majority of our
MLP holdings reported results during the quarter that met or exceeded our
expectations. We believe our high quality portfolio, which is anchored with
securities of MLPs generally owning low risk refined product pipelines, is
well-positioned to continue benefiting from growing energy demand, internal
growth projects and acquisitions.
As we mentioned in
our semi-annual report, MLP revenue is primarily based upon volumes, which are
expected to increase. The Energy Information Administration projects an average
annual growth rate of one percent for U.S. consumption of natural gas and
petroleum over the next 25 years. We continue to monitor the impact of rising
interest rates on our borrowing costs, and the impact that high oil and natural
gas prices may have on demand.
2006 3rd Quarter Report |
1 |
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Between 2006 and
2010, MLPs are expected to invest more than $17 billion on internal growth
projects such as construction of new pipelines and storage tanks, as well as
expanding existing facilities. The financing of these projects through debt and
equity offerings could create short-term price volatility as investors digest
the increased supply of offerings. Over the long-term we expect these projects
to contribute to growth of our dividends.
Acquisition activity
through August 31, 2006 remains strong with more than $6 billion of mainly
natural gas assets entering the MLP sector. We believe acquisitions will also
drive future distribution growth since MLPs currently own less than 50 percent
of the refined product, crude oil, and natural gas assets in the United States.
Based upon our
current portfolio, we expect fourth quarter distribution growth from our
holdings of approximately 2 percent and long-term distribution growth of at
least 4 percent per annum.
Conclusion
In summary, a TYG
investment offers investors the potential for attractive returns through a
combination of a high current yield and distribution growth,
generated from a portfolio of quality investments in energy
infrastructure assets. When compared to similar investment alternatives like
REITs and utilities, we believe a TYG investment offers superior returns with
less risk.
Thank you for
entrusting your investment to Tortoise Capital Advisors. As always, we will
strive to deliver a rewarding return.
Sincerely,
The Managing Directors
Tortoise Capital Advisors, L.L.C.
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H. Kevin Birzer |
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Zachary A. Hamel |
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Kenneth P. Malvey |
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Terry Matlack |
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David J. Schulte |
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...Steady Wins
2 |
Tortoise Energy Infrastructure Corp. |
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Summary
Financial Information (Unaudited)
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Nine Months Ended August 31, 2006
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Market value per share |
|
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$ |
30.62 |
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Net asset value per share |
|
|
|
29.59 |
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Total net assets |
|
|
|
492,865,830 |
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Unrealized
appreciation of investments (excluding interest rate swap contracts) before deferred taxes |
|
|
|
102,168,111 |
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Unrealized
appreciation of investments and interest rate swap contracts after deferred taxes |
|
|
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63,808,323 |
|
Net investment loss |
|
|
|
(4,113,368 |
) |
Total realized gain after deferred taxes |
|
|
|
4,700,230 |
|
Total return (based on market value) |
|
|
|
12.25 |
% |
Net
operating expenses before leverage costs and taxes as a percent of average total
assets(1) |
|
|
|
0.97 |
% |
Distributable cash flow as a percent of average net
assets(2) |
|
|
|
7.56 |
% |
(1) |
Annualized.
Represents expenses after fee reimbursement. |
(2) |
Annualized.
See Key Financial Data which illustrates the calculation of distributable cash flow. |
Allocation of Portfolio AssetsAugust 31, 2006 (Unaudited)
(Percentages based on total investment portfolio)
2006 3rd Quarter Report |
3 |
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Key Financial Data (Unaudited)
(dollar amounts in thousands unless otherwise indicated)
|
2005
|
|
|
Q3(1)
|
|
Total Distributions Received from Investments |
|
|
|
|
|
Distributions received from master limited partnerships |
|
|
$ |
9,840 |
|
Dividends paid in stock |
|
|
|
1,154 |
|
Dividends from common stock |
|
|
|
24 |
|
Short-term interest and dividend Income |
|
|
|
258 |
|
|
|
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Total from investments |
|
|
|
11,276 |
|
Operating Expenses Before Leverage Costs and Current Taxes |
|
|
Advisory fees, net of reimbursement |
|
|
|
1,294 |
|
Other operating expenses |
|
|
|
398 |
|
|
|
|
|
|
|
|
1,692 |
|
|
|
|
Distributable cash flow before leverage costs and current taxes |
|
|
|
9,584 |
|
Leverage Costs(2) |
|
|
|
2,263 |
|
Current income tax expense |
|
|
|
|
|
|
|
|
Distributable Cash Flow |
|
|
$ |
7,321 |
|
|
|
|
Dividends paid on common stock |
|
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$ |
6,674 |
|
Dividends paid on common stock per share |
|
|
|
0.450 |
|
Payout percentage for period(3) |
|
|
|
91.2 |
% |
Total assets, end of period |
|
|
|
746,797 |
|
Average total assets during period(4) |
|
|
|
713,072 |
|
Leverage (Tortoise Notes and Preferred Stock) |
|
|
|
235,000 |
|
Leverage as a percent of total assets |
|
|
|
31.47 |
% |
Unrealized appreciation net of deferred taxes, end of period |
|
|
|
108,388 |
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Net assets, end of period |
|
|
|
432,553 |
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Average net assets during period(5) |
|
|
|
432,245 |
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Net asset value per common share |
|
|
|
29.16 |
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Market value per share |
|
|
|
32.10 |
|
Shares outstanding |
|
|
|
14,832 |
|
Selected Operating Ratios(6) |
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|
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As a Percent of Average Total Assets |
|
|
Total distributions received from investments |
|
|
|
6.27 |
% |
Operating expenses before leverage costs and current taxes |
|
|
|
0.94 |
% |
Distributable cash flow before leverage costs and current taxes |
|
|
|
5.33 |
% |
As a Percent of Average Net Assets |
|
|
Distributable cash flow |
|
|
|
6.72 |
% |
(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, auction agent fee, interest rate swap expenses
and preferred dividends. |
(3) |
Dividends paid as a percentage of Distributable Cash Flow. |
(4) |
Computed by averaging month-end values within each period. |
(5) |
Computed by averaging daily values for the period. |
4 |
Tortoise Energy Infrastructure Corp. |
|
2005
|
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2006
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Q4(1) |
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Q1(1) |
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Q2(1) |
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Q3(1) |
|
|
|
|
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$ |
10,188 |
|
$ |
10,601 |
|
$ |
11,074 |
|
$ |
11,715 |
|
|
1,197 |
|
|
1,242 |
|
|
1,186 |
|
|
1,689 |
|
|
26 |
|
|
31 |
|
|
32 |
|
|
34 |
|
|
218 |
|
|
197 |
|
|
199 |
|
|
194 |
|
|
|
|
|
|
|
|
|
|
11,629 |
|
|
12,071 |
|
|
12,491 |
|
|
13,632 |
|
|
1,300 |
|
|
1,248 |
|
|
1,550 |
|
|
1,660 |
|
|
397 |
|
|
343 |
|
|
310 |
|
|
321 |
|
|
|
|
|
|
|
|
|
|
1,697 |
|
|
1,591 |
|
|
1,860 |
|
|
1,981 |
|
|
|
|
|
|
|
|
|
|
9,932 |
|
|
10,480 |
|
|
10,631 |
|
|
11,651 |
|
|
2,488 |
|
|
2,661 |
|
|
2,723 |
|
|
2,864 |
|
|
214 |
|
|
59 |
|
|
137 |
|
|
138 |
|
|
|
|
|
|
|
|
|
$ |
7,230 |
|
$ |
7,760 |
|
$ |
7,771 |
|
$ |
8,649 |
|
|
|
|
|
|
|
|
|
$ |
6,764 |
|
$ |
7,155 |
|
$ |
7,472 |
|
$ |
8,494 |
|
|
0.455 |
|
|
0.480 |
|
|
0.500 |
|
|
0.510 |
|
|
93.6 |
% |
|
92.2 |
% |
|
96.2 |
% |
|
98.2 |
% |
|
695,978 |
|
|
718,266 |
|
|
758,684 |
|
|
835,250 |
|
|
725,506 |
|
|
704,996 |
|
|
735,142 |
|
|
786,791 |
|
|
235,000 |
|
|
235,000 |
|
|
235,000 |
|
|
235,000 |
|
|
33.77 |
% |
|
32.72 |
% |
|
30.97 |
% |
|
28.14 |
% |
|
84,456 |
|
|
99,072 |
|
|
129,299 |
|
|
148,264 |
|
|
404,274 |
|
|
410,642 |
|
|
432,077 |
|
|
492,866 |
|
|
421,244 |
|
|
411,181 |
|
|
419,521 |
|
|
446,196 |
|
|
27.12 |
|
|
27.55 |
|
|
28.91 |
|
|
29.59 |
|
|
28.72 |
|
|
29.42 |
|
|
28.75 |
|
|
30.62 |
|
|
14,906 |
|
|
14,906 |
|
|
14,944 |
|
|
16,655 |
|
|
|
|
|
|
6.43 |
% |
|
6.94 |
% |
|
6.74 |
% |
|
6.87 |
% |
|
0.94 |
% |
|
0.92 |
% |
|
1.00 |
% |
|
1.00 |
% |
|
5.49 |
% |
|
6.02 |
% |
|
5.74 |
% |
|
5.87 |
% |
|
6.88 |
% |
|
7.65 |
% |
|
7.35 |
% |
|
7.69 |
% |
2006 3rd Quarter Report |
5 |
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Managements
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
Energys goal is to provide a growing dividend stream to our investors, and
when combined with MLP growth prospects, the investment offers the opportunity
for an attractive total return. 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 dividends 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. Our private finance activity principally involves
providing financing directly to an MLP through private placement equity
investments. Our private financing is generally used to fund growth,
acquisitions, recapitalizations, debt repayments and bridge financings. We
generally invest in companies that are publicly reporting, but for which a
private financing offers advantages.
