As
filed with the Securities and Exchange Commission on March 14,
2007
1933
Act File No. 333-140457
1940
Act File No. 811-21462
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
N-2
(Check
appropriate box or boxes)
ý REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
ý
Pre-Effective Amendment No. 2
¨
Post-Effective Amendment No. __
and
ý
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
ý
Amendment No. 27
Tortoise
Energy Infrastructure Corporation
10801
Mastin Boulevard, Suite 222
Overland
Park, Kansas 66210
(913) 981-1020
Agent
for Service
David J.
Schulte
10801
Mastin Boulevard, Suite 222
Overland
Park, Kansas 66210
Copies
of Communications to:
|
Deborah
Bielicke Eades, Esq.
Vedder,
Price, Kaufman & Kammholz, P.C.
222
N. LaSalle Street
Chicago,
IL 60601
|
Steven
F. Carman, Esq.
Blackwell
Sanders Peper Martin LLP
4801
Main Street, Suite 1000
Kansas
City, MO 64112
|
Approximate
Date of Proposed Public Offering:
From
time to time after the effective date of the Registration
Statement.
_______________
If
any of
the securities being registered on this form are offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933,
other than securities offered in connection with a dividend reinvestment
plan,
check the following box. ý
It
is
proposed that this filing will become effective (check appropriate
box)
¨
when
declared effective pursuant to section 8(c)
_______________
|
Title
of Securities
Being
Registered
|
Amount
Registered(1)
|
Proposed
Maximum Aggregate Offering Price(2)
|
Amount
of Registration Fee(3)
|
|
Common
stock, $0.001 par value per share; preferred
stock, $0.001 par value per share; debt
securities
|
|
$350,000,000
|
$10,745
|
(1)
There
are
being registered hereunder a presently indeterminate number of shares of
common
stock, shares of preferred stock and debt securities to be offered on an
immediate, continuous or delayed basis.
(2)
Estimated
solely for the purpose of calculating the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933. In no event will the
aggregate initial offering price of all securities offered from time to time
pursuant to the prospectus included as a part of this Registration Statement
exceed $350,000,000.
(3) All
of which was previously paid.
The
Registrant hereby amends this Registration Statement on such
date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such dates as the Commission, acting
pursuant to said Section 8(a), may determine.
Pursuant
to Rule 429 under the Securities Act of 1933, the Prospectus in this
Registration Statement is a combined prospectus and relates to Registration
Statement No. 333-131204, as amended, previously filed by the Registrant on
Form N-2. This Registration Statement constitutes Post-Effective Amendment
No. 5 to Registration Statement No. 333-131204, and such
Post-Effective Amendment shall hereafter become effective concurrently
with the
effectiveness of this Registration Statement and in accordance with
Section 8(c) of the Securities Act of 1933.
The
information in this prospectus is not complete and may be changed. We may
not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to
sell
these securities and is not soliciting an offer to buy these securities in
any
state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED MARCH 14,
2007
|
Base Prospectus
|
 |
$350,000,000
Tortoise
Energy Infrastructure Corporation
Common
Stock
Preferred
Stock
Debt
Securities
Tortoise
Energy Infrastructure Corporation (the “Company,” “we” or “our”) is a
nondiversified, closed-end management investment company. Our investment
objective is to seek a high level of total return with an emphasis on
current
distributions paid to stockholders. We seek to provide our stockholders
with an
efficient vehicle to invest in a portfolio of publicly traded master
limited
partnerships (“MLPs”) in the energy infrastructure sector. Under normal
circumstances, we invest at least 90% of our total assets (including
assets
obtained through leverage) in securities of energy infrastructure companies
and
invest at least 70% of our total assets in equity securities of MLPs.
We cannot
assure you that we will achieve our investment objective. Unlike
most investment companies, we have not elected to be treated as a regulated
investment company under the Internal Revenue Code.
We
may
offer, on
an
immediate, continuous or delayed basis, up to $350,000,000 aggregate
initial offering price of our common stock ($0.001 par value per share),
preferred stock ($0.001 par value per share) or debt securities, which
we refer
to in this prospectus collectively as our securities, in one or more offerings.
We may offer our common stock, preferred stock and debt securities separately
or
together, in amounts, at prices and on terms set forth in a prospectus
supplement to this prospectus. In addition, from time to time, certain
of our
stockholders may offer our common stock in one or more offerings. The sale
of
such stock by certain of our stockholders may involve shares of common
stock
that were issued to the stockholders in one or more private transactions
and will be registered by us for resale. The identity of any selling
stockholder, the number of shares of our common stock to be offered by
such
selling stockholder, the price and terms upon which our shares of common
stock
are to be sold from time to time by such selling stockholder,
and the
percentage of common stock held by any selling stockholder after the
offering, will be set forth in a prospectus supplement to this
prospectus. You should read this prospectus and the related prospectus
supplement carefully before you decide to invest in any of our
securities.
We
may
offer our securities, or certain of our stockholders may offer our common
stock,
directly to one or more purchasers, through agents that we or they
designate from time to time, or to or through underwriters or dealers.
The
prospectus supplement relating to the particular offering will identify
any
agents or underwriters involved in the sale of our securities, and will
set
forth any applicable purchase price, fee, commission or discount arrangement
between us or any selling stockholder and such agents or underwriters or
among
the underwriters or the basis upon which such amount may be calculated.
For more
information about the manner in which we may offer our securities, or a
selling
stockholder may offer our common stock, see “Plan of Distribution” and “Selling
Stockholders.” Our securities may not be sold through agents, underwriters or
dealers without delivery of a prospectus supplement.
Our
common stock is listed on the New York Stock Exchange under the symbol
“TYG.” As
of ___________ __, 2007, the last reported sale price for our common stock
was $_____.
Investing
in our securities involves certain risks. You could lose some or all
of your
investment. See “Risk Factors” beginning on page 28 of this prospectus. You
should consider carefully these risks together with all of the other
information
contained in this prospectus and any prospectus supplement before making
a
decision to purchase our securities.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
Prospectus
dated __________ __, 2007
This
prospectus, together with any prospectus supplement, sets forth concisely
the
information that you should know before investing. You should read the
prospectus and prospectus supplement, which contain important information,
before deciding whether to invest in our securities. You should retain
the
prospectus and prospectus supplement for future reference. A statement
of
additional information, dated ___________ __, 2007, as supplemented from
time to time, containing additional information, has been filed with
the
Securities and Exchange Commission (“SEC”) and is incorporated by reference in
its entirety into this prospectus. You may request a free copy of the
statement
of additional information, the table of contents of which is on page 70 of
this prospectus, request a free copy of our annual, semi-annual and quarterly
reports, request other information or make stockholder inquiries, by
calling
toll-free 1-866-362-9331 or by writing to us at 10801 Mastin Boulevard,
Suite
222, Overland Park, Kansas 66210. Our annual, semi-annual and quarterly
reports
and the statement of additional information also are available on our
investment
adviser’s website at www.tortoiseadvisors.com.
Information included on our website does not form part of this prospectus.
You
can review and copy documents we have filed at the SEC’s Public Reference Room
in Washington, D.C. Call 1-202-551-5850 for information. The SEC charges
a fee
for copies. You can get the same information free from the SEC’s website
(http://www.sec.gov). You may also e-mail requests for these documents
to
publicinfo@sec.gov or make a request in writing to the SEC’s Public Reference
Section, 100 F. Street, N.E., Room 1580, Washington, D.C.
20549.
Our
securities do not represent a deposit or obligation of, and are not guaranteed
or endorsed by, any bank or other insured depository institution and is
not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
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You
should rely only on the information contained or incorporated by reference
in
this prospectus and any related prospectus supplement in making your investment
decisions. We have not authorized any other person to provide you with
different
or inconsistent information. If anyone provides you with different or
inconsistent information, you should not rely on it. This prospectus and
any
prospectus supplement do not constitute an offer to sell or solicitation
of an
offer to buy any securities in any jurisdiction where the offer or sale
is not
permitted. The information appearing in this prospectus and in any prospectus
supplement is accurate only as of the dates on their covers. Our business,
financial condition and prospects may have changed since such dates. We
will
advise investors of any material changes to the extent required by applicable
law.
i
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus, any accompanying prospectus supplement and the statement of
additional information contain “forward-looking statements.” Forward-looking
statements can be identified by the words “may,” “will,” “intend,” “expect,”
“estimate,” “continue,” “plan,” “anticipate,” and similar terms and the negative
of such terms. Such forward-looking statements may be contained in this
prospectus as well as in any accompanying prospectus supplement. 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
our
actual results are the performance of the portfolio of securities we hold,
the
conditions in the U.S. and international financial, petroleum and other
markets,
the price at which our shares will trade in the public markets and other
factors
discussed in our periodic filings with the Securities and Exchange Commission
(the “SEC”).
Although
we believe that the expectations expressed in our forward-looking statements
are
reasonable, actual results could differ materially from those projected
or
assumed in our forward-looking statements. Our future financial condition
and
results of operations, as well as any forward-looking statements, are
subject to
change and are subject to inherent risks and uncertainties, such as those
disclosed in the “Risk Factors” section of this prospectus. All forward-looking
statements contained or incorporated by reference in this prospectus
or any
accompanying prospectus supplement are made as of the date of this prospectus
or
the accompanying prospectus supplement, as the case may be. Except for
our
ongoing obligations under the federal securities laws, we do not intend,
and we
undertake no obligation, to update any forward-looking statement. The
forward-looking statements contained in this prospectus and any accompanying
prospectus supplement are excluded from the safe harbor protection provided
by
section 27A of the Securities Act of 1933, as amended (the “1933
Act”).
Currently
known risk factors that could cause actual results to differ materially
from our
expectations include, but are not limited to, the factors described in
the “Risk
Factors” section of this prospectus. We urge you to review carefully that
section for a more detailed discussion of the risks of an investment in
our
common stock.
The
following summary contains basic information about us and our securities.
It is
not complete and may not contain all of the information you may want
to
consider. You should review the more detailed information contained in
this
prospectus and in any related prospectus supplement and in the statement
of
additional information, especially the information set forth under the
heading
“Risk Factors” beginning on page 28 of this
prospectus.
The
Company
We
seek
to provide our stockholders with an efficient vehicle to invest in a portfolio
of publicly traded master limited partnerships (“MLPs”) in the energy
infrastructure sector. Our investment objective is to seek a high level
of total
return with an emphasis on current distributions paid to stockholders.
For
purposes of our investment objective, total return includes capital appreciation
of, and all distributions received from, securities in which we invest
regardless of the tax character of the distributions. Similar to the tax
characterization of distributions made by MLPs to unitholders, a significant
portion of our distributions have been and are expected to continue to
be
treated as a return of capital to stockholders.
We
are a
nondiversified, closed-end management investment company. We commenced
operations in February 2004 following our initial public offering. We were
the
first publicly traded investment company offering access to a portfolio
of MLPs.
Since that time, we completed three additional offerings of common stock
in
December 2004, August 2006 and December 2006. As of the date of this prospectus,
we have $70 million of Money Market Cumulative Preferred (MMP®)
Shares
(“MMP Shares”) and $165 million of Auction Rate Senior Notes (“Tortoise Notes”)
outstanding and have entered into an unsecured revolving credit facility
with
U.S. Bank N.A., which currently allows us to borrow up to $120,000,000.
Our
fiscal year ends on November 30.
Investment
Adviser
Tortoise
Capital Advisors, L.L.C. (the “Adviser”) serves as our investment adviser. The
Adviser specializes in managing portfolios of investments in MLPs and other
energy infrastructure companies. The Adviser was formed in October 2002 to
provide portfolio management services to institutional and high-net-worth
investors seeking professional management of their MLP investments. As
of
November 30, 2006, the Adviser had approximately $2.0 billion of client
assets
under management. The Adviser’s investment committee is comprised of five
portfolio managers. See “Management of the Company”.
The
Adviser also serves as the investment adviser to Tortoise Energy Capital
Corporation (“TYY”) and Tortoise North American Energy Corporation (“TYN”),
which are also publicly traded, closed-end management investment companies.
TYY,
which commenced operations on May 31, 2005, invests primarily in equity
securities of MLPs and their affiliates in the energy infrastructure sector.
TYN, which commenced operations on October 31, 2005, invests primarily
in equity
securities of companies in the energy sector whose primary operations are
in
North America. The Adviser also serves as the investment adviser to Tortoise
Capital Resources Corporation (“TTO”), a
non-diversified closed-end management investment company that has
elected to be regulated as a business development company (a
“BDC”)
under the Investment Company Act of 1940 (the “1940 Act”). TTO, which
commenced operations on December 8, 2005, invests primarily in privately
held
and micro-cap public energy companies operating in the midstream and downstream
segments, and to a lesser extent the upstream segment.
The
principal business address of the Adviser is 10801 Mastin Boulevard, Suite
222,
Overland Park, Kansas 66210.
The
Offering
We
may
offer, on an immediate, continuous or delayed basis, up to $350,000,000
of our
securities, or certain of our stockholders
who
purchased shares from us in private placement transactions may offer our
common stock, on terms to be determined at the time of the offering.
Our
securities will be offered at prices and on terms to be set forth in
one or more
prospectus supplements to this prospectus. Subject to certain conditions,
we may
offer our common stock at prices below our net asset value (“NAV”). Preferred
stock and debt securities (collectively, “senior securities”) may be auction
rate securities, in which case the senior securities will not be listed
on any
exchange or automated quotation system. Rather, investors generally may
only buy
and sell senior securities through an auction conducted by an auction
agent and
participating broker-dealers.
While
the
number and amount of securities we may issue pursuant to this registration
statement is limited to $350,000,000 of securities, our board of directors
(the
“Board of Directors” or the “Board”) may, without any action by the
stockholders, amend our Charter from time to time to increase or decrease
the
aggregate number of shares of stock or the number of shares of stock
of any
class or series that we have authority to issue under our Charter or
the 1940
Act.
We
may
offer our securities, or certain of our stockholders may offer our common
stock,
directly to one or more purchasers, through agents that we or they designate
from time to time, or to or through underwriters or dealers. The prospectus
supplement relating to the offering will identify any agents or underwriters
involved in the sale of our securities, and will set forth any applicable
purchase price, fee, commission or discount arrangement between us or any
selling stockholder and such agents or underwriters or among underwriters
or the
basis upon which such amount may be calculated. See “Plan of Distribution” and
“Selling Stockholders.” Our securities may not be sold through agents,
underwriters or dealers without delivery of a prospectus supplement describing
the method and terms of the offering of our securities.
Use
of Proceeds
Unless
otherwise specified in a prospectus supplement, we intend to use the net
proceeds from the sale of our securities primarily to invest in energy
infrastructure companies in accordance with our investment objective and
policies within approximately three months of receipt of such proceeds. We
also may use sale proceeds to retire all or a portion of any short-term
debt,
and for working capital purposes, including the payment of distributions,
interest and operating expenses, although there is currently no intent
to issue
securities primarily for this purpose. We will not receive any of the proceeds
from a sale of our common stock by any selling stockholder.
Tax
Status of Company
Unlike
most investment companies, we have not elected to be treated as a regulated
investment company under the U.S. Internal Revenue Code of 1986, as amended
(the
“Internal Revenue Code”). Therefore, we are obligated to pay federal and
applicable state corporate taxes on our taxable income. On the other
hand, we
are not subject to the Internal Revenue Code’s diversification rules limiting
the assets in which regulated investment companies can invest. Under
current
federal income tax law, these rules limit the amount that regulated investment
companies may invest directly in the securities of MLPs to 25% of the
value of
their total assets. We invest a substantial portion of our assets in
MLPs.
Although MLPs generate taxable income to us, we expect the MLPs to pay
cash
distributions in excess of the taxable income reportable by us. Similarly,
we
expect to distribute substantially all of our distributable cash flow
(“DCF”) to
our common stockholders. DCF is the amount we receive as cash or paid-in-kind
distributions from MLPs or affiliates of MLPs in which we invest, and
interest
payments received on debt securities owned by us, less current or anticipated
operating expenses, taxes on our taxable income, and
leverage
costs paid by us (including leverage costs of the Tortoise Notes and MMP
Shares
and borrowings under our unsecured credit facility). However, unlike regulated
investment companies, we are not effectively required by the Internal Revenue
Code to distribute substantially all of our income and capital gains. See
“Certain Federal Income Tax Matters.”
Distributions
We
expect
to distribute substantially all of our DCF to holders of common stock through
quarterly distributions. Our Board of Directors adopted a policy to target
distributions to common stockholders in an amount of at least 95% of DCF
on an
annual basis. We will pay distributions on our common stock each fiscal
quarter
out of DCF, if any. As of the date of this prospectus, we have paid
distributions every quarter since the
completion of our first full fiscal quarter ended on May 31, 2004, most
of which
have been characterized as returns of capital for federal income tax
purposes. There is no assurance that we will continue to make
regular distributions. If distributions paid to holders of our common and
preferred stock exceed the current and accumulated earnings and profit
allocated
to the particular shares held by a stockholder, the excess of such distribution
will constitute a tax-free return of capital to the extent of the stockholder’s
basis and capital gain thereafter. A return of capital reduces the basis
of the
shares held by a stockholder, which may increase the amount of gain recognized
upon the sale of such shares. Our preferred stock and debt securities will
pay
dividends and interest, respectively, in accordance with their terms. So
long as
we have preferred stock and debt securities outstanding, we may not declare
dividends on common or preferred stock unless we meet applicable asset
coverage
tests.
Principal
Investment Policies
Under
normal circumstances, we invest at least 90% of our total assets (including
assets we obtain through leverage) in securities of energy infrastructure
companies and invest at least 70% of our total assets in equity securities
of
MLPs. Energy infrastructure companies engage in the business of transporting,
processing, storing, distributing or marketing natural gas, natural gas
liquids
(primarily propane), coal, crude oil or refined petroleum products, or
exploring, developing, managing or producing such commodities. We invest
solely
in energy infrastructure companies organized in the United States. All
publicly
traded companies in which we invest have an equity market capitalization
greater
than $100 million.
Although
we also may invest in equity and debt securities of energy infrastructure
companies that are organized and/or taxed as corporations, it is likely
that any
such investments will be in debt securities because the dividends from
equity
securities of such corporations typically do not meet our investment objective.
We also may invest in securities of general partners or other affiliates
of MLPs
and private companies operating energy infrastructure assets.
We
have
adopted the following additional nonfundamental investment
policies:
| · |
We
may invest up to 30% of our total assets in restricted securities,
primarily through direct placements. Subject to this policy, we
may invest
without limitation in illiquid securities. The types of restricted
securities that we may purchase include securities of private energy
infrastructure companies and privately issued securities of publicly
traded energy infrastructure companies. Restricted securities,
whether
issued by public companies or private companies, are generally
considered
illiquid. Investments in private companies that do not have any
publicly
traded shares or units are limited to 5% of total
assets.
|
| · |
We
may invest up to 25% of our total assets in debt securities of
energy
infrastructure companies, including securities rated below investment
grade (commonly referred to as “junk bonds”). Below investment grade debt
securities will be rated at least B3 by Moody’s
|
| Investors Service, Inc. (“Moody’s”) and at least B- by Standard & Poor’s Ratings Group (“S&P”) at the time of purchase, or comparably rated by another statistical rating organization or if unrated, determined to be of comparable quality by the Adviser. |
| · |
We
will not invest more than 10% of total assets in any single
issuer.
|
| · |
We
will not engage in short sales.
|
We
may
change our nonfundamental investment policies without stockholder approval
and
will provide notice to stockholders of material changes (including notice
through stockholder reports); provided, however, that a change in the
policy of
investing at least 90% of our total assets in energy infrastructure companies
requires at least 60 days’ prior written notice to stockholders. Unless
otherwise stated, these investment restrictions apply at the time of
purchase and we will not be required to reduce a position due solely
to market
value fluctuations. The term total assets includes assets obtained through
leverage for the purpose of each investment restriction.
Under
adverse market or economic conditions, we may invest up to 100% of our
total
assets in securities issued or guaranteed by the U.S. Government or its
instrumentalities or agencies, short-term debt securities, certificates
of
deposit, bankers’ acceptances and other bank obligations, commercial paper rated
in the highest category by a rating agency or other liquid
fixed income securities deemed by the Adviser to be consistent with
a
defensive posture (collectively, “short-term securities”), or we may hold cash.
To the extent we invest in short-term securities or cash for defensive
purposes,
such investments are inconsistent with, and may result in us not achieving,
our
investment objective.
We
also
may invest in short-term securities or cash pending investment of offering
proceeds to meet working capital needs including, but not limited to, for
collateral in connection with certain investment techniques, to hold a
reserve
pending payment of distributions, and to facilitate the payment of expenses
and
settlement of trades. The yield on such securities may be lower than the
returns
on MLPs or yields on lower rated fixed income securities.
Use
of Leverage by the Company
The
borrowing of money and the issuance of preferred stock and debt securities
represents the leveraging of our common stock. The issuance of additional
common
stock will enable us to increase the aggregate amount of our leverage.
Currently, we are using leverage and anticipate continuing to use leverage
to
represent approximately 33% of our total assets, including the proceeds
of such
leverage. However, we reserve the right at any time, if we believe that
market
conditions are appropriate, to use financial leverage to the extent permitted
by
the 1940 Act (50% of total assets for preferred stock and 33⅓% of total assets
for debt). On July 24, 2006, our Board of Directors approved a policy permitting
temporary increases in the amount of leverage we may use from 33% of our
total
assets to up to 38% of our total assets at the time of incurrence, provided
that
(i) such leverage is consistent with the limits set forth in the 1940 Act,
and (ii) such increased leverage is reduced over time in an orderly
fashion. The timing and terms of any leverage transactions will be determined
by
our Board of Directors.
The
use
of leverage creates an opportunity for increased income and capital appreciation
for common stockholders, but at the same time, it creates special risks
that may
adversely affect common stockholders. Because the Adviser’s fee is based upon a
percentage of our Managed Assets (as defined below), the Adviser’s fee is higher
when we are leveraged. Therefore, the Adviser has a financial incentive
to use
leverage, which will create a conflict of interest between the Adviser
and our
common stockholders,
who
will bear the costs of our leverage. There can be no assurance that a
leveraging strategy will be successful during any period in which it is
used.
The use of leverage involves risks,
which
can be significant. See “Leverage” and “Risk
Factors—Additional Risks to Common Stockholders—Leverage Risk.”
We
currently use, and may in the future use, interest rate transactions for
hedging
purposes only, in an attempt to reduce the interest rate risk arising from
our
leveraged capital structure. We do not intend to hedge the interest rate
risk of
our portfolio holdings. Interest rate transactions that we may use for
hedging
purposes may expose us to certain risks that differ from the risks associated
with our portfolio holdings. See “Leverage—Hedging Transactions” and “Risk
Factors—Company Risks—Hedging Strategy Risk.”
Conflicts
of Interest
Conflicts
of interest may arise from the fact that the Adviser and its affiliates
carry on
substantial investment activities for other clients, in which we have no
interest. The Adviser or its affiliates may have financial incentives to
favor
certain of these accounts over us. Any of their proprietary accounts or
other
customer accounts may compete with us for specific trades. The Adviser
or its
affiliates may give advice and recommend securities to, or buy or sell
securities for, other accounts and customers, which advice or securities
recommended may differ from advice given to, or securities recommended
or bought
or sold for, us, even though their investment objectives may be the same
as, or
similar to, our objectives.
Situations
may occur when we could be disadvantaged because of the investment activities
conducted by the Adviser and its affiliates for their other accounts. Such
situations may be based on, among other things, the following: (1) legal or
internal restrictions on the combined size of positions that may be taken
for us
or the other accounts, thereby limiting the size of our position; (2) the
difficulty of liquidating an investment for us or the other accounts where
the
market cannot absorb the sale of the combined position; or (3) limits on
co-investing in private placement securities under the 1940 Act. Our investment
opportunities may be limited by affiliations of the Adviser or its affiliates
with energy infrastructure companies. See “Investment Objective and Principal
Investment Strategies—Conflicts of Interest.”
Company
Risks
Our
NAV,
our ability to make distributions, our ability to service debt securities
and
preferred stock, and our ability to meet asset coverage requirements depends
on
the performance of our investment portfolio. The performance of our investment
portfolio is subject to a number of risks, including the following:
Concentration
Risk.
Under
normal circumstances, we concentrate our investments in the energy
infrastructure sector, with an emphasis on securities issued by MLPs. The
primary risks inherent in the energy infrastructure industry include the
following: (1) the performance and level of distributions of MLPs can be
affected by direct and indirect commodity price exposure, (2) a decrease in
market demand for natural gas or other energy commodities could adversely
affect
MLP revenues or cash flows, (3) energy infrastructure assets deplete over
time and must be replaced, and (4) a rising interest rate environment could
increase an MLP’s cost of capital.
Industry
Specific Risk.
Energy
infrastructure companies also are subject to risks specific to the industry
they
serve. For risks specific to the pipeline, processing, propane and coal
industries, see “Risk Factors—Company Risks—Industry Specific
Risk.”
MLP
Risk. We
invest
primarily in equity securities of MLPs. As a result, we are subject to
the risks
associated with an investment in MLPs, including cash flow risk and tax
risk.
Cash flow risk is the risk that MLPs will not make distributions to holders
(including us) at anticipated levels or that such
distributions
will not have the expected tax
character. MLPs also are subject to tax risk, which is the risk that MLPs
might
lose their partnership status for tax purposes.
Equity
Securities Risk.
MLP
common units and other equity securities can be affected by macro-economic
and
other factors affecting the stock market in general, expectations of interest
rates, investor sentiment toward MLPs or the energy sector, changes in
a
particular issuer’s financial condition, or unfavorable or unanticipated poor
performance of a particular issuer (in the case of MLPs, generally measured
in
terms of DCF). Prices of common units of individual MLPs and other equity
securities also can be affected by fundamentals unique to the partnership
or
company, including size, earnings power, coverage ratios and characteristics
and
features of different classes of securities. See “Risk Factors—Company
Risks—Equity Securities Risk.”
Hedging
Strategy Risk.
We
currently use, and may in the future use, interest rate transactions for
hedging
purposes only, in an attempt to reduce the interest rate risk arising from
our
leveraged capital structure. Interest rate transactions that we may use
for
hedging purposes, such as swaps, caps and floors, will expose us to certain
risks that differ from the risks associated with our portfolio holdings.
See
“Risk Factors—Company Risks—Hedging Strategy Risk.”
Competition
Risk.
At the
time we completed our initial public offering in February 2004, we were the
only publicly traded investment company offering access to a portfolio
of energy
infrastructure MLPs. Since that time a number of alternative vehicles for
investment in a portfolio of energy infrastructure MLPs, including other
publicly traded investment companies and private funds, have emerged. In
addition, tax law changes have increased the ability of regulated investment
companies or other institutions to invest in MLPs. These competitive conditions
may adversely impact our ability to meet our investment objective, which
in turn
could adversely impact our ability to make interest or dividend
payments.
Restricted
Security Risk.
We may
invest up to 30% of total assets in restricted securities, primarily through
direct placements. Restricted securities are less liquid than securities
traded
in the open market because of statutory and contractual restrictions on
resale.
Such securities are, therefore, unlike securities that are traded in the
open
market, which can be expected to be sold immediately if the market is adequate.
This lack of liquidity creates special risks for us. See “Risk Factors—Company
Risks—Restricted Security Risk.”
Liquidity
Risk. Certain
MLP securities may trade less frequently than those of other companies
due to
their smaller capitalizations. Investments in securities that are less
actively
traded or over time experience decreased trading volume may be difficult
to
dispose of when we believe it is desirable to do so, may restrict our ability
to
take advantage of other opportunities, and may be more difficult to
value.
Valuation
Risk.
We may
invest up to 30% of total assets in restricted securities, which are subject
to
restrictions on resale. The value of such investments ordinarily will be
based
on fair valuations determined by the Adviser pursuant to procedures adopted
by
the Board of Directors. Restrictions on resale or the absence of a liquid
secondary market may affect adversely our ability to determine NAV. The
sale
price of securities that are restricted or otherwise are not readily marketable
may be higher or lower than our most recent valuations.
Nondiversification
Risk.
We are a
nondiversified investment company under the 1940 Act and we are not a regulated
investment company under the Internal Revenue Code. Accordingly, there
are no
limits under the 1940 Act or Internal Revenue Code with respect to the
number or
size of issuers held by us and we may invest more assets in fewer issuers
as
compared to a diversified fund.
Management
Risk.
The
Adviser was formed in October 2002 to provide portfolio management services
to
institutional and high net worth investors seeking professional management
of
their MLP investments. The Adviser has been managing our portfolio since
we
began operations in February 2004. The
Adviser relies in part on the officers, employees, and resources of its
affiliate, Fountain Capital Management, L.L.C. (“Fountain Capital”), for certain
functions. These
services are provided pursuant to an informal arrangement between the
parties.
See
“Risk
Factors—Company Risks” for a more detailed discussion of these and other risks
of investing in our securities.
Additional
Risks to Common Stockholders
Leverage
Risk.
We are
currently leveraged and intend to continue to use leverage primarily for
investment purposes. Leverage, which is a speculative technique, could
cause us
to lose money and can magnify the effect of any losses. There is no assurance
that a leveraging strategy will be successful. Currently, we anticipate
using
leverage to represent approximately 33% of our total assets, including
the
proceeds from such leverage. However, we reserve the right at any time,
if we
believe that market conditions are appropriate, to use financial leverage
to the
extent permitted by the 1940 Act (50% for preferred stock and 33⅓% for debt).
Common stockholders bear the cost of leverage. On July 24, 2006, our Board
of
Directors approved a policy permitting temporary increases in the amount
of
leverage we may use from 33% of our total assets to up to 38% of our total
assets at the time of incurrence, provided that (i) such leverage is consistent
with the limits set forth in the 1940 Act, and (ii) such increased leverage
is
reduced over time in an orderly fashion.
Market
Impact Risk.
The
sale of our common stock (or the perception that such sales may occur)
may have
an adverse effect on prices in the secondary market for our common stock
by
increasing the number of shares available, which may put downward pressure
on
the market price for our common stock. Our ability to sell shares of common
stock below NAV may increase this pressure. These sales also might make
it more
difficult for us to sell additional equity securities in the future at
a time
and price we deem appropriate.
Dilution
Risk.
The
voting power of current stockholders will be diluted to the extent that
such
stockholders do not purchase shares in any future common stock offerings
or do
not purchase sufficient shares to maintain their percentage interest. In
addition, if we sell shares of common stock below NAV, our NAV will fall
immediately after such issuance. See “Description of Securities—Common
Stock—Issuance of Additional Shares” which includes a table reflecting the
dilutive effect of selling our common stock below NAV.
If
we are
unable to invest the proceeds of such offering as intended, our per share
distribution may decrease and we may not participate in market advances
to the
same extent as if such proceeds were fully invested as planned.
Market
Discount Risk.
Our
common stock has a limited trading history and has traded both at a premium
and
at a discount in relation to NAV. We cannot predict whether our shares
will
trade in the future at a premium or discount to NAV.
See
“Risk
Factors—Additional Risks to Common Stockholders” for a more detailed discussion
of these risks.
Additional
Risks to Senior Security Holders
Additional
risks of investing in senior securities, which will likely be auction
rate
securities, include the following:
Interest
Rate Risk.
To the
extent that senior securities trade through an auction, such securities
pay
dividends or interest based on short-term interest rates. If short-term
interest
rates rise, dividends or interest
on the auction rate senior securities may rise so that the amount of
dividends
or interest due to holders of auction rate senior securities would exceed
the
cash flow generated by our portfolio securities. This might require that
we sell
portfolio securities at a time when we would otherwise not do so, which
may
affect adversely our future ability to generate cash flow. In addition,
rising
market interest rates could impact negatively the value of our investment
portfolio, reducing the amount of assets serving as asset coverage for
the
senior securities.
Senior
Leverage Risk.
Our
preferred stock will be junior in liquidation and with respect to distribution
rights to our debt securities and any other borrowings. Senior securities
representing indebtedness may constitute a substantial lien and burden
on
preferred stock by reason of their prior claim against our income and against
our net assets in liquidation. We may not be permitted to declare dividends
or
other distributions with respect to any series of our preferred stock unless
at
such time we meet applicable asset coverage requirements and the payment
of
principal or interest is not in default with respect to the Tortoise Notes
or
any other borrowings.
Ratings
and Asset Coverage Risk.
To the
extent that senior securities are rated, a rating does not eliminate or
necessarily mitigate the risks of investing in our senior securities, and
a
rating may not fully or accurately reflect all of the credit and market
risks
associated with that senior security. A rating agency could downgrade the
rating
of our shares of preferred stock or debt securities, which may make such
securities less liquid at an auction or in the secondary market, though
probably
with higher resulting interest rates. If a rating agency downgrades the
rating
assigned to a senior security, we may alter our portfolio or redeem the
senior
security. We may voluntarily redeem a senior security under certain
circumstances.
Inflation
Risk.
Inflation is the reduction in the purchasing power of money resulting from
an
increase in the price of goods and services. Inflation risk is the risk
that the
inflation adjusted or “real” value of an investment in preferred stock or debt
securities or the income from that investment will be worth less in the
future.
As inflation occurs, the real value of the preferred stock or debt securities
and the dividend payable to holders of preferred stock or debt securities
declines.
Auction
Risk.
To the
extent that senior securities trade through an auction, there are certain
risks
associated with participating in an auction and certain risks if you try
to sell
senior securities outside of an auction in the secondary market. These
risks
will be described in more detail in an applicable prospectus supplement
if we
issue senior securities pursuant to this registration statement.
Decline
in Net Asset Value Risk.
A
material decline in our NAV may impair our ability to maintain required
levels
of asset coverage for our preferred stock or debt securities.
See
“Risk
Factors—Additional Risks to Senior Security Holders” for a more detailed
discussion of these risks.
The
following table and example contain information about the costs and expenses
that common stockholders will bear directly or indirectly. In accordance
with
SEC requirements, the table below shows our expenses, including leverage
costs,
as a percentage of our net assets as of November 30, 2006, and not as
a
percentage of gross assets or Managed Assets. By showing expenses as
a
percentage of net assets, expenses are not expressed as a percentage
of all of
the assets we invest. The table and example are based on our capital
structure as of November 30, 2006. As of that date, we had
$235 million in senior securities outstanding (MMP Shares with an aggregate
liquidation preference of $70 million and Tortoise Notes in an aggregate
principal amount of $165 million) and approximately $32.45 million
outstanding under our unsecured credit facility. Such senior securities
and
borrowings under our unsecured credit facility represent 28.8% of total
assets
as of November 30, 2006.
Stockholder
Transaction Expense
|
Sales
Load (as a percentage of offering price)
|
--(1)
|
|
Offering
Expenses Borne by the Company (as a percentage of offering
price)
|
--(1)
|
|
Dividend
Reinvestment and Cash Purchase Plan Fees(2)
|
None
|
|
Percentage
of Net
Assets
Attributable
to
Common
Stockholders
|
||||
|
Annual
Expenses
|
||||
|
Management
Fee
|
1.65
|
%
|
||
|
Leverage
Costs(3)
|
2.82
|
%
|
||
|
Other
Expenses(4)
|
0.26
|
%
|
||
|
Total
Annual Expenses (excluding current and deferred income tax
expenses)(5)
|
4.73
|
%
|
||
|
Less
Fee and Expense Reimbursement (through 2/28/09)(6)
|
(0.17
|
)%
|
||
|
Net
Annual Expenses (excluding current and deferred income tax
expenses)
|
4.56
|
%
|
||
|
Current
Income Tax Expense
|
0.09 | % | ||
|
Deferred
Income Tax Expense(7)
|
13.37 | % | ||
|
Net
Annual Expenses (including current and deferred income tax
expenses)(7)
|
18.02 | % | ||
Example:
The
following example illustrates the expenses that common stockholders
would pay on
a $1,000 investment in common stock, assuming (1) net annual expenses
(excluding current and deferred income tax expenses) of 4.56% of net assets
attributable to common shares in years 1 and 2 and increasing to 4.73%
in years
3 through 10; (2) a 5% annual return; and (iii) all distributions are
reinvested at NAV:(8)
|
1
Year
|
3
Years
|
5
Years
|
10
Years
|
||||||||||
|
Total
Expenses Paid by Common Stockholders(9)
|
$
|
46 |
$
|
140
|
$ | 236 |
$
|
478
|
|||||
The
example should not be considered a representation of future expenses.
Actual
expenses may be greater or less than those assumed. Moreover, our
actual rate of
return may be greater or less than the hypothetical 5% return shown
in the
example.
____________
|
(1)
|
If
the securities to which this prospectus relates are sold
to or through
underwriters, the prospectus supplement will set forth any
applicable
sales load and the estimated offering expenses borne by
us.
|
|
(2)
|
Stockholders
will pay a transaction fee plus brokerage charges
if they direct the Plan
Agent to sell common stock held in a Plan account.
See “Automatic Dividend
Reinvestment and Cash Purchase
Plan.”
|
|
(3)
|
Leverage
Costs in the table reflect the weighted average cost
of dividends payable
on MMP Shares and the interest payable on Tortoise
Notes and borrowings
under our unsecured credit facility, expressed as
a percentage of net
assets. However, Tortoise Notes and MMP Shares were
fully hedged under
swap agreements as of November 30, 2006, which, as of that date,
effectively reduced our Leverage Costs to 2.38%.
In the future, our use of
swap agreements may effectively reduce, increase
or have no effect on, our
Leverage Costs. For a more detailed discussion of
our use of swap
agreements, see “Leverage—Hedging Transactions” and “—Effects of
Leverage.”
|
| (4) |
Other
Expenses are based on estimated amounts for the current
fiscal
year.
|
|
(5)
|
The
table presented in this footnote presents certain of
our annual expenses
as a percentage of Managed Assets as of November 30, 2006, and takes
into account the effect of interest rate swap
agreements.
|
|
Percentage
of Managed Assets
|
||||
|
Annual
Expenses
|
||||
|
Management
Fee
|
0.95
|
%
|
||
|
Leverage
Costs(a)
|
1.36
|
%
|
||
|
Other
Expenses (excluding current and deferred income tax
expenses) (b)
|
0.15
|
%
|
||
|
Total
Annual Expenses (excluding current and deferred income
tax
expenses)
|
2.46
|
%
|
||
|
Less
Fee and Expense Reimbursement (through 2/28/09)(c)
|
(0.10
|
)%
|
||
|
Net
Annual Expenses (excluding current and deferred income tax
expenses)
|
2.36
|
%
|
||
____________
|
(a)
|
Leverage
Costs are calculated as described in Note 3 above
except that they are
based on the swap rates in effect as of November
30,
2006.
|
|
(b)
|
Other
Expenses are based on estimated amounts for the
current fiscal year.
|
|
(c)
|
Through
February 28, 2009, the Adviser has contractually agreed
to reimburse
us for expenses in an amount equal to 0.10% of
our average monthly Managed
Assets.
|
|
(6)
|
Through
February 28, 2009, the Adviser has contractually agreed to reimburse
us for expenses in an amount equal to 0.10% of our average
monthly Managed
Assets, which represents 0.17% of our net assets as of
November 30,
2006. The management fee and reimbursement are expressed
as a percentage
of net assets in the table. Because holders of preferred
stock and debt
securities do not bear management fees and other expenses,
the cost to
common stockholders increases as leverage
increases.
|
|
(7)
|
For
our fiscal year ended November 30, 2006, we accrued $71,190,049
in net
deferred tax expense related to our net investment loss
and realized and
unrealized gains. Deferred income tax expense represents
an estimate of
our potential tax liability if we were to recognize the
unrealized
appreciation of our portfolio assets accumulated during
our fiscal year
ended November 30, 2006, based on the market value and
tax basis of our
assets as of November 30, 2006. Actual income tax expense (if any)
will be incurred over many years, depending on if and when
investment
gains are realized, the then-current tax basis of assets,
the level of net
loss carryforwards and other
factors.
|
|
(8)
|
The
example does not include the potential impact of current
and deferred
income tax expense. For the fiscal years ended November
30, 2006, 2005 and
2004, we accrued current and deferred income tax expense
of $71,661,802,
$24,659,420 and $30,330,018, respectively, which represented
$4.28, $1.65
and $2.39 per outstanding share of common stock as of
the respective
fiscal year end.
|
|
(9)
|
The
example does not include sales load or estimated offering
costs.
|
The
purpose of the table and the example above is to help investors
understand the
fees and expenses that they, as common stockholders, would bear
directly or
indirectly. For additional information with respect to our expenses,
see
“Management of the Company.”
Information
contained in the table below under the heading “Per Common Share Data” and
“Supplemental Data and Ratios” shows our per common share operating
performance. The
information in this table is derived from our financial statements audited
by
Ernst & Young LLP, whose report on such financial statements is
contained in our 2006 Annual Report and incorporated by reference into
the
statement of additional information, both of which are available from
us.
|
Year
Ended
November
30, 2006
|
Year
Ended
November
30, 2005
|
Period
from
February
27, 2004(1)
through
November 30, 2004
|
||||||||
|
Per
Common Share Data(2)
|
||||||||||
|
Net
Asset Value, beginning of period
|
$
|
27.12
|
$
|
26.53
|
$
|
—
|
||||
|
Public
offering price
|
—
|
—
|
25.00
|
|||||||
|
Underwriting
discounts and offering costs on initial public offering
|
—
|
—
|
(1.17
|
)
|
||||||
|
Underwriting
discounts and offering costs on issuance of preferred
shares
|
—
|
(0.02
|
)
|
(0.06
|
)
|
|||||
|
Premiums
less underwriting discounts and offering costs on secondary
offering(3)
|
—
|
—
|
—
|
|||||||
|
Underwriting
discounts and offering costs on shelf offering of common
stock(4)
|
(0.14
|
)
|
—
|
—
|
||||||
|
Income
(loss) from Investment Operations:
|
||||||||||
|
Net
investment loss(5)
|
(0.32
|
)
|
(0.16
|
)
|
(0.03
|
)
|
||||
|
Net
realized and unrealized gain on investments(5)
|
7.41
|
2.67
|
3.77
|
|||||||
|
Total
increase from investment operations
|
7.09
|
2.51
|
3.74
|
|||||||
|
Less
Dividends to Preferred Stockholders:
|
||||||||||
|
Net
investment income
|
—
|
—
|
—
|
|||||||
|
Return
of capital
|
(0.23
|
)
|
(0.11
|
)
|
(0.01
|
)
|
||||
|
Total
dividends to preferred stockholders
|
(0.23
|
)
|
(0.11
|
)
|
(0.01
|
)
|
||||
|
Less
Dividends to Common Stockholders:
|
||||||||||
|
Net
investment income
|
—
|
—
|
—
|
|||||||
|
Return
of capital
|
(2.02
|
)
|
(1.79
|
)
|
(0.97
|
)
|
||||
|
Total
dividends to common stockholders
|
(2.02
|
)
|
(1.79
|
)
|
(0.97
|
)
|
||||
|
Net
Asset Value, end of period
|
$
|
31.82
|
$
|
27.12
|
$
|
26.53
|
||||
|
Per
common share market value, end of period
|
$
|
36.13
|
$
|
28.72
|
$
|
27.06
|
||||
|
Total
Investment Return Based on Market Value(6)
|
34.50
|
%
|
13.06
|
%
|
12.51
|
%
|
||||
|
Supplemental
Data and Ratios
|
||||||||||
|
Net
assets applicable to common stockholders, end of period
(000’s)
|
$
|
532,433
|
$
|
404,274
|
$
|
336,553
|
||||
|
Ratio
of expenses (including current and deferred income tax expense)
to average
net assets before waiver:(7)(8)(9)
|
20.03
|
%
|
9.10
|
%
|
15.20
|
%
|
||||
|
Ratio
of expenses (including current and deferred income tax expense)
to average
net assets after waiver:(7)(8)(9)
|
19.81
|
%
|
8.73
|
%
|
14.92
|
%
|
||||
|
Ratio
of expenses (excluding current and deferred income tax expense)
to average
net assets before waiver:(7)(8)(9)(10)
|
3.97
|
%
|
3.15
|
%
|
2.01
|
%
|
||||
|
Ratio
of expenses (excluding current and deferred income tax expense)
to average
net assets after waiver:(7)(8)(9)(10)
|
3.75
|
%
|
2.78
|
%
|
1.73
|
%
|
||||
|
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)
|
3.97
|
%
|
3.15
|
%
|
1.90
|
%
|
||||
|
Year
Ended
November
30, 2006
|
Year
Ended
November
30, 2005
|
Period
from
February
27, 2004(1) through November 30, 2004
|
||||||||
|
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)
|
3.75
|
%
|
2.78
|
%
|
1.62
|
%
|
||||
|
Ratio
of net investment loss to average net assets before
waiver:(7)(8)(10)
|
(2.24
|
)%
|
(1.42
|
)%
|
(0.45
|
)%
|
||||
|
Ratio
of net investment loss to average net assets after
waiver:(7)(8)(10)
|
(2.02
|
)%
|
(1.05
|
)%
|
(0.17
|
)%
|
||||
|
Ratio
of net investment loss to average net assets after current
and deferred
income tax expense, before waiver:(7)(8)(9)
|
(18.31
|
)%
|
(7.37
|
)%
|
(13.37
|
)%
|
||||
|
Ratio
of net investment loss to average net assets after current
and deferred
income tax expense, after waiver:(7)(8)(9)
|
(18.09
|
)%
|
(7.00
|
)%
|
(13.65
|
)%
|
||||
|
Portfolio
turnover rate(7)
|
2.18
|
%
|
4.92
|
%
|
1.83
|
%
|
||||
|
Tortoise
Auction Rate Senior Notes, end of period (000’s)
|
$
|
165,000
|
$
|
165,000
|
$
|
110,000
|
||||
|
Tortoise
Preferred Shares, end of period (000’s)
|
$
|
70,000
|
$
|
70,000
|
$
|
35,000
|
||||
|
Per
common share amount of auction rate senior notes outstanding
at end of
period
|
$
|
9.86
|
$
|
11.07
|
$
|
8.67
|
||||
|
Per
common share amount of net assets, excluding auction rate senior
notes, at
end of period
|
$
|
41.68
|
$
|
38.19
|
$
|
35.21
|
||||
|
Asset
coverage, per $1,000 of principal amount of auction rate senior
notes and
short-term borrowings(11)
|
$
|
4,051
|
$
|
3,874
|
$
|
4,378
|
||||
|
Asset
coverage ratio of auction rate senior notes and short-term
borrowings(11)
|
405
|
%
|
387
|
%
|
438
|
%
|
||||
|
Asset
coverage, per $25,000 liquidation value per share of preferred
shares(12)
|
$
|
215,155
|
$
|
169,383
|
$
|
265,395
|
||||
|
Asset
coverage ratio of preferred shares(13)
|
299
|
%
|
272
|
%
|
332
|
%
|
||||
____________
|
(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. See Note 2C to
the financial
statements for further disclosure.
|
|
(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 Company’s dividend reinvestment plan. Total
investment return does not reflect brokerage
commissions.
|
|
(7)
|
Annualized
for periods less than one full
year.
|
|
(8)
|
The
expense ratios and net investment loss ratios do not reflect
the effect of
dividend payments to preferred
stockholders.
|
|
(9)
|
The
Company accrued $71,661,802, $24,659,420 and $30,330,018 for
years ended
November 30, 2006 and 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 the impact of current and deferred income
taxes.
|
|
(11)
|
Represents
value of total assets less all liabilities and indebtedness not
represented by auction rate senior notes, short-term borrowings
and
preferred shares at the end of the period divided by auction
rate senior
notes and short-term borrowings 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
preferred shares outstanding at the end of the period, assuming
the
retirement of all auction rate senior notes and short-term
borrowings.
|
|
(13)
|
Represents
value of total assets less all liabilities and indebtedness
not
represented by auction rate senior notes, short-term borrowings
and
preferred shares at the end of the period divided by auction
rate senior
notes, short-term borrowings and preferred shares outstanding
at the end
of the period.
|
SENIOR
SECURITIES
The
following table sets forth information about our outstanding senior securities
as of each fiscal year ended November 30 since our inception:
|
Year
|
Title
of Security
|
Total
Principal Amount/Liquidation Preference
Outstanding
|
Asset
Coverage Per $1,000 of Principal Amount
|
Asset
Coverage Per Share ($25,000 Liquidation
Preference)
|
Average
Fair Value Per $25,000 Denomination or Per Share
Amount(1)
|
|
2004
|
Tortoise
Notes Series A and B
|
$110,000,000
|
$4,378
|
$25,000
|
|
|
MMP
Shares
Series
I
(1,400
shares)
|
$
35,000,000
|
$83,026
|
$25,000
|
||
|
$145,000,000
|
|||||
|
2005
|
Tortoise
Notes
(Series
A, B
and
C)
|
$165,000,000
|
$3,874
|
$25,000
|
|
|
MMP
Shares
(Series I and II) (2,800 shares) |
$
70,000,000
|
$68,008
|
$25,000
|
||
|
$235,000,000
|
|||||
|
2006
|
Tortoise
Notes
Series A, B and C |
$165,000,000
|
$4,051
|
$25,000
|
|
|
MMP
Shares
Series I and II (2,800 shares) |
$
70,000,000
|
$74,769
|
$25,000
|
||
|
Borrowings
Unsecured Revolving Credit Facility(2) |
$
32,450,000
|
$4,051
|
|||
|
$267,450,000
|
____________
|
(1)
|
Fair
value of the Tortoise Notes and MMP Shares approximates the
principal
amount and liquidation preference, respectively, because
the interest and
dividend rates payable on Tortoise Notes and MMP Shares are
determined at
auctions and fluctuate with changes in prevailing market
interest
rates.
|
|
(2)
|
We
have an unsecured credit facility with U.S. Bank N.A. which,
as of
November 30, 2006, allowed us to borrow up to $60,000,000. Effective
February 27, 2007, we may borrow up to $120,000,000 under
the credit
facility. The credit facility expires on June 13,
2007.
|
Our
common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol
“TYG.” Shares of our common stock commenced trading on the NYSE on
February 25, 2004.
Our
common stock has a limited trading history and has traded both at a premium
and
at a discount in relation to NAV. We cannot predict whether our shares
will
trade in the future at a premium or discount to NAV. The provisions of
the 1940
Act generally require that the public offering price of common stock
(less any
underwriting commissions and discounts) must equal or exceed the NAV
per share
of a company’s common stock (calculated within 48 hours of pricing). However, at
our Annual Meeting of Stockholders held on April 15, 2005, our common
stockholders granted to us the authority to sell a limited number of
shares of
our common stock for less than NAV, subject to certain conditions. We
expect to
resubmit the matter for stockholder approval at our Annual Meeting of
Stockholders scheduled for April 13, 2007. Our issuance of common stock may
have an adverse effect on prices in the secondary market for our common
stock by
increasing the number of shares of common stock available, which may
put
downward pressure on the market price for our common stock. The continued
development of alternatives as vehicles for investing in a portfolio
of energy
infrastructure MLPs, including other publicly traded
investment companies and private funds, may reduce or eliminate any tendency
of
our shares of common stock to trade at a premium in the future. Shares
of common
stock of closed-end investment companies frequently trade at a discount
from
NAV. See “Risk Factors—Additional Risks to Common Stockholders—Market Discount
Risk.”
The
following table sets forth for each of the periods indicated the high and
low
closing market prices for our shares of common stock on the NYSE, the NAV
per
share and the premium or discount to NAV per share at which our shares
of common
stock were trading. NAV is generally determined on the last business day
of each
calendar month. See “Determination of Net Asset Value” for information as to the
determination of our NAV.
|
Market
Price(1)
|
Premium/(Discount)
To Net Asset Value(3)
|
|||||||||||||||
|
Month
Ended
|
High
|
Low
|
Net
Asset
Value(2)
|
High
|
Low
|
|||||||||||
|
March 31,
2004
|
$
|
26.00
|
$
|
24.95
|
$
|
23.77
|
9.4
|
%
|
5.0
|
%
|
||||||
|
April 30,
2004
|
25.00
|
23.10
|
23.83
|
4.9
|
%
|
-3.1
|
%
|
|||||||||
|
May 31,
2004
|
24.20
|
21.99
|
22.84
|
6.0
|
%
|
-3.7
|
%
|
|||||||||
|
June 30,
2004
|
24.00
|
22.45
|
22.67
|
5.9
|
%
|
-1.0
|
%
|
|||||||||
|
July 31,
2004
|
24.19
|
22.74
|
23.25
|
4.0
|
%
|
-2.2
|
%
|
|||||||||
|
August 31,
2004
|
25.06
|
23.86
|
24.19
|
3.6
|
%
|
-1.4
|
%
|
|||||||||
|
September 30,
2004
|
26.60
|
24.98
|
24.38
|
9.1
|
%
|
2.5
|
%
|
|||||||||
|
October 31,
2004
|
26.60
|
24.65
|
25.30
|
5.1
|
%
|
-2.6
|
%
|
|||||||||
|
November 30,
2004
|
27.70
|
25.39
|
25.54
|
8.5
|
%
|
-0.6
|
%
|
|||||||||
|
December
31, 2004
|
27.53
|
26.56
|
26.53
|
3.8
|
%
|
0.1
|
%
|
|||||||||
|
January
31, 2005
|
28.57
|
27.10
|
27.17
|
5.2
|
%
|
-0.3
|
%
|
|||||||||
|
February
28, 2005
|
31.05
|
28.55
|
28.56
|
8.7
|
%
|
0.0
|
%
|
|||||||||
|
March
31, 2005
|
30.91
|
28.54
|
28.37
|
9.0
|
%
|
0.6
|
%
|
|||||||||
|
April
30, 2005
|
30.00
|
28.40
|
27.61
|
8.7
|
%
|
2.9
|
%
|
|||||||||
|
May
31, 2005
|
29.15
|
28.19
|
28.61
|
1.9
|
%
|
-1.5
|
%
|
|||||||||
|
June
30, 2005
|
31.50
|
28.30
|
27.75
|
13.5
|
%
|
2.0
|
%
|
|||||||||
|
July
31, 2005
|
33.25
|
31.10
|
28.69
|
15.9
|
%
|
8.4
|
%
|
|||||||||
|
August
31, 2005
|
33.19
|
31.10
|
30.32
|
9.5
|
%
|
2.6
|
%
|
|||||||||
|
September
30, 2005
|
32.01
|
30.32
|
29.16
|
9.8
|
%
|
4.0
|
%
|
|||||||||
|
October
31, 2005
|
31.20
|
28.10
|
29.09
|
7.3
|
%
|
-3.4
|
%
|
|||||||||
|
November
30, 2005
|
30.75
|
28.25
|
28.70
|
7.1
|
%
|
-1.6
|
%
|
|||||||||
|
December
31, 2005
|
28.60
|
26.60
|
27.12
|
5.5
|
%
|
-1.9
|
%
|
|||||||||
|
January
31, 2006
|
29.95
|
27.92
|
26.65
|
12.4
|
%
|
4.8
|
%
|
|||||||||
|
Market
Price(1)
|
Premium/(Discount)
To Net Asset Value(3)
|
|||||||||||||||
|
Month
Ended
|
High
|
Low
|
Net
Asset
Value(2)
|
High
|
Low
|
|||||||||||
|
February
28, 2006
|
29.48
|
28.35
|
28.17
|
4.7
|
%
|
0.6
|
%
|
|||||||||
|
March
31, 2006
|
29.58
|
27.91
|
27.55
|
7.4
|
%
|
1.3
|
%
|
|||||||||
|
April 30,
2006
|
28.95
|
27.56
|
28.12
|
3.0
|
%
|
-2.0
|
%
|
|||||||||
|
May 31,
2006
|
29.89
|
28.52
|
28.58
|
4.6
|
%
|
-0.2
|
%
|
|||||||||
|
June
30, 2006
|
30.01
|
27.85
|
28.91
|
3.8
|
% |
-3.7
|
% | |||||||||
|
July
31, 2006
|
30.47
|
28.06
|
28.32
|
7.6
|
% |
-0.9
|
% | |||||||||
|
August
31, 2006
|
30.70
|
29.10
|
29.46
|
4.2
|
% |
-1.2
|
% | |||||||||
|
September
30, 2006
|
31.60
|
30.49
|
29.59
|
6.8
|
% |
3.0
|
% | |||||||||
|
October
31, 2006
|
32.80
|
31.14
|
29.34
|
11.8
|
% |
6.1
|
% | |||||||||
|
November
30, 2006
|
36.13
|
31.85
|
31.01
|
16.5
|
% |
2.7
|
% | |||||||||
|
December
31, 2006
|
36.31
|
33.48
|
31.82
|
14.1
|
% |
5.2
|
% | |||||||||
|
January
31, 2007
|
35.50
|
34.13
|
32.62
|
8.8
|
% |
4.6
|
% | |||||||||
|
February 28,
2007
|
36.64
|
35.15
|
34.27
|
6.9
|
% |
2.6
|
% |
____________
Source:
Bloomberg Financial and Fund Accounting Records.
|
(1)
|
Based
on high and low closing market price for the respective
month.
|
|
(2)
|
Based
on the NAV calculated on the close of business on the last business
day of
each prior calendar month.
|
|
(3)
|
Calculated
based on the information presented. Percentages are
rounded.
|
The
last
reported sale price, NAV per share and percentage discount to NAV per share
of
our common stock on ____________, 2007 were $____, $____ and ___%, respectively.
As of __________,
2007, we had __________ shares of our common stock outstanding and net
assets of
approximately $_______________.
Unless
otherwise specified in a prospectus supplement, we will invest the net
proceeds
of any sales of securities in accordance with our investment objective
and
policies as described under “Investment Objective and Principal Investment
Strategies” within approximately 3 months of receipt of such proceeds. We may
also use proceeds from the sale of our securities to retire all or a portion
of
any short-term debt we incur in pursuit of our investment objective and
policies, and for working capital purposes, including the payment of
distributions, interest and operating expenses, although there is currently
no
intent to issue securities primarily for this purpose. Our investments
may be
delayed if suitable investments are unavailable at the time or for other
reasons. Such investments may be delayed if suitable investments are unavailable
at the time or for other reasons. Pending such investment, we anticipate
that we
will invest the proceeds in securities issued by the U.S. Government or
its
agencies or instrumentalities or in high quality, short-term or long-term
debt
obligations. A delay in the anticipated use of proceeds could lower returns,
reduce our distribution to common stockholders and reduce the amount of
cash
available to make dividend and interest payments on preferred stock and
debt
securities, respectively. We will not receive any of the proceeds from
a sale of
our common stock by any selling stockholder.
We
are a
nondiversified, closed-end management investment company registered under
the
1940 Act. We were organized as a corporation on October 30, 2003, pursuant
to a charter (the “Charter”) governed by the laws of the State of Maryland. Our
fiscal year ends on November 30. In our initial public offering on
February 27, 2004, and the exercise of subsequent overallotment options, we
raised aggregate gross proceeds of $315,000,000. We completed three additional
offerings of common stock in December 2004, August 2006 and December
2006. As of
February 28,
2007, we had net assets of approximately $635,000,000 attributable to
our common
stock. Our common stock is listed on the NYSE under the symbol “TYG.” As of the
date of this prospectus, we have issued three series of Tortoise Notes
and two
series of MMP Shares. The outstanding Tortoise Notes are rated “Aaa” and “AAA”
by Moody’s Investors Service Inc. (“Moody’s”) and Fitch Ratings (“Fitch”),
respectively. The outstanding MMP Shares are rated “Aa2” and “AA” by Moody’s and
Fitch, respectively.
The
following table provides information about our outstanding securities
as of
February 28,
2007:
|
Title
of Class
|
Amount
Authorized
|
Amount
Held by the Company or for its Account
|
Amount
Outstanding
|
|||||||
|
Common
Stock
|
100,000,000
|
0
|
|
18,232,065
|
||||||
|
Tortoise
Notes
|
||||||||||
|
Series A
|
$
|
60,000,000
|
0
|
$
|
60,000,000
|
|||||
|
Series B
|
$
|
50,000,000
|
0
|
$
|
50,000,000
|
|||||
|
Series C
|
$
|
55,000,000
|
0
|
$
|
55,000,000
|
|||||
|
Preferred
Stock
|
10,000,000(1
|
)
|
||||||||
|
Series I
MMP Shares
|
1,400(2
|
)
|
0
|
1,400
|
||||||
|
Series II
MMP Shares
|
1,400(2
|
)
|
0
|
1,400
|
||||||
____________
|
(1)
|
Includes
2,800 shares of preferred stock designated as MMP Shares as set
forth
below.
|
|
(2)
|
Each
share has a liquidation preference of $25,000 ($35,000,000 in
the
aggregate for each of Series I and Series II MMP
Shares).
|
Investment
Objective
Our
investment objective is to seek a high level of total return with an emphasis
on
current distributions paid to stockholders. For purposes of our investment
objective, total return includes capital appreciation of, and all distributions
received from, securities in which we invest regardless of the tax character
of
the distributions. We seek to provide our stockholders with an efficient
vehicle
to invest in a portfolio of publicly traded MLPs in the energy infrastructure
sector. Similar to the federal income tax characterization of cash distributions
made by MLPs to its unit holders, we believe that our common stockholders
will
have relatively high levels of return of capital associated with cash
distributions made by us to stockholders.
Energy
Infrastructure Industry
We
concentrate our investments in the energy infrastructure sector. We pursue
our
objective by investing principally in a portfolio of equity securities
issued by
MLPs. MLP common units historically have generated higher average total
returns
than domestic common stock (as measured by the S&P 500) and fixed
income securities. A more detailed description of investment policies
and
restrictions and more detailed information about portfolio investments
are
contained in the Statement of Additional Information.
Energy
Infrastructure Companies.
For
purposes of our policy of investing 90% of total assets in securities
of energy
infrastructure companies, an energy infrastructure company is one that
derives
each year at least 50% of its revenues from “Qualifying Income” under
Section 7704 of the Internal Revenue Code or one that derives at least 50%
of its revenues from the provision of services directly related to the
generation of Qualifying Income. Qualifying Income is defined as including
any
income and gains from the exploration, development, mining or production,
processing, refining, transportation (including pipelines transporting
gas, oil
or products thereof), or the marketing of any mineral or natural resource
(including fertilizer, geothermal energy, and timber).
Energy
infrastructure companies (other than most pipeline MLPs) do not operate
as
“public utilities” or “local distribution companies,” and therefore are not
subject to rate regulation by state or federal utility commissions. However,
energy infrastructure companies may be subject to greater competitive
factors than utility companies, including competitive pricing in the
absence of
regulated tariff rates, which could cause a reduction in revenue and
which could
adversely affect profitability. Most pipeline MLPs are subject to government
regulation concerning the construction, pricing and operation of pipelines.
Pipeline MLPs are able to set prices (rates or tariffs) to cover operating
costs, depreciation and taxes, and provide a return on investment. These
rates
are monitored by the Federal Energy Regulatory Commission (FERC) which
seeks to
ensure that consumers receive adequate and reliable supplies of energy
at the
lowest possible price while providing energy suppliers and transporters
a just
and reasonable return on capital investment and the opportunity to adjust
to
changing market conditions.
Master
Limited Partnerships.
Under
normal circumstances, we invest at least 70% of our total assets in equity
securities of MLPs that each year derive at least 90% of their gross income
from
Qualifying Income and are organized as partnerships, thereby eliminating
federal
income tax at the entity level. An MLP generally has two classes of partners,
the general partner, and the limited partners. The general partner is usually
a
major energy company, investment fund or the direct management of the MLP.
The
general partner normally controls the MLP through a 2% equity interest
plus
units that are subordinated to the common (publicly traded) units for at
least
the first five years of the partnership’s existence and then only converting to
common if certain financial tests are met.
As
a
motivation for the general partner to successfully manage the MLP and increase
cash flows, the terms of most MLP partnership agreements typically provide
that
the general partner receives a larger portion of the net income as distributions
reach higher target levels. As cash flow grows, the general partner receives
a
greater interest in the incremental income compared to the interest of
limited
partners. The general partner’s incentive compensation typically increases to up
to 50% of incremental income. Nevertheless, the aggregate amount of
distributions to limited partners will increase as MLP distributions reach
higher target levels. Given this incentive structure, the general partner
has an
incentive to streamline operations and undertake acquisitions and growth
projects in order to increase distributions to all partners.
Energy
infrastructure MLPs in which we invest generally can be classified
in the
following categories:
|
·
|
Pipeline
MLPs.
Pipeline MLPs are common carrier transporters of natural
gas, natural gas
liquids (primarily propane, ethane, butane and natural gasoline),
crude
oil or refined petroleum products (gasoline, diesel fuel
and jet fuel).
Pipeline MLPs also may operate ancillary businesses such
as storage and
marketing of such products. Revenue is derived from capacity
and
transportation fees. Historically, pipeline output has been
less exposed
to cyclical economic forces due to its low cost structure
and
government-regulated nature. In addition, pipeline MLPs do
not have direct
commodity price exposure because they do not own the product
being
shipped.
|
|
·
|
Processing
MLPs.
Processing MLPs are gatherers and processors of natural gas,
as well as
providers of transportation, fractionation and storage of
natural gas
liquids (“NGLs”). Revenue is derived from providing services to natural
gas producers, which require treatment or processing before
their natural
gas commodity can be marketed to utilities and other end
user markets.
Revenue for the processor is fee based, although it is not
uncommon to
have some participation in the prices of the natural gas
and NGL
commodities for a portion of
revenue.
|
|
·
|
Propane
MLPs.
Propane MLPs are distributors of propane to homeowners for
space and water
heating. Revenue is derived from the resale of the commodity
on a margin
over wholesale cost. The ability to maintain margin is a
key to
profitability. Propane serves approximately
3% of the household energy needs in the United States, largely
for homes
beyond the geographic reach of natural gas distribution pipelines.
Approximately 70% of annual cash flow is earned during the
winter heating
season (October through March). Accordingly, volumes are weather
dependent, but have utility type functions similar to electricity
and
natural gas.
|
|
·
|
Coal
MLPs.
Coal MLPs own, lease and manage coal reserves. Revenue is derived
from
production and sale of coal, or from royalty payments related
to leases to
coal producers. Electricity generation is the primary use of
coal in the
United States. Demand for electricity and supply of alternative
fuels to
generators are the primary drivers of coal demand. Coal MLPs
are subject
to operating and production risks, such as: the MLP or a lessee
meeting
necessary production volumes; federal, state and local laws and
regulations which may limit the ability to produce coal; the
MLP’s ability
to manage production costs and pay mining reclamation costs;
and the
effect on demand that the Clean Air Act standards have on coal
end-users.
|
|
·
|
Marine
Shipping MLPs.
Marine shipping MLPs are primarily marine transporters of natural
gas,
crude oil or refined petroleum products. Marine shipping MLPs
derive
revenue from charging customers for the transportation of these
products
utilizing the MLPs’ vessels. Transportation services are typically
provided pursuant to a charter or contract, the terms of which
vary
depending on, for example, the length of use of a particular
vessel, the
amount of cargo transported, the number of voyages made, the
parties
operating a vessel or other
factors.
|
Although
we also may invest in equity and debt securities of energy infrastructure
companies that are organized and/or taxed as corporations, it is likely
that any
such investments will be in debt securities because the equity dividends
from
such corporations typically do not meet our investment objective.
We
also
may
invest in securities of general partners or other affiliates of MLPs
and private
companies operating energy infrastructure assets.
Investment
Process
Under
normal circumstances, we invest at least 90% of our total assets (including
assets obtained through leverage) in securities of energy infrastructure
companies. The Adviser seeks to invest in securities that offer a combination
of
quality, growth and yield intended to result in superior total returns
over the
long run. The Adviser’s securities selection process includes a comparison of
quantitative, qualitative, and relative value factors. Although the Adviser
uses
research provided by broker-dealers and investment firms, primary emphasis
is
placed on proprietary analysis and valuation models conducted and maintained
by
the Adviser’s in-house investment analysts. To determine whether a company meets
its criteria, the Adviser generally looks for a strong record of distribution
growth, a solid ratio of debt to equity and coverage ratio with respect
to
distributions to unit holders, and a proven track record, incentive structure
and management team. All of the public energy infrastructure companies
in which
we invest have a market capitalization greater than $100 million.
Investment
Policies
We
seek
to achieve our investment objective by investing primarily in securities
of MLPs
that the Adviser believes offer attractive distribution rates and capital
appreciation potential. We also may invest in other securities set forth
below
if the Adviser expects to achieve our objective with such
investments.
Our
policy of investing at least 90% of our total assets (including assets
obtained
through leverage) in securities of energy infrastructure companies is
nonfundamental and may be changed by the Board of Directors without stockholder
approval, provided that stockholders receive at least 60 days’ prior
written notice of any change.
We
have
adopted the following additional nonfundamental policies:
| · |
Under
normal circumstances, we invest at least 70% and up to 100% of
our total
assets in equity securities issued by MLPs. Equity securities currently
consist of common units, convertible subordinated units, and pay-in-kind
units.
|
| · |
We
may invest up to 30% of our total assets in restricted securities,
primarily through direct placements. Subject to this policy, we
may invest
without limitation in illiquid securities. The types of restricted
securities that we may purchase include securities of private energy
infrastructure companies and privately issued securities of publicly
traded energy infrastructure companies. Restricted securities,
whether
issued by public companies or private companies, are generally
considered
illiquid. Investments in private companies that do not have any
publicly
traded shares or units are limited to 5% of total
assets.
|
| · |
We
may invest up to 25% of our total assets in debt securities of
energy
infrastructure companies, including certain securities rated below
investment grade (“junk bonds”). Below investment grade debt securities
will be rated at least B3 by Moody’s and at least B- by S&P at the
time of purchase, or comparably rated by another statistical rating
organization or if unrated, determined to be of comparable quality
by the
Adviser.
|
| · |
We
will not invest more than 10% of our total assets in any single
issuer.
|
| · |
We
will not engage in short sales.
|
Unless
otherwise stated, these investment restrictions apply at the time of
purchase and we will not be required to reduce a position due solely
to market
value fluctuations.
Investment
Securities
The
types
of securities in which we may invest include, but are not limited to,
the
following:
Equity
Securities of MLPs.
Consistent with our investment objective, we may invest up to 100% of
total
assets in equity securities issued by energy infrastructure MLPs, including
common units, convertible subordinated units, pay-in-kind units (typically,
“I-Shares”) and common units, subordinated units and preferred units of limited
liability companies (“LLCs”) (that are treated as MLPs for federal income tax
purposes). The table below summarizes the features of these securities,
and a
further discussion of these securities follows.
|
Common
Units (for MLPs taxed as partnerships)1
|
Convertible
Subordinated Units (for MLPs taxed as
partnerships)
|
I-Shares
|
|
|
Voting
Rights
|
Limited
to certain significant decisions; no annual election of directors
|
Same
as common units
|
No
direct MLP voting rights
|
|
Dividend
Priority
|
First
right to minimum quarterly distribution (“MQD”) specified in Partnership
Agreement; arrearage rights
|
Second
right to MQD; no arrearage rights; may be paid in additional
units
|
Equal
in priority to common units but paid in additional I-Shares at
current
market value of I-Shares
|
|
Dividend
Rate
|
Minimum
set in partnership agreement; participate pro rata with subordinated
units
after both MQDs are met
|
Equal
in amount to common units; participate pro rata with common units
above
the MQD
|
Equal
in amount to common units
|
|
Trading
|
Listed
on NYSE, AMEX or NASDAQ National Market
|
Not
publicly traded
|
Listed
on NYSE
|
|
Federal
Income Tax Treatment
|
Generally,
ordinary income to the extent of taxable income allocated to
holder;
distributions are tax-free return of capital to extent of holder’s basis;
remainder as capital gain
|
Same
as common units
|
Full
distribution treated as return of capital; since distribution
is in
shares, total basis is not reduced
|
|
Type
of Investor
|
Retail;
creates unrelated business taxable income for tax-exempt investor;
investment by regulated investment companies limited to 25% of
total
assets
|
Same
as common units
|
Retail
and Institutional; does not create unrelated business taxable
income;
qualifying income for regulated investment companies
|
|
Liquidity
Priority
|
Intended
to receive return of all capital first
|
Second
right to return of capital; pro rata with common units
thereafter
|
Same
as common units (indirect right through I-Share issuer)
|
|
Conversion
Rights
|
None
|
One-to-one
ratio into common units
|
None
|
____________
|
(1)
|
Some
energy infrastructure companies in which we may invest have been
organized
as LLCs. Such companies are generally treated in the same manner
as MLPs
for federal income tax purposes. Common units of LLCs have similar
characteristics as those of MLP common units, except that LLC
common units
typically have voting rights with respect to the LLC and LLC
common units
held by management are not entitled to increased percentages
of cash
distributions as increased levels of cash distributions are received
by
the LLC. The characteristics of LLCs and their common units are
more fully
discussed below.
|
MLP
Common Units.
MLP
common units represent an equity ownership interest in a partnership, providing
limited voting rights and entitling the holder to a share of the company’s
success through distributions and/or capital appreciation. Unlike stockholders
of a corporation, common unit holders do not elect directors annually and
generally have the right to vote only on certain significant events, such
as
mergers, a sale of substantially all of the assets, removal of the general
partner or material amendments to
the
partnership agreement. MLPs are required by their partnership agreements
to
distribute a large percentage of their current operating earnings. Common
unit
holders generally have first right to a MQD prior to distributions to
the
convertible subordinated unit holders or the general partner (including
incentive
distributions). Common unit holders typically have arrearage rights if
the MQD
is not met. In the event of liquidation, MLP common unit holders have
first
rights to the partnership’s remaining assets after bondholders, other debt
holders, and preferred unit holders have been paid in full. MLP common
units
trade on a national securities exchange or over-the-counter.
Limited
Liability Company Common Units. Some
energy infrastructure companies in which we may invest have been organized
as
LLCs. Such LLCs are generally treated in the same manner as MLPs for federal
income tax purposes. Consistent with our investment objective and policies,
we
may invest in common units or other securities of such LLCs including preferred
units, subordinated units and debt securities. LLC common units represent
an
equity ownership interest in an LLC, entitling the holder to a share of
the
LLC’s success through distributions and/or capital appreciation. Similar to
MLPs, LLCs typically do not pay federal income tax at the entity level
and are
required by their operating agreements to distribute a large percentage
of their
current operating earnings. LLC common unit holders generally have first
right
to a MQD prior to distributions to subordinated unit holders and typically
have
arrearage rights if the MQD is not met. In the event of liquidation, LLC
common
unit holders have a right to the LLC’s remaining assets after bond holders,
other debt holders and preferred unit holders, if any, have been paid in
full.
LLC common units may trade on a national securities exchange or
over-the-counter.
In
contrast to MLPs, LLCs have no general partner and there are no incentives
that
entitle management or other unit holders to increased percentages of cash
distributions as distributions reach higher target levels. In addition,
LLC
common unit holders typically have voting rights with respect to the LLC,
whereas MLP common units have limited voting rights.
MLP
Convertible Subordinated Units.
MLP
convertible subordinated units are typically issued by MLPs to founders,
corporate general partners of MLPs, entities that sell assets to MLPs,
and
institutional investors. The purpose of the convertible subordinated units
is to
increase the likelihood that during the subordination period there will
be
available cash to be distributed to common unit holders. We expect to purchase
convertible subordinated units in direct placements from such persons.
Convertible subordinated units generally are not entitled to distributions
until
holders of common units have received specified MQD, plus any arrearages,
and
may receive less in distributions upon liquidation. Convertible subordinated
unit holders generally are entitled to MQD prior to the payment of incentive
distributions to the general partner, but are not entitled to arrearage
rights.
Therefore, they generally entail greater risk than MLP common units. They
are
generally convertible automatically into the senior common units of the
same
issuer at a one-to-one ratio upon the passage of time or the satisfaction
of
certain financial tests. These units generally do not trade on a national
exchange or over-the-counter, and there is no active market for convertible
subordinated units. The value of a convertible security is a function of
its
worth if converted into the underlying common units. Convertible subordinated
units generally have similar voting rights to MLP common units. Distributions
may be paid in cash or in-kind.
MLP
I-Shares.
I-Shares represent an indirect investment in MLP I-units. I-units are equity
securities issued to affiliates of MLPs, typically a limited liability
company,
that owns an interest in and manages the MLP. The I-Share issuer has management
rights but is not entitled to incentive distributions. The I-Share issuer’s
assets consist exclusively of MLP I-units; however, the MLP does not allocate
income or loss to the I-Share issuer. Distributions by MLPs to I-unit holders
are made in the form of additional I-units, generally equal in amount to
the
cash received by common unit holders of MLPs. Distributions to I-Share
holders
are made in the form of additional I-Shares, generally equal in amount
to the
I-units received by the I-Share issuer. The issuer of the I-Share is taxed
as a
corporation for federal
income
tax purposes. Accordingly, investors receive a
Form 1099, are not allocated their proportionate share of income of the
MLPs and
are not subject to state filing obligations.
Debt
Securities.
We may
invest up to 25% of our total assets in debt securities of energy infrastructure
companies, including securities rated below investment grade. These debt
securities may have fixed or variable principal payments and all types
of
interest rate and dividend payment and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent, deferred, payment-in-kind and
auction
rate features. To the extent that we invest in below investment grade debt
securities, such securities will be rated, at the time of investment, at
least
B- by S&P or B3 by Moody’s or a comparable rating by at least one other
rating agency or, if unrated, determined by the Adviser to be of comparable
quality. If a security satisfies our minimum rating criteria at the time
of
purchase and subsequently is downgraded below such rating, we will not
be
required to dispose of such security. If a downgrade occurs, the Adviser
will
consider what action, including the sale of such security, is in the best
interest of us and our stockholders.
Because
the risk of default is higher for below investment grade securities than
investment grade securities, the Adviser’s research and credit analysis is an
especially important part of managing securities of this type. The Adviser
attempts to identify those issuers of below investment grade securities
whose
financial condition the Adviser believes are adequate to meet future obligations
or have improved or are expected to improve in the future. The Adviser’s
analysis focuses on relative values based on such factors as interest or
dividend coverage, asset coverage, earnings prospects and the experience
and
managerial strength of the issuer.
Restricted
Securities.
We may
invest up to 30% of our total assets in restricted securities, primarily
through
direct placements. An issuer may be willing to offer the purchaser more
attractive features with respect to securities issued in direct placements
because it has avoided the expense and delay involved in a public offering
of
securities. Adverse conditions in the public securities markets also may
preclude a public offering of securities. MLP
convertible subordinated units typically are purchased in private placements
and
do not trade on a national exchange or over-the-counter, and there is no
active
market for convertible subordinated units. MLP convertible
subordinated units typically are purchased from affiliates of the issuer
or
other existing holders of convertible units rather than directly from the
issuer.
Restricted
securities obtained by means of direct placements are less liquid than
securities traded in the open market because of statutory and contractual
restrictions on resale. Such securities are, therefore, unlike securities
that
are traded in the open market, which are likely to be sold immediately
if the
market is adequate. This lack of liquidity creates special risks. However,
we
could sell such securities in privately negotiated transactions with
a limited
number of purchasers or in public offerings under the 1933 Act. MLP convertible
subordinated units also convert to publicly traded common units upon
the passage
of time and/or satisfaction of certain financial tests.
Temporary
and Defensive Investments.
Pending
investment of offering or leverage proceeds, we may invest such proceeds
in
securities issued or guaranteed by the U.S. Government or its instrumentalities
or agencies, short-term debt securities, certificates of deposit, bankers’
acceptances and other bank obligations, commercial paper rated in the highest
category by a rating agency or other liquid
fixed income securities deemed by the Adviser to be of similar quality
(collectively, “short-term securities”), or in cash or cash equivalents, all of
which are expected to provide a lower yield than the securities of energy
infrastructure companies. We also may invest in short-term securities or
cash on
a temporary basis to meet working capital needs including, but not limited
to,
for collateral in connection
with
certain investment techniques, to hold a reserve
pending payment of distributions, and to facilitate the payment of expenses
and
settlement of trades.
Under
adverse market or economic conditions, we may invest up to 100% of our
total
assets in short-term securities or cash. The yield on short-term securities
or
cash may be lower than the returns on MLPs or yields on lower rated fixed
income
securities. To the extent we invest in short-term securities or cash
for
defensive purposes, such investments are inconsistent with, and may result
in us
not achieving, our investment objective.
Portfolio
Turnover
Our
annual portfolio turnover rate may vary greatly from year to year. Although
we
cannot accurately predict our annual portfolio turnover rate, it is not
expected
to exceed 30% under normal circumstances. For the fiscal years ended November
30, 2006
and 2005,
our actual portfolio turnover rate was 2.18% and 4.92%, respectively.
Portfolio turnover rate is not considered a limiting factor in the execution
of
investment decisions for us. A higher turnover rate results in correspondingly
greater brokerage commissions and other transactional expenses that the
Company
bears. High portfolio turnover may result in our recognition of gains that
will
increase our tax liability and thereby lower the amount of our after-tax
distributions. In addition, high portfolio turnover may increase our current
and
accumulated earnings and profits, resulting in a greater portion of our
distributions being treated as taxable dividends for federal income tax
purposes. See “Certain Federal Income Tax Matters.”
Conflicts
of Interest
Conflicts
of interest may arise from the fact that the Adviser and its affiliates
carry on
substantial investment activities for other clients, in which we have no
interest, some of which may have similar investment strategies as us. The
Adviser or its affiliates may have financial incentives to favor certain
of such
accounts over us. Any of their proprietary accounts and other customer
accounts
may compete with us for specific trades. The Adviser or its affiliates
may give
advice and recommend securities to, or buy or sell securities for, us which
advice or securities may differ from advice given to, or securities recommended
or bought or sold for, other accounts and customers, even though their
investment objectives may be the same as, or similar to, our objectives.
When
two or more clients advised by the Adviser or its affiliates seek to purchase
or
sell the same publicly traded securities, the securities actually purchased
or
sold will be allocated among the clients on a good faith equitable basis
by the
Adviser in its discretion and in accordance with the client’s various investment
objectives and the Adviser’s procedures. In some cases, this system may
adversely affect the price or size of the position we may obtain or sell.
In
other cases, our ability to participate in volume transactions may produce
better execution for us.
The
Adviser also serves as investment adviser to Tortoise Energy Capital Corporation
(“TYY”) and Tortoise North American Energy Corporation (“TYN”), which are
nondiversified, closed-end investment management companies, and managed
accounts
that invest in MLPs. TYY, which commenced operations on May 31, 2005,
invests primarily in equity securities of MLPs and their affiliates in
the
energy infrastructure sector. TYN, which commenced operations on October
31,
2005, invests primarily in equity securities of companies in the energy
sector
whose primary operations are in North America. The Adviser also serves
as the
investment adviser to Tortoise Capital Resources Corporation (“TTO”), a
non-diversified closed-end management investment company that has
elected to be regulated as a business development company under the 1940
Act.