During the quarter we
issued 1,675,050 shares of common stock with net proceeds of approximately $48
million. Proceeds from the common stock offering were used to retire short-term
debt of approximately $41 million which we incurred in connection with the
acquisition of equity securities and certain open market purchases in pursuit of
our investment objective and policies. The remainder of the proceeds will be
invested in energy infrastructure companies in accordance with our investment
objective and policies.
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 and certain revenue recognition matters.
Note 2 in the Notes
to Financial Statements included in this report discloses the significant
accounting policies of Tortoise Energy.
Determining Dividends
Distributed to Stockholders
Our portfolio
generates cash flow from which we pay dividends to stockholders. We pay
dividends out of our distributable cash flow (DCF), which is simply
distributions received from investments
6 |
Tortoise Energy Infrastructure Corp. |
|
Managements
Discussion
(Continued)
less our total
expenses. The total distributions received from our investments includes 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 on our operating income. Each are summarized for you in the table on pages
4 and 5 and are discussed in more detail below. We intend to reinvest the
after-tax proceeds of sales of investments in order to maintain and grow our
dividend rate.
Our Board of
Directors reviews the dividend rate quarterly, and may adjust the quarterly
dividend throughout the year. Our goal is to declare what we believe to be
sustainable increases in our regular quarterly dividends. We have targeted to
pay at least 95 percent of DCF on an annualized basis.
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 our
dividend 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 with an increasing demand for services from economic and population growth.
We utilize our disciplined investment process to select well-managed businesses
with real, 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 achieve a dividend yield equivalent to a direct investment 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 will outpace
interest rate increases and produce positive returns.
Total distributions
received from our investments relating to DCF for 3rd quarter 2006 was
approximately $13.6 million, representing a 20.9 percent increase as compared to
3rd quarter 2005 and a 9.1 percent increase over 2nd quarter 2006. These
increases reflect approximately $800,000 in earnings on the investment of a
majority of the net proceeds from our $50 million common stock offering
completed during the current quarter, in addition to continuing distribution
increases from a majority of our MLP investments. In addition, total
distributions received from investments represented 6.87 percent of average
total assets for the 3rd quarter 2006, an increase from 6.27 percent at 3rd
quarter 2005 and 6.74 percent at 2nd quarter 2006.
Expenses
We incur two types of
expenses: (1) operating expenses, consisting primarily of the advisory fee; and
(2) leverage costs. On a percentage basis, net operating expenses before
leverage costs were an annualized 1.00 percent of average total assets for the
3rd quarter 2006, as compared to 0.94 percent and 1.00 percent for the 3rd
quarter 2005 and 2nd quarter 2006, respectively. Operating expenses before
leverage costs and current taxes for 3rd quarter 2006 increased 17.1 percent or
$289,000 over 3rd quarter 2005, as a result of increased advisory fees. Advisory
fees increased because of growth in average total assets, including the common
stock offering, and from the impact of the contractual reduction in reimbursed
advisory fees from 0.23 percent of managed assets to 0.10 percent which took
effect March 1, 2006. The reimbursement will continue until 2009. Operating
expenses increased 6.5 percent or $121,000 for 3rd quarter 2006 as compared to
2nd quarter 2006, as a result of increased advisory fees, again from increased
average total
2006 3rd Quarter Report |
7 |
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Managements
Discussion
(Continued)
assets during the 3rd
quarter 2006. Other operating expenses decreased 19.3 percent from 3rd quarter
2005 reflecting lower variable costs and general operating efficiencies realized
during the period. Other operating expenses increased 3.5 percent or $11,000 for
3rd quarter 2006 as compared to 2nd quarter 2006.
Leverage costs
consist of four major components: (1) the direct interest expense, which will
vary from period to period as all of our Tortoise Notes and revolving credit
line have variable rates of interest; (2) the auction agent fees, which are the
marketing costs for the variable rate leverage; (3) the realized gain or loss on
our swap arrangements; and (4) our preferred dividends, which also carry a
variable rate dividend. We have locked-in all of our cost of long-term leverage
through interest rate swap agreements, converting our variable rate obligations
to fixed rate obligations for the term of the swap agreements. With very little
short-term interest rate risk in Tortoise Energy, we now have an all-in weighted
average cost of leverage of 4.52 percent. Details of our interest rate swap
contracts are disclosed in Note 10 of our Notes to Financial Statements.
As indicated in Note
10, Tortoise Energy has agreed to pay U.S. Bank a fixed rate while receiving a
floating rate based upon the 1 month U.S. Dollar London Interbank Offered Rate
(LIBOR). LIBOR is the primary global benchmark or reference rate for
short-term interest rates and is intended to approximate our variable rate
payment obligations. The spread between the fixed rate and floating LIBOR rate
is reflected in our statement of operations as a realized gain when the LIBOR
rate exceeds the fixed rate (U.S. Bank pays Tortoise Energy the net difference)
or loss when the fixed rate exceeds the LIBOR rate (Tortoise Energy pays U.S.
Bank the net difference). Our spread to LIBOR has usually been between a
negative 4 basis points (-0.04 percent) and positive 6 basis points (0.06
percent).
Leverage costs were
$2.9 million in 3rd quarter 2006 as compared to $2.3 million in 3rd quarter
2005, due to the full implementation of the swap agreements and interest expense
associated with a short-term line of credit utilized in the current quarter.
Distributable Cash Flow
For 3rd quarter 2006
our DCF was $8.6 million, an increase of $1.3 million or 18.1 percent as
compared to 3rd quarter 2005 and $878,000 or 11.3 percent as compared to 2nd
quarter 2006. These increases are the result of growth in distributions received
and earnings on the investment of a majority of the net proceeds from our $50
million common stock offering completed during the current quarter. Current
income tax expense reflects estimated Canadian taxes payable by Tortoise Energy
on Canadian income allocated to the company. At this time, we do not expect any
material variance in our 4th quarter taxes from 3rd quarter. We paid a dividend
of $8.5 million, or 98.2 percent of DCF during the quarter. On a per share
basis, the fund declared a $0.51 dividend on August 4, 2006, for an annualized
run-rate of $2.04. This is an increase of 13.3 percent over the 3rd quarter 2005
dividend and a 2 percent increase as compared to the 2nd quarter 2006 dividend
of $0.50. With the growth in distributions from the MLPs in which we invest, we
expect the dividend to continue to grow at least 4 percent annually.
Taxation of our
Distributions
We invest in
partnerships which 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 on our books. Dividends declared and
paid by Tortoise Energy in a year generally differ from taxable income for that
year, as such dividends may include the distribution of current year taxable
income or returns of capital.
8 |
Tortoise Energy Infrastructure Corp. |
|
Managements
Discussion
(Continued)
The taxability of the
dividend you receive depends on whether Tortoise Energy has annual earnings and
profits. If so, those earnings and profits are first allocated to the preferred
shares, and then to the common shares. Because most of the distributions we have
received from MLPs are not income for tax purposes, we currently have very
little income to offset against our expenses.
In the future,
however, Tortoise Energy could have earnings and profits. That would make our
dividend like any other corporate dividend and taxable at the 15 percent
qualified dividend rate. Our dividend would include a taxable component for
either of two reasons: first, the tax characterization of the distributions we
receive from MLPs could change and become less return of capital and more in the
form of income. Second, and most likely, we could sell an MLP investment in
which Tortoise Energy has a gain. The unrealized gain we have in the portfolio
is reflected in the Statement of Assets and Liabilities. Tortoise Energys
investments at value are $818.2 million, with a cost basis of $580.2 million.
The $238 million difference is gain that would be recognized if those
investments were sold at those values. A sale could give rise to earnings and
profits in that period and make the distributions taxable qualified dividends.
Note, however, that the Statement of Assets and Liabilities reflects as a
deferred tax liability the possible future tax liability we would pay if all
investments were liquidated at their indicated value. It is for these two
reasons that we inform you of the tax treatment after the close of each year
because both of these items are unpredictable until the year is over. We
currently expect that our estimated annual taxable income for 2006 will be less
than 20 percent of our estimated dividend distributions to shareholders in 2006,
although the ultimate determination will not be made until January 2007.
Liquidity and Capital
Resources
Tortoise Energy had
total assets of $835 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 other receivables and any expenses that may have
been prepaid from time to time. During 3rd quarter 2006, total assets grew from
$759 million to $835 million, an increase of 10 percent. This change was
primarily the result of an increase in unrealized appreciation of investments of
approximately $31 million and utilization of $50 million of our $125 million
shelf registration to issue 1,675,050 shares of common stock. The offering had
net proceeds of approximately $48 million.
As a result of the
common equity issuance, total leverage outstanding of $235 million represented
28 percent of total assets at August 31, 2006, as compared to 31 percent at May
31, 2006. Our long-term target for leverage remains approximately 33 percent of
total assets.
Our Board of
Directors recently approved a policy permitting temporary increases in the
amount of leverage from 33 percent to 38 percent of total assets at the time of
incurrence, to allow participation in investment opportunities. The policy
requires leverage to be within the limits set forth in the 1940 Act (300 percent
and 200 percent asset coverage for debt and preferred, respectively) and
indicates that leverage will be reduced to our long-term target over time in an
orderly fashion from portfolio sales and/or an equity offering.
The Company has
entered into a $60 million credit facility with U.S. Bank, N.A. maturing June
13, 2007. The credit facility has a variable annual interest rate equal to the
one-month LIBOR rate plus 0.75 percent. Proceeds from the credit facility are
primarily used to facilitate private placement equity investments. At August 31,
2006, we had no outstanding borrowing under the facility.
2006 3rd Quarter Report |
9 |
|
Schedule
of Investments (Unaudited)
|
August 31, 2006 |
|
|
|
|
|
Shares |
|
Value |
|
|
|
|
Common Stock 0.2%(1) |
|
|
|
|
|
|
|
|
Natural Gas Gathering/Processing 0.2%(1) |
|
|
|
|
|
|
|
|
Crosstex Energy, Inc. (Cost $452,775) |
|
|
|
11,206 |
|
$ |
1,033,193 |
|
|
|
|
Master Limited Partnerships and Related Companies 163.2%(1) |
|
|
|
|
|
|
|
|
Crude/Refined Products Pipelines 91.4%(1) |
|
|
|
|
|
|
|
|
Buckeye Partners, L.P. |
|
|
|
567,102 |
|
|
24,600,885 |
|
Enbridge Energy Partners, L.P. |
|
|
|
904,000 |
|
|
43,825,920 |
|
Holly Energy Partners, L.P. |
|
|
|
427,070 |
|
|
16,442,195 |
|
Kinder Morgan Management, LLC(3) |
|
|
|
1,518,992 |
|
|
64,116,652 |
|
Magellan Midstream Partners, L.P. |
|
|
|
2,190,213 |
|
|
80,709,349 |
|
Pacific Energy Partners, L.P. |
|
|
|
981,700 |
|
|
34,300,598 |
|
Plains All American Pipeline, L.P. |
|
|
|
1,335,115 |
|
|
61,415,290 |
|
Plains All American Pipeline, L.P.(2) |
|
|
|
279,070 |
|
|
12,320,940 |
|
Sunoco Logistics Partners, L.P. |
|
|
|
934,625 |
|
|
41,964,663 |
|
TEPPCO Partners, L.P. |
|
|
|
822,320 |
|
|
30,779,438 |
|
Valero, L.P. |
|
|
|
776,339 |
|
|
40,121,200 |
|
|
|
|
|
|
|
|
|
|
|
450,597,130 |
|
|
|
|
Natural Gas/Natural Gas Liquid Pipelines 15.0%(1) |
|
|
|
|
|
|
|
|
Enterprise GP Holdings, L.P. |
|
|
|
71,400 |
|
|
2,534,700 |
|
Enterprise Products Partners, L.P. |
|
|
|
2,248,940 |
|
|
60,204,124 |
|
ONEOK Partners, L.P. |
|
|
|
203,005 |
|
|
11,291,138 |
|
|
|
|
|
|
|
|
|
|
|
74,029,962 |
|
|
|
|
Natural Gas Gathering/Processing 41.4%(1) |
|
|
|
|
|
|
|
|
Copano Energy, LLC |
|
|
|
592,448 |
|
|
30,795,447 |
|
Crosstex Energy, L.P. |
|
|
|
268,587 |
|
|
9,798,054 |
|
Crosstex Energy, L.P.(2)(7) |
|
|
|
712,760 |
|
|
21,511,097 |
|
Energy Transfer Partners, L.P. |
|
|
|
1,722,250 |
|
|
82,099,657 |
|
Hiland Partners, L.P. |
|
|
|
36,548 |
|
|
1,662,934 |
|
MarkWest Energy Partners, L.P. |
|
|
|
1,016,877 |
|
|
48,698,240 |
|
Williams Partners, L.P. |
|
|
|
265,480 |
|
|
9,512,148 |
|
|
|
|
|
|
|
|
|
|
|
204,077,577 |
|
|
|
|
Shipping 4.3%(1) |
|
|
|
|
|
|
|
|
K-Sea Transportation Partners, L.P. |
|
|
|
571,300 |
|
|
18,852,900 |
|
Teekay LNG Partners, L.P. |
|
|
|
67,200 |
|
|
2,036,160 |
|
|
|
|
|
|
|
|
|
|
|
20,889,060 |
|
|
|
|
10 |
Tortoise Energy Infrastructure Corp. |
|
Schedule of Investments (Unaudited)
(Continued)
|
August 31, 2006 |
|
|
|
|
|
Shares |
|
Value |
|
|
|
|
Propane Distribution 11.1%(1) |
|
|
|
|
|
|
|
|
Inergy, L.P. |
|
|
|
1,916,784 |
|
$ |
52,692,392 |
|
Inergy Holdings, L.P. |
|
|
|
61,761 |
|
|
2,154,841 |
|
|
|
|
|
|
|
|
|
|
|
54,847,233 |
|
|
|
|
Total Master Limited Partnerships and Related Companies (Cost $566,929,544) |
|
|
|
|
|
|
804,440,962 |
|
|
|
|
Promissory Note 1.1% (1) |
|
|
Principal Amount
|
|
|
|
|
Shipping 1.1%(1) |
|
|
|
|
|
|
|
|
E.W. Transportation, LLC Unregistered, 8.96%, Due 3/31/2009 (Cost $5,539,394)(2)(4) |
|
|
$ |
5,588,534 |
|
|
5,539,394 |
|
|
|
|
Short-Term Investments 1.5% (1) |
|
|
Shares
|
|
|
|
|
|
Investment Company 1.5%(1) |
|
|
|
|
|
|
|
|
First American Prime Obligations Money Market Fund Class Z, 5.29%(5) (Cost $7,234,563) |
|
|
|
7,234,563 |
|
|
7,234,563 |
|
|
|
|
Total Investments 166.0% (1) |
|
|
|
|
|
|
|
|
(Cost $580,156,276) |
|
|
|
|
|
|
818,248,112 |
|
Auction Rate Senior Notes (33.5%) (1) |
|
|
|
|
|
|
(165,000,000 |
) |
Interest Rate Swap Contracts 1.1%(1) |
|
|
|
|
|
|
|
|
$345,000,000 notional Unrealized Appreciation(6) |
|
|
|
|
|
|
5,341,681 |
|
Liabilities in Excess of Cash and Other Assets (19.4%) (1) |
|
|
|
|
|
|
(95,723,963 |
) |
Preferred Shares at Redemption Value (14.2%) (1) |
|
|
|
|
|
|
(70,000,000 |
) |
|
|
|
Total Net Assets Applicable to Common Stockholders 100.0% (1) |
|
|
|
|
|
$ |
492,865,830 |
|
|
|
|
(1) |
Calculated
as a percentage of net assets applicable to common stockholders. |
(2) |
Fair
valued securities represent a total market value of $39,371,431 which represents 8.0% of
net assets. These securities are deemed to be restricted; see Note 6 to the financial
statements for further disclosure. |
(3) |
Security
distributions are paid in kind. Related company of master limited partnership. |
(4) |
Security
is a variable rate instrument. Interest rate is as of August 31, 2006. |
(5) |
Rate
indicated is the 7-day effective yield. |
(6) |
See
Note 10 to the financial statements for further disclosure. |
(7) |
Non-income producing. |
See Accompanying Notes to the
Financial Statements.
2006 3rd Quarter Report |
11 |
|
Statement
of Assets & Liabilities (Unaudited)
|
August 31, 2006
|
|
Assets |
|
|
|
|
|
Investments at value (cost $580,156,276) |
|
|
$ |
818,248,112 |
|
Cash |
|
|
|
7,740,296 |
|
Receivable for Adviser reimbursement |
|
|
|
134,468 |
|
Receivable for investments sold |
|
|
|
1,296,905 |
|
Interest and dividend receivable |
|
|
|
55,535 |
|
Unrealized appreciation on interest rate swap contracts |
|
|
|
5,341,681 |
|
Prepaid expenses and other assets |
|
|
|
2,433,481 |
|
|
|
|
Total assets |
|
|
|
835,250,478 |
|
|
|
|
Liabilities |
|
|
Payable to Adviser |
|
|
|
1,277,449 |
|
Payable for investments purchased |
|
|
|
757,596 |
|
Dividend payable on common shares |
|
|
|
8,494,140 |
|
Dividend payable on preferred shares |
|
|
|
176,578 |
|
Accrued expenses and other liabilities |
|
|
|
560,074 |
|
Current tax liability |
|
|
|
169,475 |
|
Deferred tax liability |
|
|
|
95,949,336 |
|
Auction rate senior notes payable: |
|
|
Series A, due July 15, 2044 |
|
|
|
60,000,000 |
|
Series B, due July 15, 2044 |
|
|
|
50,000,000 |
|
Series C, due April 10, 2045 |
|
|
|
55,000,000 |
|
Total liabilities |
|
|
|
272,384,648 |
|
Preferred Shares |
|
|
$25,000 liquidation value per share
applicable to 2,800 outstanding shares (7,500 shares authorized) |
|
|
|
70,000,000 |
|
|
|
|
Net assets applicable to common stockholders |
|
|
$ |
492,865,830 |
|
|
|
|
Net Assets Applicable to Common Stockholders Consist of |
|
|
Capital stock, $0.001 par value; 16,655,177
shares issued and outstanding (100,000,000 shares authorized) |
|
|
$ |
16,655 |
|
Additional paid-in capital |
|
|
|
343,030,099 |
|
Accumulated net investment loss, net of deferred tax benefit |
|
|
|
(7,021,230 |
) |
Undistributed realized gain, net of deferred tax expense |
|
|
|
8,576,216 |
|
Net unrealized gain on investments and interest rate swap contracts, net of deferred tax expense |
|
|
|
148,264,090 |
|
|
|
|
Net assets applicable to common stockholders |
|
|
$ |
492,865,830 |
|
|
|
|
Net Asset Value per common share outstanding
(net assets applicable to common shares, divided by common shares outstanding) |
|
|
$ |
29.59 |
|
|
|
|
See Accompanying Notes to the
Financial Statements.