TTO, which commenced operations on December 8, 2005, invests primarily
in
privately held and micro-cap public energy companies operating in the midstream
and downstream segments, and to a lesser extent the upstream segment. To
the extent certain MLP securities or other energy infrastructure company
securities meet our
investment
objective and the objectives of other
investment companies or accounts managed by the Adviser, we may compete
with
such companies or accounts for the same investment opportunities.
The
Adviser will evaluate a variety of factors in determining whether a particular
investment opportunity or strategy is appropriate and feasible for the
relevant
account at a particular time, including, but not limited to, the following:
(1) the nature of the investment opportunity taken in the context of the
other investments at the time; (2) the liquidity of the investment relative
to the needs of the particular entity or account; (3) the availability of
the opportunity (i.e., size of obtainable position); (4) the transaction
costs involved; and (5) the investment or regulatory limitations applicable
to the particular entity or account. Because these considerations may
differ
when applied to us and relevant accounts under management in the context
of any
particular investment opportunity, our investment activities, on the
one hand,
and other managed accounts, on the other hand, may differ considerably
from time
to time. In addition, our fees and expenses will differ from those of
the other
managed accounts. Accordingly, investors should be aware that our future
performance and future performance of other accounts of the Adviser may
vary.
Situations
may occur when we could be disadvantaged because of the investment activities
conducted by the Adviser and its affiliates for its other funds or accounts.
Such situations may be based on, among other things, the following:
(1) legal or internal restrictions on the combined size of positions that
may be taken for us or the other accounts, thereby limiting the size of
our
position; (2) the difficulty of liquidating an investment for us or the
other accounts where the market cannot absorb the sale of the combined
position;
or (3) limits on co-investing in negotiated transactions under the 1940
Act, as discussed further below.
Under
the
1940 Act, we may be precluded from co-investing in negotiated private placements
of securities with our affiliates, including other funds managed by the
Adviser.
We and the Adviser have applied to the SEC for exemptive relief to permit
us and
our affiliates to make such investments. There is no guarantee that the
requested relief will be granted by SEC. Unless and until we obtain an
exemptive
order, we will not co-invest with our affiliates in negotiated private
placement
transactions. Unless we receive exemptive relief, the Adviser will observe
a
policy for allocating negotiated private placement opportunities among
its
clients that takes into account the amount of each client’s available cash and
its investment objectives.
To
the
extent that the Adviser sources and structures private investments in MLPs,
certain employees of the Adviser may become aware of actions planned by
MLPs,
such as acquisitions, that may not be announced to the public. It is possible
that we could be precluded from investing in or selling securities of an
MLP
about which the Adviser has material, non-public information; however,
it is the
Adviser’s intention to ensure that any material, non-public information
available to certain employees of the Adviser is not shared with the employees
responsible for the purchase and sale of publicly traded MLP securities.
Our
investment opportunities also may be limited by affiliations of the Adviser
or
its affiliates with energy infrastructure companies.
The
Adviser and its principals, officers, employees, and affiliates may buy
and sell
securities or other investments for their own accounts and may have actual
or
potential conflicts of interest with respect to investments made on our
behalf.
As a result of differing trading and investment strategies or constraints,
positions may be taken by principals, officers, employees, and affiliates
of the
Adviser that are the same as, different from, or made at a different time
than
positions taken for us. Further, the Adviser may at some time in the future,
manage other investment funds with the same investment objective as
ours.
Use
of Leverage
We
currently engage in leverage and intend to borrow money or issue additional
debt
securities, and/or issue additional preferred stock, which may be auction
rate
securities, to provide us with additional funds to invest. The borrowing
of
money and the issuance of preferred stock and debt securities represent
the
leveraging of our common stock. Currently, we anticipate using leverage
to
represent approximately 33% of our total assets, including the proceeds
from
such leverage. However, we reserve the
right
at any time, if we believe that market conditions are appropriate, to
use
financial leverage to the extent permitted by the 1940 Act (50% for preferred
stock and 33⅓% for debt). On July 24, 2006, our Board of Directors approved a
policy permitting temporary increases in the amount of leverage we may
use from
33% of our total assets to up to 38% of our total assets at the time
of
incurrence, provided that (i) such leverage is consistent with the limits
set
forth in the 1940 Act, and (ii) such increased leverage is reduced over
time in
an orderly fashion. We generally will not use leverage unless we believe
that
leverage will serve the best interests of our stockholders. The principal
factor
used in making this determination is whether the potential return is
likely to
exceed the cost of leverage. We will not issue additional leverage where
the
estimated costs of issuing such leverage and the on-going cost of servicing
the
payment obligations on such leverage exceed the estimated return on the
proceeds
of such leverage. We note, however, that in making the determination
of whether
to issue leverage, we must rely on estimates of leverage costs and expected
returns. Actual costs of leverage vary over time depending on interest
rates and
other factors. Actual returns vary, of course, depending on many factors.
Our
Board also will consider other factors, including whether the current
investment
opportunities will help us achieve our investment objective and strategies.
We
have
established an unsecured credit facility with U.S. Bank N.A., which currently
allows us to borrow up to $120,000,000. Outstanding balances under the
credit
facility accrue interest at a variable annual rate equal to the one-month
LIBOR
rate plus 0.75%. As of November 30, 2006, the current rate was 6.07%. The
credit facility remains in effect through June 13, 2007 and we may draw on
the facility from time to time in accordance with our investment policies.
As of
November 30, 2006, we had approximately $32.45 million outstanding on our
credit
facility.
We
also
may borrow up to an additional 5% of our total assets (not including the
amount
so borrowed) for temporary purposes, including the settlement and clearance
of
securities transactions, which otherwise might require untimely dispositions
of
portfolio holdings.
Under
the
1940 Act, we are not permitted to issue preferred stock unless immediately
after
such issuance we have total assets (including the proceeds of such issuance)
at
least equal to 200% of the liquidation value of the outstanding preferred
stock.
Stated another way, we may not issue preferred stock that, together with
outstanding preferred stock, has an aggregate liquidation value of more
than 50%
of our total assets (less liabilities and indebtedness), including the
amount
leveraged. In addition, we are not permitted to declare any cash dividend
or
other distribution on our common stock unless, at the time of such declaration,
the total assets less liabilities and indebtedness (determined after deducting
the amount of such dividend or distribution) is at least 200% of such
liquidation value. We may, as a result of market conditions or otherwise,
be
required to purchase or redeem preferred stock, or sell a portion of our
investments when it may be disadvantageous to do so, in order to maintain
the
required asset coverage. Common stockholders would bear the costs of issuing
additional preferred stock, which may include offering expenses and the
ongoing
payment of dividends. Under the 1940 Act, we may only issue one class of
preferred stock. So long as MMP Shares are outstanding, any preferred stock
offered
pursuant
to this prospectus and any related prospectus supplement will rank
on parity
with any outstanding MMP Shares.
Under
the
1940 Act, we are not permitted to issue debt securities or incur other
indebtedness constituting senior securities unless immediately thereafter
we
have total assets (including the proceeds of the indebtedness) at least
equal to
300% of the amount of the outstanding indebtedness. Stated another
way, we may
not borrow for investment purposes more than 33⅓% of our total assets, including
the amount borrowed. We also must maintain this 300% “asset coverage” for as
long as the indebtedness is outstanding. The 1940 Act provides that
we may not
declare any cash dividend or other distribution on common or preferred
stock, or
purchase any of our shares of stock (through tender offers or otherwise),
unless
we would satisfy this 300% asset coverage after deducting the amount
of the
dividend, other distribution or share purchase price, as the case may
be. If the
asset coverage for indebtedness declines to less than 300% as a result
of market
fluctuations or otherwise, we may be required to sell a portion of
our
investments when it may be disadvantageous to do so. Under the 1940
Act, we may
only issue one class of senior securities representing indebtedness.
So long as
Tortoise Notes are outstanding, any debt securities offered pursuant
to this
prospectus and any related prospectus supplement will be ranked on
parity with
any outstanding Tortoise Notes.
Hedging
Transactions
In
an
attempt to reduce the interest rate risk arising from our leveraged capital
structure, we currently use, and may in the future use, interest rate
transactions such as swaps, caps and floors. The use of interest rate
transactions is a highly specialized activity that involves investment
techniques and risks different from those associated with ordinary portfolio
security transactions. In an interest rate swap, we would agree to pay
to the
other party to the interest rate swap (which is known as the “counterparty”) a
fixed rate payment in exchange for the counterparty agreeing to pay to
us a
variable rate payment intended to approximate our variable rate payment
obligation on any variable rate borrowings, such as Tortoise Notes and
variable
rate preferred shares, such as MMP Shares. The payment obligations would
be
based on the notional amount of the swap. In an interest rate cap, we would
pay
a premium to the counterparty up to the interest rate cap and, to the extent
that a specified variable rate index exceeds a predetermined fixed rate
of
interest, would receive from the counterparty payments equal to the difference
based on the notional amount of such cap. In an interest rate floor, we
would be
entitled to receive, to the extent that a specified index falls below a
predetermined interest rate, payments of interest on a notional principal
amount
from the party selling the interest rate floor. Depending on the state
of
interest rates in general, our use of interest rate transactions could
affect
our ability to make required interest payments on the Tortoise Notes or
dividend
payments on MMP Shares. To the extent there is a decline in interest rates,
the
value of the interest rate transactions could decline. If the counterparty
to an
interest rate transaction defaults, we would not be able to use the anticipated
net receipts under the interest rate transaction to offset our cost of
financial
leverage.
We
have
entered into interest rate swap transactions intended to hedge our interest
and
dividend payment obligations under the currently outstanding Tortoise Notes
and
MMP Shares, respectively, against material increases in interest rates.
See
“Risk Factors—Company Risks—Hedging Strategy Risk.”
Effects
of Leverage
As
of
November 30, 2006, we were obligated to pay a rate of 5.57% on $35 million
aggregate liquidation preference for Series I MMP Shares and $35 million
aggregate liquidation preference for Series II MMP Shares,
respectively. These rates include commissions paid to the auction agent in
the amount of 0.25%. However, we have entered into interest rate
swap agreements to protect ourselves from
increasing
dividend expense on MMP Shares resulting from increasing short-term
interest
rates. Under the terms of outstanding swap agreements as of November 30,
2006, we were instead obligated to pay a rate of 5.20% and 5.21%, respectively,
on a notional amount of $35 million for Series I MMP Shares and a notional
amount of $35 million for Series II MMP Shares.
As
of
November 30, 2006, we were obligated to pay a rate of 5.53%, 5.52% and
5.49% on a principal amount of $60 million for Series A Tortoise Notes, $50
million principal amount for Series B Tortoise Notes and $55 million
principal amount for Series C Tortoise Notes, respectively. These
rates include commissions paid to the auction agent in the amount of
0.25%. However, we have entered into interest rate swap agreements
to protect ourselves from increasing interest expense on Tortoise Notes
resulting from increasing short-term interest rates. Under the terms
of
outstanding swap agreements as of November 30, 2006, we were instead
obligated to pay a rate of 3.54%, 3.56% and 4.54% on a notional amount
of $60
million for Series A Tortoise Notes, $50 million notional amount for
Series B Tortoise Notes and $55 million notional amount for Series C
Tortoise Notes, respectively.
Assuming
that the dividend rates payable on the MMP Shares and the interest
rates payable
on the Tortoise Notes and borrowings under our unsecured credit facility
remain
as described above (an average annual cost of 5.62%, based on the
amount of
leverage outstanding at November 30, 2006), the annual return that
our portfolio
must experience (net of expenses) in order to cover leverage costs
would be
2.63%.
The
following table is designed to illustrate the effect of the foregoing
level of
leverage on the return to a common stockholder, assuming hypothetical
annual
returns (net of expenses) of our portfolio of
-10%
to 10%. As the table shows, the leverage generally increases the return
to
common stockholders when portfolio return is positive or greater than
the cost
of leverage and decreases the return when the portfolio return is negative
or
less than the cost of leverage. The figures appearing in the table are
hypothetical, and actual returns may be greater or less than those appearing
in
the table.
|
Assumed
Portfolio Return (net of expenses)
|
-10
|
%
|
-5
|
%
|
0
|
%
|
5
|
%
|
10
|
%
|
||||||
|
Corresponding
Common Share Return
|
-19.4
|
%
|
-11.7
|
%
|
-4.0
|
%
|
3.7
|
%
|
11.3
|
%
|
While
we
use leverage, the amount of the fees paid to the Adviser for investment
advisory
and management services are higher than if we did not use leverage because
the
fees paid are calculated based on our Managed Assets, which include assets
purchased with leverage. Therefore, the Adviser has a financial incentive
to use
leverage, which will create a conflict of interest between the Adviser
and our
common stockholders. Because payments on any leverage would be paid by
us at a
specified rate, only our common stockholders would bear management fees
and
other expenses we incur.
We
cannot
fully achieve the benefits of leverage until we have invested the proceeds
resulting from the use of leverage in accordance with our investment objective
and policies. For further information about leverage, see “Risk
Factors—Additional Risks to Common Stockholders—Leverage Risk.”
Investing
in any of our securities involves risk, including the risk that you may
receive
little or no return on your investment or even that you may lose part or
all of
your investment. Therefore, before investing in any of our securities you
should
consider carefully the following risks, as well as any risk factors included
in
the applicable prospectus supplement.
Company
Risks
We
are a
nondiversified, closed-end management investment company designed primarily
as a
long-term investment vehicle and not as a trading tool. An investment
in our
securities should not constitute a complete investment program for any
investor
and involves a high degree of risk. Due to the uncertainty in all investments,
there can be no assurance that we will achieve our investment
objective.
The
following are the general risks of investing in our securities that affect
our
ability to achieve our investment objective. The risks below could lower
the
returns and distributions on common stock and reduce the amount of cash
and net
assets available to make dividend payments on preferred stock and interest
payments on debt securities.
Concentration
Risk.
Under
normal circumstances, we concentrate our investments in the energy
infrastructure sector, with an emphasis on securities issued by MLPs.
Risks
inherent in the energy infrastructure business of these types of MLPs
include
the following:
| · |
Processing
and coal MLPs may be directly affected by energy commodity prices.
The
volatility of commodity prices can indirectly affect certain
other MLPs
due to the impact of prices on volume of commodities transported,
processed, stored or distributed. Pipeline MLPs are not subject
to direct
commodity price exposure because they do not own the underlying
energy
commodity. While propane MLPs do own the underlying energy commodity,
the
Adviser seeks high quality MLPs that are able to mitigate or
manage direct
margin exposure to commodity price levels. The MLP sector can
be hurt by
market perception that MLPs’ performance and distributions are directly
tied to commodity prices.
|
| · |
The
profitability of MLPs, particularly processing and pipeline MLPs,
may be
materially impacted by the volume of natural gas or other energy
commodities available for transporting, processing, storing or
distributing. A significant decrease in the production of natural
gas,
oil, coal or other energy commodities, due to a decline in production
from
existing facilities, import supply disruption, depressed commodity
prices
or otherwise, would reduce revenue and operating income of MLPs
and,
therefore, the ability of MLPs to make distributions to
partners.
|
| · |
A
sustained decline in demand for crude oil, natural gas and refined
petroleum products could adversely affect MLP revenues and cash
flows.
Factors that could lead to a decrease in market demand include
a recession
or other adverse economic conditions, an increase in the market
price of
the underlying commodity, higher taxes or other regulatory actions
that
increase costs, or a shift in consumer demand for such products.
Demand
may also be adversely impacted by consumer sentiment with respect
to
global warming and/or by any state or federal legislation intended
to
promote the use of alternative energy sources, such as
bio-fuels.
|
| · |
A
portion of any one MLP’s assets may be dedicated to natural gas reserves
and other commodities that naturally deplete over time, which could
have a
materially adverse impact on an MLP’s ability to make distributions. Often
the MLPs depend upon exploration and development activities by
third
parties.
|
| · | MLPs employ a variety of means of increasing cash flow, including increasing utilization of existing facilities, expanding operations through new construction, expanding operations through acquisitions, or securing additional long-term contracts. Thus, some MLPs may be |
|
subject
to construction risk, acquisition risk or other risk factors
arising from
their specific business strategies. A significant slowdown
in large energy
companies’ disposition of energy infrastructure assets and other merger
and acquisition activity in the energy MLP industry could
reduce the
growth rate of cash flows we receive from MLPs that grow
through
acquisitions.
|
| · |
The
profitability of MLPs could be adversely affected by changes
in the
regulatory environment. Most MLPs’ assets are heavily regulated by federal
and state governments in diverse matters, such as the way in
which certain
MLP assets are constructed, maintained and operated
and the prices MLPs may charge for their services. Such regulation
can
change over time in scope and intensity. For example, a particular
byproduct of an MLP process may be declared hazardous by a regulatory
agency and unexpectedly increase production costs. Moreover,
many state
and federal environmental laws provide for civil as well as regulatory
remediation, thus adding to the potential exposure an MLP may
face.
|
| · |
Extreme
weather patterns, such as hurricane Ivan in 2004 and hurricane
Katrina in
2005, could result in significant volatility in the supply of
energy and
power and could adversely impact the value of the securities
in which we
invest. This volatility may create fluctuations in commodity
prices and
earnings of companies in the energy infrastructure industry.
|
| · |
A
rising interest rate environment could adversely impact the performance
of
MLPs. Rising interest rates could limit the capital appreciation
of equity
units of MLPs as a result of the increased availability of alternative
investments at competitive yields with MLPs. Rising interest
rates also
may increase an MLP’s cost of capital. A higher cost of capital could
limit growth from acquisition/expansion projects and limit MLP
distribution growth rates.
|
| · |
Since
the September 11, 2001 attacks, the U.S. Government has issued public
warnings indicating that energy assets, specifically those related
to
pipeline infrastructure, production facilities and transmission
and
distribution facilities, might be specific targets of terrorist
activity.
The continued threat of terrorism and related military activity
likely
will increase volatility for prices in natural gas and oil and
could
affect the market for products of MLPs.
|
| · |
Holders
of MLP units are subject to certain risks inherent in the partnership
structure of MLPs including (1) tax risks (described below),
(2) limited ability to elect or remove management, (3) limited
voting rights, except with respect to extraordinary transactions,
and
(4) conflicts of interest of the general partner, including those
arising from incentive distribution
payments.
|
Industry
Specific Risk.
Energy
infrastructure companies also are subject to risks specific to the industry
they
serve.
| · |
Pipeline
MLPs are subject to demand for crude oil or refined products in
the
markets served by the pipeline, sharp decreases in crude oil or
natural
gas prices that cause producers to curtail production or reduce
capital
spending for exploration activities, and environmental regulation.
Demand
for gasoline, which accounts for a substantial portion of refined
product
transportation, depends on price, prevailing economic conditions
in the
markets served, and demographic and seasonal factors. Pipeline
MLP unit
prices are primarily driven by distribution growth rates and prospects
for
distribution growth. Pipeline MLPs are subject to regulation by
FERC with
respect to tariff rates these companies may charge for pipeline
transportation services. An adverse determination by FERC with
respect to
the tariff rates of
|
|
a
pipeline MLP could have a material adverse effect on the
business,
financial condition, results of operations and cash flows
of that pipeline
MLP and its ability to make cash distributions to its equity
owners.
|
| · |
Processing
MLPs are subject to declines in production of natural gas
fields, which
utilize the processing facilities as a way to market the
gas, prolonged
depression in the price of natural gas or crude oil refining,
which
curtails production due to lack of drilling activity and
declines in the
prices of natural gas liquids products and natural gas prices,
resulting
in lower processing margins.
|
| · |
Propane
MLPs are subject to earnings variability based upon weather
patterns in
the locations where the company operates and the wholesale
cost of propane
sold to end customers. Propane
MLP unit prices are based on safety in distribution coverage
ratios,
interest rate environment and, to a lesser extent, distribution
growth.
|
| · |
Coal
MLPs are subject to demand variability based on favorable weather
conditions, strong or weak domestic economy, the level of coal
stockpiles
in the customer base, and the general level of prices of competing
sources
of fuel for electric generation. They also are subject to supply
variability based on the geological conditions that reduce
productivity of
mining operations, regulatory permits for mining activities
and the
availability of coal that meets Clean Air Act standards. Demand
and prices for coal may also be impacted by current and proposed
laws,
regulations and/or trends, at the federal, state or local levels,
to
impose limitations on chemical emissions from coal-fired power
plants and
other coal end-users. Any such limitations may reduce the demand
for coal
produced, transported or delivered by coal
MLPs.
|
| · |
Marine
shipping MLPs are subject to the demand for, and the level
of consumption
of, refined petroleum products, crude oil or natural gas in
the markets
served by the marine shipping MLPs, which in turn could affect
the demand
for tank vessel capacity and charter rates. These MLPs’ vessels and their
cargoes are also subject to the risks of being damaged or
lost due to marine disasters, bad weather, mechanical failures,
grounding,
fire, explosions and collisions, human error, piracy, and war
and
terrorism.
|
MLP
Risk.
We
invest primarily in equity securities of MLPs. As a result, we are subject
to
the risks associated with an investment in MLPs, including cash flow risk,
tax
risk and deferred tax risk, as described in more detail below.
| · |
Cash
Flow Risk.
We derive substantially all of our cash flow from investments in
equity
securities of MLPs. The amount of cash that we have available to
pay or
distribute to holders of our securities depends entirely on the
ability of
MLPs held by us to make distributions to their partners and the
tax
character of those distributions. We have no control over the actions
of
underlying MLPs. The amount of cash that each individual MLP can
distribute to its partners will depend on the amount of cash it
generates
from operations, which will vary from quarter to quarter depending
on
factors affecting the energy infrastructure market generally and
on
factors affecting the particular business lines of the MLP. Available
cash
will also depend on the MLPs’ level of operating costs (including
incentive distributions to the general partner), level of capital
expenditures, debt service requirements, acquisition costs (if
any),
fluctuations in working capital needs and other
factors.
|
| · |
Tax
Risk of MLPs.
Our ability to meet our investment objective will depend
on the level of
taxable income, dividends and distributions we receive from
the MLPs and
other securities of energy infrastructure companies in which
we invest, a
factor over which we have no control. The benefit we derive
from our
investment in MLPs depends largely on the MLPs being treated
as
partnerships for federal income tax purposes. As a partnership,
an MLP has
no federal income tax liability at the entity level. If,
as a result of a
change in current law or a change in an MLP’s business, an MLP were
treated as a corporation for federal income tax purposes,
the MLP would be
obligated to pay federal income tax on its income at the
corporate tax
rate. If an MLP were classified as a corporation for federal
income tax
purposes, the amount of cash available for distribution would
be reduced
and the distributions we receive might be taxed entirely
as dividend
income. Therefore, treatment of one or more MLPs as a
corporation for federal income tax purposes could affect
our ability to
meet our investment objective and would reduce the amount
of cash
available to pay or distribute to holders of our
securities.
|
| · |
Deferred
Tax Risks of MLPs. As
a limited partner in the MLPs in which we invest, we will receive
a pro
rata share of income, gains, losses and deductions from those
MLPs.
Historically,
a significant portion of income from such MLPs has been offset
by tax
deductions. We will incur a current tax liability on that portion
of an
MLP’s income and gains that is not offset by tax deductions and losses.
The percentage of an MLP’s income and gains which is offset by tax
deductions and losses will fluctuate over time for various reasons.
A
significant slowdown in acquisition activity by MLPs held in
our portfolio
could result in a reduction of accelerated depreciation generated
by new
acquisitions, which may result in increased current income tax
liability
to us.
|
We
will
accrue deferred income taxes for any future tax liability associated
with that
portion of MLP distributions considered to be a tax-deferred return of
capital
as well as capital appreciation of our investments. Upon the sale of
an MLP
security, we may be liable for previously deferred taxes. We will rely
to some
extent on information provided by the MLPs, which is not necessarily
timely, to
estimate deferred tax liability for purposes of financial statement reporting
and determining our NAV. From time to time we will modify our estimates
or
assumptions regarding our deferred tax liability as new information becomes
available.
Equity
Securities Risk.
MLP
common units and other equity securities can be affected by macro economic
and
other factors affecting the stock market in general, expectations of interest
rates, investor sentiment towards MLPs or the energy sector, changes in
a
particular issuer’s financial condition, or unfavorable or unanticipated poor
performance of a particular issuer (in the case of MLPs, generally measured
in
terms of distributable cash flow). Prices of common units of individual
MLPs and
other equity securities also can be affected by fundamentals unique to
the
partnership or company, including earnings power and coverage
ratios.
Investing
in securities of smaller companies may involve greater risk than is associated
with investing in more established companies. Companies with smaller
capitalization may have limited product lines, markets or financial resources;
may lack management depth or experience; and may be more vulnerable to
adverse
general market or economic developments than larger more established
companies.
Because
MLP convertible subordinated units generally convert to common units on
a
one-to-one ratio, the price that we can be expected to pay upon purchase
or to
realize upon resale is generally tied to the common unit price less a discount.
The size of the discount varies depending on a variety of factors
including
the likelihood of conversion, and the length of time remaining to conversion,
and the size of the block purchased.
The
price
of I-Shares and their volatility tend to be correlated to the price of
common
units, although the price correlation is not precise.
Hedging
Strategy Risk.
We
currently use, and may in the future use, interest rate transactions
for hedging
purposes only, in an attempt to reduce the interest rate risk arising
from our
leveraged capital structure. Interest rate transactions that we may use
for
hedging purposes will expose us to certain risks that differ from the
risks
associated with our portfolio holdings. There are economic costs of hedging
reflected in the price of interest rate swaps, floors, caps and similar
techniques, the costs of which can be significant, particularly when
long-term
interest rates are substantially above short-term rates. In addition,
our success in using hedging instruments is subject to the Adviser’s ability to
predict correctly changes in the relationships of such hedging instruments
to
our leverage risk, and there can be no assurance that the Adviser’s judgment in
this respect will be accurate. Consequently, the use of hedging transactions
might result in a poorer overall performance, whether or not adjusted
for risk,
than if we had not engaged in such transactions.
Depending
on the state of interest rates in general, our use of interest rate transactions
could enhance or decrease the cash available to us for payment of distributions,
dividends or interest, as the case may be. To the extent there is a decline
in
interest rates, the value of interest rate swaps or caps could decline,
and
result in a decline in our net assets. In addition, if the counterparty
to an
interest rate transaction defaults, we would not be able to use the anticipated
net receipts under the interest rate swap or cap to offset our cost of
financial
leverage.
Competition
Risk.
At the
time we completed our initial public offering in February 2004, we were the
only publicly traded investment company offering access to a portfolio
of energy
infrastructure MLPs. Since that time a number of alternatives to us as
vehicles
for investment in a portfolio of energy infrastructure MLPs, including
other
publicly traded investment companies and private funds, have emerged.
In
addition, tax law changes have increased the ability of regulated investment
companies or other institutions to invest in MLPs. These competitive
conditions
may adversely impact our ability to meet our investment objective, which
in turn
could adversely impact our ability to make interest or dividend
payments.
Restricted
Security Risk.
We may
invest up to 30% of total assets in restricted securities, primarily through
direct placements. Restricted securities are less liquid than securities
traded
in the open market because of statutory and contractual restrictions on
resale.
Such securities are, therefore, unlike securities that are traded in the
open
market, which can be expected to be sold immediately if the market is adequate.
As discussed further below, this lack of liquidity creates special risks
for us.
However, we could sell such securities in privately negotiated transactions
with
a limited number of purchasers or in public offerings under the 1933 Act.
MLP
convertible subordinated units also convert to publicly-traded common units
upon
the passage of time and/or satisfaction of certain financial tests.
Restricted
securities are subject to statutory and contractual restrictions on their
public
resale, which may make it more difficult to value them, may limit our ability
to
dispose of them and may lower the amount we could realize upon their sale.
To
enable us to sell our holdings of a restricted security not registered
under the
1933 Act, we may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by us with the issuer
at
the time we buy the securities. When we must arrange registration because
we
wish to sell the security, a considerable period may elapse between the
time the
decision is made to sell the security and the time the security is registered
so
that we could sell it. We would bear the risks of any downward price fluctuation
during that period.
Liquidity
Risk.
Although common units of MLPs trade on the NYSE, AMEX, and the NASDAQ National
Market, certain MLP securities may trade less frequently than those of
larger
companies due to their smaller capitalizations. In the event certain MLP
securities experience limited trading volumes, the prices of such MLPs
may
display abrupt or erratic movements at times. Additionally, it may be more
difficult for us to buy and sell significant amounts of such securities
without
an unfavorable impact on prevailing market prices. As a result, these securities
may be difficult to dispose of at a fair price at the times when we believe
it
is desirable to do so. Investment of our capital in securities that are
less
actively traded or over time experience decreased trading volume may restrict
our ability to take advantage of other market opportunities or to dispose
of
securities. This also may affect adversely our ability to make required
interest payments on the debt securities and dividend distributions on
the
preferred stock, to redeem such securities, or to meet asset coverage
requirements.
Valuation
Risk.
Market
prices generally will not be available for MLP convertible subordinated
units,
or securities of private companies, and the value of such investments
ordinarily
will be determined based on fair valuations determined by the Adviser
pursuant
to procedures adopted by the Board of Directors. Similarly, common units
acquired through direct placements will be valued based on fair value
determinations because of their restricted nature;
however,
the Adviser expects that such values will be based on a discount from
publicly
available market prices. Restrictions on resale or the absence of a liquid
secondary market may adversely affect our ability to determine our NAV.
The sale
price of securities that are not readily marketable may be lower or higher
than
our most recent determination of their fair value. Additionally, the
value of
these securities typically requires more reliance on the judgment of
the Adviser
than that required for securities for which there is an active trading
market.
Due to the difficulty in valuing these securities and the absence of
an active
trading market for these investments, we may not be able to realize these
securities’ true value, or may have to delay their sale in order to do so. This
may affect adversely our ability to make required interest payments on
the debt
securities and dividend distributions on the preferred stock, to redeem
such
securities, or to meet asset coverage requirements.
Nondiversification
Risk.
We are
a nondiversified, closed-end management investment company under the
1940 Act
and are not treated as a regulated investment company under the Internal
Revenue
Code. Accordingly, there are no regulatory limits under the 1940 Act
or the
Internal Revenue Code on the number or size of securities that we hold
and we
may invest more assets in fewer issuers as compared to a diversified
fund. There
currently are approximately 54 companies presently organized as MLPs and
only
a
limited number of those companies operate energy infrastructure assets.
We
select MLP investments from this small pool of issuers. We may invest
in non-MLP
securities issued by energy infrastructure companies to a lesser degree,
consistent with our investment objective and policies.
Interest
Rate Risk.
Generally, when market interest rates rise, the values of debt securities
decline, and vice versa. Our investment in such securities means that the
NAV
and market price of our common stock will tend to decline if market interest
rates rise. During periods of declining interest rates, the issuer of a
security
may exercise its option to prepay principal earlier than scheduled, forcing
us
to reinvest in lower yielding securities. This is known as call or prepayment
risk. Lower grade securities frequently have call features that allow the
issuer
to repurchase the security prior to its stated maturity. An issuer may
redeem a
lower grade obligation if the issuer can refinance the debt at a lower
cost due
to declining interest rates or an improvement in the credit standing of
the
issuer.
Below
Investment Grade Securities Risk.
Investing in lower grade debt instruments involves additional risks than
investment grade securities. Adverse changes in economic conditions are
more
likely to lead to a weakened capacity of a below investment grade issuer
to make
principal payments and interest payments than an investment grade issuer.
An
economic downturn could adversely affect the
ability
of highly leveraged issuers to service their obligations or to repay
their
obligations upon maturity. Similarly, downturns in profitability in the
energy
infrastructure industry could adversely affect the ability of below investment
grade issuers in that industry to meet their obligations. The market
values of
lower quality securities tend to reflect individual developments of the
issuer
to a greater extent than do higher quality securities, which react primarily
to
fluctuations in the general level of interest rates.
The
secondary market for below investment grade securities may not be as
liquid as
the secondary market for more highly rated securities. There are fewer
dealers
in the market for below investment grade securities than investment grade
obligations. The prices quoted by different dealers may vary significantly,
and
the spread between the bid and asked price is generally much larger than
for
higher quality instruments. Under adverse market or economic conditions,
the
secondary market for below investment grade securities could contract
further,
independent of any specific adverse change in the condition of a particular
issuer, and these instruments may become illiquid. As a result, it may
be more
difficult to sell these securities or we may be able to sell the securities
only
at prices lower than if such securities were widely traded. This may
affect
adversely our ability to make required dividend or interest payments on our
outstanding senior securities. Prices realized upon the sale of such
lower-rated
or unrated securities, under these circumstances, may be less than the
prices
used in calculating our NAV.
Because
investors generally perceive that there are greater risks associated
with lower
quality securities of the type in which we may invest a portion of our
assets,
the yields and prices of such securities may tend to fluctuate more than
those
for higher rated securities. In the lower quality segments of the debt
securities market, changes in perceptions of issuers’ creditworthiness tend to
occur more frequently and in a more pronounced manner than do changes
in higher
quality segments of the debt securities market, resulting in greater
yield and
price volatility.
Factors
having an adverse impact on the market value of below investment grade
securities may have an adverse effect on our NAV and the market value
of our
common stock. In addition, we may incur additional expenses to the extent
we are
required to seek recovery upon a default in payment of principal or interest
on
our portfolio holdings. In certain circumstances, we may be required
to
foreclose on an issuer’s assets and take possession of its property or
operations. In such circumstances, we would incur additional costs in
disposing
of such assets and potential liabilities from operating any business
acquired.
Counterparty
Risk. We
may be
subject to credit risk with respect to the counterparties to certain
derivative
agreements entered into by us. If a counterparty becomes bankrupt or
otherwise
fails to perform
its obligations under a derivative contract due to financial difficulties,
we
may experience significant delays in obtaining any recovery under the
derivative
contract in a bankruptcy or other reorganization proceeding. We may obtain
only
a limited recovery or may obtain no recovery in such
circumstances.
Effects
of Terrorism.
The
U.S. securities markets are subject to disruption as a result of terrorist
activities, such as the terrorist attacks on the World Trade Center on
September 11, 2001; the war in Iraq and its aftermath; other hostilities;
and other geopolitical events. Such events have led, and in the future
may lead,
to short-term market volatility and may have long-term effects on the U.S.
economy and markets.
Anti-Takeover
Provisions.
Our
Charter and Bylaws include provisions that could delay, defer or prevent
other
entities or persons from acquiring control of us, causing us to engage
in
certain transactions or modifying our structure. These provisions may be
regarded as “anti-takeover” provisions. Such provisions could limit the ability
of common stockholders to sell their shares at a premium over the
then-
current
market prices by discouraging a third party from seeking to obtain control
of
us. See “Certain Provisions in the Company’s Charter and Bylaws.”
Management
Risk. The Adviser was formed in October 2002 to provide portfolio
management to institutional and high-net worth investors seeking professional
management of their MLP investments. The Adviser has been managing investments
in portfolios of MLP investments since that time, including since February
2004,
management of our investments, and management of the investments of TYY
since
May 2005 and of TYN since October 2005. TYY is a non-diversified, closed-end
management investment company that commenced operations on May 31, 2005
and
invests primarily in MLPs and their affiliates in the energy infrastructure
sector. TYN is a non-diversified, closed-end management investment company,
that
commenced operations on October 31, 2005 and invests primarily in Canadian
royalty trusts and income trusts and publicly traded United States MLPs.
The
Adviser also serves as the investment adviser to TTO, a non-diversified
closed-end management investment company that has elected to be regulated
as a
business development company under the 1940 Act. TTO, which commenced
operations on December 8, 2005, invests primarily in privately held and
micro-cap public energy companies operating in the midstream and downstream
segments, and to a lesser extent the upstream segment. Our investments and
those of TYY, TYN and TTO are managed by the Adviser’s investment committee. We
share the same officers as TYY, TYN and TTO. As of November 30, 2006,
the
Adviser had client assets under management of approximately $2.0 billion,
including our assets and those of TYY, TYN and TTO. The Adviser relies
in part
on the officers, employees, and resources of Fountain Capital for certain
functions. These services are provided pursuant to an informal arrangement
between the parties. To the extent that the Adviser’s assets under management
continue to grow, the Adviser may have to hire additional personnel and
to the
extent it is unable to hire qualified individuals its operations may
be
adversely affected. Three (of the five) members of the investment committee
are
affiliates of, but not employees of, the Adviser, and have other significant
responsibilities with Fountain Capital. Fountain Capital conducts business
and
activities of its own in which the Adviser has no economic interest.
If these
separate activities become significantly greater than the Adviser’s activities,
there could be material competition for the efforts of key
personnel.
Additional
Risks to Common Stockholders
Leverage
Risk.
Our use
of leverage through the issuance of MMP Shares and Tortoise Notes along
with the
issuance of any additional preferred stock or debt securities, and any
additional borrowings or other transactions involving indebtedness (other
than
for temporary or emergency purposes) are or would be considered “senior
securities” for purposes of the 1940 Act and create risks. Leverage is a
speculative technique that may adversely affect common stockholders.
If the
return on securities acquired with
borrowed funds or other leverage proceeds does not exceed the cost of
the
leverage, the use of leverage could cause us to lose money. Successful
use of
leverage depends on the Adviser’s ability to predict or hedge correctly interest
rates and market movements, and there is no assurance that the use of
a
leveraging strategy will be successful during any period in which it
is used.
Because the fee paid to the Adviser will be calculated on the basis of
Managed
Assets, the fees will increase when leverage is utilized, giving the
Adviser an
incentive to utilize leverage.
Our
issuance of senior securities involves offering expenses and other costs,
including interest payments, which are borne indirectly by our common
stockholders. Fluctuations in interest rates could increase interest or
dividend
payments on our senior securities, and could reduce cash available for
dividends
on common stock. Increased operating costs, including the financing cost
associated with any leverage, may reduce our total return to common
stockholders.
The 1940 Act and/or the rating agency guidelines applicable to senior securities
impose asset coverage requirements, dividend limitations, voting right
requirements (in the case of the senior equity securities), and
restrictions on our portfolio composition and our use of certain investment
techniques and strategies. The terms of any senior securities or other
borrowings may impose additional requirements, restrictions and limitations
that
are more stringent than those currently required by the 1940 Act, and the
guidelines of the rating agencies that rate outstanding senior securities.
These
requirements may have an adverse effect on us and may affect our ability
to pay
distributions on common stock and preferred stock. To the extent necessary,
we
intend to redeem our senior securities to maintain the required asset coverage.
Doing so may require that we liquidate portfolio securities at a time when
it
would not otherwise be desirable to do so. Nevertheless, it is not anticipated
that the 1940 Act requirements, the terms of any senior securities or the
rating
agency guidelines will impede the Adviser in managing our portfolio in
accordance with our investment objective and policies. See “Leverage—Use of
Leverage.”
Market
Impact Risk.
The
sale of our common stock (or the perception that such sales may occur)
may have
an adverse effect on prices in the secondary market for our common stock.
An
increase in the number of common shares available may put downward pressure
on
the market price for our common stock. Our ability to sell shares of
common
stock below NAV may increase this pressure. These sales also
might make it more difficult for us to sell additional equity securities
in the
future at a time and price we deem appropriate.
Dilution
Risk.
The
voting power of current stockholders will be diluted to the extent that
current
stockholders do not purchase shares in any future common stock offerings
or do
not purchase sufficient shares to maintain their percentage interest.
In
addition, if we sell shares of common stock below NAV, our NAV will fall
immediately after such issuance. See “Description of Securities—Common
Stock—Issuance of Additional Shares” which includes a table reflecting the
dilutive effect of selling our common stock below NAV.
If
we are
unable to invest the proceeds of such offering as intended, our per share
distribution may decrease and we may not participate in market advances
to the
same extent as if such proceeds were fully invested as planned.
Market
Discount Risk.
Our
common stock has a limited trading history and has traded both at a premium
and
at a discount in relation to NAV. We cannot predict whether our shares
will
trade in the future at a premium or discount to NAV. Shares of closed-end
investment companies frequently trade at a discount from NAV, but in
some cases
have traded above NAV. Continued development of alternatives as a vehicle
for
investment in MLP securities may contribute to reducing or eliminating
any
premium or may result in our shares trading at a discount. The risk of
the
shares of common stock trading at a discount is a risk separate from
the risk of
a decline in our NAV as a result of investment activities. Our NAV will
be
reduced immediately following an offering of our common or preferred
stock, due
to the offering
costs for such stock, which are borne entirely by us. Although we also
bear the
offering costs of debt securities, such costs are amortized over time
and
therefore do not impact our NAV immediately following an
offering.
Whether
stockholders will realize a gain or loss upon the sale of our common stock
depends upon whether the market value of the common shares at the time
of sale
is above or below the price the stockholder paid, taking into account
transaction costs for the common shares, and is not directly dependent
upon our
NAV. Because the market value of our common stock will be determined by
factors
such as the relative demand for and supply of the shares in the market,
general
market conditions and other factors beyond our control, we cannot predict
whether our common stock will trade at, below or above NAV, or at, below
or
above the public offering price for common stock.
Additional
Risks to Senior Security Holders
Generally,
an investment in preferred stock or debt securities (collectively, “senior
securities”) is subject to the following risks:
Interest
Rate Risk. Auction rate senior securities pay dividends or interest based
on short-term interest rates. If short-term interest rates rise, dividends
or
interest on the auction rate senior securities may rise so that the amount
of
dividends or interest due to holders of auction rate senior securities
would
exceed the cash flow generated by our portfolio securities. This might
require
us to sell portfolio securities at a time when we would otherwise not
do so,
which may affect adversely our future ability to generate cash flow.
In
addition, rising market interest rates could impact negatively the value
of our
investment portfolio, reducing the amount of assets serving as asset
coverage
for the senior securities.
Senior
Leverage Risk.
Preferred stock will be junior in liquidation and with respect to distribution
rights to debt securities and any other borrowings. Senior securities
representing indebtedness may constitute a substantial lien and burden
on
preferred stock by reason of their prior claim against our income and
against
our net assets in liquidation. We may not be permitted to declare dividends
or other distributions with respect to any series of preferred stock
unless at
such time we meet applicable asset coverage requirements and the payment
of
principal or interest is not in default with respect to the Tortoise
Notes or
any other borrowings.
Ratings
and Asset Coverage Risk.
To the
extent that senior securities are rated, a rating does not eliminate
or
necessarily mitigate the risks of investing in our senior securities,
and a
rating may not fully or accurately reflect all of the credit and market
risks
associated with a security. A rating agency could downgrade the rating
of our
shares of preferred stock or debt securities, which may make such securities
less liquid at an auction or in the secondary market, though probably
with
higher resulting interest rates. If a rating agency downgrades the rating
assigned to a senior security, we may alter our portfolio or redeem the
senior
security. We may voluntarily redeem a senior security under certain
circumstances.
Inflation
Risk.
Inflation is the reduction in the purchasing power of money resulting
from an
increase in the price of goods and services. Inflation risk is the risk
that the
inflation adjusted or “real” value of an investment in preferred stock or debt
securities or the income from that investment will be worth less in the
future.
As inflation occurs, the real value of the preferred stock or debt securities
and the dividend payable to holders of preferred stock or interest payable
to
holders of debt securities declines. In an inflationary period, however,
it is
expected that, through the auction process, dividend or interest rates
would
increase, tending to offset this risk.
Auction
Risk.
To the
extent that senior securities trade through an auction, there are certain
risks
associated with participating in an auction and certain risks if you
try to sell
senior securities outside of an auction
in the secondary market. These risks will be described in more detail
in an
applicable prospectus supplement if we issue senior securities pursuant
to this
registration statement.
Decline
in Net Asset Value Risk.
A
material decline in our NAV may impair our ability to maintain required
levels
of asset coverage for our preferred stock or debt securities.
Directors
and Officers
Our
business and affairs are managed under the direction of our Board of
Directors.
Accordingly, our Board of Directors provides broad supervision over our
affairs,
including supervision of the duties performed by the Adviser. Our officers
are
responsible for our day-to-day operations. The names and business addresses
of
our directors and officers, together with their principal occupations
and other
affiliations during the past five years, are set forth in the statement
of
additional information. The Board of Directors consists of a majority
of
directors who are not interested persons (as defined in the 1940 Act)
of the
Adviser or its affiliates.
Investment
Adviser
Pursuant
to an advisory agreement, the Adviser provides us with investment research
and
advice and furnishes us with an investment program consistent with our
investment objective and policies, subject to the supervision of the
Board. The
Adviser determines which portfolio securities will be purchased or sold,
arranges for the placing of orders for the purchase or sale of portfolio
securities, selects brokers or dealers to place those orders, maintains
books
and records with respect to our securities transactions and reports to
the Board
on our investments and performance.
The
Adviser is located at 10801 Mastin Boulevard, Suite 222, Overland Park,
Kansas
66210. The Adviser specializes in managing portfolios of investments
in MLPs and
other energy infrastructure companies. The Adviser was formed in
October 2002 to provide portfolio management services to institutional and
high net worth investors seeking professional management of their MLP
investments. As of November 30, 2006, the Adviser had approximately $2.0
billion
of client assets under management. The Adviser’s investment committee is
comprised of five seasoned portfolio managers.
Fountain
Capital and Kansas City Equity Partners LC (“KCEP”) control our Advisor through
their equity ownership and management rights in our Advisor. Fountain
Capital
was formed in 1990 and is focused primarily on providing investment advisory
services to institutional investors with respect to below investment
grade debt.
Fountain Capital had approximately $1.7 billion of client assets under
management as of November 30, 2006, of which approximately $237 million was
in energy industry investments. KCEP was formed in 1993 and until recently,
managed KCEP Ventures II, L.P. (“KCEP II”), a private equity fund with committed
capital of $55 million invested in a variety of companies in diverse
industries.
KCEP II wound up its operations in late 2006, has no remaining portfolio
investments and has distributed proceeds to its partners. KCEP Ventures
I, L.P.
(“KCEP I”), a start-up and early-stage venture capital fund launched in 1994 and
previously managed by KCEP, also recently completed the process of winding
down.
As a part of that process, KCEP I entered into a consensual order of
receivership, which was necessary to allow KCEP I to distribute its remaining
$1.3 million of assets to creditors and the SBA. The consensual order
acknowledged a capital impairment condition and the resulting nonperformance
by
KCEP I of its agreement with the SBA, both of which were violations of
the
provisions requiring repayment of capital under the Small Business Investment
Act of 1958 and the regulations thereunder.
The
Adviser relies in part on the officers, employees and resources of its
affiliate, Fountain Capital, for certain functions. These
services are provided pursuant to an informal arrangement between the
parties. Three of the five members of the investment committee of
the Adviser are affiliates of, but not employees of, the Adviser, and have
other
significant responsibilities with Fountain Capital. Fountain Capital
conducts business and activities of its own in which the Adviser has no
economic
interest. If
these
separate activities are significantly greater than the Adviser’s activities,
there could be material competition for the efforts of key
personnel.
The
investment management of our portfolio is the responsibility of the Adviser’s
investment committee. The investment committee’s members are H. Kevin Birzer,
Zachary A. Hamel, Kenneth P. Malvey, Terry C. Matlack and David J. Schulte,
all of whom share responsibility for such investment management. It is
the
policy of the investment committee that any one member can require the
Adviser
to sell a security and any one member can veto the committee’s decision to
invest in a security. Each committee member has been a portfolio manager
since
we commenced operations in February 2004.
H.
Kevin Birzer.
Mr. Birzer has been a Managing Director of the Adviser since 2002 and also
is a Partner with Fountain Capital. Mr. Birzer is also a Director of
TYY, TYN
and TTO. Mr. Birzer, who joined Fountain Capital
in 1990, has 22 years of investment experience including 19 in high-yield
securities. Mr. Birzer began his career with Peat Marwick. His subsequent
experience includes three years working as a Vice President for F. Martin
Koenig & Co., focusing on equity and option investments, and three
years at Drexel Burnham Lambert, where he was a Vice President in the
Corporate
Finance Department. Mr. Birzer graduated with a Bachelor of Business
Administration degree from the University of Notre Dame and holds a Master
of
Business Administration degree from New York University. He earned his
CFA
designation in 1988.
Zachary A.
Hamel.
Mr. Hamel has been a Managing Director of the Adviser since 2002 and also
is a Partner with Fountain Capital. Mr. Hamel joined Fountain Capital in
1997. He covers energy, chemicals and utilities. Prior to joining Fountain
Capital, Mr. Hamel worked for the Federal Deposit Insurance Corporation
(“FDIC”) for eight years as a Bank Examiner and a Regional Capital Markets
Specialist. Mr. Hamel graduated from Kansas State University with a
Bachelor of Science in Business Administration. He also attained a Master
in
Business Administration from the University of Kansas School of Business.
He
earned his CFA designation in 1998.
Kenneth P.
Malvey.
Mr. Malvey has been a Managing Director of the Adviser since 2002 and also
is a Partner with Fountain Capital. Prior to joining Fountain Capital
in 2002,
Mr. Malvey was one of three members of the Global Office of Investments for
GE Capital’s Employers Reinsurance Corporation. Most recently he was the Global
Investment Risk Manager for a portfolio of approximately $24 billion
of
fixed-income, public equity and alternative investment assets. Prior
to joining
GE Capital in 1996, Mr. Malvey was a Bank Examiner and Regional Capital
Markets Specialist with the FDIC for nine years. Mr. Malvey graduated with
a Bachelor of Science degree in Finance from Winona State University,
Winona,
Minnesota. He earned his CFA designation in 1996.
Terry C.
Matlack.
Mr. Matlack has been a Managing Director of the Adviser since 2002 and also
is a Managing Director of KCEP. Mr. Matlack is also a Director of TYY,
TYN and
TTO. Prior to joining KCEP in 2001, Mr. Matlack was President of
GreenStreet Capital and its affiliates in the telecommunications service
industry. Prior to 1995, he was Executive Vice President and a member
of the
board of directors of W.K. Communications, Inc., a cable television acquisition
company, and Chief Operating Officer of W.K. Cellular, a cellular rural
service
area operator. He also has served as a specialist in corporate finance
with
George K. Baum &
Company, and as Executive Vice President of Corporate Finance at B.C.
Christopher Securities Company. Mr. Matlack graduated with a Bachelor of
Science in Business
Administration
from Kansas State University and holds a Masters of Business Administration
and
a Juris Doctorate from the University of Kansas. He earned his CFA designation
in 1985.
David J.
Schulte.
Mr. Schulte has been a Managing Director of the Adviser since 2002 and also
is a Managing Director of KCEP. While a Managing Director of KCEP, he
led
private financing for two growth MLPs in the energy infrastructure sector.
Since
February 2004, Mr. Schulte has been an employee of the Adviser. Prior
to joining
KCEP in 1993, Mr. Schulte had over five years of experience completing
acquisition and public equity financings as an investment banker at the
predecessor of Oppenheimer & Co, Inc. From 1986 to 1989, he was a
securities law attorney. Mr. Schulte holds a Bachelor of Science degree in
Business Administration from Drake University and a Juris Doctorate degree
from
the University of Iowa. He passed the CPA examination in 1983, earned
his CFA
designation in 1992.
The
statement of additional information provides additional information about
the
compensation structure of, the other accounts managed by, and the ownership
of
our securities by the portfolio managers listed above.
Compensation
and Expenses
Under
the
advisory agreement, we pay the Adviser quarterly, as compensation for
the
services rendered by it, a fee equal on an annual basis to 0.95% of our
average
monthly Managed Assets. Managed Assets means our total assets (including
any
assets attributable to leverage that may be outstanding)
minus accrued liabilities other than (1) deferred taxes, (2) debt entered
into
for the purpose of leverage and (3) the aggregate liquidation preference
of any
outstanding preferred stock. Because the fee paid to the Adviser is determined
on the basis of our Managed Assets, the Adviser’s interest in determining
whether we should incur additional leverage will conflict with our interests.
Our average monthly Managed Assets are determined for the purpose of
calculating
the management fee by taking the average of the monthly determinations
of
Managed Assets during a given calendar quarter. The fees are payable
for each
calendar quarter within five days after the end of that quarter. The
Adviser has
contractually agreed to reimburse us for fees and expenses, including
the
investment advisory fee and other expenses in the amount of 0.10% of
average
monthly Managed Assets through February 28, 2009.
The
advisory agreement has a term ending on December 31st of each year. The
advisory agreement was most recently approved by the Board of Directors
in
November 2006. A discussion regarding the basis of the Board of Directors’
decision to approve the renewal of the advisory agreement is available
in our
Annual Report to stockholders for the fiscal year ended November 30,
2006.
We
bear
all expenses not specifically assumed by the Adviser incurred in our
operations
and will bear the expenses of all future offerings. Expenses we bear
include,
but are not limited to, the following: (1) expenses of maintaining and
continuing our existence and related overhead, including, to the extent
services
are provided by personnel of the Adviser or its affiliates, office space
and
facilities and personnel compensation, training and benefits;
(2) registration under the 1940 Act; (3) commissions, spreads, fees
and other expenses connected with the acquisition, holding and disposition
of
securities and other investments, including placement and similar fees
in
connection with direct placements in which we participate; (4) auditing,
accounting and legal expenses; (5) taxes and interest;
(6) governmental fees; (7) expenses of listing our shares with a stock
exchange, and expenses of the issue, sale, repurchase and redemption
(if any) of
our interests, including expenses of conducting tender offers for the
purpose of
repurchasing our interests; (8) expenses of registering and qualifying us
and our shares under federal and state securities laws and of preparing
and
filing registration statements and amendments for such purposes;
(9) expenses of communicating with stockholders, including website expenses
and the expenses
of
preparing, printing and mailing press releases,
reports and other notices to stockholders and of meetings of stockholders
and
proxy solicitations therefor; (10) expenses of reports to governmental
officers and commissions; (11) insurance expenses; (12) association
membership dues; (13) fees, expenses and disbursements of custodians and
subcustodians for all services to us (including without limitation safekeeping
of funds, securities and other investments, keeping of books, accounts
and
records, and determination of NAV); (14) fees, expenses and disbursements
of transfer agents, dividend paying agents, stockholder servicing agents
and
registrars for all services to us; (15) compensation and expenses of our
directors who are not members of the Adviser’s organization; (16) pricing
and valuation services employed by us; (17) all expenses incurred in
connection with leveraging of our assets through a line of credit, or issuing
and maintaining notes or preferred stock; (18) all expenses incurred in
connection with the offerings of our common and preferred stock and debt
securities; and (19) such non-recurring items as may arise, including
expenses incurred in connection with litigation, proceedings and claims
and our
obligation to indemnify our directors, officers and stockholders with respect
thereto.
We
are a
nondiversified closed-end management investment company and as such our
stockholders will not have the right to cause us to redeem their shares.
Instead, our common stock will trade in the open market at a price that
will be
a function of several factors, including dividend levels (which are in
turn
affected by expenses), NAV, call protection, dividend stability, portfolio
credit quality, relative
demand for and supply of such shares in the market, general market and
economic
conditions and other factors.
Shares
of
common stock of closed-end companies frequently trade at a discount to
their
NAV. This characteristic of shares of closed-end management investment
companies
is a risk separate and distinct from the risk that our NAV may decrease
as a
result of investment activities. To the extent that our common stock
does trade
at a discount, the Board of Directors may from time to time engage in
open-market repurchases or tender offers for shares after balancing the
benefit
to stockholders of the increase in the NAV per share resulting from such
purchases against the decrease in our assets and potential increase in
the
expense ratio of our expenses to assets and the decrease in asset coverage
with
respect to any outstanding senior securities. The Board of Directors
believes
that in addition to the beneficial effects described above, any such
purchases
or tender offers may result in the temporary narrowing of any discount
but will
not have any long-term effect on the level of any discount. There is
no
guarantee or assurance that the Board of Directors will decide to engage
in any
of these actions. There is also no guarantee or assurance that such actions,
if
undertaken, would result in the shares trading at a price equal or close
to NAV
per share. Any stock repurchases or tender offers will be made in accordance
with the requirements of the Securities Exchange Act of 1934, as amended
(the
“Exchange Act”), the 1940 Act and the principal stock exchange on which the
common stock is traded. Conversion to an open-end mutual fund is extremely
unlikely and would require stockholder approval of an amendment to our
Charter.
The
following is a general summary of certain federal income tax considerations
affecting us and our security holders. This discussion does not purport
to be
complete or to deal with all aspects of federal income taxation that
may be
relevant to stockholders in light of their particular circumstances or
who are
subject to special rules, such as banks, thrift institutions and certain
other
financial institutions, real estate investment trusts, regulated investment
companies, insurance companies, brokers and dealers in securities or
currencies,
certain securities traders, tax-exempt investors, individual retirement
accounts, certain tax-
deferred
accounts, and foreign investors. Tax matters are very complicated, and
the tax
consequences of an investment in and holding of our securities will depend
on
the particular facts of each investor’s situation. Investors are advised to
consult their own tax advisors with respect to the application to their
own
circumstances of the general federal income taxation rules described
below and
with respect to other federal, state, local or foreign tax consequences
to them
before making an investment in our securities. Unless otherwise noted,
this
discussion assumes that the investors are U.S. persons and hold our
securities as
capital assets. More detailed information regarding the federal income
tax
consequences of investing in our securities is in the Statement of Additional
Information.
Pursuant
to U.S. Treasury Department Circular 230, we are informing you that
(1) this discussion is not intended to be used, was not written to be used,
and cannot be used, by any taxpayer for the purpose of avoiding penalties
under
the U.S. federal tax laws, (2) this discussion was written by us in
connection with the registration of our securities and our promotion
or
marketing, and (3) each taxpayer should seek advice based on his, her or
its particular circumstances from an independent tax advisor.
Company
Federal Income Taxation
We
are
treated as a corporation for federal and state income tax purposes. Thus,
we are
obligated to pay federal and state income tax on our taxable income.
We invest
our assets primarily in MLPs, which generally are treated as partnerships
for
federal income tax purposes. As a partner in the MLPs, we must report
our
allocable share of the MLP’s taxable income in computing our taxable income
regardless of
whether the MLPs make any distributions. Based upon our review of the
historic
results of the type of MLPs in which we invest, we expect that the cash
flow
received by us with respect to our MLP investments will exceed the taxable
income allocated to us. There is no assurance that our expectation regarding
the
tax character of MLP distributions will be realized. If this expectation
is not
realized, there will be greater tax expense borne by us and less cash
available
to distribute to stockholders or to pay to creditors. In addition, we
will take
into account in determining our taxable income the amounts of gain or
loss
recognized on the sale of MLP interests. Currently, the maximum regular
federal
income tax rate for a corporation is 35 percent. We may be subject to
a 20
percent federal alternative minimum tax on our alternative minimum taxable
income to the extent that the alternative minimum tax exceeds our regular
federal income tax.
We
are
not treated as a regulated investment company under the Internal Revenue
Code.
The Internal Revenue Code generally provides that a regulated investment
company
does not pay an entity level income tax, provided that it distributes
all or
substantially all of its income. Our assets do not, and are not expected
to,
meet current tests for qualification as a regulated investment company
for
federal income tax purposes. The regulated investment company taxation
rules
therefore have no application to us or to our stockholders. Although
changes to
the federal tax laws permit regulated investment companies to invest
up to 25%
of their total assets in securities of MLPs, such changes still would
not allow
us to pursue our objective. Accordingly, we do not intend to change our
tax
status as a result of such legislation.
Federal
Income Taxation of Common and Preferred Stock
Federal
Income Tax Treatment of Holders of Common Stock.
Unlike
a holder of a direct interest in MLPs, a stockholder will not include
its
allocable share of our income, gains, losses or deductions in computing
its own
taxable income. Instead, since we are of the opinion that, under present
law,
the common stock will constitute equity, distributions with respect to
such
shares (other than distributions in redemption of shares subject to
Section 302(b) of the Internal Revenue Code) will generally constitute
dividends to the extent of our allocable current or accumulated earnings
and
profits, as calculated for federal income tax purposes. Generally, a
corporation’s earnings and profits are computed based upon
taxable
income, with certain specified adjustments. As explained above, based
upon the
historic performance
of the MLPs, we anticipate that the distributed cash from the MLPs will
exceed
our share of the MLPs’ income and our gain on the sale of MLP interests. In
addition, earnings and profits are treated generally, for federal income
tax
purposes, as first being used to pay distributions on preferred stock,
and then
to the extent remaining, if any, to pay distributions on the common stock.
Thus,
we anticipate that only a portion of the distributions of DCF will be
treated as
dividend income to common stockholders. To the extent that distributions
to a
stockholder exceed our current and accumulated earnings and profits,
the
stockholder’s basis in shares of stock with respect to which the distribution is
made will be reduced, which may increase the amount of gain realized
upon the
sale of such shares. If a stockholder has no further basis in its shares,
the
stockholder will report any excess as capital gain if the stockholder
holds such
shares as a capital asset.
Dividends
of current or accumulated earnings and profits generally will be taxable
as
ordinary income to holders but are expected to be treated as “qualified dividend
income” that is generally subject to reduced rates of federal income taxation
for noncorporate investors and are also expected to be eligible for the
dividends received deduction available to corporate stockholders under
Section
243 of the Internal Revenue Code. Under federal income tax law, qualified
dividend income received by individual and other noncorporate stockholders
is
taxed at long-term capital gain rates, which currently reach a maximum
of 15%.
Qualified dividend income generally includes dividends from domestic
corporations and dividends from non-U.S. corporations that meet certain
criteria. To be treated as qualified dividend income, the stockholder
must hold
the shares paying otherwise qualifying dividend income more than 60 days
during
the 121-day period beginning 60 days before the ex-dividend date (or
more than
90 days during the 181-day period beginning 90 days before the ex-dividend
date
in the case of certain preferred stock dividends). A stockholder’s holding
period may be reduced for purposes of this rule if the stockholder engages
in
certain risk reduction transactions with respect to the common or preferred
stock. The provisions of the Internal Revenue Code applicable to qualified
dividend income are effective through 2010. Thereafter, higher tax rates
will
apply unless further legislative action is taken.
Corporate
holders should be aware that certain limitations apply to the availability
of
the dividends received deduction, including limitations on the aggregate
amount
of the deduction that may be claimed and limitations based on the holding
period
of the shares of common or preferred stock on which the dividend is paid,
which
holding period may be reduced if the holder engages in risk reduction
transactions with respect to its shares. Corporate holders should consult
their
own tax advisors regarding the application of these limitations to their
particular situation.
If
a
common stockholder participates in our Automatic Dividend Reinvestment
Plan,
such stockholder will be treated as receiving the amount of the distributions
made by the Company, which amount generally will be either equal to the
amount
of the cash distribution the stockholder would have received if the stockholder
had elected to receive cash or, for shares issued by the Company, the
fair
market value of the shares issued to the stockholder.
Federal
Income Tax Treatment of Holders of Preferred Stock. Under
present law, we are of the opinion that preferred stock will constitute
equity,
and thus distributions with respect to preferred stock (other than distributions
in redemption of preferred stock subject to Section 302(b) of the Internal
Revenue Code) will generally constitute dividends to the extent of our
current
or accumulated earnings and profits, as calculated for federal income
tax
purposes. Such dividends generally will be taxable as ordinary income
to holders
but are expected to be treated as “qualified dividend income” that is generally
subject to reduced rates of federal income taxation for noncorporate
investors
and are also expected to be eligible for the dividends received deduction
available to corporate stockholders under Section 243 of the
Internal
Revenue Code. Please see the discussion above on qualified dividend income
and
dividends received deductions.
Earnings
and profits are generally treated, for federal income tax purposes, as
first
being used to pay distributions on the preferred stock, and then to the
extent
remaining, if any, to pay distributions on the common stock. Distributions
in
excess of the Company’s earnings and profits, if any, will first reduce a
stockholder’s adjusted tax basis in his or her preferred stock and, after the
adjusted tax basis is reduced to zero, will constitute capital gains
to a
stockholder who holds such shares as a capital asset.
Sale
of Shares. The sale of shares of common or preferred stock by holders will
generally be a taxable transaction for federal income tax purposes. Holders
of
shares of stock who sell such shares will generally recognize gain or
loss in an
amount equal to the difference between the net proceeds of the sale and
their
adjusted tax basis in the shares sold. If the shares are held as a capital
asset
at the time of the sale, the gain or loss will generally be a capital
gain or
loss. Similarly, a redemption by us (including a redemption resulting
from our
liquidation), if any, of all the shares actually and constructively held
by a
stockholder generally will give rise to capital gain or loss under
Section 302(b) of the Internal Revenue Code, provided that the redemption
proceeds do not represent declared but unpaid dividends. Other redemptions
may
also give rise to capital gain or loss, but certain conditions imposed
by
Section 302(b) of the Internal Revenue Code must be satisfied to achieve
such treatment.
Capital
gain or loss will generally be long-term capital gain or loss if the
shares were
held for more than one year and will be short-term capital gain or loss
if the
disposed shares were held for one year
or
less. Net long-term capital gain recognized by a noncorporate U.S. holder
generally will be subject to federal income tax at a lower rate (currently
a
maximum rate of 15%) than net short-term capital gain or ordinary income
(currently a maximum rate of 35%). Under current law, the maximum federal
income
tax rate on capital gain for noncorporate holders is scheduled to increase
to
20% for taxable years after 2010. For corporate holders, capital gain
is
generally taxed at the same rate as ordinary income, that is, currently
at a
maximum rate of 35%. A holder’s ability to deduct capital losses may be
limited.
Investment
by Tax-Exempt Investors and Regulated Investment Companies.
Employee benefit plans, other tax-exempt organizations and regulated
investment
companies may want to invest in our securities. Employee benefit plans
and most
other organizations exempt from federal income tax, including individual
retirement accounts and other retirement plans, are subject to federal
income
tax on unrelated business taxable income (“UBTI”). Because we are a corporation
for federal income tax purposes, an owner of shares of common stock will
not
report on its federal income tax return any of our items of income, gain,
loss
and deduction. Therefore, a tax-exempt investor generally will not have
UBTI
attributable to its ownership or sale of our common or preferred stock
unless
its ownership of the stock is debt-financed. In general, stock would
be
debt-financed if the tax-exempt owner of stock incurs debt to acquire
the stock
or otherwise incurs or maintains debt that would not have been incurred
or
maintained if the stock had not been acquired.
For
federal income tax purposes, a regulated investment company or “mutual fund,”
may not have more than 25% of the value of its total assets, at the close
of any
quarter, invested in the securities of one or more qualified publicly
traded
partnerships, which will include most MLPs. Shares of our common stock
are not
securities of a qualified publicly traded partnership and will not be
treated as
such for purposes of calculating the limitation imposed upon regulated
investment companies.
Backup
Withholding.
We may
be required to withhold, for U.S. federal income tax purposes, a portion
of all
taxable distributions (including redemption proceeds) payable to stockholders
who fail to provide us with their correct taxpayer identification number,
who
fail to make required certifications or
who
have
been notified by the Internal Revenue Service (“IRS”) that they are subject to
backup withholding (or if we have been so notified). Certain corporate
and other
stockholders specified in the Internal Revenue Code and the regulations
thereunder are exempt from backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against
the
stockholder’s U.S. federal income tax liability provided the appropriate
information is furnished to the IRS in a timely manner.
Other
Taxation.
Foreign
stockholders, including stockholders who are nonresident alien individuals,
may
be subject to U.S. withholding tax on certain distributions at a rate
of 30% or
such lower rates as may be prescribed by any applicable treaty. Our
distributions also may be subject to state and local taxes.
Federal
Income Taxation of Debt Securities
Federal
Income Tax Treatment of Holders of Debt Securities.
Under
present law, we are of the opinion that the debt securities will constitute
indebtedness of the Company for federal income tax purposes, which the
discussion below assumes. We intend to treat all payments made with respect
to
the debt securities consistent with this characterization.
Taxation
of Interest. Payments
or accruals of interest on debt securities generally will be taxable
to you as
ordinary interest income at the time such interest is received (actually
or
constructively) or accrued, in accordance with your regular method of
accounting
for federal income tax purposes.
Purchase,
Sale and Redemption of Debt Securities.
Initially, your tax basis in debt securities acquired generally will
be equal to
your cost to acquire such debt securities. This basis will increase by
the
amounts, if any, that you include in income under the rules governing
market
discount, and will decrease by the amount of any amortized premium on
such debt
securities, as discussed below. When you sell or exchange any of your
debt
securities, or if any of your debt securities are redeemed, you generally
will
recognize gain or loss equal to the difference between the amount you
realize on
the transaction (less any accrued and unpaid interest, which will be
subject to
tax as interest in the manner described above) and your tax basis in
the debt
securities relinquished.
Except
as
discussed below with respect to market discount, the gain or loss that
you
recognize on the sale, exchange or redemption of any of your debt securities
generally will be capital gain or loss. Such gain or loss will generally
be
long-term capital gain or loss if the disposed debt securities were held
for
more than one year and will be short-term capital gain or loss if the
disposed
debt securities were held for one year or less. Net long-term capital
gain
recognized by a noncorporate U.S. holder generally will be subject to
federal
income tax at a lower rate (currently a maximum rate of 15%, although
this rate
will increase to 20% after 2010) than net short-term capital gain or
ordinary
income (currently a maximum rate of 35%). For corporate holders, capital
gain is
generally taxed as ordinary income, that is, currently at a maximum rate
of 35%.
A holder’s ability to deduct capital losses may be limited.
Amortizable
Premium. If
you
purchase debt securities at a cost greater than their stated principal
amount,
plus accrued interest, you will be considered to have purchased the debt
securities at a premium, and you generally may elect to amortize this
premium as
an offset to interest income, using a constant yield method, over the
remaining
term of the debt securities. If you make the election to amortize the
premium,
it generally will apply to all debt instruments that you hold at the
time of the
election, as well as any debt instruments that you subsequently acquire.
In
addition, you may not revoke the election without the consent of the
IRS. If you
elect to amortize the premium, you will be required to reduce your tax
basis in
the debt securities by the amount of the premium amortized during your
holding
period. If you do not elect to amortize premium, the amount of premium
will be
included in your tax basis in the debt
securities.
Therefore, if you do not elect to amortize the premium and you hold the
debt
securities to maturity, you generally will be required to treat the premium
as a
capital loss when the debt securities are redeemed.
Market
Discount. If you purchase debt securities at a price
that reflects a “market discount,” any principal payments on, or any gain that
you realize on the disposition of the debt securities generally will
be treated
as ordinary interest income to the extent of the market discount that
accrued on
the debt securities during the time you held such debt securities. “Market
discount” is defined under the Internal Revenue Code as, in general, the excess
of the stated redemption price at maturity over the purchase price of
the debt
security, except that if the market discount is less than 0.25% of the
stated
redemption price at maturity multiplied by the number of complete years
to
maturity, the market discount is considered to be zero. In addition,
you may be
required to defer the deduction of all or a portion of any interest paid
on any
indebtedness that you incurred or continued to purchase or carry the
debt
securities that were acquired at a market discount. In general, market
discount
will be treated as accruing ratably over the term of the debt securities,
or, at
your election, under a constant yield method.
You
may
elect to include market discount in gross income currently as it accrues
(on
either a ratable or constant yield basis), in lieu of treating a portion
of any
gain realized on a sale of the debt securities as ordinary income. If
you elect
to include market discount on a current basis, the interest deduction
deferral
rule described above will not apply and you will increase your basis
in the debt
security by the amount of market discount you include in gross income.
If you do
make such an election, it will apply to all market discount debt instruments
that you acquire on or after the first day of the first taxable
year to which the election applies. This election may not be revoked
without the
consent of the IRS.
Information
Reporting and Backup Withholding.
In
general, information reporting requirements will apply to payments of
principal,
interest, and premium, if any, paid on debt securities and to the proceeds
of
the sale of debt securities paid to U.S. holders other than certain exempt
recipients (such as certain corporations). Information reporting generally
will
apply to payments of interest on the debt securities to non-U.S. Holders
(as
defined below) and the amount of tax, if any, withheld with respect to
such
payments. Copies of the information returns reporting such interest payments
and
any withholding may also be made available to the tax authorities in
the country
in which the non-U.S. Holder resides under the provisions of an applicable
income tax treaty. In addition, for non-U.S. Holders, information reporting
will
apply to the proceeds of the sale of debt securities within the United
States or
conducted through United States-related financial intermediaries unless
the
certification requirements described below have been complied with and
the
statement described below in “Taxation of Non-U.S. Holders” has been received
(and the payor does not have actual knowledge or reason to know that
the holder
is a United States person) or the holder otherwise establishes an
exemption.
We
may be
required to withhold, for U.S. federal income tax purposes, a portion
of all
taxable payments (including redemption proceeds) payable to holders of
debt
securities who fail to provide us with their correct taxpayer identification
number, who fail to make required certifications or who have been notified
by
the IRS that they are subject to backup withholding (or if we have been
so
notified). Certain corporate and other shareholders specified in the
Internal
Revenue Code and the regulations thereunder are exempt from backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be
credited against the holder’s U.S. federal income tax liability provided the
appropriate information is furnished to the IRS. If you are a non-U.S.
Holder,
you may have to comply with certification procedures to establish your
non-U.S.
status in order to avoid backup withholding tax requirements. The certification
procedures required to claim the exemption from withholding tax on interest
income described below will satisfy these requirements.
Taxation
of Non-U.S. Holders.
If you
are a non-resident alien individual or a foreign corporation (a “non-U.S.
Holder”), the payment of interest on the debt securities generally will be
considered “portfolio interest” and thus generally will be exempt from United
States federal withholding tax. This exemption will apply to you provided
that
(1) interest paid on the debt securities is not effectively connected
with your conduct of a trade or business in the United States, (2) you are
not a bank whose receipt of interest on the debt securities is described
in
Section 881(c)(3)(A) of the Internal Revenue Code, (3) you do not
actually or constructively own 10 percent or more of the combined voting
power of all classes of the Company’s stock entitled to vote, (4) you are
not a controlled foreign corporation that is related, directly or indirectly
to
the Company through stock ownership, and (5) you satisfy the certification
requirements described below.
To
satisfy the certification requirements, either (1) the holder of any debt
securities must certify, under penalties of perjury, that such holder
is a
non-U.S. person and must provide such owner’s name, address and taxpayer
identification number, if any, on IRS Form W-8BEN, or (2) a securities
clearing organization, bank or other financial institution that holds
customer
securities in the ordinary course of its trade or business and holds
the debt
securities on behalf of the holder thereof must certify, under penalties
of
perjury, that it has received a valid and properly executed IRS Form
W-8BEN from
the beneficial holder and comply with certain other requirements. Special
certification rules apply for debt securities held by a foreign partnership
and
other intermediaries.
Interest
on debt securities received by a non-U.S. Holder that is not excluded
from U.S.
federal withholding tax under the portfolio interest exemption as described
above generally will be subject to withholding at a 30% rate, except
where a
non-U.S. Holder can claim the benefits of an applicable tax treaty to
reduce or
eliminate such withholding tax and such non-U.S. Holder provides the
Company
with a properly executed IRS Form W-8BEN claiming such exemption or
reduction.
Any
capital gain that a non-U.S. Holder realizes on a sale, exchange or other
disposition of debt securities generally will be exempt from United States
federal income tax, including withholding tax. This exemption will not
apply to
you if your gain is effectively connected with your conduct of a trade
or
business in the U.S. or you are an individual holder and are present
in the U.S.
for 183 days or more in the taxable year of the disposition and either your
gain is attributable to an office or other fixed place of business that
you
maintain in the U.S. or you have a tax home in the United States.
Pursuant
to an agreement with U.S. Bancorp Fund Services, LLC (the “Accounting Services
Provider”), the Accounting Services Provider values our assets in accordance
with valuation procedures adopted by the Board of Directors. The Accounting
Services Provider obtains securities market quotations from independent
pricing
services approved by the Adviser and ratified by the Board of
Directors.
Securities for which market quotations are readily available shall be
valued at
“market value.” Any other securities shall be valued at “fair
value.”
Valuation
of certain assets at market value will be as follows:
| · |
for
equity securities, the Accounting Services Provider will first
use readily
available market quotations and will obtain direct written broker-dealer
quotations if a security is not traded on an exchange or quotations
are
not available from an approved pricing
service;
|
| · |
for
fixed income securities, the Accounting Services Provider will
use readily
available market quotations based upon the last sale price of
a security
on the day we value our assets or
a market value from a pricing service or by obtaining a direct
written
broker-dealer quotation from a dealer who has made a market in
the
security; and
|
| · |
other
assets will be valued at market value pursuant to the valuation
procedures.
|
If
the
Accounting Services Provider cannot obtain a market value or the Adviser
determines that the value of a security as so obtained does not represent
a fair
value as of the valuation time (due to a significant development subsequent
to
the time its price is determined or otherwise), fair value for the security
shall be determined pursuant to the valuation procedures. A report of
any prices
determined pursuant
to fair value methodologies will be presented to the Board of Directors
or a
designated committee thereof for approval at the next regularly scheduled
board
meeting.
Our
Automatic Dividend Reinvestment and Cash Purchase Plan (the “Plan”) allows
participating common stockholders to reinvest distributions including
dividends,
capital gains and return of capital in additional shares of our common
stock and
allows participants to purchase additional shares of our common stock
through
additional optional cash investments in amounts from a minimum of $100
to a
maximum of $5,000 per month. Shares of common stock will be issued by
us under
the Plan when our common stock is trading at a premium to NAV. If our
common
stock is trading at a discount to NAV, shares distributed under the Plan
will be
purchased on the open market at market price. Shares of common stock
issued
directly from us under the Plan will be acquired at the greater of (1) NAV
at the close of business on the payment date of the distribution or on
the day
preceding the relevant cash purchase investment date or (2) 95% of the
market price per common share on the distribution payment date or on
the day
preceding the relevant cash purchase investment date. See below for more
details
about the Plan.
Automatic
Dividend Reinvestment
If
a
stockholder’s shares are registered directly with us or with a brokerage firm
that participates in our Plan, all distributions are automatically reinvested
for stockholders by the Plan Agent, Computershare Trust Company, N.A.
(the “Plan
Agent”), in additional shares of our common stock (unless a stockholder is
ineligible or elects otherwise). Stockholders who elect not to participate
in
the Plan will receive all distributions payable in cash paid by check
mailed
directly to the stockholder of record (or, if the shares are held in
street or
other nominee name, then to such nominee) by the Plan Agent, as dividend
paying
agent. Such stockholders may elect not to participate in the Plan and
to receive
all distributions in cash by sending written, telephone or
Internet instructions to the Plan Agent, as dividend paying agent, at the
address set forth below. Participation in the Plan is completely voluntary
and
may be terminated or resumed at any time without penalty by giving notice
in
writing to the Plan
Agent;
such termination will be effective with respect to a particular distribution
if
notice is received prior to the record date for such distribution.
Whenever
we declare a distribution payable either in shares or in cash, non-participants
in the Plan will receive cash, and participants in the Plan will receive
the
amount set forth below in shares of common stock. The shares are acquired
by the
Plan Agent for the participant’s account, depending upon the circumstances
described below, either (i) through receipt of additional common stock
directly from us (“Additional Common Stock”) or (ii) by purchase of
outstanding common stock on the open market (“open-market purchases”) on the
NYSE or elsewhere. If, on the payment date, the NAV per share of our
common
stock is equal to or less than the market price per share of common stock
plus
estimated brokerage commissions (such condition being referred to herein
as
“market premium”), the Plan Agent will receive Additional Common Stock from us
for each participant’s account. The number of shares of Additional Common Stock
to be credited to the participant’s account will be determined by dividing the
dollar amount of the distribution by the greater of (i) the NAV per share
of common stock on the payment date, or (ii) 95% of the market price per
share of common stock on the payment date.
If,
on
the payment date, the NAV per share of common stock exceeds the market
price
plus estimated brokerage commissions (such condition being referred to
herein as
“market discount”), the Plan Agent will invest the distribution amount in shares
acquired in open-market purchases as soon as practicable but not later
than
thirty (30) days following the payment date. We expect to declare and
pay
quarterly
distributions. The weighted average price (including brokerage commissions)
of
all common stock purchased by the Plan Agent as Plan Agent will be the
price per
share of common stock allocable to each participant.
The
Plan
Agent maintains all stockholders’ accounts in the Plan and furnishes written
confirmation of each acquisition made for the participant’s account as soon as
practicable, but in no event later than 60 days after the date thereof.
Shares
in the account of each Plan participant may be held by the Plan Agent
in
non-certificated form in the Plan Agent’s name or that of its nominee, and each
stockholder’s proxy will include those shares purchased or received pursuant to
the Plan. The Plan Agent will forward all proxy solicitation materials
to
participants and vote proxies for shares held pursuant to the Plan first
in
accordance with the instructions of the participants, and then with respect
to any proxies not returned by such participant, in the same proportion
as the
Plan Agent votes the proxies returned by the participants.
There
are
no brokerage charges with respect to shares issued directly by us as
a result of
distributions payable either in shares or in cash. However, each participant
will pay a pro rata share of brokerage commissions incurred with respect
to the
Plan Agent’s open-market purchases in connection with the reinvestment of
distributions. If a participant elects to have the Plan Agent sell part
or all
of his or her common stock and remit the proceeds, such participant will
be
charged a transaction fee plus his or her pro rata share of brokerage
commissions on the shares sold.
The
automatic reinvestment of distributions will not relieve participants
of any
federal, state or local income tax that may be payable (or required to
be
withheld) on such distributions. See “Certain Federal Income Tax
Matters.”
Stockholders
participating in the Plan may receive benefits not available to stockholders
not
participating in the Plan. If the market price plus commissions of our
shares of
common stock is higher than the NAV, participants in the Plan will receive
shares of our common stock at less than they could otherwise purchase
such
shares and will have shares with a cash value greater than the value
of any cash
distribution they would have received on their shares. If the market
price plus
commissions is below the NAV, participants will receive distributions
of shares
of common stock with a NAV greater than the
value
of any cash distribution they would have
received on their shares. However, there may be insufficient shares available
in
the market to make distributions in shares at prices below the NAV. Also,
because we do not redeem our common stock, the price on resale may be more
or
less than the NAV. See “Certain
Federal Income Tax Matters” for a discussion of the federal income tax
consequences of the Plan.
Cash
Purchase Option
Participants
in the Plan may elect to purchase additional shares of common stock through
optional cash investments in amounts ranging from $100 to $5,000 per
month
unless a request for waiver has been granted. Optional cash investments
may be
delivered to the Plan Agent by personal check,
by
automatic or electronic bank account transfer or by online access at
www.computershare.com. We reserve the right to reject any purchase order.