12 |
Tortoise Energy Infrastructure Corp. |
|
Statement of Operations (Unaudited)
|
Period from December 1, 2005 through August 31, 2006
|
|
Investment Income |
|
|
|
|
|
Distributions received from master limited partnerships |
|
|
$ |
33,390,495 |
|
Less return of capital on distributions |
|
|
|
(28,366,004 |
) |
|
|
|
Distribution income from master limited partnerships |
|
|
|
5,024,491 |
|
Dividends from common stock |
|
|
|
97,034 |
|
Dividends from money market mutual funds |
|
|
|
165,594 |
|
Interest |
|
|
|
424,891 |
|
|
|
|
Total Investment Income |
|
|
|
5,712,010 |
|
|
|
|
Expenses |
|
|
Advisory fees |
|
|
|
5,233,757 |
|
Administrator fees |
|
|
|
360,675 |
|
Professional fees |
|
|
|
214,931 |
|
Reports to stockholders |
|
|
|
96,770 |
|
Directors fees |
|
|
|
88,159 |
|
Custodian fees and expenses |
|
|
|
52,845 |
|
Fund accounting fees |
|
|
|
48,040 |
|
Registration fees |
|
|
|
36,255 |
|
Stock transfer agent fees |
|
|
|
10,631 |
|
Other expenses |
|
|
|
66,131 |
|
|
|
|
Total Expenses before Interest Expense and Auction Agent Fees |
|
|
|
6,208,194 |
|
|
|
|
Interest expense |
|
|
|
6,194,167 |
|
Auction agent fees |
|
|
|
494,999 |
|
|
|
|
Total Interest Expense and Auction Agent Fees |
|
|
|
6,689,166 |
|
|
|
|
Total Expenses |
|
|
|
12,897,360 |
|
|
|
|
Less expense reimbursement by Adviser |
|
|
|
(776,240 |
) |
|
|
|
Net Expenses |
|
|
|
12,121,120 |
|
|
|
|
Net Investment Loss, before Income Taxes |
|
|
|
(6,409,110 |
) |
Current tax expense |
|
|
|
(334,117 |
) |
Deferred tax benefit |
|
|
|
2,629,859 |
|
|
|
|
Income tax benefit |
|
|
|
2,295,742 |
|
|
|
|
Net Investment Loss |
|
|
|
(4,113,368 |
) |
|
|
|
2006 3rd Quarter Report |
14
|
|
Statement of Operations
(Unaudited)
(Continued)
|
Period from December 1, 2005 through August 31, 2006
|
|
Realized and Unrealized Gain on Investments and Interest Rate Swaps |
|
|
|
|
|
Net realized gain on investments |
|
|
$ |
6,876,259 |
|
Net realized gain on interest rate swap settlements |
|
|
|
829,036 |
|
|
|
|
Net realized gain, before deferred tax expense |
|
|
|
7,705,295 |
|
Deferred tax expense |
|
|
|
(3,005,065 |
) |
|
|
|
Net realized gain on investments and interest rate swap settlements |
|
|
|
4,700,230 |
|
Net unrealized appreciation of investments |
|
|
|
102,168,111 |
|
Net unrealized appreciation of interest rate swap contracts |
|
|
|
2,439,165 |
|
|
|
|
Net unrealized appreciation, before deferred tax expense |
|
|
|
104,607,276 |
|
Deferred tax expense |
|
|
|
(40,798,953 |
) |
|
|
|
Net unrealized appreciation of investments and interest rate swap contracts |
|
|
|
63,808,323 |
|
|
|
|
Net Realized and Unrealized Gain on Investments |
|
|
|
68,508,553 |
|
|
|
|
Dividends to Preferred Stockholders |
|
|
|
(2,584,224 |
) |
|
|
|
Net Increase in Net Assets Applicable to Common Stockholders Resulting from Operations |
|
|
$ |
61,810,961 |
|
|
|
|
See Accompanying Notes to the
Financial Statements.
14 |
Tortoise Energy Infrastructure Corp. |
|
Statement
of Changes in Net Assets
|
Period from December 1, 2005 through August 31, 2006
|
|
Year Ended November 30, 2005
|
|
|
(Unaudited) |
|
Operations |
|
|
|
|
|
|
|
|
Net investment loss |
|
|
$ |
(4,113,368 |
) |
$ |
(2,664,574 |
) |
Net realized gain on investments and interest rate swap settlements |
|
|
|
4,700,230 |
|
|
3,910,013 |
|
Net unrealized appreciation of investments and interest rate swap contracts |
|
|
|
63,808,323 |
|
|
36,586,625 |
|
Dividends to preferred stockholders |
|
|
|
(2,584,224 |
) |
|
(1,639,910 |
) |
|
|
|
|
|
Net increase in net assets applicable to common stockholders resulting from operations |
|
|
|
61,810,961 |
|
|
36,192,154 |
|
|
|
|
|
|
Dividends and Distributions to Common Stockholders |
|
|
Net investment income |
|
|
|
|
|
|
|
|
Return of capital |
|
|
|
(23,120,838 |
) |
|
(26,506,341 |
) |
|
|
|
|
|
Total dividends and distributions to common stockholders |
|
|
|
(23,120,838 |
) |
|
(26,506,341 |
) |
|
|
|
|
|
Capital Share Transactions |
|
|
Proceeds from secondary offering of 1,755,027 common shares |
|
|
|
|
|
|
47,999,988 |
|
Proceeds from issuance of 263,254 common shares in connection with exercising an overallotment option granted to underwriters of the secondary offering |
|
|
|
|
|
|
7,199,997 |
|
Proceeds from shelf offering of 1,675,050 common shares |
|
|
|
50,000,243 |
|
|
|
|
Underwriting discounts and offering expenses associated with the issuance of common shares |
|
|
|
(2,202,315 |
) |
|
(2,443,688 |
) |
Underwriting discounts and offering expenses associated with the issuance of preferred shares |
|
|
|
|
|
|
(356,815 |
) |
Issuance of 74,612 and 203,080 common shares from reinvestment of dividend distributions to stockholders, respectively |
|
|
|
2,104,279 |
|
|
5,635,662 |
|
|
|
|
|
|
Net increase in net assets, applicable to common stockholders, from capital share transactions |
|
|
|
49,902,207 |
|
|
58,035,144 |
|
|
|
|
|
|
Total increase in net assets applicable to common stockholders |
|
|
|
88,592,330 |
|
|
67,720,957 |
|
Net Assets |
|
|
Beginning of period |
|
|
|
404,273,500 |
|
|
336,552,543 |
|
|
|
|
|
|
End of period |
|
|
$ |
492,865,830 |
|
$ |
404,273,500 |
|
|
|
|
|
|
Accumulated net investment loss, net of deferred tax benefit, at the end of period |
|
|
$ |
(7,021,230 |
) |
$ |
(2,907,862 |
) |
|
|
|
|
|
See Accompanying Notes to
the Financial Statements.
2006 3rd Quarter Report |
15 |
|
Statement
of Cash Flows (Unaudited)
|
Period from December 1, 2005 through August 31, 2006
|
|
Cash Flows From Operating Activities |
|
|
|
|
|
Distributions received from master limited partnerships |
|
|
$ |
33,390,495 |
|
Interest and dividend income received |
|
|
|
656,624 |
|
Purchases of long-term investments |
|
|
|
(59,805,857 |
) |
Proceeds from sale of long-term investments |
|
|
|
13,550,882 |
|
Purchases of short-term investments, net |
|
|
|
(1,538,148 |
) |
Proceeds from interest rate swap settlements, net |
|
|
|
829,036 |
|
Interest expense paid |
|
|
|
(6,444,675 |
) |
Current tax expense paid |
|
|
|
(377,774 |
) |
Operating expenses paid |
|
|
|
(5,249,846 |
) |
|
|
|
Net cash used in operating activities |
|
|
|
(24,989,263 |
) |
|
|
|
Cash Flows From Financing Activities |
|
|
Advances from revolving line of credit |
|
|
|
40,720,000 |
|
Repayments on revolving line of credit |
|
|
|
(40,720,000 |
) |
Proceeds from shelf offering |
|
|
|
50,000,243 |
|
Shelf offering costs |
|
|
|
(2,202,315 |
) |
Dividends paid to common stockholders |
|
|
|
(12,522,419 |
) |
Dividends paid to preferred stockholders |
|
|
|
(2,591,372 |
) |
|
|
|
Net cash provided by financing activities |
|
|
|
32,684,137 |
|
|
|
|
Net increase in cash |
|
|
|
7,694,874 |
|
Cash beginning of period |
|
|
|
45,422 |
|
|
|
|
Cash end of period |
|
|
$ |
7,740,296 |
|
|
|
|
16 |
Tortoise Energy Infrastructure Corp. |
|
Statement
of Cash Flows (Unaudited)
(Continued)
|
Period from December 1, 2005 through August 31, 2006
|
|
Reconciliation of net increase in net assets applicable to
common stockholders resulting from operations to net cash used in operating activities |
|
|
|
|
|
Net increase in net assets applicable to common stockholders resulting from operations |
|
|
$ |
61,810,961 |
|
Adjustments to reconcile net increase in net assets applicable to common stockholders resulting from operations to net cash used in operating activities: |
|
|
Purchases of long-term investments |
|
|
|
(60,563,453 |
) |
Return of capital on distributions received |
|
|
|
28,366,004 |
|
Proceeds from sales of long-term investments |
|
|
|
14,847,787 |
|
Purchases of short-term investments, net |
|
|
|
(1,538,148 |
) |
Deferred income tax expense |
|
|
|
41,174,159 |
|
Net unrealized appreciation of investments and interest rate swap contracts |
|
|
|
(104,607,276 |
) |
Realized gains on investments |
|
|
|
(6,876,259 |
) |
Accretion of discount on investments |
|
|
|
(13,123 |
) |
Amortization of debt issuance costs |
|
|
|
43,224 |
|
Dividends to preferred stockholders |
|
|
|
2,584,224 |
|
Changes in operating assets and liabilities: |
|
|
Increase in interest and dividend receivable |
|
|
|
(17,772 |
) |
Increase in prepaid expenses and other assets |
|
|
|
(63,250 |
) |
Increase in receivable for investments sold |
|
|
|
(1,296,905 |
) |
Decrease in current tax liability |
|
|
|
(44,786 |
) |
Increase in payable to Adviser, net of expense reimbursement |
|
|
|
279,605 |
|
Increase in payable for investments purchased |
|
|
|
757,596 |
|
Increase in accrued expenses and other liabilities |
|
|
|
168,149 |
|
|
|
|
Total adjustments |
|
|
|
(86,800,224 |
) |
|
|
|
Net cash used in operating activities |
|
|
$ |
(24,989,263 |
) |
|
|
|
Non-Cash Financing Activities |
|
|
Reinvestment of distributions by common stockholders in additional common shares |
|
|
$ |
2,104,279 |
|
|
|
|
See Accompanying Notes to
the Financial Statements.
2006 3rd Quarter Report |
17 |
|
Financial
Highlights
|
Period from December 1, 2005 through August 31, 2006
|
|
|
(Unaudited) |
|
Per Common Share Data(2) |
|
|
|
|
|
Net Asset Value, beginning of period |
|
|
$ |
27.12 |
|
Public offering price |
|
|
|
|
|
Underwriting
discounts and offering costs on initial public offering |
|
|
|
|
|
Underwriting
discounts and offering costs on issuance of preferred shares |
|
|
|
|
|
Premiums
less underwriting discounts and offering costs on secondary offering(3) |
|
|
|
|
|
Underwriting
discounts and offering costs on shelf offering(4) |
|
|
|
(0.15 |
) |
Income (loss) from Investment Operations: |
|
|
Net investment
loss(5) |
|
|
|
(0.23 |
) |
Net realized
and unrealized gain on investments(5) |
|
|
|
4.51 |
|
|
|
|
Total increase from investment operations |
|
|
|
4.28 |
|
|
|
|
Less Dividends to Preferred Stockholders: |
|
|
Net investment income |
|
|
|
|
|
Return of capital |
|
|
|
(0.17 |
) |
|
|
|
Total dividends to preferred stockholders |
|
|
|
(0.17 |
) |
|
|
|
Less Dividends to Common Stockholders: |
|
|
Net investment income |
|
|
|
|
|
Return of capital |
|
|
|
(1.49 |
) |
|
|
|
Total dividends to common stockholders |
|
|
|
(1.49 |
) |
|
|
|
Net Asset Value, end of period |
|
|
$ |
29.59 |
|
|
|
|
Per common share market value, end of period |
|
|
$ |
30.62 |
|
Total Investment Return Based on Market
Value(6) |
|
|
|
12.25 |
% |
Supplemental Data and Ratios |
|
|
Net assets applicable to
common stockholders, end of period (000s) |
|
|
$ |
492,866 |
|
Ratio of expenses (including
current and deferred income tax expense) to average net assets before
waiver:(7)(8)(9) |
|
|
|
17.02 |
% |
Ratio of expenses (including
current and deferred income tax expense) to average net assets after
waiver:(7)(8)(9) |
|
|
|
16.78 |
% |
Ratio of expenses (excluding
current and deferred income tax expense) to average net assets before
waiver:(7)(8)(9)(10) |
|
|
|
4.03 |
% |
Ratio of expenses (excluding
current and deferred income tax expense) to average net assets after
waiver:(7)(8)(9)(10) |
|
|
|
3.79 |
% |
Ratio of expenses
(excluding current and deferred income tax expense), without regard to non-recurring organizational
expenses, to average net assets before waiver:(7)(8)(9)(10) |
|
|
|
4.03 |
% |
Ratio of expenses
(excluding current and deferred income tax expense), without regard to non-recurring organizational
expenses, to average net assets after waiver:(7)(8)(9)(10) |
|
|
|
3.79 |
% |
18 |
Tortoise Energy Infrastructure Corp. |
|
Year Ended November 30, 2005
|
|
Period from February 27, 2004(1)
through
November 30, 2004
|
|
$ |
26.53 |
|
$ |
|
|
|
|
|
|
25.00 |
|
|
|
|
|
(1.17 |
) |
|
(0.02 |
) |
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
(0.16 |
) |
|
(0.03 |
) |
|
2.67 |
|
|
3.77 |
|
|
|
|
|
|
2.51 |
|
|
3.74 |
|
|
|
|
|
|
|
|
|
|
(0.11 |
) |
|
(0.01 |
) |
|
|
|
|
|
(0.11 |
) |
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
(1.79 |
) |
|
(0.97 |
) |
|
|
|
|
|
(1.79 |
) |
|
(0.97 |
) |
|
|
|
|
$ |
27.12 |
|
$ |
26.53 |
|
|
|
|
|
$ |
28.72 |
|
$ |
27.06 |
|
|
13.06 |
% |
|
12.51 |
% |
$ |
404,274 |
|
$ |
336,553 |
|
|
9.10 |
% |
|
15.20 |
% |
|
8.73 |
% |
|
14.92 |
% |
|
3.15 |
% |
|
2.01 |
% |
|
2.78 |
% |
|
1.73 |
% |
|
3.15 |
% |
|
1.90 |
% |
|
2.78 |
% |
|
1.62 |
% |
2006 3rd Quarter Report |
19 |
|
Financial
Highlights (Unaudited)
(Continued)
|
Period from December 1, 2005 through August 31, 2006
|
|
|
(Unaudited) |
|
Ratio
of net investment loss to average net assets before waiver:(7)(8)(10) |
|
|
|
(2.25 |
)% |
Ratio
of net investment loss to average net assets after waiver:(7)(8)(10) |
|
|
|
(2.01 |
)% |
Ratio
of net investment loss to average net assets after current and
deferred income tax expense, before waiver:(7)(8)(9) |
|
|
|
(15.23 |
)% |
Ratio
of net investment loss to average net assets after current
and deferred income tax expense, after waiver:(7)(8)(9) |
|
|
|
(14.99 |
)% |
Portfolio turnover rate(7) |
|
|
|
2.72 |
% |
Tortoise Auction Rate Senior Notes, end of period (000s) |
|
|
$ |
165,000 |
|
Tortoise Preferred Shares, end of period (000s) |
|
|
$ |
70,000 |
|
Per
common share amount of auction rate senior notes outstanding at end of period |
|
|
$ |
9.91 |
|
Per
common share amount of net assets, excluding auction rate senior notes, at end of period |
|
|
$ |
39.50 |
|
Asset
coverage, per $1,000 of principal amount of auction rate senior notes(11) |
|
|
Series A |
|
|
$ |
4,411 |
|
Series B |
|
|
$ |
4,411 |
|
Series C |
|
|
$ |
4,411 |
|
Asset coverage ratio of auction rate senior notes(11) |
|
|
|
441 |
% |
Asset
coverage, per $25,000 liquidation value per share of preferred shares(12) |
|
|
$ |
201,024 |
|
Asset coverage ratio of preferred shares(13) |
|
|
|
310 |
% |
(1) |
Commencement of Operations. |
(2) |
Information presented relates to a share of common stock outstanding for the entire period.