We do
not accept cash, travelers checks, third party checks, money orders and
checks
drawn on non-US banks.
In
order
for participants to participate in the cash investment option in any
given
month, the Plan Agent must receive from the participant any optional
cash
investment no later than two business days prior to the monthly investment
date
(the “payment date”) for purchase of common shares on the next succeeding
purchase date. All optional cash investments received on or prior to
the payment
date will be applied by the Plan Agent to purchase shares on the next
succeeding
purchase date. Participants may obtain
a
schedule of relevant dates on our website at www.tortoiseadvisors.com
or by
calling 1-866-362-9331.
Common
stock purchased pursuant to this option will be issued by us when our
shares are
trading at a premium to net asset value. If our common stock is trading
at a
discount to net asset value, shares of common stock will be purchased
in the
open market by the Plan Agent as described above with respect to reinvestments
of distributions.
General
Experience
under the Plan may indicate that changes are desirable. Accordingly,
we reserve
the right to amend or terminate the Plan if in the judgment of the Board
of
Directors such a change is warranted. The Plan may be terminated by the
Plan
Agent or us upon notice in writing mailed to each participant at least
60 days
prior to the effective date of the termination. Upon any termination,
the Plan
Agent will cause a certificate or certificates to be issued for the full
shares
held by each participant under the Plan and cash adjustment for any fraction
of
a share of common stock at the then current market value of common stock
to be
delivered to him or her. If preferred, a participant may request the
sale of all
of the common stock held by the Plan Agent in his or her Plan account
in order
to terminate participation in the Plan. If such participant elects in
advance of
such termination to have the Plan Agent sell part or all of his or her
shares,
the Plan Agent is authorized to deduct from the proceeds a $15.00 transaction
fee plus a $0.05 fee per share for the transaction. If a participant
has
terminated his or her participation in the Plan but continues to have
common
stock registered in his or her name, he or she may re-enroll in the Plan
at any
time by notifying the Plan Agent in writing at the address below. The
terms and
conditions of the Plan may be amended by the Plan Agent or by us at any
time. Any
such
amendments to the Plan may be made by
mailing to each participant appropriate written notice at least 30 days
prior to
the effective date of the amendment, except, when necessary or
appropriate to comply with applicable law or the rules or policies of
the SEC or
any other regulatory authority, such
prior notice does not apply. The amendment shall be deemed to be accepted
by each participant unless, prior to the effective date thereof, the
Plan Agent
receives notice of the termination of the participant’s account under the Plan.
Any such amendment may include an appointment by the Plan Agent of a
successor
Plan Agent, subject to our prior written approval of the successor Plan
Agent.
All
correspondence concerning the Plan should be directed to Computershare
Trust
Company, N.A., P.O. Box 43078, Providence, RI 02940.
The
information contained under this heading is only a summary and is subject
to the
provisions contained in our Charter and Bylaws and the laws of the State
of
Maryland.
Common
Stock
General.
Our
Charter authorizes us to issue up to 100,000,000 shares of common stock,
$0.001
par value per share. The Board of Directors may, without any action
by the
stockholders, amend our Charter from time to time to increase or decrease
the
aggregate number of shares of stock or the number of shares of stock
of any
class or series that we have authority to issue under our Charter and
the 1940
Act. Additionally, the Charter authorizes our Board of Directors, without
any
action by our stockholders, to classify and reclassify any unissued
common stock
and preferred stock into other classes or series of stock from time
to time by
setting or changing the terms, preferences, conversion or other rights,
voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each class
or series.
Although there is no present intention of doing so, we could issue
a class or
series of stock
that could delay, defer or prevent a transaction or a change in control
of us
that might otherwise be in the stockholders’ best interests. Under Maryland law,
stockholders generally are not liable for our debts or
obligations.
All
common stock offered pursuant to this prospectus and any related prospectus
supplement will be, upon issuance, duly authorized, fully paid and
nonassessable. All outstanding common stock offered pursuant to this
prospectus
and any related prospectus supplement will be of the same class and will
have
identical rights, as described below. Holders of shares of common stock
are
entitled to receive distributions when authorized by the Board of Directors
and
declared by us out of assets legally available for the payment of distributions.
Holders of common stock have no preference, conversion, exchange, sinking
fund,
redemption or appraisal rights and have no preemptive rights to subscribe
for
any of our securities. All shares of common stock have equal distribution,
liquidation and other rights.
Distributions.
We
intend
to pay out substantially all of our DCF to holders of common stock
through
quarterly distributions. DCF is the amount we receive as cash or paid-in-kind
distributions from MLPs or affiliates of MLPs in which we invest, and
interest
payments received on debt securities we own, less current or anticipated
operating expenses, taxes on our taxable income, and leverage costs
we pay
(including costs related to Tortoise Notes, MMP Shares and short-term
borrowings
under our credit facility). Our Board of Directors has adopted a policy
to
target distributions to common stockholders in an amount equal to at
least 95%
of DCF on an annual basis. It is expected that we will declare and
pay a
distribution to holders of common stock at the end of each fiscal quarter.
There
is no assurance that we will continue to make regular distributions.
All
realized capital gains, if any, net of applicable taxes, will be retained
by
us.
If
a
stockholder’s shares are registered directly with us or with a brokerage firm
that participates in the Plan, distributions will be automatically reinvested
in
additional common stock under the Plan unless a stockholder elects to
receive
distributions in cash. If a stockholder elects to receive distributions
in cash,
payment will be made by check. The federal income tax treatment of distributions
is the same whether they are reinvested in our shares or received in
cash. See
“Automatic Dividend Reinvestment and Cash Purchase Plan.”
The
yield
on our common stock will likely vary from period to period depending
on factors
including the following:
| · |
market
conditions;
|
| · |
the
timing of our investments in portfolio
securities;
|
| · |
the
securities comprising our portfolio;
|
| · |
changes
in interest rates (including changes in the relationship between
short-term rates and long-term rates);
|
| · |
the
amount and timing of the use of borrowings and other leverage
by
us;
|
| · |
the
effects of leverage on our common stock (discussed above under
“Leverage”);
|
| · |
the
timing of the investment of offering proceeds and leverage proceeds
in
portfolio securities; and
|
| · |
our
net assets and operating expenses.
|
Consequently,
we cannot guarantee any particular yield on our common stock, and the
yield for
any given period is not an indication or representation of future yields
on the
common stock.
Limitations
on Distributions.
So long
as shares of preferred stock are outstanding, holders of shares of common
stock
will not be entitled to receive any distributions from us unless we have
paid
all accumulated dividends on preferred stock, and unless asset coverage
(as
defined in the 1940 Act) with respect to preferred stock would be at
least 200%
after giving effect to such distributions. See “Leverage.”
So
long
as senior securities representing indebtedness are outstanding, holders
of
shares of common stock will not be entitled to receive any distributions
from us
unless we have paid all accrued interest on such senior indebtedness,
and unless
asset coverage (as defined in the 1940 Act) with respect to any outstanding
senior indebtedness would be at least 300% after giving effect to such
distributions. See “Leverage.”
Liquidation
Rights.
Common
stockholders are entitled to share ratably in the assets legally available
for
distribution to stockholders in the event of liquidation, dissolution
or winding
up, after payment of or adequate provision for all known debts and liabilities,
including any outstanding debt securities or other borrowings and any
interest
accrued thereon. These rights are subject to the preferential rights
of any
other class or series of our stock, including the preferred stock. The
rights of
common stockholders upon liquidation, dissolution or winding up are subordinated
to the rights of holders of Tortoise Notes and MMP Shares.
Voting
Rights.
Each
outstanding share of common stock entitles the holder to one vote on
all matters
submitted to a vote of stockholders, including the election of directors.
The
presence of the holders of shares of common stock entitled to cast a
majority of
the votes entitled to be cast shall constitute a quorum at a meeting
of
stockholders. The Charter provides that, except as otherwise provided
in the
Bylaws, directors shall be elected by the affirmative vote of the holders
of a
majority of the shares of stock outstanding and entitled to vote thereon.
The
Bylaws provide that directors are elected by a plurality of all the votes
cast
at a meeting of stockholders duly called and at which a quorum is
present.
There is no cumulative voting in the election
of directors. Consequently, at each annual meeting of stockholders, the
holders
of a majority of the outstanding shares of stock entitled to vote will
be able
to elect all of the successors of the class of directors whose terms expire
at
that meeting provided that holders of preferred stock have the right to
elect
two directors at all times. Pursuant to the Charter and Bylaws, the Board
of
Directors may amend the Bylaws to alter the vote required to elect
directors.
Under
the
rules of the NYSE applicable to listed companies, we normally will be
required
to hold an annual meeting of stockholders in each fiscal year. If we
are
converted to an open-end company or if for
any
other reason the shares are no longer listed on the NYSE (or any other
national
securities exchange the rules of which require annual meetings of stockholders),
we may amend our Bylaws so that we are not otherwise required to hold
annual
meetings of stockholders.
Issuance
of Additional Shares.
The
provisions of the 1940 Act generally require that the public offering
price of
common stock of a closed-end investment company (less underwriting commissions
and discounts) must equal or exceed the NAV of such company’s common stock
(calculated within 48 hours of pricing), unless such sale is made with
the
consent of a majority of the company’s outstanding common stockholders. At our
Annual Meeting of Stockholders held on April 15, 2005, our stockholders
granted
us the authority to sell a limited number of shares of our common stock
for less
than NAV, subject to the conditions listed below. We expect to resubmit
the
matter for stockholder approval at our Annual Meeting of Stockholders
scheduled
for April 13, 2007. If
approved by stockholders in April 2007, such authorization to issue shares
below
NAV will expire after one year unless re-approved by stockholders. We
believe that having the ability to issue and
sell
a limited number of shares of common stock below NAV benefits all stockholders
in that it allows us to quickly raise cash and capitalize on attractive
investment opportunities while remaining fully invested at all times.
We expect
to sell shares of common stock below NAV only when we have identified
attractive
near-term investment opportunities. Currently, we may only sell shares
of common
stock below NAV in accordance with the following conditions:
1. the
aggregate number of shares issued below NAV will not exceed more than
20% of our
outstanding common stock as of any offering date;
2. we
will
not sell our shares at a net sale price, after deduction of all offering
expenses and underwriting fees and commissions, that represents a discount
of
more than 5% of the NAV, as determined at any time within 48 hours of
pricing of
the shares of common stock to be sold below NAV; and
3. we
will
only issue shares below NAV if a majority of the independent directors
makes a
determination that they reasonably expect that the investment(s) to be
made with
the net proceeds of such issuance will increase stockholder
distributions.
The
table
below sets forth the pro forma maximum dilutive effect on our NAV if
we were to
have issued shares below our NAV as of December 31, 2006. The table assumes
that
we issue 1,636,353 shares, which represents all of the shares we are
currently
authorized to issue, at a net sale price to us after deducting all expenses
of
issuance, including underwriting discounts and commissions, equal to
$30.99,
which is 95% of the NAV of our common shares as of December 31,
2006.
Maximum
Impact of Below NAV Issuances of Common Shares
|
Common
shares currently outstanding
|
18,232,065
|
|||
|
Common
shares that currently may be issued below NAV
|
1,636,353
|
|||
|
Total
common shares outstanding if all authorized are issued below
NAV
|
19,868,418
|
|
Net
asset value per share as of December 31, 2006
|
$
|
32.62
|
||
|
Aggregate
net asset value of all currently outstanding common shares
based on NAV as
of December 31, 2006
|
594,713,856
|
|||
|
Aggregate
net proceeds to the Company (assuming the Company sold all
authorized
shares and
received net proceeds equal to $30.99 per share (95% of the
NAV as of
December 31, 2006))
|
50,710,579
|
|
Expected
aggregate net asset value of the Company after issuance
|
645,424,435
|
|||
|
NAV
per share after issuance
|
$
|
32.48
|
Because
the Adviser’s management fee is based upon our average monthly Managed Assets,
the Adviser’s interest in recommending the issuance and sale of common stock
below NAV will conflict with our interests and those of our
stockholders.
Market.
Our
common stock trades on the NYSE under the ticker symbol “TYG.” Common stock
issued pursuant to this prospectus and related prospectus supplement
will trade
on the NYSE.
Transfer
Agent, Dividend Paying Agent and Automatic Dividend Reinvestment and
Cash
Purchase Plan Agent.
Computershare Trust Company, N.A., P.O. Box 43078, Providence, Rhode
Island
02940-3078, serves as the transfer agent, the Automatic Dividend Reinvestment
and Cash Purchase Plan agent and the dividend paying agent for our common
stock.
Preferred
Stock
General.
Our
Charter authorizes the issuance of up to 10,000,000 shares of preferred
stock,
with preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and
terms and
conditions or redemption as determined by the Board of Directors.
The
Board
of Directors may, without any action by the stockholders, amend our Charter
from
time to time to increase or decrease the aggregate number of shares of
stock or
the number of shares of stock of any class or series that we have authority
to
issue. Additionally, the Charter authorizes the Board of Directors, without
any
action by the stockholders, to classify and reclassify any unissued preferred
stock into other classes or series of stock from time to time by setting
or
changing the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption for each class or series.
Preferred
stock (including outstanding MMP Shares) ranks junior to our debt securities
(including Tortoise Notes), and senior to all common stock. Under the
1940 Act,
we may only issue one class of senior equity securities, which in the
aggregate
may represent no more than 50% of our total assets. So long as MMP Shares
are
outstanding, additional issuances of preferred stock must be considered
to be of
the same class as MMP Shares under the 1940 Act and interpretations thereunder
and must rank on a parity with the MMP Shares with respect to the payment
of
dividends and upon the distribution of our assets. It is expected that
any
issuance of preferred stock would be additional MMP Shares or additional
series
of MMP Shares. Unless otherwise stated in a prospectus supplement, any
preferred
stock will be issued pursuant to articles supplementary (a form of which
is
attached as Appendix B to the statement of additional information) in
substantially the same form as outstanding preferred stock and will be
subject
to the provisions therein. The terms to be stated in a prospectus supplement
will include the following:
| · |
the
form and title of the security;
|
| · |
the
aggregate liquidation preference of preferred
stock;
|
| · |
the
dividend rate of the preferred stock;
|
| · |
the
frequency with which auctions will be
held;
|
| · |
any
optional or mandatory redemption
provisions;
|
| · |
any
changes in auction agents, paying agents or security registrar;
and
|
| · |
any
other terms of the preferred stock.
|
Dividends.
Holders
of preferred stock will be entitled to receive cash dividends, when,
as and if
authorized by the Board of Directors and declared by us, out of funds
legally
available therefor. Unless the prospectus supplement states otherwise,
dividend
rates will generally be determined by the results of an auction for such
shares,
as more fully described in the related prospectus supplement. Dividends
so
declared and payable shall be paid to the extent permitted under Maryland
law
and to the extent available and in preference to and priority over any
distribution declared and payable on the common stock. Because of our
emphasis
on investments in MLPs, which are expected to generate cash in excess
of the
taxable income allocated to holders, it is possible that dividends payable
on
preferred stock could exceed our earnings and profits, which would be
treated as
a tax-free return of capital to the extent of the basis of the
shares on which the dividend is paid and thereafter as gain from the
sale or
exchange of the preferred stock.
Limitations
on Dividends.
So long
as any debt securities (including Tortoise Notes) are outstanding, holders
of
preferred stock will not be entitled to receive any dividends from us
unless
asset coverage (as defined in the 1940 Act) with respect to outstanding
debt
securities and preferred stock would be at least 200% after giving effect
to
such dividends. See “Leverage.”
Liquidation
Rights.
In the
event of any voluntary or our involuntary liquidation, dissolution or
winding
up, the holders of preferred stock would be entitled to receive a preferential
liquidating distribution, which is expected to equal the original purchase
price
per share plus accumulated and unpaid dividends, whether or not declared,
before
any distribution of assets is made to holders of common stock. After
payment of
the full amount of the liquidating distribution to which they are entitled,
the
holders of preferred stock will not be entitled to any further participation
in
any distribution of our assets. Preferred stock ranks junior to our debt
securities upon liquidation, dissolution or winding up.
Voting
Rights.
Except
as otherwise indicated in the Charter or Bylaws, or as otherwise required
by
applicable law, holders of preferred stock have one vote per share and
vote
together with holders of common stock as a single class.
The
1940
Act requires that the holders of any preferred stock, voting separately
as a
single class, have the right to elect at least two directors at all times.
The
remaining directors will be elected by holders of common stock and preferred
stock, voting together as a single class. In addition, subject to the
prior
rights, if any, of the holders of any other class of senior securities
outstanding (including Tortoise Notes), the holders of any shares of
preferred
stock have the right to elect a majority of the directors at any time
two years’
accumulated dividends on any preferred stock are unpaid. The 1940 Act
also
requires that, in addition to any approval by stockholders that might
otherwise
be required, the approval of the holders of a majority of shares of any
outstanding preferred stock, voting separately as a class, would be required to (i) adopt any plan of reorganization that would
adversely affect the preferred stock, and (ii) take any action requiring a
vote of security holders under Section 13(a) of the 1940 Act,
including,
among other things, changes in our
subclassification as a closed-end investment company or changes in its
fundamental investment restrictions. See “Certain Provisions in the Company’s
Charter and Bylaws.” As a result of these voting rights, our ability to take any
such actions may be impeded to the extent that any shares of its preferred
stock
are outstanding.
The
affirmative vote of the holders of a majority of the outstanding preferred
stock, voting as a separate class, will be required to amend, alter or
repeal
any of the preferences, rights or powers of holders of preferred stock
so as to
affect materially and adversely such preferences, rights or powers. The
class
vote of holders of preferred stock described above will in each case
be in
addition to any other vote required to authorize the action in
question.
We
will
have the right (to the extent permitted by applicable law) to purchase
or
otherwise acquire any preferred stock, so long as we are current in the
payment
of dividends on the preferred stock and on any other of our shares ranking
on a
parity with the preferred stock with respect to the payment of dividends
or upon
liquidation.
Market.
Unless
otherwise stated in a prospectus supplement, our preferred stock may
be bought
or sold at an auction that normally will be held periodically (every
twenty-eight (28) days for outstanding MMP Shares) by submitting orders
through
a broker-dealer who has entered into an agreement with us (a “broker-dealer”).
Our preferred stock is not listed on an exchange or automated quotation
system.
Preferred stock may be transferred outside of an auction through a
broker-dealer, but we cannot assure you
that
any such secondary market will exist or whether it will provide preferred
stockholders with liquidity. The details of the auction process will
be further
described in the related prospectus supplement.
Book-Entry,
Delivery and Form.
Unless
otherwise indicated in the related prospectus supplement, preferred stock
will
be issued in book-entry form and will be represented by one or more share
certificates in registered global form. The global certificates will
be held by
DTC and registered in the name of Cede & Co., as nominee of DTC. DTC will
maintain the certificates in specified denominations per share through
its
book-entry facilities.
We
may
treat the persons in whose names any global certificates are registered
as the
owners thereof for the purpose of receiving payments and for any and
all other
purposes whatsoever. Therefore, so long as DTC or its nominee is the
registered
owner of the global certificates, DTC or such nominee will be considered
the
sole holder of outstanding preferred stock.
A
global
certificate may not be transferred except as a whole by DTC, its successors
or
their respective nominees, subject to the provisions restricting transfers
of
shares contained in the related articles supplementary.
Auction
Agent, Transfer Agent, Registrar, Dividend Paying Agent and Redemption
Agent.
Unless
otherwise stated in a prospectus supplement, The Bank of New York, 101
Barclay
Street, New York, New York, serves as the auction agent, transfer agent,
registrar, dividend paying agent and redemption agent with respect to
our
preferred stock.
Debt
Securities
General.
Under
Maryland law and our Charter, we may borrow money, without prior approval
of
holders of common and preferred stock. We may issue debt securities,
including
additional Tortoise Notes, or other evidence of indebtedness (including
bank
borrowings or commercial paper) and may secure any such notes or borrowings
by
mortgaging, pledging or otherwise subjecting as security our
assets
to
the extent permitted by the 1940 Act or rating agency guidelines. Any
borrowings, including without limitation the Tortoise Notes, will rank
senior to
the preferred stock and the common stock.
Under
the
1940 Act, we may only issue one class of senior securities representing
indebtedness, which in the aggregate, may represent no more than 33 1/3%
of our
total assets. So long as Tortoise Notes are outstanding, additional debt
securities must rank on a parity with Tortoise Notes with respect to
the payment
of interest and upon the distribution of our assets. It is expected that
any
issuance of debt securities would be additional Tortoise Notes or additional
series of Tortoise Notes. Unless otherwise stated in a prospectus supplement,
any additional debt securities will be issued pursuant to the indenture
dated as
of July 14, 2004 (the “Indenture”) and will be subject to the provisions
therein. A prospectus supplement and a supplemental indenture (a summary
of
which is attached as Appendix A to the statement of additional information)
relating to any additional debt securities will include specific terms
relating
to the offering. These terms will include the following:
| · |
the
form and title of the security;
|
| · |
the
aggregate principal amount of the
securities;
|
| · |
the
interest rate of the securities;
|
| · |
the
maturity dates on which the principal of the securities will
be
payable;
|
| · |
the
frequency with which auctions will be
held;
|
| · |
any
changes to or additional events of default or
covenants;
|
| · |
any
optional or mandatory redemption
provisions;
|
| · |
any
changes in trustees, auction agents, paying agents or security
registrar;
and
|
| · |
any
other terms of the securities.
|
Interest.
Unless
otherwise stated in a prospectus supplement, debt securities will bear
interest
as generally determined by the results of an auction for such securities
and/or
by the Board of Directors, as more fully described in the related prospectus
supplement. Interest on debt securities shall be payable when due as
described
in the related prospectus supplement. If we do not pay interest when
due, it
will trigger an event of default and we will be restricted from declaring
dividends and making other distributions with respect to our common stock
and
preferred stock.
Limitations.
Under
the requirements of the 1940 Act, immediately after issuing any senior
securities representing indebtedness, we must have an asset coverage
of at least
300%. Asset coverage means the ratio which the value of our total assets,
less
all liabilities and indebtedness not represented by senior securities,
bears to
the aggregate amount of senior securities representing indebtedness.
We
currently are subject to certain restrictions imposed by guidelines of
one or
more rating agencies that have issued ratings for outstanding Tortoise
Notes,
including restrictions related to asset coverage and portfolio composition.
Such
restrictions may be more stringent than those imposed by the 1940 Act.
Other
types of borrowings also may result in our being subject to similar covenants
in
credit agreements.
Events
of Default and Acceleration of Maturity of Debt Securities;
Remedies.
Unless
stated otherwise in the related prospectus supplement, any one of the
following
events will constitute an “event of default” for that series under the
Indenture:
| · |
default
in the payment of any interest upon a series of debt securities
when it
becomes due and payable and the continuance of such default for
30
days;
|
| · |
default
in the payment of the principal of, or premium on, a series of
debt
securities at its stated maturity;
|
| · |
default
in the performance, or breach, of any covenant or warranty of
ours in the
Indenture, and continuance of such default or breach for a period
of 90
days after written notice has been given to us by the
trustee;
|
| · |
certain
voluntary or involuntary proceedings involving us and relating
to
bankruptcy, insolvency or other similar laws;
|
| · |
if,
on the last business day of each of twenty-four consecutive calendar
months, the debt securities have a 1940 Act asset coverage of
less than
100%; or
|
| · |
any
other “event of default” provided with respect to a series, including a
default in the payment of any redemption price payable on the
redemption
date.
|
Upon
the
occurrence and continuance of an event of default, the holders of a majority
in
principal amount of a series of outstanding debt securities or the trustee
may
declare the principal amount of that series
of
debt securities immediately due and payable upon written notice to us.
A default
that relates only to one series of debt securities does not affect any
other
series and the holders of such other series of debt securities are not
entitled
to receive notice of such a default under the Indenture. Upon an event
of
default relating to bankruptcy, insolvency or other similar laws, acceleration
of maturity occurs automatically with respect to all series. At any time
after a
declaration of acceleration with respect to a series of debt securities
has been
made, and before a judgment or decree for payment of the money due has
been
obtained, the holders of a majority in principal amount of the outstanding
debt
securities of that series, by written notice to us and the trustee, may
rescind
and annul the declaration of acceleration and its consequences if all
events of
default with respect to that series of debt securities, other than the
non-payment of the principal of that series of debt securities which
has become
due solely by such declaration of acceleration, have been cured or waived
and
other conditions have been met.
Liquidation
Rights.
In the
event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
in
connection therewith, relative to us or to our creditors, as such, or
to our
assets, or (b) any liquidation, dissolution or other winding up of the
Company,
whether voluntary or involuntary and whether or not involving insolvency
or
bankruptcy, or (c) any assignment for the benefit of creditors or any
other
marshalling of assets and liabilities of ours, then (after any payments
with
respect to any secured creditor of ours outstanding at such time) and
in any
such event the holders of debt securities shall be entitled to receive
payment
in full of all amounts due or to become due on or in respect of all debt
securities (including any interest accruing thereon after the commencement
of
any such case or proceeding), or provision shall be made for such payment
in
cash or cash equivalents or otherwise in a manner satisfactory to the
holders of
the debt securities, before the holders of any common or preferred stock
of the
Company are entitled to receive any payment on account of any redemption
proceeds, liquidation preference or dividends from such shares. The holders
of
debt securities shall be entitled to receive, for application to the
payment
thereof, any payment or distribution of any kind or character, whether
in cash,
property or securities, including any such payment or distribution which
may be
payable or deliverable by reason of the payment of any other indebtedness
of
ours being subordinated to the payment of the debt securities, which
may be
payable
or deliverable in respect of the debt
securities in any such case, proceeding, dissolution, liquidation or other
winding up event.
Unsecured
creditors of ours may include, without limitation, service providers
including
the Adviser, custodian, administrator, auction agent, broker-dealers
and the
trustee, pursuant to the terms of various contracts with us. Secured
creditors
of ours may include without limitation parties entering into any interest
rate
swap, floor or cap transactions, or other similar transactions with us
that
create liens, pledges, charges, security interests, security agreements
or other
encumbrances on our assets.
A
consolidation, reorganization or merger of the Company with or into any
other
company, or a sale, lease or exchange of all or substantially all of
our assets
in consideration for the issuance of equity securities
of another company shall not be deemed to be a liquidation, dissolution
or
winding up of the Company.
Voting
Rights.
Debt
securities have no voting rights, except to the extent required by law
or as
otherwise provided in the Indenture relating to the acceleration of maturity
upon the occurrence and continuance of an event of default. In connection
with
any other borrowings (if any), the 1940 Act does in certain circumstances
grant
to the lenders certain voting rights in the event of default in the payment
of
interest on or repayment of principal.
Market.
Unless
otherwise stated in a prospectus supplement, our debt securities may
be bought
or sold at an auction held periodically (every seven (7) or twenty-eight
(28)
days for outstanding Tortoise Notes),
by submitting orders through a broker-dealer who has entered into an
agreement
with us (a “broker-dealer”). Our debt securities are not listed on an exchange
or automated quotation system. Debt securities may be transferred outside
of an
auction through a broker-dealer, but we cannot assure you that any such
secondary market will exist or whether it will provide holders of debt
securities with liquidity. The details of the auction process are further
described in the related prospectus supplement.
Book-Entry,
Delivery and Form.
Unless
otherwise stated in the related prospectus supplement, the debt securities
will
be issued in book-entry form and will be represented by one or more notes
in
registered global form. The global notes will be deposited with the trustee
as
custodian for DTC and registered in the name of Cede & Co., as nominee
of DTC. DTC will maintain the notes in designated denominations through
its
book-entry facilities.
Under
the
terms of the Indenture, we and the trustee may treat the persons in whose
names
any notes, including the global notes, are registered as the owners thereof
for
the purpose of receiving payments and for any and all other purposes
whatsoever.
Therefore, so long as DTC or its nominee is the registered owner of the
global
notes, DTC or such nominee will be considered the sole holder of outstanding
notes under the Indenture. We or the trustee may give effect to any written
certification, proxy or other authorization furnished by DTC or its
nominee.
A
global
note may not be transferred except as a whole by DTC, its successors
or their
respective nominees. Interests of beneficial owners in the global note
may be
transferred or exchanged for definitive securities in accordance with
the rules
and procedures of DTC. In addition, a global note may be exchangeable
for notes
in definitive form if:
|
·
|
DTC
notifies us that it is unwilling or unable to continue as a
depository and
we do not appoint a successor within 60
days;
|
|
·
|
we,
at our option, notify the trustee in writing that we elect
to cause the
issuance of notes in definitive form under the Indenture;
or
|
|
·
|
an
event of default has occurred and is
continuing.
|
In
each
instance, upon surrender by DTC or its nominee of the global note, notes
in
definitive form will be issued to each person that DTC or its nominee
identifies
as being the beneficial owner of the related notes.
Under
the
Indenture, the holder of any global note may grant proxies and otherwise
authorize any person, including its participants and persons who may
hold
interests through DTC participants, to take any action which a holder
is
entitled to take under the Indenture.
Trustee,
Transfer Agent, Registrar, Paying Agent, Redemption Agent and Auction
Agent.
Unless
otherwise stated in a prospectus supplement, BNY Midwest Trust Company,
2 North
LaSalle Street, Chicago, Illinois, serves as the trustee under the Indenture
and
acts as transfer agent, registrar, paying agent and redemption agent
with
respect to our debt securities. The Bank of New York serves as the auction
agent
with respect to our debt securities.
The
Rating Agencies, which assign ratings to our senior securities, impose
asset
coverage requirements, which may limit our ability
to engage in certain types of transactions and may limit our ability
to take
certain actions without confirming that such action will not impair the
ratings.
The Tortoise Notes are currently rated “Aaa” and “AAA” by Moody’s Investors
Service Inc. (“Moody’s”) and Fitch Ratings (“Fitch”), respectively. The MMP
Shares are currently rated “Aa2” and “AA” by Moody’s and Fitch, respectively.
Moody’s and Fitch, and any other agency that may rate our debt securities
(including Tortoise Notes) or preferred stock (including MMP Shares)
in the
future, are collectively referred to as the “Rating
Agencies.”
We
may,
but are not required to, adopt any modification to the guidelines that
may
hereafter be established by any Rating Agency. Failure to adopt any
modifications, however, may result in a change in the ratings described
above or
a withdrawal of ratings altogether. In addition, any Rating Agency may,
at any
time, change or withdraw any rating. The Board may, without stockholder
approval, modify, alter or repeal certain of the definitions and related
provisions which have been adopted pursuant to each Rating Agency’s guidelines
(“Rating Agency Guidelines”) only in the event we receive written confirmation
from the Rating Agency or Agencies that any amendment, alteration or
repeal
would not impair the ratings then assigned to the senior
securities.
We
are
required to satisfy two separate asset maintenance requirements with
respect to
outstanding debt securities and with respect to outstanding preferred
stock:
(1) we must maintain assets in our portfolio that have a value, discounted
in accordance with guidelines set forth by each Rating Agency, at least
equal to
115% of the aggregate principal amount/aggregate liquidation preference
of the
debt securities/preferred stock, respectively, plus specified liabilities,
payment obligations and other amounts (the “Basic Maintenance Amount”); and
(2) we must satisfy the 1940 Act asset coverage requirements.
Basic
Maintenance Amounts.
We must
maintain, as of each valuation date on which senior securities are outstanding,
eligible assets having an aggregate discounted value at least equal to
115% of
the applicable basic maintenance amount (“Basic Maintenance Amount”), which is
calculated separately for debt securities and preferred stock for each
Rating
Agency that is then rating the senior securities and so requires. If
we fail to
maintain eligible assets having an aggregated discounted value at least
equal to
115%
of the applicable Basic Maintenance Amount as of
any valuation date and such failure is not cured, we will be required in
certain
circumstances to redeem certain of the senior securities.
The
applicable Basic Maintenance Amount is defined in the Rating Agency’s
Guidelines. Each Rating Agency may amend the definition of the applicable
Basic
Maintenance Amount from time to time.
The
market value of our portfolio securities (used in calculating the discounted
value of eligible assets) is calculated using readily available market
quotations when appropriate, and in any event, consistent with our valuation
procedures. For the purpose of calculating the applicable Basic Maintenance
Amount, portfolio securities are valued in the same manner as we calculate
our
NAV. See “Determination of Net Asset Value.”
Each
Rating Agency’s discount factors, the criteria used to determine whether the
assets held in our portfolio are eligible assets, and the guidelines
for
determining the discounted value of our portfolio holdings for purposes
of
determining compliance with the applicable Basic Maintenance Amount are
based on
Rating Agency Guidelines established in connection with rating the senior
securities. The discount factor relating to any asset, the applicable
basic
maintenance amount requirement, the assets eligible for inclusion in
the
calculation of the discounted value of our portfolio and certain definitions
and
methods of calculation relating thereto may be changed from time to time
by the
applicable Rating Agency, without our approval, or the approval of our
Board of
Directors or stockholders.
A
Rating
Agency’s Guidelines will apply to the senior securities only so long as that
Rating Agency is rating such securities. We will pay certain fees to
Moody’s,
Fitch and any other Rating Agency that may provide a rating for the senior
securities. The ratings assigned to the senior securities are not
recommendations to buy, sell or hold the senior securities. Such ratings
may be
subject to revision or withdrawal by the assigning Rating Agency at any
time.
1940
Act Asset Coverage.
We are
also required to maintain, with respect to senior securities, as of the
last
business day on any month in which any senior securities are outstanding,
asset
coverage of at least 300% for debt securities and 200% for preferred
stock (or
such other percentage as may in the future be specified in or under the
1940 Act
as the minimum asset coverage for senior securities representing shares
of a
closed-end investment company as a condition of declaring dividends on
its
common stock). If we fail to maintain the applicable 1940 Act asset coverage
as
of the last business day of any month and such failure is not cured as
of the
last business day of the following month (the “Asset Coverage Cure Date”), we
will be required to redeem certain senior securities.
Notices.
Under
the current Rating Agency Guidelines, in certain circumstances, we are
required
to deliver to any Rating Agency which is then rating the senior securities
(1) a certificate with respect to the calculation of the applicable Basic
Maintenance Amount; (2) a certificate with respect to the calculation of
the applicable 1940 Act asset coverage and the value of our portfolio
holdings;
and (3) a letter prepared by our independent accountants regarding the
accuracy of such calculations.
Notwithstanding
anything herein to the contrary, the Rating Agency Guidelines, as they
may be
amended from time to time by each Rating Agency will be reflected in
a written
document and may be amended by each Rating Agency without the vote, consent
or
approval of the Company, the Board of Directors or any stockholder of
the
Company.
A
copy of
the current Rating Agency Guidelines will be provided to any holder
of senior
securities promptly upon request made by such holder to the Company
by writing
the Company at 10801 Mastin Boulevard, Suite 222, Overland Park,
Kansas
66210.
The
following description of certain provisions of the Charter and Bylaws
is only a
summary. For a complete description, please refer to the Charter and
Bylaws,
which have been filed as exhibits to our registration statement on
Form N-2, of which this prospectus forms a part.
Our
Charter and Bylaws include provisions that could delay, defer or prevent
other
entities or persons from acquiring control of us, causing us to engage
in
certain transactions or modifying our structure. These provisions may
be
regarded as “anti-takeover” provisions. Such provisions could limit the ability
of stockholders to sell their shares at a premium over the then-current
market
prices by discouraging a third party from seeking to obtain control of
us.
Classification
of the Board of Directors; Election of Directors
Our
Charter provides that the number of directors may be established only
by the
Board of Directors pursuant to the Bylaws, but may not be less than one.
The
Bylaws provide that, unless the Bylaws are amended, the number of directors
may
not be greater than nine. Subject to any applicable limitations of the
1940 Act,
any vacancy may be filled, at any regular meeting or at any special meeting
called for that purpose, only by a majority of the remaining directors,
even if
those remaining directors do not constitute a quorum. Pursuant to the
Charter,
the Board of Directors is divided into three classes: Class I,
Class II and Class III. Directors of each class will be elected to
serve for three-year terms and until their successors are duly elected
and
qualify. Each year only one class of directors will be elected by the
stockholders. The classification of the Board of Directors should help
to assure
the continuity and stability of our strategies and policies as determined
by the
Board of Directors.
The
classified Board provision could have the effect of making the replacement
of
incumbent directors more time-consuming and difficult. At least two annual
meetings of stockholders, instead of one, generally will be required
to effect a
change in a majority of the Board of Directors. Thus, the classified
Board
provision could increase the likelihood that incumbent directors will
retain
their positions. The staggered terms of directors may delay, defer or
prevent a
change in control of the Board, even though a change in control might
be in the
best interests of the stockholders.
Removal
of Directors
The
Charter provides that a director may be removed only for cause and only
by the
affirmative vote of at least two-thirds of the votes entitled to be cast
in the
election of directors. This provision, when coupled with the provision
in the
Bylaws authorizing only the Board of Directors to fill vacant directorships,
precludes stockholders from removing incumbent directors, except for
cause and
by a substantial affirmative vote, and filling the vacancies created
by the
removal with nominees of stockholders.
Approval
of Extraordinary Corporate Action; Amendment of Charter and
Bylaws
Under
Maryland law, a Maryland corporation generally cannot dissolve, amend
its
charter, merge, sell all or substantially all of its assets, engage in
a share
exchange or engage in similar transactions outside the ordinary course
of
business, unless declared advisable by the Board of Directors and approved
by
the affirmative vote of stockholders entitled to cast at least two-thirds
of the
votes entitled to be cast on the matter. However, a Maryland corporation
may
provide in its charter for stockholder approval of these matters by a
lesser
percentage, but not less than a majority of all of the votes entitled
to be cast
on the matter. Our Charter generally provides for approval of Charter
amendments
and extraordinary transactions by the stockholders entitled to cast at
least a
majority of
the
votes
entitled to be cast on the matter. Our Charter
also provides that certain Charter amendments and any proposal for our
conversion, whether by merger or otherwise, from a closed-end company to
an
open-end company or any proposal for our liquidation or dissolution requires
the
approval of stockholders entitled to cast at least 80 percent of the votes
entitled to be cast on such matter. However, if such amendment or proposal
is
approved by at least two-thirds of our continuing directors (in addition
to the
approval by our Board of Directors otherwise required), such amendment
or
proposal may be approved by stockholders entitled to cast a majority of
the
votes entitled to be cast on such a matter. The “continuing directors” are
defined in our Charter as the directors named in our Charter as well as
those
directors whose nomination for election by the stockholders or whose election
by
the directors to fill vacancies is approved by a majority of the continuing
directors then on the Board of Directors.
Our
Charter and Bylaws provide that the Board of Directors will have the
exclusive
power to make, alter, amend or repeal any provision of our Bylaws.
Advance
Notice of Director Nominations and New Business
The
Bylaws provide that with respect to an annual meeting of stockholders,
nominations of persons for election to the Board of Directors and the
proposal
of business to be considered by stockholders may be made only (1) pursuant
to notice of the meeting, (2) by or at the direction of the Board of
Directors or (3) by a stockholder who is entitled to vote at the meeting
and who has complied with
the
advance notice procedures of the Bylaws. With respect to special meetings
of
stockholders, only the business specified in the Company’s notice of the meeting
may be brought before the meeting. Nominations of persons for election
to the
Board of Directors at a special meeting may be made only (1) pursuant to
notice of the meeting by the Company, (2) by or at the direction of the
Board of Directors, or (3) provided that the Board of Directors has
determined that Directors will be elected at the meeting, by a stockholder
who
is entitled to vote at the meeting and who has complied with the advance
notice
provisions of the Bylaws.
An
unspecified number of shares of our common stock may be offered and sold
for
resale from time to time under this prospectus by certain of our
stockholders; provided, however, that no stockholder will be authorized
to use
this prospectus for an offering of our common stock without first obtaining
our
consent. We may consent to the use of this prospectus by certain of our
stockholders for a limited period of time and subject to certain limitations
and
conditions depending on the terms of any agreements between us and such
stockholders. The identity of any selling stockholder, including any
material
relationship between us and our affiliates and such selling stockholder,
the
percentage of our common stock owned by such selling stockholder prior
to the
offering, the number of shares of our common stock to be offered by such
selling
stockholder, the percentage of our common stock to be owned (if greater
than one
percent) by such selling stockholder following the offering, and the
price and
terms upon which our shares of common stock are to be sold by such selling
stockholder will be set forth in a prospectus supplement to this
prospectus.
We
may sell our common stock, preferred stock and debt
securities, and certain of our stockholders may sell our common stock,
on an
immediate, continuous or delayed basis, in one or more offerings under
this
prospectus and any related prospectus supplement. The aggregate amount of
securities that may be offered by us and any selling stockholders is
limited to
$350,000,000. We may
offer
our common stock, preferred stock and debt
securities: (1) directly to one or more purchasers; (2) through
agents; (3) through underwriters; (4) through dealers; or (5) pursuant to
our Automatic Dividend Reinvestment and Cash Purchase Plan. Any selling
stockholders may offer our common stock: (1) directly to one or more
purchasers; (2) through agents; (3) through underwriters; or (4) through
dealers. Each prospectus supplement relating to an offering of securities
will state the terms of the offering, including as
applicable:
| · |
the
names of any agents, underwriters or
dealers;
|
| · |
any
sales loads or other items constituting underwriters’
compensation;
|
| · |
any
discounts, commissions, or fees allowed or paid to dealers or
agents;
|
| · |
the
public offering or purchase price of the offered securities and
the net
proceeds we will receive from the sale; provided, however, that
we will
not receive any of the proceeds from a sale of our common stock
by any
selling stockholder; and
|
| · |
any
securities exchange on which the offered securities may be
listed.
|
Direct
Sales
We
may
sell our common stock, preferred stock and debt securities, or certain
of our
stockholders may sell our common stock, directly to, and solicit offers
from,
institutional investors or others who may be deemed to be underwriters
as
defined in the 1933 Act for any resales of the securities. In this case,
no
underwriters or agents would be involved. We, or any selling stockholder,
may
use electronic media, including the Internet, to sell offered securities
directly. The terms of any of those sales will be described in a prospectus
supplement.
By
Agents
We
may
offer our common stock, preferred stock and debt securities, or certain
of our
stockholders may sell our common stock, through agents that we or they
designate. Any agent involved in the offer and sale will be named and
any
commissions payable by us, or any selling stockholder, will be described
in the
prospectus supplement. Unless otherwise indicated in the prospectus supplement,
the agents will be acting on a best efforts basis for the period of their
appointment.
By
Underwriters
We
may
offer and sell securities, or certain of our stockholders may offer our
common
stock, from time to time to one or more underwriters who would purchase
the
securities as principal for resale to the public, either on a firm commitment
or
best efforts basis. If we sell securities, or a selling stockholder offers
our
common stock, to underwriters, we and such selling stockholder will execute
an
underwriting agreement with them at the time of the sale and will name
them in
the prospectus supplement. In connection with these sales, the underwriters
may
be deemed to have received compensation from us or such selling stockholder
in
the form of underwriting discounts and commissions. The underwriters
also may
receive commissions from purchasers of securities for whom they may act
as
agent. Unless otherwise stated in the prospectus supplement, the underwriters
will not be obligated to purchase the securities unless the conditions
set forth
in the underwriting agreement are satisfied, and if the underwriters
purchase
any of the securities, they will be required to purchase all of the offered
securities. The underwriters may sell the offered securities to or through
dealers, and those dealers may receive discounts, concessions or commissions
from the underwriters as well as from the purchasers for whom
they
may act as agent. Any public offering price and
any discounts or concessions allowed or reallowed or paid to dealers may
be
changed from time to time.
If
a
prospectus supplement so indicates, we may grant the underwriters an
option to
purchase additional shares of common stock at the public offering price,
less
the underwriting discounts and commissions, within 45 days from the date
of the
prospectus supplement, to cover any overallotments.
By
Dealers
We
may
offer and sell securities, or certain of our stockholders may offer our
common
stock, from time to time to one or more dealers who would purchase the
securities as principal. The dealers then may resell the offered securities
to
the public at fixed or varying prices to be determined by those dealers
at the
time of resale. The names of the dealers and the terms of the transaction
will
be set forth in the prospectus supplement.
General
Information
Agents,
underwriters, or dealers participating in an offering of securities may
be
deemed to be underwriters, and any discounts and commission received
by them and
any profit realized by them on resale
of
the offered securities for whom they act as agent, may be deemed to be
underwriting discounts and commissions under the 1933 Act.
We
may
offer to sell securities, or certain of our stockholders may offer our
common
stock, either at a fixed price or at prices that may vary, at market
prices
prevailing at the time of sale, at prices related to prevailing market
prices,
or at negotiated prices.
Ordinarily,
each series of offered securities will be a new issue of securities and
will
have no established trading market.
To
facilitate an offering of common stock in an underwritten transaction
and in
accordance with industry practice, the underwriters may engage in transactions
that stabilize, maintain, or otherwise affect the market price of the
common
stock or any other security. Those transactions may include overallotment,
entering stabilizing bids, effecting syndicate covering transactions,
and
reclaiming selling concessions allowed to an underwriter or a
dealer.
| · |
An
overallotment in connection with an offering creates a short
position in
the common stock for the underwriter’s own
account.
|
| · |
An
underwriter may place a stabilizing bid to purchase the common
stock for
the purpose of pegging, fixing, or maintaining the price of the
common
stock.
|
| · |
Underwriters
may engage in syndicate covering transactions to cover overallotments
or
to stabilize the price of the common stock by bidding for, and
purchasing,
the common stock or any other securities in the open market in
order to
reduce a short position created in connection with the
offering.
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| · |
The
managing underwriter may impose a penalty bid on a syndicate
member to
reclaim a selling concession in connection with an offering
when the
common stock originally sold by the syndicate member is purchased
in
syndicate covering transactions or
otherwise.
|
Any of these activities may stabilize or maintain the market price of the
securities above independent market levels. The underwriters are not required
to
engage in these activities, and may end any of these activities at any
time.
Any
underwriters to whom the offered securities are sold for offering and
sale may
make a market in the offered securities, but the underwriters will not
be
obligated to do so and may discontinue any market-making at any time
without
notice. The offered securities may or may not be listed on a securities
exchange. We cannot assure you that there will be a liquid trading market
for
the offered securities.
Under
agreements entered into with us, underwriters and agents may be entitled
to
indemnification by us against certain civil liabilities, including liabilities
under the 1933 Act, or to contribution for payments the underwriters
or agents
may be required to make.
The
underwriters, agents, and their affiliates may engage in financial or
other
business transactions with us and our subsidiaries in the ordinary course
of
business.
The
maximum commission or discount to be received by any member of the National
Association of Securities Dealers, Inc. or independent broker-dealer
will not be
greater than eight percent of the initial gross proceeds from the sale
of any
security being sold.
The
aggregate offering price specified on the cover of this prospectus relates
to
the offering of the securities not yet issued as of the date of this
prospectus.
To
the
extent permitted under the 1940 Act and the rules and regulations promulgated
thereunder, the underwriters may from time to time act as a broker or
dealer and
receive fees in connection with the execution of our portfolio transactions
after the underwriters have ceased to be underwriters and, subject to
certain
restrictions, each may act as a broker while it is an underwriter.
A
prospectus and accompanying prospectus supplement in electronic form
may be made
available on the websites maintained by underwriters. The underwriters
may agree
to allocate a number of securities for sale to their online brokerage
account
holders. Such allocations of securities for internet distributions will
be made
on the same basis as other allocations. In addition, securities may be
sold by
the underwriters to securities dealers who resell securities to online
brokerage
account holders.
Automatic
Dividend Reinvestment and Cash Purchase Plan
We
may
issue and sell shares of common stock pursuant to our Automatic Dividend
Reinvestment and Cash Purchase Plan.
U.S.
Bancorp Fund Services, LLC, 615 East Michigan Street, Milwaukee, Wisconsin,
serves as our administrator. We pay the administrator a monthly fee computed
at
an annual rate of 0.07% of the first $300 million of our Managed Assets,
0.06%
on the next $500 million of our Managed Assets and 0.04% on the balance
of our
Managed Assets, subject to a minimum annual fee of $45,000.
U.S.
Bank N.A., 1555 North Rivercenter Drive, Suite 302,
Milwaukee, Wisconsin, serves as our custodian. We pay the custodian a
monthly
fee computed at an annual rate of 0.015% on the first $100
million
of our portfolio assets and 0.01% on the balance of our portfolio assets,
subject to a minimum annual fee of $4,800.
Blackwell
Sanders Peper Martin, L.L.P., Kansas City, Missouri, serves as our counsel.
Vedder, Price, Kaufman & Kammholz, P.C. (“Vedder Price”), Chicago,
Illinois, is serving as our special counsel in connection with the offerings
under this prospectus and related prospectus supplements. Certain legal
matters
in connection with the securities offered hereby will be passed upon
for us by
Vedder Price. Vedder Price may rely on the opinion of Venable LLP, Baltimore,
Maryland, on certain matters of Maryland law. If
certain legal matters in connection with an offering of securities
are passed upon by counsel for the underwriters of such offering, such
matters will be passed upon by Morrison & Foerster LLP, New York, New
York with respect to any offerings by us of our preferred stock or debt
securities and by Kaye Scholer, LLP, New York, New York with respect
to
offerings of our common stock by us or by such other counsel to the underwriters
as named in a prospectus supplement.
We
are
subject to the informational requirements of the Exchange Act and the
1940 Act
and are required to file reports, including annual and semi-annual reports,
proxy statements and other information with the SEC. We voluntarily file
quarterly shareholder reports. Our most recent shareholder report filed
with the
SEC is for the period ended November 30, 2006. These documents are
available on the SEC’s EDGAR system and can be inspected and copied for a fee at
the SEC’s public reference room, 100 F Street, N.E., Room 1580, Washington, D.C.
20549. Additional information about the operation of the public reference
room
facilities may be obtained by calling the SEC at
(202) 551-5850.
This
prospectus does not contain all of the information in our registration
statement, including amendments, exhibits, and schedules. Statements
in this
prospectus about the contents of any contract or other document are not
necessarily complete and in each instance reference is made to the copy
of the
contract or other document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by this
reference.
Additional
information about us can be found in our Registration Statement (including
amendments, exhibits, and schedules) on Form N-2 filed with the SEC.
The SEC
maintains a web site (http://www.sec.gov) that contains our Registration
Statement, other documents incorporated by reference, and other information
we
have filed electronically with the SEC, including proxy statements and
reports
filed under the Exchange Act.
OF
THE STATEMENT OF ADDITIONAL
INFORMATION
|
Investment
Limitations
|
S-1
|
|
Investment
Objective and Principal Investment Strategies
|
S-3
|
|
Management
of the Company
|
S-16
|
|
Net
Asset Value
|
S-24
|
|
Portfolio
Transactions
|
S-26
|
|
Certain
Federal Income Tax Matters
|
S-27
|
|
Proxy
Voting Policies
|
S-35
|
|
Independent
Registered Public Accounting Firm
|
S-36
|
|
Internal
Accountant
|
S-36
|
|
Additional
Information
|
S-36
|
|
Financial
Statements
|
S-36
|
|
Appendix
A - Summary of Certain Provisions of the Indenture and Form
of
Supplemental Indenture
|
A-1
|
|
Appendix
B - Form of Articles Supplementary
|
B-1
|
|
Appendix
C - Rating of Investments
|
C-1
|
70
$350,000,000
Common
Stock
Preferred
Stock
Debt
Securities
Tortoise
Energy Infrastructure Corporation
________________
PROSPECTUS
________________
____________ __,
2007
The
information in this prospectus supplement, which relates to an effective
Registration Statement under the Securities Act of 1933, is not complete
and may
be changed. We may not sell these securities until we deliver a final
prospectus
supplement. This prospectus supplement and the attached prospectus do
not
constitute an offer to sell these securities or a solicitation of an
offer to
buy these securities in any jurisdiction where the offer or sale is not
permitted.
SUBJECT
TO COMPLETION, DATED _______ __, 2007
FORM
OF
PROSPECTUS SUPPLEMENT
(To
prospectus dated _____, 2007)
$__________
Tortoise
Energy Infrastructure Corporation
Auction
Rate Senior Notes (“Tortoise Notes”)
$_________
Series __, Due ______, 20__
$25,000
Denominations
_______________
Tortoise
Energy Infrastructure Corporation (the “Company,” “we,” “us” or “our”) is a
nondiversified, closed-end management investment company. Our investment
objective is to seek a high level of total return with an emphasis on
current
distributions to stockholders.
We
are
offering an aggregate principal amount of $_________ Series __ Tortoise
Notes in
this prospectus supplement. This prospectus supplement is not complete
and
should be read in conjunction with our prospectus dated __________, 20__
(the
“prospectus”), which accompanies this prospectus supplement. This prospectus
supplement does not include all information that you should consider
before
purchasing any Tortoise Notes. You should read this prospectus supplement
and
our prospectus prior to purchasing any Tortoise Notes.
The
notes
offered in this prospectus supplement, together with Series A, Series
B and
Series C notes currently outstanding, are referred to as “Tortoise Notes.”
Individual series of Tortoise Notes are referred to as a “series.” Except as
otherwise described in this prospectus supplement, the terms of this
series and
all other series are the same. Capitalized terms used but not defined
in this
prospectus supplement shall have the meanings given to such terms in
Appendix A
to the statement of additional information, which is available from us
upon
request.
The
Tortoise Notes will be issued without coupons in denominations of $25,000
and
any integral multiple thereof. The principal amount of the Series __
Tortoise
Notes will be due and payable on _________, 20__ (the “Stated Maturity”). There
is no sinking fund with respect to the Tortoise Notes. The Tortoise Notes
will
be our unsecured obligations and, upon our liquidation, dissolution or
winding
up, will rank: (1) senior to all of our outstanding common stock and any
outstanding preferred stock; (2) on a parity with any of our unsecured
creditors and any unsecured senior securities representing our indebtedness,
including other series of Tortoise Notes; and (3) junior to any of our
secured creditors. We may redeem the Tortoise Notes prior to their Stated
Maturity in certain circumstances described in this prospectus supplement.
Holders
of the Tortoise Notes will be entitled to receive cash interest payments
at an
annual rate that may vary for each rate period. The initial rate period
for the
Series __ Tortoise Notes is from the issue date through ________, 20__.
The
interest rate for the initial rate period from and including the issue
date
through ________, 20__, will be _____% per year for the Series __ Tortoise
Notes. For each subsequent rate period, the interest rate will be determined
by
an auction conducted in accordance with the procedures described in this
prospectus supplement. Generally, following the initial rate period,
each rate
period will be _____ (__) days for the Series __ Tortoise Notes.
The
Tortoise Notes will not be listed on any exchange or automated quotation
system.
Generally, you may only buy and sell Tortoise Notes through an order
placed at
an auction with or through a broker-dealer that has entered into an agreement
with the auction agent or in a secondary market that those broker-dealers
may
maintain. These broker-dealers are not required to maintain a market
in the
Tortoise Notes, and a secondary market, if one develops, may not provide
you
with liquidity. See “The Auction—Certain Considerations Affecting Auction Rate
Securities—Existing Holder’s Ability to Resell Auction Rate Securities
May Be Limited.”
_______________
Investing
in Tortoise Notes involves certain risks. See “Risk Factors” beginning on
page __ of the accompanying prospectus and “The Auction—Auction Risk”
beginning on page ____ of this prospectus supplement.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
supplement or accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
_______________
|
Per
$25,000 Principal
Amount
of Tortoise Notes
|
Total
|
|
|
Public
offering price
|
$25,000
|
$
|
|
Sales
load
|
$
|
$
|
|
Proceeds
to us (before expenses)(1)
|
$
|
$
|
_____________
|
(1)
|
Does
not include offering expenses payable by us, estimated to be
$______.
|
The
underwriters expect to deliver the Series _ Tortoise Notes in book-entry
form,
through the facilities of The Depository Trust Company, to broker-dealers
on or
about ________, 20__.
_______________
[Underwriter(s)]
_____,
200__
The
offering is conditioned upon the Series __ Tortoise Notes receiving a
rating of
“Aaa” from Moody’s and “AAA” from Fitch.
This
prospectus supplement has been filed with the Securities and Exchange
Commission
(the “SEC”). Additional copies of this prospectus supplement, the prospectus or
the statement of additional information dated __________, as supplemented
from
time to time, are available by calling ___________ or by writing to us,
or you
may obtain copies (and other information regarding us) from the SEC’s web site
(http://www.sec.gov). You also may e-mail requests for these documents
to the
SEC at publicinfo@sec.gov or make a request in writing to the SEC’s Public
Reference Section, 100 F Street, N.E., Room 1580, Washington, D.C.
20549.
This
prospectus supplement, which describes the specific terms of this offering,
also
adds to and updates information contained in the accompanying prospectus
and the
documents incorporated by reference in the prospectus. The prospectus
gives more
general information, some of which may not apply to this offering.
If
the
description of this offering varies between this prospectus supplement
and the
accompanying prospectus, you should rely on the information contained
in this
prospectus supplement; provided that if any statement in one of these
documents
is inconsistent with a statement in another document having a later date,
the
statement in the document having the later date modifies or supersedes
the
earlier statement.
The
Tortoise Notes do not represent a deposit or obligation of, and are not
guaranteed or endorsed by, any bank or other insured depository institution,
and
are not federally insured by the Federal Deposit Insurance Corporation,
the
Federal Reserve Board or any other government agency.
Prospectus
Supplement
Page
|
S-1
|
|
|
S-3
|
|
|
S-3
|
|
|
S-3
|
|
|
S-4
|
|
|
S-12
|
|
|
S-19
|
|
|
S-19
|
|
|
S-19
|
|
|
F-1
|
Prospectus
|
Prospectus
Summary
|
1
|
|
Summary
of Company Expenses
|
9
|
|
Financial
Highlights
|
11
|
|
Senior
Securities
|
13
|
|
Market
and Net Asset Value Information
|
13
|
|
Use
of Proceeds
|
15
|
|
The
Company
|
16
|
|
Investment
Objective and Principal Investment Strategies
|
16
|
|
Leverage
|
26
|
|
Risk
Factors
|
28
|
|
Management
of the Company
|
39
|
|
Closed-End
Company Structure
|
42
|
|
Certain
Federal Income Tax Matters
|
42
|
|
Determination
of Net Asset Value
|
48
|
|
Automatic
Dividend Reinvestment and Cash Purchase Plan
|
49
|
|
Description
of Securities
|
52
|
|
Rating
Agency Guidelines
|
61
|
|
Certain
Provisions in the Company’s Charter and Bylaws
|
63
|
|
Selling
Stockholders
|
64
|
|
Plan
of Distribution
|
64
|
|
Administrator
and Custodian
|
67
|
|
Legal
Matters
|
68
|
|
Available
Information
|
69
|
|
Table
of Contents of the Statement of Additional Information
|
70
|
_________________
You
should rely on the information contained in or incorporated by reference
in this
prospectus supplement in making an investment decision. Neither we nor
the
underwriters have authorized anyone to provide you with different or
inconsistent information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not, and the underwriters
are
not, making an offer
to
sell these notes in any jurisdiction where the offer or sale is not permitted.
You should assume that the information in this prospectus supplement
is accurate
only as of the date of this prospectus supplement, and that our business,
financial condition and prospects may have changed since this date. We
will
amend or supplement this prospectus supplement to reflect material changes
to
the information contained in this prospectus supplement to the extent
required
by applicable law.
i
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus supplement, the accompanying prospectus and the statement
of
additional information contain “forward-looking statements.” Forward-looking
statements can be identified by the words “may,” “will,” “intend,” “expect,”
“estimate,” “continue,” “plan,” “anticipate,” and similar terms and the negative
of such terms. Such forward-looking statements may be contained in this
prospectus supplement, as well as in the accompanying prospectus. 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
our
actual results are the performance of the portfolio of securities we
hold, the
conditions in the U.S. and international financial, petroleum and other
markets,
the price at which our shares will trade in the public markets and other
factors
discussed in our periodic filings with the SEC.
Although
we believe that the expectations expressed in our forward-looking statements
are
reasonable, actual results could differ materially from those projected
or
assumed in our forward-looking statements. Our future financial condition
and
results of operations, as well as any forward-looking statements, are
subject to
change and are subject to inherent risks and uncertainties, such as those
disclosed in the “Risk Factors” section of the prospectus accompanying this
prospectus supplement. All forward-looking statements contained or incorporated
by reference in this prospectus supplement or the accompanying prospectus
are
made as of the date of this prospectus supplement or the accompanying
prospectus, as the case may be. Except for our ongoing obligations under
the
federal securities laws, we do not intend, and we undertake no obligation,
to
update any forward-looking statement.
Currently
known risk factors that could cause actual results to differ materially
from our
expectations include, but are not limited to, the factors described in
the “Risk
Factors” section of the prospectus accompanying this prospectus supplement as
well as in “Auction Risk” and “Existing Holder’s Ability to Resell Auction Rate
Securities May Be Limited” in “The Auction” section of this prospectus
supplement. We urge you to review carefully those sections for a more
detailed
discussion of the risks of an investment in the Tortoise Notes.
This
summary contains basic information about us but does not contain all
of the
information that is important to your investment decision. You should
read this
summary together with the more detailed information contained elsewhere
in this
prospectus supplement and accompanying prospectus and in the statement
of
additional information, especially the information set forth under the
heading
“Risk Factors” beginning on page __ of the accompanying prospectus.
The
Company
We
seek
to provide our stockholders with an efficient vehicle to invest in a
portfolio
of publicly traded master limited partnerships (“MLPs”) in the energy
infrastructure sector. Our investment objective is to seek a high level
of total
return with an emphasis on current distributions paid to stockholders.
For
purposes of our investment objective, total return includes capital appreciation
of, and all distributions received from, securities in which we invest
regardless of the tax character of the distributions. Similar to the
tax
characterization of distributions made by MLPs to unitholders, a significant
portion of our distributions to stockholders have been and are expected
to
continue to be treated as a return of capital to stockholders.
We
are a
nondiversified, closed-end management investment company. We commenced
operations in February 2004 following our initial public offering. We were
the first publicly traded investment company offering access to a portfolio
of
MLPs. Since that time, we completed three additional offerings of common
stock
in December 2004, August 2006 and December 2006. As of the date
of this prospectus supplement, we have [two] series of Money Market Cumulative
Preferred (MMP®) Shares (“MMP Shares”) and three series of Auction Rate Senior
Notes (“Tortoise Notes”) outstanding. We may borrow from time to time using our
unsecured credit facility. We have a fiscal year ending
November 30.
Investment
Adviser
Tortoise
Capital Advisors, L.L.C. (the “Adviser”) serves as our investment adviser. The
Adviser specializes in managing portfolios of investments in MLPs and
other
energy infrastructure companies. The Adviser was formed in October 2002 to
provide portfolio management services to institutional and high-net-worth
investors seeking professional management of their MLP investments. As
of
___________ __, ____, the Adviser had approximately $____ billion of
client
assets under management. The Adviser’s investment committee is comprised of five
portfolio managers. See “Management of the Company” in the accompanying
prospectus.
The
Adviser also serves as the investment adviser to Tortoise Energy Capital
Corporation (“TYY”) and Tortoise North American Energy Corporation (“TYN”),
which are also publicly traded, closed-end management investment companies.
TYY,
which commenced operations on May 31, 2005, invests primarily in equity
securities of MLPs and their affiliates in the energy infrastructure
sector.
TYN, which commenced operations on October 31, 2005, invests primarily in
equity securities of companies in the energy sector whose primary operations
are
in North America. The Adviser also serves as the investment adviser to
Tortoise
Capital Resources Corporation (“TTO”), a non-diversified closed-end management
investment company that has elected to be regulated as a business development
company (a “BDC”) under the Investment Company Act of 1940 (the “1940 Act”).
TTO, which commenced operations on December 8, 2005, invests primarily in
privately held and micro-cap public
energy
companies operating in the midstream and
downstream segments, and to a lesser extent the upstream segment.
The principal business address of the Adviser is 10801 Mastin Boulevard,
Suite
222, Overland Park, Kansas 66210.
The
Offering
|
Tortoise
Notes offered by the Company
|
$______________
aggregate principal amount of Series __ Tortoise Notes. Series
__ Tortoise
Notes will be sold in denominations of $25,000 and any integral
multiple
thereof. The Series __ Tortoise Notes are being offered by
_______________
and __________, as underwriters. See “Underwriting.”
|
|
|
Use
of proceeds
|
We
estimate that our net proceeds from this offering will be approximately
$__ million. We intend to use these net proceeds to:
|
|
|
·
|
retire
short-term debt of approximately $__ million; and
|
|
|
·
|
fund
investments in energy infrastructure companies in accordance
with our
investment objective and policies and for temporary working
capital
needs.
|
|
|
Auction
Agent
|
The
Bank of New York
|
|
|
Broker
Dealer(s)
|
[Broker-Dealer(s)]
|
|
|
Risk
factors
|
See
“Risk Factors” and other information included in the accompanying
prospectus, as well as “Auction Risk” and “Existing Holder’s Ability to
Resell Auction Rate Securities May Be Limited” under “The Auction” in
this prospectus supplement, for a discussion of factors you
should
carefully consider before deciding to invest in the Tortoise
Notes.
|
|
The
net
proceeds of the offering of Series __ Tortoise Notes will be approximately
$_________, after payment of the underwriters’ discounts and commissions and
estimated offering costs.
We
intend
to use a portion of the net proceeds of this offering to retire short-term
debt
of approximately $__ million under our unsecured credit facility. Outstanding
balances under the credit facility accrue interest at a variable annual
rate
equal to the one-month LIBOR rate plus .75%. As of the date of this prospectus
supplement, the current rate is __%. The credit facility remains in effect
through _______, 200__, and we may draw on the facility from time to
time in
accordance with our investment policies. We will use the remaining net
proceeds of this offering to fund investments in accordance with our
investment
objective and policies as described under “Investment Objective and Principal
Investment Strategies” in the accompanying prospectus and for temporary working
capital needs. We expect to be fully invested within approximately
three months of receipt of such proceeds. Pending such investment, we
anticipate
that we will invest the proceeds in securities issued by the U.S. government
or
its agencies or instrumentalities or in high quality, short-term or long-term
debt obligations.
The
following table sets forth our capitalization as of _______, ____, and
as
adjusted to give effect to the issuance of the Series ___ Tortoise Notes
offered
hereby. As indicated below, common stockholders will bear the offering
costs
associated with this offering.
|
Actual
|
As
Adjusted
|
||||||
|
(Unaudited)
|
|||||||
|
Short-Term
Debt:
|
|||||||
|
Unsecured
credit facility: $__________ available
|
|||||||
|
Long-Term
Debt:
|
|||||||
|
Tortoise
Notes, denominations of $25,000 or any multiple thereof1
|
$
|
_________
|
$
|
||||
|
Preferred
Stock:
|
|||||||
|
MMP
Shares, $________ stated value per share at liquidation; 10,000,000
shares
authorized/_____ shares issued1
|
$
|
_________
|
$
|
||||
|
Common
Stockholders’ Equity:
|
|||||||
|
Common
Stock, $.001 par value per share; 100,000,000 shares authorized;
_______
shares outstanding1
|
$
|
$
|
|
2 | |||
|
Additional
paid-in capital
|
$ |
$
|
|
||||
|
Accumulated
net investment loss, net of deferred tax benefit
|
$ |
$
|
|
||||
|
Accumulated
realized gain from investments, net of deferred tax
expense
|
$ |
$
|
|
||||
|
Net
unrealized gain on investments
|
$ |
$
|
|
||||
|
Net
assets applicable to common stock
|
$
|
|
|||||
_____________
|
1
|
None
of these outstanding shares/notes are held by us or for our
account.
|
|
2
|
The
sales load and estimated offering costs of the Series __ Tortoise
Notes
will be capitalized and amortized over the life of the Series
__ Tortoise
Notes.
|
The
1940
Act and each Rating Agency imposes asset coverage requirements which
may limit
our ability to engage in certain types of transactions and may limit
our ability
to take certain actions without confirming with each Rating Agency that
such
action will not impair the ratings.
We
are
required to satisfy two separate asset maintenance requirements with
respect to
outstanding Tortoise Notes: (1) we must maintain assets in our
portfolio that have a value, discounted in accordance with guidelines
set forth
by each Rating Agency, at least equal to 115% of the aggregate principal
amount
of the Tortoise Notes plus specified liabilities, payment obligations
and other
amounts (the “Tortoise Notes Basic Maintenance Amount”); and (2) we must
satisfy the 1940 Act asset coverage requirements (the “1940 Act Tortoise Notes
Asset Coverage”).
The
Tortoise Notes Basic Maintenance Amount is defined in the Rating Agency
Guidelines. Each Rating Agency may amend the definition of Tortoise Notes
Basic
Maintenance Amount from time to time.
With
respect to the 1940 Tortoise Notes Asset Coverage requirement, we are
required
to maintain, with respect to outstanding Tortoise Notes, asset coverage
of at
least 300%. We estimate that based on the composition of our portfolio
as of
_______, ____, assuming the issuance of all Series __ Tortoise Notes
offered
hereby, the 1940 Act Tortoise Notes Asset Coverage would be:
|
Value
of Company assets less all liabilities and
indebtedness
not represented by senior securities
|
=
|
$
|
=
|
___%
|
|
Senior
securities representing indebtedness, including the aggregate
principal
amount of Tortoise Notes
|
$
|
A
copy of
the current Rating Agency Guidelines will be provided to any holder of
Tortoise
Notes promptly upon written request by such holder to the Company at
10801
Mastin Boulevard, Suite 222, Overland Park, Kansas 66210. See “Rating Agency
Guidelines” in the accompanying prospectus for a more detailed description of
our asset maintenance requirements.
Tortoise
Notes of each series will rank on a parity with any other series of Tortoise
Notes as to the payment of interest and distribution of assets upon liquidation.
All Tortoise Notes rank senior to our common and preferred stock as to
the
payment of interest and distribution of assets upon liquidation. Under
the 1940
Act, we may only issue one class of senior securities representing
indebtedness.
The
Series __ Tortoise Notes will be issued pursuant to the Original Indenture
and a
Supplemental Indenture dated as of ________, ____ (referred to herein
collectively with the Original Indenture as the “Indenture”). The following
summaries of certain significant provisions of the Indenture are not
complete
and are qualified in their entirety by the provisions of the Indenture,
a more
detailed summary of which is contained in Appendix A to the statement
of
additional information, which is on file with the SEC. Whenever defined
terms
are used, but not defined in this prospectus supplement, the terms have
the
meaning given to them in Appendix A to the statement of additional
information.
General
The
Board
of Directors has authorized us to issue the Series __ Tortoise Notes
representing indebtedness pursuant to the terms of the Indenture. Currently,
the
Indenture provides for the issuance of up to $_________ aggregate principal
amount of Series __ Tortoise Notes. The principal amount of the Series
__
Tortoise Notes is due and payable on ________, 20__. The Series __ Tortoise
Notes, when issued and sold pursuant to the terms of the Indenture, will
be
issued in fully registered form without coupons and in denominations
of $25,000
and any integral multiple thereof, unless otherwise provided in the Indenture.
The Series __ Tortoise Notes will be unsecured obligations of ours and,
upon our
liquidation, dissolution or winding up, will rank: (1) senior to our
outstanding common stock and any
outstanding
preferred stock, including the MMP Shares; (2) on a parity with any of our
unsecured creditors, including any other series of Tortoise Notes; and
(3) junior to any of our secured creditors. The Tortoise Notes are subject
to optional and mandatory redemption as described below under “—Redemption,” and
acceleration of maturity, as described in the accompanying prospectus
under
“Description of Securities—Debt Securities—Events of Default and Acceleration of
Maturity of Debt Securities; Remedies.”
While
serving as the Auction Agent in connection with the Auction Procedures
described
below, the Auction Agent generally will serve merely as our agent, acting
in
accordance with our instructions.
We
have
the right (to the extent permitted by applicable law) to purchase or
otherwise
acquire any Tortoise Notes outside of an auction, so long as: (1) we are
current in the payment of interest on such Tortoise Notes and on any
other
series of Tortoise Notes, (2) there is no arrearage in the mandatory or
optional redemption price respecting any Tortoise Notes for which a Notice
of
Redemption has been given, and (3) we are in compliance with the 1940 Act
Tortoise Notes Asset Coverage requirements and other applicable asset
requirements. See “—Redemption” below.
The
Tortoise Notes have no voting rights, except to the extent required by
law or as
otherwise provided in the Indenture relating to the acceleration of maturity
upon the occurrence and continuance of an event of default.
Unsecured
Investment
The
Tortoise Notes represent an unsecured obligation of ours to pay interest
and
principal, when due. We cannot assure you that we will have sufficient
funds or
that we will be able to arrange for additional financing to pay interest
on the
Tortoise Notes when due or to repay the Tortoise Notes at the Stated
Maturity.
Our failure to pay interest on the Tortoise Notes when due or to repay
the
Tortoise Notes upon the Stated Maturity would, subject to the cure provisions
under the Indenture, constitute an event of default under the Indenture
and
could cause a default under other agreements that we may enter into from
time to
time. There is no sinking fund with respect to the Tortoise Notes, and
at the
Stated Maturity, the entire outstanding principal amount of the Tortoise
Notes
will become due and payable.
Securities
Depository
The
nominee of the Securities Depository is expected to be the sole record
Holder of
the Tortoise Notes. Accordingly, each purchaser of Tortoise Notes must
rely on
(1) the procedures of the Securities Depository and, if such purchaser is
not a member of the Securities Depository, such purchaser’s Agent Member, to
receive interest payments and notices and (2) the records of the Securities
Depository and, if such purchaser is not a member of the Securities Depository,
such purchaser’s Agent Member, to evidence its ownership of the Tortoise
Notes.
Purchasers
of Tortoise Notes will not receive certificates representing their ownership
interest in such securities. DTC initially will act as Securities Depository
for
the Agent Members with respect to the Tortoise Notes.
Interest
and Rate Periods
General.
Tortoise Notes will bear interest at the Applicable Rate determined as
set forth
below under “—Determination of Interest Rate.” Interest on the Tortoise Notes
shall be payable when due as described below. If we do not pay interest
when
due, it will trigger an event of default under the
Indenture
(subject to the cure provisions), and we will be restricted from declaring
dividends and making other distributions with respect to our common stock
and
preferred stock.
On
the
Business Day next preceding each Interest Payment Date, we are required
to
deposit with the Paying Agent sufficient funds for the payment of interest.
We
do not intend to establish any reserves for the payment of
interest.
All
moneys paid to the Paying Agent for the payment of interest shall be
held in
trust for the payment of such interest to the Holder. Interest will be
paid by
the Paying Agent to the Holder as its name appears on our securities
ledger or
securities records, which Holder is expected to be the nominee of the
Securities
Depository. The Securities Depository will credit the accounts of the
Agent
Members of the Beneficial Owners in accordance with the Securities Depository’s
normal procedures. The Securities Depository’s current procedures provide for it
to distribute interest in same-day funds to Agent Members who are, in
turn,
expected to distribute such interest to the persons for whom they are
acting as
agents. The Agent Member of a Beneficial Owner will be responsible for
holding
or disbursing such payments on the applicable Interest Payment Date to
such
Beneficial Owner in accordance with the instructions of such Beneficial
Owner.
Interest
in arrears for any past Rate Period may be subject to a Default Rate
of interest
(described below) and may be paid at any time, without reference to any
regular
Interest Payment Date, to the Holder as its name appears on our securities
ledger or securities records on such date, not exceeding fifteen (15)
days
preceding the payment date thereof, as may be fixed by the Board of Directors.
Any interest payment shall first be credited against the earliest accrued
but
unpaid interest. No interest will be payable in respect of any payment
or
payments which may be in arrears. See “—Default Period” below.
The
amount of interest payable on each Interest Payment Date (or in respect
of
interest on another date in connection with a redemption during such
Rate
Period) shall be computed by multiplying the Applicable Rate (or the
Default
Rate) for such Rate Period (or a portion thereof) by a fraction, the
numerator
of which will be the number of days in such Rate Period (or portion thereof)
that such Tortoise Notes were outstanding and for which the Applicable
Rate or
the Default Rate was applicable and the denominator of which will be
360,
multiplying the amount so obtained by the applicable principal amount,
and
rounding the amount so obtained to the nearest cent.
Determination
of Interest Rate.
The
interest rate for the initial Rate Period for Series __ Tortoise Notes
(i.e.,
the period from and including the Original Issue Date to and including
the
initial Auction Date) and the initial Auction Date are set forth on the
cover
page of this prospectus supplement. After the initial Rate Period, subject
to certain exceptions, the Series __ Tortoise Notes will bear interest
at the
Applicable Rate that the Auction Agent advises us has resulted from an
Auction.
The
initial Rate Period for the Series __ Tortoise Notes will be _____ (__)
days.
Rate Periods after the initial Rate Period shall either be Standard Rate
Periods
or, subject to certain conditions and with notice to the Holder, Special
Rate
Periods.
A
Special
Rate Period will not be effective unless, among other things, Sufficient
Clearing Bids exist at the Auction in respect of such Special Rate Period
(that
is, in general, the aggregate amount of a series of Tortoise Notes subject
to
Buy Orders by Potential Holders is at least equal to the aggregate amount
of
that series of Tortoise Notes subject to Sell Orders by Existing
Holders).
Interest
will accrue at the Applicable Rate from the Original Issue Date and shall
be
payable on each Interest Payment Date thereafter. For Rate Periods of
less than
30 days, Interest Payment Dates shall occur on the first Business Day
following
such Rate Period and, if greater than 30 days, then on a
monthly
basis on the first Business Day of each month within such Rate Period,
not
including the initial Rate Period, and on the Business Day following
the last
day of such Rate Period. Interest will be paid through the Securities
Depository
on each Interest Payment Date.
Except
during a Default Period as described below, the Applicable Rate resulting
from
an Auction will not be greater than the Maximum Rate, which is equal
to the
Applicable Percentage of the Reference Rate, subject to upward but not
downward
adjustment in the discretion of the Board of Directors after consultation
with
the Broker-Dealers. The Applicable Percentage will be determined based
on the
lower of the credit ratings assigned on that date to a series of Tortoise
Notes
by Moody’s and Fitch, as follows:
|
Moody’s
Credit Rating
|
Fitch
Credit Rating
|
Applicable
Percentage
|
The
Reference Rate is the greater of (1) the applicable AA Composite Commercial
Paper Rate (for a Rate Period of fewer than 184 days) or the applicable
Treasury
Index Rate (for a Rate Period of 184 days or more), or (2) the applicable
LIBOR. For Standard Rate Periods or less only, the Applicable Rate resulting
from an Auction will not be less than the Minimum Rate, which is 70%
of the
applicable AA Composite Commercial Paper Rate. No Minimum Rate is specified
for
Auctions in respect to Rate Periods of more than the Standard Rate
Period.
The
Maximum Rate for a series of Tortoise Notes will apply automatically
following
an Auction for the Tortoise Notes in which Sufficient Clearing Bids have
not
been made (other than because all Tortoise Notes were subject to Submitted
Hold
Orders). If an Auction for any subsequent Rate Period is not held for
any
reason, including because there is no Auction Agent or Broker-Dealer,
then the
Interest Rate on a series of Tortoise Notes for any such Rate Period
shall be
the Maximum Rate (except for circumstances in which the Interest Rate
is the
Default Rate, as described below).
The
All
Hold Rate will apply automatically following an Auction in which all
of the
outstanding Tortoise Notes of a series are subject to (or are deemed
to be
subject to) Submitted Hold Orders. The All Hold Rate is 80% of the applicable
AA
Composite Commercial Paper Rate.
Prior
to
each Auction, Broker-Dealers will notify Holders and the Trustee of the
term of
the next succeeding Rate Period as soon as practicable after the Broker-Dealers
have been so advised by us. After each Auction, on the Auction Date,
Broker-Dealers will notify Holders of the Applicable Rate for the next
succeeding Rate Period and of the Auction Date of the next succeeding
Auction.
Notification
of Rate Period.
We will
designate the duration of subsequent Rate Periods for each series of
the
Tortoise Notes; provided, however, that no such designation is necessary
for a
Standard Rate Period and, provided further, that any designation of a
Special
Rate Period shall be effective only if (1) notice thereof shall have been
given as provided herein, (2) any failure to pay in a timely manner to the
Trustee the full amount of any interest on, or the redemption price of,
a series
of Tortoise Notes shall have been cured as provided above, (3) Sufficient
Clearing Bids shall have existed in an Auction held on the Auction Date
immediately preceding the first day of such proposed Special Rate Period,
(4) if we shall have mailed a Notice of Redemption with respect to any
Tortoise Notes, the redemption price with respect to such Tortoise Notes
shall
have been deposited with the Paying Agent, and (5) we have confirmed that
as of the Auction Date next preceding the first day of such Special Rate
Period,
we have Eligible Assets with an aggregate Discounted Value at least equal
to the
Tortoise Notes Basic
Maintenance
Amount, and we have consulted with the Broker-Dealers and have provided
notice
of such designation and otherwise complied with the Rating Agency
Guidelines.
Designation
of a Special Rate Period.
If we
propose to designate any Special Rate Period, not fewer than seven (7)
(or two
(2) Business Days in the event the duration of the Rate Period prior
to such
Special Rate Period is fewer than eight (8) days) nor more than thirty
(30)
Business Days prior to the first day of such Special Rate Period, notice
shall
be (1) made by press release and (2) communicated by us by telephonic
or other means to the Trustee and confirmed in writing promptly thereafter.
Each
such notice shall state (A) that we propose to exercise our option to
designate a succeeding Special Rate Period, specifying the first and
last days
thereof and (B) that we will by 3:00 p.m., New York City time, on the
second Business Day next preceding the first day of such Special Rate
Period,
notify the Auction Agent and the Trustee, who will promptly notify the
Broker-Dealers, of either (x) our determination, subject to certain
conditions, to proceed with such Special Rate Period, subject to the
terms of
any Specific Redemption Provisions, or (y) our determination not to proceed
with such Special Rate Period, in which latter event the succeeding Rate
Period
shall be a Standard Rate Period.
No
later
than 3:00 p.m., New York City time, on the second Business Day next
preceding the first day of any proposed Special Rate Period, we will
deliver to
the Trustee and the Auction Agent, who will promptly deliver to the
Broker-Dealers and Existing Holders, either:
(1) a
notice
stating (A) that we have determined to designate the next succeeding Rate
Period as a Special Rate Period, specifying the first and last days thereof
and
(B) the terms of any Specific Redemption Provisions; or
(2) a
notice
stating that we have determined not to exercise our option to designate
a
Special Rate Period.