|
(3) |
The amount is less than $0.01 per share, and represents the premium on the secondary
offering of $0.14 per share, less the underwriting discounts and offering costs of $0.14 per share for the
year ended November 30, 2005. |
(4) |
Represents the dilution per common share from underwriting and other offering
costs. |
(5) |
The per common share data for the periods ended November 30, 2005 and 2004, do not reflect
the change in estimate of investment income and return of capital, for the respective period. |
(6) |
Not annualized for periods less than a year. Total investment return is calculated assuming
a purchase of common stock at the market price on the first day and a sale at the current market price on the
last day of the period reported. The calculation also assumes reinvestment of dividends at actual prices
pursuant to the Companys dividend reinvestment plan. Total investment return does not reflect brokerage
commissions. |
(7) |
Annualized for periods less than one full year. |
20 |
Tortoise Energy Infrastructure Corp. |
|
Year Ended November 30, 2005
|
|
Period from February 27, 2004(1) through
November 30, 2004
|
|
|
(1.42 |
)% |
|
(0.45 |
)% |
|
(1.05 |
)% |
|
(0.17 |
)% |
|
(7.37 |
)% |
|
(13.37 |
)% |
|
(7.00 |
)% |
|
(13.65 |
)% |
|
4.92 |
% |
|
1.83 |
% |
$ |
165,000 |
|
$ |
110,000 |
|
$ |
70,000 |
|
$ |
35,000 |
|
$ |
11.07 |
|
$ |
8.67 |
|
$ |
38.19 |
|
$ |
35.21 |
|
$ |
3,874 |
|
$ |
4,378 |
|
$ |
3,874 |
|
$ |
4,378 |
|
$ |
3,874 |
|
|
|
|
|
387 |
% |
|
438 |
% |
$ |
169,383 |
|
$ |
265,395 |
|
|
272 |
% |
|
332 |
% |
(8) |
The
expense ratios and net investment loss ratios do not reflect the effect of dividend
payments to preferred stockholders. |
(9) |
The
Company accrued $41,508,276, $24,659,420 and $30,330,018 for the period ended August 31,
2006, for the year ended November 30, 2005 and for the period from February 27, 2004
through November 30, 2004, respectively, for current and deferred income tax expense. |
(10) |
The
ratio excludes current and deferred income taxes on net investment loss. |
(11) |
Represents
value of total assets less all liabilities and indebtedness not represented by auction
rate senior notes and preferred shares at the end of the period divided by auction rate
senior notes outstanding at the end of the period. |
(12) |
Represents
value of total assets less all liabilities and indebtedness not represented by preferred
shares at the end of the period divided by the number of preferred shares outstanding at
the end of the period. |
(13) |
Represents
value of total assets less all liabilities and indebtedness not represented by auction
rate senior notes and preferred shares at the end of the period divided by auction rate
senior notes and preferred shares outstanding at the end of the period. |
See Accompanying Notes to
the Financial Statements.
2006 3rd Quarter Report |
21 |
|
Notes
to Financial Statements (Unaudited)
August 31, 2006
1. Organization
Tortoise Energy
Infrastructure Corporation (the Company) was organized as a Maryland
corporation on October 29, 2003, and is a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended (the
1940 Act). The Companys investment objective is to seek a high
level of total return with an emphasis on current dividends paid to
shareholders. The Company seeks to provide its shareholders with an efficient
vehicle to invest in the energy infrastructure sector. The Company commenced
operations on February 27, 2004. The Companys shares are listed on the New
York Stock Exchange under the symbol TYG.
2. Significant Accounting
Policies
A. Use of Estimates
The preparation of
financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities, recognition of distribution income
and disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
B. Investment Valuation
The Company primarily
owns securities that are listed on a securities exchange. The Company values
those securities at their last sale price on that exchange on the valuation
date. If the security is listed on more than one exchange, the Company will use
the price of the exchange that it generally considers to be the principal
exchange on which the security is traded. Securities listed on the NASDAQ will
be valued at the NASDAQ Official Closing Price, which may not necessarily
represent the last sale price. If there has been no sale on such exchange or
NASDAQ on such day, the security will be valued at the mean between bid and
asked price on such day.
The Company may
invest up to 30 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 private placement
securities and other securities for which market quotations are not readily
available will be valued in good faith by using fair value procedures approved
by the Board of Directors. Such fair value procedures consider factors such as
discounts to publicly traded issues, securities with similar yields, quality,
type of issue, coupon, duration and rating. If events occur that will affect the
value of the Companys portfolio securities before the net asset value has
been calculated (a significant event), the portfolio securities so
affected will generally be priced using a fair value procedure.
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.
The Company generally
values its interest rate swap contracts using industry-accepted models which
discount the estimated future cash flows based on the stated terms of the
interest rate swap agreement by using interest rates currently available in the
market, or based on dealer quotations, if available.
22 |
Tortoise Energy Infrastructure Corp. |
|
Notes
to Financial Statements (Unaudited)
(Continued)
C. Security Transactions
and Investment Income
Security transactions
are accounted for on the date the securities are purchased or sold (trade date).
Realized gains and losses are reported on an identified cost basis. Interest
income is recognized on the accrual basis, including amortization of premiums
and accretion of discounts. Distributions are recorded on the ex-dividend date.
Distributions received from the Companys investments in master limited
partnerships (MLPs) generally are comprised of ordinary income,
capital gains and return of capital from the MLP. The Company records investment
income and return of capital based on estimates made at the time such
distributions are received. Such estimates are based on historical information
available from each MLP and other industry sources. These estimates may
subsequently be revised based on information received from MLPs after their tax
reporting periods are concluded, as the actual character of these distributions
are not known until after the fiscal year-end of the Company.
For the period from
December 1, 2004 through November 30, 2005, 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 23 percent as investment income and approximately 77
percent as return of capital.
Subsequent to
November 30, 2005, the Company reclassified the amount of investment income and
return of capital it recognized based on the 2005 tax reporting information
received from the individual MLPs. This reclassification amounted to an increase
in pre-tax net investment income of approximately $190,000 or $0.01 per share
($116,000 or $0.008 per share, net of deferred tax benefit); an increase of
approximately $139,000 or $0.01 per share ($85,000 or $0.006 per share, net of
deferred tax benefit) in unrealized appreciation of investments; and a decrease
in realized gains of approximately $329,000 or $0.02 per share ($201,000 or
$0.01 per share, net of deferred tax benefit) for the period from December 1,
2005 through August 31, 2006. The reclassification is reflected in the
accompanying financial statements.
D. Dividends to
Stockholders
Dividends to common
stockholders are recorded on the ex-dividend date. The character of dividends to
common stockholders made during the year may differ from their ultimate
characterization for federal income tax purposes. For the period ended August
31, 2006 and the year ended November 30, 2005, the Companys dividends, for
book purposes, were comprised entirely of return of capital as a result of the
net investment loss incurred by the Company in each reporting period. For the
year ended November 30, 2005, for tax purposes, the Company determined the
dividends to common stockholders were comprised of 100 percent return of
capital.
Dividends to
preferred stockholders are based on variable rates set at auctions, normally
held every 28 days. Dividends on preferred shares are accrued on a daily basis
for the subsequent 28-day period at a rate as determined on the auction date.
Dividends on preferred shares are payable every 28 days, on the first day
following the end of the dividend period. The character of dividends to
preferred stockholders made during the year may differ from their ultimate
characterization for federal income tax purposes.
2006 3rd Quarter Report |
23 |
|
Notes
to Financial Statements (Unaudited)
(Continued)
E. Federal Income Taxation
The Company, as a
corporation, is obligated to pay federal and state income tax on its taxable
income. The Company invests its assets primarily in MLPs, which generally are
treated as partnerships for federal income tax purposes. As a limited partner in
the MLPs, the Company reports its allocable share of the MLPs taxable
income in computing its own taxable income. The Companys tax expense or
benefit will be included in the Statement of Operations based on the component
of income or gains (losses) to which such expense or benefit relates. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
F. Organization Expenses,
Offering and Debt Issuance Costs
The Company is
responsible for paying all organizational expenses, which were expensed as
incurred. Offering costs related to the issuance of common and preferred stock
are charged to additional paid-in capital when the shares are issued. Offering
costs (excluding underwriter commissions) of $75,000 and $164,530 were charged
to additional paid-in capital for the common shares issued in August 2006 and
the MMP II preferred shares issued in July 2005, respectively. Debt issuance
costs related to the auction rate senior notes are capitalized and amortized
over the period the notes are outstanding. The amount of such capitalized costs
(excluding underwriter commissions) for Auction Rate Senior Notes Series C
issued in April 2005, was $254,099.
G. Derivative Financial
Instruments
The Company uses
derivative financial instruments (principally interest rate swap contracts) to
manage interest rate risk. The Company has established policies and procedures
for risk assessment and the approval, reporting and monitoring of derivative
financial instrument activities. The Company does not hold or issue derivative
financial instruments for speculative purposes. All derivative financial
instruments are recorded at fair value with changes in value during the
reporting period, and amounts accrued under the agreements, included as
unrealized gains or losses in the Statement of Operations. Monthly cash
settlements under the terms of the interest rate swap agreements are recorded as
realized gains or losses in the Statement of Operations.
H. Indemnifications
Under the
Companys organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Company. In addition, in the normal course of business, the
Company may enter into contracts that provide general indemnification to other
parties. The Companys maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Company that have not yet occurred, and may not occur. However, the Company has
not had prior claims or losses pursuant to these contracts and expects the risk
of loss to be remote.
I. Recent Accounting
Pronouncement
On July 13, 2006, the
Financial Accounting Standards Board (FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 provides
guidance for how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. FIN 48 requires the
evaluation of tax positions taken or expected to be taken in the course of
24 |
Tortoise Energy Infrastructure Corp. |
|
Notes
to Financial Statements (Unaudited)
(Continued)
preparing the
Companys tax returns to determine whether the tax positions are
more-likely-than-not of being sustained by the applicable tax
authority. Adoption of FIN 48 is required for fiscal years beginning after
December 15, 2006 and is to be applied to all open years as of the effective
date. FIN 48 is effective for us beginning December 1, 2007. At this time,
management is evaluating the implications of FIN 48 and its impact in the
financial statements has not yet been determined.
3. Concentration of Risk
The Companys
investment objective is to seek a high level of total return with an emphasis on
current dividends paid to its stockholders. Under normal circumstances, the
Company intends to invest at least 90 percent of its total assets in securities
of domestic energy infrastructure companies, and to invest at least 70 percent
of its total assets in equity securities of MLPs. The Company will not invest
more than 10 percent of its total assets in any single issuer as of the time of
purchase. The Company may invest up to 25 percent of its assets in debt
securities, which may include below investment grade securities. Companies that
primarily invest in a particular sector may experience greater volatility than
companies investing in a broad range of industry sectors. The Company may, for
defensive purposes, temporarily invest all or a significant portion of its
assets in investment grade securities, short-term debt securities and cash or
cash equivalents. To the extent the Company uses this strategy, it may not
achieve its investment 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
will pay 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) minus the sum of accrued liabilities (other than deferred income
taxes, debt entered into for purposes of leverage and the aggregate liquidation
preference of outstanding preferred shares) (Managed Assets), in
exchange for the investment advisory services provided. For the period following
the commencement of the Companys operations through February 28, 2006, the
Adviser agreed to waive or reimburse the Company for fees and expenses in an
amount equal to 0.23 percent of the average monthly Managed Assets of the
Company. For years ending February 28, 2007, 2008 and 2009, the Adviser has
agreed to waive or reimburse the Company for fees and expenses in an amount
equal to 0.10 percent of the average monthly Managed Assets of the Company.
The Company has
engaged U.S. Bancorp Fund Services, LLC to serve as the Companys
administrator. The Company pays the administrator a monthly fee computed at an
annual rate of 0.07 percent of the first $300 million of the Companys
Managed Assets, 0.06 percent on the next $500 million of Managed Assets and 0.04
percent on the balance of the Companys Managed Assets, subject to a
minimum annual fee of $45,000.
Computershare
Investor Services, LLC serves as the Companys transfer agent, 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 0.015 percent on the first $100 million of the
Companys Managed Assets and 0.01 percent on the balance of the
Companys Managed Assets, subject to a minimum annual fee of $4,800.
2006 3rd Quarter Report |
25 |
|
Notes
to Financial Statements (Unaudited)
(Continued)
5. Income Taxes
Deferred income taxes
reflect the net tax effect of temporary differences between the carrying amount
of assets and liabilities for financial reporting and tax purposes. Components
of the Companys deferred tax assets and liabilities as of August 31, 2006,
are as follows:
Deferred tax assets: |
|
|
|
|
|
Net operating loss carryforwards |
|
|
$ |
12,451,342 |
|
Organization costs |
|
|
|
48,476 |
|
|
|
|
|
|
|
|
12,499,818 |
|
Deferred tax liabilities: |
|
|
Unrealized gains on investment securities and interest rate swap contracts |
|
|
|
94,941,187 |
|
Basis reduction of investment in MLPs |
|
|
|
13,507,967 |
|
|
|
|
|
|
|
|
108,449,154 |
|
|
|
|
Total net deferred tax liability |
|
|
$ |
95,949,336 |
|
|
|
|
For the period from
December 1, 2005 to August 31, 2006, the components of income tax expense
include current foreign taxes of $334,117 and deferred federal and state income
taxes (net of federal tax benefit) of $36,951,168 and $4,222,991, respectively.
As of November 30, 2005, the Company had a net operating loss for federal income
tax purposes of approximately $19,171,000. If not utilized, this net operating
loss will expire as follows: $2,833,000 and $16,338,000 in the years ending
November 30, 2024 and 2025, respectively.
Total income tax
expense differs from the amount computed by applying the federal statutory
income tax rate of 35 percent to net investment income and realized and
unrealized gains on investments and interest rate swap contracts before taxes
for the period from December 1, 2005 through August 31, 2006, as follows:
Application of statutory income tax rate |
|
|
$ |
37,066,211 |
|
State income taxes, net of federal tax benefit |
|
|
|
4,236,138 |
|
Other, net |
|
|
|
205,927 |
|
|
|
|
Total |
|
|
$ |
41,508,276 |
|
|
|
|
At August 31, 2006, the
Company did not record a valuation allowance against its deferred tax assets.
26 |
Tortoise Energy Infrastructure Corp. |
|
Notes
to Financial Statements (Unaudited)
(Continued)
6. Restricted Securities
Certain of the Companys
investments are restricted and are valued as determined in accordance with procedures
established by the Board of Directors and more fully described in Note 2. The table below
shows the number of units held or principal amount, the acquisition date, acquisition
costs, value per unit of such securities and percent of net assets which the securities
comprise.
Investment Security |
|
Number of Units or Principal Amount |
|
Acquisition Date |
Acquisition Cost |
|
Value Per Unit |
|
Percent of Net Assets |
|
Plains All American Pipeline, L.P. |
|
|
Common Units |
|
|
|
279,070 |
|
|
7/26/06 |
|
$ |
12,000,000 |
|
$ |
44.15 |
|
|
2.5 |
% |
Crosstex Energy, L.P. |
|
|
Subordinated Units |
|
|
|
712,760 |
|
|
6/29/06 |
|
|
20,000,046 |
|
|
30.18 |
|
|
4.4 |
|
E.W. Transportation, LLC |
|
|
Promissory Note |
|
|
$ |
5,588,534 |
|
|
5/03/04 |
|
|
5,504,706 |
|
|
N/A |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
37,504,752 |
|
|
|
|
|
8.0 |
% |
|
|
|
|
|
7. Investment Transactions
For the period ended
August 31, 2006, the Company purchased (at cost) and sold securities (proceeds)
in the amount of $60,563,453 and $14,847,787 (excluding short-term debt
securities and interest rate swaps), respectively.
8. Auction Rate Senior
Notes
The Company has
issued $60,000,000, $50,000,000, and $55,000,000 aggregate principal amount of
auction rate senior notes Series A, Series B, and Series C, respectively
(collectively, the Notes). The Notes were issued in denominations of
$25,000. The principal amount of the Notes will be due and payable on July 15,
2044 for Series A and Series B, and April 10, 2045 for Series C. Fair value of
the notes approximates carrying amount because the interest rate fluctuates with
changes in interest rates available in the current market.
Holders of the Notes
are entitled to receive cash interest payments at an annual rate that may vary
for each rate period. Interest rates for Series A, Series B, and Series C as of
August 31, 2006 were 5.55 percent, 5.50 percent, and 5.46 percent, respectively.
The weighted average interest rates for Series A, Series B, and Series C for the
period ended August 31, 2006, were 5.01 percent, 5.06 percent, and 4.98 percent,
respectively. These rates include the applicable rate based on the latest
results of the auction, plus commissions paid to the auction agent in the amount
of 0.25 percent which is included in auction agent fees in the accompanying
Statement of Operations. For each subsequent rate period, the interest rate will
be determined by an auction conducted in accordance with the procedures
described in the Notes prospectus. Generally, the rate period will be 28
days for Series A and Series B, and 7 days for Series C. The Notes 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 an asset
coverage ratio required by law, or fails to cure in a timely manner a deficiency
as stated in the rating agency guidelines applicable to the Notes.
2006 3rd Quarter Report |
27 |
|
Notes
to Financial Statements (Unaudited)
(Continued)
The Notes are
unsecured obligations of the Company and, upon liquidation, dissolution or
winding up of the Company, will rank: (1) senior to all the Companys
outstanding preferred shares; (2) senior to all of the Companys
outstanding common shares; (3) on a parity with any unsecured creditors of the
Company and any unsecured senior securities representing indebtedness of the
Company; and (4) junior to any secured creditors of the Company.
9. Preferred Shares
The Company has 7,500
authorized Money Market Preferred (MMP) Shares, of which 2,800
shares (1,400 MMP Shares and 1,400 MMP II Shares) are currently outstanding. The
MMP and MMP II Shares have rights determined by the Board of Directors. The MMP
and MMP II Shares have a liquidation value of $25,000 per share plus any
accumulated, but unpaid dividends, whether or not declared.
Holders of the MMP
and MMP II Shares are entitled to receive cash dividend payments at an annual
rate that may vary for each rate period. The dividend rates for MMP and MMP II
Shares as of August 31, 2006, were 5.58 percent and 5.60 percent, respectively.
The weighted average dividend rates for MMP and MMP II Shares for the period
ended August 31, 2006, were 5.10 percent and 5.11 percent, respectively. These
rates include the applicable rate based on the latest results of the auction,
plus commissions paid to the auction agent in the amount of 0.25 percent which
is included in auction agent fees in the accompanying Statement of Operations.
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 Shares would be less than 200
percent.
The MMP Shares are
redeemable in certain circumstances at the option of the Company. The MMP Shares
are also subject to a mandatory redemption if the Company fails to meet an asset
coverage ratio required by law, or fails to cure a deficiency in a timely manner
as stated in the rating agency guidelines.