If
we
fail to deliver either such notice with respect to any designation of
any
proposed Special Rate Period to the Auction Agent and the Auction Agent
is
unable to make the confirmation described above by 3:00 p.m., New York City
time, on the second Business Day next preceding the first day of such
proposed
Special Rate Period, we shall be deemed to have delivered a notice to
the
Auction Agent with respect to such Rate Period to the effect set forth
in clause
(2) above, thereby resulting in a Standard Rate Period.
Default
Period.
Subject
to cure provisions, a Default Period with respect to a particular series
of
Tortoise Notes will commence on any date on which, when required to do
so, we
fail to deposit irrevocably in trust in same-day funds, with the Paying
Agent by
12:00 noon, New York City time,
(A) the
full
amount of any accrued interest on that series payable on the Interest
Payment
Date (an “Interest Default”), or
(B) the
full
amount of any redemption price (the “Redemption Price”) payable on the date
fixed for redemption (the “Redemption Date”) (a “Redemption Default” and
together with an Interest Default, hereinafter referred to as “Default”).
Subject
to cure provisions, a Default Period with respect to an Interest Default
or a
Redemption Default shall end on the Business Day on which, by 12:00 noon,
New
York City time, all unpaid interest and any unpaid Redemption Price,
respectively, shall have been deposited irrevocably in trust in same-day
funds
with the Paying Agent. In the case of an Interest Default, the Applicable
Rate
for each Rate Period commencing during a Default Period will be equal
to the
Default Rate, and each subsequent Rate Period commencing after the beginning
of
a Default Period shall be a Standard Rate Period; provided,
however,
that the commencement of a Default Period will not by itself cause the
commencement of a new Rate Period.
No
Auction shall be held during a Default Period with respect to an Interest
Default applicable to that series of Tortoise Notes. No Default Period
with
respect to an Interest Default or Redemption Default shall be deemed
to commence
if the amount of any interest or any Redemption Price due (if such default
is
not solely due to our willful failure) is deposited irrevocably in trust,
in
same-day funds with the Paying Agent by 12:00 noon, New York City time
within
three Business Days after the applicable Interest Payment Date or Redemption
Date, together with an amount equal to the Default Rate applied to the
amount of
such non-payment based on the actual number of days comprising such period
divided by 360 for each series. The Default Rate shall be equal to the
Reference
Rate multiplied by three.
Redemption
Optional
Redemption.
To the
extent permitted under the 1940 Act and Maryland law, we may, at our
option,
redeem Tortoise Notes having a Rate Period of one year or less, in whole
or in
part, out of funds legally available therefor, on any Interest Payment
Date,
upon not less than 15 days’ and not more than 40 days’ prior notice. This
optional redemption is not available during the initial Rate Period or
during
other limited circumstances. The optional redemption price shall be equal
to the
aggregate principal amount of the Tortoise Notes to be redeemed, plus
an amount
equal to accrued but unpaid interest to the date fixed for redemption.
Tortoise
Notes having a Rate Period of more than one year are redeemable at our
option,
in whole or in part, out of funds legally available therefor, prior to
the end
of the relevant Rate Period, upon not less than 15 days’, and not more than 40
days’, prior notice, subject to any Specific Redemption Provisions, which
may
include the payment of redemption premiums in the sole discretion of
the Board
of Directors. We shall not effect any optional redemption unless after
giving
effect thereto (1) we have available on such date fixed for the redemption
certain Deposit Securities with maturity or tender dates not later than
the day
preceding the applicable redemption date and having a value not less
than the
amount (including any applicable premium) due to Holders of a series
of Tortoise
Notes by reason of the redemption of a series of Tortoise Notes and (2) we
would have Eligible Assets with an aggregate Discounted Value at least
equal to
the Tortoise Notes Basic Maintenance Amount immediately subsequent to
such
redemption. Although we ordinarily will not redeem the Tortoise Notes
prior to
their Stated Maturity, we may voluntarily redeem Tortoise Notes if, for
example,
the Board of Directors determines that we could obtain more favorable
interest
rates from an alternative source of financing.
Mandatory
Redemption.
If we
fail to maintain Eligible Assets with an aggregate Discounted Value at
least
equal to the Tortoise Notes Basic Maintenance Amount as of any Valuation
Date
or, fail to satisfy the 1940 Act Tortoise Notes Asset Coverage as of
the last
Business Day of any month, and such failure is not cured within ten Business
Days following such Valuation Date, in the case of a failure to maintain
the
Tortoise Notes Basic Maintenance Amount, or on the last Business Day
of the
following month, in the case of a failure to maintain the 1940 Act Tortoise
Notes Asset Coverage as of such last Business Day (each an “Asset Coverage Cure
Date”), the Tortoise Notes will be subject to mandatory redemption out of
funds
legally available therefor. See “Rating Agency Guidelines” in the accompanying
prospectus.
The
principal amount of Tortoise Notes to be redeemed under these circumstances
will
be equal to the lesser of (1) the minimum principal amount of Tortoise
Notes the redemption of which, if deemed to have occurred immediately
prior to
the opening of business on the relevant Asset Coverage Cure Date, would
result
in our having Eligible Assets with an aggregated Discounted Value at
least equal
to the Tortoise Notes Basic Maintenance Amount or sufficient to satisfy
the 1940
Act Tortoise Notes Asset Coverage, as the case may be, in either case
as of the
relevant Asset Coverage Cure Date (provided that, if
there
is
no such minimum principal amount of Tortoise Notes the redemption of
which would
have such result, all Tortoise Notes then outstanding will be redeemed),
and
(2) the maximum principal amount of Tortoise Notes that can be redeemed out
of funds expected to be available therefor on the Mandatory Redemption
Date (as
defined below) at the Mandatory Redemption Price (as defined
below).
Any
redemption of less than all of the outstanding Tortoise Notes of a series
will
be made from Tortoise Notes designated by us. We shall designate Tortoise
Notes
to be redeemed on a pro rata basis among the Holders in proportion to
the
principal amount of Tortoise Notes they hold, by lot or such other method
as we
shall deem equitable. No optional or mandatory redemption of less than
all
outstanding Tortoise Notes of a series will be made unless the aggregate
principal amount of Tortoise Notes to be redeemed is equal to $25,000
or
integral multiples thereof. Any redemption of less than all Tortoise
Notes
outstanding will be made in such a manner that all Tortoise Notes outstanding
after such redemption are in authorized denominations.
We
are
required to effect such a mandatory redemption not later than 40 days
after the
Asset Coverage Cure Date, as the case may be (the “Mandatory Redemption Date”),
except that if we do not have funds legally available for the redemption
of, or
are not otherwise legally permitted to redeem, all of the outstanding
Tortoise
Notes of a series that are subject to mandatory redemption, or we otherwise
are
unable to effect such redemption on or prior to such Mandatory Redemption
Date,
we will redeem those Tortoise Notes on the earliest practicable date
on which we
will have such funds available, upon notice to record owners of Tortoise
Notes
and the Paying Agent. Our ability to make a mandatory redemption may
be limited
by the provisions of the 1940 Act or Maryland law. The redemption price
per
Tortoise Note in the event of any mandatory redemption will be the principal
amount, plus an amount equal to accrued but unpaid interest to the date
fixed
for redemption, plus (in the case of a Rate Period of more than one year)
a
redemption premium, if any, determined by the Board of Directors in its
sole
discretion after consultation with the Broker-Dealers and set forth in
any
applicable Specific Redemption Provisions (the “Mandatory Redemption
Price”).
Redemption
Procedure.
Pursuant to Rule 23c-2 under the 1940 Act, we will file a notice of our
intention to redeem with the SEC so as to provide at least the minimum
notice
required by such Rule or any successor provision (notice currently must
be filed
with the SEC generally at least 30 days prior to the redemption date).
We shall
deliver a notice of redemption to the Auction Agent and the Trustee containing
the information described below one Business Day prior to the giving
of notice
to Holders in the case of an optional redemption and on or prior to the
30th day
preceding the Mandatory Redemption Date in the case of a mandatory redemption.
The Trustee will use its reasonable efforts to provide notice to each
Holder of
Tortoise Notes called for redemption by electronic means not later than
the
close of business on the Business Day immediately following the Business
Day on
which the Trustee determines the principal amount of Tortoise Notes to
be
redeemed (or, during a Default Period with respect to such Tortoise Notes,
not
later than the close of business on the Business Day immediately following
the
day on which the Trustee receives notice of redemption from us). Such
notice
will be confirmed promptly by the Trustee in writing not later than the
close of
business on the third Business Day preceding the redemption date by providing
the notice to each Holder of record of Tortoise Notes called for redemption,
the
Paying Agent (if different from the Trustee) and the Securities Depository
(“Notice of Redemption”). The Notice of Redemption will be addressed to the
registered owners of the Tortoise Notes at their addresses appearing
on our
books or share records. Such notice will set forth (1) the redemption date,
(2) the principal amount and identity of Tortoise Notes to be redeemed,
(3) the redemption price (specifying the amount of accrued interest to be
included therein and the amount of the redemption premium, if any),
(4) that interest on the Tortoise Notes to be redeemed will cease to accrue
on such redemption date, and (5) the 1940 Act provision under which
redemption shall be made. No defect in the Notice of Redemption or in
the
transmittal or mailing thereof will affect the validity of the redemption
proceedings, except as required by applicable law.
If
less
than all of the outstanding Tortoise Notes of a series are redeemed on
any date,
the amount per Holder to be redeemed on such date will be selected by
us on a
pro rata basis in proportion to the principal amount of Tortoise Notes
held by
such Holder, by lot or by such other method as is determined by us to
be fair
and equitable, subject to the terms of any Specific Redemption Provisions
and
subject to maintaining authorized denominations as described above. Tortoise
Notes may be subject to mandatory redemption as described herein notwithstanding
the terms of any Specific Redemption Provisions. The Auction Agent will
give
notice to the Securities Depository, whose nominee will be the record
Holder of
all of the Tortoise Notes, and the Securities Depository will determine
the
Tortoise Notes to be redeemed from the account of the Agent Member of
each
Beneficial Owner. Each Agent Member will determine the principal amount
of
Tortoise Notes to be redeemed from the account of each Beneficial Owner
for
which it acts as agent. An Agent Member may select for redemption Tortoise
Notes
from the accounts of some Beneficial Owners without selecting for redemption
any
Tortoise Notes from the accounts of other Beneficial Owners. In this
case, in
selecting the Tortoise Notes to be redeemed, the Agent Member will select
by lot
or by other fair and equitable method. Notwithstanding the foregoing,
if neither
the Securities Depository nor its nominee is the record Holder of all
of the
Tortoise Notes, the particular principal amount to be redeemed shall
be selected
by us by lot, on a pro rata basis between each series or by such other
method as
we shall deem fair and equitable, as contemplated above.
If
Notice
of Redemption has been given, then upon the deposit of funds with the
Paying
Agent sufficient to effect such redemption, interest on such Tortoise
Notes will
cease to accrue and such Tortoise Notes will no longer be deemed to be
outstanding for any purpose and all rights of the holders of the Tortoise
Notes
so called for redemption will cease and terminate, except the right of
the
holders of such Tortoise Notes to receive the redemption price, but without
any
interest or additional amount. We shall be entitled to receive from the
Paying
Agent, promptly after the date fixed for redemption, any cash deposited
with the
Paying Agent in excess of (1) the aggregate redemption price of the
Tortoise Notes called for redemption on such date and (2) such other
amounts, if any, to which owners of Tortoise Notes called for redemption
may be
entitled. We will be entitled to receive, from time to time after the
date fixed
for redemption, from the Paying Agent the interest, if any, earned on
such funds
deposited with the Paying Agent and the owners of Tortoise Notes so redeemed
will have no claim to any such interest. Any funds so deposited which
are
unclaimed two years after such redemption date will be paid, to the extent
permitted by law, by the Paying Agent to us upon our request. After such
payment, Holders of Tortoise Notes called for redemption may look only
to us for
payment.
So
long
as any Tortoise Notes are held of record by the nominee of the Securities
Depository, the redemption price for such Tortoise Notes will be paid
on the
redemption date to the nominee of the Securities Depository. The Securities
Depository’s normal procedures provide for it to distribute the amount of the
redemption price to Agent Members who, in turn, are expected to distribute
such
funds to the persons for whom they are acting as agent.
Notwithstanding
the provisions for redemption described above, no Tortoise Notes may
be redeemed
unless all interest in arrears on the Outstanding Tortoise Notes, and
any of our
indebtedness ranking on a parity with the Tortoise Notes, have been or
are being
contemporaneously paid or set aside for payment, except in connection
with our
liquidation, in which case all Tortoise Notes and all indebtedness ranking
on a
parity with the Tortoise Notes must receive proportionate amounts. At
any time
we may purchase or acquire all the Outstanding Tortoise Notes pursuant
to the
successful completion of an otherwise lawful purchase or exchange offer
made on
the same terms to, and accepted by, Holders of all Outstanding Tortoise
Notes.
Except
for the provisions described above, nothing contained in the Indenture
limits
any legal right of ours to purchase or otherwise acquire Tortoise Notes
outside
of an Auction at any price, whether higher or lower than the price that
would be
paid in connection with an optional or mandatory
redemption,
so long as, at the time of any such purchase, there is no arrearage in
the
payment of interest on or the mandatory or optional redemption price
with
respect to, any Tortoise Notes for which Notice of Redemption has been
given,
and we are in compliance with the 1940 Act Tortoise Notes Asset Coverage
and
have Eligible Assets with an aggregate Discounted Value at least equal
to the
Tortoise Notes Basic Maintenance Amount after giving effect to such purchase
or
acquisition on the date thereof. If less than all outstanding Tortoise
Notes are
redeemed or otherwise acquired by us, we shall give notice of such transaction
to the Auction Agent, in accordance with the procedures agreed upon by
the Board
of Directors.
Payment
of Proceeds Upon Dissolution, Etc.
In
the
event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
in
connection therewith, relative to us or to our creditors, as such, or
to our
assets, or (b) our liquidation, dissolution or other winding up, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy,
or (c) our assignment for the benefit of creditors or any other marshalling
of assets and liabilities, then (after any payments with respect to our
secured
creditor outstanding at such time) and in any such event the holders
of Tortoise
Notes shall be entitled to receive payment in full of all amounts due
or to
become due on or in respect of all Tortoise Notes (including any interest
accruing thereon after the commencement of any such case or proceeding),
or
provision shall be made for such payment in cash or cash equivalents
or
otherwise in a manner satisfactory to the holders of the Tortoise Notes,
before
the holders of any of our common or preferred stock are entitled to receive
any
payment on account of any redemption proceeds, liquidation preference
or
dividends from such shares, and to that end the holders of Tortoise Notes
shall
be entitled to receive, for application to the payment thereof, any payment
or
distribution of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any of our other indebtedness being subordinated
to
the payment of the Tortoise Notes, which may be payable or deliverable
in
respect of the Tortoise Notes in any such case, proceeding, dissolution,
liquidation or other winding up event.
Unsecured
creditors of ours may include, without limitation, service providers
including
the Adviser, Custodian, Auction Agent, Broker-Dealers and Trustee, pursuant
to
the terms of various contracts with us. Secured creditors of ours may
include
without limitation parties entering into any interest rate swap, floor
or cap
transactions, or other similar transactions with us that create liens,
pledges,
charges, security interests, security agreements or other encumbrances
on our
assets.
Our
consolidation, reorganization or merger with or into any other company,
or a
sale, lease or exchange of all or substantially all of our assets of
in
consideration for the issuance of equity securities of another company
shall not
be deemed to be a liquidation, dissolution or winding up of the
Company.
Role
of Auction Agent
Auction
Agency Agreement.
The
Auction Agency Agreement between us and the Auction Agent (currently,
The Bank
of New York) (the “Auction Agency Agreement”) provides, among other things, that
the Auction Agent will follow the Auction Procedures for purposes of
determining
the Applicable Rate for the Series __ Tortoise Notes so long as the Applicable
Rate for the Series __ Tortoise Notes is to be based on the results of
an
Auction. The Auction Agent acts as a non-fiduciary agent for us in connection
with Auctions. In the absence of bad faith or gross negligence on its
part, the
Auction Agent will not be liable for any action taken, suffered, or omitted
or
for any error of
judgment
made by it in the performance of its duties under the Auction Agency
Agreement
and will not be liable for any error of judgment made in good faith unless
the
Auction Agent will have been grossly negligent in ascertaining the pertinent
facts.
The
Auction Agent may terminate the Auction Agency Agreement upon notice
to us on a
date no earlier than 60 days after the notice. If the Auction Agent should
resign, we will use our best efforts to enter into an agreement with
a successor
Auction Agent containing substantially the same terms and conditions
as the
Auction Agency Agreement. We may remove the Auction Agent provided that
prior to
such removal we shall have entered into such an agreement with a successor
Auction Agent.
Auction
Risk
You
may
not be able to sell your Tortoise Notes at an Auction if the Auction
fails; that
is, if there are more Tortoise Notes offered for sale than there are
buyers for
those Tortoise Notes. Also, if you place hold orders (orders to retain
Tortoise
Notes) at an Auction only at a specified rate, and that bid rate exceeds
the
rate set at the Auction, you will not retain your Tortoise Notes. Finally,
if
you buy Tortoise Notes or elect to retain Tortoise Notes without specifying
a
rate below which you would not wish to buy or continue to hold those
Tortoise
Notes, and the Auction sets a below-market rate, you may receive a lower
rate of
return on your Tortoise Notes than the market rate.
Auction
Procedures
Beneficial
Owners.
Prior
to the Submission Deadline on each Auction Date for a series of Tortoise
Notes,
each customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer (or, if applicable, the Auction Agent) as a holder of Tortoise
Notes of such series (a “Beneficial Owner”) may submit orders (“Orders”) with
respect to Tortoise Notes of such series to that Broker-Dealer as
follows:
| · |
Hold
Order - indicating its desire to hold Tortoise Notes of such
series
without regard to the Applicable Rate for Tortoise Notes of such
series
for the next Rate Period thereof.
|
| · |
Bid
- indicating its desire to sell the principal amount of Outstanding
Tortoise Notes, if any, of such series held by such Beneficial
Owner which
such Beneficial Owner offers to sell if the Applicable Rate for
Tortoise
Notes of such series for the next succeeding Rate Period of Tortoise
Notes
of such series shall be less than the rate per annum specified
by such
Beneficial Owner (also known as a hold at rate
order).
|
| · |
Sell
Order - indicating its desire to sell the principal amount of
Outstanding
Tortoise Notes, if any, of such series held by such Beneficial
Owner which
such Beneficial Owner offers to sell without regard to the Applicable
Rate
for Tortoise Notes of such series for the next succeeding Rate
Period of
Tortoise Notes of such series.
|
Orders
submitted (or the failure to do so) by Beneficial Owners under certain
circumstances will have the effects described below. A Beneficial Owner
of
Tortoise Notes of such series that submits a Bid with respect to Tortoise
Notes
of such series to its Broker-Dealer having a rate higher than the Maximum
Rate
for Tortoise Notes of such series on the Auction Date therefore will
be treated
as having submitted a Sell Order with respect to such Tortoise Notes.
A
Beneficial Owner of Tortoise Notes of such series that fails to submit
an Order
with respect to such Tortoise Notes to its Broker-Dealer will be deemed
to have
submitted a Hold Order with respect to such Tortoise Notes of such series;
provided, however, that if a Beneficial Owner of Series __ Tortoise Notes
fails
to submit an Order with respect to Series __ Tortoise Notes to its Broker-Dealer
for an Auction relating to a Special Rate Period of more than _____ (__)
days,
such Beneficial Owner will be deemed to have submitted a Sell Order with
respect
to such Tortoise Notes. A Sell Order shall constitute an irrevocable
offer to
sell the Tortoise Notes subject thereto. A
Beneficial
Owner that offers to become the Beneficial Owner of additional Tortoise
Notes
is, for purposes of such offer, a Potential Beneficial Owner as discussed
below.
Potential
Beneficial Owners.
A
customer of a Broker-Dealer that is not a Beneficial Owner of a series
of
Tortoise Notes but that wishes to purchase Tortoise Notes of such series,
or
that is a Beneficial Owner of Tortoise Notes of such series that wishes
to
purchase additional Tortoise Notes of such series (in each case, a “Potential
Beneficial Owner”), may submit Bids to its Broker-Dealer in which it offers to
purchase such principal amount of Outstanding Tortoise Notes of such
series
specified in such Bid if the Applicable Rate for Tortoise Notes of such
series
determined on such Auction Date shall be higher than the rate specified
in such
Bid. A Bid placed by a Potential Beneficial Owner of Tortoise Notes of
such
series specifying a rate higher than the Maximum Rate for Tortoise Notes
of such
series on the Auction Date therefor will not be accepted.
The
Auction Process.
Each
Broker-Dealer shall submit in writing, which shall include a writing
delivered
via e mail or other electronic means, to the Auction Agent, prior to
the
Submission Deadline on each Auction Date, all Orders for Tortoise Notes
of a
series subject to an Auction on such Auction Date obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by us)
as an
Existing Holder in respect of Tortoise Notes subject to Orders submitted
or
deemed submitted to it by Beneficial Owners and as a Potential Holder
in respect
of Tortoise Notes subject to Orders submitted to it by Potential Beneficial
Owners. However, neither we nor the Auction Agent will be responsible
for a
Broker-Dealer’s failure to comply with the foregoing. Any Order placed with the
Auction Agent by a Broker-Dealer as or on behalf of an Existing Holder
or a
Potential Holder will be treated in the same manner as an Order placed
with a
Broker-Dealer by a Beneficial Owner or Potential Beneficial Owner. Similarly,
any failure by a Broker-Dealer to submit to the Auction Agent an Order
in
respect of Tortoise Notes held by it or customers who are Beneficial
Owners will
be treated in the same manner as a Beneficial Owner’s failure to submit to its
Broker-Dealer an Order in respect of Tortoise Notes held by it. A Broker-Dealer
may also submit Orders to the Auction Agent for its own account as an
Existing
Holder or Potential Holder, provided it is not an affiliate of
ours.
If
Sufficient Clearing Bids for a series of Tortoise Notes exist (that is,
the
aggregate principal amount of Outstanding Tortoise Notes of such series
subject
to Submitted Bids of Potential Holders specifying one or more rates between
the
Minimum Rate (for Standard Rate Periods or less, only) and the Maximum
Rate (for
all Rate Periods) for Tortoise Notes of such series exceeds or is equal
to the
sum of the aggregate principal amount of Outstanding Tortoise Notes of
such
series subject to Submitted Sell Orders), the Applicable Rate for Tortoise
Notes
of such series for the next succeeding Rate Period thereof will be the
lowest
rate specified in the Submitted Bids which, taking into account such
rate and
all lower rates bid by Broker-Dealers as or on behalf of Existing Holders
and
Potential Holders, would result in Existing Holders and Potential Holders
owning
the aggregate principal amount of Tortoise Notes of such series available
for
purchase in the Auction (such rate, the “Winning Bid Rate”). If Sufficient
Clearing Bids for a series of Tortoise Notes do not exist (other than
because
all of the Outstanding Tortoise Notes of such series are subject to Submitted
Hold Orders), then the Applicable Rate for all Tortoise Notes of such
series for
the next succeeding Rate Period thereof will be equal to the Maximum
Rate for
Tortoise Notes of such series. In such event, Holders of Tortoise Notes
of such
series that have submitted or are deemed to have submitted Sell Orders
may not
be able to sell in such Auction all aggregate principal amount of Tortoise
Notes
of such series subject to such Sell Orders. In any particular Auction,
if all
outstanding Tortoise Notes of a series are the subject of Submitted Hold
Orders,
the Applicable Rate for such series of Tortoise Notes for the next succeeding
Auction Period will be the All Hold Rate (such a situation is called
an “All
Hold Auction”).
The
Auction Procedures include a pro rata allocation of Tortoise Notes for
purchase
and sale, which may result in an Existing Holder continuing to hold or
selling,
or a Potential Holder purchasing, a
number
of
Tortoise Notes that is less than the number of Tortoise Notes specified
in its
Order. To the extent the allocation procedures have that result, Broker-Dealers
that have designated themselves as Existing Holders or Potential Holders
in
respect of customer Orders will be required to make appropriate pro rata
allocations among their respective customers.
Settlement
of purchases and sales will be made on the next Business Day (also an
Interest
Payment Date) after the Auction Date through the Securities Depository.
Purchasers will make payment through their Agent Members in same-day
funds to
the Securities Depository against delivery to their respective Agent
Members.
The Securities Depository will make payment to the sellers’ Agent Members in
accordance with the Securities Depository’s normal procedures, which now provide
for payment against delivery by their Agent Members in same-day
funds.
Certain
Considerations Affecting Auction Rate Securities
Role
of Broker-Dealer.
[Broker-Dealer] (the “Broker-Dealer”) has been appointed by the issuers or
obligors of various auction rate securities to serve as a dealer in the
auctions
for those securities and is paid by the issuers or obligors for its services.
[Broker-Dealer] receives broker-dealer fees from such issuers or obligors
at an
agreed upon annual rate that is applied to the principal amount of securities
sold or successfully placed through them in such auctions.
A
Broker-Dealer is designated in the Broker-Dealer Agreement as the Broker-Dealer
to contact Existing Holders and Potential Holders and solicit Bids for
the
Tortoise Notes. The Broker-Dealer will receive Broker-Dealer Fees from
us with
respect to the Tortoise Notes sold or successfully placed through it
in
Auctions. The Broker-Dealer may share a portion of such fees with other
dealers
that submit Orders through it that are filled in the Auction.
Bidding
by Broker-Dealer.
The
Broker-Dealer is permitted, but not obligated, to submit Orders in Auctions
for
its own account either as a buyer or seller and routinely does so in
the auction
rate securities market in its sole discretion. If the Broker-Dealer submits
an
Order for its own account, it would have an advantage over other Potential
Beneficial Owners because the Broker-Dealer would have knowledge of the
other
Orders placed through it in that Auction and thus, could determine the
rate and
size of its Order so as to increase the likelihood that (i) its Order will
be accepted in the Auction and (ii) the Auction will clear at a particular
rate. For this reason, and because the Broker Dealer is appointed and
paid by us
to serve as a Broker-Dealer in the Auction, the Broker-Dealer’s interests in
serving as Broker-Dealer in an Auction may differ from those of Existing
Holders
and Potential Holders who participate in Auctions. See “Role of Broker-Dealer.”
The Broker Dealer would not have knowledge of Orders submitted to the
Auction
Agent by any other firm that is, or may in the future be, appointed to
accept
Orders pursuant to a Broker Dealer Agreement.
Where
the
Broker-Dealer is the only Broker-Dealer appointed by us to serve as
Broker-Dealer in the Auction, and as long as that remains the case, it
will be
the only Broker-Dealer that submits Orders to the Auction Agent in that
Auction.
As a result, in such circumstances, the Broker-Dealer may discern the
clearing
rate before the Orders are submitted to the Auction Agent and set the
clearing
rate with its Order.
The
Broker-Dealer may place one or more Bids in an Auction for its own account
to
acquire securities for its inventory, to prevent an Auction Failure or
to
prevent Auctions from clearing at a rate that the Broker-Dealer believes
does
not reflect the market for the Tortoise Notes. The Broker-Dealer may
place such
Bids even after obtaining knowledge of some or all of the other Orders
submitted
through it. When bidding in an Auction for its own account, the Broker-Dealer
also may Bid inside or outside the range of rates that it posts in its
Price
Talk (as defined herein). See “—Price Talk.”
The
Broker-Dealer also may encourage bidding by others in Auctions, including
to
prevent an Auction Failure or to prevent an Auction from clearing at
a rate that
the Broker-Dealer believes does not reflect the market for the Tortoise
Notes.
The Broker-Dealer may encourage such Bids even after obtaining knowledge
of some
or all of the other Orders submitted through it.
Bids
by
the Broker-Dealer or by those it may encourage to place Bids are likely
to
affect (i) the Applicable Rate—including preventing the Applicable Rate
from being set at the Maximum Rate or otherwise causing Potential Beneficial
Owners to receive a lower rate than they might have received had the
Broker-Dealer not Bid (or not encouraged others to Bid) and (ii) the
allocation of the Tortoise Notes being auctioned, including displacing
some
Potential Beneficial Owners who may have their Bids rejected or receive
fewer
Tortoise Notes than they would have received if the Broker-Dealer had
not Bid
(or encouraged others to Bid). Because of these practices, the fact that
an
Auction clears successfully does not mean that an investment in the Tortoise
Notes involves no significant liquidity or credit risk. The Broker-Dealer
is not
obligated to continue to place such Bids (or to continue to encourage
other
Bidders to do so) in any particular Auction to prevent an Auction Failure
or an
Auction from clearing at a rate the Broker-Dealer believes does not reflect
the
market for the Tortoise Notes. Investors should not assume that the
Broker-Dealer will place Bids or encourage others to do so or that Auction
Failures will not occur. Investors should also be aware that Bids by
the
Broker-Dealer (or by those it may encourage to place Bids) may cause
lower
Applicable Rates to occur.
The
statements herein regarding Bidding by a Broker-Dealer apply only to
a
Broker-Dealer’s auction desk and any other business units of the Broker-Dealer
that are not separated from the auction desk by an information barrier
designed
to limit inappropriate dissemination of bidding information.
In
any
particular Auction, if all outstanding Tortoise Notes of a series are
the
subject of Submitted Hold Orders, the Applicable Rate for the next succeeding
Auction Period will be the All Hold Rate (such a situation is called
an “All
Hold Auction”). If the Broker-Dealer holds any Tortoise Notes of a series for
its own account on an Auction Date, it is the Broker-Dealer’s practice to submit
a Sell Order into the Auction with respect to such Tortoise Notes, which
would
prevent that Auction from being an All Hold Auction. The Broker-Dealer
may, but
is not obligated to, submit Bids for its own account in that same Auction,
as
set forth above.
Price
Talk.
Before
the start of an Auction, the Broker-Dealer, in its discretion, may make
available to its customers who are Existing Holders and Potential Holders
the
Broker-Dealer’s good faith judgment of the range of likely clearing rates for
the Auction based on market and other information. This is known as “Price
Talk.” Price Talk is not a guaranty that the Applicable Rate established through
the Auction will be within the Price Talk, and Existing Holders and Potential
Holders are free to use it or ignore it. The Broker-Dealer occasionally
may
update and change the Price Talk based on changes in our credit quality
or
macroeconomic factors that are likely to result in a change in interest
rate
levels, such as an announcement by the Federal Reserve Board of a change
in the
Federal Funds rate or an announcement by the Bureau of Labor Statistics
of
unemployment numbers. Potential Holders should confirm with the Broker-Dealer
the manner by which the Broker-Dealer will communicate Price Talk and
any
changes to Price Talk.
“All-or-Nothing”
Bids.
The
Broker-Dealer will not accept “all-or-nothing” Bids (i.e.,
Bids
whereby the bidder proposes to reject an allocation smaller than the
entire
quantity Bid) or any other type of Bid that allows the bidder to avoid
Auction
Procedures that require the pro rata allocation of Tortoise Notes of
a series
where there are not sufficient Sell Orders to fill all Bids at the Winning
Bid
Rate.
No
Assurances Regarding Auction Outcomes.
The
Broker-Dealer provides no assurance as to the outcome of any Auction.
The
Broker-Dealer also does not provide any assurance that any Bid will
be
successful,
in whole or in part, or that the Auction will clear at a rate that a
bidder
considers acceptable. Bids may be only partially filled, or not filled
at all,
and the Applicable Rate on any Tortoise Notes purchased or retained in
the
Auction may be lower than the market rate for similar investments.
The
Broker-Dealer will not agree before an Auction to buy Tortoise Notes
of any
series from, or sell Tortoise Notes of any series to, a customer after
the
Auction.
Deadlines.
Each
particular Auction has a formal deadline by which all Bids must be submitted
by
the Broker-Dealer to the Auction Agent. This deadline is called the “Submission
Deadline.” To provide sufficient time to process and submit customer Bids to the
Auction Agent before the Submission Deadline, the Broker-Dealer imposes
an
earlier deadline, called the “Internal Submission Deadline,” by which bidders
must submit Bids to the Broker-Dealer. The Internal Submission Deadline
is
subject to change by the Broker-Dealer. Potential Owners should consult
with the
Broker-Dealer as to its Internal Submission Deadline. The Broker-Dealer
may
allow for correction of clerical errors after the Internal Submission
Deadline
and prior to the Submission Deadline. The Broker-Dealer may submit Bids
for its
own account at any time until the Submission Deadline. The Auction Procedures
provide that for a period of up to one hour after the Auction Agent completes
the dissemination of the results of an Auction, new Orders can be submitted
to
the Auction Agent if such Orders were received by the Broker-Dealer or
generated
by the Broker-Dealer for its own account prior to the Submission Deadline
and
the failure to submit such Orders prior to the Submission Deadline was
the
result of force majeure, a technological failure or a clerical error.
In
addition a Broker-Dealer may modify or withdraw an Order submitted to
the
Auction Agent prior the Submission Deadline if the Broker-Dealer determines
that
such Order contained a clerical error. In the event of such a submission,
modification or withdrawal the Auction Agent will rerun the Auction,
if
necessary, taking into account such submission, modification or
withdrawal.
Existing
Holder’s Ability to Resell Auction Rate Securities May Be
Limited.
An
Existing Holder may sell, transfer or dispose of a Tortoise Note of a
series
(i) in an Auction, only pursuant to a Bid or Sell Order in accordance with
the Auction Procedures, or (ii) outside an Auction, only to or through a
Broker-Dealer.
Existing
Holders will be able to sell all of the Tortoise Notes of a series that
are the
subject of their Submitted Sell Orders only if there are bidders willing
to
purchase all those Tortoise Notes in the Auction. If Sufficient Clearing
Bids
have not been made, Existing Holders that have submitted Sell Orders
will not be
able to sell in the Auction all, and may not be able to sell any, of
the
Tortoise Notes of such series subject to such Submitted Sell Orders.
As
discussed above (see “Bidding by Broker-Dealer”), the Broker-Dealer may submit a
Bid in an Auction to avoid an Auction Failure, but it is not obligated
to do so.
There may not always be enough bidders to prevent an Auction Failure
in the
absence of bidding by Broker-Dealer in the Auction for its own account
or
encouraging others to Bid. Therefore, Auction Failures are possible,
especially
if our credit were to deteriorate, if a market disruption were to occur
or if,
for any reason, the Broker-Dealer were unable or unwilling to Bid.
Between
Auctions, there can be no assurance that a secondary market for the Tortoise
Notes of any series will develop or, if it does develop, that it will
provide
Existing Holders the ability to resell the Tortoise Notes of such series
on the
terms or at the times desired by an Existing Holder. The Broker-Dealer,
in its
own discretion, may decide to buy or sell the Tortoise Notes of a series
in the
secondary market for its own account from or to investors at any time
and at any
price, including at prices equivalent to, below, or above par for the
Tortoise
Notes of such series. However, the Broker-Dealer is not obligated to
make a
market in the Tortoise Notes of a series and may discontinue trading
in the
Tortoise Notes of such series without notice for any reason at any time.
Existing Holders who resell between Auctions may receive an amount less
than
par, depending on market conditions.
If
an
Existing Holder purchased a Tortoise Note through a dealer which is not
the
Broker-Dealer for the securities, such Existing Holder’s ability to sell its
security may be affected by the continued ability of its dealer to transact
trades for the Tortoise Notes through the Broker-Dealer.
The
ability to resell the Tortoise Notes of any series will depend on various
factors affecting the market for the Tortoise Notes, including news relating
to
us, the attractiveness of alternative investments, investor demand for
short
term securities, the perceived risk of owning the Tortoise Notes (whether
related to credit, liquidity or any other risk), the tax or accounting
treatment
accorded the Tortoise Notes (including U.S. generally accepted accounting
principles as they apply to the accounting treatment of auction rate
securities), reactions of market participants to regulatory actions (such
as
those described in “Securities and Exchange Commission Settlements” below) or
press reports, financial reporting cycles and market conditions generally.
Demand for the Tortoise Notes may change without warning, and declines
in demand
may be short-lived or continue for longer periods.
Resignation
of the Broker-Dealer Could Impact the Ability to Hold Auctions.
The
Broker-Dealer Agreement provides that the Broker-Dealer thereunder may
resign
upon five days’ notice and does not require, as a condition to the
effectiveness of such resignation, that a replacement Broker-Dealer be
in place.
For any Auction Period during which there is no duly appointed Broker-Dealer,
it
will not be possible to hold Auctions for the Tortoise Notes, with the
result
that the dividend rate on the Tortoise Notes will be determined as described
in
the supplemental indenture.
Securities
and Exchange Commission Settlements.
On
May 31, 2006, the U.S. Securities and Exchange Commission (the “SEC”)
announced that it had settled its investigation of fifteen firms, including
[Broker-Dealer], that participate in the auction rate securities market
regarding their respective practices and procedures in this market. The
SEC
alleged in the settlement that the firms had managed auctions for auction
rate
securities in which they participated in ways that were not adequately
disclosed
or that did not conform to disclosed auction procedures. As part of the
settlement, [Broker-Dealer] agreed to pay a civil penalty. In addition,
[Broker-Dealer], without admitting or denying the SEC’s allegations, agreed to
provide to customers written descriptions of its material auction practices
and
procedures, and to implement procedures reasonably designed to detect
and
prevent any failures by [Broker-Dealer] to conduct the auction process
in
accordance with disclosed procedures. No assurance can be provided as
to how the
settlement may affect the market for auction rate securities or the Tortoise
Notes.
In
addition on January 9, 2007, the SEC announced that it had settled its
investigation of three banks, including [Auction Agent] (the “Settling Auction
Agents”), that participate as auction agents in the auction rate securities
market, regarding their respective practices and procedures in this market.
The
SEC alleged in the settlement that the Settling Auction Agents allowed
broker-dealers in auctions to submit bids or revise bids after the submission
deadlines and allowed broker-dealers to intervene in auctions in ways
that
affected the rates paid on the auction rate securities. As part of the
settlement, the Settling Auction Agents agreed to pay civil penalties.
In
addition, each Settling Auction Agent, without admitting or denying the
SEC’s
allegations, agreed to provide to broker-dealers and issuers written
descriptions of its material auction practices and procedures and to
implement
procedures reasonably designed to detect and prevent any failures by
that
Settling Auction Agent to conduct the auction process in accordance with
disclosed procedures. No assurance can be offered as to how the settlement
may
affect the market for auction rate securities or the Tortoise
Notes.
[TO
BE ADDED BY UNDERWRITERS AT TIME OF OFFERING]
We
are
subject to the informational requirements of the Securities Exchange
Act of
1934, as amended (the “1934 Act”) and the 1940 Act and are required to file
reports, including annual and semi-annual reports, proxy statements and
other
information with the SEC. We voluntarily file quarterly shareholder reports.
Our
most recent shareholder report filed with the SEC is for the period ended
__________, 200__. These documents are available on the SEC’s EDGAR system and
can be inspected and copied for a fee at the SEC’s public reference room, 100 F
Street, N.E., Room 1580, Washington, D.C. 20549. Additional information
about
the operation of the public reference room facilities may be obtained
by calling
the SEC at (202) 551-5850.
This
prospectus supplement and the accompanying prospectus do not contain
all of the
information in our registration statement, including amendments, exhibits,
and
schedules. Statements in this prospectus supplement and the accompanying
prospectus about the contents of any contract or other document are not
necessarily complete and in each instance reference is made to the copy
of the
contract or other document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by this
reference.
Additional
information about us can be found in our Registration Statement (including
amendments, exhibits, and schedules) on Form N-2 filed with the SEC.
The SEC
maintains a web site (http://www.sec.gov) that contains our Registration
Statement, other documents incorporated by reference, and other information
we
have filed electronically with the SEC, including proxy statements and
reports
filed under the Exchange Act.
LEGAL
MATTERS
Blackwell
Sanders Peper Martin, L.L.P. (“Blackwell”), Kansas City, Missouri, serves as our
counsel. Vedder, Price, Kaufman & Kammholz, P.C. (“Vedder Price”),
Chicago, Illinois, is serving as our special counsel in connection with
the
offering under this prospectus supplement and accompanying prospectus.
Certain
legal matters in connection with the securities offered hereby will be
passed
upon for us by Vedder Price. Vedder Price may rely on the opinion of
Venable
LLP, Baltimore, Maryland, on certain matters of Maryland law.
Morrison & Foerster LLP, New York, New York, is serving as counsel to
the underwriters.
F-1
$_________
Tortoise
Energy
Infrastructure
Corporation
Auction
Rate Senior Notes (“Tortoise Notes”)
$_________
Series __ Due ________, 20__
____________________
PROSPECTUS
SUPPLEMENT
________,
20__
____________________
[Underwriter]
The
information in this prospectus supplement, which relates to an effective
Registration Statement under the Securities Act of 1933, is not complete
and may
be changed. We may not sell these securities until we deliver a final
prospectus
supplement. This prospectus supplement and the attached prospectus
do not
constitute an offer to sell these securities or a solicitation of an
offer to
buy these securities in any jurisdiction where the offer or sale is
not
permitted.
SUBJECT
TO COMPLETION, DATED _________ __, 2007
FORM
OF
PROSPECTUS SUPPLEMENT
(To
prospectus dated ________, 2007)
$___________
Tortoise
Energy Infrastructure Corporation
_______
Series __ Money Market Cumulative Preferred (MMP®)
Shares
Liquidation
Preference $_______ per share
_______________
Tortoise
Energy Infrastructure Corporation (the “Company,” “we”, “us” or “our”) is a
nondiversified, closed-end management investment company. Our investment
objective is to seek a high level of total return with an emphasis
on current
distributions to stockholders.
We
are
offering an additional series (“Series __”) of our auction rate preferred stock
(referred to as “Money Market Cumulative Preferred Shares” or “MMP Shares”) in
this prospectus supplement. This prospectus supplement is not complete
and
should be read in conjunction with our prospectus dated __________,
20__ (the
“prospectus”), which accompanies this prospectus supplement. This prospectus
supplement does not include all information that you should consider
before
purchasing any MMP Shares. You should read this prospectus supplement
and our
prospectus prior to purchasing any MMP Shares.
The
Series __ MMP Shares offered in this prospectus supplement, together
with the
previously issued and currently outstanding MMP Shares, are collectively
referred to as “MMP Shares.” Individual series of MMP Shares are referred to as
a “series.” Except as otherwise described in this prospectus supplement, the
terms of this series and all other series are the same. Capitalized
terms used
but not defined in this prospectus supplement shall have the meanings
given to
such terms in Appendix B to the statement of additional information,
which is
available from us upon request.
Investors
in MMP Shares will be entitled to receive cash dividends at an annual
rate that
may vary for each dividend period. The dividend rate for the initial
period for
Series __ from and including the issue date through __________, 20__
will be
____% per year. For each subsequent dividend period, the dividend rate
will be
determined by an auction conducted in accordance with the procedures
described
in this prospectus supplement, and in additional detail in Appendix
B to the
statement of additional information. Generally, following the initial
dividend
period, each dividend period will be _____________ (__) days.
MMP
Shares will not be listed on any exchange or automated quotation system.
Generally, you may only buy and sell MMP Shares through an order placed
at an
auction with or through a broker-dealer that has entered into an agreement
with
the auction agent or in a secondary market that those broker-dealers
may
maintain. These broker-dealers are not required to maintain a market
in MMP
Shares, and a secondary market, if one develops, may not provide investors
with
liquidity. See “The Auction—Certain Considerations Affecting Auction Rate
Securities-Existing Holder’s Ability to Resell Auction Rate Securities
May Be Limited.”
(continued
on next page)
_______________
Investing
in MMP Shares involves certain risks. See “Risk Factors” beginning on
page __ of the prospectus and “The Auction--Auction Risk” beginning on
page __ of this prospectus supplement.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
supplement is truthful or complete. Any representation to the contrary
is a
criminal offense.
_______________
|
Per
Share
|
Total
|
|
|
Public
offering price
|
$
|
$
|
|
Sales
load
|
$
|
$
|
|
Proceeds
to us (before expenses)(1)
|
$
|
$
|
_____________
|
(1)
|
Does
not include offering expenses payable by us estimated to
be
$_______.
|
The
underwriters expect to deliver the Series __ MMP Shares in book-entry
form,
through the facilities of The Depository Trust Company, to broker-dealers
on or
about ___________, 20__.
_______________
[UNDERWRITER(S)]
_____________,
20__
This
offering is conditioned upon the Series __ MMP Shares receiving a rating
of
“Aa2” from Moody’s and “AA” from Fitch.
The
prospectus supplement has been filed with the Securities and Exchange
Commission
(the “SEC”). Additional copies of this prospectus supplement, the prospectus
or
the statement of additional information dated _________, as supplemented
from
time to time, are available by calling (___) ___ ____ or by writing to us,
or you may obtain copies (and other information regarding us) from
the SEC’s web
site (http://www.sec.gov). You also may e-mail requests for these documents
to
the SEC at publicinfo@sec.gov or make a request in writing to the SEC’s Public
Reference Section, 100 F Street, N.E., Room 1580, Washington, D.C.
20549.
This
prospectus supplement, which describes the specific terms of this offering,
also
adds to and updates information contained in the accompanying prospectus
and the
documents incorporated by reference in the prospectus. The prospectus
gives more
general information, some of which may not apply to this offering.
If
the
description of this offering varies between this prospectus supplement
and the
accompanying prospectus, you should rely on the information contained
in this
prospectus supplement; provided that if any statement in one of these
documents
is inconsistent with a statement in another document having a later
date, the
statement in the document having the later date modifies or supersedes
the
earlier statement.
The
MMP
Shares do not represent a deposit or obligation of, and are not guaranteed
or
endorsed by, any bank or other insured depository institution, and
are not
federally insured by the Federal Deposit Insurance Corporation, the
Federal
Reserve Board or any other government agency.
Page
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S-18
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S-18
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S-18
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F-1
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Prospectus
|
Prospectus
Summary
|
1
|
|
Summary
of Company Expenses
|
9
|
|
Financial
Highlights
|
11
|
|
Senior
Securities
|
13
|
|
Market
and Net Asset Value Information
|
13
|
|
Use
of Proceeds
|
15
|
|
The
Company
|
16
|
|
Investment
Objective and Principal Investment Strategies
|
16
|
|
Leverage
|
26
|
|
Risk
Factors
|
28
|
|
Management
of the Company
|
39
|
|
Closed-End
Company Structure
|
42
|
|
Certain
Federal Income Tax Matters
|
42
|
|
Determination
of Net Asset Value
|
48
|
|
Automatic
Dividend Reinvestment and Cash Purchase Plan
|
49
|
|
Description
of Securities
|
52
|
|
Rating
Agency Guidelines
|
61
|
|
Certain
Provisions in the Company’s Charter and Bylaws
|
63
|
|
Selling
Stockholders
|
64
|
|
Plan
of Distribution
|
64
|
|
Administrator
and Custodian
|
67
|
|
Legal
Matters
|
68
|
|
Available
Information
|
69
|
|
Table
of Contents of the Statement of Additional Information
|
70
|
___________________________
You
should rely only on the information contained in or incorporated by
reference in
this prospectus supplement. Neither we nor the underwriters have authorized
anyone to provide you with different or inconsistent information. If
anyone
provides you with different or inconsistent information, you should
not rely on
it. We are not, and the underwriters are not, making an offer to sell
these
Series __ MMP Shares in any jurisdiction where the offer or sale is
not
permitted. You should assume that the information in this prospectus
supplement
is accurate only as of the date of this prospectus supplement, and
that our
business, financial condition and prospects may have changed since
this date. We
will amend or supplement this prospectus supplement to reflect material
changes
to the information contained in this prospectus supplement to the extent
required by applicable law.
i
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus supplement, the accompanying prospectus and the statement
of
additional information contain “forward-looking statements.” Forward-looking
statements can be identified by the words “may,” “will,” “intend,” “expect,”
“estimate,” “continue,” “plan,” “anticipate,” and similar terms and the negative
of such terms. Such forward-looking statements may be contained in
this
prospectus supplement, as well as in the accompanying prospectus. 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
our
actual results are the performance of the portfolio of securities we
hold, the
conditions in the U.S. and international financial, petroleum and other
markets,
the price at which our shares will trade in the public markets and
other factors
discussed in our periodic filings with the SEC.
Although
we believe that the expectations expressed in our forward-looking statements
are
reasonable, actual results could differ materially from those projected
or
assumed in our forward-looking statements. Our future financial condition
and
results of operations, as well as any forward-looking statements, are
subject to
change and are subject to inherent risks and uncertainties, such as
those
disclosed in the “Risk Factors” section of the prospectus accompanying this
prospectus supplement. All forward-looking statements contained or
incorporated
by reference in this prospectus supplement or the accompanying prospectus
are
made as of the date of this prospectus supplement or the accompanying
prospectus, as the case may be. Except for our ongoing obligations
under the
federal securities laws, we do not intend, and we undertake no obligation,
to
update any forward-looking statement.
Currently
known risk factors that could cause actual results to differ materially
from our
expectations include, but are not limited to, the factors described
in the “Risk
Factors” section of the prospectus accompanying this prospectus supplement as
well as in “Auction Risk” and “Existing Holder’s Ability to Resell Auction Rate
Securities May Be Limited” in “The Auction” section of this prospectus
supplement. We urge you to review carefully those sections for a more
detailed
discussion of the risks of an investment in the MMP Shares.
This
summary contains basic information about us but does not contain all
of the
information that is important to your investment decision. You should
read this
summary together with the more detailed information contained elsewhere
in this
prospectus supplement and accompanying prospectus and in the statement
of
additional information, especially the information set forth under
the heading
“Risk Factors” beginning on page __ of the accompanying prospectus.
The
Company
We
seek
to provide our stockholders with an efficient vehicle to invest in
a portfolio
of publicly traded master limited partnerships (“MLPs”) in the energy
infrastructure sector. Our investment objective is to seek a high level
of total
return with an emphasis on current distributions paid to stockholders.
For
purposes of our investment objective, total return includes capital
appreciation
of, and all distributions received from, securities in which we invest
regardless of the tax character of the distributions. Similar to the
tax
characterization of distributions made by MLPs to unitholders, a significant
portion of our distributions to stockholders have been and are expected
to
continue to be treated as a return of capital to stockholders.
We
are a
nondiversified, closed-end management investment company. We commenced
operations in February 2004 following our initial public offering. We were
the first publicly traded investment company offering access to a portfolio
of
MLPs. Since that time, we completed three additional offerings of common
stock
in December 2004, August 2006 and December 2006. As of the date
of this prospectus supplement, we have two series of Money Market Cumulative
Preferred (MMP®)
Shares
(“MMP Shares”) and [three] series of Auction Rate Senior Notes (“Tortoise
Notes”) outstanding. We may borrow from time to time using our unsecured
credit
facility. We have a fiscal year ending November 30.
Investment
Adviser
Tortoise
Capital Advisors, L.L.C. (the “Adviser”) serves as our investment adviser. The
Adviser specializes in managing portfolios of investments in MLPs and
other
energy infrastructure companies. The Adviser was formed in October 2002 to
provide portfolio management services to institutional and high-net-worth
investors seeking professional management of their MLP investments.
As of
___________ __, ____, the Adviser had approximately $____ billion of
client
assets under management. The Adviser’s investment committee is comprised of five
portfolio managers. See “Management of the Company” in the accompanying
prospectus.
The
Adviser also serves as the investment adviser to Tortoise Energy Capital
Corporation (“TYY”) and Tortoise North American Energy Corporation (“TYN”),
which are also publicly traded, closed-end management investment companies.
TYY,
which commenced operations on May 31, 2005, invests primarily in equity
securities of MLPs and their affiliates in the energy infrastructure
sector.
TYN, which commenced operations on October 31, 2005, invests primarily in
equity securities of companies in the energy sector whose primary operations
are
in North America. The Adviser also serves as the investment adviser
to Tortoise
Capital Resources Corporation (“TTO”), a non-diversified closed-end management
investment company that has elected to be regulated as a business development
company (a “BDC”) under the Investment Company Act of 1940 (the “1940 Act”).
TTO, which commenced operations on December 8, 2005, invests primarily in
privately held and micro-cap public energy companies operating in the
midstream
and downstream segments, and to a lesser extent the upstream
segment.
The
principal business address of the Adviser is 10801 Mastin Boulevard,
Suite 222,
Overland Park, Kansas 66210.
|
MMP
Shares offered by the Company
|
_______
Series ___ MMP Shares, $________ liquidation preference
per share
($_______ aggregate liquidation preference). The Series
__ MMP Shares are
being offered by _______________ and __________, as underwriters.
See
“Underwriting.”
|
|
|
Use
of proceeds
|
We
estimate that our net proceeds from this offering will
be approximately
$__ million. We intend to use these net proceeds to:
|
|
|
·
|
retire
short-term debt of approximately $__ million; and
|
|
|
·
|
fund
investments in energy infrastructure companies in accordance
with our
investment objective and policies and for temporary working
capital
needs.
|
|
|
Auction
Agent
|
The
Bank of New York
|
|
|
Broker
Dealer(s)
|
[Broker-Dealer(s)]
|
|
|
Risk
factors
|
See
“Risk Factors” and other information included in the accompanying
prospectus, as well as “Auction Risk” and “Existing Holder’s Ability to
Resell Auction Rate Securities May Be Limited” under “The Auction” in
this prospectus supplement, for a discussion of factors
you should
carefully consider before deciding to invest in the MMP
Shares.
|
|
The
net
proceeds of the offering of Series __ MMP Shares will be approximately
$_________, after payment of the underwriters’ discounts and commissions and
estimated offering costs.
We
intend
to use a portion of the net proceeds of this offering to retire short-term
debt
of approximately $__ million under our unsecured credit facility. Outstanding
balances under the credit facility accrue interest at a variable annual
rate
equal to the one-month LIBOR rate plus .75%. As of the date of this
prospectus
supplement, the current rate is __%. The credit facility remains in
effect
through _______, 200__, and we may draw on the facility from time to
time in
accordance with our investment policies. We will use the remaining net
proceeds of this offering to fund investments in accordance with our
investment
objective and policies as described under “Investment Objective and Principal
Investment Strategies” in the accompanying prospectus and for temporary working
capital needs. We expect to be fully invested within approximately
three months of receipt of such proceeds. Pending such investment,
we anticipate
that we will invest the proceeds in securities issued by the U.S. government
or
its agencies or instrumentalities or in high quality, short-term or
long-term
debt obligations.
The
following table sets forth our capitalization as of _____________,
20__, and as
adjusted to give effect to the issuance of the Series __ MMP Shares
offered
hereby. As indicated below, common stockholders will bear the offering
costs
associated with this offering.
|
Actual
|
As
Adjusted
|
||||||
|
(Unaudited)
|
|||||||
|
Short-Term
Debt:
|
|||||||
|
Unsecured
credit facility: $__________ available
|
|||||||
|
Long-Term
Debt:
|
|||||||
|
Tortoise
Notes, denominations of $25,000 or any multiple thereof1
|
$
|
_________
|
$
|
||||
|
Preferred
Stock:
|
|||||||
|
MMP
Shares, $.001 par value per share, $_______ stated value
per share at
liquidation; 10,000,000 shares authorized; _____ shares
issued and ______
shares issued, as adjusted, respectively1
|
$
|
_________
|
$
|
||||
|
Common
Stockholders’ Equity:
|
|||||||
|
Common
Stock, $.001 par value per share; 100,000,000 shares authorized;
_______
shares issued and outstanding1
|
$
|
$
|
2
|
||||
|
Additional
paid-in capital
|
$ |
$
|
|
||||
|
Accumulated
net investment loss, net of deferred tax benefit
|
$
|
$
|
|||||
|
Undistributed
net realized gain, net of deferred tax expense
|
$
|
$
|
|
||||
|
Net
unrealized gain on investments and interest rate swap contracts,
net of
deferred tax expense
|
$
|
$
|
|||||
|
Net
assets applicable to common stock
|
$
|
$
|
|
||||
___________
|
1
|
None
of these outstanding shares/notes are held by us or for our
account.
|
|
2
|
As
adjusted, additional paid-in capital reflects the proceeds
of the issuance
of the MMP Shares offered hereby ($___________) less $0.001
par value per
share ($_______) and less the estimated offering costs related
to the MMP
Shares offered hereby in the amount of
$________.
|
The
1940
Act and each Rating Agency imposes asset coverage requirements which
may limit
our ability to engage in certain types of transactions and may limit
our ability
to take certain actions without confirming with each Rating Agency
that such
action will not impair the ratings.
We
are
required to satisfy two separate asset maintenance requirements with
respect to
outstanding MMP Shares: (1) we must maintain assets in our portfolio that
have a value, discounted in accordance with guidelines set forth by
each Rating
Agency, at least equal to 115% of the aggregate liquidation preference
of the
MMP Shares plus specified liabilities, payment obligations and other
amounts
(the “MMP Shares Basic Maintenance Amount”); and (2) we must satisfy the
1940 Act asset coverage requirements (the “1940 Act MMP Shares Asset
Coverage”).
The
MMP
Shares Basic Maintenance Amount is defined in the Rating Agency Guidelines.
Each
Rating Agency may amend the definition of MMP Shares Basic Maintenance
Amount
from time to time.
With
respect to the 1940 Act MMP Shares Asset Coverage requirement, we are
required
to maintain, with respect to outstanding MMP Shares, asset coverage
of at least
200%. We estimate that based on the composition of our portfolio as
of _______,
20__, assuming the issuance of all Series __ MMP Shares offered hereby,
and
giving effect to the deduction of the sales load and estimated offering
costs
related thereto estimated at $_____________, the 1940 Act MMP Shares
Asset
Coverage would be:
|
Value
of Company assets less all liabilities and
indebtedness
not represented by senior securities
|
=
|
$
|
=
|
___%
|
|
Senior
securities representing indebtedness, plus aggregate liquidation
preference of MMP Shares
|
$
|
A
copy of
the current Rating Agency Guidelines will be provided to any holder
of MMP
Shares promptly upon written request by such holder to the Company
at 10801
Mastin Boulevard, Suite 222, Overland Park, Kansas 66210. See “Rating Agency
Guidelines” in the accompanying prospectus for a more detailed description of
our asset maintenance requirements.
The
following is a brief description of the terms of the MMP Shares. This
description does not purport to be complete and is subject to and qualified
in
its entirety by reference to the more detailed description of the Money
Market
Cumulative Preferred Shares in the Articles Supplementary, a form of
which is
attached as Appendix B to the statement of additional information.
Capitalized
terms not otherwise defined in this prospectus supplement shall have
the same
meaning as defined in Appendix B to the statement of additional
information.
General
Our
Charter authorizes the issuance of up to 10,000,000 shares of preferred
stock,
par value $0.001 per share, with preferences, conversion or other rights,
voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption as determined
by the Board
of Directors without the approval of common stockholders. In addition,
the Board
of Directors, without any action by our stockholders, may amend our
Charter to
increase or decrease the aggregate number of shares of stock or the
number of
shares of any class or series of stock that we have authority to issue.
The MMP
Shares have a liquidation preference of $25,000 per share, plus all
accumulated
but unpaid dividends (whether or not earned or declared) to the date
of final
distribution.
The
Series __ MMP Shares when issued and sold through this offering (1) will be
fully paid and non-assessable, (2) will not be convertible into shares of
our common stock or other stock, (3) will have no preemptive rights, and
(4) will not be subject to any sinking fund. The MMP Shares will be subject
to optional and mandatory redemption as described below under
“—Redemption.”
Holders
of MMP Shares will not receive certificates representing their ownership
interest in such shares. The Depository Trust Company (“DTC”) will initially act
as Securities Depository for the Agent Members with respect to the
MMP
Shares.
In
addition to serving as the Auction Agent in connection with the Auction
Procedures described below, the Auction Agent will act as the transfer
agent,
registrar, and paying agent for the MMP Shares. Furthermore, the Auction
Agent
will send notices to holders of MMP Shares of any meeting at which
holders of
MMP Shares have the right to vote. See “Description of Securities—Preferred
Stock—Voting Rights” in the prospectus. However, the Auction Agent generally
will serve merely as our agent, acting in accordance with our
instructions.
Except
in
an Auction, we will have the right (to the extent permitted by applicable
law)
to purchase or otherwise acquire any MMP Share, so long as we are current
in the
payment of dividends on the MMP Shares and on any of our other shares
ranking on
a parity with the MMP Shares with respect to the payment of dividends
or upon
liquidation.
Dividends
and Dividend Periods
General.
Holders
of MMP Shares will be entitled to receive cash dividends, when, as
and if
authorized by the Board of Directors and declared by us, out of funds
legally
available therefor, on the initial Dividend Payment Date with respect
to the
initial Dividend Period and, thereafter, on each Dividend Payment Date
with
respect to a subsequent Dividend Period (generally a period of __________
(__)
days, subject to certain exceptions) at the rate per annum equal to
the
Applicable Rate for each Dividend Period. Dividends so declared and
payable
shall be paid to the extent permitted under Maryland law and to the
extent
available and in preference to and priority over any distribution declared
and
payable on our common stock. Dividends shall be treated for federal
income tax
purposes as payable from our earnings and profits allocable to the
MMP Shares.
Because of our emphasis on investments in MLPs, there is a possibility
that
dividends on MMP Shares may not be derived entirely from earnings and
profits.
In such a case, dividends would be paid from cash flow in excess of
such
earnings and profits and would be treated as return of capital, to
the extent of
an investor’s adjusted tax basis in the MMP Shares, and thereafter as capital
gain. See “Certain Federal Income Tax Matters” in the prospectus.
On
the
Business Day next preceding each Dividend Payment Date, we are required
to
deposit with the Paying Agent sufficient funds for the payment of dividends.
We
do not intend to establish any reserves for the payment of
dividends.
All
moneys paid to the Paying Agent for the payment of dividends shall
be held in
trust for the payment of such dividends to each Holder. Each dividend
will be
paid by the Paying Agent to the Holders as their names appear on our
share
ledger or share records, which Holder(s) is expected to be the nominee
of the
Securities Depository. The Securities Depository will credit the accounts
of the
Agent Members of the Beneficial Owners in accordance with the Securities
Depository’s normal procedures. The Securities Depository’s current procedures
provide for it to distribute dividends in same-day funds to Agent Members
who
are in turn expected to distribute such dividends to the persons for
whom they
are acting as agents. The Agent Member of a Beneficial Owner will be
responsible
for holding or disbursing such payments on the applicable Dividend
Payment Date
to such Beneficial Owner in accordance with the instructions of such
beneficial
owner.
Dividends
in arrears for any past Dividend Period may be declared and paid at
any time,
without reference to any regular Dividend Payment Date, to the Holder(s)
as its
name appears on our share ledger or share records on such date, not
exceeding
fifteen (15) days preceding the payment date thereof, as may be fixed
by the
Board of Directors. Any dividend payment shall first be credited against
the
earliest accumulated but unpaid dividends. No interest will be payable
in
respect of any dividend payment or payments which may be in arrears.
See
“—Default Period” below.
The
amount of dividends per share payable (if declared) on each Dividend
Payment
Date of each Dividend Period (or in respect of dividends on another
date in
connection with a redemption during such Dividend Period) shall be
computed by
multiplying the Applicable Rate (or the Default Rate) for such Dividend
Period
(or a portion thereof) by a fraction, the numerator of which will be
the number
of days in such Dividend Period (or portion thereof) that such share
was
outstanding and for which the Applicable Rate or the Default Rate was
applicable
and the denominator of which will be 360, multiplying the amount so
obtained by
$25,000 per share, and rounding the amount so obtained to the nearest
cent.
Determination
of Dividend Rate.
The
dividend rate for the initial Dividend Period (i.e., the period from
and
including the Original Issue Date to and including the initial Auction
Date) and
the initial Auction Date are set forth on the cover page of this prospectus
supplement. For each subsequent Dividend Period, subject to certain
exceptions,
the dividend rate will be the Applicable Rate that the Auction Agent
advises us
has resulted from an Auction.
The
initial Dividend Period for the Series __ MMP Shares shall be __________
(__)
days. Dividend Periods after the initial Dividend Period shall either
be
Standard Dividend Periods or, subject to certain conditions and with
notice to
Holders, Special Dividend Periods.
A
Special
Dividend Period will not be effective unless, among other things, Sufficient
Clearing Bids exist at the Auction in respect of such Special Dividend
Period
(that is, in general, the number of shares subject to Buy Orders by
Potential
Holders is at least equal to the number of shares subject to Sell Orders
by
Existing Holders).
Dividends
will accumulate at the Applicable Rate from the Original Issue Date
and shall be
payable on each subsequent Dividend Payment Date. For Dividend Periods
of less
than 30 days, Dividend Payment Dates shall occur on the first Business
Day
following the last day of such Dividend Period and, if greater than
30 days,
then on a monthly basis on the first Business Day of each month within
such
Dividend Period and on the Business Day following the last day of such
Dividend
Period. Dividends will be paid through the Securities Depository on
each
Dividend Payment Date.
Except
during a Default Period as described below, the Applicable Rate resulting
from
an Auction will not be greater than the Maximum Rate, which is equal
to the
Applicable Percentage of the Reference Rate, subject to upward but
not downward
adjustment in the discretion of the Board of Directors after consultation
with
the Broker-Dealers. The Applicable Percentage will be determined based
on the
lower of the credit ratings assigned on that date to that series of
MMP Shares
by Moody’s and Fitch, as follows:
|
Moody’s
Credit
Rating
|
Fitch
Credit
Rating
|
Applicable
Percentage
|
The
Reference Rate is the greater of (1) the applicable AA Composite Commercial
Paper Rate (for a Dividend Period of fewer than 184 days) or the applicable
Treasury Index Rate (for a Dividend Period of 184 days or more), or
(2) the
applicable LIBOR. For Standard Dividend Periods or less only, the Applicable
Rate resulting from an Auction will not be less than the Minimum Rate,
which is
70% of the applicable AA Composite Commercial Paper Rate. No Minimum
Rate is
specified for Auctions with respect to Dividend Periods of more than
the
Standard Dividend Period.
The
Maximum Rate for the MMP Shares will apply automatically following
an Auction
for such shares in which Sufficient Clearing Bids have not been made
(other than
because all shares of MMP Shares were subject to Submitted Hold Orders).
If an
Auction for any Dividend Period is not held for any reason, including
because
there is no Auction Agent or Broker-Dealer, then the Applicable Rate
on the MMP
Shares for any such Dividend Period shall be the Maximum Rate (except
for
circumstances in which the Dividend Rate is the Default Rate, as described
below).
The
All
Hold Rate will apply automatically following an Auction in which all
of the
outstanding shares are subject to (or are deemed to be subject to)
Submitted
Hold Orders. The All Hold Rate is 80% of the applicable AA Composite
Commercial
Paper Rate.
Prior
to
each Auction, Broker-Dealers will notify Holders of the term of the
next
succeeding Dividend Period as soon as practicable after the Broker-Dealers
have
been so advised by us. After each Auction, on the Auction Date, Broker-Dealers
will notify Holders of the Applicable Rate for the next succeeding
Dividend
Period and of the Auction Date of the next succeeding Auction.
Designation
of Dividend Period.
We will
designate the duration of Dividend Periods of MMP Shares; provided,
however,
that no such designation is necessary for a Standard Dividend Period
and that
any designation of a Special Dividend Period shall be effective only
if
(1) notice thereof shall have been given as provided herein, (2) any
failure to pay in the timely manner to the Auction Agent the full amount
of any
dividend on, or the redemption price of, MMP Shares shall have been
cured as set
forth under “—Default Period,” (3) Sufficient Clearing Bids shall have
existed in an Auction held on the Auction Date immediately preceding
the first
day of such proposed Special Dividend Period, (4) if we shall have mailed a
notice of redemption with respect to any shares, as described under
“—Redemption” below, the Redemption Price with respect to such shares shall have
been deposited with the Paying Agent, and (5) in the case of the
designation of a Special Dividend Period, we have confirmed that, as
of the
Auction Date next preceding the first day of such Special Dividend
Period, we
have Eligible Assets with an aggregate Discounted Value at least equal
to the
MMP Shares Basic Maintenance Amount (as defined above) and have consulted
with
the Broker-Dealers and has provided notice and a MMP Shares Basic Maintenance
Report to each Rating Agency which is then rating the MMP Shares and
so
requires.
Designation
of a Special Dividend Period.
If we
propose to designate any Special Dividend Period, not fewer than seven
(or two
Business Days in the event the duration of the Dividend Period prior
to such
Special Dividend Period is fewer than eight days) nor more than thirty
(30)
Business Days prior to the first day of such Special Dividend Period,
notice
shall be (1) made by press release and (2) communicated by us by
telephonic or other means to the Auction Agent and confirmed in writing
promptly
thereafter. Each such notice shall state (A) that we propose to exercise
our option to designate a succeeding Special Dividend Period, specifying
the
first and last days thereof and (B) that we will, by 3:00 p.m. New
York City time, on the second Business Day next preceding the first
day of such
Special Dividend Period, notify the Auction Agent, who will promptly
notify the
Broker-Dealers, of either (x) our determination, subject to certain
conditions, to proceed with such Special Dividend Period, subject to
the terms
of any Specific Redemption Provisions, or (y) our determination not to
proceed with such Special Dividend Period in which latter event the
succeeding
Dividend Period shall be a Standard Dividend Period.
No
later
than 3:00 p.m., New York City time, on the second Business Day next
preceding the first day of any proposed Special Dividend Period, the
Company
will deliver to the Auction Agent, who will promptly deliver to the
Broker-Dealers and Existing Holders, either:
(1)
a
notice
stating (A) that we have determined to designate the next succeeding
Dividend Period as a Special Dividend Period, specifying the first
and last days
thereof and (B) the terms of any Specific Redemption Provisions;
or
(2)
a
notice
stating that we have determined not to exercise our option to designate
a
Special Dividend Period.
If
we
fail to deliver either such notice with respect to any designation
of any
proposed Special Dividend Period to the Auction Agent or are unable
to make the
confirmation described above by 3:00 p.m., New York City time, on the
second Business Day next preceding the first day of such proposed Special
Dividend Period, we shall be deemed to have delivered a notice to the
Auction
Agent with respect to such Dividend Period to the effect set forth
in clause (2)
above, thereby resulting in a Standard Dividend Period.
Default
Period.
Subject
to cure provisions, a “Default Period” with respect to the MMP Shares will
commence on any date on which, when required to do so, we fail to deposit
irrevocably in trust in same-day funds, with the Paying Agent by 12:00
noon, New
York City time, (A) the full amount of any declared dividend payable on the
Dividend Payment Date (a “Dividend Default”) or (B) the full amount of any
redemption price (the “Redemption Price”) payable on the date fixed for
redemption (the “Redemption Date”) (a “Redemption Default”, and together with a
Dividend Default, hereinafter referred to as “Default”).
Subject
to cure provisions, a Default Period with respect to a Dividend Default
or a
Redemption Default shall end on the Business Day on which, by 12:00
noon, New
York City time, all unpaid dividends and any unpaid Redemption Price,
respectively, shall have been deposited irrevocably in trust in same-day
funds
with the Paying Agent. In the case of a Dividend Default, the Applicable
Rate
for each Dividend Period commencing during a Default Period will be
equal to the
Default Rate, and each subsequent Dividend Period commencing after
the beginning
of a Default Period shall be a Standard Dividend Period; provided,
however, that
the commencement of a Default Period will not by itself cause the commencement
of a new Dividend Period.
No
Auction shall be held during a Default Period. No Default Period with
respect to
a Dividend Default or Redemption Default shall be deemed to commence
if the
amount of any dividend or any Redemption Price due (if such default
is not
solely due to our willful failure) is deposited irrevocably in trust,
in
same-day funds with the Paying Agent by 12:00 noon, New York City time
within
three Business Days after the applicable Dividend Payment Date or Redemption
Date, together with an amount equal to the Default Rate applied to
the amount of
such non-payment based on the actual number of days comprising such
period
divided by 360. The Default Rate shall be equal to the Reference Rate
multiplied
by three.
Redemption
Optional
Redemption.
To the
extent permitted under the 1940 Act and Maryland law, we may, at our
option,
redeem MMP Shares having a Dividend Period of one year or less, in
whole or in
part, out of funds legally available therefor, on any Dividend Payment
Date upon
not less than 15 calendar days and not more than 40 calendar days,
prior notice.
This optional redemption is not available during the initial Dividend
Period or
during other limited circumstances. The optional redemption price per
share
shall be $25,000 per share, plus an amount equal to accumulated but
unpaid
dividends thereon (whether or not
earned
or
declared) to the date fixed for redemption. MMP Shares having a Dividend
Period
of more than one year are redeemable at our option, in whole or in
part, out of
funds legally available therefor, prior to the end of the relevant
Dividend
Period, upon not less than 15 calendar days and not more than 40 calendar
days,
prior notice, subject to any Specific Redemption Provisions, which
may include
the payment of redemption premiums in the sole discretion of the Board
of
Directors. We shall not effect any optional redemption unless after
giving
effect thereto (1) we have available certain Deposit Securities with
maturity or tender dates not later than the day preceding the applicable
redemption date and having a value not less than the amount (including
any
applicable premium) due to Holders of MMP Shares by reason of the redemption
of
MMP Shares on such date fixed for the redemption, and (2) we would have
Eligible Assets with an aggregate Discounted Value at least equal to
the MMP
Shares Basic Maintenance Amount.
We
also
reserve the right to repurchase MMP Shares in market or other transactions
from
time to time in accordance with applicable law and at a price that
may be more
or less than the liquidation preference of the MMP Shares, but are
under no
obligation to do so.
Mandatory
Redemption.
If we
fail to maintain Eligible Assets with an aggregate Discounted Value
at least
equal to the MMP Shares Basic Maintenance Amount as of any Valuation
Date or the
1940 Act MMP Shares Asset Coverage as of the last Business Day of any
month, and
such failure is not cured within ten Business Days following such Valuation
Date
in the case of a failure to maintain the MMP Shares Basic Maintenance
Amount or
by the last Business Day of the following month in the case of a failure
to
maintain the 1940 Act MMP Shares Asset Coverage (each an “Asset Coverage Cure
Date”), the MMP Shares will be subject to mandatory redemption out of funds
legally available therefor. See “Rating Agency Guidelines” in the accompanying
prospectus. The number of MMP Shares to be redeemed under these circumstances
will be equal to the lesser of (1) the minimum number of MMP Shares the
redemption of which, if deemed to have occurred immediately prior to
the opening
of business on the relevant Asset Coverage Cure Date, would result
in our having
sufficient Eligible Assets to restore the MMP Shares Basic Maintenance
Amount or
sufficient to satisfy the 1940 Act MMP Shares Asset Coverage, as the
case may
be, in either case as of the relevant Asset Coverage Cure Date (provided
that,
if there is no such minimum number of shares the redemption of which
would have
such result, all MMP Shares then outstanding will be redeemed), and
(2) the
maximum number of MMP Shares that can be redeemed out of funds expected
to be
available therefor on the Mandatory Redemption Date (as defined below)
at the
Mandatory Redemption Price (as defined below).
We
shall
allocate the number of shares required to be redeemed to satisfy the
MMP Shares
Basic Maintenance Amount or the 1940 Act MMP Shares Asset Coverage,
as the case
may be, pro rata among the Holders of MMP Shares in proportion to the
number of
shares they hold, by lot or by such other method as we shall deem fair
and
equitable, subject to any mandatory redemption provisions.
We
are
required to effect such a mandatory redemption not later than 40 days
after the
Asset Coverage Cure Date (the “Mandatory Redemption Date”), except that if we do
not have funds legally available for the redemption of, or is not otherwise
legally permitted to redeem, all of the required number of MMP Shares
that are
subject to mandatory redemption, or we otherwise are unable to effect
such
redemption on or prior to such Mandatory Redemption Date, we will redeem
those
MMP Shares on the earliest practicable date on which we will have such
funds
available, upon notice to record owners of shares of MMP Shares and
the Paying
Agent. Our ability to make a mandatory redemption may be limited by
the
provisions of the 1940 Act or Maryland law.
The
redemption price per share in the event of any mandatory redemption
will be
$25,000 per share, plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared) to the date fixed for redemption,
plus (in
the case of a Dividend Period of more than one year only) a
redemption
premium, if any, determined by the Board of Directors in its sole discretion
after consultation with the Broker-Dealers and set forth in any applicable
Specific Redemption Provisions (the “Mandatory Redemption Price”).
Redemption
Procedure.
Pursuant to Rule 23c-2 under the 1940 Act, we will file a notice of
our
intention to redeem with the SEC so as to provide at least the minimum
notice
required by such Rule or any successor provision (notice currently
must be filed
with the SEC generally at least 30 days prior to the redemption date).
We shall
deliver a notice of redemption to the Auction Agent containing the
information
described below one Business Day prior to the giving of notice to Holders
in the
case of an optional redemption and on or prior to the 30th day preceding
the
Mandatory Redemption Date in the case of a mandatory redemption. The
Auction
Agent will use its reasonable efforts to provide notice to each Holder
of MMP
Shares called for redemption by electronic means not later than the
close of
business on the Business Day immediately following the day on which
the Auction
Agent determines the shares to be redeemed (or, during a Default Period
with
respect to such shares, not later than the close of business on the
Business Day
immediately following the day on which the Auction Agent receives notice
of
redemption from us). Such notice will be confirmed promptly in writing
not later
than the close of business on the third Business Day preceding the
redemption
date by providing the notice to each Holder of shares of MMP Shares
called for
redemption, the Paying Agent (if different from the Auction Agent)
and the
Securities Depository (“Notice of Redemption”). Notice of Redemption will be
addressed to the registered owners of the MMP Shares at their addresses
appearing on our share records. Such notice will set forth (1) the
redemption date, (2) the number and identity of MMP Shares to be redeemed,
(3) the redemption price (specifying the amount of accumulated dividends
to
be included therein and the amount of the redemption premium, if any),
(4) that dividends on the shares to be redeemed will cease to accumulate
on
such redemption date, and (5) the provision under which redemption shall be
made. No defect in the Notice of Redemption or in the transmittal or
mailing
thereof will affect the validity of the redemption proceedings, except
as
required by applicable law.
If
fewer
than all of the shares of MMP Shares are redeemed on any date, the
shares to be
redeemed on such date will be selected by us on a pro rata basis in
proportion
to the number of shares held by such Holder, by lot or by such other
method as
is determined by us to be fair and equitable, subject to the terms
of any
Specific Redemption Provisions. MMP Shares may be subject to mandatory
redemption notwithstanding the terms of any Specific Redemption Provisions.
The
Auction Agent will give notice to the Securities Depository, whose
nominee will
be the record Holder of all of the MMP Shares, and the Securities Depository
will determine the number of shares to be redeemed from the account
of the Agent
Member of each Beneficial Owner. Each Agent Member will determine the
number of
shares to be redeemed from the account of each Beneficial Owner for
which it
acts as agent. An Agent Member may select for redemption shares from
the
accounts of some Beneficial Owners without selecting for redemption
any shares
from the accounts of other Beneficial Owners. In this case, in selecting
the MMP
Shares to be redeemed, the Agent Member will select by lot or by other
fair and
equitable method. Notwithstanding the foregoing, if neither the Securities
Depository nor its nominee is the record Holder of all of the shares,
the
particular shares to be redeemed shall be selected by us by lot, on
a pro rata
basis or by such other method as we shall deem fair and equitable,
as
contemplated above.
If
Notice
of Redemption has been given, then upon the deposit of funds sufficient
to
effect such redemption, dividends on such shares will cease to accumulate
and
such shares will be no longer deemed to be outstanding for any purpose
and all
rights of the Holders of the shares so called for redemption will cease and
terminate, except the right of the Holders of such shares to receive
the
redemption price, but without any interest or additional amount. We
shall be
entitled to receive from the Paying Agent, promptly after the date
fixed for
redemption, any cash deposited with the Paying Agent in excess of (1) the
aggregate redemption price of the MMP Shares called for redemption
on such date
and (2) such other amounts, if any, to which Holders of MMP Shares called
for redemption may be entitled. We will
be
entitled to receive, from time to time, from the Paying Agent the interest,
if
any, earned on such funds deposited with the Paying Agent and the owners
of
shares so redeemed will have no claim to any such interest. Any funds
so
deposited that are unclaimed two years after such redemption date will
be paid,
to the extent permitted by law, by the Paying Agent to us upon its
request.
Subsequent to such payment, Holders of MMP Shares called for redemption
may look
only to us for payment.
So
long
as any MMP Shares are held of record by the nominee of the Securities
Depository, the redemption price for such shares will be paid on the
redemption
date to the nominee of the Securities Depository. The Securities Depository’s
normal procedures provide for it to distribute the amount of the redemption
price to Agent Members who, in turn, are expected to distribute such
funds to
the persons for whom they are acting as agent.
Notwithstanding
the provisions for redemption described above, no MMP Shares may be
redeemed
unless all dividends in arrears on the outstanding MMP Shares, and
all of our
shares ranking on a parity with the MMP Shares with respect to the
payment of
dividends or upon liquidation, have been or are being contemporaneously
paid or
set aside for payment, except in connection with our liquidation, in
which case
all MMP Shares and all shares ranking in parity with the MMP Shares
must receive
proportionate amounts. At any time we may purchase or acquire all the
outstanding MMP Shares pursuant to the successful completion of an
otherwise
lawful purchase or exchange offer made on the same terms to, and accepted
by,
Holders of all outstanding MMP Shares.
Except
for the provisions described above, nothing contained in the Articles
Supplementary limits any legal right of ours to purchase or otherwise
acquire
any MMP Shares outside of an Auction at any price, whether higher or
lower than
the price that would be paid in connection with an optional or mandatory
redemption, so long as, at the time of any such purchase, there is
no arrearage
in the payment of dividends on, or the mandatory or optional redemption
price
with respect to, any MMP Shares for which Notice of Redemption has
been given
and we are in compliance with the 1940 Act MMP Shares Asset Coverage
and have
Eligible Assets with an aggregate Discounted Value at least equal to
the MMP
Shares Basic Maintenance Amount after giving effect to such purchase
or
acquisition on the date thereof. Any shares which are purchased, redeemed
or
otherwise acquired by us shall be returned to the status of authorized
but
unissued shares. If fewer than all the outstanding MMP Shares are redeemed
or
otherwise acquired by us, we shall give notice of such transaction
to the
Auction Agent, in accordance with the procedures agreed upon by the
Board of
Directors.
Role
of Auction Agent
Articles
Supplementary.
The
Articles Supplementary provide that, except as otherwise described
herein, the
Applicable Rate for the shares of each series of preferred stock, for
each
Dividend Period of shares of such series after the initial Dividend
Period
thereof, shall be equal to the rate per annum that the Auction Agent
advises has
resulted on the Business Day preceding the first day of such Subsequent
Dividend
Period (an “Auction Date”) from implementation of the auction procedures (the
“Auction Procedures”), in which persons determine to hold or offer to sell or,
based on dividend rates bid by them, offer to purchase or sell shares
of such
series. Each periodic implementation of the Auction Procedures is referred
to
herein as an Auction. See the Articles Supplementary, attached as Appendix
B to
the statement of additional information for a more complete description
of the
Auction process.
Auction
Agency Agreement.
The
Auction Agency Agreement with the Auction Agent (currently, The Bank
of New
York) (the “Auction Agency Agreement”) provides, among other things, that the
Auction Agent will follow the Auction Procedures for purposes of determining
the
Applicable Rate for
the
Series __ MMP Shares so long as the Applicable Rate for shares is to
be based on
the results of an Auction. The Auction Agent acts as a non-fiduciary
agent for
us in connection with Auctions. In the absence of bad faith or gross
negligence
on its part, the Auction Agent will not be liable for any action taken,
suffered, or omitted or for any error of judgment made by it in the
performance
of its duties under the Auction Agency Agreement and will not be liable
for any
error of judgment made in good faith unless the Auction Agent will
have been
grossly negligent in ascertaining the pertinent facts.
The
Auction Agent may terminate the Auction Agency Agreement upon notice
to us on a
date no earlier than 60 days after the notice. If the Auction Agent
should
resign, we will use our best efforts to enter into an agreement with
a successor
Auction Agent containing substantially the same terms and conditions
as the
Auction Agency Agreement. We may remove the Auction Agent provided
that prior to
such removal we shall have entered into such an agreement with a successor
Auction Agent.
Auction
Risk
You
may
not be able to sell your MMP Shares at an Auction if the Auction fails;
that is,
if there are more MMP Shares offered for sale than there are buyers
for those
shares. Also, if you place hold orders (orders to retain MMP Shares)
at an
Auction only at a specified rate, and that bid rate exceeds the rate
set at the
Auction, you will not retain your MMP Shares. Finally, if you buy shares
or
elect to retain shares without specifying a rate below which you would
not wish
to continue to hold those shares, and the Auction sets a below-market
rate, you
may receive a lower rate of return on your shares than the market
rate.
Auction
Procedures
Beneficial
Owners.
Prior to
the Submission Deadline on each Auction Date for MMP Shares, each customer
of a
Broker-Dealer who is listed on the records of that Broker-Dealer (or,
if
applicable, the Auction Agent) as a holder of shares (a “Beneficial Owner”) may
submit orders (“Orders”) with respect to shares to that Broker-Dealer as
follows:
| · |
Hold
Order - indicating its desire to hold shares without regard
to the
Applicable Rate for shares for the next Dividend Period
thereof.
|
| · |
Bid
- indicating its desire to sell shares if the Applicable
Rate for shares
for the next Dividend Period thereof is less than the rate
specified in
such Bid (also known as a hold-at-a-rate
order).
|
| · |
Sell
Order - indicating its desire to sell shares without regard
to the
Applicable Rate for shares for the next Dividend Period
thereof.
|
Orders
submitted (or the failure to do so) by Beneficial Owners under certain
circumstances will have the effects as described below. A Beneficial
Owner of
shares that submits a Bid with respect to shares to its Broker-Dealer
having a
rate higher than the Maximum Rate for shares on the Auction Date therefor
will
be treated as having submitted a Sell Order with respect to such shares
to its
Broker-Dealer.
A
Beneficial Owner of shares that fails to submit an Order with respect
to such
shares to its Broker-Dealer will be deemed to have submitted a Hold
Order with
respect to such shares to its Broker-Dealer; provided, however, that
if a
Beneficial Owner of Series __ MMP Shares fails to submit an Order with
respect
to such shares to its Broker-Dealer for an Auction relating to a Dividend
Period
of more than ___________ (__) days, such Beneficial Owner will be deemed
to have
submitted a Sell Order with respect to such shares to its Broker-Dealer.
A Sell
Order shall constitute an irrevocable offer to sell the MMP Shares
subject
thereto. A Beneficial Owner that offers to become the Beneficial Owner
of
additional MMP Shares is, for purposes of such offer, a Potential Beneficial
Owner as discussed below.
Potential
Beneficial Owners.
A
customer of a Broker-Dealer that is not a Beneficial Owner of MMP Shares
but
that wishes to purchase shares, or that is a Beneficial Owner of shares
that
wishes to purchase additional shares (in each case, a “Potential Beneficial
Owner”), may submit Bids to its Broker-Dealer in which it offers to purchase
shares at $______ per share if the Applicable Rate for shares for the
next
Dividend Period thereof is not less than the rate specified in such
Bid. A Bid
placed by a Potential Beneficial Owner of shares specifying a rate
higher than
the Maximum Rate for shares on the Auction Date therefore will not
be
accepted.
The
Auction Process.
Each
Broker-Dealer in turn will submit the Orders of its respective customers
who are
Beneficial Owners and Potential Beneficial Owners to the Auction Agent,
designating itself (unless otherwise permitted by us) as an Existing
Holder in
respect of MMP Shares subject to Orders submitted or deemed submitted
to them by
Beneficial Owners and a Potential Holder in respect of MMP Shares subject
to
Orders submitted to them by Potential Beneficial Owners. However, neither
we nor
the Auction Agent will be responsible for a Broker-Dealer’s failure to comply
with the foregoing. Any Order placed with the Auction Agent by a Broker-Dealer
as or on behalf of an Existing Holder or a Potential Holder will be
treated in
the same manner as an Order placed with a Broker-Dealer by a Beneficial
Owner or
Potential Beneficial Owner. Similarly, any failure by a Broker-Dealer
to submit
to the Auction Agent an Order in respect of MMP Shares held by it or
customers
who are Beneficial Owners will be treated in the same manner as a Beneficial
Owner’s failure to submit to its Broker-Dealer an Order in respect of MMP
Shares
held by it. A Broker-Dealer may also submit Orders to the Auction Agent
for its
own account as an Existing Holder or Potential Holder, provided it
is not an
affiliate of ours.
If
Sufficient Clearing Bids for MMP Shares exist (that is, the number
of shares
subject to Bids submitted or deemed submitted to the Auction Agent
by
Broker-Dealers as or on behalf of Potential Holders with rates between
the
Minimum Rate and the Maximum Rate for shares is at least equal to the
number of
shares subject to Sell Orders submitted or deemed submitted to the
Auction Agent
by Broker-Dealers as or on behalf of Existing Holders), the Applicable
Rate for
shares for the next succeeding Dividend Period thereof will be the
lowest rate
specified in the Submitted Bids which, taking into account such rate
and all
lower rates bid by Broker-Dealers as or on behalf of Existing Holders
and
Potential Holders, would result in Existing Holders and Potential Holders
owning
the shares available for purchase in the Auction (such rate, the “Winning Bid
Rate”). If Sufficient Clearing Bids for MMP Shares do not exist, the Applicable
Rate for shares for the next succeeding Dividend Period thereof will
be the
Maximum Rate for shares on the Auction Date therefor. In such event,
Beneficial
Owners of shares that have submitted or are deemed to have submitted
Sell Orders
may not be able to sell in such Auction all shares subject to such
Sell Orders.
In any particular Auction, if all outstanding MMP Shares are the subject
of
Submitted Hold Orders, the Applicable Rate for such shares for the
next
succeeding Auction Period will be the All Hold Rate (such a situation
is called
an “All Hold Auction”).
The
Auction Procedures include a pro rata allocation of shares for purchase
and
sale, which may result in an Existing Holder continuing to hold or
selling, or a
Potential Holder purchasing, a number of shares of MMP Shares that
is fewer than
the number of shares specified in its Order. To the extent the allocation
procedures have that result, Broker-Dealers that have designated themselves
as
Existing Holders or Potential Holders in respect of customer Orders
will be
required to make appropriate pro rata allocations among their respective
customers.
Settlement
of purchases and sales will be made on the next Business Day (also
a Dividend
Payment Date) after the Auction Date through the Securities Depository.
Purchasers will make payment through their Agent Members in same-day
funds to
the Securities Depository against delivery to their respective Agent
Members.
The Securities Depository will make payment to the sellers’ Agent Members in
accordance with the Securities Depository’s normal procedures, which now provide
for payment against delivery by their Agent Members in same-day
funds.
Certain
Considerations Affecting Auction Rate Securities
Role
of Broker-Dealer.
[Broker-Dealer] (the “Broker-Dealer”) has been appointed by the issuers or
obligors of various auction rate securities to serve as a dealer in
the auctions
for those securities and is paid by the issuers or obligors for its
services.
[Broker-Dealer] receives broker-dealer fees from such issuers or obligors
at an
agreed upon annual rate that is applied to the principal amount of
securities
sold or successfully placed through them in such auctions.
A
Broker-Dealer is designated in the Broker-Dealer Agreement as the Broker-Dealer
to contact Existing Holders and Potential Holders and solicit Bids
for the MMP
Shares. The Broker-Dealer will receive Broker-Dealer Fees from us with
respect
to the MMP Shares sold or successfully placed through it in Auctions.
The
Broker-Dealer may share a portion of such fees with other dealers that
submit
Orders through it that are filled in the Auction.
Bidding
by Broker-Dealer.
The
Broker-Dealer is permitted, but not obligated, to submit Orders in
Auctions for
its own account either as a buyer or seller and routinely does so in
the auction
rate securities market in its sole discretion. If the Broker-Dealer
submits an
Order for its own account, it would have an advantage over other Potential
Beneficial Owners because the Broker-Dealer would have knowledge of
the other
Orders placed through it in that Auction and thus, could determine
the rate and
size of its Order so as to increase the likelihood that (i) its Order will
be accepted in the Auction and (ii) the Auction will clear at a particular
rate. For this reason, and because the Broker Dealer is appointed and
paid by us
to serve as a Broker-Dealer in the Auction, the Broker-Dealer’s interests in
serving as Broker-Dealer in an Auction may differ from those of Existing
Holders
and Potential Holders who participate in Auctions. See “Role of Broker-Dealer.”
The Broker Dealer would not have knowledge of Orders submitted to the
Auction
Agent by any other firm that is, or may in the future be, appointed
to accept
Orders pursuant to a Broker Dealer Agreement.
Where
the
Broker-Dealer is the only Broker-Dealer appointed by us to serve
as
Broker-Dealer in the Auction, and as long as that remains the case,
it will be
the only Broker-Dealer that submits Orders to the Auction Agent in
that Auction.
As a result, in such circumstances, the Broker-Dealer may discern
the clearing
rate before the Orders are submitted to the Auction Agent and set
the clearing
rate with its Order.
The
Broker-Dealer may place one or more Bids in an Auction for its own
account to
acquire securities for its inventory, to prevent an Auction Failure
or to
prevent Auctions from clearing at a rate that the Broker-Dealer believes
does
not reflect the market for the MMP Shares. The Broker-Dealer may place
such Bids
even after obtaining knowledge of some or all of the other Orders submitted
through it. When bidding in an Auction for its own account, the Broker-Dealer
also may Bid inside or outside the range of rates that it posts in
its Price
Talk (as defined herein). See “—Price Talk.”
The
Broker-Dealer also may encourage bidding by others in Auctions, including
to
prevent an Auction Failure or to prevent an Auction from clearing at
a rate that
the Broker-Dealer believes does not reflect the market for the MMP
Shares. The
Broker-Dealer may encourage such Bids even after obtaining knowledge
of some or
all of the other Orders submitted through it.
Bids
by
the Broker-Dealer or by those it may encourage to place Bids are likely
to
affect (i) the Applicable Rate - including preventing the Applicable Rate
from being set at the Maximum Rate or otherwise causing Potential Beneficial
Owners to receive a lower rate than they might have received had the
Broker-Dealer not Bid (or not encouraged others to Bid) and (ii) the
allocation of the MMP Shares being auctioned, including displacing
some
Potential Beneficial Owners who may have their Bids rejected or receive
fewer
MMP Shares than they would have received if the Broker-Dealer had not
Bid (or
encouraged others to Bid). Because of these practices, the fact that
an Auction
clears successfully does not mean that an investment in the MMP Shares
involves
no significant liquidity or credit risk. The
Broker-Dealer
is not obligated to continue to place such Bids (or to continue to
encourage
other Bidders to do so) in any particular Auction to prevent an Auction
Failure
or an Auction from clearing at a rate the Broker-Dealer believes does
not
reflect the market for the MMP Shares. Investors should not assume
that the
Broker-Dealer will place Bids or encourage others to do so or that
Auction
Failures will not occur. Investors should also be aware that Bids by
the
Broker-Dealer (or by those it may encourage to place Bids) may cause
lower
Applicable Rates to occur.
The
statements herein regarding Bidding by a Broker-Dealer apply only to
a
Broker-Dealer’s auction desk and any other business units of the Broker-Dealer
that are not separated from the auction desk by an information barrier
designed
to limit inappropriate dissemination of bidding information.
In
any
particular Auction, if all outstanding Series __ MMP Shares are the
subject of
Submitted Hold Orders, the Applicable Rate for the next succeeding
Auction
Period will be the All Hold Rate (such a situation is called an “All Hold
Auction”). If the Broker-Dealer holds any MMP Shares for its own account on
an
Auction Date, it is the Broker-Dealer’s practice to submit a Sell Order into the
Auction with respect to such shares, which would prevent that Auction
from being
an All Hold Auction. The Broker-Dealer may, but is not obligated to,
submit Bids
for its own account in that same Auction, as set forth above.
Price
Talk.
Before
the start of an Auction, the Broker-Dealer, in its discretion, may
make
available to its customers who are Existing Holders and Potential Holders
the
Broker-Dealer’s good faith judgment of the range of likely clearing rates for
the Auction based on market and other information. This is known as
“Price
Talk.” Price Talk is not a guaranty that the Applicable Rate established through
the Auction will be within the Price Talk, and Existing Holders and
Potential
Holders are free to use it or ignore it. The Broker-Dealer occasionally
may
update and change the Price Talk based on changes in our credit quality
or
macroeconomic factors that are likely to result in a change in interest
rate
levels, such as an announcement by the Federal Reserve Board of a change
in the
Federal Funds rate or an announcement by the Bureau of Labor Statistics
of
unemployment numbers. Potential Holders should confirm with the Broker-Dealer
the manner by which the Broker-Dealer will communicate Price Talk and
any
changes to Price Talk.
“All-or-Nothing”
Bids.
The
Broker-Dealer will not accept “all-or-nothing” Bids (i.e., Bids whereby the
bidder proposes to reject an allocation smaller than the entire quantity
Bid) or
any other type of Bid that allows the bidder to avoid Auction Procedures
that
require the pro rata allocation of MMP Shares of a series where there
are not
sufficient Sell Orders to fill all Bids at the Winning Bid Rate.
No
Assurances Regarding Auction Outcomes.
The
Broker-Dealer provides no assurance as to the outcome of any Auction.
The
Broker-Dealer also does not provide any assurance that any Bid will
be
successful, in whole or in part, or that the Auction will clear at
a rate that a
bidder considers acceptable. Bids may be only partially filled, or
not filled at
all, and the Applicable Rate on any MMP Shares purchased or retained
in the
Auction may be lower than the market rate for similar investments.
The
Broker-Dealer will not agree before an Auction to buy MMP Shares of
any series
from, or sell MMP Shares of any series to, a customer after the
Auction.
Deadlines.
Each
particular Auction has a formal deadline by which all Bids must be
submitted by
the Broker-Dealer to the Auction Agent. This deadline is called the
“Submission
Deadline.” To provide sufficient time to process and submit customer Bids to the
Auction Agent before the Submission Deadline, the Broker-Dealer imposes
an
earlier deadline, called the “Internal Submission Deadline,” by which bidders
must submit Bids to the Broker-Dealer. The Internal Submission Deadline
is
subject to change by the Broker-Dealer. Potential Owners should consult
with the
Broker-Dealer as to its Internal Submission Deadline. The Broker-Dealer
may
allow for correction of clerical errors after the Internal
Submission
Deadline and prior to the Submission Deadline. The Broker-Dealer may
submit Bids
for its own account at any time until the Submission Deadline. The
Auction
Procedures provide that for a period of up to one hour after the Auction
Agent
completes the dissemination of the results of an Auction, new Orders
can be
submitted to the Auction Agent if such Orders were received by the
Broker-Dealer
or generated by the Broker-Dealer for its own account prior to the
Submission
Deadline and the failure to submit such Orders prior to the Submission
Deadline
was the result of force majeure, a technological failure or a clerical
error. In
addition a Broker-Dealer may modify or withdraw an Order submitted
to the
Auction Agent prior the Submission Deadline if the Broker-Dealer determines
that
such Order contained a clerical error. In the event of such a submission,
modification or withdrawal the Auction Agent will rerun the Auction,
if
necessary, taking into account such submission, modification or
withdrawal.
Existing
Holder’s Ability to Resell Auction Rate Securities May Be
Limited.
An
Existing Holder may sell, transfer or dispose of an MMP Share (i) in an
Auction, only pursuant to a Bid or Sell Order in accordance with the
Auction
Procedures, or (ii) outside an Auction, only to or through a
Broker-Dealer.
Existing
Holders will be able to sell all of the MMP Shares that are the subject
of their
Submitted Sell Orders only if there are bidders willing to purchase
all those
shares in the Auction. If Sufficient Clearing Bids have not been made,
Existing
Holders that have submitted Sell Orders will not be able to sell in
the Auction
all, and may not be able to sell any, of such shares subject to such
Submitted
Sell Orders. As discussed above (see “Bidding by Broker-Dealer”), the
Broker-Dealer may submit a Bid in an Auction to avoid an Auction Failure,
but it
is not obligated to do so. There may not always be enough bidders to
prevent an
Auction Failure in the absence of bidding by Broker-Dealer in the Auction
for
its own account or encouraging others to Bid. Therefore, Auction Failures
are
possible, especially if our credit were to deteriorate, if a market
disruption
were to occur or if, for any reason, the Broker-Dealer were unable
or unwilling
to Bid.
Between
Auctions, there can be no assurance that a secondary market for the
MMP Shares
of any series will develop or, if it does develop, that it will provide
Existing
Holders the ability to resell such shares on the terms or at the times
desired
by an Existing Holder. The Broker-Dealer, in its own discretion, may
decide to
buy or sell the MMP Shares in the secondary market for its own account
from or
to investors at any time and at any price, including at prices equivalent
to,
below, or above par for such shares. However, the Broker-Dealer is
not obligated
to make a market in the MMP Shares and may discontinue trading in such
shares
without notice for any reason at any time. Existing Holders who resell
between
Auctions may receive an amount less than par, depending on market
conditions.
If
an
Existing Holder purchased an MMP Share through a dealer which is not
the
Broker-Dealer for the securities, such Existing Holder’s ability to sell its
security may be affected by the continued ability of its dealer to
transact
trades for the shares through the Broker-Dealer.
The
ability to resell the MMP Shares will depend on various factors affecting
the
market for the shares, including news relating to us, the attractiveness
of
alternative investments, investor demand for short term securities,
the
perceived risk of owning the shares (whether related to credit, liquidity
or any
other risk), the tax or accounting treatment accorded the shares (including
U.S.
generally accepted accounting principles as they apply to the accounting
treatment of auction rate securities), reactions of market participants
to
regulatory actions (such as those described in “Securities and Exchange
Commission Settlements” below) or press reports, financial reporting cycles and
market conditions generally. Demand for the MMP Shares may change without
warning, and declines in demand may be short-lived or continue for
longer
periods.
Resignation
of the Broker-Dealer Could Impact the Ability to Hold Auctions.
The
Broker-Dealer Agreement provides that the Broker-Dealer thereunder
may resign
upon five days’ notice and does not require, as a condition to the
effectiveness of such resignation, that a replacement Broker-Dealer
be in
place.
For any Auction Period during which there is no duly appointed Broker-Dealer,
it
will not be possible to hold Auctions for the MMP Shares, with the
result that
the dividend rate on the MMP Shares will be determined as described
in the
Articles Supplementary.
Securities
and Exchange Commission Settlements.
On
May 31, 2006, the U.S. Securities and Exchange Commission (the “SEC”)
announced that it had settled its investigation of fifteen firms, including
[Broker-Dealer], that participate in the auction rate securities market
regarding their respective practices and procedures in this market.
The SEC
alleged in the settlement that the firms had managed auctions for auction
rate
securities in which they participated in ways that were not adequately
disclosed
or that did not conform to disclosed auction procedures. As part of
the
settlement, [Broker-Dealer] agreed to pay a civil penalty. In addition,
[Broker-Dealer], without admitting or denying the SEC’s allegations, agreed to
provide to customers written descriptions of its material auction practices
and
procedures, and to implement procedures reasonably designed to detect
and
prevent any failures by [Broker-Dealer] to conduct the auction process
in
accordance with disclosed procedures. No assurance can be provided
as to how the
settlement may affect the market for auction rate securities or the
MMP
Shares.
In
addition on January 9, 2007, the SEC announced that it had settled its
investigation of three banks, including [Auction Agent] (the “Settling Auction
Agents”), that participate as auction agents in the auction rate securities
market, regarding their respective practices and procedures in this
market. The
SEC alleged in the settlement that the Settling Auction Agents allowed
broker-dealers in auctions to submit bids or revise bids after the
submission
deadlines and allowed broker-dealers to intervene in auctions in ways
that
affected the rates paid on the auction rate securities. As part of
the
settlement, the Settling Auction Agents agreed to pay civil penalties.
In
addition, each Settling Auction Agent, without admitting or denying
the SEC’s
allegations, agreed to provide to broker-dealers and issuers written
descriptions of its material auction practices and procedures and to
implement
procedures reasonably designed to detect and prevent any failures by
that
Settling Auction Agent to conduct the auction process in accordance
with
disclosed procedures. No assurance can be offered as to how the settlement
may
affect the market for auction rate securities or the MMP Shares.
[TO
BE ADDED BY UNDERWRITERS AT TIME OF OFFERING]
We
are
subject to the informational requirements of the Securities Exchange
Act of
1934, as amended (the “1934 Act”) and the 1940 Act and are required to file
reports, including annual and semi-annual reports, proxy statements
and other
information with the SEC. We voluntarily file quarterly shareholder
reports. Our
most recent shareholder report filed with the SEC is for the period
ended
__________, 200__. These documents are available on the SEC’s EDGAR system and
can be inspected and copied for a fee at the SEC’s public reference room, 100 F
Street, N.E., Room 1580, Washington, D.C. 20549. Additional information
about
the operation of the public reference room facilities may be obtained
by calling
the SEC at (202) 551-5850.
This
prospectus supplement and the accompanying prospectus do not contain
all of the
information in our registration statement, including amendments, exhibits,
and
schedules. Statements in this prospectus supplement and the accompanying
prospectus about the contents of any contract or other document are
not
necessarily complete and in each instance reference is made to the
copy of the
contract or other document filed as an exhibit to the registration
statement,
each such statement being qualified in all respects by this
reference.
Additional
information about us can be found in our Registration Statement (including
amendments, exhibits, and schedules) on Form N-2 filed with the SEC.
The SEC
maintains a web site (http://www.sec.gov) that contains our Registration
Statement, other documents incorporated by reference, and other information
we
have filed electronically with the SEC, including proxy statements
and reports
filed under the Exchange Act.
Blackwell
Sanders Peper Martin, L.L.P. (“Blackwell”), Kansas City, Missouri, serves as our
counsel. Vedder, Price, Kaufman & Kammholz, P.C. (“Vedder Price”),
Chicago, Illinois, is serving as our special counsel in connection
with the
offering under this prospectus supplement and accompanying prospectus.
Certain
legal matters in connection with the securities offered hereby will
be passed
upon for us by Vedder Price. Vedder Price may rely on the opinion of
Venable
LLP, Baltimore, Maryland, on certain matters of Maryland law.
Morrison & Foerster LLP, New York, New York, is serving as counsel to
the underwriters.
F-1
$_________
Tortoise
Energy Infrastructure Corporation
$_________
Series __ Money Market Cumulative Preferred Shares
____________________
PROSPECTUS
SUPPLEMENT
________,
20__
____________________
[Underwriters]
SUBJECT
TO COMPLETION, DATED MARCH 14,
2007
THE
INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES
AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE
OFFER OR SALE IS NOT PERMITTED.
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
_____ __,
2007
STATEMENT
OF ADDITIONAL INFORMATION
Tortoise
Energy Infrastructure Corporation, a Maryland corporation (the “Company”, “we”
or “our”), is a nondiversified, closed-end management investment company that
commenced operations in February 2004.
This
Statement of Additional Information relates to the offering, on an immediate,
continuous or delayed basis, of up to $350,000,000 aggregate initial offering
price of our common stock, preferred stock and debt securities in one or
more
offerings. This Statement of Additional Information does not constitute a
prospectus, but should be read in conjunction with our prospectus dated ______
__, 2007 and any related prospectus supplement. This Statement of Additional
Information does not include all information that you should consider before
purchasing any of our securities. You should obtain and read our prospectus
and
any related prospectus supplements prior to purchasing any of our securities.
A
copy of our prospectus and any related prospectus supplement may be obtained
without charge by calling (866) 362-9331. You also may obtain a copy of our
prospectus and any related prospectus supplement on the SEC’s web site
(http://www.sec.gov). Capitalized terms used but not defined in this Statement
of Additional Information have the meanings ascribed to them in the prospectus
and any related prospectus supplement. This Statement of Additional Information
is dated _____ __, 2007.
TABLE
OF CONTENTS
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S-1
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S-3
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S-16
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S-24
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S-26
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S-27
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S-35
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S-36
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S-36
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S-36
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S-36
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A-1
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B-1
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C-1
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This
section supplements the disclosure in the prospectus and provides additional
information on our investment limitations. Investment limitations identified
as
fundamental may not be changed without the approval of the holders of a majority
of our outstanding voting securities (which for this purpose and under the
Investment Company Act of 1940, as amended (the “1940 Act”), means the lesser of
(1) 67% of the shares represented at a meeting at which more than 50% of
the outstanding shares are represented or (2) more than 50% of the
outstanding shares).
Investment
limitations stated as a maximum percentage of our assets are only applied
immediately after, and because of, an investment or a transaction by us to
which
the limitation is applicable (other than the limitations on borrowing).
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered in determining whether
the investment complies with our investment limitations. All limitations
that
are based on a percentage of total assets include assets obtained through
leverage.
Fundamental
Investment Limitations
The
following are our fundamental investment limitations set forth in their
entirety. We may not:
(1) issue
senior securities, except as permitted by the 1940 Act and the rules and
interpretive positions of the SEC thereunder;
(2) borrow
money, except as permitted by the 1940 Act and the rules and interpretive
positions of the SEC thereunder;
(3) make
loans, except by the purchase of debt obligations, by entering into repurchase
agreements or through the lending of portfolio securities and as otherwise
permitted by the 1940 Act and the rules and interpretive positions of the
SEC
thereunder;
(4) concentrate
(invest 25% or more of total assets) our investments in any particular industry,
except that we will concentrate our assets in the group of industries
constituting the energy infrastructure sector;
(5) underwrite
securities issued by others, except to the extent that we may be considered
an
underwriter within the meaning of the Securities Act of 1933, as amended
(the
“1933 Act”), in the disposition of restricted securities held in our
portfolio;
(6) purchase
or sell real estate unless acquired as a result of ownership of securities
or
other instruments, except that we may invest in securities or other instruments
backed by real estate or securities of companies that invest in real estate
or
interests therein; and
(7) purchase
or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except that we may purchase or sell options
and
futures contracts or invest in securities or other instruments backed by
physical commodities.
All
other
investment policies are considered nonfundamental and may be changed by the
Board of Directors of the Company (the “Board”) without prior approval of our
outstanding voting securities.
Nonfundamental
Investment Policies
We
have
adopted the following nonfundamental policies:
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(1)
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Under
normal circumstances, we will invest at least 90% of our total
assets in
securities of energy infrastructure
companies.
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(2)
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Under
normal circumstances, we will invest at least 70% of our total
assets in
equity securities issued by master limited partnerships
(“MLPs”).
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(3)
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We
may invest up to 30% of our total assets in restricted securities,
primarily through direct placements. Subject to this policy, we
may invest
without limitation in illiquid securities. The types of restricted
securities that we may purchase include securities of private energy
infrastructure companies and privately issued securities of publicly
traded energy infrastructure companies. Restricted securities,
whether
issued by public companies or private companies, are generally
considered
illiquid. Investments in private companies that do not have any
publicly
traded shares or units are limited to 5% of total
assets.
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(4)
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We
may invest up to 25% of our total assets in debt securities of
energy
infrastructure companies, including securities rated below investment
grade (commonly referred to as “junk bonds”). Below investment grade debt
securities will be rated at least B3 by Moody’s Investors Service, Inc.
(“Moody’s”) and at least B- by Standard & Poor’s Ratings
Group (“S&P”) at the time of purchase, or comparably rated by
another statistical rating organization or if unrated, determined
to be of
comparable quality by the Adviser.
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(5)
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We
will not invest more than 10% of our total assets in any single
issuer.
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(6)
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We
will not engage in short sales.
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For
purposes of restrictions (3)-(5), during the periods in which we anticipate
receiving proceeds from an offering of securities pursuant to this registration
statement, we include the amount of the anticipated proceeds in our calculation
of total assets. Accordingly, holdings in the specified securities may
temporarily exceed the amounts shown.
Currently
under the 1940 Act, we are not permitted to incur indebtedness unless
immediately after such borrowing we have asset coverage of at least 300%
of the
aggregate outstanding principal balance of indebtedness (i.e., such indebtedness
may not exceed 33 1/3% of the value of our total assets). Additionally,
currently under the 1940 Act, we may not declare any dividend or other
distribution upon our common or preferred stock, or purchase any such stock,
unless our aggregate indebtedness has, at the time of the declaration of
any
such dividend or distribution or at the time of any such purchase, an asset
coverage of at least 300% after deducting the amount of such dividend,
distribution, or purchase price, as the case may be. Currently under the
1940
Act, we are not permitted to issue preferred stock unless immediately after
such
issuance we have asset coverage of at least 200% of the liquidation value
of the
outstanding preferred stock (i.e., such liquidation value may not exceed
50% of
the value of our total assets). In addition, currently under the 1940 Act,
we
are not permitted to declare any cash dividend or other distribution on our
common stock unless, at the time of such declaration, our total assets less
liabilities and indebtedness not represented by senior securities (determined
after deducting the amount of such dividend or distribution) are at least
200% of such liquidation value.
Under
the
1940 Act, a “senior security” does not include any promissory note or evidence
of indebtedness where such loan is for temporary purposes only and in an
amount
not exceeding 5% of the
value
of
the total assets of the issuer at the time the loan is made. A loan is presumed
to be for temporary purposes if it is repaid within sixty days and is not
extended or renewed. Both transactions involving indebtedness and any preferred
stock issued by us would be considered senior securities under the 1940 Act,
and
as such, are subject to the asset coverage requirements discussed
above.
Currently
under the 1940 Act, we are not permitted to lend money or property to any
person, directly or indirectly, if such person controls or is under common
control with us, except for a loan from us to a company which owns all of
our
outstanding securities. Currently, under interpretative positions of the
staff
of the SEC, we may not have on loan at any given time securities representing
more than one-third of our total assets.
We
interpret our policies with respect to borrowing and lending to permit such
activities as may be lawful, to the full extent permitted by the 1940 Act
or by
exemption from the provisions therefrom pursuant to an exemptive order of
the
SEC.
We
interpret our policy with respect to concentration to include energy
infrastructure companies, as defined in the prospectus and below. See
“Investment Objective and Principal Investment Strategies.”
Under
the
1940 Act, we may, but do not intend to, invest up to 10% of our total assets
in
the aggregate in shares of other investment companies and up to 5% of our
total
assets in any one investment company, provided the investment does not represent
more than 3% of the voting stock of the acquired investment company at the
time
such shares are purchased. As a shareholder in any investment company, we
will
bear our ratable share of that investment company’s expenses, and would remain
subject to payment of our advisory fees and other expenses with respect to
assets so invested. Holders of common stock would therefore be subject to
duplicative expenses to the extent we invest in other investment companies.
In
addition, the securities of other investment companies also may be leveraged
and
will therefore be subject to the same leverage risks described herein and
in the
prospectus. The net asset value and market value of leveraged shares will
be
more volatile and the yield to shareholders will tend to fluctuate more than
the
yield generated by unleveraged shares. A material decline in net asset value
may
impair our ability to maintain asset coverage on preferred stock and debt
securities, including any interest and principal for debt
securities.
The
prospectus presents our investment objective and the principal investment
strategies and risks. This section supplements the disclosure in the prospectus
and provides additional information on our investment policies, strategies
and
risks. Restrictions or policies stated as a maximum percentage of our assets
are
only applied immediately after a portfolio investment to which the policy
or
restriction is applicable (other than the limitations on borrowing).
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered in determining whether
the investment complies with our restrictions and policies.
Our
investment objective is to seek a high level of total return with an emphasis
on
current distributions paid to stockholders. For purposes of our investment
objective, total return includes capital appreciation of, and all distributions
received from, securities in which we invest regardless of the tax character
of
the distribution. There is no assurance that we will achieve our objective.
Our
investment objective and the investment policies discussed below are
nonfundamental. Our Board may change the investment objective, or any policy
or
limitation that is not fundamental, without a stockholder vote. Stockholders
will receive at least 60 days prior written notice of any change to the
nonfundamental investment policy of investing at least 90% of total assets
in
energy infrastructure companies. Unlike most other investment companies,
we will
not be treated as a regulated investment company under the
U.S.
Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).
Therefore, we will be taxed as a “C” corporation and will be subject to federal
and applicable state corporate income taxes.
Under
normal circumstances, we invest at least 90% of total assets (including assets
obtained through leverage) in securities of energy infrastructure
companies. Energy infrastructure companies engage in the business of
transporting, processing, storing, distributing or marketing natural gas,
natural gas liquids (primarily propane), coal, crude oil or refined petroleum
products, or exploring, developing, managing or producing such commodities.
Companies that provide energy-related services to the foregoing businesses
also
are considered energy infrastructure companies, if they derive at least 50%
of
revenues from the provision of energy-related services to such companies.
We
invest at least 70% of our total assets in a portfolio of equity securities
of
energy infrastructure companies that are MLPs that the Adviser believes offer
attractive distribution rates and capital appreciation potential. MLP equity
securities (known as “units”) currently consist of common units,
convertible subordinated units, pay-in-kind units or I-Shares (“I-Shares”) and
limited liability company common units. We also may invest in other securities,
consistent with our investment objective and fundamental and nonfundamental
policies.
The
following pages contain more detailed information about the types of issuers
and
instruments in which we may invest, strategies the Adviser may employ in
pursuit
of our investment objective and a discussion of related risks. The Adviser
may
not buy these instruments or use these techniques unless it believes that
doing
so will help us achieve our objective.
Energy
Infrastructure Companies
For
purposes of our policy of investing 90% of our total assets in securities
of
energy infrastructure companies, an energy infrastructure company is one
that
derives each year at least 50% of its gross income from “Qualifying Income”
under Section 7704 of the Internal Revenue Code or one that derives at
least 50% of its revenues from the provision of services directly related
to the
generation of Qualifying Income. Qualifying Income is defined as including
any
income and gains from the exploration, development, mining or production,
processing, refining, transportation (including pipelines transporting gas,
oil
or products thereof), or the marketing of any mineral or natural resource
(including fertilizer, geothermal energy, and timber).
MLPs
are
limited partnerships that derive each year at least 90% of their gross income
from Qualifying Income and are taxed as partnerships for federal income tax
purposes, thereby eliminating federal income tax at the entity level. The
business of energy infrastructure MLPs is affected by supply and demand for
energy commodities because most MLPs derive revenue and income based upon
the
volume of the underlying commodity transported, processed, distributed, and/or
marketed. Specifically, processing and coal MLPs may be directly affected
by
energy commodity prices. Propane MLPs own the underlying energy commodity,
and
therefore have direct exposure to energy commodity prices, although the Adviser
seeks high quality MLPs that are able to mitigate or manage direct margin
exposure to commodity prices. Pipeline MLPs have indirect commodity exposure
to
oil and gas price volatility because although they do not own the underlying
energy commodity, the general level of commodity prices may affect the volume
of
the commodity the MLP delivers to its customers and the cost of providing
services such as distributing natural gas liquids. The MLP sector in general
could be hurt by market perception that MLPs’ performance and valuation are
directly tied to commodity prices.
Energy
infrastructure companies (other than most pipeline MLPs) do not operate as
“public utilities” or “local distribution companies,” and therefore are not
subject to rate regulation by state or federal utility commissions. However,
energy infrastructure companies may be subject to greater competitive factors
than utility companies, including competitive pricing in the absence of
regulated tariff rates, which could cause a reduction in revenue and which
could
adversely affect profitability. Most pipeline MLPs are subject to government
regulation concerning the construction, pricing and operation of
pipelines.
Pipeline MLPs are able to set prices (rates or tariffs) to cover operating
costs, depreciation and taxes, and provide a return on investment. These
rates
are monitored by the Federal Energy Regulatory Commission (FERC) which
seeks to ensure that consumers receive adequate and reliable supplies of
energy
at the lowest possible price while providing energy suppliers and transporters
a
just and reasonable return on capital investment and the opportunity to adjust
to changing market conditions.
Energy
infrastructure MLPs in which we will invest generally can be classified in
the
following categories:
Pipeline
MLPs.
Pipeline
MLPs are common carrier transporters of natural gas, natural gas liquids
(primarily propane, ethane, butane and natural gasoline), crude oil or refined
petroleum products (gasoline, diesel fuel and jet fuel). Pipeline MLPs also
may
operate ancillary businesses such as storage and marketing of such products.
Revenue is derived from capacity and transportation fees. Historically, pipeline
output has been less exposed to cyclical economic forces due to its low cost
structure and government-regulated nature. In addition, most pipeline MLPs
have
limited direct commodity price exposure because they do not own the product
being shipped.
Processing
MLPs.
Processing MLPs are gatherers and processors of natural gas as well as providers
of transportation, fractionation and storage of natural gas liquids (“NGLs”).
Revenue is derived from providing services to natural gas producers, which
require treatment or processing before their natural gas commodity can be
marketed to utilities and other end user markets. Revenue for the processor
is
fee based, although it is not uncommon to have some participation in the
prices
of the natural gas and NGL commodities for a portion of revenue.
Propane
MLPs.
Propane
MLPs are distributors of propane to homeowners for space and water heating.
Revenue is derived from the resale of the commodity on a margin over wholesale
cost. The ability to maintain margin is a key to profitability. Propane serves
approximately 3% of the household energy needs in the United States, largely
for
homes beyond the geographic reach of natural gas distribution pipelines.
Approximately 70% of annual cash flow is earned during the winter heating
season
(October through March). Accordingly, volumes are weather dependent, but
have utility type functions similar to electricity and natural gas.
Coal
MLPs.
Coal
MLPs own, lease and manage coal reserves. Revenue is derived from production
and
sale of coal, or from royalty payments related to leases to coal producers.
Electricity generation is the primary use of coal in the United States. Demand
for electricity and supply of alternative fuels to generators are the primary
drivers of coal demand. Coal MLPs are subject to operating and production risks,
such as: the MLP or a lessee meeting necessary production volumes; federal,
state and local laws and regulations which may limit the ability to produce
coal; the MLP’s ability to manage production costs and pay mining reclamation
costs; and the effect on demand that the Clean Air Act standards or
other
laws, regulations or trends have on coal end-users.
Marine
Shipping MLPs.
Marine
shipping MLPs are primarily marine transporters of natural gas, crude oil
or
refined petroleum products. Marine shipping MLPs derive revenue from charging
customers for the transportation of these products utilizing the MLPs’ vessels.
Transportation services are typically provided pursuant to a charter or
contract, the terms of which vary depending on, for example, the length of
use
of a particular vessel, the amount of cargo transported, the number of voyages
made, the parties operating a vessel or other factors.
MLPs
typically achieve distribution growth by internal and external means. MLPs
achieve growth internally by experiencing higher commodity volume driven
by the
economy and population, and through
the expansion of existing operations including increasing the use of
underutilized capacity, pursuing projects that can leverage and gain synergies
with existing infrastructure and pursuing so called “greenfield projects.”
External growth is achieved by making accretive acquisitions. While
opportunities for growth by acquisition appear abundant based on current
market
conditions, especially for smaller MLPs, the Adviser expects MLPs to grow
primarily through internal means.
MLPs
are
subject to various federal, state and local environmental laws and health
and
safety laws as well as laws and regulations specific to their particular
activities. Such laws and regulations address: health and safety standards
for
the operation of facilities, transportation systems and the handling of
materials; air and water pollution requirements and standards; solid waste
disposal requirements; land reclamation requirements; and requirements relating
to the handling and disposition of hazardous materials. Energy infrastructure
MLPs are subject to the costs of compliance with such laws applicable to
them,
and changes in such laws and regulations may affect adversely their results
of
operations.
MLPs
operating interstate pipelines and storage facilities are subject to substantial
regulation by FERC, which regulates interstate transportation rates, services
and other matters regarding natural gas pipelines including: the establishment
of rates for service; regulation of pipeline storage and liquified natural
gas
facility construction; issuing certificates of need for companies intending
to
provide energy services or constructing and operating interstate pipeline
and
storage facilities; and certain other matters. FERC also regulates the
interstate transportation of crude oil, including: regulation of rates and
practices of oil pipeline companies; establishing equal service conditions
to
provide shippers with equal access to pipeline transportation; and establishment
of reasonable rates for transporting petroleum and petroleum products by
pipeline.
Energy
infrastructure MLPs may be subject to liability relating to the release of
substances into the environment, including liability under federal “SuperFund”
and similar state laws for investigation and remediation of releases and
threatened releases of hazardous materials, as well as liability for injury
and
property damage for accidental events, such as explosions or discharges of
materials causing personal injury and damage to property. Such potential
liabilities could have a material adverse effect upon the financial condition
and results of operations of energy infrastructure MLPs.
Energy
infrastructure MLPs are subject to numerous business related risks, including:
deterioration of business fundamentals reducing profitability due to development
of alternative energy sources, consumer
sentiment with respect to global warming, changing demographics in the
markets served, unexpectedly prolonged and precipitous changes in commodity
prices and increased competition which takes market share; the lack of growth
of
markets requiring growth through acquisitions; disruptions in transportation
systems; the dependence of certain MLPs upon the energy exploration and
development activities of unrelated third parties; availability of capital
for
expansion and construction of needed facilities; a significant decrease in
natural gas production due to depressed commodity prices or otherwise; the
inability of MLPs to successfully integrate recent or future acquisitions;
and
the general level of the economy.
Non-MLPs.
Although we emphasize investments in MLPs, we also may invest in energy
infrastructure companies that are not organized as MLPs. Non-MLP companies
may
include companies that operate energy assets but which are organized as
corporations or limited liability companies rather than in partnership form.
Generally, the partnership form is more suitable for companies that operate
assets which generate more stable cash flows. Companies that operate “midstream”
assets (e.g., transporting, processing, storing, distributing and
marketing) tend to generate more stable cash flows than
those
that engage in exploration and development or
delivery of products to the end consumer. Non-MLP companies also may include
companies that provide services directly related to the generation of income
from
energy-related assets, such as oil drilling services, pipeline construction
and
maintenance, and compression services.
The
energy industry and particular energy infrastructure companies may be adversely
affected by possible terrorist attacks, such as the attacks that occurred
on
September 11, 2001. It is possible that facilities of energy infrastructure
companies, due to the critical nature of their energy businesses to the United
States, could be direct targets of terrorist attacks or be indirectly affected
by attacks on others. They may incur significant additional costs in the
future
to safeguard their assets. In addition, changes in the insurance markets
after
September 11, 2001 may make certain types of insurance more difficult to
obtain or obtainable only at significant additional cost. To the extent
terrorism results in a lower level economic activity, energy consumption
could
be adversely affected, which would reduce revenues and impede growth. Terrorist
or war related disruption of the capital markets could also affect the ability
of energy infrastructure companies to raise needed capital.
Master
Limited Partnerships
Under
normal circumstances we invest at least 70% of our total assets in equity
securities of MLPs. An MLP is an entity that is taxed as a partnership and
that
derives each year at least 90% of its gross income from Qualifying Income.
An
MLP is typically a limited partnership, the interests in which (known as
units) are traded on securities exchanges or over-the-counter. Organization
as a partnership and compliance with the Qualifying Income rules eliminates
federal income tax at the entity level.
An
MLP
has one or more general partners (who may be individuals, corporations, or
other
partnerships) which manage the partnership, and limited partners, which
provide capital to the partnership but have no role in its management.
Typically, the general partner is owned by company management or another
publicly traded sponsoring corporation. When an investor buys units in a
MLP, he
or she becomes a limited partner.
MLPs
are
formed in several ways. A nontraded partnership may decide to go public.
Several
nontraded partnerships may roll up into a single MLP. A corporation may spin-off
a group of assets or part of its business into a MLP of which it is the general
partner, to realize the assets’ full value on the marketplace by selling the
assets and using the cash proceeds received from the MLP to address debt
obligations or to invest in higher growth opportunities, while retaining
control
of the MLP. A corporation may fully convert to a MLP, although the tax
consequences make this an unappealing option for most corporations. Also,
a
newly formed company may operate as a MLP from its inception.
The
sponsor or general partner of an MLP, other energy companies, and utilities
may
sell assets to MLPs in order to generate cash to fund expansion projects
or
repay debt. The MLP structure essentially transfers cash flows generated
from
these acquired assets directly to MLP limited partner unit holders.
In
the
case of an MLP buying assets from its sponsor or general partner, the
transaction is intended to be based upon comparable terms in the acquisition
market for similar assets. To help insure that appropriate protections are
in
place, the board of the MLP generally creates an independent committee to
review
and approve the terms of the transaction. The committee often obtains a fairness
opinion and can retain counsel or other experts to assist its evaluation.
Since
both parties normally have a significant equity stake in the MLP, both parties
are aligned to see that the transaction is accretive and fair to the
MLP.
MLPs
tend
to pay relatively higher distributions than other types of companies, and
we
intend to use these MLP distributions in an effort to meet our investment
objective.
As
a
motivation for the general partner to successfully manage the MLP and increase
cash flows, the terms of MLP partnership agreements typically provide that
the
general partner receives a larger portion of the net income as distributions
reach higher target levels. As cash flow grows, the general partner receives
a
greater interest in the incremental income compared to the interest of limited
partners. Although the percentages vary among MLPs, the general partner’s
marginal interest in distributions generally increases from 2% to 15% at
the
first designated distribution target level moving to up to 25% and ultimately
to
50% as pre-established distribution per unit thresholds are met. Nevertheless,
the aggregate amount of distributions to limited partners will increase as
MLP
distributions reach higher target levels. Given this incentive structure,
the
general partner has an incentive to streamline operations and undertake
acquisitions and growth projects in order to increase distributions to all
partners.
Because
the MLP itself does not pay federal income tax, its income or loss is allocated
to its investors, irrespective of whether the investors receive any cash
payment
or other distributions from the MLP. An MLP typically makes quarterly cash
distributions. Although they resemble corporate dividends, MLP distributions
are
treated differently for federal income tax purposes. The MLP distribution
is
treated as a return of capital to the extent of the investor’s basis in his MLP
interest and, to the extent the distribution exceeds the investor’s basis in the
MLP interest, capital gain. The investor’s original basis is the price paid for
the units. The basis is adjusted downwards with each distribution and allocation
of deductions (such as depreciation) and losses, and upwards with each
allocation of income and gain.
The
partner generally will not incur federal income tax on distributions until
(1) he sells his MLP units and pays tax on his gain, which gain is
increased due to the basis decrease resulting from prior distributions; or
(2) his basis reaches zero. When the units are sold, the difference between
the sales price and the investor’s adjusted basis is gain or loss for federal
income tax purposes.
For
a
further discussion and a description of MLP federal income tax matters, see
the
section entitled “Certain Federal Income Tax Matters-Federal Income Taxation of
MLPs.”
The
Company’s Investments
The
types
of securities in which we may invest include, but are not limited to, the
following:
Equity
Securities.
Consistent with our investment objective, we may invest up to 100% of our
total
assets in equity securities issued by energy infrastructure MLPs, including
common units, convertible subordinated units, I-Shares and common units,
and
subordinated units and preferred units of limited liability companies (that
are
treated as MLPs for federal income tax purposes) (“LLCs”) (each discussed
below). We also may invest up to 30% of total assets in equity securities
of
non-MLPs.
The
value
of equity securities will be affected by changes in the stock markets, which
may
be the result of domestic or international political or economic news, changes
in interest rates or changing investor sentiment. At times, stock markets
can be
volatile and stock prices can change substantially. Equity securities risk
will
affect our net asset value per share, which will fluctuate as the value of
the
securities held by us change. Not all stock prices change uniformly or at
the
same time, and not all stock markets move in the same direction at the same
time. Other factors affect a particular stock’s prices, such as poor earnings
reports by an issuer, loss of major customers, major litigation against an
issuer, or changes in governmental regulations affecting an industry. Adverse
news affecting one company can sometimes depress the stock prices of all
companies in the same industry. Not all factors can be predicted.
Investing
in securities of smaller companies may involve greater risk than is associated
with investing in more established companies. Smaller capitalization companies
may have limited product lines,
markets or financial resources; may lack management depth or experience;
and may
be more vulnerable to adverse general market or economic developments than
larger, more established companies.
MLP
Common Units.
MLP
common units represent an equity ownership interest in a partnership, providing
limited voting rights and entitling the holder to a share of the company’s
success through distributions and/or capital appreciation. Unlike stockholders
of a corporation, common unit holders do not elect directors annually and
generally have the right to vote only on certain significant events, such
as
mergers, a sale of substantially all of the assets, removal of the general
partner or material amendments to the partnership agreement. MLPs are required
by their partnership agreements to distribute a large percentage of their
current operating earnings. Common unit holders generally have first right
to a
minimum quarterly distribution (“MQD”) prior to distributions to the
convertible subordinated unit holders or the general partner (including
incentive distributions). Common unit holders typically have arrearage rights
if
the MQD is not met. In the event of liquidation, MLP common unit holders
have
first rights to the partnership’s remaining assets after bondholders, other debt
holders, and preferred unit holders have been paid in full. MLP common units
trade on a national securities exchange or over-the-counter.
Limited
Liability Company Common Units.
Some
energy infrastructure companies in which we may invest have been organized
as
LLCs. Such LLCs are generally treated in the same manner as MLPs for federal
income tax purposes and, unless otherwise noted, the term MLP includes all
entities that are treated in the same manner as MLPs for federal income tax
purposes, regardless of their form of organization. Consistent with our
investment objective and policies, we may invest in common units or other
securities of such LLCs including preferred and subordinated units and debt
securities. LLC common units represent an equity ownership interest in an
LLC,
entitling the holders to a share of the LLC’s success through distributions
and/or capital appreciation. Similar to MLPs, LLCs typically do not pay federal
income tax at the entity level and are required by their operating agreements
to
distribute a large percentage of their current operating earnings. LLC common
unit holders generally have first right to a MQD prior to distributions to
subordinated unit holders and typically have arrearage rights if the MQD
is not
met. In the event of liquidation, LLC common unit holders have a right to
the
LLC’s remaining assets after bondholders, other debt holders and preferred unit
holders, if any, have been paid in full. LLC common units typically trade
on a
national securities exchange or over-the-counter.
In
contrast to MLPs, LLCs have no general partner and there are no incentives
that
entitle management or other unit holders to increased percentages of cash
distributions as distributions reach higher target levels. In addition, LLC
common unit holders typically have voting rights with respect to the LLC,
whereas MLP common units have limited voting rights.
MLP
Convertible Subordinated Units.
MLP
convertible subordinated units typically are issued by MLPs to founders,
corporate general partners of MLPs, entities that sell assets to MLPs, and
institutional investors. The purpose of the convertible subordinated units
is to
increase the likelihood that during the subordination period there will be
available cash to be distributed to common unit holders. We expect to purchase
convertible subordinated units in direct placements from such persons.
Convertible subordinated units generally are not entitled to distributions
until
holders of common units have received specified MQD, plus any arrearages,
and
may receive less in distributions upon liquidation. Convertible subordinated
unit holders generally are entitled to MQD prior to the payment of incentive
distributions to the general partner, but are not entitled to arrearage rights.
Therefore, they generally entail greater risk than MLP common units. They
are
generally convertible automatically into the senior common units of the same
issuer at a one-to-one ratio upon the passage of time or the satisfaction
of
certain financial tests. These units generally do not trade on a national
exchange or over-the-counter, and there is no active
market
for convertible subordinated units. The value of a convertible security is
a
function of its worth if it were converted into the underlying common units.
Convertible subordinated units generally have similar voting rights to MLP
common units. Distributions may be paid in cash or in-kind.
MLP
I-Shares.
I-Shares represent an indirect investment in MLP I-units. I-units are equity
securities issued to affiliates of MLPs, typically a limited liability company,
that owns an interest in and manages the MLP. The issuer has management rights
but is not entitled to incentive distributions. The I-Share issuer’s assets
consist exclusively of MLP I-units. Distributions by MLPs to I-unit holders
are
made in the form of additional I-units, generally equal in amount to the
cash
received by common unit holders of the MLP. Distributions to I-Share holders
are
made in the form of additional I-Shares, generally equal in amount to the
I-units received by the I-Share issuer. The issuer of the I-Share is taxed
as a
corporation for federal income tax purposes. Accordingly, investors receive
a
Form 1099, are not allocated their proportionate share of income of the MLPs
and
are not subject to state income tax filing obligations solely as a result
of
holding such I-Shares.
Debt
Securities.
We may
invest up to 25% of our total assets in debt securities of energy infrastructure
companies, including certain securities rated below investment grade (“junk
bonds”). The debt securities we invest in may have fixed or variable principal
payments and all types of interest rate and dividend payment and reset terms,
including fixed rate, adjustable rate, zero coupon, contingent, deferred,
payment in kind and auction rate features. If a security satisfies our minimum
rating criteria at the time of purchase and is subsequently downgraded below
such rating, we will not be required to dispose of such security. If a downgrade
occurs, the Adviser will consider what action, including the sale of such
security, is in our best interest and our stockholders’ best
interests.
Below
Investment Grade Debt Securities.
We may
invest up to 25% of our assets in below investment grade securities. The
below
investment grade debt securities in which we invest are rated from B3 to
Ba1 by
Moody’s, from B- to BB+ by S&P’s, are comparably rated by another nationally
recognized rating agency or are unrated but determined by the Adviser to
be of
comparable quality.
Investment
in below investment grade securities involves substantial risk of loss. Below
investment grade debt securities or comparable unrated securities are commonly
referred to as “junk bonds” and are considered predominantly speculative with
respect to the issuer’s ability to pay interest and principal and are
susceptible to default or decline in market value due to adverse economic
and
business developments. The market values for high yield securities tend to
be
very volatile, and these securities are less liquid than investment grade
debt
securities. For these reasons, investment in below investment grade securities
is subject to the following specific risks:
|
·
|
increased
price sensitivity to changing interest rates and to a deteriorating
economic environment;
|
|
·
|
greater
risk of loss due to default or declining credit
quality;
|
|
·
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adverse
company specific events are more likely to render the issuer unable
to
make interest and/or principal payments;
and
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|
·
|
if
a negative perception of the below investment grade debt market
develops,
the price and liquidity of below investment grade debt securities
may be
depressed. This negative perception could last for a significant
period of
time.
|
Adverse
changes in economic conditions are more likely to lead to a weakened capacity
of
a below investment grade debt issuer to make principal payments and interest
payments than an investment
grade
issuer. The principal amount of below investment grade securities outstanding
has proliferated in the past decade as an increasing number of issuers have
used
below investment grade securities for corporate financing. An economic downturn
could affect severely the ability of highly leveraged issuers to service
their
debt obligations or to repay their obligations upon maturity. Similarly,
down-turns in profitability in specific industries, such as the energy
infrastructure industry, could adversely affect the ability of below investment
grade debt issuers in that industry to meet their obligations. The market
values
of lower quality debt securities tend to reflect individual developments
of the
issuer to a greater extent than do higher quality securities, which react
primarily to fluctuations in the general level of interest rates. Factors
having
an adverse impact on the market value of lower quality securities we own
may
have an adverse effect on our net asset value and the market value of our
common
stock. In addition, we may incur additional expenses to the extent we are
required to seek recovery upon a default in payment of principal or interest
on
our portfolio holdings. In certain circumstances, we may be required to
foreclose on an issuer’s assets and take possession of its property or
operations. In such circumstances, we would incur additional costs in disposing
of such assets and potential liabilities from operating any business
acquired.
The
secondary market for below investment grade securities may not be as liquid
as
the secondary market for more highly rated securities, a factor which may
have
an adverse effect on our ability to dispose of a particular security when
necessary to meet our liquidity needs. There are fewer dealers in the market
for
below investment grade securities than investment grade obligations. The
prices
quoted by different dealers may vary significantly and the spread between
the
bid and asked price is generally much larger than higher quality instruments.
Under adverse market or economic conditions, the secondary market for below
investment grade securities could contract further, independent of any specific
adverse changes in the condition of a particular issuer, and these instruments
may become illiquid. As a result, we could find it more difficult to sell
these
securities or may be able to sell the securities only at prices lower than
if
such securities were widely traded. Prices realized upon the sale of such
lower
rated or unrated securities, under these circumstances, may be less than
the
prices used in calculating our net asset value.
Because
investors generally perceive that there are greater risks associated with
lower
quality debt securities of the type in which we may invest a portion of our
assets, the yields and prices of such securities may tend to fluctuate more
than
those for higher rated securities. In the lower quality segments of the debt
securities market, changes in perceptions of issuers’ creditworthiness tend to
occur more frequently and in a more pronounced manner than do changes in
higher
quality segments of the debt securities market, resulting in greater yield
and
price volatility.
We
will
not invest in distressed, below investment grade securities (those that are
in
default or the issuers of which are in bankruptcy). If a debt security becomes
distressed while held by us, we may be required to bear extraordinary expenses
in order to protect and recover our investment if it is recoverable at
all.
See
Appendix C to this Statement of Additional Information for a description of
ratings of Moody’s, Fitch Ratings (“Fitch”) and S&P.
Restricted,
Illiquid and Thinly-Traded Securities.
We may
invest up to 30% of our total assets in restricted securities, primarily
through
direct placements of MLP securities. Restricted securities obtained by means
of
direct placement are less liquid than securities traded in the open market;
therefore, we may not be able to readily sell such securities. Investments
currently considered by the Adviser to be illiquid because of such restrictions
include convertible subordinated units and certain direct placements of common
units. Such securities are unlike securities that are traded in the open
market
and which can be expected to be sold immediately if the market is adequate.
The
sale price of securities that are not readily
marketable
may be lower or higher than our most recent determination of their fair value.
Additionally, the value of these securities typically requires more reliance
on
the judgment of the Adviser than that required for securities for which there
is
an active trading market. Due to the difficulty in valuing these securities
and
the absence of an active trading market for these investments, we may not
be
able to realize these securities’ true value, or may have to delay their sale in
order to do so.
Restricted
securities generally can be sold in privately negotiated transactions, pursuant
to an exemption from registration under the 1933 Act, or in a registered
public
offering. The Adviser has the ability to deem restricted securities as liquid.
To enable us to sell our holdings of a restricted security not registered
under
the 1933 Act, we may have to cause those securities to be registered. When
we
must arrange registration because we wish to sell the security, a considerable
period may elapse between the time the decision is made to sell the security
and
the time the security is registered so that we could sell it. We would bear
the
risks of any downward price fluctuation during that period.
In
recent
years, a large institutional market has developed for certain securities
that
are not registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and
notes.
These instruments are often restricted securities because the securities
are
either themselves exempt from registration or sold in transactions not requiring
registration, such as Rule 144A transactions. Institutional investors generally
will not seek to sell these instruments to the general public, but instead
will
often depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer’s ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive
of
the liquidity of such investments.
Rule
144A
under the 1933 Act establishes a “safe harbor” from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities that
exist
or may develop as a result of Rule 144A may provide both readily ascertainable
values for restricted securities and the ability to liquidate an investment.
An
insufficient number of qualified institutional buyers interested in purchasing
Rule 144A-eligible securities held by us, however, could affect adversely
the
marketability of such portfolio securities and we might not be able to dispose
of such securities promptly or at reasonable prices.
We
also
may invest in securities that may not be restricted, but are thinly-traded.
Although securities of certain MLPs trade on the NYSE, the AMEX, the NASDAQ
National Market or other securities exchanges or markets, such securities
may
trade less than those of larger companies due to their relatively smaller
capitalizations. Such securities may be difficult to dispose of at a fair
price
during times when we believe it is desirable to do so. Thinly-traded securities
are also more difficult to value, and the Adviser’s judgment as to value will
often be given greater weight than market quotations, if any exist. If market
quotations are not available, thinly-traded securities will be valued in
accordance with procedures established by the Board. Investment of our capital
in thinly-traded securities may restrict our ability to take advantage of
market
opportunities. The risks associated with thinly-traded securities may be
particularly acute in situations in which our operations require cash and
could
result in us borrowing to meet our short term needs or incurring losses on
the
sale of thinly-traded securities.
Commercial
Paper.
We may
invest in commercial paper. Commercial paper is a debt obligation usually
issued
by corporations and may be unsecured or secured by letters of credit or a
surety
bond. Commercial paper usually is repaid at maturity by the issuer from the
proceeds of the issuance of new commercial paper. As a result, investment
in
commercial paper is subject to the risk that the issuer cannot issue enough
new
commercial paper to satisfy its outstanding commercial paper, also known
as
rollover risk.
Asset-backed
commercial paper is a debt obligation generally issued by a corporate-sponsored
special purpose entity to which the corporation has contributed cash-flowing
receivables like credit card receivables,
auto and equipment leases, and other receivables. Investment in asset-backed
commercial paper is subject to the risk that insufficient proceeds from
the
projected cash flows of the contributed receivables are available to repay
the
commercial paper.
U.S.
Government Securities.
We may
invest in U.S. Government Securities. There are two broad categories of U.S.
Government-related debt instruments: (a) direct obligations of the U.S.
Treasury, and (b) securities issued or guaranteed by U.S. Government
agencies.
Examples
of direct obligations of the U.S. Treasury are Treasury bills, notes, bonds
and
other debt securities issued by the U.S. Treasury. These instruments are
backed
by the “full faith and credit” of the United States. They differ primarily in
interest rates, the length of maturities and the dates of issuance. Treasury
bills have original maturities of one year or less. Treasury notes have original
maturities of one to ten years, and Treasury bonds generally have original
maturities of greater than ten years.
Some
agency securities are backed by the full faith and credit of the United States,
and others are backed only by the rights of the issuer to borrow from the
U.S.
Treasury (such as Federal Home Loan Bank Bonds and Federal National Mortgage
Association Bonds), while still others, such as the securities of the Federal
Farm Credit Bank, are supported only by the credit of the issuer. With respect
to securities supported only by the credit of the issuing agency or by an
additional line of credit with the U.S. Treasury, there is no guarantee that
the
U.S. Government will provide support to such agencies, and such securities
may
involve risk of loss of principal and interest.
Repurchase
Agreements.
We may
enter into “repurchase agreements” backed by U.S. Government Securities. A
repurchase agreement arises when we purchase a security and simultaneously
agree
to resell it to the vendor at an agreed upon future date. The resale price
is
greater than the purchase price, reflecting an agreed upon market rate of
return
that is effective for the period of time we hold the security and that is
not
related to the coupon rate on the purchased security. Such agreements generally
have maturities of no more than seven days and could be used to permit us
to
earn interest on assets awaiting long term investment. We require continuous
maintenance by our custodian for our account in the Federal Reserve/Treasury
Book-Entry System of collateral in an amount equal to, or in excess of, the
market value of the securities that are the subject of a repurchase agreement.
Repurchase agreements maturing in more than seven days are considered illiquid
securities. In the event of a bankruptcy or other default of a seller of
a
repurchase agreement, we could experience both delays in liquidating the
underlying security and losses, including: (a) possible decline in the
value of the underlying security during the period while we seek to enforce
our
rights thereto; (b) possible subnormal levels of income and lack of access
to income during this period; and (c) expenses of enforcing our
rights.
Reverse
Repurchase Agreements.
We may
enter into reverse repurchase agreements for temporary purposes with banks
and
securities dealers if the creditworthiness of the bank or securities dealer
has
been determined by the Adviser to be satisfactory. A reverse repurchase
agreement is a repurchase agreement in which we are the seller of, rather
than
the investor in, securities and agree to repurchase them at an agreed-upon
time
and price. Use of a reverse repurchase agreement may be preferable to a regular
sale and later repurchase of securities because it avoids certain market
risks
and transaction costs.
At
the
time when we enter into a reverse repurchase agreement, liquid assets (cash,
U.S. Government Securities or other “high-grade” debt obligations) having a
value at least as great as the purchase price of the securities to be purchased
will be segregated on our books and held by our custodian throughout the
period
of the obligation. The use of reverse repurchase agreements creates leverage
which
increases
our investment risk. If the income and gains
on securities purchased with the proceeds of these transactions exceed the
cost,
our earnings or net asset value will increase faster than otherwise would
be
the
case;
conversely, if the income and gains fail to exceed the cost, earnings or
net
asset value would decline faster than otherwise would be the case. We intend
to
enter into reverse repurchase agreements only if the income from the investment
of the proceeds is greater than the expense of the transaction, because the
proceeds are invested for a period no longer than the term of the reverse
repurchase agreement.
Margin
Borrowing.
Although we do not currently intend to, we may in the future use margin
borrowing of up to 33 1/3% of total assets for investment purposes when the
Adviser believes it will enhance returns. Margin borrowings create certain
additional risks. For example, should the securities that are pledged to
brokers
to secure margin accounts decline in value, or should brokers from which
we have
borrowed increase their maintenance margin requirements (i.e., reduce the
percentage of a position that can be financed), then we could be subject
to a
“margin call,” pursuant to which we must either deposit additional funds with
the broker or suffer mandatory liquidation of the pledged securities to
compensate for the decline in value. In the event of a precipitous drop in
the
value of our assets, we might not be able to liquidate assets quickly enough
to
pay off the margin debt and might suffer mandatory liquidation of positions
in a
declining market at relatively low prices, thereby incurring substantial
losses.
For these reasons, the use of borrowings for investment purposes is considered
a
speculative investment practice. Any use of margin borrowing by us would
be
subject to the limitations of the 1940 Act, including the prohibition from
us
issuing more than one class of senior securities, and the asset coverage
requirements discussed earlier in this Statement of Additional Information.
See
“Investment Limitations.”
Interest
Rate Transactions.
In an
attempt to reduce the interest rate risk arising from our leveraged capital
structure, we currently use, and may in the future use, interest rate
transactions such as swaps, caps and floors. The use of interest rate
transactions is a highly specialized activity that involves investment
techniques and risks different from those associated with ordinary portfolio
security transactions. In an interest rate swap, we would agree to pay to
the
other party to the interest rate swap (which is known as the
“counterparty”) a fixed rate payment in exchange for the counterparty
agreeing to pay to us a variable rate payment that is intended to approximate
our variable rate payment obligation on any variable rate borrowings. The
payment obligations would be based on the notional amount of the swap. In
an
interest rate cap, we would pay a premium to the counterparty to the interest
rate cap and, to the extent that a specified variable rate index exceeds
a
predetermined fixed rate, would receive from the counterparty payments of
the
difference based on the notional amount of such cap. In an interest rate
floor,
we would be entitled to receive, to the extent that a specified index falls
below a predetermined interest rate, payments of interest on a notional
principal amount from the party selling the interest rate floor. Depending
on
the state of interest rates in general, our use of interest rate transactions
could enhance or decrease distributable cash flow (generally, cash from
operations less certain operating expenses and reserves) available to the
shares
of our common stock. To the extent there is a decline in interest rates,
the
value of the interest rate transactions could decline, and could result in
a
decline in the net asset value of the shares of our common stock. In addition,
if the counterparty to an interest rate transaction defaults, we would not
be
able to use the anticipated net receipts under the interest rate transaction
to
offset our cost of financial leverage. When interest rate swap transactions
are
outstanding, we will segregate liquid assets with our custodian in an amount
equal to our net payment obligation under the swap.
Delayed-Delivery
Transactions.
Securities may be bought and sold on a delayed-delivery or when-issued basis.
These transactions involve a commitment to purchase or sell specific securities
at a predetermined price or yield, with payment and delivery taking place
after
the customary settlement
period
for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. We may
receive fees or price concessions for entering into delayed-delivery
transactions.
When
purchasing securities on a delayed-delivery basis, the purchaser assumes
the
rights and risks of ownership, including the risks of price and yield
fluctuations and the risk that the security will not be issued as anticipated.
Because payment for the securities is not required until the delivery date,
these risks are in addition to the risks associated with our investments.
If we
remain substantially fully invested at a time when delayed-delivery purchases
are outstanding, the delayed-delivery purchases may result in a form of
leverage. When delayed-delivery purchases are outstanding, we will segregate
appropriate liquid assets with our custodian to cover the purchase obligations.
When we have sold a security on a delayed-delivery basis, we do not participate
in further gains or losses with respect to the security. If the other party
to a
delayed-delivery transaction fails to deliver or pay for the securities,
we
could miss a favorable price or yield opportunity or suffer a loss.
Securities
Lending.
We may
lend securities to parties such as broker-dealers or institutional investors.
Securities lending allows us to retain ownership of the securities loaned
and,
at the same time, to earn additional income. Since there may be delays in
the
recovery of loaned securities, or even a loss of rights in collateral supplied
should the borrower fail financially, loans will be made only to parties
deemed
by the Adviser to be of good credit and legal standing. Furthermore, loans
of
securities will only be made if, in the Adviser’s judgment, the consideration to
be earned from such loans would justify the risk.
The
Adviser understands that it is the current view of the SEC staff that we
may
engage in loan transactions only under the following conditions: (1) we
must receive 100% collateral in the form of cash or cash equivalents (e.g.,
U.S.
Treasury bills or notes) from the borrower; (2) the borrower must
increase the collateral whenever the market value of the securities loaned
(determined on a daily basis) rises above the value of the collateral;
(3) after giving notice, we must be able to terminate the loan at any time;
(4) we must receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest, or other
distributions on the securities loaned and to any increase in market value;
(5) we may pay only reasonable custodian fees in connection with the loan;
and (6) the Board must be able to vote proxies on the securities loaned,
either by terminating the loan or by entering into an alternative arrangement
with the borrower.
Temporary
and Defensive Investments.
Pending
investment of offering or leverage proceeds, we may invest such proceeds
in
securities issued or guaranteed by the U.S. Government or its instrumentalities
or agencies, short-term debt securities, certificates of deposit, bankers’
acceptances and other bank obligations, commercial paper rated in the highest
category by a rating agency or other liquid fixed income securities deemed
by
the Adviser to be of similar quality (collectively, “short-term securities”), or
we may invest in cash or cash equivalents, all of which are expected to provide
a lower yield than the securities of energy infrastructure companies. We
also
may invest in short-term securities or cash on a temporary basis to meet
working
capital needs including, but not limited to, for collateral in connection
with
certain investment techniques, to hold a reserve pending payment of
distributions, and to facilitate the payment of expenses and settlement of
trades.
Under
adverse market or economic conditions, we may invest up to 100% of our total
assets in short-term securities or cash. The yield on short-term securities
or
cash may be lower than the returns on MLPs or yields on lower rated fixed
income
securities. To the extent we invest in short-term securities or cash for
defensive purposes, such investments are inconsistent with, and may result
in us
not achieving, our investment objective.
Directors
and Officers
Our
business and affairs are managed under the direction of the Board of Directors.
Accordingly, the Board of Directors provides broad supervision over our affairs,
including supervision of the duties performed by the Adviser. Our officers
are
responsible for our day-to-day operations. Our directors and officers and
their
principal occupations and other affiliations during the past five years are
set
forth below. Each director and officer will hold office until his successor
is
duly elected and qualifies, or until he resigns or is removed in the manner
provided by law. The Board of Directors is divided into three classes. Directors
of each class are elected to serve three year terms and until their successors
are duly elected and qualify. Each year only one class of directors is elected
by the stockholders. Unless otherwise indicated, the address of each director
and officer is 10801 Mastin Boulevard, Suite 222, Overland Park, Kansas 66210.
The Board of Directors consists of a majority of directors who are not
interested persons (as defined in the 1940 Act) of the Adviser or its
affiliates.
|
Name
and Age
|
Position(s)
Held With Company and Length of Time Served
|
Principal
Occupation During Past Five Years
|
Number
of Portfolios in Fund Complex Overseen by Director(2)
|
Other
Public Company Directorships Held by Director
|
|
Independent
Directors
|
||||
|
Conrad
S. Ciccotello, 46
|
Director
since 2003
|
Tenured
Associate Professor of Risk Management and Insurance, Robinson
College of
Business, Georgia State University (faculty member since 1999);
Director
of Graduate Personal Financial Planning (PFP) Programs, Editor,
“Financial
Services Review” (an academic journal dedicated to the study of individual
financial management); formerly, faculty member, Pennsylvania State
University (1997-1999).
|
4
|
None
|
|
John
R. Graham, 61
|
Director
since 2003
|
Executive-in-Residence
and Professor of Finance, College of Business Administration, Kansas
State
University (has served as a professor or adjunct professor since
1970);
Chairman of the Board, President and CEO, Graham Capital Management,
Inc.,
primarily a real estate development and investment company and
a venture
capital company; and Owner of Graham Ventures, a business services
and
venture capital firm; formerly, CEO, Kansas Farm Bureau Financial
Services, including seven affiliated insurance or financial service
companies (1979-2000).
|
4
|
Erie
Indemnity Company; Kansas State Bank
|
|
Name
and Age
|
Position(s)
Held With Company and Length of Time Served
|
Principal
Occupation During Past Five Years
|
Number
of Portfolios in Fund Complex Overseen by Director(2)
|
Other
Public Company Directorships Held by
Director
|
|
Charles
E. Heath, 64
|
Director
since 2003
|
Retired
in 1999. Formerly, Chief Investment Officer, GE Capital’s Employers
Reinsurance Corporation (1989-1999). Chartered Financial Analyst
(“CFA”)
since 1974.
|
4
|
None
|
|
Interested
Directors and Officers(1)
|
||||
|
H.
Kevin Birzer, 47
|
Director
and Chairman of the Board since 2003
|
Managing
Director of the Adviser since 2002; Partner, Fountain Capital
(1990-present); formerly, Vice President, Corporate Finance Department,
Drexel Burnham Lambert (1986-1989); Vice President, F. Martin
Koenig & Co., an investment management firm
(1983-1986).
|
4
|
None
|
|
Terry
C. Matlack, 51
|
Director
and Chief Financial Officer since 2003, Chief Compliance Officer
from 2004
through May 2006; Assistant Treasurer since November 2005;
Treasurer from 2003 to November 2005
|
Managing
Director of the Adviser since 2002; Managing Director, KCEP
(2001-present); formerly, President, GreenStreet Capital, a private
investment firm (1998-2001).
|
4
|
None
|
|
David J.
Schulte, 45
|
President
and Chief Executive Officer since 2003
|
Managing
Director of the Adviser since 2002; Managing Director, KCEP
(1993-present); CFA since 1992.
|
N/A
|
None
|
|
Zachary
A. Hamel, 41
|
Secretary
since 2003
|
Managing
Director of the Adviser since 2002; Partner, Fountain Capital Management
(1997-present).
|
N/A
|
None
|
|
Kenneth
P. Malvey, 41
|
Treasurer
since November 2005; Assistant Treasurer from 2003 to
November 2005
|
Managing
Director of the Adviser since 2002; Partner, Fountain Capital Management
(2002-present); formerly, Investment Risk Manager and member of
the Global
Office of Investments, GE Capital’s Employers Reinsurance Corporation
(1996-2002).
|
N/A
|
None
|
____________
|
(1)
|
As
a result of their respective positions held with the Adviser or
its
affiliates, these individuals are considered our “interested persons”
within the meaning of the 1940 Act.
|
|
(2)
|
This
number includes Tortoise North American Energy Corporation (“TYN”),
Tortoise Energy Capital Corporation (“TYY”) and Tortoise Capital Resources
Corporation (“TTO”). The Adviser also serves as investment adviser to TYN,
TYY and TTO.
|
The
following individuals who are included in the table above hold the following
positions with TYN, TYY and TTO: Messrs. Ciccotello, Graham and Heath are
directors; Mr. Birzer is a director and the Chairman of the Board;
Mr. Matlack is a director and the Chief Financial Officer; Mr. Schulte
is the President and Chief Executive Officer; Mr. Hamel is the Secretary;
and Mr. Malvey is the Treasurer.
We
have
an audit committee that consists of three directors (the “Audit Committee”) who
are not “interested persons” within the meaning of the 1940 Act (“Independent
Directors”). The Audit Committee members are Conrad S. Ciccotello (Chairman),
Charles E. Heath and John R. Graham. The Audit Committee’s function is to
oversee our accounting policies, financial reporting and internal control
system. The Audit Committee makes recommendations regarding the selection
of our
independent auditors, reviews the independence of such firm, reviews the
scope
of the audit and internal controls, considers and reports to the Board on
matters relating to our accounting and financial reporting practices, and
performs such other tasks as the full Board deems necessary or appropriate.
The
Audit Committee held 2 meetings in the fiscal year ended November 30,
2006.
We
also
have a Nominating and Governance Committee (formerly the Nominating Committee)
that consists exclusively of three Independent Directors. The Nominating
and
Governance Committee’s function is to (i) identify individuals qualified to
become Board members and recommend to the Board the director nominees for
the
next annual meeting of stockholders and to fill any vacancies; (ii) monitor
the structure and membership of Board committees; recommend to the Board
director nominees for each committee; (iii) review issues and developments
related to corporate governance issues and develop and recommend to the Board
corporate governance guidelines and procedures, to the extent necessary or
desirable; and (iv) actively seek individuals who meet the standards for
directors set forth in our Bylaws, who meet the requirements of any applicable
laws or exchange requirements and who are otherwise qualified to become board
members for recommendation to the Board. The Nominating and Governance Committee
will consider shareholder recommendations for nominees for membership to
the
Board so long as such recommendations are made in accordance with our Bylaws.
The Nominating and Governance Committee members are Conrad S. Ciccotello,
John
R. Graham (Chairman), and Charles E. Heath. The Nominating Committee (which
became the Nominating and Governance Committee in December 2005)
held 1
meeting in the fiscal year ended November 30, 2006.
We
also
have a Compliance Committee formed in December 2005 that consists
exclusively of three Independent Directors. The Compliance Committee’s function
is to review and assess management’s compliance with applicable securities laws,
rules and regulations, monitor compliance with our Code of Ethics, and handle
other matters as the Board or committee chair deems appropriate. The Compliance
Committee members are Conrad S. Ciccotello, John R. Graham and Charles E.
Heath
(Chairman). The Compliance Committee held 1
meeting in the fiscal year ended November 30, 2006.
Directors
and officers who are interested persons of the Company or the Administrator
will
receive no salary or fees from us. For the current fiscal year, each Independent
Director receives from us an annual retainer of $15,000 (plus an additional
$6,000 for the Chairman of the Audit Committee and an additional $1,000 for
each
other committee Chairman) and a fee of $2,000 (and reimbursement for related
expenses) for each meeting of the Board or Audit Committee attended in person
(or $1,000 for each Board or Audit Committee meeting attended telephonically,
or
for each Audit Committee meeting attended in person that is held on the same
day
as a Board meeting), and an additional $1,000 for each other committee meeting
attended in person or telephonically. No director or officer will be entitled
to
receive pension or retirement benefits from us.
The
table
below sets forth the compensation paid to the directors by us for the fiscal
year ended November 30, 2006.
|
Name
and Position With the Company
|
Aggregate
Compensation From the Company
|
Aggregate
Compensation From the Company and Fund Complex Paid to
Directors
(4
Companies)
|
|||||
|
Independent
Directors
|
|||||||
|
Conrad
S. Ciccotello
|
$
|
40,480
|
$
|
125,500
|
|||
|
John
R. Graham
|
$
|
36,480
|
$
|
113,500
|
|||
|
Charles
E. Heath
|
$
|
35,480
|
$
|
109,500
|
|||
|
Interested
Directors
|
|||||||
|
H.
Kevin Birzer
|
$
|
0
|
$
|
0
|
|||
|
Terry
C. Matlack
|
$
|
0
|
$
|
0
|
|||
The
following table sets forth the dollar range of equity securities beneficially
owned by each director of the Company as of December 31, 2006.
|
Name
of Director
|
Aggregate
Dollar Range of Company Securities Beneficially Owned By
Director*
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment
Companies
Overseen by Director in Family of Investment
Companies
(4
Companies)
|
|||||
|
Independent
Directors
|
|||||||
|
Conrad
S. Ciccotello
|
$ | 50,001-$100,000 |
|
Over
$100,000
|
|||
|
John
R. Graham
|
Over $100,000 | Over $100,000 | |||||
|
Charles
E. Heath
|
Over $100,000 | Over $100,000 | |||||
|
Interested
Directors
|
|||||||
|
H.
Kevin Birzer
|
Over $100,000 | Over $100,000 | |||||
|
Terry
C. Matlack
|
Over $100,000 | Over $100,000 | |||||
____________
|
*
|
As
of December 31, 2006, the officers and directors of the Company, as a
group, own less than 1% of any class of the Company’s outstanding shares
of stock.
|
Control
Persons
As
of
February
28, 2007, the following persons owned of record or beneficially
more than 5% of our common shares:
|
Merrill
Lynch Safekeeping
4
Corporate Place
Piscataway,
NJ 08854
|
17.06% |
| Charles
Schwab & Co., Inc.
101
Montgomery St.
San
Francisco, CA 94104
|
9.23% |
|
Stifel,
Nicolaus & Company Inc.
501
North Broadway
St.
Louis, MO 63102 |
8.57% |
|
RBC
Dain Rauscher Inc.
1221
Avenue of the Americas
New
York, NY 10036
|
6.44%
|
Indemnification
of Directors and Officers
Maryland
law permits a Maryland corporation to include in its charter a provision
limiting the liability of its directors and officers to the corporation and
its
stockholders for money damages except for liability resulting from
(a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty which is established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates directors’ and officers’ liability to the
maximum extent permitted by Maryland law and the 1940 Act.