The holders of MMP
and MMP II Shares have voting rights equal to the holders of common stock (one
vote per share) and will vote together with the holders of shares of common
stock as a single class except on matters affecting only the holders of
preferred stock or the holders of common stock.
10. Interest Rate Swap
Contracts
The Company has
entered into interest rate swap contracts to protect itself from increasing
interest expense on its leverage resulting from increasing short-term interest
rates. A decline in interest rates may result in a decline in the value of the
swap contracts, which may result in a decline in the net assets of the Company.
In addition, if the counterparty to the interest rate swap contracts defaults,
the Company would not be able to use the anticipated receipts under the swap
contracts to offset the interest payments on the Companys leverage. At the
time the interest rate swap contracts reach their scheduled termination, there
is a risk that the Company would not be able to obtain a replacement
transaction, or that the terms of the replacement would not be as favorable as
on the expiring transaction. In addition, if the Company is required to
terminate any swap contract early due to the Company failing to maintain a
required 300 percent asset coverage of the liquidation value of the outstanding
auction rate senior notes or if the Company loses its credit rating on its
auction rate senior notes, then the Company could be required to make a
termination payment, in
28 |
Tortoise Energy Infrastructure Corp. |
|
Notes
to Financial Statements (Unaudited)
(Continued)
addition to redeeming
all or some of the auction rate senior notes. Details of the interest rate swap
contracts outstanding as of August 31, 2006, were as follows:
Counterparty |
Maturity Date |
Notional Amount |
|
Fixed Rate Paid by the Company |
|
Floating Rate Received by the Company |
|
Unrealized Appreciation |
|
|
U.S. Bank, N.A |
|
|
|
7/10/2007 |
|
$ |
60,000,000 |
|
|
3.54% |
|
|
1 month U.S. Dollar LIBOR |
|
$ |
958,921 |
|
U.S. Bank, N.A.* |
|
|
|
7/05/2011 |
|
|
60,000,000 |
|
|
4.63% |
|
|
1 month U.S. Dollar LIBOR |
|
|
776,568 |
|
U.S. Bank, N.A |
|
|
|
7/17/2007 |
|
|
50,000,000 |
|
|
3.56% |
|
|
1 month U.S. Dollar LIBOR |
|
|
788,726 |
|
U.S. Bank, N.A.* |
|
|
|
7/12/2011 |
|
|
50,000,000 |
|
|
4.64% |
|
|
1 month U.S. Dollar LIBOR |
|
|
638,264 |
|
U.S. Bank, N.A |
|
|
|
5/01/2014 |
|
|
55,000,000 |
|
|
4.54% |
|
|
1 week U.S. Dollar LIBOR |
|
|
2,045,078 |
|
U.S. Bank, N.A |
|
|
|
11/12/2020 |
|
|
35,000,000 |
|
|
5.20% |
|
|
1 month U.S. Dollar LIBOR |
|
|
80,157 |
|
U.S. Bank, N.A |
|
|
|
11/18/2020 |
|
|
35,000,000 |
|
|
5.21% |
|
|
1 month U.S. Dollar LIBOR |
|
|
53,967 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
345,000,000 |
|
|
|
|
|
|
|
$ |
5,341,681 |
|
|
|
|
|
|
* |
The
Company has entered into additional interest rate swap contracts for Series A and Series
B notes with settlements commencing on 7/10/2007 and 7/17/2007, respectively. |
The Company is exposed to
credit risk on the interest rate swap contracts if the counterparty should fail to
perform under the terms of the interest rate swap contracts. The amount of credit risk is
limited to the net appreciation of the interest rate swap contract, as no collateral is
pledged by the counterparty.
11. Common Stock
The Company has 100,000,000
shares of capital stock authorized and 16,655,177 shares outstanding at August 31, 2006.
Transactions in common shares for the year ended November 30, 2005 and the period ended
August 31, 2006, were as follows:
Shares at November 30, 2004 |
|
|
|
12,684,154 |
|
Shares
sold through secondary offering and exercise of overallotment options |
|
|
|
2,018,281 |
|
Shares issued through reinvestment of dividends |
|
|
|
203,080 |
|
|
|
|
Shares at November 30, 2005 |
|
|
|
14,905,515 |
|
Shares sold through shelf offering |
|
|
|
1,675,050 |
|
Shares issued through reinvestment of dividends |
|
|
|
74,612 |
|
|
|
|
Shares at August 31, 2006 |
|
|
|
16,655,177 |
|
|
|
|
12. Credit Facility
On June 13, 2006, the Company
entered into a $20 million credit facility maturing June 13, 2007, with U.S. Bank, N.A.
On July 25, 2006, the principal amount of the credit facility was increased to $60
million. The average outstanding borrowing and interest rate for the period during which
the credit facility was utilized was approximately $23.9 million and 6.11 percent,
respectively. At August 31, 2006, the outstanding borrowing under the credit facility
was $0.
13. Subsequent Events
On September 1, 2006, the
Company paid a dividend in the amount of $0.51 per share, for a total of $8,494,140. Of
this total, the dividend reinvestment amounted to $1,186,259.
2006 3rd Quarter Report |
29 |
|
Additional
Information (Unaudited)
Stockholder Proxy Voting
Results
The annual meeting of
stockholders was held on April 12, 2006. The matters considered at the meeting, together
with the actual vote tabulations relating to such matters are as follows:
1. |
To
elect Charles E. Heath and Terry C. Matlack as Directors of the Company, each to hold
office for a term of three years and until his successor is duly elected and qualified. |
|
No. of Shares |
|
|
|
(i) Charles E. Heath |
|
|
Affirmative |
13,784,978 |
|
Withheld |
146,830 |
|
|
|
TOTAL |
13,931,808 |
|
(ii) Terry C. Matlack* |
|
|
Affirmative |
2,408 |
|
Withheld |
0 |
|
|
|
TOTAL |
2,408 |
* |
Preferred
stockholders are the only class of stockholders entitled to vote on this director. |
John R.
Graham and H. Kevin Birzer continued as directors and their terms expire on the date of
the 2007 annual meeting of stockholders, and Conrad S. Ciccotello continued as a
director and his term expires on the date of the 2008 annual meeting of stockholders.
2. |
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, 2006. |
|
No. of Shares |
|
|
|
Affirmative |
13,806,027 |
|
Against |
69,108 |
|
Abstain |
56,673 |
|
|
|
TOTAL |
13,931,808 |
Based upon votes required for
approval, each of these matters passed.
Forward-Looking Statements
This report contains forward-looking
statements within the meaning of the Securities Act of 1933. By their nature, all forward-looking
statements involve risks and uncertainties, and actual results could differ materially from those contemplated
by the forward-looking statements. Several factors that could materially affect Tortoise Energy Infrastructure
Corporations (the Company) 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 Tortoise Energy 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 period
ended June 30, 2006 is available to stockholders (i) without charge, upon request by calling the Company at
(913) 981-1020 or toll-free at (888) 728-8784; and (ii) on the SECs Web site at www.sec.gov.
30 |
Tortoise Energy Infrastructure Corp. |
|
Additional
Information (Unaudited)
(Continued)
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 and statement of additional information
are available without charge upon request by calling the Company at (888) 728-8784 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.
Annual Certification
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 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 our stockholders of record with respect to their transactions in shares of our
securities. This information includes the stockholders address, tax identification
or Social Security number, share balances, and dividend 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, our other stockholders or our 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 our
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.
2006 3rd Quarter Report |
31 |
|
Office of the Company and of the Investment Adviser
Tortoise Capital Advisors, L.L.C.
10801 Mastin Boulevard, Suite 222
Overland Park, Kan. 66210
(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 Infrastructure 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, L.L.C.
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 Investor Services, L.L.C.
250 Royall St. MS 3B
Canton, Mass. 02021
(888) 728-8784
www.computershare.com
LEGAL COUNSEL
Blackwell Sanders Peper Martin LLP
4801 Main St.
Kansas City, Mo. 64112
INVESTOR RELATIONS
(913) 981-1020
info@tortoiseadvisors.com
STOCK SYMBOL
Listed NYSE Symbol: TYG
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
Family of Funds
Name |
Ticker/ Inception Date |
Targeted Investments |
Investor Suitability |
Investment Restrictions |
Total Assets as of 8/31/06 ($ in millions) |
Tortoise Energy |
TYG Feb. 2005 |
U.S. Energy Infrastructure, More Diversified in MLPs |
Retirement Accounts Pension Plans Taxable Accounts |
30% Restricted Securities 10% Issuer-Limited |
$835 |
Tortoise Capital |
TYY May 2005 |
U.S. Energy Infrastructure, More Concentrated, More Direct Placements |
Retirement Accounts Pension Plans Taxable Accounts |
50% Restricted Securities 15% Issuer-Limited |
$644 |
Tortoise North America |
TYN Oct. 2005 |
Canadian and U.S. Energy Infrastructure, Diversified in Canadian RITs and U.S. MLPs |
Taxable Accounts |
50% Restricted Securities Diversified to Meet RIC Requirements |
$180 |
...Steady Wins"
Tortoise Capital Advisors, L.L.C.
Investment Adviser to
Tortoise Energy Infrastructure Corp.
10801 Mastin Blvd., Suite 222 Overland Park, Kan.
66210 (913) 981-1020 (913) 981-1021 (fax) www.tortoiseadvisors.com |