The
Charter authorizes us, to the maximum extent permitted by Maryland law and
the
1940 Act, to indemnify any present or former director or officer or any
individual who, while a director or officer of ours and at our request, serves
or has served another corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or other enterprise as a director,
officer, partner or trustee, from and against any claim or liability to which
that person may become subject or which that person may incur by reason of
his
or her status as a present or former director or officer of ours and to pay
or
reimburse his or her reasonable expenses in advance of final disposition
of a
proceeding. The Bylaws obligate us, to the maximum extent permitted by Maryland
law and the 1940 Act, to indemnify any present or former director or officer
or
any individual who, while a director of ours and at our request, serves or
has
served another corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise as a director,
officer, partner or trustee and who is made a party to the proceeding by
reason
of his or her service in that capacity from and against any claim or liability
to which that person may become subject or which that person may incur by
reason
of his or her status as a present or former director or officer of ours and
to
pay or reimburse his or her reasonable expenses in advance of final disposition
of a proceeding. The Charter and Bylaws also permit us to indemnify and advance
expenses to any person who served a predecessor of ours in any of the capacities
described above and any employee or agent of ours or a predecessor of ours.
The
1940 Act prohibits us from indemnifying any director, officer or other
individual from any liability resulting directly from the willful misconduct,
bad faith, gross negligence in the performance of duties or reckless disregard
of applicable obligations and duties of the directors, officers or other
individuals.
Maryland
law requires a corporation (unless its charter provides otherwise, which
our
Charter does not) to indemnify a director or officer who has been successful
in
the defense of any proceeding to which he or she is made, or threatened
to be
made, a party by reason of his or her service in that capacity. Maryland
law
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements
and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made, or threatened to be made, a party by reason
of their
service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or
(c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under Maryland law, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation or for a judgment
of
liability on the basis that personal benefit was
improperly
received, unless in either case a court orders indemnification and then only
for
expenses. In addition, Maryland law permits a corporation to advance reasonable
expenses to a director or officer upon the corporation’s receipt of (a) a
written affirmation by the director or officer of his or her good faith belief
that he or she has met the standard of conduct necessary for indemnification
by
the corporation and (b) a written undertaking by him or her or on his or
her behalf to repay the amount paid or reimbursed by the corporation if it
is
ultimately determined that the standard of conduct was not met.
Investment
Adviser
Tortoise
Capital Advisors, L.L.C. (the “Adviser”) serves as our investment adviser. The
Adviser specializes in managing portfolios of investments in MLPs and other
energy infrastructure companies. The Adviser was formed by Fountain Capital
Management, L.L.C. (“Fountain Capital”) and Kansas City Equity Partners, L.C.
(“KCEP”) in October 2002 to provide portfolio management services
exclusively with respect to energy infrastructure investments. The Adviser
is
controlled equally by Fountain Capital and KCEP, each of which own half of
all
of the voting shares of the Adviser.
Fountain
Capital was formed in 1990 and is focused primarily on providing investment
advisory services to institutional investors with respect to below investment
grade debt. Atlantic Asset Management, L.L.C. (“Atlantic”) is a minority owner,
and an affiliate, of Fountain Capital. Atlantic was formed in 1992 and provides,
directly or through affiliates, a variety of fixed income investment advisory
services including investment grade bond and high-yield bond strategies,
investment grade collateralized debt obligations and mortgage hedge
funds.
KCEP
was
formed in 1993 and until recently, managed KCEP Ventures II, L.P. (“KCEP
II”), a private equity fund with committed capital of $55 million invested in
a
variety of companies in diverse industries. KCEP II wound up its operations
in late 2006, has no remaining portfolio investments and has distributed
proceeds to its partners. KCEP Ventures I, L.P. (“KCEP I”), a start-up
and early-stage venture capital fund launched in 1994 and previously managed
by
KCEP, also recently completed the process of winding down. As a part of that
process, KCEP I entered into a consensual order of receivership, which was
necessary to allow KCEP I to distribute its remaining $1.3 million of
assets to creditors and the SBA. The consensual order acknowledged a capital
impairment condition and the resulting nonperformance by KCEP I of its
agreement with the SBA, both of which were violations of the provisions
requiring repayment of capital under the Small Business Investment Act of
1958
and the regulations thereunder.
The
Adviser is located at 10801 Mastin Boulevard, Suite 222, Overland Park, Kansas
66210. As of November 30, 2006, the Adviser had approximately $2.0 billion
in assets under management in the energy infrastructure industry.
Pursuant
to an Investment Advisory Agreement (the “Advisory Agreement”), the Adviser,
subject to overall supervision by the Board, manages our investments. The
Adviser regularly provides us with investment research advice and supervision
and will furnish continuously an investment program for us, consistent
with our
investment objective and policies.
The
investment management of our portfolio is the responsibility of a team
of
portfolio managers consisting of David J. Schulte, H. Kevin Birzer,
Zachary A. Hamel, Kenneth P. Malvey, and Terry C. Matlack, all of
whom are Managers of the Adviser and share responsibility for such investment
management. It is the policy of the investment committee, that any one
member
can require the Adviser to sell a security and any one member can veto
the
committee’s decision to invest in a security. Messrs. Matlack and Schulte are
full-time employees of the Adviser. The other members of the investment
committee are affiliates of, but not employees of, the Adviser, and have
significant responsibilities with Fountain Capital. All members of the
investment committee have undertaken to provide such services as necessary
to
fulfill the obligations of the Adviser to the Company.
The
following table provides information about the number of and total assets
in
other accounts managed on a day-to-day basis by each of the portfolio managers
as of November 30, 2006.
|
Name
of Manager
|
Number
of Accounts
|
Total
Assets of Accounts
|
Number
of Accounts Paying a Performance Fee
|
Total
Assets of Accounts Paying a Performance Fee
|
|
H.
Kevin Birzer
Registered
investment companies
Other
pooled investment vehicles
Other
accounts
|
2
5
182
|
$
879,812,575
$1,928,523,567
$1,965,319,994
|
0
1
0
|
—
$42,933,012
—
|
|
Zachary
A. Hamel
Registered
investment companies
Other
pooled investment vehicles
Other
accounts
|
2
5
182
|
$
879,812,575
$1,928,523,567
$1,965,319,994
|
0
1
0
|
—
$42,933,012
—
|
|
Kenneth
P. Malvey
Registered
investment companies
Other
pooled investment vehicles
Other
accounts
|
2
5
182
|
$
879,812,575
$1,928,523,567
$1,965,319,994
|
0
1
0
|
—
$42,933,012
—
|
|
Terry
C. Matlack
Registered
investment companies
Other
pooled investment vehicles
Other
accounts
|
2
2
160
|
$879,812,575
$
69,933,012
$185,779,727
|
0
2
0
|
—
$69,933,012
—
|
|
David J.
Schulte
Registered
investment companies
Other
pooled investment vehicles
Other
accounts
|
2
2
160
|
$879,812,575
$
69,933,012
$185,779,727
|
0
2
0
|
—
$69,933,012
—
|
None
of
Messrs. Schulte, Matlack, Birzer, Hamel or Malvey receive any direct
compensation from the Company or any other of the managed accounts reflected
in
the table above. All such accounts are managed by the Adviser, Fountain Capital
or KCEP. Messrs. Schulte and Matlack are full-time employees of the Adviser
and receive a fixed salary for the services they provide. Messrs. Birzer,
Hamel and Malvey are employees of Fountain Capital and receive a fixed salary
for the services they provide. Fountain Capital is paid a fixed monthly fee,
subject to adjustment, for the services of Messrs. Birzer, Hamel and
Malvey. Each of Messrs. Schulte, Matlack, Birzer, Hamel and Malvey own an
equity interest in either KCEP or Fountain Capital, the two entities that
control the Adviser, and each thus benefits from increases in the net income
of
the Adviser, KCEP or Fountain Capital.
The
following table sets forth the dollar range of our equity securities
beneficially owned by each of the portfolio managers as of
November
30, 2006.
|
Name
of Manager
|
Aggregate
Dollar Range of Company Securities Beneficially Owned by
Manager
|
|
H.
Kevin Birzer
|
Over
$100,000
|
|
Zachary
A. Hamel
|
Over
$100,000
|
|
Kenneth
P. Malvey
|
Over
$100,000
|
|
Terry
C. Matlack
|
Over
$100,000
|
|
David J.
Schulte
|
Over
$100,000
|
In
addition to portfolio management services, the Adviser is obligated to
supply
our Board and officers with certain statistical information and reports,
to
oversee the maintenance of various books and
records
and to arrange for the preservation of records in accordance with applicable
federal law and regulations. Under the Advisory Agreement, we pay to the
Adviser
quarterly, as compensation for the services rendered and expenses paid by
it, a
fee equal on an annual basis to 0.95% of our average monthly Managed Assets.
Managed Assets means the total assets of the Company (including any assets
attributable to leverage that may be outstanding) minus accrued liabilities
other than (1) deferred taxes, (2) debt entered into for the purpose
of leverage and (3) the aggregate liquidation preference of any outstanding
preferred stock.
The
Adviser has agreed contractually to reimburse us for expenses, including
the
investment advisory fee and other expenses in the amount of 0.10% of average
monthly Managed Assets through February 28, 2009.
Because
the management fees paid to the Adviser are based upon a percentage of our
Managed Assets, fees paid to the Adviser will be higher if we are leveraged;
thus, the Adviser will have an incentive to use leverage. Because the fee
reimbursement agreement is based on Managed Assets, to the extent we are
engaged
in leverage, the gross dollar amount of the Adviser’s fee reimbursement
obligations to us will increase. The Adviser intends to use leverage only
when
it believes it will serve the best interests of our stockholders. Our average
monthly Managed Assets are determined for the purpose of calculating the
management fee by taking the average of the monthly determinations of Managed
Assets during a given calendar quarter. The fees are payable for each calendar
quarter within five days of the end of that quarter.
For
our
initial fiscal year beginning February 27, 2004 and ending
November 30, 2004, the Adviser received $2,006,155 as compensation for
advisory services, net of $640,855, in reimbursed fees and expenses. For
our
fiscal year ending November 30, 2005, the Adviser received $4,804,810 as
compensation for advisory services, net of $1,534,870, in reimbursed fees
and
expenses. For our fiscal year ending November 30, 2006, the Adviser
received $6,253,972 as compensation for advisory services, net of $987,587,
in
reimbursed fees and expenses.
The
Advisory Agreement provides that we will pay all expenses other than those
expressly stated to be payable by the Adviser, which expenses payable by
us
shall include, without implied limitation: (1) expenses of maintaining the
Company and continuing our existence and related overhead, including, to
the
extent services are provided by personnel of the Adviser or its affiliates,
office space and facilities and personnel compensation, training and benefits;
(2) registration under the 1940 Act; (3) commissions, spreads, fees
and other expenses connected with the acquisition, holding and disposition
of
securities and other investments including placement and similar fees in
connection with direct placements in which we participate; (4) auditing,
accounting and legal expenses; (5) taxes and interest;
(6) governmental fees; (7) expenses of listing our shares with a stock
exchange, and expenses of issuance, sale, repurchase and redemption (if any) of our interests, including expenses of
conducting tender offers for the purpose of repurchasing our interests;
(8) expenses of registering and qualifying us and our shares under federal
and state securities laws and of preparing and filing registration statements
and amendments for such purposes; (9) expenses of communicating with
stockholders; including website expenses and the expenses of preparing, printing
and mailing press releases, reports and other notices to stockholders and
of
meetings of stockholders and proxy solicitations therefor; (10) expenses of
reports to governmental officers and commissions; (11) insurance expenses;
(12) association membership dues; (13) fees, expenses and
disbursements of custodians and subcustodians for all services to us (including
without limitation safekeeping of funds, securities and other investments,
keeping of books, accounts and records, and determination of net asset values);
(14) fees, expenses and disbursements of transfer agents, dividend paying
agents, stockholder servicing agents and registrars for all services to us;
(15) compensation and expenses of our directors who are not members of the
Adviser’s organization; (16) pricing and valuation services employed by us;
(17) all expenses incurred in connection with leveraging of our assets
through a
line
of
credit, or issuing and maintaining preferred stock or instruments evidencing
indebtedness of the Company; (18) all expenses incurred in connection with
the offering of our common and preferred stock and debt securities; and
(19) such non-recurring items as may arise, including expenses incurred in
connection with litigation, proceedings and claims and our obligation to
indemnify our directors, officers and stockholders with respect
thereto.
The
Advisory Agreement provides that the Adviser will not be liable in any way
for
any default, failure or defect in any of the securities comprising our portfolio
if it has satisfied the duties and the standard of care, diligence and skill
set
forth in the Advisory Agreement. However, the Adviser shall be liable to us for
any loss, damage, claim, cost, charge, expense or liability resulting from
the
Adviser’s willful misconduct, bad faith or gross negligence or disregard by the
Adviser of the Adviser’s duties or standard of care, diligence and skill set
forth in the Advisory Agreement or a material breach or default of the Adviser’s
obligations under the Advisory Agreement.
The
Advisory Agreement has a term ending on December 31st of each year and is
submitted to the Board of Directors for renewal each year. A discussion
regarding the basis of the Board of Directors’ decision to approve the renewal
of the Advisory Agreement is available in our Annual Report to stockholders
for
the fiscal year ended November 30, 2006. The Advisory Agreement will continue
from year to year, provided such continuance is approved by a majority of
the
Board or by vote of the holders of a majority of our outstanding voting
securities. Additionally, the Advisory Agreement must be approved annually
by
vote of a majority of the Independent Directors. The Advisory Agreement may
be
terminated by the Adviser or us, without penalty, on sixty (60) days’ written
notice to the other. The Advisory Agreement will terminate automatically
in the
event of its assignment.
Code
of Ethics
We
and
the Adviser have each adopted a Code of Ethics under Rule 17j-1 of the 1940
Act,
which is applicable to officers, directors and designated employees of ours
and
the Adviser (collectively, the “Codes”). Subject to certain limitations, the
Codes permit covered persons to invest in securities, including securities
that
may be purchased or held by us. The Codes contain provisions and requirements
designed to identify and address certain conflicts of interest between personal
investment activities of covered persons and the interests of investment
advisory clients such as us. Among other things, the Codes prohibit certain
types of transactions absent prior approval, impose time periods during which
personal transactions may not be made in certain securities, and require
submission of duplicate broker confirmations and statements and quarterly
reporting of securities transactions. Exceptions to these and other provisions
of the Codes may be granted in particular circumstances after review by
appropriate personnel.
Our
Code
of Ethics can be reviewed and copied at the Securities and Exchange Commission’s
Public Reference Room in Washington, D.C. Information on the operation
of the
Public Reference Room may be obtained by calling the Securities and Exchange
Commission at (202) 551-5850. Our Code of Ethics is also available on the
EDGAR Database on the Securities and Exchange Commission’s Internet site at
http://www.sec.gov, and, upon payment of a duplicating fee, by electronic
request at the following e-mail address: publicinfo@sec.gov or by writing
the
Securities and Exchange Commission’s Public Reference Section, Washington, D.C.
20549-0102.
We
will
compute our net asset value for our shares of common stock as of the close
of
trading on the NYSE (normally 4:00 p.m. Eastern time) no less
frequently than the last business day of each calendar month and at such
other
times as the Board may determine. We make our net asset value available
for
publication
monthly. Our investment transactions are generally recorded on a trade date
plus
one day basis, other than for quarterly and annual reporting purposes. For
purposes of determining the net asset value of a share of common stock, our
net
asset value will equal the value of our total assets (the value of the
securities we hold, plus cash or other assets, including interest accrued
but
not yet received) less (1) all of its liabilities (including without
limitation accrued expenses and both current and deferred income taxes),
(2) accumulated and unpaid interest payments and dividends on any
outstanding debt or preferred stock, respectively, (3) the aggregate
liquidation value of any outstanding preferred stock, (4) the aggregate
principal amount of any outstanding senior notes, including any series of
Tortoise Notes, and (5) any distributions payable on the common stock. The
net asset value per share of our common stock will equal our net asset value
divided by the number of outstanding shares of common stock.
Pursuant
to an agreement with U.S. Bancorp Fund Services, LLC (the “Accounting Services
Provider”), the Accounting Services Provider will value our assets in accordance
with Valuation Procedures adopted by the Board of Directors. The Accounting
Services Provider will obtain securities market quotations from independent
pricing services approved by the Adviser and ratified by the Board. Securities
for which market quotations are readily available shall be valued at “market
value.” Any other securities shall be valued at “fair value.”
Valuation
of certain assets at market value will be as follows. For equity securities,
the
Accounting Services Provider will first use readily available market quotations
and will obtain direct written broker-dealer quotations if a security is
not
traded on an exchange or quotations are not available from an approved pricing
service. For fixed income securities, the Accounting Services Provider will
use
readily available market quotations based upon the last sale price of a security
on the day we value our assets or a market value from a pricing service or
by
obtaining a direct written broker-dealer quotation from a dealer who has
made a
market in the security. For options, futures contracts and options on futures
contracts, the Accounting Services Provider will use readily available market
quotations. If no sales are reported on any exchange or over-the-counter
(“OTC”)
market for an option, futures contract or option on futures contracts, the
Accounting Services Provider will use the calculated mean based on bid and
asked
prices obtained from the primary exchange or OTC market.
If
the
Accounting Services Provider cannot obtain a market value or the Adviser
determines that the value of a security as so obtained does not represent
a fair
value as of the valuation time (due to a significant development subsequent
to
the time its price is determined or otherwise), fair value for the security
shall be determined pursuant to the Valuation Procedures adopted by the Board.
The Valuation Procedures provide that the Adviser will consider a variety
of
factors with respect to the individual issuer and security in determining
and
monitoring the continued appropriateness of fair value, including, without
limitation, financial statements and fundamental data with respect to the
issuer, cost, the amount of any discount,
restrictions on transfer and registration rights and other information deemed
relevant. A report of any prices determined pursuant to certain preapproved
methodologies will be presented to the Board or a designated committee thereof
for approval no less frequently than quarterly. The Valuation Procedures
currently provide for methodologies to be used to fair value equity securities,
debt securities and control securities. With respect to equity securities,
among
the factors used to fair value a security subject to restrictions on resale
is
whether the security has a common share counterpart trading in a public market.
If a security does not have a common share counterpart, the security shall
be
valued initially and thereafter by the Adviser based on all relevant factors,
including, but not limited to, cost, and such valuation will be presented
to the
Board for review and ratification. If a security has a common share counterpart
trading in a public market or is convertible into publicly-traded common
shares,
the Adviser shall determine an appropriate percentage discount for the security
in light of its resale restrictions and other factors.
With
respect to debt securities, among the various factors that can affect the
value
of such securities are (i) whether the issuing company has freely trading
debt securities of the same maturity and interest rate; (ii) whether the
issuing company has an effective registration statement in place for the
securities; and whether a market is made in the securities. Subject to the
particular considerations of an issue, debt securities generally will be
valued
at amortized cost.
With
respect to control securities (equity securities of an issuer that is deemed
to
be an affiliate of ours due to our ownership or the beneficial ownership
of our
Adviser of 10% or more of the outstanding shares of the same class of such
issuer), if the class of security continues to trade in a public market or
is
covered by a currently effective registration statement, the security ordinarily
will be valued at the common share market price. If the class of the security
ceases to trade in a public market or is otherwise not tradeable, the security
shall be valued by the Adviser based on all relevant factors, including,
but not
limited to, cost, and such valuation will be presented to the our Board for
review and ratification.
The
foregoing methods for fair valuing securities may be used only as long as
the
Adviser believes they continue to represent fair value and the discussion
above
is qualified in its entirety by our Valuation Procedures.
In
computing net asset value, we will review the valuation of the obligation
for
income taxes separately for current taxes and deferred taxes due to the
differing impact of each on (i) the anticipated timing of required tax
payments and (ii) the impact of each on the treatment of distributions by
us to our stockholders.
The
allocation between current and deferred income taxes is determined based
upon
the value of assets reported for book purposes compared to the respective
net
tax bases of assets for federal income tax purposes. It is anticipated that
cash
distributions from MLPs in which we invest will not equal the amount of taxable
income allocable to us primarily as a result of depreciation and amortization
deductions recorded by the MLPs. This may result, in effect, in a portion
of the
cash distribution received by us not being treated as income for federal
income
tax purposes. The relative portion of such distributions not treated as income
for tax purposes will vary among the MLPs, and also will vary year by year
for
each MLP, but in each case will reduce our remaining tax basis, if any, in
the
particular MLP. The Adviser will be able to directly confirm the portion
of each
distribution recognized as taxable income when it receives annual tax reporting
information from each MLP.
PORTFOLIO
TRANSACTIONS
Execution
of Portfolio Transactions
The
Adviser is responsible for decisions to buy and sell securities for the
Company,
broker-dealer selection, and negotiation of brokerage commission rates.
The
Adviser’s primary consideration in effecting a security transaction will be to
obtain the best execution. In selecting a broker-dealer to execute each
particular transaction, the Adviser will take the following into consideration:
the best net price available; the reliability, integrity and financial
condition
of the broker-dealer; the size of and the difficulty in executing the order;
and
the value of the expected contribution of the broker-dealer to our investment
performance on a continuing basis. Accordingly, our price in any transaction
may
be less favorable than that available from another broker-dealer if the
difference is reasonably justified by other aspects of the execution services
offered.
The
ability to invest in direct placements of MLP securities is critical to
our
ability to meet our investment objective because of the limited number
of MLP
issuers available for investment and, in some
cases,
the relative small trading volumes of certain securities. Accordingly, we
may
from time to time enter into arrangements with placement agents in connection
with direct placement transactions.
In
evaluating placement agent proposals, we consider each broker’s access to
issuers of MLP securities and experience in the MLP market, particularly
the
direct placement market. In addition to these factors, we consider whether
the
proposed services are customary, whether the proposed fee schedules are within
the range of customary rates, whether any proposal would obligate us to enter
into transactions involving a minimum fee, dollar amount or volume of
securities, or into any transaction whatsoever, and other terms such as
indemnification provisions.
Subject
to such policies as the Board may from time to time determine, the Adviser
shall
not be deemed to have acted unlawfully or to have breached any duty solely
by
reason of its having caused us to pay a broker or dealer that provides brokerage
and research services to the Adviser an amount of commission for effecting
a
portfolio transaction in excess of the amount of commission another broker
or
dealer would have charged for effecting that transaction, if the Adviser
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by
such
broker or dealer, viewed in terms of either that particular transaction or
the
Adviser’s overall responsibilities with respect to us and to other clients of
the Adviser as to which the Adviser exercises investment discretion. The
Adviser
is further authorized to allocate the orders placed by it on our behalf to
such
brokers and dealers who also provide research or statistical material or
other
services to us or the Adviser. Such allocation shall be in such amounts and
proportions as the Adviser shall determine and the Adviser will report on
said
allocations regularly to the Board indicating the brokers to whom such
allocations have been made and the basis therefor. For the period beginning
February 27, 2004 through November 30, 2004 and for the fiscal years
ended November 30, 2005 and November 30, 2006, we paid aggregate
brokerage commissions of $114,532, $18,465 and $20,190, respectively, and
direct
placement fees of $1,668,861, $80,000 and $0, respectively.
Portfolio
Turnover
Our
annual portfolio turnover rate may vary greatly from year to year. Although
we
cannot accurately predict our annual portfolio turnover rate, it is not expected
to exceed 30% under normal circumstances. For the fiscal years ended
November 30, 2006
and 2005
the portfolio turnover rate was 2.18% and 4.92%, respectively. However,
portfolio turnover rate is not considered a limiting factor in the execution
of
investment decisions for us. A higher turnover rate results in correspondingly
greater brokerage commissions and other transactional expenses that are borne
by
us. High portfolio turnover also may result in recognition of gains that
will
increase our taxable income, possibly
resulting in an increased tax liability, as well as increasing our current
and
accumulated earnings and profits resulting in a greater portion of the
distributions on our stock being treated as taxable dividends for federal
income
tax purposes. See “Certain Federal Income Tax Matters.”
The
following is a summary of certain material U.S. federal income tax
considerations relating to us and our investments in MLPs and to the purchase,
ownership and disposition of our securities. The discussion generally applies
only to holders of securities that are U.S. holders. You will be a U.S.
holder
if you are an individual who is a citizen or resident of the United States,
a
U.S. domestic corporation, or any other person that is subject to U.S.
federal
income tax on a net income basis in respect of an investment in our securities.
This summary deals only with U.S. holders that hold our securities as capital
assets and who purchase the securities in connection with the offering(s)
herein. It does not address considerations that may be relevant to you
if you
are an investor that is subject to special tax rules, such as a financial
institution, insurance company, regulated investment company, real estate
investment trust,
investor
in pass-through entities, U.S. holder of securities whose “functional currency”
is not the United States dollar, tax-exempt organization, dealer in securities
or currencies, trader in securities or commodities that elects mark to market
treatment, a person who holds the securities in a qualified tax deferred
account
such as an IRA, or a person who will hold the securities as a position in
a
“straddle,” “hedge” or as part of a “constructive sale” for federal income tax
purposes. In addition, this discussion does not address the possible application
of the U.S. federal alternative minimum tax.
This
summary is based on the provisions of the Internal Revenue Code, the applicable
Treasury regulations promulgated thereunder, judicial authority and current
administrative rulings, as in effect on the date of this Statement of Additional
Information, all of which may change. Any change could apply retroactively
and
could affect the continued validity of this summary.
As
stated
above, this discussion does not discuss all aspects of U.S. federal income
taxation that may be relevant to a particular holder of our securities in
light
of such holder’s particular circumstances and income tax situation. Prospective
holders should consult their own tax advisors as to the specific tax
consequences to them of the purchase, ownership and disposition of the
securities, including the application and the effect of state, local, foreign
and other tax laws and the possible effects of changes in U.S. or other tax
laws.
Taxation
of the Company
We
are
treated as a C corporation for federal and state income tax purposes. We
compute
and pay federal and state income tax on our taxable income. Thus, we are
subject
to federal income tax on our taxable income at tax rates up to 35%.
Additionally, in certain instances we could be subject to the federal
alternative minimum tax of 20% on our alternative minimum taxable income
to the
extent that the alternative minimum tax exceeds our regular federal income
tax.
As
indicated above, we generally invest our assets primarily in MLPs. MLPs
generally are treated as partnerships for federal income tax purposes. Since
partnerships are generally not subject to federal income tax, the partnership’s
partners must report as their income their proportionate share of the
partnership’s income. Thus, as a partner in MLPs, we will report our
proportionate share of the MLPs’ income in computing our federal taxable income,
irrespective of whether any cash or other distributions are made by the MLPs
to
us. We will also take into account in computing our taxable income any other
items of our income, gain, deduction or loss. We anticipate that these may
include interest income earned on our investment in debt securities, deductions
for our operating expenses and gain or loss recognized by us on the sale
of MLP
interests or any other security.
As
explained below, based upon the historic performance of MLPs, we anticipate
initially that our proportionate share of the MLPs’ taxable income will be
significantly less than the amount of cash distributions we receive from
the
MLPs. In such case, we anticipate that we will not incur federal income
tax on a
significant portion of our cash flow, particularly after taking into account
our
current operational expenses. If the MLPs’ taxable income is a significantly
greater portion of the MLPs’ cash distributions, we will incur additional
current federal income tax liability, possibly in excess of the cash
distributions we receive.
We
anticipate that each year we will turn over a certain portion of our investment
assets. We will recognize gain or loss on the disposition of all or a portion
of
our interests in MLPs in an amount equal to the difference between the
sales
price and our basis in the MLP interests sold. To the extent we receive
MLP cash
distributions in excess of the taxable income reportable by us with respect
to
such MLP interest, our basis in the MLP interest will be reduced and our
gain on
the sale of the MLP interest likewise will be increased.
We
are
not treated as a regulated investment company under the federal income tax
laws.
The Internal Revenue Code generally provides that a regulated investment
company
does not pay an entity level income tax, provided that it distributes all
or
substantially all of its income. Our assets do not, and are not expected
to,
meet current tests for qualification as a regulated investment company for
federal income tax purposes. The regulated investment company taxation rules
have no application to us or our stockholders. Although changes to the federal
tax laws permit regulated investment companies to invest up to 25% of the
value
of their total assets in securities of MLPs, such changes still would not
allow
us to pursue our objective. Accordingly, we do not intend to change our tax
status as a result of such legislation.
Federal
Income Taxation of MLPs
MLPs
are
similar to corporations in many respects, but differ in others, especially
in
the way they are taxed for federal income tax purposes. A corporation is
a
distinct legal entity, separate from its stockholders and employees and is
treated as a separate entity for federal income tax purposes as well. Like
individual taxpayers, a corporation must pay a federal income tax on its
income.
To the extent the corporation distributes its income to its stockholders
in the
form of dividends, the stockholders must pay federal income tax on the dividends
they receive. For this reason, it is said that corporate income is double-taxed,
or taxed at two levels.
An
MLP
that satisfies the Qualifying Income rules described below, and does not
elect
otherwise, is treated for federal income tax purposes as a pass-through entity.
No federal income tax is paid at the partnership level. A partnership’s income
is considered earned by all the partners; it is allocated among all the partners
in proportion to their interests in the partnership (generally as provided
in
the partnership agreement), and each partner pays tax on his, her or its
share
of the partnership’s income. All the other items that go into determining
taxable income and tax owed are passed through to the partners as well -
capital
gains and losses, deductions, credits, etc. Partnership income is thus said
to
be single-taxed or taxed only at one level - that of the partner.
The
Internal Revenue Code generally requires “publicly-traded partnerships” to be
treated as corporations for federal income tax purposes. However, if the
publicly-traded partnership satisfies certain requirements and does not elect
otherwise, the publicly-traded partnership will be taxed as a partnership
for
federal income tax purposes, referred to herein as an MLP. Under these
requirements, an MLP must derive each year at least 90% of its gross income
from
Qualifying Income.
Qualifying
Income for MLPs includes interest, dividends, real estate rents, gain from
the
sale or disposition of real property, certain income and gain from commodities
or commodity futures, and income
and gain from certain mineral or natural resources activities. Mineral or
natural resources activities that generate Qualifying Income include income
and
gains from the exploration, development, mining or production, processing,
refining, transportation (including pipelines transporting gas, oil or products
thereof), or the marketing of any mineral or natural resource (including
fertilizer, geothermal energy, and timber). This means that most MLPs today
are
in energy, timber, or real estate related businesses.
Because
the MLP itself does not pay federal income tax, its income or loss is allocated
to its investors, irrespective of whether the investors receive any cash
or
other payment from the MLP. It is important to note that an MLP investor
is
taxed on his share of partnership income whether or not he actually receives
any
cash or other property from the partnership. The tax is based not on money
or
other property he actually receives, but his proportionate share of what
the
partnership earns. However, most MLPs make it a policy to make quarterly
distributions to their partners that will comfortably exceed any income
tax
owed. Although they resemble corporate dividends, MLP distributions are
treated
differently. The MLP distribution is treated as a return of capital to
the
extent of the investor’s basis in his MLP
interest
and, to the extent the distribution exceeds the investor’s basis in the MLP
interest, capital gain. The investor’s original basis is generally the price
paid for the units. The basis is adjusted downward with each distribution
and
allocation of deductions (such as depreciation) and losses, and upwards
with each allocation of income and gain.
The
partner generally will not be taxed on MLP distributions until (1) he sells
his MLP units and pays tax on his gain, which gain is increased due to the
basis
decrease resulting from prior distributions; or (2) his basis reaches zero.
When the units are sold, the difference between the sales price and the
investor’s adjusted basis is the gain or loss for federal income tax
purposes.
At
tax
filing season an MLP investor will receive a Schedule K-1 form showing the
investor’s share of each item of the partnership’s income, gain, loss,
deductions and credits. The investor will use that information to figure
the
investor’s taxable income (MLPs generally provide their investors with material
that walks them through all the steps). If there is net income derived from
the
MLP, the investor pays federal income tax at his, her or its tax rate. If
there
is a net loss derived from the MLP, it is generally considered a “passive loss”
under the Internal Revenue Code and generally may not be used to offset income
from other sources, but must be carried forward.
Because
we are a corporation, we, and not our stockholders, will report the income
or
loss of the MLPs. Thus, our stockholders will not have to deal with any
Schedules K-1 reporting income and loss items of the MLPs. Stockholders,
instead, will receive a Form 1099 from us. In addition, due to our broad
public
ownership, we do not expect to be subject to the passive loss limitation
rules
mentioned in the preceding paragraph.
Common
and Preferred Stock
Federal
Income Tax Treatment of Common Stock Distributions.
Unlike
a holder of a direct interest in MLPs, a stockholder will not include its
allocable share of our income, gains, losses or deductions in computing its
own
taxable income. Instead, since we are of the opinion that, under present
law,
our shares of common stock will constitute equity, distributions with respect
to
such shares (other than distributions in redemption of shares subject to
Section 302(b) of the Internal Revenue Code) will generally constitute
dividends to the extent of our allocable current or accumulated earnings
and
profits, as calculated for federal income tax purposes. Generally, a
corporation’s earnings and profits are computed based upon taxable income, with
certain specified adjustments. As explained above, based upon the historic
performance of the MLPs, we anticipate that the distributed cash from the
MLPs
will exceed our share of the MLPs’ income. In addition, earnings and profits are
treated generally, for federal income tax purposes, as first being used to
pay
distributions on preferred stock, and then to the extent remaining,
if any, to pay distributions on the common stock. Thus, we anticipate that
only
a portion of the distributions of distributable cash flow (“DCF”) will be
treated as dividend income to common stockholders. To the extent that
distributions to a stockholder exceed our current and accumulated earnings
and
profits, such distributions will be treated as a return of capital and the
stockholder’s basis in shares of stock with respect to which the distributions
are made will be reduced and, if a stockholder has no further basis in the
shares, the stockholder will report any excess as capital gain if the
stockholder holds such shares as a capital asset.
Dividends
of current or accumulated earnings and profits generally will be taxable
as
ordinary income to holders but are expected to be treated as “qualified dividend
income” that is generally subject to reduced rates of federal income taxation
for noncorporate investors and are also expected to be eligible for the
dividends received deduction available to corporate stockholders under
Section 243 of the Internal Revenue Code. Under federal income tax law,
qualified dividend income received by individual and other noncorporate
stockholders is taxed at long-term capital gain rates, which currently
reach a
maximum of 15%. Qualified dividend income generally includes dividends
from
domestic corporations
and
dividends from non-U.S. corporations that meet certain criteria. To be treated
as qualified dividend income, the stockholder must hold the shares paying
otherwise qualifying dividend income more than 60 days during the 121-day
period
beginning 60 days before the ex-dividend date (or more than 90 days during
the
181-day period beginning 90 days before the ex-dividend date in the case
of
certain preferred stock dividends). A stockholder’s holding period may be
reduced for purposes of this rule if the stockholder engages in certain risk
reduction transactions with respect to the common or preferred stock. The
provisions of the Internal Revenue Code applicable to qualified dividend
income
are effective through 2010. Thereafter, higher tax rates will apply unless
further legislative action is taken.
Corporate
holders should be aware that certain limitations apply to the availability
of
the dividends received deduction, including limitations on the aggregate
amount
of the deduction that may be claimed and limitations based on the holding
period
of the shares on which the dividend is paid, which holding period may be
reduced
if the holder engages in risk reduction transactions with respect to its
shares.
Corporate holders should consult their own tax advisors regarding the
application of these limitations to their particular situation.
If
a
common stockholder participates in our Automatic Dividend Reinvestment Plan,
such stockholder will be treated as receiving the amount of the distributions
made by the Company, which amount generally will be either equal to the amount
of cash distribution the stockholder would have received if the stockholder
had
elected to receive cash or, for shares issued by the Company, the fair market
value of the shares issued to the stockholder.
Federal
Income Tax Treatment of Preferred Stock Distributions. Under
present law, we believe that our preferred stock will constitute equity for
federal income tax purposes, and thus distributions with respect to the
preferred stock (other than distributions in redemption of preferred stock
subject to Section 302(b) of the Internal Revenue Code) will generally
constitute dividends to the extent of our current or accumulated earnings
and
profits allocable to such shares, as calculated for federal income tax purposes.
Earnings and profits are generally treated, for federal income tax purposes,
as
first being allocable to distributions on the preferred stock and then to
the
extent remaining, if any, to distributions on our common stock. Dividends
generally will be taxable as ordinary income to holders, but are expected
to be
treated as “qualified dividend income” that is generally subject to reduced
rates of federal income taxation for noncorporate investors, as described
above.
In the case of corporate holders of preferred stock, subject to applicable
requirements and limitations, dividends may be eligible for the dividends
received deduction available to corporations under Section 243 of the
Internal Revenue Code (see discussion above). Distributions in excess of
our
earnings and profits allocable to preferred stock, if any, will first reduce
a
shareholder’s adjusted tax basis in his or her shares and, after the adjusted
tax basis is
reduced to zero, will constitute capital gains to a holder who holds such
shares
as a capital asset. Because we have elected not to be treated as a regulated
investment company under the Internal Revenue Code, we are not entitled to
designate any dividends made with respect to our stock as capital gain
distributions.
Sale
of Shares.
The
sale of shares of common or preferred stock by holders will generally be
a
taxable transaction for federal income tax purposes. Holders of shares
who sell
such shares will generally recognize gain or loss in an amount equal to
the
difference between the net proceeds of the sale and their adjusted tax
basis in
the shares sold. If the shares are held as a capital asset at the time
of the
sale, the gain or loss will generally be a capital gain or loss. Similarly,
a
redemption by us (including a redemption resulting from our liquidation),
if
any, of all the shares actually and constructively held by a stockholder
generally will give rise to capital gain or loss under Section 302(b) of
the Internal Revenue Code, provided that the redemption proceeds do not
represent declared but unpaid dividends. Other redemptions may also give
rise to
capital gain or loss, but certain conditions imposed by Section 302(b) of
the Internal Revenue Code must be satisfied to achieve such
treatment.
Capital
gain or loss will generally be long-term capital gain or loss if the shares
were
held for more than one year and will be short-term capital gain or loss if
the
disposed shares were held for one year or less. Net long-term capital gain
recognized by a noncorporate U.S. holder generally will be subject to federal
income tax at a lower rate (currently a maximum rate of 15%) than net short-term
capital gain or ordinary income (currently a maximum rate of 35%). Under
current
law, the maximum federal income tax rate on capital gain for noncorporate
holders is scheduled to increase to 20% for taxable years after 2010. For
corporate holders, capital gain is generally taxed at the same rate as ordinary
income, that is, currently at a maximum rate of 35%. A holder’s ability to
deduct capital losses may be limited.
Investment
by Tax-Exempt Investors and Regulated Investment Companies.
Employee benefit plans, other tax-exempt organizations and regulated investment
companies may want to invest in our securities. Employee benefit plans and
most
other organizations exempt from federal income tax, including individual
retirement accounts and other retirement plans, are subject to federal income
tax on unrelated business taxable income (“UBTI”). Because we are a corporation
for federal income tax purposes, an owner of shares will not report on its
federal income tax return any of our items of income, gain, loss and deduction.
Therefore, a tax-exempt investor generally will not have UBTI attributable
to
its ownership or sale of our stock unless its ownership of the stock is
debt-financed. In general, stock would be debt-financed if the tax-exempt
owner
of stock incurs debt to acquire the stock or otherwise incurs or maintains
debt
that would not have been incurred or maintained if the stock had not been
acquired.
For
federal income tax purposes, a regulated investment company, or “mutual fund,”
may not have more than 25% of the value of its total assets, at the close
of any
fiscal quarter, invested in the securities of one or more qualified publicly
traded partnerships, which will include most MLPs. Shares of our stock are
not
securities of a qualified publicly traded partnership and will not be treated
as
such for purposes of calculating the limitation imposed upon regulated
investment companies.
Backup
Withholding.
We may
be required to withhold, for U.S. federal income tax purposes, a portion
of all
taxable distributions (including redemption proceeds) payable to stockholders
who fail to provide us with their correct taxpayer identification number,
who
fail to make required certifications or who have been notified by the Internal
Revenue Service (“IRS”) that they are subject to backup withholding (or if we
have been so notified). Certain corporate and other stockholders specified
in
the Internal Revenue Code and the regulations thereunder are exempt from
backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the stockholder’s U.S.
federal income tax liability provided the appropriate information is furnished
to the IRS in a timely manner.
Other
Taxation.
Foreign
stockholders, including stockholders who are nonresident alien individuals,
may
be subject to U.S. withholding tax on certain distributions at a rate of
30% or
such lower rates as may be prescribed by any applicable treaty. Our
distributions also may be subject to state and local taxes.
Debt
Securities
Federal
Income Tax Treatment of Holders of Debt Securities.
Under
present law, we are of the opinion that our debt securities will constitute
indebtedness for federal income tax purposes, which the discussion below
assumes. We intend to treat all payments made with respect to the debt
securities consistent with this characterization.
Taxation
of Interest.
Payments or accruals of interest on debt securities generally will be taxable
to
you as ordinary interest income at the time such interest is received (actually
or constructively) or accrued, in accordance with your regular method of
accounting for federal income tax purposes.
Purchase,
Sale and Redemption of Debt Securities.
Initially, your tax basis in debt securities acquired generally will be equal
to
your cost to acquire such debt securities. This basis will increase by the
amounts, if any, that you include in income under the rules governing market
discount, and will decrease by the amount of any amortized premium on such
debt
securities, as discussed below. When you sell or exchange any of your debt
securities, or if any of your debt securities are redeemed, you generally
will
recognize gain or loss equal to the difference between the amount you realize
on
the transaction (less any accrued and unpaid interest, which will be subject
to
tax as interest in the manner described above) and your tax basis in the
debt
securities relinquished.
Except
as
discussed below with respect to market discount, the gain or loss that you
recognize on the sale, exchange or redemption of any of your debt securities
generally will be capital gain or loss. Such gain or loss will generally
be
long-term capital gain or loss if the disposed debt securities were held
for
more than one year and will be short-term capital gain or loss if the disposed
debt securities were held for one year or less. Net long-term capital gain
recognized by a noncorporate U.S. holder generally will be subject to federal
income tax at a lower rate (currently a maximum rate of 15%, although this
rate
will increase to 20% after 2010) than net short-term capital gain or ordinary
income (currently a maximum rate of 35%). For corporate holders, capital
gain is
generally taxed at the same rate as ordinary income, that is, currently at
a
maximum rate of 35%. A holder’s ability to deduct capital losses may be
limited.
Amortizable
Premium. If
you
purchase debt securities at a cost greater than their stated principal amount,
plus accrued interest, you will be considered to have purchased the debt
securities at a premium, and you generally may elect to amortize this premium
as
an offset to interest income, using a constant yield method, over the remaining
term of the debt securities. If you make the election to amortize the premium,
it generally will apply to all debt instruments that you hold at the time
of the
election, as well as any debt instruments that you subsequently acquire.
In
addition, you may not revoke the election without the consent of the IRS.
If you
elect to amortize the premium, you will be required to reduce your tax basis
in
the debt securities by the amount of the premium amortized during your holding
period. If you do not elect to amortize premium, the amount of premium will
be
included in your tax basis in the debt securities. Therefore, if you do not
elect to amortize the premium and you hold the debt securities to maturity,
you
generally will be required to treat the premium as a capital loss when the
debt
securities are redeemed.
Market
Discount. If
you
purchase debt securities at a price that reflects a “market discount,” any
principal payments on, or any gain that you realize on the disposition
of, the
debt securities generally will be treated as ordinary interest income to
the
extent of the market discount that accrued on the debt securities during
the
time you held such debt securities. “Market discount” is defined under the
Internal Revenue Code as, in general, the excess of the stated redemption
price
at maturity over the purchase price of the debt security, except that if
the
market discount is less than 0.25% of the stated redemption price at maturity
multiplied by the number of complete years to maturity, the market discount
is
considered to be zero. In addition, you may be required to defer the deduction
of all or a portion of any interest paid on any indebtedness that you incurred
or continued to purchase or carry the debt securities that were acquired
at a
market discount. In general, market discount will be treated as accruing
ratably
over the term of the debt securities, or, at your election, under a constant
yield method.
You
may
elect to include market discount in gross income currently as it accrues
(on
either a ratable or constant yield basis), in lieu of treating a portion
of any
gain realized on a sale of the debt securities as ordinary income. If you
elect
to include market discount on a current basis, the interest
deduction
deferral rule described above will not apply and you will increase your basis
in
the debt security by the amount of market discount you include in gross income.
If you do make such an election, it will apply to all market discount debt
instruments that you acquire on or after the first day of the first taxable
year
to which the election applies. This election may not be revoked without the
consent of the IRS.
Information
Reporting and Backup Withholding.
In
general, information reporting requirements will apply to payments of principal,
interest, and premium, if any, paid on debt securities and to the proceeds
of
the sale of debt securities paid to U.S. holders other than certain exempt
recipients (such as certain corporations). Information reporting generally
will
apply to payments of interest on the debt securities to non-U.S. Holders
(as
defined below) and the amount of tax, if any, withheld with respect to such
payments. Copies of the information returns reporting such interest payments
and
any withholding may also be made available to the tax authorities in the
country
in which the non-U.S. Holder resides under the provisions of an applicable
income tax treaty. In addition, for non-U.S. Holders, information reporting
will
apply to the proceeds of the sale of debt securities within the United States
or
conducted through United States-related financial intermediaries unless the
certification requirements described below have been complied with and the
statement described below in “Taxation of Non-U.S. Holders” has been received
(and the payor does not have actual knowledge or reason to know that the
holder
is a United States person) or the holder otherwise establishes an
exemption.
We
may be
required to withhold, for U.S. federal income tax purposes, a portion of
all
taxable payments (including redemption proceeds) payable to holders of debt
securities who fail to provide us with their correct taxpayer identification
number, who fail to make required certifications or who have been notified
by
the IRS that they are subject to backup withholding (or if we have been so
notified). Certain corporate and other shareholders specified in the Internal
Revenue Code and the regulations thereunder are exempt from backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may be
credited against the holder’s U.S. federal income tax liability provided the
appropriate information is furnished to the IRS. If you are a non-U.S. Holder,
you may have to comply with certification procedures to establish your non-U.S.
status in order to avoid backup withholding tax requirements. The certification
procedures required to claim the exemption from withholding tax on interest
income described below will satisfy these requirements.
Taxation
of Non-U.S. Holders.
If you
are a non-resident alien individual or a foreign corporation (a “non-U.S.
Holder”), the payment of interest on the debt securities generally will be
considered “portfolio interest” and thus generally will be exempt from United
States federal withholding tax. This exemption will apply to you provided
that
(1) interest paid on the debt securities is not effectively connected
with your conduct of a trade or business in the United States, (2) you are
not a bank whose receipt of interest on the debt securities is described
in
Section 881(c)(3)(A) of the Internal Revenue Code, (3) you do not
actually or constructively own 10 percent or more of the combined voting
power of all classes of our stock entitled to vote, (4) you are not a
controlled foreign corporation that is related, directly or indirectly to
us
through stock ownership, and (5) you satisfy the certification requirements
described below.
To
satisfy the certification requirements, either (1) the holder of any debt
securities must certify, under penalties of perjury, that such holder is
a
non-U.S. person and must provide such owner’s name, address and taxpayer
identification number, if any, on IRS Form W-8BEN, or (2) a securities
clearing organization, bank or other financial institution that holds customer
securities in the ordinary course of its trade or business and holds the
debt
securities on behalf of the holder thereof must certify, under penalties
of
perjury, that it has received a valid and properly executed IRS Form W-8BEN
from
the beneficial holder and comply with certain other requirements. Special
certification rules apply for debt securities held by a foreign partnership
and
other intermediaries.
Interest
on debt securities received by a non-U.S. Holder that is not excluded from
U.S.
federal withholding tax under the portfolio interest exemption as described
above generally will be subject to withholding at a 30% rate, except where
a
non-U.S. Holder can claim the benefits of an applicable tax treaty to reduce
or
eliminate such withholding tax and such non-U.S. Holder provides us with
a
properly executed IRS Form W-8BEN claiming such exemption or
reduction.
Any
capital gain that a non-U.S. Holder realizes on a sale, exchange or other
disposition of debt securities generally will be exempt from United States
federal income tax, including withholding tax. This exemption will not apply
to
you if your gain is effectively connected with your conduct of a trade or
business in the U.S. or you are an individual holder and are present in the
U.S.
for 183 days or more in the taxable year of the disposition and either your
gain is attributable to an office or other fixed place of business that you
maintain in the U.S. or you have a tax home in the United States.
We
and
the Adviser have adopted proxy voting policies and procedures (“Proxy Policy”),
which we believe are reasonably designed to ensure that proxies are voted
in our
best interests and our stockholders best interests. Subject to the oversight
of
the Board, the Board has delegated responsibility for implementing the Proxy
Policy to the Adviser. Because of the unique nature of MLPs in which we
primarily invest, the Adviser shall evaluate each proxy on a case-by-case
basis.
Because proxies of MLPs are expected to relate only to extraordinary measures,
we do not believe it is prudent to adopt pre-established voting
guidelines.
In
the
event requests for proxies are received with respect to the voting of equity
securities other than MLP equity units, on routine matters, such as election
of
directors or approval of auditors, the proxies usually will be voted with
management unless the Adviser determines it has a conflict or the Adviser
determines there are other reasons not to vote with management. On non-routine
matters, such as amendments to governing instruments, proposals relating
to
compensation and stock option and equity compensation plans, corporate
governance proposals and stockholder proposals, the Adviser will vote, or
abstain from voting if deemed appropriate, on a case-by-case basis in a manner
it believes to be in the best economic interest of our stockholders. In the
event requests for proxies are received with respect to debt securities,
the
Adviser will vote on a case-by-case basis in a manner it believes to be in
the
best economic interest of our stockholders.
The
Chief
Executive Officer is responsible for monitoring corporate actions and ensuring
that (1) proxies are received and forwarded to the appropriate decision
makers; and (2) proxies are voted in a timely manner upon receipt of voting
instructions. We are not responsible for voting proxies we do not receive,
but
will make reasonable efforts to obtain missing proxies. The Chief Executive
Officer shall implement procedures to identify and monitor potential conflicts
of interest that could affect the proxy voting process, including
(1) significant client relationships; (2) other potential material
business relationships; and (3) material personal and family relationships.
All decisions regarding proxy voting shall be determined by the Investment
Committee of the Adviser, or a Manager of the Adviser designated by the
Investment Committee, and shall be executed by the Chief Executive Officer
or,
if the proxy may be voted electronically, electronically voted by the Chief
Executive Officer or his designee. Every effort shall be made to consult
with
the portfolio manager and/or analyst covering the security. We may determine
not
to vote a particular proxy, if the costs and burdens exceed the benefits
of
voting (e.g., when securities are subject to loan or to share blocking
restrictions).
If
a
request for proxy presents a conflict of interest between our stockholders
on
the one hand, and the Adviser, the principal underwriters, or any affiliated
persons of us, on the other hand, management may (i) disclose the potential
conflict to the Board of Directors and obtain consent; or
(ii) establish
an ethical wall or other informational barrier between the persons involved
in
the conflict and the persons making the voting decisions.
Information
regarding how we voted proxies for the period from our commencement of
operations through June 30, 2006, is available without charge by calling us
at 1-866-362-9331.
You also may access this information on the SEC’s website at http://www.sec.gov.
The
Adviser’s website at www.tortoiseadvisors.com
provides
a link to all of our reports filed with the SEC.
Ernst &
Young LLP, 1200 Main Street, Kansas City, Missouri, serves as our independent
registered public accounting firm. Ernst & Young LLP provides audit and
audit-related services, tax return preparation and assistance and consultation
in connection with review of our filings with the SEC.
U.S.
Bancorp Fund Services, LLC (“U.S. Bancorp”) serves as our internal accountant.
For its services, we pay U.S. Bancorp a fee computed at $24,500 for the first
$50 million of our net assets, 0.0125% on the next $200 million of net
assets and 0.0075% on the balance of our net assets. For the period
beginning February 27, 2004 through November 30, 2004, we paid U.S.
Bancorp $40,061 for internal accounting services. For the fiscal years ended
November 30, 2006
and
2005, we paid U.S. Bancorp $67,856 and $60,831, respectively, for
internal accounting services.
A
Registration Statement on Form N-2, including amendments thereto, relating
to
the common stock, preferred stock and debt securities offered hereby, has
been
filed by us with the SEC. The prospectus, prospectus supplement, and this
Statement of Additional Information do not contain all of the information
set
forth in the Registration Statement, including any exhibits and schedules
thereto. Please refer to the Registration Statement for further information
with
respect to us and the offering of our securities. Statements contained in
the
prospectus, prospectus supplement, and this Statement of Additional Information
as to the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of
such
contract or other document filed as an
exhibit to a Registration Statement, each such statement being qualified
in all
respects by such reference. Copies of the Registration Statement may be
inspected without charge at the SEC’s principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the SEC upon the payment
of certain fees prescribed by the SEC.
FINANCIAL
STATEMENTS
Our
2006
Annual Report, which contains our financial statements as of November 30,
2006, notes thereto, and other information about us, has been filed with
the
SEC, and is hereby incorporated by reference into, and shall accompany, this
Statement of Additional Information. Our
2006
Annual Report includes supplemental financial information which presents
selected ratios as a percentage of our total investment portfolio and a
calculation of our distributable cash flow (“DCF”) and related
information. You
may
request a free copy of the Statement of Additional Information, our annual,
semi-annual and quarterly reports, or make other requests for information
about
us, by calling toll-free 1-866-362-9331, or by writing to us at 10801 Mastin
Boulevard, Suite 222, Overland Park, Kansas
66210.
APPENDIX A
-
SUMMARY
OF CERTAIN PROVISIONS OF THE INDENTURE
AND
FORM OF SUPPLEMENTAL
INDENTURE
The
following is a summary of certain provisions of the indenture dated
July 13, 2004 (the “Original Indenture”) and the form of Supplemental
Indenture dated ___________. This summary does not purport to be complete
and is
qualified in its entirety by reference to the Indenture, a copy of which
is on
file with the SEC.
DEFINITIONS
“‘AA’
Composite Commercial Paper Rate”
on
any
date means (i) the interest equivalent of (1) the 7-day rate, in the
case of a Rate Period which is 7 days or shorter, (2) the 30-day rate, in
the case of a Rate Period which is a Standard Rate Period greater than
7 days but fewer than or equal to 31 days, or (3) the 180-day
rate, in the case of all other Rate Periods, on financial commercial
paper on
behalf of issuers whose corporate bonds are rated “AA” by S&P, or the
equivalent of such rating by another nationally recognized rating agency,
as
announced by the Federal Reserve Bank of New York for the close of business
on
the Business Day immediately preceding such date; or (ii) if the Federal
Reserve Bank of New York does not make available such a rate, then the
arithmetic average of the interest equivalent of such rates on financial
commercial paper placed on behalf of such issuers, as quoted on a discount
basis
or otherwise by the Commercial Paper Dealers to the Auction Agent for
the close
of business on the Business Day immediately preceding such date (rounded
to the
next highest .001 of 1%). If any Commercial Paper Dealer does not quote
a rate
required to determine the “AA” Composite Commercial Paper Rate, such rate shall
be determined on the basis of the quotations (or quotation) furnished
by the
remaining Commercial Paper Dealers (or Dealer), if any, or, if there
are no such
Commercial Paper Dealers, by a nationally recognized dealer in commercial
paper
of such issues then making such quotations selected by the Company. For
purposes
of this definition, (A) ”Commercial Paper Dealers” shall mean
(1) Citigroup Global Markets Inc., Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co.;
(2) in lieu of any thereof, its respective Affiliate or successor; and
(3) in the event that any of the foregoing shall cease to quote rates for
financial commercial paper of issuers of the sort described above, in
substitution therefor, a nationally recognized dealer in financial commercial
paper of such issuers then making such quotations selected by the Company,
and
(B) ”interest equivalent” of a rate stated on a discount basis for
financial commercial paper of a given number of days’ maturity shall mean a
number equal to the quotient (rounded upward to the next higher one-thousandth
of 1%) of (1) such rate expressed as a decimal, divided by (2) the
difference between (x) 1.00 and (y) a fraction, the numerator of which
shall be the product of such rate expressed as a decimal, multiplied
by the
number of days in which such financial commercial paper shall mature
and the
denominator of which shall be 360.
“Affiliate”
means
any person controlled by, in control of or under common control with the
Company; provided that no Broker-Dealer controlled by, in control of or under
common control with the Company shall be deemed to be an Affiliate nor shall
any
corporation or any person controlled by, in control of or under common control
with such corporation one of the directors or executive officers of which
also
is a Director of the Company be deemed to be an Affiliate solely because
such
director or executive officer also is a Director of the Company.
“Agent
Member”
means
a
member of or participant in the Securities Depository that will act on behalf
of
a Bidder.
“All
Hold Rate”
means
80% of the “AA” Composite Commercial Paper Rate.
“Applicable
Rate”
means
the rate determined in accordance with the procedures in paragraph (c)(i)
of Interest in this Appendix A.
“Auction”
means
each periodic implementation of the Auction Procedures.
“Auction
Agent”
means
The Bank of New York unless and until another commercial bank, trust company,
or
other financial institution appointed by a resolution of the Board of Directors
enters into an agreement with the Company to follow the Auction Procedures
for
the purpose of determining the Applicable Rate.
“Auction
Agreement”
means
the agreement between the Auction Agent and the Company pursuant to which
the
Auction Agent agrees to the follow the procedures specified in Part II of
these terms of the Tortoise Notes, as such agreement may from time to time
be
amended or supplemented.
“Auction
Date”
means
the first Business Day next preceding the first day of a Rate Period for
each
series of Tortoise Notes.
“Auction
Period”
means
with respect to the Tortoise Notes, either a Standard Auction Period or a
Special Auction Period, as applicable.
“Auction
Procedures”
means
the procedures for conducting Auctions set forth in Appendix A-I
hereto.
“Authorized
Denomination”
means
$25,000 and any integral multiple thereof.
“Available
Tortoise Notes”
means
for each series of Tortoise Notes on each Auction Date, the aggregate principal
amount of Tortoise Notes of such series that are not the subject of Submitted
Hold Orders.
“Beneficial
Owner,”
with
respect to each series of Tortoise Notes, means a customer of a Broker-Dealer
who is listed on the records of that Broker-Dealer (or, if applicable, the
Auction Agent) as a holder of such series of Tortoise Notes.
“Bid”
shall
have the meaning specified in Appendix A-I—Tortoise Notes Auction
Procedures.
“Bidder”
means
each Beneficial Owner, Potential Beneficial Owner and Broker Dealer who places
an Order.
“Board
of Directors”
or
“Board”
means
the Board of Directors of the Company or any duly authorized committee thereof
as permitted by applicable law.
“Broker-Dealer”
means
any broker-dealer or broker-dealers, or other entity permitted by law to
perform
the functions required of a Broker-Dealer by the Auction Procedures, that
has
been selected by the Company and has entered into a Broker-Dealer Agreement
that
remains effective.
“Broker-Dealer
Agreement”
means
an agreement between the Auction Agent and a Broker-Dealer, pursuant to which
such Broker-Dealer agrees to follow the Auction Procedures.
“Business
Day”
means
a
day on which the New York Stock Exchange is open for trading and which is
not a
Saturday, Sunday or other day on which banks in the City of New York, New
York
are authorized or obligated by law to close.
“Code”
means
the Internal Revenue Code of 1986, as amended.
“Commercial
Paper Dealers”
has
the
meaning set forth in the definition of "AA" Composite Commercial Paper
Rate.
“Commission”
means
the Securities and Exchange Commission.
“Default
Rate”
means
the Reference Rate multiplied by three (3).
“Deposit
Securities”
means
cash and any obligations or securities, including short term money market
instruments that are Eligible Assets, rated at least AAA, A-2 or SP-2 by
Fitch,
except that such obligations or securities shall be considered “Deposit
Securities” only if they are also rated at least P-2 by Moody’s.
“Discount
Factor”
means
the Moody’s Discount Factor (if Moody’s is then rating the Tortoise Notes),
Fitch Discount Factor (if Fitch is then rating the Tortoise Notes) or an
Other
Rating Agency Discount Factor, whichever is applicable.
“Discounted
Value”
means
the quotient of the Market Value of an Eligible Asset divided by the applicable
Discount Factor, provided that with respect to an Eligible Asset that is
currently callable, Discounted Value will be equal to the quotient as calculated
above or the call price, whichever is lower, and that with respect to an
Eligible Asset that is prepayable, Discounted Value will be equal to the
quotient as calculated above or the par value, whichever is lower.
“Eligible
Assets”
means
Moody’s Eligible Assets or Fitch’s Eligible Assets (if Moody’s or Fitch are then
rating the Tortoise Notes) and/or Other Rating Agency Eligible Assets, whichever
is applicable.
“Error
Correction Deadline”
means
one hour after the Auction Agent completes the dissemination of the results
of
the Auction to Broker-Dealers without regard to the time of receipt of such
results by any Broker-Dealer; provided, however, in no event shall the Error
Correction Deadline extend past 4:00 p.m., New York City time unless the
Auction Agent experiences technological failure or force majeure in
disseminating the Auction results which causes a delay in dissemination past
3:00 p.m., New York City time.
“Existing
Holder,”
with
respect to Tortoise Notes of a series, shall mean a Broker-Dealer (or any
such
other Person as may be permitted by the Company) that is listed on the records
of the Auction Agent as a holder of Tortoise Notes of such series.
“Fitch”
means
Fitch Ratings and its successors at law.
“Fitch
Discount Factor”
means
the discount factors set forth in the Fitch Guidelines for use in calculating
the Discounted Value of the Company’s assets in connection with Fitch’s ratings
of Tortoise Notes.
“Fitch
Eligible Asset”
means
assets of the Company set forth in the Fitch Guidelines as eligible for
inclusion in calculating the Discounted Value of the Company’s assets in
connection with Fitch’s ratings of Tortoise Notes.
“Fitch
Guidelines”
mean
the guidelines provided by Fitch, as may be amended from time to time, in
connection with Fitch’s ratings of Tortoise Notes.
“Hold
Order”
shall
have the meaning specified in Appendix A-I—Tortoise Notes Auction Procedures or
an Order deemed to have been submitted as provided in paragraph (c) of
Section 1 of Appendix A-I—Tortoise Notes Auction Procedures.
“Holder”
means,
with respect to Tortoise Notes, the registered holder of Tortoise Notes of
each
series as the same appears on the books or records of the Company.
“Interest
Payment Date,”
when
used with respect to any Tortoise Notes, means the date on which an installment
of interest on such Tortoise Notes shall be due and payable which generally
shall be the business day next following the last Auction Date.
“LIBOR”
means,
for purposes of determining the Reference Rate, (i) the rate for deposits
in U.S. dollars for the designated Rate Period, which appears on display
page 3750 of Moneyline’s Telerate Service (“Telerate Page 3750”) (or
such other page as may replace that page on that service, or such
other service as may be selected by Lehman Brothers Inc. or its successors)
as
of 11:00 a.m., London time, on the day that is the Business Day on the
Auction Date or, if the Auction Date is not a Business Day, the Business
Day
preceding the Auction Date (the “LIBOR Determination Date”), or (ii) if
such rate does not appear on Telerate Page 3750 or such other page as
may replace such Telerate Page 3750, (A) Lehman Brothers Inc. shall
determine the arithmetic mean of the offered quotations of the reference
banks
to leading banks in the London interbank market for deposits in U.S. dollars
for
the designated Rate Period in an amount determined by Lehman Brothers Inc.
by
reference to requests for quotations as of approximately 11:00 a.m. (London
time) on such date made by Lehman Brothers Inc. to the reference banks,
(B) if at least two of the reference banks provide such quotations, LIBOR
shall equal such arithmetic mean of such quotations, (C) if only one or
none of the reference banks provide such quotations, LIBOR shall be deemed
to be
the arithmetic mean of the offered quotations that leading banks in The City
of
New York, New York selected by Lehman Brothers Inc. (after obtaining the
Issuer’s approval) are quoting on the relevant LIBOR Determination Date for
deposits in U.S. dollars for the designated Rate Period in an amount determined
by Lehman Brothers Inc. (after obtaining the Issuer’s approval) that is
representative of a single transaction in such market at such time by reference
to the principal London office of leading banks in the London interbank market;
provided, however, that if Lehman Brothers Inc. is not a Broker-Dealer or
does
not quote a rate required to determine LIBOR, LIBOR will be determined on
the
basis of the quotation or quotations furnished by any other Broker-Dealer
selected by the Issuer to provide such rate or rates not being supplied by
Lehman Brothers Inc.; provided further, that if Lehman Brothers Inc. and/or
a
substitute Broker-Dealer are required but unable to determine a rate in
accordance with at least one of the procedures provided above, LIBOR shall
be
the most recently determinable LIBOR. If the number of Rate Period days shall
be
(i) 7 or more but fewer than 21 days, such rate shall be the seven-day
LIBOR rate; (ii) more than 21 but fewer than 49 days, such rate shall be
one-month LIBOR rate; (iii) 49 or more but fewer than 77 days, such rate
shall be the two-month LIBOR rate; (iv) 77 or more but fewer than 112 days,
such rate shall be the three-month LIBOR rate; (v) 112 or more but fewer
than 140 days, such rate shall be the four-month LIBOR rate; (vi) 140 or
more but fewer than 168 days, such rate shall be the five-month LIBOR rate;
(vii) 168 or more but fewer 189 days, such rate shall be the six-month
LIBOR rate; (viii) 189 or more but fewer than 217 days, such rate shall be
the seven-month LIBOR rate; (ix) 217 or more but fewer than 252 days, such
rate shall be the eight-month LIBOR rate; (x) 252 or more but fewer than
287 days, such rate shall be the nine-month LIBOR rate; (xi) 287 or more
but fewer than 315 days, such rate shall be the ten-month LIBOR rate;
(xii) 315 or more but fewer than 343 days, such rate shall be the
eleven-month LIBOR rate; and (xiii) 343 or more days but fewer than 365
days, such rate shall be the twelve-month LIBOR rate.
“Market
Value”
means
the market value of an asset of the Company determined as follows: For
equity
securities, the value obtained from readily available market quotations.
If an
equity security is not traded on an exchange or not available from a
Board-approved pricing service, the value obtained from written broker-dealer
quotations. For fixed-income securities, the value obtained from readily
available market quotations based on the last sale price of a security
on the
day the Company values its assets or the market value obtained from a
pricing
service or the value obtained from a direct written broker-dealer quotation
from
a dealer who has made a market in the security. “Market Value” for other
securities will
mean
the
value obtained pursuant to the Company’s valuation procedures. If the market
value of a security cannot be obtained, or the Company’s investment adviser
determines that the value of a security as so obtained does not represent
the
fair value of a security, fair value for that security shall be determined
pursuant to the valuation procedures adopted by the Board of
Directors.
For
equity securities, the value obtained from readily available market quotations.
If an equity security is not traded on an exchange or not available from
a
Board-approved pricing service, the value obtained
from written broker-dealer quotations. For fixed-income securities, the
value
obtained from readily available market quotations based on the last updated
sale
price or the value obtained from a pricing service or the value obtained
from a
written broker-dealer quotation from a dealer who has made a market in
the
security. Market value for other securities will mean the value obtained
pursuant to the Company’s Valuation Procedures. If the market value of a
security cannot be obtained, or the Company’s investment adviser determines that
the value of a security as so obtained does not represent the fair value
of a
security, fair value for that security shall be determined pursuant to
methodologies established by the Board of Directors.
“Maximum
Rate”
means,
on any date on which the Applicable Rate is determined, the rate equal to
the
applicable percentage of the Reference Rate, subject to upward but not downward
adjustment in the discretion of the Board of Directors after consultation
with
the Broker-Dealers, provided that immediately following any such increase
the
Company would be in compliance with the Tortoise Notes Basic Maintenance
Amount.
“Minimum
Rate”
means,
on any Auction Date with respect to a Rate Period of __ days or fewer, 70%
of
the "AA" Composite Commercial Paper Rate at the close of business on the
Business Day next preceding such Auction Date. There shall be no Minimum
Rate on
any Auction Date with respect to a Rate Period of more than the Standard
Rate
Period.
“Moody’s”
means
Moody’s Investors Service, Inc., a Delaware corporation, and its successors at
law.
“Moody’s
Discount Factor”
means
the discount factors set forth in the Moody’s Guidelines for use in calculating
the Discounted Value of the Company’s assets in connection with Moody’s ratings
of Tortoise Notes.
“Moody’s
Eligible Assets”
means
assets of the Company set forth in the Moody’s Guidelines as eligible for
inclusion in calculating the Discounted Value of the Company’s assets in
connection with Moody’s ratings of Tortoise Notes.
“Moody’s
Guidelines”
mean
the guidelines provided by Moody’s, as may be amended from time to time, in
connection with Moody’s ratings of Tortoise Notes.
“1940
Act Tortoise Notes Asset Coverage”
means
asset coverage, as determined in accordance with Section 18(h) of the 1940
Act, of at least 300% with respect to all outstanding senior securities
representing indebtedness of the Company, including all Outstanding Tortoise
Notes (or such other asset coverage as may in the future be specified in
or
under the 1940 Act as the minimum asset coverage for senior securities
representing indebtedness of a closed-end investment company as a condition
of
declaring dividends on its common stock), determined on the basis of values
calculated as of a time within 48 hours next preceding the time of such
determination.
“Notes”
means
securities of the Company ranking on a parity with the Tortoise Notes that
may
be issued from time to time pursuant to the Indenture.
“Order”
means
a
Hold Order, Bid or Sell Order.
“Original
Issue Date”
means,
with respect to Series __ Tortoise Notes, _________.
“Other
Rating Agency”
means
each rating agency, if any, other than Moody’s or Fitch then providing a rating
for the Tortoise Notes pursuant to the request of the Company.
“Other
Rating Agency Discount Factor”
means
the discount factors set forth in the Other Rating Agency Guidelines of
each
Other Rating Agency for use in calculating the Discounted Value of the
Company’s
assets in connection with the Other Rating Agency’s rating of Tortoise
Notes.
“Other
Rating Agency Eligible Assets”
means
assets of the Company set forth in the Other Rating Agency Guidelines of
each
Other Rating Agency as eligible for inclusion in calculating the Discounted
Value of the Company’s assets in connection with the Other Rating Agency’s
rating of Tortoise Notes.
“Other
Rating Agency Guidelines”
mean
the guidelines provided by each Other Rating Agency, as may be amended from
time
to time, in connection with the Other Rating Agency’s rating of Tortoise
Notes.
“Outstanding”
or
“outstanding”
means,
as of any date, Tortoise Notes theretofore issued by the Company except,
without
duplication, (i) any Tortoise Notes theretofore canceled, redeemed or
repurchased by the Company, or delivered to the Trustee for cancellation
or with
respect to which the Company has given notice of redemption and irrevocably
deposited with the Paying Agent sufficient funds to redeem such Tortoise
Notes
and (ii) any Tortoise Notes represented by any certificate in lieu of which
a new certificate has been executed and delivered by the Company.
Notwithstanding the foregoing, (A) in connection with any Auction, any
series of Tortoise Notes as to which the Company or any person known to the
Auction Agent to be an Affiliate of the Company shall be the Existing Holder
thereof shall be disregarded and deemed not to be Outstanding; and (B) for
purposes of determining the Tortoise Notes Basic Maintenance Amount, Tortoise
Notes held by the Company shall be disregarded and not deemed Outstanding
but
Tortoise Notes held by any Affiliate of the Company shall be deemed
Outstanding.
“Paying
Agent”
means
BNY Midwest Trust Company unless and until another entity appointed by
a
resolution of the Board of Directors enters into an agreement with the
Company
to serve as paying agent, transfer agent, registrar, and redemption agent
with
respect to the Tortoise Notes, which Paying Agent may be the same as
the Trustee
or the Auction Agent.
“Person”
or
“person”
means
and includes an individual, a partnership, a trust, a company, an unincorporated
association, a joint venture or other entity or a government or any agency
or
political subdivision thereof.
“Potential
Beneficial Owner,”
with
respect to a series of Tortoise Notes, shall mean a customer of a Broker-Dealer
that is not a Beneficial Owner of Tortoise Notes of such series but that
wishes
to purchase Tortoise Notes of such series, or that is a Beneficial Owner
of
Tortoise Notes of such series that wishes to purchase additional Tortoise
Notes
of such series.
“Potential
Holder,”
with
respect to Tortoise Notes of such series, shall mean a Broker-Dealer (or
any
such other person as may be permitted by the Company) that is not an Existing
Holder of Tortoise Notes of such series or that is an Existing Holder of
Tortoise Notes of such series that wishes to become the Existing Holder of
additional Tortoise Notes of such series.
“Rate
Period”
means,
with respect to a series of Tortoise Notes, the period commencing on the
Original Issue Date thereof and ending on the date specified for such series
on
the Original Issue Date thereof and thereafter, as to such series, the period
commencing on the day following each Rate Period for such series and ending
on
the day established for such series by the Company.
“Rating
Agency”
means
each of Fitch (if Fitch is then rating Tortoise Notes), Moody’s (if Moody’s is
then rating Tortoise Notes) and any Other Rating Agency.
“Rating
Agency Guidelines”
mean
Fitch Guidelines (if Fitch is then rating Tortoise Notes), Moody’s Guidelines
(if Moody’s is then rating Tortoise Notes) and any Other Rating Agency
Guidelines.
“Redemption
Date,”
when
used with respect to any Tortoise Note to be redeemed, means the date fixed
for
such redemption by or pursuant to the Indenture.
“Redemption
Price,”
when
used with respect to any Tortoise Note to be redeemed, means the price at
which
it is to be redeemed pursuant to the Indenture.
“Reference
Rate”
means,
with respect to the determination of the Maximum Rate and Default Rate,
the
greater of (1) the applicable AA Composite Commercial Paper Rate (for a
Rate Period of fewer than 184 days) or the applicable Treasury Index Rate
(for a Rate Period of 184 days or more), or (2) the applicable LIBOR
Rate.
“Securities
Act”
means
the Securities Act of 1933, as amended from time to time.
“Securities
Depository”
means
The Depository Trust Company and its successors and assigns or any successor
securities depository selected by the Company that agrees to follow the
procedures required to be followed by such securities depository in connection
with the Tortoise Notes Series __.
“Sell
Order”
shall
have the meaning specified in Appendix A-I—Tortoise Notes Auction
Procedures.
“Special
Auction Period”
means
an Auction Period that is not a Standard Auction Period.
“Special
Rate Period” means
a
Rate Period that is not a Standard Rate Period.
“Specific
Redemption Provisions”
means,
with respect to any Special Rate Period of more than one year, either, or
any
combination of a period (a “Non-Call Period”) determined by the Board of
Directors after consultation with the Broker-Dealers, during which the Tortoise
Notes subject to such Special Rate Period are not subject to redemption at
the
option of the Company consisting of a number of whole years as determined
by the
Board of Directors after consultation with the Broker-Dealers, during each
year
of which the Tortoise Notes subject to such Special Rate Period shall be
redeemable at the Company’s option and/or in connection with any mandatory
redemption at a price equal to the principal amount plus accumulated but
unpaid
interest plus a premium expressed as a percentage or percentages of $25,000
or
expressed as a formula using specified variables as determined by the Board
of
Directors after consultation with the Broker-Dealers.
“Standard
Auction Period”
means
an Auction Period of ___ days.
“Standard
Rate Period” means
a
Rate Period of ____ days.
“Stated
Maturity,”
with
respect to Tortoise Notes Series __, shall mean _________.
“Submission
Deadline”
means
1:00 p.m., New York City time, on any Auction Date or such other time on
such date as shall be specified by the Auction Agent from time to time pursuant
to the Auction Agreement as the time by which the Broker-Dealers are required
to
submit Orders to the Auction Agent. Notwithstanding the foregoing, the Auction
Agent will follow the Securities Industry and Financial Markets Association’s
Early Market Close Recommendations for shortened trading days for the bond
markets (the “SIFMA Recommendation”) unless the Auction Agent is instructed
otherwise in writing
by the Company. In the event of a SIFMA Recommendation with respect to an
Auction Date, the Submission Deadline will be 11:30 a.m., instead of 1:00
p.m.,
New York City time.
“Submitted
Bid”
shall
have the meaning specified in Appendix A-I—Tortoise Notes Auction
Procedures.
“Submitted
Hold Order”
shall
have the meaning specified in Appendix A-I—Tortoise Notes Auction
Procedures.
“Submitted
Order”
shall
have the meaning specified in Appendix A-I—Tortoise Notes Auction
Procedures.
“Submitted
Sell Order”
shall
have the meaning specified in Appendix A-I—Tortoise Notes Auction
Procedures.
“Sufficient
Clearing Bids”
means
for each series of Tortoise Notes, an auction for which the aggregate principal
amount of Tortoise Notes of the series that are the subject of Submitted
Bids by
Potential Beneficial Owners specifying one or more rates not higher than
the
Maximum Rate is not less than the aggregate principal amount of Tortoise
Notes
of such series that are the subject of Submitted Sell Orders and of Submitted
Bids by Existing Holders specifying rates higher than the Maximum
Rate.
“Tortoise
Notes Basic Maintenance Amount”
as
of
any Valuation Date has the meaning set forth in the Rating Agency
Guidelines.
“Tortoise
Notes Series __”
means
the Series __ Tortoise Notes or any other Notes designated under the Indenture
as Series __ Tortoise Notes.
“Treasury
Index Rate”
means
the average yield to maturity for actively traded marketable U.S. Treasury
fixed
interest rate securities having the same number of 30-day periods to maturity
as
the length of the applicable Rate Period, determined, to the extent necessary,
by linear interpolation based upon the yield for such securities having the
next
shorter and next longer number of 30-day periods to maturity treating all Rate
Periods with a length greater than the longest maturity for such securities
as
having a length equal to such longest maturity, in all cases based upon data
set
forth in the most recent weekly statistical release published by the Board
of
Governors of the Federal Reserve System (currently in H.15(519)); provided,
however, if the most recent such statistical release shall not have been
published during the 15 days preceding the date of computation, the
foregoing computations shall be based upon the average of comparable data as
quoted to the Company by at least three recognized dealers in U.S. Government
securities selected by the Company.
“Trustee”
means
BNY Midwest Trust Company or such other person who is named as a trustee
pursuant to the terms of the Indenture.
“Valuation
Date”
means
every Friday, or, if such day is not a Business Day, the next preceding Business
Day; provided, however, that the first Valuation Date may occur on any other
date established by the Company; provided, further, however, that such first
Valuation Date shall be not more than one week from the date on which Tortoise
Notes Series __ initially are issued.
“Winning
Bid Rate”
means
for each series of Tortoise Notes, the lowest rate specified in any
Submitted Bid for such series of Tortoise Notes which if selected by the Auction
Agent as the Applicable Rate would cause the aggregate principal amount of
Tortoise Notes of such series that are the subject of Submitted Bids specifying
a rate not greater than such rate to be not less than the aggregate principal
amount of Available Tortoise Notes of such series.
NOTE
DETAILS, FORM OF NOTES AND REDEMPTION OF NOTES
Interest
(a) The
Holders of any series of Tortoise Notes shall be entitled to receive interest
payments on their Tortoise Notes at the Applicable Rate, determined as
set forth
in paragraph (c) below, and no more, payable on the respective dates determined
as set forth in paragraph (b) below. Interest on the Outstanding Tortoise
Notes of any series issued on the Original Issue Date shall accumulate
from the
Original Issue Date.
(b)(i) Interest
shall be payable, subject to subparagraph (b)(ii) below, on each series of
Tortoise Notes, with respect to any Rate Period on the first Business Day
following the last day of such Rate Period; provided, however, if the Rate
Period is greater than 30 days then on a monthly basis on the first
Business Day of each month within such Rate Period, not including the initial
Rate Period, and on the Business Day following the last day of such Rate
Period.
(ii) If
a day
for payment of interest resulting from the application of subparagraph (b)(i)
above is not a Business Day, then the Interest Payment Date shall be the first
Business Day following such day for payment of interest in the case of a series
of Tortoise Notes designated as “Series __.”
(iii) The
Company shall pay to the Paying Agent not later than 3:00 p.m., New York
City time, on the Business Day next preceding each Interest Payment Date for
each series of Tortoise Notes, an aggregate amount of funds available on the
next Business Day in the City of New York, New York, equal to the interest
to be
paid to all Holders of such Tortoise Notes on such Interest Payment Date. The
Company shall not be required to establish any reserves for the payment of
interest.
(iv) All
moneys paid to the Paying Agent for the payment of interest shall be held in
trust for the payment of such interest by the Paying Agent for the benefit
of
the Holders specified in subparagraph (b)(v) below. Any moneys paid to the
Paying Agent in accordance with the foregoing but not applied by the Paying
Agent to the payment of interest, including interest earned on such moneys,
will, to the extent permitted by law, be repaid to the Company at the end of
90 days from the date on which such moneys were to have been so
applied.
(v) Each
interest payment on a series of Tortoise Notes shall be paid on the Interest
Payment Date therefor to the Holders of that series as their names appear on
the
security ledger or security records of the Company on the Business Day next
preceding such Interest Payment Date. Interest in arrears for any past Rate
Period may be declared and paid at any time, without reference to any regular
Interest Payment Date, to the Holders as their names appear on the books or
records of the Company on such date, not exceeding 15 days preceding the
payment date thereof, as may be fixed by the Board of Directors. No interest
will be payable in respect of any Interest Payment or payments which may be
in
arrears.
(c)(i) The
interest rate on Outstanding Tortoise Notes of each series during the period
from and after the Original Issue Date to and including the last day of the
initial Rate Period therefor shall be equal to ____%. For each subsequent Rate
Period with respect to the Tortoise Notes Outstanding thereafter, the interest
rate shall be equal to the rate per annum that results from an Auction;
provided, however, that if an Auction for any subsequent Rate Period of a series
of Tortoise Notes is not held for any reason or if Sufficient Clearing Bids
have
not been made in an Auction (other than as a result of all series of Tortoise
Notes being the subject of Submitted Hold Orders), then the interest
rate on a series of Tortoise Notes for
any
such Rate Period shall be the Maximum Rate (except
during a Default Period when the interest rate shall be the Default Rate,
as set
forth in (c)(ii) below). The All Hold Rate will apply automatically following
an
Auction in which all of the Outstanding series of Tortoise Notes are subject
(or
are deemed to be subject) to Hold Orders. The rate per annum at which interest
is payable on a series of Tortoise Notes as determined pursuant to this
paragraph (c)(i) shall be the “Applicable Rate.” For Standard Rate Periods or
shorter periods only, the Applicable Rate resulting from an Auction will
not be
less than the Minimum Rate.
(ii) Subject
to the cure provisions below, a “Default Period” with respect to a particular
series will commence on any date the Company fails to deposit irrevocably
in
trust in same-day
funds, with the Paying Agent by 12:00 noon, New York City time, (A) the
full amount of any declared interest on that series payable on the Interest
Payment Date (an “Interest Default”) or (B) the full amount of any
redemption price (the “Redemption Price”) payable on the date fixed for
redemption (the “Redemption Date”) (a “Redemption Default”) and together with an
Interest Default, hereinafter referred to as “Default”). Subject to the cure
provisions of (c)(iii) below, a Default Period with respect to an Interest
Default or a Redemption Default shall end on the Business Day on which, by
12:00
noon, New York City time, all unpaid interest and any unpaid Redemption Price
shall have been deposited irrevocably in trust in same-day funds with the
Paying
Agent. In the case of an Interest Default, the Applicable Rate for each Rate
Period commencing during a Default Period will be equal to the Default Rate,
and
each subsequent Rate Period commencing after the beginning of a Default Period
shall be a Standard Rate Period; provided, however, that the commencement
of a
Default Period will not by itself cause the commencement of a new Rate Period.
No Auction shall be held during a Default Period with respect to an Interest
Default applicable to that series of Tortoise Notes.
(iii) No
Default Period with respect to an Interest Default or Redemption Default shall
be deemed to commence if the amount of any interest or any Redemption Price
due
(if such default is not solely due to the willful failure of the Company) is
deposited irrevocably in trust, in same-day funds with the Paying Agent by
12:00
noon, New York City time within three Business Days after the applicable
Interest Payment Date or Redemption Date, together with an amount equal to
the
Default Rate applied to the amount of such non-payment based on the actual
number of days comprising such period divided by 360 for each series. The
Default Rate shall be equal to the Reference Rate multiplied by three
(3).
(iv) The
amount of interest payable on each Interest Payment Date of each Rate Period
of
less than one (1) year (or in respect of interest on another date in connection
with a redemption during such Rate Period) shall be computed by multiplying
the
Applicable Rate (or the Default Rate) for such Rate Period (or a portion
thereof) by a fraction, the numerator of which will be the number of days in
such Rate Period (or portion thereof) that such Tortoise Notes were outstanding
and for which the Applicable Rate or the Default Rate was applicable and the
denominator of which will be 360, multiplying the amount so obtained by $25,000,
and rounding the amount so obtained to the nearest cent. During any Rate Period
of one (1) year or more, the amount of interest per Tortoise Note payable on
any
Interest Payment Date (or in respect of interest on another date in connection
with a redemption during such Rate Period) shall be computed as described in
the
preceding sentence.
(d) Any
Interest Payment made on any series of Tortoise Notes shall first be credited
against the earliest accrued but unpaid interest due with respect to such
series.
Redemption
(a)(i) After
the initial Rate Period, subject to the provisions of the Indenture and
to the
extent permitted under the 1940 Act, the Company may, at its option, redeem
in
whole or in part out of funds legally available therefor a series of Tortoise
Notes designated in the Indenture as (A) having a Rate Period of one year
or less, on the Business Day after the last day of such Rate Period by
delivering a notice of redemption not less than 15 days and not more than
40 days prior to the date fixed for such redemption, at a redemption price
equal to the aggregate principal amount, plus an amount equal to accrued
but
unpaid interest thereon (whether or not earned) to the date fixed for redemption
(“Redemption Price”), or (B) having a Rate Period of more than one year, on
any Business Day prior to the end of the relevant Rate Period by delivering
a
notice of redemption not less than 15 days and not more than 40 days
prior to the date fixed for such redemption, at the Redemption Price, plus
a
redemption premium, if any, determined by the Board of Directors after
consultation with the Broker-Dealers and set forth in any applicable Specific
Redemption Provisions at the time of the designation of such Rate Period
as set
forth in the Indenture; provided, however, that during a Rate Period of
more
than one year no series of Tortoise Notes will be subject to optional redemption
except in accordance with any Specific Redemption Provisions approved by
the
Board of Directors after consultation with the Broker-Dealers at the time
of the
designation of such Rate Period. Notwithstanding the foregoing, the Company
shall not give a notice of or effect any redemption pursuant to this paragraph
(a)(i) unless, on the date on which the Company intends to give such notice
and on the date of redemption (a) the Company has available certain Deposit
Securities with maturity or tender dates not later than the day preceding
the
applicable redemption date and having a value not less than the amount
(including any applicable premium) due to Holders of a series of Tortoise
Notes
by reason of the redemption of such Tortoise Notes on such date fixed for
the
redemption and (b) the Company would have Eligible Assets with an aggregate
Discounted Value at least equal the Tortoise Notes Basic Maintenance Amount
immediately subsequent to such redemption, if such redemption were to occur
on
such date, it being understood that the provisions of paragraph (d) below
shall
be applicable in such circumstances in the event the Company makes the
deposit
and takes the other action required thereby.
(ii) If
the
Company fails to maintain, as of any Valuation Date, Eligible Assets with an
aggregate Discounted Value at least equal to 115 percent of the Tortoise Notes
Basic Maintenance Amount or, as of the last Business Day of any month, the
1940
Act Tortoise Notes Asset Coverage, and such failure is not cured within ten
Business Days following such Valuation Date in the case of a failure to maintain
the Tortoise Notes Basic Maintenance Amount or on the last Business Day of
the
following month in the case of a failure to maintain the 1940 Act Tortoise
Notes
Asset Coverage as of such last Business Day (each an “Asset Coverage Cure
Date”), the Tortoise Notes will be subject to mandatory redemption out of funds
legally available therefor. The principal amount of Tortoise Notes to be
redeemed in such circumstances will be equal to the lesser of (A) the
minimum principal amount of Tortoise Notes the redemption of which, if deemed
to
have occurred immediately prior to the opening of business on the relevant
Asset
Coverage Cure Date, would result in the Company having Eligible Assets with
an
aggregate Discounted Value at least equal to 115 percent of the Tortoise Notes
Basic Maintenance Amount, or sufficient to satisfy 1940 Act Tortoise Notes
Asset
Coverage, as the case may be, in either case as of the relevant Asset Coverage
Cure Date (provided that, if there is no such minimum principal amount of
Tortoise Notes the redemption of which would have such result, all Tortoise
Notes then Outstanding will be redeemed), and (B) the maximum principal
amount of Tortoise Notes that can be redeemed out of funds expected to be
available therefor on the Mandatory Redemption Date at the Mandatory Redemption
Price set forth in subparagraph (a)(iii) below.
(iii) In
determining the Tortoise Notes required to be redeemed in accordance with the
foregoing subparagraph (a)(ii), the Company shall allocate the principal amount
of Tortoise Notes required to be redeemed to satisfy the Tortoise Notes Basic
Maintenance Amount or the 1940 Act Tortoise Notes Asset Coverage, as the case
may be, pro rata among the Holders of Tortoise Notes in proportion to the
principal amount of Tortoise Notes they hold, by lot or such other method as
the
Company shall deem equitable, subject to the further provisions of this
subparagraph (iii). The Company shall effect any required mandatory redemption
pursuant to subparagraph (a)(ii) above no later than 40 days after the
Asset Coverage Cure Date (the “Mandatory Redemption Date”), except that if the
Company does not have funds legally available for the redemption of, or is
not
otherwise legally permitted to redeem, the principal amount of Tortoise Notes
which would be required to be redeemed by the Company under clause (A) of
subparagraph (a)(ii) above if sufficient funds were available, or the
Company otherwise is unable to effect such redemption on or prior to such
Mandatory Redemption Date, the Company shall redeem
those Tortoise Notes, and other Notes, on the earliest practicable date on
which
the Company will have such funds available, upon notice pursuant to paragraph
(b) below to record owners of the Tortoise Notes to be redeemed and the Paying
Agent. The Company will deposit with the Paying Agent funds sufficient to redeem
the specified principal amount of Tortoise Notes with respect to a redemption
required under subparagraph (a)(ii) above, by 1:00 p.m., New York City
time, of the Business Day immediately preceding the Mandatory Redemption Date.
If fewer than all of the Outstanding Tortoise Notes are to be redeemed pursuant
to this subparagraph (iii), the principal amount of Tortoise Notes to be
redeemed shall be redeemed pro rata from the Holders of such Tortoise Notes
in
proportion to the principal amount of such Tortoise Note held by such Holders,
by lot or by such other method as the Company shall deem fair and equitable,
subject, however, to the terms of any applicable Specific Redemption Provisions.
“Mandatory Redemption Price” means the Redemption Price plus (in the case of a
Rate Period of one year or more only) a redemption premium, if any, determined
by the Board of Directors after consultation with the Broker-Dealers and set
forth in any applicable Specific Redemption Provisions.
(b) In
the
event of a redemption pursuant to paragraph (a) above, the Company will
file a
notice of its intention to redeem with the Commission so as to provide
at least
the minimum notice required under Rule 23c-2 under the 1940 Act or any
successor
provision. In addition, the Company shall deliver a notice of redemption
to the
Auction Agent and the Trustee (the “Notice of Redemption”) containing the
information set forth below (i) in the case of an optional redemption
pursuant to subparagraph (a)(i) above, at least three Business Days prior
to the
giving of notice to the Holders and (ii) in the case of a mandatory
redemption pursuant to subparagraph (a)(ii) above, on or prior to the 30th
day
preceding the Mandatory Redemption Date. The Trustee will use its reasonable
efforts to provide notice to each Holder of Tortoise Notes called for redemption
by electronic or other reasonable means not later than the close of business
on
the Business Day immediately following the day on which the Trustee determines
the Tortoise Notes to be redeemed (or, during a Default Period with respect
to
such Tortoise Notes, not later than the close of business on the Business
Day
immediately following the day on which the Trustee receives Notice of Redemption
from the Company). The Trustee shall confirm such notice in writing not
later
than the close of business on the third Business Day preceding the date
fixed
for redemption by providing the Notice of Redemption to each Holder of
Tortoise
Notes called for redemption, the Paying Agent (if different from the Trustee)
and the Securities Depository. Notice of Redemption will be addressed to
the
registered owners of each series of Tortoise Notes at their addresses appearing
on the books or records of the Company. Such Notice of Redemption will
set forth
(i) the date fixed for redemption, (ii) the principal amount and
identity of Tortoise Notes to be redeemed, (iii) the redemption price
(specifying the amount of accrued interest to be included therein),
(iv) that interest on the Tortoise Notes to be redeemed will cease to
accrue on such date fixed for redemption, (v) the applicable CUSIP
number(s) and (vi) the 1940 Act provision under which redemption shall be
made. No defect in the Notice of Redemption or in the transmittal or mailing
thereof will affect the validity of the
redemption
proceedings, except as required by applicable law. If fewer than all Tortoise
Notes held by any Holder are to be redeemed, the Notice of Redemption mailed
to
such Holder shall also specify the principal amount of Tortoise Notes to
be
redeemed from such Holder.
(c) Notwithstanding
the provisions of paragraph (a) above, no Tortoise Notes may be redeemed unless
all interest on the Outstanding Tortoise Notes and all Notes of the Company
ranking on a parity with the Tortoise Notes, have been or are being
contemporaneously paid or set aside for payment; provided, however, that the
foregoing shall not prevent the purchase or acquisition of all Outstanding
Tortoise Notes pursuant to the successful completion of an otherwise lawful
purchase or exchange offer made on the same terms to, and accepted by, Holders
of all Outstanding Tortoise Notes.
(d) Upon
the
deposit of funds sufficient to redeem any Tortoise Notes with the Paying
Agent
and the giving of the Notice of Redemption to the Trustee under paragraph
(b)
above, interest on such Tortoise
Notes shall cease to accrue and such Tortoise Notes shall no longer be deemed
to
be Outstanding for any purpose (including, without limitation, for purposes
of
calculating whether the Company has maintained the requisite Tortoise Notes
Basic Maintenance Amount or the 1940 Act Tortoise Notes Asset Coverage),
and all
rights of the Holder of the Tortoise Notes so called for redemption shall
cease
and terminate, except the right of such Holder to receive the redemption
price
specified in the Indenture, but without any interest or other additional
amount.
Such redemption price shall be paid by the Paying Agent to the nominee of
the
Securities Depository. The Company shall be entitled to receive from the
Paying
Agent, promptly after the date fixed for redemption, any cash deposited with
the
Paying Agent in excess of (i) the aggregate redemption price of the
Tortoise Notes called for redemption on such date and (ii) such other
amounts, if any, to which Holders of the Tortoise Notes called for redemption
may be entitled. Any funds so deposited that are unclaimed at the end of
two
years from such redemption date shall, to the extent permitted by law, be
paid
to the Company, after which time the Holders of Tortoise Notes so called
for
redemption may look only to the Company for payment of the redemption price
and
all other amounts, if any, to which they may be entitled. The Company shall
be
entitled to receive, from time to time after the date fixed for redemption,
any
interest earned on the funds so deposited.
(e) To
the
extent that any redemption for which Notice of Redemption has been given is
not
made by reason of the absence of legally available funds therefor, or is
otherwise prohibited, such redemption shall be made as soon as practicable
to
the extent such funds become legally available or such redemption is no longer
otherwise prohibited. Failure to redeem any series of Tortoise Notes shall
be
deemed to exist at any time after the date specified for redemption in a Notice
of Redemption when the Company shall have failed, for any reason whatsoever,
to
deposit in trust with the Paying Agent the redemption price with respect to
any
Tortoise Notes for which such Notice of Redemption has been given.
Notwithstanding the fact that the Company may not have redeemed any Tortoise
Notes for which a Notice of Redemption has been given, interest may be paid
on a
series of Tortoise Notes and shall include those Tortoise Notes for which Notice
of Redemption has been given but for which deposit of funds has not been
made.
(f) All
moneys paid to the Paying Agent for payment of the redemption price of any
Tortoise Notes called for redemption shall be held in trust by the Paying Agent
for the benefit of Holders of Tortoise Notes to be redeemed.
(g) So
long
as any Tortoise Notes are held of record by the nominee of the Securities
Depository, the redemption price for such Tortoise Notes will be paid on the
date fixed for redemption to the nominee of the Securities Depository for
distribution to Agent Members for distribution to the persons for whom they
are
acting as agent.
(h) Except
for the provisions described above, nothing contained in the Indenture limits
any right of the Company to purchase or otherwise acquire any Tortoise Notes
outside of an Auction at any
price,
whether higher or lower than the price that would
be paid in connection with an optional or mandatory redemption, so long as,
at
the time of any such purchase, there is no arrearage in the payment of interest
on, or the mandatory or optional redemption price with respect to, any series
of
Tortoise Notes for which Notice of Redemption has been given and the Company
is
in compliance with the 1940 Act Tortoise Notes Asset Coverage and has Eligible
Assets with an aggregate Discounted Value at least equal to 115 percent of
the
Tortoise Notes Basic Maintenance Amount after giving effect to such purchase
or
acquisition on the date thereof. If less than all the Outstanding Tortoise
Notes
of any series are redeemed or otherwise acquired by the Company, the Company
shall give notice of such transaction to the Trustee, in accordance with the
procedures agreed upon by the Board of Directors.
(i) The
Board
of Directors may, without further consent of the holders of the Tortoise
Notes
or the holders of shares of capital stock of the Company, authorize, create
or
issue any class or series of notes,
including other series of Tortoise Notes, ranking prior to or on a parity
with
the Tortoise Notes to the extent permitted by the 1940 Act, if, upon issuance,
either (A) the net proceeds from the sale of such Notes (or such portion
thereof needed to redeem or repurchase the Outstanding Tortoise Notes) are
deposited with the Trustee in accordance with paragraph (d) above, Notice
of
Redemption as contemplated by paragraph (b) above has been delivered prior
thereto or is sent promptly thereafter, and such proceeds are used to redeem
all
Outstanding Tortoise Notes or (B) the Company would meet the 1940 Act
Tortoise Notes Asset Coverage, the Tortoise Notes Basic Maintenance Amount
and
the requirements set forth below in “Certain Other Restrictions.”
(j) If any Tortoise Notes are to be redeemed and such Tortoise Notes are
held by
the Securities Depository, the Company shall include in the notice of redemption
delivered to the Securities Depository: (i) under an item entitled
“Publication Date for Securities Depository Purposes”, the Interest Payment Date
prior to the Redemption Date, and (ii) an instruction to the Securities
Depository to (x) determine on such Publication Date after the Auction held
on the immediately preceding Auction Date has settled, the Depository
participants whose Securities Depository positions will be redeemed and
the
principal amount of such Tortoise Notes to be redeemed from each such position
(the “Securities Depository Redemption Information”), and (y) notify the
Auction Agent immediately after such determination of (A) the positions of
the Depository Participants in such Tortoise Notes immediately prior to
such
Auction settlement, (B) the positions of the Depository Participants in
such Tortoise Notes immediately following such Auction settlement and
(C) the Securities Depository Redemption Information. “Publication Date”
shall mean three Business Days after the Auction Date next preceding such
Redemption Date.
Designation
of Rate Period
The
initial Rate Period for Tortoise Notes Series __ shall be ____ (__) days. The
Company will designate the duration of subsequent Rate Periods of each series
of
Tortoise Notes; provided, however, that no such designation is necessary for
a
Standard Rate Period and, provided further, that any designation of a Special
Rate Period shall be effective only if (i) notice thereof shall have been
given as provided in the Indenture, (ii) any failure to pay in a timely
manner to the Trustee the full amount of any interest on, or the redemption
price of, Tortoise Notes shall have been cured as provided above,
(iii) Sufficient Clearing Bids shall have existed in an Auction held on the
Auction Date immediately preceding the first day of such proposed Special Rate
Period, (iv) if the Company shall have mailed a Notice of Redemption with
respect to any Tortoise Notes, the redemption price with respect to such
Tortoise Notes shall have been deposited with the Paying Agent, and (v) in
the case of the designation of a Special Rate Period, the Company has confirmed
that as of the Auction Date next preceding the first day of such Special Rate
Period, it has Eligible Assets with an aggregate Discounted Value at least
equal
to the Tortoise Notes Basic Maintenance Amount, and the Company has consulted
with the Broker-
Dealers
and has provided notice of such designation and otherwise complied with
the
Rating Agency Guidelines.
If
the
Company proposes to designate any Special Rate Period, not fewer than 7
(or two
Business Days in the event the duration of the Rate Period prior to such
Special
Rate Period is fewer than 8 days) nor more than 30 Business Days prior
to the
first day of such Special Rate Period, notice shall be (i) made by press
release
and (ii) communicated by the Company by telephonic or other means to the
Trustee
and confirmed in writing promptly thereafter. Each such notice shall state
(A)
that the Company proposes to exercise its option to designate a succeeding
Special Rate Period, specifying the first and last days thereof and (B)
that the
Company will by 3:00 p.m., New York City time, on the second Business Day
next
preceding the first day of such Special Rate Period, notify the Auction
Agent
and Trustee, who will promptly notify the Broker-Dealers, of either (x)
its
determination, subject to certain conditions, to proceed with such Special
Rate
Period, subject to the terms of any Specific Redemption Provisions, or
(y) its
determination not to proceed with such Special Rate Period, in which latter
event the succeeding Rate Period shall be a Standard Rate
Period.
No
later
than 3:00 p.m., New York City time, on the second Business Day next
preceding the first day of any proposed Special Rate Period, the Company
shall
deliver to the Auction Agent and Trustee, who will promptly deliver to the
Broker-Dealers and Existing Holders, either:
(i) a
notice
stating (A) that the Company has determined to designate the next
succeeding Rate Period as a Special Rate Period, specifying the first and
last
days thereof and (B) the terms of any Specific Redemption Provisions;
or
(ii) a
notice
stating that the Company has determined not to exercise its option to designate
a Special Rate Period.
If
the
Company fails to deliver either such notice with respect to any designation
of
any proposed Special Rate Period to the Auction Agent or is unable to make
the
confirmation described above by 3:00 p.m., New York City time, on the
second Business Day next preceding the first day of such proposed Special Rate
Period, the Company shall be deemed to have delivered a notice to the Auction
Agent with respect to such Rate Period to the effect set forth in clause (ii)
above, thereby resulting in a Standard Rate Period.
Restrictions
on Transfer
Tortoise
Notes may be transferred only (a) pursuant to an order placed in an
Auction, (b) to or through a Broker-Dealer or (c) to the Company or
any Affiliate. Notwithstanding the foregoing, a transfer other than pursuant
to
an Auction will not be effective unless the selling Existing Holder or the
Agent
Member of such Existing Holder, in the case of an Existing Holder whose Tortoise
Notes are listed in its own name on the books of the Auction Agent, or the
Broker-Dealer or Agent Member of such Broker-Dealer, in the case of a transfer
between persons holding Tortoise Notes through different Broker-Dealers, advises
the Auction Agent of such transfer. The certificates representing the Tortoise
Notes issued to the Securities Depository will bear legends with respect to
the
restrictions described above and stop-transfer instructions will be issued
to
the Transfer Agent and/or Registrar.
1940
Act Tortoise Notes Asset Coverage
The
Company shall maintain, as of the last Business Day of each month in which
any
Tortoise Notes are Outstanding, asset coverage with respect to the Tortoise
Notes which is equal to or greater than the 1940 Act Tortoise Notes Asset
Coverage; provided, however, that subparagraph (a)(ii) of “Redemption” above
shall be the sole remedy in the event the Company fails to do so.
Tortoise
Notes Basic Maintenance Amount
So
long
as the Tortoise Notes are Outstanding and any Rating Agency is then rating
the
Tortoise Notes, the Company shall maintain, as of each Valuation Date, Eligible
Assets having an aggregate Discounted Value equal to or greater than 115
percent
of the Tortoise Notes Basic Maintenance Amount; provided, however, that
subparagraph (a)(ii) of “Redemption” above shall be the sole remedy in the event
the Company fails to do so.
Certain
Other Restrictions
For
so
long as any Tortoise Notes are Outstanding and any Rating Agency is then
rating
the Tortoise Notes, the Company will not engage in certain proscribed
transactions set forth in the Rating Agency Guidelines, unless it has received
written confirmation from each such Rating Agency that proscribes the applicable
transaction in its Rating Agency Guidelines that any such action would not
impair the rating then assigned by such Rating Agency to a series of Tortoise
Notes.
For
so
long as any Tortoise Notes are Outstanding, the Company will not declare,
pay or
set apart for payment any dividend or other distribution (other than a dividend
or distribution paid in shares of, or options, warrants or rights to subscribe
for or purchase, common shares or other shares of capital stock of the Company)
upon any class of shares of capital stock of the Company, unless, in every
such
case, immediately after such transaction, the 1940 Act Tortoise Notes Asset
Coverage would be achieved after deducting the amount of such dividend,
distribution, or purchase price, as the case may be; provided, however, that
dividends may be declared upon any preferred shares of capital stock of the
Company if the Tortoise Notes and any other senior securities representing
indebtedness of the Company have an asset coverage of at least 200% at the
time
of declaration thereof, after deducting the amount of such
dividend.
Compliance
Procedures For Asset Maintenance Tests
For
so
long as any Tortoise Notes are Outstanding and any Rating Agency is then rating
such Tortoise Notes:
(a) As
of
each Valuation Date, the Company shall determine in accordance with the
procedures specified in the Indenture (i) the Market Value of each Eligible
Asset owned by the Company on that date, (ii) the Discounted Value of each
such Eligible Asset using the Discount Factors, (iii) whether the Tortoise
Notes Basic Maintenance Amount is met as of that date, (iv) the value of
the total assets of the Company, less all liabilities, and (v) whether the
1940 Act Tortoise Notes Asset Coverage is met as of that date.
(b) Upon
any
failure to maintain the required Tortoise Notes Basic Maintenance Amount or
1940
Act Tortoise Notes Asset Coverage on any Valuation Date, the Company may use
reasonable commercial efforts (including, without limitation, altering the
composition of its portfolio, purchasing Tortoise Notes outside of an Auction
or
in the event of a failure to file a Rating Agency Certificate (as defined below)
on a timely basis, submitting the requisite Rating Agency Certificate) to
re-attain (or certify in the case of a failure to file on a timely basis, as
the
case may be) the required Tortoise Notes Basic Maintenance Amount or 1940 Act
Tortoise Notes Asset Coverage on or prior to the Asset Coverage Cure
Date.
(c) Compliance
with the Tortoise Notes Basic Maintenance Amount and 1940 Act Tortoise Notes
Asset Coverage tests shall be determined with reference to those Tortoise Notes
which are deemed to be Outstanding.
(d)
The
Company shall deliver to each Rating Agency which is then rating Tortoise
Notes
and any other party specified in the Rating Agency Guidelines all certificates
that are set forth in the respective Rating Agency Guidelines regarding
1940 Act
Tortoise Notes Asset Coverage, Tortoise Notes Basic Maintenance Amount
and/or
related calculations at such times and containing such information as set
forth
in the respective Rating Agency Guidelines (each, a “Rating Agency
Certificate”).
(e)
In
the event that any Rating Agency Certificate is not delivered within the
time
periods set forth in the Rating Agency Guidelines, the Company shall be
deemed
to have failed to maintain the Tortoise Notes Basic Maintenance Amount
or the
1940 Act Tortoise Notes Asset Coverage, as the case may be, on such Valuation
Date for purposes of paragraph (b) above. In the event that any Rating
Agency
Certificate with respect to an applicable Asset Coverage Cure Date is not
delivered within the time periods set forth in the Rating Agency Guidelines,
the
Company shall be deemed to have failed to have Eligible Assets with an
aggregate
Discounted Value at least equal to the Tortoise Notes Basic Maintenance
Amount
or to meet the 1940 Tortoise Notes Asset Coverage, as the case may be,
as of the
related Valuation Date, and such failure shall be deemed not to have been
cured
as of such Asset Coverage Cure Date for purposes of the mandatory redemption
provisions.
Delivery
of Notes
Upon
the
execution and delivery of the Indenture, the Company shall execute and deliver
to the Trustee, and the Trustee shall authenticate, the Tortoise Notes and
deliver them to The Depository Trust Company as provided in the
Indenture.
Prior
to
the delivery by the Trustee of any of the Tortoise Notes, there shall have
been
filed with or delivered to the Trustee the following:
(a) A
resolution duly adopted by the Company, certified by the Secretary or other
Authorized Officer thereof, authorizing the execution and delivery of the
Supplemental Indenture and the issuance of the Tortoise Notes;
(b) Duly
executed copies of the Supplemental Indenture and a copy of the
Indenture;
(c) Rating
letters from each Rating Agency rating the Tortoise Notes; and
(d) An
opinion of counsel and an officers' certificate pursuant to the requirements
of
the Indenture.
Trustee’s
Authentication Certificate
The
Trustee’s authentication certificate upon the Tortoise Notes shall be
substantially in the form provided. No Tortoise Note shall be secured hereby
or
entitled to the benefit hereof, or shall be valid or obligatory for any purpose,
unless a certificate of authentication, substantially in such form, has been
duly executed by the Trustee; and such certificate of the Trustee upon any
Tortoise Note shall be conclusive evidence and the only competent evidence
that
such Bond has been authenticated and delivered. The Trustee’s certificate of
authentication shall be deemed to have been duly executed by it if manually
signed by an authorized officer of the Trustee, but it shall not be necessary
that the same person sign the certificate of authentication on all of the
Tortoise Notes issued.
EVENTS
OF DEFAULT; REMEDIES
Events
of
Default
An
“Event
of Default” means any one of the following events set forth below (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a)
default in the payment of any interest upon a series of Tortoise Notes when
it
becomes due and payable and the continuance of such default for thirty (30)
days; or
(b)
default in the payment of the principal of, or any premium on, a series of
Tortoise Notes at its Stated Maturity; or
(c)
default in the performance, or breach, of any covenant or warranty of the
Company in the Indenture, and continuance of such default or breach for a
period
of ninety (90) days after there has been given, by registered or certified
mail,
to the Company by the Trustee a written notice specifying such default or
breach
and requiring it to be remedied and stating that such notice is a “Notice of
Default”; or
(d) the
entry
by a court having jurisdiction in the premises of (A) a decree or order for
relief in respect of the Company in an involuntary case or proceeding under
any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Company a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company
under any
applicable Federal or State law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
the
Company or of any substantial part of its property, or ordering the winding
up
or liquidation of its affairs, and the continuance of any such decree
or
order for relief or any such other decree or order unstayed and in effect
for a
period of 60 consecutive days; or
(e) the
commencement by the Company of a voluntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt
or
insolvent, or the consent by it to the entry of a decree or order for relief
in
respect of the Company in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law
or
to the commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or State law, or the
consent by it to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Company or of any substantial part of its
property, or the making by it of an assignment for the benefit of creditors,
or
the admission by it in writing of its inability to pay its debts generally
as
they become due, or the taking of corporate action by the Company in furtherance
of any such action; or
(f) if,
pursuant to Section 18(a)(1)(c)(ii) of the 1940 Act on the last business
day of each of twenty-four (24) consecutive calendar months, the 1940 Act
Tortoise Notes Asset Coverage is less than 100%; or
(g) any
other
Event of Default provided with respect to a series of Tortoise Notes, including
a default in the payment of any Redemption Price payable on the date fixed
for
redemption.
Unless
otherwise noted, an Event of Default that relates only to one series of Tortoise
Notes will not affect any other series.
Acceleration
of Maturity; Rescission and Annulment
If
an
Event of Default with respect to Tortoise Notes of a series at the time
Outstanding occurs and is continuing, then in every such case the Trustee
or the
holders of not less than a majority in principal amount of the Outstanding
Tortoise Notes of that series may declare the principal amount of all the
Tortoise Notes of that series to be due and payable immediately, by a notice
in
writing to the Company (and to the Trustee if given by holders), and upon
any
such declaration such principal amount (or specified amount) shall become
immediately due and payable. If an Event of Default specified in paragraphs
(d)
and (e) above with respect to Tortoise Notes of any series at the time
Outstanding occurs, the principal amount of all the Tortoise Notes of that
series shall automatically, and without any declaration or other action
on the
part of the Trustee or any holder, become immediately due and payable.
At
any
time after such a declaration of acceleration with respect to Tortoise
Notes of
any series has been made and before a judgment or decree for payment of
the
money due has been obtained by the Trustee, the holders of a majority in
principal amount of the Outstanding Tortoise Notes of that series, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if:
(a)
the
Company has paid or deposited with the Trustee a sum sufficient to
pay
(i) all
overdue interest on all Tortoise Notes of that series,
(ii) the
principal of (and premium, if any, on) any Tortoise Notes of that series
which
have become due otherwise than by such declaration of acceleration and any
interest thereon at the rate or rates prescribed therefor in such Tortoise
Notes,
(iii) to
the
extent that payment of such interest is lawful, interest upon overdue interest
at the rate or rates prescribed therefor in such Tortoise
Notes,
(iv) all
sums
paid or advanced by the Trustee and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel;
and
(b) all
Events of Default with respect to Tortoise Notes of that series, other than
the
non-payment of the principal of Tortoise Notes of that series which have become
due solely by such declaration of acceleration, have been cured or
waived.
No
such
rescission shall affect any subsequent default or impair any right consequent
thereon.
Collection
of Indebtedness and Suits for Enforcement by Trustee
The
Company covenants that if:
(a) default
is made in the payment of any interest on any Tortoise Notes when such interest
becomes due and payable and such default continues for a period of 90 days,
or
(b) default
is made in the payment of the principal of (or premium, if any, on) any Tortoise
Notes at the Maturity thereof, the Company will, upon demand of the Trustee,
pay
to it, for the benefit of the holders of such Tortoise Notes, the whole amount
then due and payable on such Tortoise Notes for principal and any premium and
interest and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue principal and premium and on any overdue
interest, at the rate or rates prescribed therefor in such Tortoise Notes,
and,
in addition thereto, such further amount as shall be
sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents
and counsel.
If
an
Event of Default with respect to Tortoise Notes of any series occurs and
is
continuing, the Trustee may in its discretion proceed to protect and enforce
its
rights and the rights of the holders of Tortoise Notes of such series by
such
appropriate judicial proceedings as the Trustee shall deem most effectual
to
protect and enforce any such rights, whether for the specific enforcement
of any
covenant or agreement in the Indenture or in aid of the exercise of any
power
granted in the Indenture, or to enforce any other proper remedy.
Application
of Money Collected
Any
money
collected by the Trustee pursuant to the provisions of the Indenture relating
to
an Event of Default shall be applied in the following order, at the date
or
dates fixed by the Trustee and, in case of the distribution of such money
on
account of principal or any premium or interest, upon presentation of the
Tortoise Notes and the notation thereon of the payment if only partially
paid
and upon surrender thereof if fully paid:
FIRST:
To
the payment of all amounts due the Trustee under the Indenture;
and
SECOND:
To the payment of the amounts then due and unpaid for principal of and any
premium and interest on the Tortoise Notes in respect of which or for the
benefit of which such money has been collected, ratably, without preference
or
priority of any kind, according to the amounts due and payable on such Tortoise
Notes for principal and any premium and interest, respectively.
Limitation
On Suits
No
holder
of any Tortoise Notes of any series shall have any right to institute any
proceeding, judicial or otherwise, with respect to the Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(a) such
holder has previously given written notice to the Trustee of a continuing Event
of Default with respect to the Tortoise Notes of that series;
(b) the
holders of not less than a majority in principal amount of the Outstanding
Tortoise Notes of that series shall have made written request to the Trustee
to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such
holder or holders have offered to the Trustee indemnity reasonably satisfactory
to it against the costs, expenses and liabilities to be incurred in compliance
with such request;
(d) the
Trustee for 60 days after its receipt of such notice, request and offer of
indemnity has failed to institute any such proceeding; and
(e) no
direction inconsistent with such written request has been given to the Trustee
during such 60-day period by the holders of a majority in principal amount
of
the Outstanding Tortoise Notes of that series;
it
being
understood and intended that no one or more of such holders shall have any
right
in any manner whatever by virtue of, or by availing of, any provision of the
Indenture to affect, disturb or prejudice the
rights
of
any other of such holders, or to obtain or to seek to obtain priority or
preference over any other of such holders or to enforce any right under
the
Indenture, except in the manner provided and for the equal and ratable
benefit
of all of such holders.
Unconditional
Right of Holders to Receive Principal, Premium and Interest
Notwithstanding
any other provision in the Indenture, the holder of any Tortoise Notes
shall
have the right, which is absolute and unconditional, to receive payment
of the
principal of and any premium and (subject to the provisions of any supplemental
indenture) interest on such Tortoise Notes on the respective Stated Maturities
expressed in such Tortoise Notes (or, in the case of redemption, on the
Redemption Date), and to institute suit for the enforcement of any such
payment
and such rights shall not be impaired without the consent of such holder.
Restoration
of Rights and Remedies
If
the
Trustee or any holder has instituted any proceeding to enforce any right
or
remedy under the Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee
or to
such holder, then and in every such case, subject to any determination
in such
proceeding, the Company, the Trustee and the holders shall be restored
severally
and respectively to their former positions and thereafter all rights and
remedies of the Trustee and the holders shall continue as though no such
proceeding had been instituted.
Rights
and Remedies Cumulative
Except
as
otherwise provided with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Tortoise Notes, no right or remedy conferred upon
or
reserved to the Trustee or to the holders is intended to be exclusive of
any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
or
now or hereafter existing at law or in equity or otherwise. The assertion
or
employment of any right or remedy, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or
remedy.
Control
By Holders
The
holders of not less than a majority in principal amount of the Outstanding
Tortoise Notes of any series shall have the right to direct the time, method
and
place of conducting any proceeding for any remedy available to the Trustee,
or
exercising any trust or power conferred on the Trustee, with respect to the
Tortoise Notes of such series, provided that
(1) such
direction shall not be in conflict with any rule of law or with the Indenture,
and
(2) the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
Waiver
of Past Defaults
The
holders of not less than a majority in principal amount of the Outstanding
Tortoise Notes of any series may on behalf of the holders of all the Tortoise
Notes of such series waive any past default hereunder with respect to such
series and its consequences, except a default
(1) in
the
payment of the principal of or any premium or interest on any Tortoise Notes
of
such series, or
(2)
in
respect of a covenant or provision which cannot be modified or amended without
the consent of the holder of each Outstanding Tortoise Notes of such series
affected.
Upon
any
such waiver, such default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured, for every purpose of the
Indenture; but no such waiver shall extend to any subsequent or other default
or
impair any right consequent thereon.
SATISFACTION
AND DISCHARGE OF INDENTURE
The
Indenture shall upon request of the Company cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange
of
any Tortoise Notes expressly provided for herein or in the terms of such
security), and the Trustee, at the expense of the Company, shall execute
proper
instruments acknowledging satisfaction and discharge of the Indenture, when
(a) Either:
(i) all
Tortoise Notes theretofore authenticated and delivered (other than
(1) securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in the Indenture; and (2) Tortoise Notes
for whose payment money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in the Indenture) have been delivered
to
the Trustee for cancellation; or
(ii) all
such
Tortoise Notes not theretofore delivered to the Trustee for cancellation
have
become due and payable, or will become due and payable at their Stated Maturity
within one year, or are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company, and the Company,
in the case of this subsection (ii) has deposited or caused to be deposited
with
the Trustee as trust funds in trust money in an amount sufficient to pay
and
discharge the entire indebtedness on such securities not theretofore delivered
to the Trustee for cancellation, for principal and any premium and interest
to
the date of such deposit (in the case of Securities which have become due
and
payable) or to the Stated Maturity or Redemption Date, as the case may
be;
(b) the
Company has paid or caused to be paid all other sums payable hereunder by
the
Trust; and
(c) the
Company has delivered to the Trustee an Officers’ Certificate and an Opinion of
Counsel, each stating that all conditions precedent herein provided for relating
to the satisfaction and discharge of the Indenture have been complied
with.
Notwithstanding
the satisfaction and discharge of the Indenture, the obligations of the Company
to the Trustee under the Indenture and, if money shall have been deposited
with
the Trustee pursuant to subparagraph (ii) of paragraph (a) above, the
obligations of the Trustee under certain provisions of the Indenture shall
survive.
THE
TRUSTEE
Certain
Duties and Responsibilities
(1) Except
during the continuance of an Event of Default,
(A) the
Trustee undertakes to perform such duties and only such duties as are
specifically set forth in the Indenture and as required by the Trust Indenture
Act, and no implied covenants or obligations shall be read into the Indenture
against the Trustee; and
(B) in
the
absence of bad faith on its part, the Trustee may conclusively rely, as to
the
truth of the statements and the correctness of the opinions expressed therein,
upon certificates or opinions furnished to the Trustee and conforming to
the
requirements of the Indenture; but in the case of any such certificates or
opinions which by any provision of the Indenture are specifically required
to be
furnished to the Trustee, the Trustee shall be under a duty to examine the
same
to determine whether or not they conform to the requirements of the Indenture
(but need not confirm or investigate the accuracy of mathematical calculations
or other facts stated therein).
(2) In
case
an Event of Default has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by the Indenture, and use the
same
degree of care and skill in their exercise, as a prudent person would exercise
or use under the circumstances in the conduct of his or her own
affairs.
(3) In
no
event shall the Trustee be responsible or liable for special, indirect, or
consequential loss or damage of any kind whatsoever (including, but not limited
to, loss of profit) irrespective of whether the Trustee has
been advised of the likelihood of such loss or damage and regardless of the
form
of action.
(4) In
no
event shall the Trustee be responsible or liable for any failure or delay in
the
performance of its obligations arising out of or caused by, directly or
indirectly, forces beyond its control, including,
without limitation, strikes, work stoppages, accidents, acts of war or
terrorism, civil or military disturbances, nuclear or natural catastrophes
or
acts of God, and interruptions, loss or malfunctions of utilities,
communications or computer (software and hardware) services; it being understood
that the Trustee shall use reasonable efforts which are consistent with accepted
practices in the banking industry to resume performance as soon as practicable
under the circumstances.
(5) No
provision of the Indenture shall be construed to relieve the Trustee from
liability for its own negligent action, its own negligent failure to act, or
its
own willful misconduct, except that:
(A) this
Subsection shall not be construed to limit the effect of Subsection (1)(A)
of this Section;
(B) the
Trustee shall not be liable for any error of judgment made in good faith by
a
Responsible Officer, unless it shall be proved that the Trustee was negligent
in
ascertaining the pertinent facts;
(C) the
Trustee shall not be liable with respect to any action taken or omitted to
be
taken by it in good faith in accordance with the direction of the holders of
a
majority in principal amount of the Outstanding securities of any series,
determined as provided in the Indenture, relating to the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under the Indenture
with respect to the Securities of such series; and
(D) no
provision of the Indenture shall require the Trustee to expend or risk
its own
funds or otherwise incur any financial liability in the performance of
any of
its duties, or in the exercise of any of its rights or powers, if it shall
have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it.
Notice
of Defaults
If
a
default occurs hereunder with respect to Tortoise Notes of any series,
the
Trustee shall give the Holders of Tortoise Notes of such series notice
of such
default as and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default with respect to Tortoise Notes
of such
series, no such notice to Holders shall be given until at least 90 days
after the occurrence thereof. For the purpose hereof, the term “default” means
any event which is, or after notice or lapse of time or both would become,
an
Event of Default with respect to Tortoise Notes of such series.
Certain
Rights of Trustee
Subject
to the provisions under “Certain Duties and Responsibilities”
above:
(a) the
Trustee may conclusively rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note,
other
evidence of indebtedness or other paper or document believed by it to be
genuine
and to have been signed or presented by the proper party or
parties;
(b) any
request or direction of the Company shall be sufficiently evidenced by a
Company
Request or Company Order, and any resolution of the Board of Directors shall
be
sufficiently evidenced by a Board Resolution;
(c) whenever
in the administration of the Indenture the Trustee shall deem it desirable
that
a matter be proved or established prior to taking, suffering or omitting any
action hereunder, the Trustee may, in the absence of bad faith on its part,
rely
upon an Officers’ Certificate;
(d) the
Trustee may consult with counsel of its selection and the written advice of
such
counsel or any Opinion of Counsel shall be full and complete authorization
and
protection in respect of any action taken, suffered or omitted by it in good
faith and in reliance thereon;
(e) the
Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by the Indenture at the request or direction of any of the holders
pursuant to the Indenture, unless such holders shall have offered to the Trustee
security or indemnity reasonably satisfactory to it against the costs, expenses
and liabilities which might be incurred by it in compliance with such request
or
direction;
(f) the
Trustee shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or
matters as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or
attorney;
(g) the
Trustee may execute any of the trusts or powers or perform any duties hereunder
either directly or by or through agents or attorneys and the Trustee shall
not
be responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder;
(h) the
Trustee shall not be liable for any action taken, suffered or omitted to
be
taken by it in good faith and reasonably believed by it to be authorized
or
within the discretion or rights or powers conferred upon it by the
Indenture;
(i) the
Trustee shall not be deemed to have notice of any default or Event of Default
unless a Responsible Officer of the Trustee has actual knowledge thereof
or
unless written notice of any event which is in fact such a default is received
by the Trustee at the Corporate Trust Office of the Trustee, and such notice
references the Tortoise Notes and the Indenture;
(j) the
rights, privileges, protections, immunities and benefits given to the Trustee,
including its rights to be indemnified, are extended to, and shall be
enforceable by, the Trustee in each of its capacities hereunder;
and
(k) the
Trustee may request that the Company deliver an Officers’ Certificate setting
forth the names of individuals and/or titles of officers authorized at
such time
to take specified actions pursuant to the Indenture, which Officers’ Certificate
may be signed by any person authorized to sign an Officers’ Certificate,
including any person specified as so authorized in any such certificate
previously delivered and not superceded.
Compensation
and Reimbursement
The
Company agrees:
(a) to
pay to
the Trustee from time to time such compensation as shall be agreed in writing
between the parties for all services rendered by it (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except
as
otherwise expressly provided, to reimburse the Trustee upon its request for
all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any provision of the Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to
its
negligence or bad faith; and
(c) to
indemnify each of the Trustee or any predecessor Trustee for, and to hold it
harmless against, any and all losses, liabilities, damages, claims or expenses
including taxes (other than taxes imposed on the income of the Trustee) incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the trust or trusts hereunder,
including the costs and expenses of defending itself against any claim (whether
asserted by the Company, a holder or any other Person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder.
When
the
Trustee incurs expenses or renders services in connection with an Event of
Default, the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable Federal or State bankruptcy,
insolvency or other similar law.
The
provisions hereof shall survive the termination of the Indenture.
Conflicting
Interests
If
the
Trustee has or shall acquire a conflicting interest within the meaning of the
Trust Indenture Act, the Trustee shall either eliminate such interest or resign,
to the extent and in the manner provided by,
and
subject to the provisions of, the Trust Indenture Act and the Indenture.
To the
extent not prohibited by the Trust Indenture Act, the Trustee shall not be
deemed to have a conflicting interest by virtue of being a trustee under
the
Indenture with respect to Tortoise Notes of more than one series.
Resignation
and Removal; Appointment of Successor
No
resignation or removal of the Trustee and no appointment of a successor Trustee
shall become effective until the acceptance of appointment by the successor
Trustee in accordance with the applicable requirements.
The
Trustee may resign at any time with respect to the Tortoise Notes of one
or more
series by giving written notice thereof to the Company. If the instrument
of
acceptance by a successor Trustee shall not have been delivered to the Trustee
within 60 days after the giving of such notice of resignation, the
resigning Trustee may petition, at the expense of the Company, any court
of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Tortoise Notes of such series.
The
Trustee may be removed at any time with respect to the Tortoise Notes of
any
series by Act of the holders of a majority in principal amount of the
Outstanding Tortoise Notes of such series, delivered to the Trustee and to
the
Company. If the instrument of acceptance by a successor Trustee shall
not have been delivered to the Trustee within 30 days
after the giving of a notice of removal pursuant to this paragraph, the Trustee
being removed may petition, at the expense of the Company, any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Tortoise Notes of such series.
If
at any
time:
(a) the
Trustee shall fail to comply after written request therefor by the Company
or by
any holder who has been a bona fide holder of Tortoise Notes for at least six
months, or
(b) the
Trustee shall cease to be eligible and shall fail to resign after written
request therefor by the Company or by any such holder, or
(c) the
Trustee shall become incapable of acting or shall be adjudged a bankrupt or
insolvent or a receiver of the Trustee or of its property shall be appointed
or
any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then, in any such case, (i) the Company by a Board Resolution
may remove the Trustee with respect to all Tortoise Notes, or (ii) any
holder who has been a bona fide holder of Tortoise Notes for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Tortoise Notes and the appointment of a successor Trustee or
Trustees.
If
the
Trustee shall resign, be removed or become incapable of acting, or if a vacancy
shall occur in the office of Trustee for any cause, with respect to the Tortoise
Notes of one or more series, the Company, by a Board Resolution, shall promptly
appoint a successor Trustee or Trustees with respect to the Tortoise Notes
of
that or those series (it being understood that any such successor Trustee may
be
appointed with respect to the Tortoise Notes of one or more or all of such
series and that at any time there shall be only one Trustee with respect to
the
Tortoise Notes of any particular series) and shall comply with the applicable
requirements. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Tortoise Notes of any series shall be appointed by Act of the
holders of a majority in principal amount of the Outstanding Tortoise Notes
of
such series delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such appointment
in
accordance with the applicable requirements,
become
the successor Trustee with respect to the Tortoise Notes of such series and
to
that extent supersede the successor Trustee appointed by the
Company.
If
no
successor Trustee with respect to the Tortoise Notes of any series shall
have
been so appointed by the Company or the holders and accepted appointment
in the
manner required, any holder who has been a bona fide holder of Tortoise Notes
of
such series for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Tortoise Notes of
such
series.
The
Company shall give notice of each resignation and each removal of the Trustee
with respect to the Tortoise Notes of any series and each appointment of
a
successor Trustee with respect to the Tortoise Notes of any series to all
holders of Tortoise Notes of such series in the manner provided. Each notice
shall include the name of the successor Trustee with respect to the Tortoise
Notes of such series and the address of its Corporate Trust Office.
Acceptance
of Appointment by Successor
In
case
of the appointment hereunder of a successor Trustee with respect to all Tortoise
Notes, every such successor Trustee so appointed shall execute, acknowledge
and
deliver to the Company and to the
retiring Trustee an instrument accepting such appointment, and thereupon
the
resignation or removal of the retiring Trustee shall become effective and
such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee;
but, on the request of the Company or the successor Trustee, such retiring
Trustee shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts
of the
retiring Trustee and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee
hereunder.
In
case
of the appointment hereunder of a successor Trustee with respect to the Tortoise
Notes of one or more (but not all) series, the Company, the retiring Trustee
and
each successor Trustee with respect to the Tortoise Notes of one or more series
shall execute and deliver a supplemental indenture wherein each successor
Trustee shall accept such appointment and which (1) shall contain such
provisions as shall be necessary or desirable to transfer and confirm to, and
to
vest in, each successor Trustee all the rights, powers, trusts and duties of
the
retiring Trustee with respect to the Tortoise Notes of that or those series
to
which the appointment of such successor Trustee relates, (2) if the
retiring Trustee is not retiring with respect to all Tortoise Notes, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Tortoise Notes of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee,
and
(3) shall add to or change any of the provisions of the Indenture as shall
be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing in the
Indenture shall constitute such Trustees co-trustees of the same trust and
that
each such Trustee shall be trustee of a trust or trusts hereunder separate
and
apart from any trust or trusts hereunder administered by any other such Trustee;
and upon the execution and delivery of such supplemental indenture the
resignation or removal of the retiring Trustee shall become effective to the
extent provided therein and each such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee with respect to the Tortoise Notes of that
or
those series to which the appointment of such successor Trustee relates; but,
on
request of the Company or any successor Trustee, such retiring Trustee shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder with respect to the Tortoise
Notes
of that or those series to which the appointment of such successor Trustee
relates.
Upon
request of any such successor Trustee, the Company shall execute any and
all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts referred to in the first
or
second preceding paragraph, as the case may be.
No
successor Trustee shall accept its appointment unless at the time of such
acceptance such successor Trustee shall be qualified and eligible.
Merger,
Conversion, Consolidation or Succession to Business
Any
corporation into which the Trustee may be merged or converted or with which
it
may be consolidated, or any corporation resulting from any merger, conversion
or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible, without the execution
or
filing of any paper or any further act on the part of any of the parties
hereto.
In case any Tortoise Notes shall have been authenticated, but not delivered,
by
the Trustee then in office, any successor by merger, conversion or consolidation
to such authenticating Trustee may adopt such authentication and deliver
the
Tortoise Notes so authenticated with the same effect as if such successor
Trustee had itself authenticated such Tortoise Notes.
CONSOLIDATION,
MERGER, CONVEYANCE, TRANSFER OR LEASE
Company
May Consolidate, Etc., Only On Certain Terms
The
Company shall not consolidate with or merge into any other Person or convey,
transfer or lease its properties and assets substantially as an entirety to
any
Person, and the Company shall not permit any Person to consolidate with or
merge
into the Company, unless:
(a) in
case
the Company shall consolidate with or merge into another Person or convey,
transfer or lease its properties and assets substantially as an entirety to
any
Person, the Person formed by such consolidation or into which the Company is
merged or the Person which acquires by conveyance or transfer, or which leases,
the properties and assets of the Company substantially as an entirety shall
be a
corporation, partnership or trust, shall be organized and validly existing
under
the laws of any domestic or foreign jurisdiction and shall expressly assume,
by
an indenture supplemental hereto, executed and delivered to the Trustee, in
form
satisfactory to the Trustee, the due and punctual payment of the principal
of
and any premium and interest on all the Tortoise Notes and the performance
or
observance of every covenant of the Indenture on the part of the Company to
be
performed or observed;
(b) immediately
after giving effect to such transaction and treating any indebtedness which
becomes an obligation of the Company or any subsidiary as a result of such
transaction as having been incurred by the Company or such Subsidiary at the
time of such transaction, no Event of Default, and no event which, after notice
or lapse of time or both, would become an Event of Default, shall have happened
and be continuing;
(c) the
Company has delivered to the Trustee an Officers’ Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance, transfer
or
lease and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply and that all conditions
precedent in the Indenture provided for relating to such transaction have been
complied with.
Successor
Substituted
Upon
any
consolidation of the Company with, or merger of the Company into, any other
Person or any conveyance, transfer or lease of the properties and assets
of the
Company substantially as an entirety, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture with the
same
effect as if such successor Person had been named as the Company in the
Indenture, and thereafter, except in the case of a lease, the predecessor
Person
shall be relieved of all obligations and covenants under the Indenture and
the
Tortoise Notes.
DEFEASANCE
AND COVENANT DEFEASANCE
Defeasance
and Discharge
Upon
the
Company’s exercise of its option (if any) to have the provisions of the
Indenture relating to Defeasance applied to any Tortoise Notes or any series
of
Tortoise Notes, as the case may be, the Company shall be deemed to have been
discharged from its obligations, with respect to such Tortoise Notes as provided
in the Indenture on and after the date the conditions set forth are satisfied
(hereinafter called “Defeasance”). For this purpose, such Defeasance means that
the Company shall be deemed to have paid and discharged the entire indebtedness
represented by such Tortoise Notes and to have satisfied all
its
other obligations under such Tortoise Notes and the Indenture insofar as
such
Tortoise Notes are concerned (and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging the same), subject to the
following which shall survive until otherwise terminated or discharged
hereunder: (1) the rights of holders of such Tortoise Notes to receive,
solely from the trust fund, payments in respect of the principal of and any
premium and interest on such Tortoise Notes when payments are due, (2) the
Company’s obligations with respect to such Tortoise Notes, (3) the rights,
powers, trusts, duties and immunities of the Trustee.
Covenant
Defeasance
Upon
the
Company’s exercise of its option (if any) to have provisions of the Indenture
relating to Covenant Defeasance applied to any Tortoise Notes or any series
of
Tortoise Notes, as the case may be, (1) the Company shall be released from
its obligations under certain provisions of the Indenture for the benefit of
the
holders of such Tortoise Notes and (2) the occurrence of any event
specified in the Indenture, and any such covenants provided pursuant to certain
provisions of the Indenture shall be deemed not to be or result in an Event
of
Default, in each case with respect to such Tortoise Notes as provided in the
Indenture on and after the date the conditions are satisfied (hereinafter called
“Covenant Defeasance”). For this purpose, such Covenant Defeasance means that,
with respect to such Tortoise Notes, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such specified section of the Indenture, whether directly or
indirectly by reason of any reference elsewhere in the Indenture, or by reason
of any reference in any such section or article of the Indenture to any other
provision in the Indenture or in any other document, but the remainder of the
Indenture and such Tortoise Notes shall be unaffected thereby.
Conditions
to Defeasance or Covenant Defeasance
(a) The
Company shall irrevocably have deposited or caused to be deposited with the
Trustee (or another trustee which satisfies the requirements and agrees to
comply with the provisions of the relevant Article of the Indenture
applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefits of the
holders
of such Tortoise Notes, (i) money in an amount, or (ii) U.S.
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide,
not
later than one day before the due date of any payment, money in an amount,
or
(iii) such other obligations or arrangements as may be specified with
respect to such Tortoise Notes, or (iv) a combination thereof, in each case
sufficient, in the opinion of a nationally recognized firm of independent
public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the Trustee
(or any
such other qualifying trustee) to pay and discharge, the principal of and
any
premium and interest on such Tortoise Notes on the respective Stated Maturities,
in accordance with the terms of the Indenture and such Tortoise Notes. As
used
in the Indenture, “U.S. Government Obligation” means (x) any security which
is (i) a direct obligation of the United States of America for the payment
of which the full faith and credit of the United States of America is pledged
or
(ii) an obligation of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the payment of
which
is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case (i) or (ii), is not callable
or
redeemable at the option of the Company thereof, and (y) any depositary
receipt issued by a bank (as defined in Section 3(a)(2) of the Tortoise
Notes Act) as custodian with respect to any U.S. Government Obligation which
is
specified in Clause (x) above and held by such bank for the account of the
holder of such depositary receipt, or with respect to any specific payment
of
principal of or interest on any U.S. Government Obligation which is so specified
and held, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of
such
depositary
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal or interest evidenced
by such depositary receipt.
(b) In
the
event of an election to have Defeasance and Discharge apply to any Tortoise
Notes or any series of Tortoise Notes, as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (ii) since the date of this instrument, there has been
a change in the applicable Federal income tax law, in either case (i) or (ii)
to
the effect that, and based thereon such opinion shall confirm that, the holders
of such Tortoise Notes will not recognize gain or loss for Federal income tax
purposes as a result of the deposit, Defeasance and discharge to be effected
with respect to such Tortoise Notes and will be subject to Federal income tax
on
the same amount, in the same manner and at the same times as would be the case
if such deposit, Defeasance and discharge were not to occur.
(c) In
the
event of an election to have Covenant Defeasance apply to any Tortoise Notes
or
any series of Tortoise Notes, as the case may be, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the holders
of
such Tortoise Notes will not recognize gain or loss for Federal income tax
purposes as a result of the deposit and Covenant Defeasance to be effected
with
respect to such Tortoise Notes and will be subject to Federal income tax on
the
same amount, in the same manner and at the same times as would be the case
if
such deposit and Covenant Defeasance were not to occur.
(d) The
Company shall have delivered to the Trustee an Officers’ Certificate to the
effect that neither such Tortoise Notes nor any other Tortoise Notes of the
same
series, if then listed on any Tortoise Notes exchange, will be delisted as
a
result of such deposit.
(e) No
event
which is, or after notice or lapse of time or both would become, an Event of
Default with respect to such Tortoise Notes or any other Tortoise Notes shall
have occurred and be continuing at the time of such deposit or, with regard
to
any such event specified, at any time on or prior to the 90th day after the
date
of such deposit (it being understood that this condition shall not be deemed
satisfied until after such 90th day).
(f) Such
Defeasance or Covenant Defeasance shall not cause the Trustee to have a
conflicting interest within the meaning of the Trust Indenture Act (assuming
all
Tortoise Notes are in default within the meaning of such Act).
(g) Such
Defeasance or Covenant Defeasance shall not result in a breach or violation
of,
or constitute a default under, any other agreement or instrument to which
the
Company is a party or by which it is bound.
(h) Such
Defeasance or Covenant Defeasance shall not result in the trust arising from
such deposit constituting an investment company within the meaning of the
Investment Company Act unless such trust shall be registered under the
Investment Company Act or exempt from registration thereunder.
(i) No
event
or condition shall exist that would prevent the Company from making payments
of
the principal of (and any premium) or interest on the Tortoise Notes of such
series on the date of such deposit or at any time on or prior to the 90th
day
after the date of such deposit (it being understood that this condition shall
not be deemed satisfied until after such 90th day).
(j) The
Company shall have delivered to the Trustee an Officers’ Certificate and an
Opinion of Counsel, each stating that all conditions precedent with respect
to
such Defeasance or Covenant Defeasance have been complied with.
(k) The
Company shall have delivered to the Trustee an Opinion of Counsel substantially
to the effect that (i) the trust funds deposited pursuant hereto will not
be subject to any rights of any holders of indebtedness or equity of the
Company, and (ii) after the 90th day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors’ rights generally, except
that if a court were to rule under any such law in any case or proceeding that
the trust funds remained property of the Company, no opinion is given as to
the
effect of such laws on the trust funds except the following: (A) assuming
such trust funds remained in the possession of the trustee with whom such funds
were deposited prior to such court ruling to the extent not paid to holders
of
such Tortoise Notes, such trustee would hold, for the benefit of such holders,
a
valid and perfected security interest in such trust funds that is not avoidable
in bankruptcy or otherwise and (B) such holders would be entitled to
receive adequate protection of their interests in such trust funds if such
trust
funds were used.
APPENDIX
A-I
Tortoise
Notes Auction Procedures
1. Orders
by Existing Holders and Potential Beneficial Owners.
(a) Prior to the Submission Deadline on each Auction Date:
(i) each
Existing Holder may submit to a Broker-Dealer, in writing or by such other
method as shall be reasonably acceptable to such Broker-Dealer, one or more
Orders as to:
(A) the
principal amount of Outstanding Tortoise Notes, if any, of the series held
by
the Existing Holder which the Existing Holder commits to continue to hold for
the next succeeding Rate Period without regard to the Applicable Rate of the
Tortoise Notes;
(B) the
principal amount of Outstanding Tortoise Notes, if any, of the series held
by
the Existing Holder which the Existing Holder commits to continue to hold for
the next succeeding Rate Period if the Applicable Rate for Tortoise Notes for
the next succeeding Rate Period is not less than the rate per annum specified
in
such Bid (and if the Auction Rate is less than such specified rate, the effect
of the Order shall be as set forth in paragraph (b)(i)(A) of this Section);
and/or
(C) the
principal amount of Outstanding Tortoise Notes, if any, of the series held
by
the Existing Holder which the Existing Holder offers to sell on the next
succeeding Interest Payment Date without regard to the Applicable Rate for
Tortoise Notes for the next succeeding Rate Period; and
(ii) each
Potential Beneficial Owner may submit to a Broker-Dealer, in writing or by
such
other method as shall be reasonably acceptable to such Broker-Dealer, an Order
as to the principal amount of outstanding Tortoise Notes of a series which
each
such Potential Beneficial Owner offers to purchase if the Applicable Rate for
the Tortoise Notes of such series for the next succeeding Rate Period is
not less than the rate per annum then specified by such Potential Beneficial
Owner.
For
the
purposes of these Auction Procedures, an Order containing the information
referred to in clause (i)(A) of this paragraph (a) is referred to as a “Hold
Order,” an Order containing the information referred to in clause (i)(B) or (ii)
of this paragraph (a) is referred to as a “Bid,” and an Order containing the
information referred to in clause (i)(C) of this paragraph (a) is referred
to as
a “Sell Order.” No Auction Desk of a Broker-Dealer shall accept a Bid or Sell
Order which is conditioned on being filled in whole or which does not specify
a
specific rate. “Auction Desk” means the business unit of a Broker-Dealer that
fulfills the responsibilities of a Broker-Dealer, including soliciting Bids
for
Tortoise Notes of a series while they bear interest at the Applicable
Rate.
(b) (i)
A
Bid by
an Existing Holder shall constitute an offer to sell on the next
succeeding Auction Date:
(A) the
principal amount of outstanding Tortoise Notes specified in the Bid if the
Applicable Rate determined on the Auction Date for the next succeeding Auction
Period shall be less than the rate specified in such Bid; or
(B) the
principal amount or a lesser principal amount of outstanding Tortoise Notes
to
be determined as described in clause (v) of paragraph (a) of
Section 5
of
this
Appendix A-I if the Applicable Rate determined on the Auction Date for the
next
succeeding Auction Period shall be equal to such specified rate; or
(C) a
lesser
principal amount of outstanding Tortoise Notes to be determined as described
in
clause (iv) of paragraph (b) of Section 5 of this Appendix A-I if the rate
specified therein shall be higher than the Maximum Rate and Sufficient Clearing
Bids do not exist.
(ii) A
Sell
Order by an Existing Holder of Tortoise Notes of a series subject to an Auction
on any Auction Date shall constitute an offer to sell:
(A) the
principal amount of outstanding Tortoise Notes of the series specified in the
Sell Order; or
(B) the
principal amount or a lesser principal amount of outstanding Tortoise Notes
of
the series as set forth in clause (iv) of paragraph (b) of Section 5 of
this Appendix A-I if Sufficient Clearing Bids for Tortoise Notes of the series
do not exist;
(iii) A
Bid by
an Existing Holder or a Potential Holder of Tortoise Notes of a series subject
to an Auction on any Auction Date shall constitute an offer to
purchase:
(A) the
principal amount of outstanding Tortoise Notes of the series specified in the
Bid if the Applicable Rate for the Tortoise Notes determined on the Auction
Date
for the next succeeding Auction Period shall be higher than the rate specified
therein; or
(B) the
principal amount or a lesser principal amount of outstanding Tortoise Notes
of
the series as set forth in clause (vi) of paragraph (a) of Section 5 of
this Appendix A-I if the Applicable Rate for the Tortoise Notes determined
on
the Auction Date shall be equal to the rate specified therein.
(C) Anything
herein to the contrary notwithstanding:
(1) if
an
Order or Orders covering all of the outstanding Tortoise Notes of the series
held by any Existing Holder is not submitted to the Auction Agent prior to
the
Submission Deadline, the Auction Agent shall deem a Hold Order to have been
submitted by or on behalf of the Existing Holder covering the principal amount
of outstanding Tortoise Notes of the series held by the Existing Holder and
not
subject to Orders submitted to the Auction Agent; provided, however, that if
an
Order or Orders covering all of the outstanding Tortoise Notes of the series
held by any Existing Holder is not submitted to the Auction Agent prior to
the
Submission Deadline for an Auction relating to a Special Auction Period
consisting of more than Standard Auction Period, the Auction Agent shall deem
a
Sell Order to have been submitted by or on behalf of the Existing Holder
covering the principal amount of outstanding Tortoise Notes of the series held
by the Existing Holder and not subject to Orders submitted to the Auction
Agent;
(2) for
purposes of any Auction, any Order by an Existing Holder or Potential Holder
shall be revocable until the Submission Deadline, and after the Submission
Deadline all Orders shall be irrevocable; and
(3) for
purposes of any Auction, any Tortoise Notes sold or purchased pursuant to
clauses (i), (ii) or (iii) of paragraph (b) of this Section 1 shall be sold
or purchased at a price equal to 100% of the aggregate thereof.
2. Submission
of Orders by Broker-Dealers to Auction Agent.
(a) Each
Broker-Dealer shall submit to the Auction Agent in writing, through the Auction
Agent’s auction processing system or by such other electronic means, as shall be
reasonably acceptable to the Auction Agent, prior to the Submission Deadline
on
each Auction Date, all Orders obtained by such Broker-Dealer, and specifying
with respect to each Order or aggregation of Orders pursuant to paragraph (e)
of
this Section 2:
(i) the
principal amount of the Bidders placing Orders;
(ii) the
aggregate principal amount of Tortoise Notes of the series, if any, that are
the
subject of the Order;
(iii) to
the
extent that the Bidder is an Existing Holder of Tortoise Notes of the
series:
(A) the
principal amount of Tortoise Notes, if any, of the series subject to any Hold
Order placed by the Existing Holder;
(B) the
principal amount of Tortoise Notes, if any, of the series subject to any Bid
placed by the Existing Holder and the rate specified in the Bid;
and
(C) the
principal amount of Tortoise Notes, if any, of the series subject to any Sell
Order placed by the Existing Holder; and
(iv) to
the
extent the Bidder is a Potential Holder of Tortoise Notes of the series, the
rate specified in such Bid.
(b) If
more
than one Bid is submitted on behalf of any Potential Beneficial Owner, each
Bid
submitted with the same rate shall be aggregated and considered a single Bid
and
each Bid submitted with a different rate shall be considered a separate Bid
with
the rate and the principal amount of Tortoise Notes of the series specified
therein.
A
Broker
Dealer may aggregate the Orders of different Potential Beneficial Owners on
whose behalf such Broker-Dealer is submitting Orders; provided, however, Bids
may only be aggregated if the rates on the Bids are the same when rounded
pursuant to the provisions of paragraph (b) of Section 3 of this Appendix
A-I. Notwithstanding the foregoing, the Auction Agent may at any time request
that such Orders be separate for each different Potential Beneficial
Owner.
(c) None
of
the Company or the Auction Agent shall be responsible for the failure of any
Broker-Dealer to submit an Order to the Auction Agent on behalf of any
Beneficial Owner, Potential Beneficial Owner, Existing Holder or Potential
Holder.
(d) Nothing
contained herein shall preclude a Broker-Dealer from placing an Order for some
or all of the Tortoise Notes of a series for its own account.
(e) Until
the
Submission Deadline, a Broker-Dealer may, for any reason, withdraw or modify
any
Order previously submitted to the Auction Agent.
(f) After
the
Submission Deadline, and prior to the Error Correction Deadline, a Broker-Dealer
may:
(i) submit
to
the Auction Agent an Order received from a Beneficial Owner or Potential
Beneficial Owner or generated from its own account by the Broker-Dealer, in
either case prior to the Submission Deadline and not submitted to the Auction
Agent prior to the Submission Deadline as a result of (A) an event of force
majeure or a technological failure which made delivery prior to the Submission
Deadline impossible or (B) a clerical error on the part of the
Broker-Dealer; or
(ii) modify
or
withdraw an Order received or generated for its own account by the Broker-Dealer
and submitted to the Auction Agent prior to the Submission Deadline, if the
Broker-Dealer determines that such Order contained a clerical error on the
part
of the Broker-Dealer.
In
the
event a Broker-Dealer makes such a submission, modification or withdrawal and
the Auction Agent has already run the Auction, the Auction Agent shall rerun
the
Auction, taking into account such submission, modification or withdrawal. Such
a
submission, modification or withdrawal shall be deemed to constitute a
representation by the Broker-Dealer that, in the case of a newly submitted
Order, the failure to submit such Order prior to the Submission Deadline
resulted from an event described in clause (i) above and such Order was
received from an Beneficial Owner or Potential Beneficial Owner prior to the
Submission Deadline or generated internally by the Broker-Dealer for its own
account prior to the Submission Deadline and, in the case of a modified or
withdrawn Order, that the Order as originally submitted contained a clerical
error on the part of the Broker-Dealer. The Auction Agent shall be entitled
to
rely conclusively (and shall be fully protected in so relying) for any and
all
purposes of the Auction Procedures on any Order submitted to, modified or
withdrawn from, the Auction Agent after the Submission Deadline and prior to
the
Error Correction Deadline as having been submitted, modified or withdrawn in
compliance with the Auction Procedures.
(g) If
after
the Auction Agent announces the results of an Auction a Broker-Dealer becomes
aware that an error was made by the Auction Agent, the Broker-Dealer may
communicate its concern to the Auction Agent prior to the Error Correction
Deadline. If the Auction Agent determines there has been such an error (as
a
result of either a communication from a Broker-Dealer or its own internal
review) prior to the final settlement of transfers with respect to such Auction
at the Securities Depository, the Auction Agent shall correct the error and
notify each Broker-Dealer that submitted Bids or held a position in the Tortoise
Notes of the series subject to such Auction of the corrected results. If an
error by the Auction Agent is discovered after such final settlement, the
Auction Agent may make the change and post new results if the Auction Agent
receives consent (which may be oral) from each Broker-Dealer that submitted
a
Bid or held a position in the Auction.
(h) Nothing
contained herein shall preclude the Auction Agent from:
(i) advising
a Broker-Dealer prior to the Submission Deadline that it has not received
Sufficient Clearing Bids for Tortoise Notes of the series, provided, however,
that if the Auction Agent so advises any Broker-Dealer, it shall so advise
all
Broker-Dealers;
(ii) verifying
the Orders of a Broker-Dealer prior to the Submission Deadline, provided,
however, that if the Auction Agent verifies the Orders of any Broker-Dealer,
it
shall verify the Orders of all Broker-Dealers requesting such verification;
or
(iii) contacting
a Broker-Dealer who has submitted an Order that does not conform to the
requirements of these Auction Procedures and requesting that such
Broker-Dealer
resubmit
such Order so that it conforms to the requirements of these Auction Procedures;
provided, however, that if the Auction Agent has not received a corrected
conforming Order within one hour of the Submission Deadline, the Auction Agent
shall, to the extent possible, adjust such Order in conformity with the
provisions of these Auction Procedures, and, if the Auction Agent is unable
to
so adjust such Order, the Auction Agent shall reject such Order.
3. Treatment
of Orders by the Auction Agent.
Anything herein to the contrary notwithstanding:
(a) If
the
Auction Agent receives an Order which does not conform to the requirements
of
these Auction Procedures, the Auction Agent may contact the Broker-Dealer
submitting such Order for a period of up to one hour after the Submission
Deadline and request that such Broker-Dealer resubmit such Order so that it
conforms to the requirements of these Auction Procedures. If the Auction Agent
has not received a corrected conforming Order within one hour of the Submission
Deadline, the Auction Agent shall, to the extent possible, adjust such Order
in
conformity with the provisions of these Auction Procedures and, if the Auction
Agent is unable to so adjust such Order, the Auction Agent shall reject such
Order.
(b) If
any
rate specified in any Bid contains more than three figures to the right of
the
decimal point, the Auction Agent shall round the rate up to the next highest
one
thousandth (.001) of 1%.
(c) If
one or
more Orders covering in the aggregate more than the principal amount of
outstanding Tortoise Notes of the series subject to an Auction held by any
Existing Holder is submitted to the Auction Agent, such Orders shall be
considered valid as follows:
(i) all
Hold
Orders for Tortoise Notes of a series shall be considered Hold Orders, but
only
up to and including in the aggregate the principal amount of outstanding
Tortoise Notes of the series held by such Existing Holder;
(ii) (A)any
Bid
of an Existing Holder shall be considered valid as a Bid of an Existing Holder
up to and including the excess of the principal amount of outstanding Tortoise
Notes of a series held by the Existing Holder over the principal amount of
Tortoise Notes of the series subject to any Hold Orders referred to in clause
(i) above;
(B) subject
to subclause (A), all Bids of any Existing Holder with the same rate shall
be
aggregated and considered a single Bid of an Existing Holder up to and including
the excess of the principal amount of outstanding Tortoise Notes of the series
held by the Existing Holder over the principal amount of Tortoise Notes of
the
series subject to any Hold Orders referred to in clause (i) above;
(C) subject
to subclause (A), if more than one Bid with different rates is submitted on
behalf of such Existing Holder, such Bids shall be considered Bids of an
Existing Holder in the ascending order of their respective rates up to the
amount of excess of the principal amount of outstanding Tortoise Notes of the
series held by the Existing Holder over the principal amount of Tortoise Notes
of the series subject to any Hold Orders referred to in clause (i)
above;
(D) the
principal amount, if any, of outstanding Tortoise Notes of the series subject
to
Bids not considered to be Bids of an Existing Holder under this clause (ii)
shall be treated as the subject of a Bid for Tortoise Notes of the series by
a
Potential Holder; and
(iii) all
Sell
Orders shall be considered Sell Orders, but only up to and including a principal
amount of Tortoise Notes of the series equal to the excess of the principal
amount of outstanding Tortoise Notes of the series held by such Existing Holder
over the sum of the principal amount of Tortoise Notes of such series subject
to
Hold Orders referred to in clause (i) above and the principal amount of Tortoise
Notes of such series considered to be subject to Bids of such Existing Holder
pursuant to clause (ii) above.
(d) If
an
Order specifies Tortoise Notes of a series to be held, purchased or sold in
a
principal amount which is not an Authorized Denomination, the Auction Agent
shall round the amount down to the nearest Authorized Denomination, and the
Auction Agent shall conduct the Auction Procedures as if such Order had been
submitted in such lower amount.
(e) If
any
portion of an Order of an Existing Holder relates to a Tortoise Note of a
seriesthat has been called for redemption on or prior to the Interest Payment
Date next succeeding such Auction, the Order shall be invalid with respect
to
such portion and the Auction Agent shall conduct the Auction Procedures as
if
such portion of such Order had not been submitted.
(f) No
Tortoise Note of a series which has been called for redemption on or prior
to the Interest Payment Date next succeeding such Auction shall be included
in
the calculation of Available Tortoise Notes for such Auction.
4. Determination
of Applicable Rate.
(a)
Promptly
after the Submission Deadline for the Tortoise Notes of a series on each Auction
Date, the Auction Agent shall assemble all Orders submitted or deemed submitted
to it by the Broker-Dealers (each such Order as submitted or deemed submitted
by
a Broker-Dealer being hereinafter referred to as a “Submitted Hold Order,” a
“Submitted Bid” or a “Submitted Sell Order,” as the case may be, and
collectively as a “Submitted Order”) and shall determine (i) the Available
Tortoise Notes, (ii) whether there are Sufficient Clearing Bids, and
(iii) the Applicable Rate.
(b) Promptly
after the Auction Agent has made such determination, it shall advise the Company
of the Applicable Rate for the next succeeding Rate Period.
5. Allocation
of Tortoise Notes.
(a)
In the
event of Sufficient Clearing Bids for the Tortoise Notes of a series subject
to
the further provisions of paragraphs (c) and (d) of this Section 5.
Submitted Orders for Tortoise Notes of the series shall be accepted or rejected
as follows in the following order of priority:
(i) the
Submitted Hold Order of each Existing Holder shall be accepted, thus requiring
each such Existing Holder to continue to hold the Tortoise Notes that are the
subject of such Submitted Hold Order;
(ii) the
Submitted Sell Order of each Existing Holder shall be accepted and the Submitted
Bids of each Existing Holder specifying any rate that is higher than the Winning
Bid Rate shall be accepted, thus requiring each Existing Holder to sell the
Tortoise Notes that are the subject of such Submitted Sell Order or Submitted
Bid;
(iii) the
Submitted Bid of each Existing Holder specifying any rate that is lower than
the
Winning Bid Rate shall be rejected, thus requiring each such Existing Holder
to
continue to hold the Tortoise Notes that are the subject of the Submitted
Bid;
(iv) the
Submitted Bid of each Potential Holder specifying any rate that is lower
than
the Winning Bid Rate for Tortoise Notes of the series shall be accepted,
thus
requiring
each
such
Potential Holder to purchase the Tortoise Notes that are the subject of the
Submitted Bid;
(v) the
Submitted Bid of each Existing Holder specifying a rate that is equal to the
Winning Bid Rate shall be accepted, thus requiring each such Existing Holder
to
continue to hold the Tortoise Notes of the series that are the subject of the
Submitted Bid, but only up to and including the principal amount of Tortoise
Notes of such series obtained by multiplying (A) the principal amount of
Outstanding Tortoise Notes which are not the subject of Submitted Hold Orders
described in clause (i) of this paragraph (a) or of Submitted Bids described
in
clauses (iii) and (iv) of this paragraph (a) by (B) a fraction, the
numerator of which shall be the principal amount of Outstanding Tortoise Notes
held by such Existing Holder subject to such Submitted Bid and the denominator
of which shall be the aggregate principal amount of Outstanding Tortoise Notes
subject to such Submitted Bids made by all such Existing Holders that specified
a rate equal to the Winning Bid Rate, and the remainder, if any, of such
Submitted Bid shall be rejected, thus requiring each such Existing Holder to
sell any excess amount of Tortoise Notes;
(vi) the
Submitted Bid of each Potential Holder specifying a rate that is equal to the
Winning Bid Rate shall be accepted, thus requiring each such Potential Holder
to
purchase the Tortoise Notes of the series that are the subject of such Submitted
Bid, but only in an amount equal to the principal amount of Tortoise Notes
of
such series obtained by multiplying (A) the aggregate principal amount of
Outstanding Tortoise Notes which are not the subject of Submitted Hold Orders
described in clause (i) of this paragraph (a) or of Submitted Bids described
in
clauses (iii), (iv) or (v) of this paragraph (a) by (B) a fraction, the
numerator of which shall be the principal amount of Outstanding Tortoise Notes
subject to such Submitted Bid and the denominator of which shall be the sum
of
the Outstanding Tortoise Notes subject to such Submitted Bids made by all such
Potential Holders that specified a rate equal to the Winning Bid Rate, and
the
remainder of such Submitted Bid shall be rejected; and
(vii) the
Submitted Bid of each Potential Holder specifying any rate that is higher than
the Winning Bid Rate shall be rejected.
(b) In
the
event there are not Sufficient Clearing Bids for the Tortoise Notes of the
series subject to the provisions of paragraphs (c) and (d) of this
Section 5, Submitted Orders for the Tortoise Notes of the series shall be
accepted or rejected as follows in the following order of priority:
(i) the
Submitted Hold Order of each Existing Holder shall be accepted, thus requiring
each such Existing Holder to continue to hold the Tortoise Notes that are the
subject of such Submitted Hold Order;
(ii) the
Submitted Bid of each Existing Holder specifying any rate that is not higher
than the Maximum Rate shall be accepted, thus requiring each such Existing
Holder to continue to hold the Tortoise Notes that are the subject of such
Submitted Bid;
(iii) the
Submitted Bids specifying any rate that is not higher than the Maximum Rate
for
the Tortoise Notes shall be accepted, thus requiring each such Potential Holder
to purchase the Tortoise Notes that are the subject of such Submitted Bid;
and
(iv) the
Submitted Sell Orders of each Existing Holder shall be accepted as Submitted
Sell Orders and the Submitted Bids of each such Existing Holder specifying
any
rate that is higher than the Maximum Rate shall be deemed to be and shall be
accepted as Submitted Sell Orders, in both cases only up to and including the
principal amount of Tortoise Notes of such series obtained by multiplying
(A) the principal amount of Tortoise Notes subject to Submitted
Bids
described in clause (iii) of this paragraph (b) by (B) a fraction, the
numerator of which shall be the principal amount of Outstanding Tortoise Notes
held by such Existing Holder subject to such Submitted Sell Order or such
Submitted Bid deemed to be a Submitted Sell Order and the denominator of which
shall be the principal amount of Outstanding Tortoise Notes subject to all
such
Submitted Sell Orders and such Submitted Bids deemed to be Submitted Sell
Orders, and the remainder of each such Submitted Sell Order or Submitted Bid
shall be deemed to be and shall be accepted as a Hold Order and each such
Existing Holder shall be required to continue to hold such excess amount of
Tortoise Notes; and
(v) the
Submitted Bid of each Potential Holder specifying any rate that is higher than
the Maximum Rate shall be rejected.
(c) If,
as a
result of the procedures described in paragraphs (a) or (b) of this
Section 5, any Existing Holder or any Potential Holder would be required to
purchase or sell an aggregate principal amount of Tortoise Notes of a series
that is not an Authorized Denomination on any Auction Date, the Auction Agent
shall by lot, in such manner as it shall determine in its sole discretion,
round
up or down the principal amount of Tortoise Notes of such series to be purchased
or sold by any Existing Holder or Potential Holder on such Auction Date as
a
result of such procedures so that the principal amount of Tortoise Notes so
purchased or sold by each Existing Holder or Potential Holder on the Auction
Date shall be an Authorized Denomination of Tortoise Notes, even if such
allocation results in one or more of such Existing Holders or Potential Holders
not purchasing or selling any Tortoise Notes on such Auction Date.
(d) If,
as a
result of the procedures described in paragraph (a) of this Section 5, any
Potential Holder would be required to purchase less than the minimum Authorized
Denomination of Tortoise Notes of a series that is not an Authorized
Denomination on any Auction Date, the Auction Agent shall by lot, in such manner
as it shall determine in its sole discretion, allocate Tortoise Notes of that
series for purchase among Potential Holders so that the principal amount of
Tortoise Notes of such series purchased on the Auction Date by any Potential
Holder shall be an Authorized Denomination, even if the allocation results
in
one or more Potential Holders not purchasing Tortoise Notes of such series
on
the Auction Date.
6. Notice
of Applicable Rate.
(a)
On each
Auction Date, the Auction Agent shall notify each Broker-Dealer that
participated in the Auction held on such Auction Date by electronic means
acceptable to the Auction Agent and the applicable Broker-Dealer of the
following, with respect to the Tortoise Notes of a series for which an Auction
was held on such Auction Date:
(i) the
Applicable Rate determined on such Auction Date for the succeeding Rate
Period;
(ii) whether
Sufficient Clearing Bids existed for the determination of the Winning Bid
Rate;
(iii) if
such
Broker-Dealer submitted a Bid or a Sell Order on behalf of an Existing Holder,
whether such Bid or Sell Order was accepted or rejected and the principal amount
of Tortoise Notes of the series, if any, to be sold by such Existing
Holder;
(iv) if
such
Broker-Dealer submitted a Bid on behalf of a Potential Holder, whether such
Bid
was accepted or rejected and the principal amount of Tortoise Notes of the
series, if any, to be purchased by such Potential Holder;
(v) if
the
principal amount of Tortoise Notes of a series to be sold by all Existing
Holders on whose behalf such Broker-Dealer submitted Bids or Sell Orders is
different from the principal amount of Tortoise Notes of such series to be
purchased by all Potential Holders on whose behalf such Broker-Dealer submitted
a Bid, the name or names of one or more Broker-Dealers (and the Agent Member,
if
any, of each such other Broker-Dealer) and the principal amount of Tortoise
Notes of such series to be (A) purchased from one or more Existing Holders
on whose behalf such other Broker-Dealers submitted Bids or Sell Orders or
(B) sold to one or more Potential Holders on whose behalf such
Broker-Dealer submitted Bids; and
(vi) the
immediately succeeding Auction Date.
(b) On
each
Auction Date, with respect to each series of Tortoise Notes for which an Auction
was held on such Auction Date, each Broker-Dealer that submitted an Order on
behalf of any Existing Holder or Potential Holder shall, if requested:
(i) advise each Existing Holder and Potential Holder on whose behalf such
Broker-Dealer submitted an Order as to (A) the Applicable Rate determined
on such Auction Date, (B) whether any Bid or Sell Order submitted on behalf
of each such Owner was accepted or rejected and (C) the immediately
succeeding Auction Date; (ii) instruct each Potential Holder on whose
behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in
part, to instruct such Potential Holder’s Agent Member to pay to such
Broker-Dealer (or its Agent Member) through the Securities Depository the amount
necessary to purchase the principal amount of Tortoise Notes of such series
to
be purchased pursuant to such Bid against receipt of such Tortoise Notes; and
(iii) instruct each Existing Holder on whose behalf such Broker-Dealer
submitted a Sell Order that was accepted or a Bid that was rejected in whole
or
in part, to instruct such Existing Holder’s Agent Member to deliver to such
Broker-Dealer (or its Agent Member) through the Securities Depository the
principal amount of Tortoise Notes of the series to be sold pursuant to such
Bid
or Sell Order against payment therefor.
7. Miscellaneous
Provisions Regarding Auctions.
(a)
In this
Appendix A-I, each reference to the purchase, sale or holding of Tortoise Notes
shall refer to beneficial interests in Tortoise Notes, unless the context
clearly requires otherwise.
(b) During
an
auction Rate Period with respect to each series of Tortoise Notes, the
provisions of the Indenture and the definitions contained therein and described
in this Appendix A-I, including without limitation the definitions of All Hold
Rate, Interest Payment Date, Maximum Rate, and Applicable Rate, may be amended
pursuant to the Indenture by obtaining the consent of the majority of the owners
of the affected Outstanding Tortoise Notes of a series bearing interest at
the
Applicable Rate as follows. If on the first Auction Date occurring at least
20
days after the date on which the Trustee mailed notice of such proposed
amendment to the registered owners of the affected Outstanding Tortoise Notes
of
the series, (i) the Applicable Rate which is determined on such date is the
Winning Bid Rate or the All Hold Rate and (ii) there is delivered to the
Company and the Trustee an opinion of counsel to the effect that such amendment
shall not adversely affect the validity of the Tortoise Notes of the series
or
any exemption from federal income tax to which the interest on the Tortoise
Notes of the series would otherwise be entitled, the proposed amendment shall
be
deemed to have been consented to by the owners of all affected Outstanding
Tortoise Notes of the series bearing interest at the Applicable
Rate.
(c) If
the
Securities Depository notifies the Company that it is unwilling or unable
to
continue as registered owner of the Tortoise Notes of a series or if at any
time
the Securities Depository shall no longer be registered or in good standing
under the Securities Exchange Act of 1934, as amended, or other applicable
statute or regulation and a successor to the Securities Depository is not
appointed by the Company within 90 days after the Company receives notice
or
becomes aware of such condition, as the case may be, the company shall execute
and the Trustee shall authenticate and deliver certificates representing
the
Tortoise Notes of the series. Such Tortoise Notes shall be registered in
such
names and
Authorized
Denominations as the Securities Depository, pursuant to instructions from the
Agent Members or otherwise, shall instruct the Company and the
Trustee.
(d) During
an
Auction Rate Period, so long as the ownership of the Tortoise Notes of a series
is maintained in book-entry form by the Securities Depository, an Existing
Holder or a Beneficial Owner may sell, transfer or otherwise dispose of a
Tortoise Note only pursuant to a Bid or Sell Order in accordance with the
Auction Procedures or to or through a Broker-Dealer, provided that (i) in
the case of all transfers other than pursuant to Auctions such Existing Holder
or its Broker-Dealer or its Agent Member advises the Auction Agent of such
transfer and (ii) a sale, transfer or other disposition of Tortoise Notes
of the series from a customer of a Broker-Dealer who is listed on the records
of
that Broker-Dealer as the holder of such Tortoise Notes to that Broker-Dealer
or
another customer of that Broker-Dealer shall not be deemed to be a sale,
transfer or other disposition for purposes of this paragraph if such
Broker-Dealer remains the Existing Holder of the Tortoise Notes so sold,
transferred or disposed or immediately after such sale, transfer or
disposition.
8. Changes
in Auction Period or Auction Date.
(a) Changes
in Auction Period.
(i) During any Auction Period, the Company, may, from time to time on the
Interest Payment Date immediately following the end of any Auction Period,
change the length of the Auction Period with respect to all of the Tortoise
Notes of a series in order to accommodate economic and financial factors that
may affect or be relevant to the length of the Auction Period and the rate
of
Tortoise Notes of such series. The Company shall initiate the change in the
length of the Auction Period by giving written notice to the Trustee, Auction
Agent, the Broker-Dealers and the Securities Depository that the Auction Period
shall change if the conditions described herein are satisfied and the proposed
effective date of the change, at least 10 Business Days prior to the Auction
Date for such Auction Period.
(i) Any
such
changed Auction Period shall be for a period of one day, seven-days, 28-days,
35-days, three months, six months and shall be for all of the Tortoise Notes
of
a series in an Auction Period.
(ii) The
change in the length of the Auction Period shall not be allowed unless
Sufficient Clearing Bids existed at the Auction immediately preceding the
proposed change.
(iii) The
change in length of the Auction Period shall take effect only if Sufficient
Clearing Bids exist at the Auction on the Auction Date for such first Auction
Period. For purposes of the Auction for such first Auction Period only, each
Existing Holder shall be deemed to have submitted Sell Orders with respect
to
all of its Tortoise Notes of a series except to the extent such Existing Holder
submits an Order with respect to such notes.
(b) Changes
in Auction Date.
The
Auction Agent, at the direction of the Company, may specify an earlier Auction
Date (but in no event more than five Business Days earlier) than the Auction
Date that would otherwise be determined in accordance with the definition of
“Auction Date” in order to conform with then current market practice with
respect to similar securities or to accommodate economic and financial factors
that may affect or be relevant to the day of the week constituting an Auction
Date and the rate of the Tortoise Notes of the series. The Auction Agent shall
provide notice of the Company’s direction to specify an earlier Auction Date for
an Auction Period by means of a written notice delivered at least 45 days prior
to the proposed changed Auction Date to the Company, the Broker-Dealers and
the
Securities Depository. In the event that Auction Agent is instructed to specify
an earlier Auction Date, the days of the week on which an Auction Period begins
and ends and the Interest Payment Date shall be adjusted
accordingly.
SERIES __
MONEY MARKET CUMULATIVE PREFERRED SHARES
Tortoise
Energy Infrastructure Corporation (the “Company”), a Maryland corporation,
certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST:
Under a power contained in Article V, of the charter of the Company (the
“Charter”), the Board of Directors by duly adopted resolutions classified and
designated _____ shares of authorized but unissued Preferred Stock (as defined
in the Charter) as shares of Series __ Money Market Cumulative Preferred
Shares, liquidation preference $______ per share, with the following
preferences, rights, voting powers, restrictions, limitations as to dividends
and other distributions, qualifications and terms and conditions of redemption,
which, upon any restatement of the Charter, shall become part of Article V
of the Charter, with any necessary or appropriate renumbering or relettering
of
the sections or subsections hereof.
MONEY
MARKET CUMULATIVE PREFERRED SHARES
DESIGNATION
MMP
Shares: _____ shares of Preferred Stock are classified and designated as
Series __ Money Market Cumulative Preferred Shares, liquidation preference
$______ per share (“Series __ MMP Shares”). The initial Dividend Period for the
MMP Shares shall be the period from and including the Original Issue Date
thereof to but excluding _________, 200_. Each MMP Share shall have an
Applicable Rate for its initial Dividend Period equal to ____% per annum
and an
initial Dividend Payment Date of ___________, 200_. Each MMP Share shall
have
such other preferences, rights, voting powers, restrictions, limitations
as to
dividends and other distributions, qualifications and terms and conditions
of
redemption, in addition to those required by applicable law or set forth
in the
Charter applicable to shares of Preferred Stock (“Preferred Shares”), as are set
forth in Part I and Part II of these terms of the MMP Shares. The MMP
Shares shall constitute a separate series of Preferred
Shares.
Subject
to the provisions of Section 11 of Part I hereof, the Board of
Directors of the Company may, in the future, authorize the issuance of
additional MMP Shares with the same preferences, rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption and other terms herein
described, except that the initial Dividend Period, the Applicable Rate for
the
initial Dividend Period and the initial Dividend Payment Date shall be as set
forth in an Articles Supplementary relating to such additional MMP
Shares.
As
used
in Part I and Part II of these terms of the MMP Shares, capitalized
terms shall have the meanings provided in Section 17 of
Part I.
1. Number
of Shares; Ranking.
(a)
The
initial number of authorized MMP Shares is _____ shares. No fractional MMP
Shares shall be issued.
(b) Any
MMP
Shares which at any time have been redeemed or purchased by the Company shall,
after redemption or purchase, be returned to the status of authorized but
unissued Preferred Shares, without further designation as to
series.
(c) The
MMP
Shares shall rank on a parity with shares of any other series of Preferred
Shares (including any other MMP Shares) as to the payment of dividends to which
the shares
are
entitled and the distribution of assets upon dissolution, liquidation or winding
up of the affairs of the Company.
(d) No
Holder
of MMP Shares shall have, solely by reason of being a Holder, any preemptive
right, or, unless otherwise determined by the Directors, other right to acquire,
purchase or subscribe for any MMP Shares, shares of common stock of the Company
(“Common Shares”) or other securities of the Company which it may hereafter
issue or sell.
(e) No
Holder
of MMP Shares shall be entitled to exercise the rights of an objecting
stockholder under Title 3, Subtitle 2 of the Maryland General Corporation Law
(the “MGCL”) or any successor provision.
2. Dividends.
(a)
The
Holders of MMP Shares shall be entitled to receive cash dividends, when, as
and
if authorized by the Board of Directors and declared by the Company, out of
funds legally available therefor, at the rate per annum equal to the Applicable
Rate, determined as set forth in paragraph (c) of this Section 2, and
no more, payable on the respective dates determined as set forth in
paragraph (b) of this Section 2. Dividends on Outstanding MMP Shares
issued on the Original Issue Date shall accumulate from the Original Issue
Date.
(b) (i)Dividends
shall be payable when, as and if authorized by the Board of Directors and
declared by the Company following the initial Dividend Payment Date, subject
to
subparagraph (b)(ii) of this Section 2, on MMP Shares, with respect to
any Dividend Period on the first Business Day following the last day of the
Dividend Period; provided, however, if the Dividend Period is greater than
30 days, then on a monthly basis on the first Business Day of each month
within the Dividend Period and on the Business Day following the last day of
the
Dividend Period.
(ii) If
a day
for payment of dividends resulting from the application of
subparagraph (b)(i) above is not a Business Day, then the Dividend Payment
Date shall be the first Business Day that falls after such day for payment
of
dividends.
(iii)
The
Company shall pay to the Paying Agent not later than 3:00 p.m., New York
City time, on the Business Day next preceding each Dividend Payment Date
for the
MMP Shares, an aggregate amount of federal funds or similar same day funds,
equal to the dividends to be paid to all Holders of such shares on such Dividend
Payment Date. The Company shall not be required to establish any reserves
for
the payment of dividends.
(iv) All
moneys paid to the Paying Agent for the payment of dividends shall be held
in
trust for the payment of such dividends by the Paying Agent for the benefit
of
the Holders specified in subparagraph (b)(v) of this Section 2. Any
moneys paid to the Paying Agent in accordance with the foregoing but not applied
by the Paying Agent to the payment of dividends, will, to the extent permitted
by law, be repaid to the Company at the end of 90 days from the date on which
such moneys were to have been so applied.
(v) Each
dividend on MMP Shares shall be paid on the Dividend Payment Date therefor
to
the Holders as their names appear on the share ledger or share records of the
Company on the Business Day next preceding such Dividend Payment Date. Dividends
in arrears for any past Dividend Period may be declared and paid at any time,
without reference to any regular Dividend Payment Date, to the Holders as their
names appear on the share ledger or share records of the Company on such date,
not exceeding 15 days preceding the payment date thereof, as may be fixed by
the
Board of Directors. No interest will be payable in respect of any dividend
payment or payments which may be in arrears.
(c) (i)
The
dividend rate on Outstanding MMP Shares during the period from and after
the
Original Issue Date to and including the last day of the initial Dividend
Period
therefor shall be equal to the rate per annum set forth under “Designation”
above. For each subsequent Dividend Period with respect to the MMP Shares
Outstanding thereafter, the dividend rate shall be equal to the rate per
annum
that results from an Auction; provided, however, that if Sufficient Clearing
Bids have not been made in an Auction (other than as a result of all MMP
Shares
being the subject of Submitted Hold Orders), then the dividend rate on the
MMP
Shares for any such Dividend Period shall be the Maximum Rate (except during
a
Default Period when the dividend rate shall be the Default Rate. If an Auction
for any subsequent Dividend Period is not held for any reason, including
because
there is no Auction Agent or Broker-Dealer, then the dividend rate on the
MMP
Shares for such Dividend Period shall be the Maximum Rate (except during
a
Default Period when the dividend rate shall be the Default Rate (as set forth
in
Section 2(c)(ii) below)).
The
All
Hold Rate will apply automatically following an Auction in which all of the
Outstanding MMP Shares are subject (or are deemed to be subject) to Hold Orders.
The rate per annum at which dividends are payable on MMP Shares as determined
pursuant to this Section 2(c)(i) shall be the “Applicable
Rate.”
(ii) Subject
to the cure provisions below, a “Default Period” will commence on any Dividend
Payment Date or any date fixed for redemption, as applicable, if the Company
fails to deposit irrevocably in trust federal funds or similar same-day funds,
with the Paying Agent by 12:00 noon, New York City time, (A) the full
amount of any declared dividend payable on the Dividend Payment Date (a
“Dividend Default”) or (B) the full amount of any Redemption Price payable
on the date fixed for redemption (the “Redemption Date”) (a “Redemption
Default”, and together with a Dividend Default, hereinafter referred to as
“Default”). Subject to the cure provisions of Section 2(c)(iii) below, a
Default Period with respect to a Dividend Default or a Redemption Default
shall
end on the Business Day on which, by 12:00 noon, New York City time, all
unpaid
dividends and any unpaid Redemption Price shall have been deposited irrevocably
in trust in same-day funds with the Paying Agent. In the case of a Dividend
Default, the Applicable Rate for each Dividend Period commencing during a
Default Period will be equal to the Default Rate, and each subsequent Dividend
Period commencing after the beginning of a Default Period shall be a Standard
Dividend Period; provided, however, that the commencement of a Default Period
will not by itself cause the commencement of a new Dividend Period. No Auction
shall be held during a Default Period.
(iii) No
Default Period with respect to a Dividend Default or Redemption Default shall
be
deemed to commence if the amount of any dividend or any Redemption Price
due (if
such default is not solely due to the willful failure of the Company) is
deposited irrevocably in trust, in same-day funds with the Paying Agent by
12:00
noon, New York City time within three Business Days after the applicable
Dividend Payment Date or Redemption Date, together with an amount equal to
the
Default Rate applied to the amount of such non-payment based on the actual
number of days comprising such period divided by 360.
(iv) The
amount of dividends per share payable (if declared) on each Dividend Payment
Date of each Dividend Period (or in respect of dividends on another date in
connection with a redemption during such Dividend Period) shall be computed
by
multiplying the Applicable Rate (or the Default Rate) for such Dividend Period
(or a portion thereof) by a fraction, the numerator of which will be the number
of days in such Dividend Period (or portion thereof) that such share was
Outstanding and for which the Applicable Rate or the Default Rate was applicable
and the denominator of which will be 360, multiplying the amount so obtained
by
the liquidation preference per share, and rounding the amount so obtained to
the
nearest cent.
(d) Any
dividend payment made on MMP Shares shall first be credited against the earliest
accumulated but unpaid dividends due with respect to such MMP
Shares.
(e) For
so
long as the MMP Shares are Outstanding, except as contemplated by Part I of
these terms of the MMP Shares, the Company will not declare, pay or set apart
for payment any dividend or other distribution (other than a dividend or
distribution paid in shares of, or options, warrants or rights to subscribe
for
or purchase, Common Shares or other shares of capital stock, if any, ranking
junior to the MMP Shares as to dividends or upon liquidation) with respect
to
Common Shares or any other shares of the Company ranking junior to or on
a
parity with the MMP Shares as to dividends or upon liquidation, or call for
redemption, redeem, purchase or otherwise acquire for consideration any Common
Shares or any other such junior shares (except by conversion into or exchange
for shares of the Company ranking junior to the MMP Shares as to dividends
and
upon liquidation) or any such parity shares (except by conversion into or
exchange for shares of the Company ranking junior to or on a parity with
the MMP
Shares as to dividends and upon liquidation), unless (1) there is no event
of default under any Borrowings (including the Tortoise Notes) that is
continuing; (2) immediately after such transaction, the Company would have
Eligible Assets with an aggregate Discounted Value at least equal to the
MMP
Shares Basic Maintenance Amount and the 1940 Act MMP Shares Asset Coverage
would
be achieved, (3) immediately after the transaction, the Company would have
eligible portfolio holdings with an aggregated discounted value at least
equal
to the asset coverage requirements, if any, under any borrowings, (4) full
cumulative dividends on the MMP Shares due on or prior to the date of the
transaction have been declared and paid and (5) the Company has redeemed
the full number of MMP Shares required to be redeemed by any provision for
mandatory redemption contained in Section 3(a)(ii).
3. Redemption.
(a) (i)
After
the initial Dividend Period, subject to the provisions of this Section 3
and to the extent permitted under the 1940 Act and Maryland law, the Company
may, at its option, redeem in whole or in part out of funds legally available
therefor MMP Shares herein designated as (A) having a Dividend Period of
one year or less, on the Business Day after the last day of such Dividend
Period
by delivering a notice of redemption to the Auction Agent not less than 15
calendar days and not more than 40 calendar days prior to the date fixed
for
such redemption, at a redemption price per share equal to $______, plus an
amount equal to accumulated but unpaid dividends thereon (whether or not
earned
or declared) to the date fixed for redemption (“Redemption Price”), or
(B) having a Dividend Period of more than one year, on any Business Day
prior to the end of the relevant Dividend Period by delivering a notice of
redemption to the Auction Agent not less than 15 calendar days and not more
than
40 calendar days prior to the date fixed for such redemption, at the Redemption
Price, plus a redemption premium, if any, determined solely by the Board
of
Directors and set forth in any applicable Specific Redemption Provisions
at the
time of the designation of such Dividend Period as set forth in Section 4
of these terms of the MMP Shares; provided, however, that during a Dividend
Period of more than one year no MMP Shares will be subject to optional
redemption except in accordance with any Specific Redemption Provisions approved
by the Board of Directors after consultation with the Broker-Dealers at the
time
of the designation of such Dividend Period. Notwithstanding the foregoing,
the
Company shall not give a notice of or effect any redemption pursuant to this
Section 3(a)(i) unless, on the date on which the Company intends to give
such notice and on the date of redemption (1) the Company has available
certain Deposit Securities with maturity or tender dates not later than the
day
preceding the applicable redemption date and having a value not less than
the
amount (including any applicable premium) due to Holders of MMP Shares by
reason
of the redemption of such MMP Shares on such date fixed for the redemption
and
(2) the Company would have Eligible Assets with an aggregate Discounted
Value at least equal to the MMP Shares Basic Maintenance Amount immediately
subsequent to such redemption, if such redemption were to occur on such
date.
(ii) If
the
Company fails to maintain, as of any Valuation Date, Eligible Assets with
an
aggregate Discounted Value at least equal to the MMP Shares Basic Maintenance
Amount
or, as of the last Business Day of any month, the 1940 Act MMP Shares Asset
Coverage, and such failure is not cured within ten Business Days following
such
Valuation Date in the case of a failure to maintain the MMP Shares Basic
Maintenance Amount or on the last Business Day of the following month in
the
case of a failure to maintain the 1940 Act MMP Shares Asset Coverage (each
an
“Asset Coverage Cure Date”), the MMP Shares will be subject to mandatory
redemption out of funds legally available therefor. The number of MMP Shares
to
be redeemed in such circumstances will be equal to the lesser of (1) the
minimum number of MMP Shares the redemption of which, if deemed to have occurred
immediately prior to the opening of business on the relevant Asset Coverage
Cure
Date, would result in the Company having Eligible Assets with an aggregate
Discounted Value at least equal to the MMP Shares Basic Maintenance Amount,
or
sufficient to satisfy the 1940 Act MMP Shares Asset Coverage, as the case
may
be, in either case as of the relevant Asset Coverage Cure Date (provided
that,
if there is no such minimum number of MMP Shares the redemption of which
would
have such result, all MMP Shares then Outstanding will be redeemed), and
(2) the maximum number of MMP Shares that can be redeemed out of funds
expected to be available therefor on the Mandatory Redemption Date at the
Mandatory Redemption Price set forth in subparagraph (a)(iii) of this
Section 3.
(iii) In
determining the MMP Shares required to be redeemed in accordance with the
foregoing Section 3(a)(ii), the Company shall allocate the number of shares
required to be redeemed to satisfy the MMP Shares Basic Maintenance Amount
or
the 1940 Act MMP Shares Asset Coverage, as the case may be, pro rata among
the
Holders of MMP Shares in proportion to the number of shares they hold by
lot or
by such other method as the Company shall deem fair and equitable, subject
to
any mandatory redemption provisions, subject to the further provisions of
this
subparagraph (iii). The Company shall effect any required mandatory
redemption pursuant to subparagraph (a)(ii) of this Section 3 no later
than 40 calendar days after the Asset Coverage Cure Date (the “Mandatory
Redemption Date”), except that if the Company does not have funds legally
available for the redemption of, or is not otherwise legally permitted to
redeem, the number of MMP Shares which would be required to be redeemed by
the
Company under subparagraph (a)(ii) of this Section 3 if sufficient
funds were available, together with shares of other Preferred Shares which
are
subject to mandatory redemption under provisions similar to those contained
in
this Section 3, or the Company otherwise is unable to effect such
redemption on or prior to such Mandatory Redemption Date, the Company shall
redeem those MMP Shares, and shares of other Preferred Shares which it was
unable to redeem, on the earliest practicable date on which the Company will
have such funds available, upon notice pursuant to Section 3(b) to record
owners of the MMP Shares to be redeemed and the Paying Agent. The Company
will
deposit with the Paying Agent funds sufficient to redeem the specified number
of
MMP Shares with respect to a redemption required under subparagraph (a)(ii)
of this Section 3, by 12:00 p.m., New York City time, on the Mandatory
Redemption Date. If fewer than all of the Outstanding MMP Shares are to be
redeemed pursuant to this Section 3(a)(iii), the number of shares to be
redeemed shall be redeemed pro rata from the Holders of such shares in
proportion to the number of such shares held by such Holders, by lot or by
such
other method as the Company shall deem fair and equitable, subject, however,
to
the terms of any applicable Specific Redemption Provisions. “Mandatory
Redemption Price” means the Redemption Price plus (in the case of a Dividend
Period of one year or more only) a redemption premium, if any, determined
by the
Board of Directors after consultation with the Broker-Dealers and set forth
in
any applicable Specific Redemption Provisions.
(b) In
the
event of a redemption pursuant to Section 3(a), the Company will file a
notice of its intention to redeem with the Commission so as to provide at least
the minimum notice required under Rule 23c-2 under the 1940 Act or any
successor provision. In addition, the Company shall deliver a notice of
redemption to the Auction Agent (the “Notice of Redemption”) containing the
information
set forth below (1) in the case of an optional redemption pursuant to
subparagraph (a)(i) above, one Business Day prior to the giving of notice
to the Holders, and (2) in the case of a mandatory redemption pursuant to
subparagraph (a)(ii) above, on or prior to the 30th day preceding the
Mandatory Redemption Date. The Auction Agent will use its reasonable efforts
to
provide notice to each Holder of MMP Shares called for redemption by electronic
or other reasonable means not later than the close of business on the Business
Day immediately following the day on which the Auction Agent determines the
shares to be redeemed (or, during a Default Period with respect to such shares,
not later than the close of business on the Business Day immediately following
the day on which the Auction Agent receives Notice of Redemption from the
Company). The Auction Agent shall confirm such notice in writing not later
than
the close of business on the third Business Day preceding the date fixed for
redemption by providing the Notice of Redemption to each Holder of shares called
for redemption, the Paying Agent (if different from the Auction Agent) and
the
Securities Depository. Notice of Redemption will be addressed to the registered
owners of MMP Shares at their addresses appearing on the share records of the
Company. Such Notice of Redemption will set forth (1) the date fixed for
redemption, (2) the number and identity of MMP Shares to be redeemed,
(3) the redemption price (specifying the amount of accumulated dividends to
be included therein and the amount of the redemption premium, if any),
(4) that dividends on the shares to be redeemed will cease to accumulate on
such date fixed for redemption, and (5) the provision under which
redemption shall be made. No defect in the Notice of Redemption or in the
transmittal or mailing thereof will affect the validity of the redemption
proceedings, except as required by applicable law. If fewer than all shares
held
by any Holder are to be redeemed, the Notice of Redemption mailed to such Holder
shall also specify the number of shares to be redeemed from such
Holder.
(c) Notwithstanding
the provisions of paragraph (a) of this Section 3, but subject to
Section 7(f), no MMP Shares may be redeemed unless all dividends in arrears
on the Outstanding MMP Shares and all shares of capital stock of the Company
ranking on a parity with the MMP Shares with respect to payment of dividends
or
upon liquidation, have been or are being contemporaneously paid or set aside
for
payment; provided, however, that the foregoing shall not prevent the purchase
or
acquisition of all Outstanding MMP Shares pursuant to the successful completion
of an otherwise lawful purchase or exchange offer made on the same terms to,
and
accepted by, Holders of all Outstanding MMP Shares.
(d) Upon
the
deposit of funds sufficient to redeem MMP Shares with the Paying Agent on
the
date fixed for redemption and the giving of the Notice of Redemption to the
Auction Agent under paragraph (b) of this Section 3, dividends on such
shares shall cease to accumulate and such shares shall no longer be deemed
to be
Outstanding for any purpose (including, without limitation, for purposes
of
calculating whether the Company has maintained the requisite MMP Shares Basic
Maintenance Amount or the 1940 Act MMP Shares Asset Coverage), and all rights
of
the Holder of the shares so called for redemption shall cease and terminate,
except the right of such Holder to receive the redemption price specified
herein, but without any interest or other additional amount. Such redemption
price shall be paid by the Paying Agent to the nominee of the Securities
Depository. Upon written request, the Company shall be entitled to receive
from
the Paying Agent, promptly after the date fixed for redemption, any cash
deposited with the Paying Agent in excess of (1) the aggregate redemption
price of the MMP Shares called for redemption on such date and (2) such
other amounts, if any, to which Holders of MMP Shares called for redemption
may
be entitled. Any funds so deposited that are unclaimed at the end of two
years
from such redemption date shall, to the extent permitted by law, be paid
to the
Company upon its written request, after which time the Holders of MMP Shares
so
called for redemption may look only to the Company for payment of the redemption
price and all other amounts, if any, to which they may be
entitled.
(e) To
the extent that any redemption for which a Notice of Redemption has been
given
is not made by reason of the absence of legally available funds therefor,
or is
otherwise prohibited, such redemption shall be made as soon as practicable
to
the extent such funds become legally available or
such
redemption is no longer otherwise prohibited. Failure to redeem MMP Shares
shall
be deemed to exist when the Company shall have failed, for any reason
whatsoever, to deposit in trust with the Paying Agent the redemption price
with
respect to any shares for which such Notice of Redemption has been given
in
accordance with Section 2(c)(ii) of this Appendix B. Notwithstanding
the fact that the Company may not have redeemed MMP Shares for which a
Notice of
Redemption has been given, dividends may be declared and paid on MMP Shares
and
shall include those MMP Shares for which Notice of Redemption has been
given but
for which deposit of funds has not been made.
(f) All
moneys paid to the Paying Agent for payment of the redemption price of MMP
Shares called for redemption shall be held in trust by the Paying Agent for
the
benefit of Holders of shares so to be redeemed.
(g) So
long
as any MMP Shares are held of record by the nominee of the Securities
Depository, the redemption price for such shares will be paid on the date fixed
for redemption to the nominee of the Securities Depository for distribution
to
Agent Members for distribution to the persons for whom they are acting as
agent.
(h) Except
for the provisions described above, nothing contained in these terms of the
MMP
Shares limits any right of the Company to purchase or otherwise acquire any
MMP
Shares outside of an Auction at any price, whether higher or lower than the
price that would be paid in connection with an optional or mandatory redemption,
so long as, at the time of any such purchase, there is no arrearage in the
payment of dividends on, or the mandatory or optional redemption price with
respect to, any MMP Shares for which Notice of Redemption has been given and
the
Company is in compliance with the 1940 Act MMP Shares Asset Coverage and has
Eligible Assets with an aggregate Discounted Value at least equal to the MMP
Shares Basic Maintenance Amount after giving effect to such purchase or
acquisition on the date thereof. If fewer than all the Outstanding MMP Shares
are redeemed or otherwise acquired by the Company, the Company shall give notice
of such transaction to the Auction Agent, in accordance with the procedures
agreed upon by the Board of Directors.
(i) In
the
case of any redemption pursuant to this Section 3, only whole MMP Shares
shall be redeemed, and in the event that any provision of the Charter would
require redemption of a fractional share, the Auction Agent shall be authorized
to round up so that only whole shares are redeemed.
(j) Notwithstanding
anything herein to the contrary, including, without limitation,
Sections 2(e) and 6(f) hereof, the Board of Directors may authorize, create
or issue any class or series of shares of capital stock, including other
series
of MMP Shares, ranking prior to or on a parity with the MMP Shares with respect
to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Company, to the extent permitted
by the 1940 Act, as amended, if, upon issuance, the Company would meet the
1940
Act MMP Shares Asset Coverage, the MMP Shares Basic Maintenance Amount and
the
requirements of Section 11 of Part I hereof.
4. Designation
of Dividend Period.
(a)
The
initial Dividend Period for the MMP Shares is as set forth under “Designation”
above. The Company will designate the duration of subsequent Dividend Periods
of
MMP Shares; provided, however, that no such designation is necessary for a
Standard Dividend Period and, provided further, that any designation of a
Special Dividend Period shall be effective only if (1) notice thereof shall
have been given as provided herein, (2) any failure to pay in a timely
manner to the Auction Agent the full amount of any dividend on, or the
redemption price of, MMP Shares shall have been cured as provided above,
(3) Sufficient Clearing Bids shall have existed in an Auction held on the
Auction Date immediately preceding the first day of such proposed Special
Dividend Period, (4) if the Company shall have mailed a Notice of
Redemption with respect to any shares, the redemption price with respect to
such
shares shall have been deposited with the Paying Agent, and (5) in
the
case
of the designation of a Special Dividend Period, the Company has confirmed
that
as of the Auction Date next preceding the first day of such Special Dividend
Period, it has Eligible Assets with an aggregate Discounted Value at least
equal
to the MMP Shares Basic Maintenance Amount, and the Company has consulted with
the Broker-Dealers and has provided notice of such designation and a MMP Shares
Basic Maintenance Report to Moody’s (if Moody’s is then rating the MMP Shares),
Fitch (if Fitch is then rating the MMP Shares) and any Other Rating Agency
which
is then rating the MMP Shares and so requires.
(b) If
the
Company proposes to designate any Special Dividend Period, not fewer than
seven
(or two Business Days in the event the duration of the Dividend Period prior
to
such Special Dividend Period is fewer than eight days) nor more than 30 Business
Days prior to the first day of such Special Dividend Period, notice shall
be
(1) made by press release and (2) communicated by the Company by
telephonic or other means to the Auction Agent and confirmed in writing promptly
thereafter. Each such notice shall state (A) that the Company proposes to
exercise its option to designate a succeeding Special Dividend Period,
specifying the first and last days thereof and (B) that the Company will by
3:00 p.m., New York City time, on the second Business Day next preceding
the first day of such Special Dividend Period, notify the Auction Agent,
who
will promptly notify the Broker-Dealers and the Existing Holders, of either
(x) its determination, subject to certain conditions, to proceed with such
Special Dividend Period, subject to the terms of any Specific Redemption
Provisions, or (y) its determination not to proceed with such Special
Dividend Period, in which latter event the succeeding Dividend Period shall
be a
Standard Dividend Period.
No
later
than 3:00 p.m., New York City time, on the second Business Day next
preceding the first day of any proposed Special Dividend Period, the Company
shall deliver to the Auction Agent, who will promptly deliver to the
Broker-Dealers and Existing Holders, either:
(i) a
notice
stating (A) that the Company has determined to designate the next
succeeding Dividend Period as a Special Dividend Period, specifying the first
and last days thereof and (B) the terms of any Specific Redemption
Provisions; or
(ii) a
notice
stating that the Company has determined not to exercise its option to designate
a Special Dividend Period.
If
the
Company fails to deliver either such notice with respect to any designation
of
any proposed Special Dividend Period to the Auction Agent or is unable to make
the confirmation provided in clause (v) of paragraph (a) of this
Section 4 by 3:00 p.m., New York City time, on the second Business Day
next preceding the first day of such proposed Special Dividend Period, the
Company shall be deemed to have delivered a notice to the Auction Agent with
respect to such Dividend Period to the effect set forth in clause (ii)
above, thereby resulting in a Standard Dividend Period.
5. Restrictions
on Transfer.
MMP
Shares may be transferred only (a) pursuant to an order placed in an
Auction, (b) to or through a Broker-Dealer or (c) to the Company or
any Affiliate. Notwithstanding the foregoing, a transfer other than pursuant
to
an Auction will not be effective unless the selling Existing Holder or the
Agent
Member of such Existing Holder, in the case of an Existing Holder whose shares
are listed in its own name on the books of the Auction Agent, or the
Broker-Dealer or Agent Member of such Broker-Dealer, in the case of a transfer
between persons holding MMP Shares through different Broker-Dealers, advises
the
Auction Agent of such transfer. The certificate representing the MMP Shares
issued to the Securities Depository will bear legends with respect to the
restrictions described above and stop-transfer instructions will be issued
to
the Transfer Agent and/or Registrar.
6. Voting
Rights.
(a)
Except
for matters which do not require the vote of holders of Preferred Shares
under
the 1940 Act and except as otherwise provided in the Charter or Bylaws, herein
or as otherwise required by applicable law, (1) each holder of MMP Shares
shall be entitled to one vote for each MMP Share held on each matter submitted
to a vote of stockholders of the Company, and (2) the holders of
Outstanding Preferred Shares, including the MMP Shares, and Common Shares
shall
vote together as a single class on all matters submitted to stockholders;
provided, however, that the holders of Outstanding Preferred Shares, including
the MMP Shares, shall be entitled, as a class, to the exclusion of the holders
of shares of all other classes of stock of the Company, to elect two Directors
of the Company at all times. The identity and class (if the Board of Directors
is then classified) of the nominees for such Directors may be fixed by the
Board
of Directors. Subject to paragraph (b) of this Section 6, the holders
of outstanding Common Shares and Preferred Shares, including the MMP Shares,
voting together as a single class, shall elect the balance of the
Directors.
(b) During
any period in which any one or more of the conditions described below shall
exist (such period being referred to herein as a “Voting Period”), the number of
Directors constituting the Board of Directors shall automatically increase
by
the smallest number that, when added to the two Directors elected exclusively
by
the holders of Preferred Shares, including the MMP Shares, would constitute
a
majority of the Board of Directors as so increased by such smallest number;
and
the holders of Preferred Shares, including the MMP Shares, shall be entitled,
voting as a class on a one-vote-per-share basis (to the exclusion of the holders
of all other securities and classes of shares of the Company), to elect such
smallest number of additional Directors, together with the two Directors that
such holders are in any event entitled to elect. A Voting Period shall
commence:
(i) if
at the
close of business on any Dividend Payment Date accumulated dividends (whether
or
not earned or declared) on Preferred Shares equal to at least two full years’
dividends shall be due and unpaid; or
(ii) if
at any
time holders of any Preferred Shares are entitled under the 1940 Act to elect
a
majority of the Directors of the Company.
Upon
the
termination of a Voting Period, the voting rights described in this
paragraph (b) of Section 6 shall cease, subject always, however, to
the revesting of such voting rights in the holders of Preferred Shares,
including the MMP Shares, upon the further occurrence of any of the events
described in this paragraph (b) of Section 6.
(c) As
soon
as practicable after the accrual of any right of the holders of Preferred
Shares, including the MMP Shares, to elect additional Directors as described
in
paragraph (b) of this Section 6, the Company shall notify the Auction
Agent, and the Auction Agent shall instruct the Directors to call a special
meeting of such holders, and mail a notice of such special meeting to such
holders, such meeting to be held not less than 10 nor more than 30 calendar
days
after the date of mailing of such notice. If the Company fails to send such
notice to the Auction Agent or if a special meeting is not called, it may be
called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be
the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting of holders
of
Preferred Shares, including the MMP Shares, held during a Voting Period at
which
Directors are to be elected, such holders, voting together as a class (to the
exclusion of the holders of all other securities and classes of capital stock
of
the Company), shall be entitled to elect the number of Directors prescribed
in
paragraph (b) of this Section 6 on a one-vote-per-share
basis.
(d) The
terms
of office of all persons who are Directors of the Company at the time of a
special meeting of holders of the MMP Shares and holders of other Preferred
Shares to elect
Directors
shall continue, notwithstanding the election at such meeting by the holders
MMP
Shares and such holders of other Preferred Shares of the number of Directors
that they are entitled to elect, and the persons so elected by such holders,
together with the two incumbent Directors elected by such holders and the
remaining incumbent Directors, shall constitute the duly elected Directors
of
the Company.
(e) Simultaneously
with the termination of a Voting Period, the terms of office of the additional
Directors elected by the holders of the MMP Shares and holders of other
Preferred Shares pursuant to paragraph (b) of this Section 6 shall
terminate, the number of Directors constituting the Board of Directors shall
decrease accordingly, the remaining Directors shall constitute the Directors
of
the Company and the voting rights of such holders to elect additional Directors
pursuant to paragraph (b) of this Section 6 shall cease, subject to
the provisions of the last sentence of paragraph (b) of this
Section 6.
(f) So
long
as any of the shares of Preferred Shares, including the MMP Shares, are
Outstanding, the Company will not, without the affirmative vote of the holders
of a majority of the outstanding Preferred Shares determined with reference
to a
“majority of outstanding voting securities” as that term is defined in
Section 2(a)(42) of the 1940 Act (a “1940 Act Majority”), voting as a
separate class:
(i) amend,
alter or repeal any of the preferences, rights or powers of such class of
Preferred Shares so as to affect materially and adversely such preferences,
rights or powers as defined in Section 6(h) below;
(ii) create,
authorize or issue shares of any class of capital stock ranking senior to
or on
a parity with the Preferred Shares with respect to the payment of dividends
or
the distribution of assets, or any securities convertible into, or warrants,
options or similar rights to purchase, acquire or receive, such shares of
capital stock ranking senior to or on a parity with the Preferred Shares
or
reclassify any authorized shares of capital stock of the Company into any
shares
ranking senior to or on a parity with the Preferred Shares (except that,
notwithstanding the foregoing, but subject to the provisions of either
Section 3(j) or 11, as applicable, the Board of Directors, without the vote
or consent of the holders of the Preferred Shares, including the MMP Shares,
may
from time to time authorize, create and classify, and the Company may from
time
to time issue, shares or series of Preferred Shares, including other series
of
MMP Shares, ranking on a parity with the MMP Shares with respect to the payment
of dividends and the distribution of assets upon dissolution, liquidation
or
winding up to the affairs of the Company, and may authorize, reclassify and/or
issue any additional MMP Shares, including shares previously purchased or
redeemed by the Company, subject to continuing compliance by the Company
with
1940 Act MMP Shares Asset Coverage and MMP Shares Basic Maintenance Amount
requirements);
(iii) institute
any proceedings to be adjudicated bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against it, or file a
petition seeking or consenting to reorganization or relief under any applicable
federal or state law relating to bankruptcy or insolvency, or consent to
the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other
similar official) of the Company or a substantial part of its property, or
make
any assignment for the benefit of creditors, or, except as may be required
by
applicable law, admit in writing its inability to pay its debts generally
as
they become due or take any corporate action in furtherance of any such
action;
(iv) create,
incur or suffer to exist, or agree to create, incur or suffer to exist, or
consent to cause or permit in the future (upon the happening of a contingency
or
otherwise) the creation, incurrence or existence of any material lien, mortgage,
pledge, charge, security interest, security agreement, conditional sale or
trust
receipt or other material encumbrance of any kind
upon
any
of the Company’s assets as a whole, except (A) liens the validity of which
are being contested in good faith by appropriate proceedings, (B) liens for
taxes that are not then due and payable or that can be paid thereafter without
penalty, (C) liens, pledges, charges, security interests, security
agreements or other encumbrances arising in connection with any indebtedness
senior to the MMP Shares or arising in connection with any futures contracts
or
options thereon, interest rate swap or cap transactions, forward rate
transactions, put or call options, short sales of securities or other similar
transactions; (D) liens, pledges, charges, security interests, security
agreements or other encumbrances arising in connection with any indebtedness
permitted under clause (vi) below and (E) liens to secure payment for
services rendered including, without limitation, services rendered by the
Company’s custodian and the Auction Agent; or
(v) create,
authorize, issue, incur or suffer to exist any indebtedness for borrowed
money
or any direct or indirect guarantee of such indebtedness for borrowed money
or
any direct or indirect guarantee of such indebtedness, except the Company
may
borrow and issue senior securities as may be permitted by the Company’s
investment restrictions; provided, however, that transfers of assets by the
Company subject to an obligation to repurchase shall not be deemed to be
indebtedness for purposes of this provision to the extent that after any
such
transaction the Company has Eligible Assets with an aggregate Discounted
Value
at least equal to the MMP Shares Basic Maintenance Amount as of the immediately
preceding Valuation Date.
(g) The
affirmative vote of the holders of a 1940 Act Majority of the Outstanding
Preferred Shares, including the MMP Shares, voting as a separate class, shall
be
required to approve any plan of reorganization (as such term is used in the
1940
Act) adversely affecting such shares or any action requiring a vote of security
holders of the Company under Section 13(a) of the 1940 Act.
(h) The
affirmative vote of the holders of a 1940 Act Majority of the Outstanding shares
of any series of Preferred Shares, including the MMP Shares, voting separately
from any other series, shall be required with respect to any matter that
materially and adversely affects the rights, preferences, or powers of that
series in a manner different from that of other series of classes of the
Company’s shares of capital stock. For purposes of the foregoing, no matter
shall be deemed to adversely affect any right, preference or power unless such
matter (i) alters or abolishes any preferential right of such series;
(ii) creates, alters or abolishes any right in respect of redemption of
such series; or (iii) creates or alters (other than to abolish) any
restriction on transfer applicable to such series. The vote of holders of any
shares described in this Section 6(h) will in each case be in addition to a
separate vote of the requisite percentage of Common Shares and/or Preferred
Shares, if any, necessary to authorize the action in question.
(i) The
rights of the MMP Shares or the Holders thereof, including, without limitation,
the interpretation or applicability of any or all covenants or other obligations
of the Company contained herein or of the definitions of the terms contained
herein, all such covenants, obligations and definitions having been adopted
pursuant to Rating Agency Guidelines, may from time to time be modified, altered
or repealed by the Board of Directors in its sole discretion, based on a
determination by the Board of Directors that such action is necessary or
appropriate in connection with obtaining or maintaining the rating of any Rating
Agency with respect to the MMP Shares or revising the Company’s investment
restrictions or policies consistent with guidelines of any Rating Agency, and
any such modification, alteration or repeal will not be deemed to affect the
preferences, rights or powers of MMP Shares or the Holders thereof, provided
that the Board of Directors receives written confirmation from each relevant Rating Agency (with such confirmation
in no event being
required to be obtained from a particular Rating Agency with respect to
definitions or other provisions relevant only to and adopted in connection
with
another Rating Agency’s rating of the MMP Shares) that any such modification,
alteration or repeal would not adversely affect the rating then assigned by
such
Rating Agency.
The
terms
of the MMP Shares are subject to the Rating Agency Guidelines, as reflected
in a
written document and as amended from time to time by the respective Rating
Agency, for so long as the MMP Shares are then rated by the applicable Rating
Agency. Such Rating Agency Guidelines may be amended by the respective Rating
Agency without the vote, consent or approval of the Company, the Board of
Directors and any holder of shares of Preferred Shares, including any series
of
MMP Shares, or any other stockholder of the Company.
In
addition, subject to compliance with applicable law, the Board of Directors
may
modify the definition of Maximum Rate to increase the percentage amount by
which
the Reference Rate is multiplied to determine the Maximum Rate shown therein
without the vote or consent of the holders of the Preferred Shares, including
the MMP Shares, or any other stockholder of the Company, and without receiving
any confirmation from any rating agency after consultation with the
Broker-Dealers, provided that immediately following any such increase the
Company would be in compliance with the MMP Shares Basic Maintenance
Amount.
(j) Unless
otherwise required by law, Holders of MMP Shares shall not have any relative
rights or preferences or other special rights other than those specifically
set
forth herein. The Holders of MMP Shares shall have no rights to cumulative
voting. If the Company fails to pay any dividends on the MMP Shares, the
exclusive remedy of the Holders shall be the right to vote for Directors
pursuant to the provisions of this Section 6.
(k) The
foregoing voting provisions will not apply with respect to the MMP Shares if,
at
or prior to the time when a vote is required, such shares have been
(i) redeemed or (ii) called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption.
7. Liquidation
Rights.
(a)
Upon the
dissolution, liquidation or winding up of the affairs of the Company, whether
voluntary or involuntary, the Holders of MMP Shares then outstanding, together
with holders of shares of any class of shares ranking on a parity with the
MMP
Shares upon dissolution, liquidation or winding up, shall be entitled to receive
and to be paid out of the assets of the Company (or the proceeds thereof)
available for distribution to its stockholders after satisfaction of claims
of
creditors of the Company an amount equal to the liquidation preference with
respect to such shares. The liquidation preference for MMP Shares shall be
$______ per share, plus an amount equal to all accumulated dividends thereon
(whether or not earned or declared but without interest) to the date payment
of
such distribution is made in full or a sum sufficient for the payment thereof
is
set apart with the Paying Agent. No redemption premium shall be paid upon any
liquidation even if such redemption premium would be paid upon optional or
mandatory redemption of the relevant shares. In determining whether a
distribution (other than upon voluntary or involuntary liquidation), by
dividend, redemption or otherwise, is permitted under the MGCL, amounts that
would be needed, if the Company were to be dissolved at the time of
distribution, to satisfy the liquidation preference of the MMP Shares will
not
be added to the Company’s total liabilities.
(b) If,
upon
any liquidation, dissolution or winding up of the affairs of the Company,
whether voluntary or involuntary, the assets of the Company available for
distribution among the holders of all outstanding Preferred Shares, including
the MMP Shares, shall be insufficient to permit the payment in full to holders
of the amounts to which they are entitled, then the available assets shall
be
distributed among the holders of all outstanding Preferred Shares, including
the
MMP Shares, ratably in any distribution of assets according to the respective
amounts which would be payable on all the shares if all amounts thereon were
paid in full.
(c) Upon
the
dissolution, liquidation or winding up of the affairs of the Company, whether
voluntary or involuntary, until payment in full is made to the holders of MMP
Shares of the liquidation distribution to which they are entitled, (1) no
dividend or other distribution shall be made to the holders of Common Shares
or
any other class of shares of capital stock of the Company ranking junior to
MMP
Shares upon dissolution, liquidation or winding up and (2) no purchase,
redemption or other acquisition for any consideration by the Company shall
be
made in respect of the Common Shares or any other class of shares of capital
stock of the Company ranking junior to MMP Shares upon dissolution, liquidation
or winding up.
(d) A
consolidation, reorganization or merger of the Company with or into any other
trust or company, or a sale, lease or exchange of all or substantially all
of
the assets of the Company in consideration for the issuance of equity securities
of another trust or company shall not be deemed to be a liquidation, dissolution
or winding up, whether voluntary or involuntary, for the purposes of this
Section 7.
(e) After
the
payment to the holders of Preferred Shares, including MMP Shares, of the full
preferential amounts provided for in this Section 7, the holders of
Preferred Shares, including MMP Shares, as such shall have no right or claim
to
any of the remaining assets of the Company.
(f) If
the
assets of the Company or proceeds thereof available for distribution to the
Holders of MMP Shares, upon any dissolution, liquidation or winding up of the
affairs of the Company, whether voluntary or involuntary, shall be insufficient
to pay in full all amounts to which such holders are entitled pursuant to
paragraph (a) of this Section 7, no such distribution shall be made on
account of any shares of any other class or series of Preferred Shares ranking
on a parity with MMP Shares unless proportionate distributive amounts shall
be
paid on account of the MMP Shares, ratably, in proportion to the full
distributable amounts to which holders of all such parity shares are entitled
upon such dissolution, liquidation or winding up.
(g) Subject
to the rights of the holders of shares of any series or class or classes of
stock ranking on a parity with MMP Shares with respect to the distribution
of
assets upon dissolution, liquidation or winding up of the affairs of the
Company, after payment shall have been made in full to the holders of the MMP
Shares as provided in paragraph (a) of this Section 7, but not prior
thereto, any other series or class or classes of stock ranking junior to MMP
Shares with respect to the distribution of assets upon dissolution, liquidation
or winding up of the affairs of the Company shall, subject to any respective
terms and provisions (if any) applying thereto, be entitled to receive any
and
all assets remaining to be paid or distributed, and the holders of the MMP
Shares shall not be entitled to share therein.
8. Auction
Agent.
For so
long as any MMP Shares are Outstanding, the Auction Agent, duly appointed by
the
Company to so act, shall be in each case a commercial bank, trust company or
other financial institution independent of the Company and its Affiliates
(which, however, may engage or have engaged in business transactions with the
Company or its Affiliates) and at no time shall the Company or any of its
Affiliates act as the Auction Agent in connection with the Auction Procedures.
If the Auction Agent resigns or for any reason its appointment is terminated
during any period that any MMP Shares are outstanding, the Company shall use
its
best efforts promptly thereafter to appoint another qualified commercial bank,
trust company or financial institution to act as the Auction Agent.
9. 1940
Act MMP Shares Asset Coverage.
The
Company shall maintain, as of the last Business Day of each month in which
any
shares of the MMP Shares are Outstanding, asset coverage with respect to the
MMP
Shares which is equal to or greater than the 1940 Act MMP Shares Asset Coverage;
provided, however, that Section 3(a)(ii) shall be the sole remedy if the
Company fails to do so.
10. MMP
Shares Basic Maintenance Amount.
So long
as the MMP Shares are Outstanding and Moody’s, Fitch or any Other Rating Agency
which so requires is then rating the shares of the MMP Shares, the Company
shall
maintain, as of each Valuation Date, Moody’s Eligible Assets (if Moody’s is then
rating the MMP Shares), Fitch Eligible Assets (if Fitch is then rating the
MMP
Shares) and (if applicable) Other Rating Agency Eligible Assets having an
aggregate Discounted Value equal to or greater than the MMP Shares Basic
Maintenance Amount; provided, however, that Section 3(a)(ii) shall be the
sole remedy in the event the Company fails to do so.
11. Certain
Other Restrictions.
For so
long as any MMP Shares are Outstanding and any Rating Agency is then rating
such
shares, the Company will not, unless it has received written confirmation from
each such rating agency that any such action would not impair the rating then
assigned by such Rating Agency to such shares, engage in certain proscribed
transactions set forth in the Rating Agency Guidelines.
12. Compliance
Procedures for Asset Maintenance Tests.
For so
long as any MMP Shares are Outstanding and Moody’s, Fitch or any Other Rating
Agency which so requires is then rating such shares, the Company shall deliver
to each rating agency which is then rating MMP Shares and any other party
specified in the Rating Agency Guidelines all certificates that are set forth
in
the respective Rating Agency Guidelines regarding 1940 Act MMP Shares Asset
Coverage, MMP Shares Basic Maintenance Amount and/or related calculations at
such times and containing such information as set forth in the respective Rating
Agency Guidelines.
13. Notice.
All
notices or communications hereunder, unless otherwise specified in these terms
of the MMP Shares, shall be sufficiently given if in writing and delivered
in
person, by telecopier, by electronic means or mailed by first-class mail,
postage prepaid. Notices delivered pursuant to this Section 13 shall be
deemed given on the earlier of the date received or the date five days after
which such notice is mailed, except as otherwise provided in these terms of
the
MMP Shares or by the MGCL for notices of Stockholders’ meetings.
14. Waiver.
To the
extent permitted by Maryland law, holders of a 1940 Act Majority of the
Outstanding Preferred Shares, including the MMP Shares, acting collectively
or
voting separately from any other series, may by affirmative vote waive any
provision hereof intended for their respective benefit in accordance with such
procedures as may from time to time be established by the Board of
Directors.
15. Termination.
If no
MMP Shares are outstanding, all rights and preferences of such shares
established and designated hereunder shall cease and terminate, and all
obligations of the Company under these terms of the MMP Shares, shall
terminate.
16. Facts
Ascertainable Outside Charter.
Subject
to the provisions of these terms of the MMP Shares, the Board of Directors
may,
by resolution duly adopted, without stockholder approval (except as otherwise
provided by these terms of the MMP Shares or required by applicable law), modify
these terms of the MMP Shares to reflect any modification hereto which the
Board
of Directors is entitled to adopt pursuant to the terms of Section 6(i)
hereof or otherwise without stockholder approval. To the extent permitted by
applicable law, the Board of Directors may interpret, modify or adjust the
provisions of these terms of the MMP Shares to resolve any inconsistency or
ambiguity or to remedy any defect.
17. Definitions.
As used
in Part I and Part II of these terms of the MMP Shares, the following
terms shall have the following meanings (with terms defined in the singular
having comparable meanings when used in the plural and vice versa), unless
the
context otherwise requires:
(a) “AA”
Composite Commercial Paper Rate” on any date means (i) the interest
equivalent of the 30-day rate, in the case of a Dividend Period which is
a
Standard Dividend Period or
shorter,
or the 180-day rate, in the case of all other Dividend Periods, on commercial
paper on behalf of issuers whose corporate bonds are rated “AA” by S&P, or
the equivalent of such rating by another nationally recognized rating agency,
as
announced by the Federal Reserve Bank of New York for the close of business
on
the Business Day immediately preceding such date; or (ii) if the Federal
Reserve Bank of New York does not make available such a rate, then the
arithmetic average of the interest equivalent of such rates on financial
commercial paper placed on behalf of such issuers, as quoted on a discount
basis
or otherwise by the Commercial Paper Dealers to the Auction Agent for the
close
of business on the Business Day immediately preceding such date (rounded
to the
next highest .001 of 1%). If any Commercial Paper Dealer does not quote a
rate
required to determine the “AA” Composite Commercial Paper Rate, such rate shall
be determined on the basis of the quotations (or quotation) furnished by
the
remaining Commercial Paper Dealers (or Dealer), if any, or, if there are
no such
Commercial Paper Dealers, by a nationally recognized dealer in commercial
paper
of such issuers then making such quotations selected by the Company. For
purposes of this definition, (A) ”Commercial Paper Dealers” shall mean
(1) Citigroup Global Markets Inc., Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co.;
(2) in lieu of any thereof, its respective Affiliate or successor; and
(3) if any of the foregoing shall cease to quote rates for commercial paper
of issuers of the sort described above, in substitution therefor, a nationally
recognized dealer in commercial paper of such issuers then making such
quotations selected by the Company, and (B) ”interest equivalent” of a rate
stated on a discount basis for commercial paper of a given number of days’
maturity shall mean a number equal to the quotient (rounded upward to the
next
higher one-thousandth of 1%) of (1) such rate expressed as a decimal,
divided by (2) the difference between (x) 1.00 and (y) a
fraction, the numerator of which shall be the product of such rate expressed
as
a decimal, multiplied by the number of days in which such commercial paper
shall
mature and the denominator of which shall be 360.
(b) “Affiliate”
or
“affiliate” means any person controlled by, in control of or under common
control with the Company; provided that no Broker-Dealer controlled by, in
control of or under common control with the Company shall be deemed to be an
Affiliate nor shall any corporation or any person controlled by, in control
of
or under common control with such corporation, one of the directors, directors
or executive officers of which also is a Director of the Company be deemed
to be
an Affiliate solely because such Director, director or executive officer
also is
a Director of the Company.
(c) “Agent
Member” means a member of, or participant in, the Securities Depository who
shall act on behalf of a Bidder.
(d) “All
Hold
Rate” means 80% of the “AA” Composite Commercial Paper Rate.
(e) “Applicable
Percentage” means the percentage associated with the lower of the credit ratings
assigned to the MMP Shares by Moody’s or Fitch, as follows:
|
Moody’s
Credit
Rating
|
Fitch
Credit
Rating
|
Applicable
Percentage
|
|
Aa3
or above
|
AA-
or above
|
200%
|
|
A3
to A1
|
A-
to A+
|
250%
|
|
Baa3
to Baa1
|
BBB-
to BBB+
|
275%
|
|
Below
Baa3
|
Below
BBB-
|
300%
|
(f) “Applicable
Rate” means, with respect to the MMP Shares for each Auction Period (i) if
Sufficient Clearing Bids exist for the Auction in respect thereof, the Winning
Bid Rate, (ii) if Sufficient Clearing Bids do not exist for the Auction in
respect thereof, the Maximum Rate, (iii) in the case where all the MMP
Shares are the subject of Hold Orders for the Auction in respect thereof, the
All
Hold
Rate, and (iv) if an Auction is not held for any reason
(including the circumstance where there is no Auction Agent or Broker-Dealer),
the Maximum Rate.
(g) “Asset
Coverage Cure Date” has the meaning set forth in
Section 3(a)(ii).
(h) “Auction”
means each periodic implementation of the Auction Procedures.
(i) “Auction
Agent” means The Bank of New York unless and until another commercial bank,
trust company, or other financial institution appointed by a resolution of
the
Board of Directors enters into an agreement with the Company to follow the
Auction Procedures for the purpose of determining the Applicable
Rate.
(j) “Auction
Agreement” means the agreement between the Auction Agent and the Company
pursuant to which the Auction Agent agrees to follow the procedures specified
in
Part II of these terms of the MMP Shares, as such agreement may from time
to time be amended or supplemented.
(k) “Auction
Date” means the first Business Day next preceding the first day of a Dividend
Period.
(l) “Auction
Period” means with respect to the MMP Shares, either a Standard Auction Period
or a Special Auction Period, as applicable.
(m) “Auction
Procedures” means the procedures for conducting Auctions set forth in
Part II hereof.
(n) “Available
MMP Shares” means for each series of MMP Shares on each Auction Date, the number
of Outstanding MMP Shares of the series that are not the subject of Submitted
Hold Orders.
(o) “Beneficial
Owner,” with respect to the MMP Shares, means a customer of a Broker-Dealer who
is listed on the records of that Broker-Dealer (or, if applicable, the Auction
Agent) as a holder of shares of the series.
(p) “Bid”
shall have the meaning specified in paragraph (a) of Section 1 of
Part II of these terms of the MMP Shares.
(q) “Bidder”
means each Beneficial Owner, Potential Beneficial Owner and Broker Dealer who
places an Order.
(r) “Board
of
Directors” or “Board” means the Board of Directors of the Company or any duly
authorized committee thereof as permitted by applicable law.
(s) “Broker-Dealer”
means any broker-dealer or broker-dealers, or other entity permitted by law
to
perform the functions required of a Broker-Dealer by the Auction Procedures,
that has been selected by the Company and has entered into a Broker-Dealer
Agreement that remains effective.
(t) “Broker-Dealer
Agreement” means an agreement between the Auction Agent and a Broker-Dealer,
pursuant to which the Broker-Dealer agrees to follow the Auction
Procedures.
(u) “Business
Day” means a day on which the New York Stock Exchange is open for trading and
which is not a Saturday, Sunday or other day on which banks in the City of
New
York, New York are authorized or obligated by law to close.
(v) “Commercial
Paper Dealers” has the meaning set forth in the definition of “AA” Composite
Commercial Paper Rate.
(w) “Commission”
means the Securities and Exchange Commission.
(x) “Common
Shares” means the shares of common stock, par value $.001 per share, of the
Company.
(y) “Default”
has the meaning set forth in Section 2(c)(ii) of this
Part I.
(z) “Default
Period” has the meaning set forth in Section 2(c)(ii) of this
Part I.
(aa) “Default
Rate” means the Reference Rate multiplied by three (3).
(bb) “Deposit
Securities” means cash and any obligations or securities, including short-term
money market instruments that are Eligible Assets, rated at least AAA, A-1
or
SP-1 by S&P, except that, for purposes of section 3(a)(i) of this
Part I, such obligations or securities shall be considered “Deposit
Securities” only if they are also rated at least P-2 by
Moody’s..
(cc) “Discount
Factor” means the Fitch Discount Factor (if Fitch is then rating the MMP
Shares), the Moody’s Discount Factor (if Moody’s is then rating the MMP Shares)
or any Other Rating Agency Discount Factor (if any Other Rating Agency is
then
rating the MMP Shares), whichever is applicable.
(dd) “Discounted
Value” has the meaning set forth in the Rating Agency
Guidelines.
(ee) “Dividend
Default” has the meaning set forth in Section 2(c)(ii) of this
Part I.
(ff) “Dividend
Payment Date” with respect to the MMP Shares means any date on which dividends
are payable pursuant to Section 2(b) of this
Part I.
(gg) “Dividend
Period” means, with respect to the MMP Shares, the period commencing on the
Original Issue Date thereof and ending on the date specified for such series
on
the Original Issue Date thereof and thereafter, as to such series, the period
commencing on the day following each Dividend Period for such series and
ending
on the day established for such series by the Company.
(hh) “Eligible
Assets” means Fitch’s Eligible Assets or Moody’s Eligible Assets (if Moody’s or
Fitch are then rating the MMP Shares) and/or Other Rating Agency Eligible
Assets
(if any Other Rating Agency is then rating the MMP Shares), whichever is
applicable.
(ii) “Error
Correction Deadline” means one hour after the Auction Agent completes the
dissemination of the results of the Auction to Broker-Dealers without regard
to
the time of receipt of such results by any Broker-Dealer; provided, however,
in
no event shall the Error Correction Deadline extend past 4:00 p.m., New
York City time unless the Auction Agent experiences technological failure
or
force majeure in disseminating the Auction results which causes a delay in
dissemination past 3:00 p.m., New York City time.
(jj) “Existing
Holder,” with respect to the MMP Shares, shall mean a Broker-Dealer (or any such
other Person as may be permitted by the Company) that is listed on the
records
of the Auction Agent as a holder of shares of such series.
(kk)
“Fitch”
means Fitch Ratings and its successors at law.
(ll) “Fitch
Discount Factor” means the discount factors set forth in the Fitch Guidelines
for use in calculating the Discounted Value of the Company’s assets in
connection with Fitch’s ratings of MMP Shares.
(mm) “Fitch Eligible Asset” means the assets
of the Company set forth in the Fitch Guidelines as eligible for inclusion
in
calculating the Discounted Value of the Company’s assets in connection with
Fitch’s ratings of MMP Shares.
(nn) “Fitch
Guidelines” mean the guidelines provided by Fitch, as may be amended from time
to time, in connection with Fitch’s ratings of MMP Shares.
(oo) “Holder”
means, with respect to MMP Shares, the registered holder of MMP Shares as
the
same appears on the share ledger or share records of the
Company.
(pp) “Hold
Order” shall have the meaning specified in paragraph (a) of Section 1 of
Part II of these terms of the MMP Shares or an Order deemed to have been
submitted as provided in paragraph (c) of Section 1 of Part II of
these terms of the MMP Shares.
(qq) “LIBOR”
on any Auction Date, means (i) the rate for deposits in U.S. dollars for
the designated Dividend Period, which appears on display page 3750 of
Moneyline’s Telerate Service (“Telerate Page 3750”) (or such other
page as may replace that page on that service, or such other service
as may be selected by Lehman Brothers Inc. or its successors) as of
11:00 a.m., London time, on the day that is the London Business Day on the
Auction Date or, if the Auction Date is not a London Business Day, the London
Business Day preceding the
Auction Date (the “LIBOR Determination Date”), or (ii) if such rate does
not appear on Telerate Page 3750 or such other page as may replace
such Telerate Page 3750, (A) Lehman Brothers Inc. shall determine the
arithmetic mean of the offered quotations of the reference banks to leading
banks in the London interbank market for deposits in U.S. dollars for the
designated Dividend Period in an amount determined by Lehman Brothers Inc.
by
reference to requests for quotations as of approximately 11:00 a.m. (London
time) on such date made by Lehman Brothers Inc. to the reference banks,
(B) if at least two of the reference banks provide such quotations, LIBOR
shall equal such arithmetic mean of such quotations, (C) if only one or
none of the reference banks provide such quotations, LIBOR shall be deemed
to be
the arithmetic mean of the offered quotations that leading banks in The City
of
New York selected by Lehman Brothers Inc. (after obtaining the Company’s
approval) are quoting on the relevant LIBOR Determination Date for deposits
in
U.S. dollars for the designated Dividend Period in an amount determined by
Lehman Brothers Inc. (after obtaining the Company’s approval) that is
representative of a single transaction in such market at such time by reference
to the principal London offices of leading banks in the London interbank
market;
provided, however, that if Lehman Brothers Inc. is not a Broker-Dealer or
does
not quote a rate required to determine the LIBOR, the LIBOR will be determined
on the basis of the quotation or quotations furnished by any other Broker-Dealer
selected by the Company to provide such rate or rates not being supplied
by
Lehman Brothers Inc.; provided further, that if Lehman Brothers Inc. and/or
a
substitute Broker-Dealer are required but unable to determine a rate in
accordance with at least one of the procedures provided above, the LIBOR
shall
be the most recently determinable LIBOR. If the number of Dividend Period
days
shall be (i) 7 or more but fewer than 21 days, such rate shall be the
seven-day LIBOR rate; (ii) more than 21 but fewer than 49 days, such rate
shall be one-month LIBOR rate; (iii) 49 or more but fewer than 77 days,
such rate shall be the two-month LIBOR rate; (iv) 77 or more but fewer than
112 days, such rate shall be the three-month LIBOR rate; (v) 112 or more
but fewer than 140 days, such rate shall be the four-month LIBOR rate;
(vi) 140 or more but fewer that 168 days, such rate shall be the five-month
LIBOR rate; (vii) 168 or more but fewer 189 days, such rate shall be the
six-month LIBOR rate; (viii) 189 or more but fewer than 217 days, such rate
shall be the seven-month LIBOR rate; (ix) 217 or more but fewer than 252
days, such rate shall be the eight-month LIBOR rate; (x) 252 or more but
fewer than 287 days,
such
rate
shall be the nine-month LIBOR rate; (xi) 287 or more but fewer than 315
days, such rate shall be the ten-month LIBOR rate; (xii) 315 or more but
fewer than 343 days, such rate shall be the eleven-month LIBOR rate; and
(xiii) 343 or more days but fewer than 365 days, such rate shall be the
twelve-month LIBOR rate.
(rr) “London
Business Day” means any day on which commercial banks are generally open for
business in London.
(ss) “MMP
Shares” means Money Market Cumulative Preferred Shares, liquidation preference
$25,000 per share.
(tt) “MMP
Shares Basic Maintenance Amount” as of any Valuation Date has the meaning set
forth in the Rating Agency Guidelines.
(uu) “Mandatory
Redemption Date” has the meaning set forth in Section 3(a)(iii) of this
Part I.
(vv) “Mandatory
Redemption Price” has the meaning set forth in Section 3(a)(iii) of this
Part I.
(ww) “Market
Value” means the market value of an asset of the Company determined as follows:
For equity securities, the value obtained from readily available market
quotations. If an equity security is not traded on an exchange or not available
from a Board-approved pricing service, the value obtained from written
broker-dealer quotations. For fixed-income securities, the value obtained
from
readily available market quotations based on the last sale price of a security
on the day the Company values its assets or the market value obtained from
a
pricing service or the value obtained from a direct written broker-dealer
quotation from a dealer who has made a market in the security. “Market Value”
for other securities will mean the value obtained pursuant to the Company’s
valuation procedures. If the market value of a security cannot be obtained,
or
the Company’s investment adviser determines that the value of a security as so
obtained does not represent the fair value of a security, fair value for
that
security shall be determined pursuant to the valuation procedures adopted
by the
Board of Directors.
(xx) “Maximum
Rate” means, on any date on which the Applicable Rate is determined, the rate
equal to the Applicable Percentage of the Reference Rate, subject to upward
but
not downward adjustment in the discretion of the Board of Directors after
consultation with the Broker-Dealers, provided that immediately following
any
such increase the Company would be in compliance with the MMP Shares Basic
Maintenance Amount.
(yy) “Minimum
Rate” means, on any Auction Date with respect to an Auction Period of 30 days or
fewer, 70% of the “AA” Composite Commercial Paper Rate at the close of business
on the Business Day next preceding such Auction Date. There shall be no Minimum
Rate on any Auction Date with respect to an Auction Period of more than the
Standard Auction Period.
(zz) “Moody’s”
means Moody’s Investors Service, Inc. or its successors.
(aaa) “Moody’s
Discount Factor” means the discount factors set forth in the Moody’s Guidelines
as eligible for use in calculating the Discounted Value of the Company’s assets
in connection with Moody’s ratings of MMP Shares.
(bbb) “Moody’s
Eligible Assets” means assets of the Company set forth in the Moody’s Guidelines
as eligible for inclusion in calculating the Discounted Value of the Company’s
assets in connection with Moody’s ratings of MMP Shares.
(ccc) “Moody’s
Guidelines” mean the guidelines provided by Moody’s, as may be amended from time
to time, in connection with Moody’s ratings of MMP Shares.
(ddd) “1940
Act” means the Investment Company Act of 1940, as amended from time to
time.
(eee) “1940
Act
Majority” has the meaning set forth in Section 6(f) of this
Part I.
(fff) “1940
Act
MMP Shares Asset Coverage” means asset coverage, as determined in accordance
with Section 18(h) of the 1940 Act, of at least 200% with respect to all
outstanding senior securities of the Company which are stock, including all
outstanding MMP Shares (or such other asset coverage as may in the future be
specified in or under the 1940 Act as the minimum asset coverage for senior
securities which are stock of a closed-end investment company as a condition
of
declaring dividends on its common stock), determined on the basis of values
calculated as of a time within 48 hours next preceding the time of such
determination.
(ggg) “Notice
of Redemption” means any notice with respect to the redemption of MMP Shares
pursuant to Section 3.
(hhh) “Order”
means a Hold Order, Bid or Sell Order.
(iii) “Original
Issue Date” means, with respect to the MMP Shares, ________, 200_.
(jjj) “Other
Rating Agency” means any rating agency other than Fitch or Moody’s then
providing a rating for the MMP Shares pursuant to the request of the
Company.
(kkk) “Other
Rating Agency Discount Factor” means the discount factors set forth in the Other
Rating Agency Guidelines as eligible for use in calculating the Discounted
Value
of the Company’s assets in connection with such Other Rating Agency’s ratings of
MMP Shares.
(lll) “Other
Rating Agency Eligible Assets” means assets of the Company designated by any
Other Rating Agency as eligible for inclusion in calculating the Discounted
Value of the Company’s assets in connection with such Other Rating Agency’s
rating of MMP Shares.
(mmm) “Other
Rating Agency Guidelines” means the guidelines provided by each Other Rating
Agency, as may be amended from time to time, in connection with the Other Rating
Agency’s rating of MMP Shares.
(nnn) “Outstanding”
or “outstanding” means, as of any date, MMP Shares theretofore issued by the
Company except, without duplication, (i) any MMP Shares theretofore
canceled, redeemed or repurchased by the Company, or delivered to the Auction
Agent for cancellation or with respect to which the Company has given notice
of
redemption and irrevocably deposited with the Paying Agent sufficient funds
to
redeem such MMP Shares and (ii) any MMP Shares represented by any
certificate in lieu of which a new certificate has been executed and delivered
by the Company. Notwithstanding the foregoing, (A) for purposes of voting
rights (including the determination of the number of shares required to
constitute a quorum), any of the MMP Shares to which the Company or any
Affiliate of the Company shall be the Existing Holder shall be disregarded
and
not deemed outstanding; (B) in connection with any Auction, any MMP Shares
as to which the Company or any person known to the Auction Agent to be an
Affiliate of the Company shall be the Existing Holder thereof shall be
disregarded and deemed not to be outstanding; and (C) for purposes of
determining the MMP Shares Basic Maintenance Amount, MMP Shares held by the
Company shall be disregarded and not deemed outstanding but shares held by
any
Affiliate of the Company shall be deemed outstanding.
(ooo) “Paying
Agent” means The Bank of New York unless and until another entity appointed by a
resolution of the Board of Directors enters into an agreement with the Company
to serve as paying agent.
(ppp) “Person”
or “person” means and includes an individual, a corporation, a partnership, a
trust, a company, an unincorporated association, a joint venture or other
entity
or a government or any agency or political subdivision
thereof.
(qqq) “Potential
Beneficial Owner,” with respect to shares of a series of MMP Shares, shall mean
a customer of a Broker-Dealer that is not a Beneficial Owner of shares of
such
series but that wishes to purchase shares of such series, or that is a
Beneficial Owner of shares of such series that wishes to purchase additional
shares of such series.
(rrr) “Potential
Holder,” with respect to shares of MMP Shares, shall mean a Broker-Dealer (or
any such other person as may be permitted by the Company) that is not an
Existing Holder of MMP Shares of such series or that is an Existing Holder
of
MMP Shares of such series that wishes to become the Existing Holder of
additional MMP Shares of such series.
(sss) “Preferred
Shares” means the shares of preferred stock, par value $.001 per share,
including the MMP Shares, of the Company from time to time.
(ttt) “Rating
Agency” means each of Fitch (if Fitch is then rating MMP Shares), Moody’s (if
Moody’s is then rating MMP Shares), and any Other Rating
Agency.
(uuu) “Rating
Agency Guidelines” mean Fitch Guidelines (if Fitch is then rating MMP Shares),
Moody’s Guidelines (if Moody’s is then rating MMP Shares) and any Other Rating
Agency Guidelines (if any Other Rating Agency is then rating MMP Shares),
whichever is applicable.
(vvv) “Redemption
Default” has the meaning set forth in Section 2(c)(ii) of this
Part I.
(www) “Redemption
Price” has the meaning set forth in Section 3(a)(i) of this
Part I.
(xxx) “Reference
Rate” means, with respect to the determination of the Maximum Rate and Default
Rate, the greater of (1) the applicable “AA” Composite Commercial Paper
Rate (for a Dividend Period of fewer than 184 days) or the applicable Treasury
Index Rate (for a Dividend Period of 184 days or more), or (2) the
applicable LIBOR.
(yyy)
“Securities Act” means the Securities Act of 1933, as amended from time to
time.
(zzz)
“Securities
Depository” means The Depository Trust Company and its successors and assigns or
any successor securities depository selected by the Company that agrees
to
follow the procedures required to be followed by such securities depository
in
connection with the MMP Shares.
(aaaa) “Sell
Order” shall have the meaning specified in paragraph (a) of Section 1
of Part II of these terms of the MMP Shares.
(bbbb) “Special
Auction Period” means an Auction Period that is not a Standard Auction
Period.
(cccc)
“Special
Dividend Period” means a Dividend Period that is not a Standard Dividend
Period.
(dddd) “Specific
Redemption Provisions” means, with respect to any Special Dividend Period of
more than one year, either, or any combination of (i) a period (a “Non-Call
Period”) determined by the Board of Directors after consultation with the
Broker-Dealers, during which the shares subject to such Special Dividend
Period
are not subject to redemption at the option of the Company pursuant to
Section 3(a)(ii) and (ii) a period (a “Premium Call Period”),
consisting of a number of whole years as determined by the Board of Directors
after consultation with the Broker-Dealers, during each year of which the
shares
subject to such Special Dividend Period shall be redeemable at the Company’s
option pursuant to Section 3(a)(i) and/or in connection with any mandatory
redemption pursuant to Section 3(a)(ii) at a price per share equal to
$25,000 plus accumulated but unpaid dividends plus a premium expressed as
a
percentage or percentages of $25,000 or expressed as a formula using specified
variables as determined by the Board of Directors after consultation with
the
Broker-Dealers.
(eeee) “Standard
Auction Period” means an Auction Period of ___ days.
(ffff) “Standard Dividend Period” means a
Dividend Period of ___ days.
(gggg) “Submission
Deadline” means 1:00 p.m., New York City time, on any Auction Date or such
other time on such date as shall be specified by the Auction Agent from time
to
time pursuant to the Auction Agreement as the time by which the Broker-Dealers
are required to submit Orders to the Auction Agent. Notwithstanding the
foregoing, the Auction Agent will follow the Securities Industry and Financial
Markets Association’s Early Market Close Recommendations for shortened trading
days for the bond markets (the “SIFMA Recommendation”) unless the Auction Agent
is instructed otherwise in writing by the Company. In the event of a SIFMA
Recommendation with respect to an Auction Date, the Submission Deadline will
be
11:30 a.m., instead of 1:00 p.m., New York City
time.
(hhhh) “Submitted
Bid” shall have the meaning specified in paragraph (a) of Section 3 of
Part II of these terms of the MMP Shares.
(iiii) “Submitted
Hold Order” shall have the meaning specified in paragraph (a) of
Section 3 of Part II of these terms of the MMP
Shares.
(jjjj) “Submitted
Order” shall have the meaning specified in paragraph (a) of Section 3
of Part II of these terms of the MMP Shares.
(kkkk) “Submitted
Sell Order” shall have the meaning specified in paragraph (a) of
Section 3 of Part II of these terms of the MMP
Shares.
(llll) “Sufficient
Clearing Bids” means for each series of MMP Shares, an Auction for which the
number of outstanding MMP Shares subject to Submitted Bids by Potential
Beneficial Owners specifying one or more rates not higher than the Maximum
Rate
is not less than the number of outstanding MMP Shares subject to Submitted
Sell
Orders and of Submitted Bids by Existing Holders specifying rates higher
than
the Maximum Rate.
(mmmm)
“Tortoise Notes” shall mean the $__________ in principal amount of the Company’s
currently outstanding Auction Rate Senior Notes Series A, B and C, and any
additional series of such notes which may be issued from time to time by
the
Company.
(nnnn) “Treasury
Index Rate” means the average yield to maturity for actively traded marketable
U.S. Treasury fixed interest rate securities having the same number of
30-day
periods to
maturity as the length of the applicable Dividend Period, determined, to
the
extent necessary, by linear interpolation based upon the yield for such
securities having the next shorter and next longer number of
30-day
periods to maturity treating all Dividend Periods with a length greater
than the
longest maturity for such securities as having a length equal to such
longest
maturity, in all cases based upon data set forth in the most recent weekly
statistical release published by the Board of Governors of the Federal
Reserve
System
(currently in H.15(519)); provided, however, if the most recent such
statistical
release shall not have been published during the 15 days preceding the
date of
computation, the foregoing computations shall be based upon the average
of
comparable data as quoted to the Company by at least three recognized
dealers in
U.S. Government securities selected by the
Company.
(oooo) “Valuation
Date” has the meaning set forth in the Rating Agency
Guidelines.
(pppp) “Winning
Bid Rate” means for the MMP Shares of a series, the lowest rate specified in any
Submitted Bid of the MMP Shares, which if selected by the Auction Agent as
the
Applicable Rate would cause the number of MMP Shares of such series that
are the
subject of Submitted Bids specifying a rate not greater than such rate to
be not
less than the number of Available MMP Shares.
18. Interpretation.
References to sections, subsections, clauses, sub-clauses, paragraphs and
subparagraphs are to such sections, subsections, clauses, sub-clauses,
paragraphs and subparagraphs contained in this Part I or Part II
hereof, as the case may be, unless specifically identified
otherwise.
PART II:
AUCTION
PROCEDURES
1. Orders
by Existing Holders and Potential Beneficial Owners.
(a)
Prior to
the Submission Deadline on each Auction Date for Series __MMP
Shares:
(i) each
Existing Holder may submit to a Broker-Dealer, in writing or by such other
method as shall be reasonably acceptable to such Broker-Dealer, one or more
Orders as to:
(A) the
number of Outstanding MMP Shares, if any, of the series held by the Existing
Holder which the Existing Holder commits to continue to hold for the next
succeeding Dividend Period without regard to the Applicable Rate of the
shares;
(B) the
number of Outstanding MMP Shares, if any, of the series held by the Existing
Holder which the Existing Holder commits to continue to hold for the next
succeeding Dividend Period if the Applicable Rate for MMP Shares for the next
succeeding Dividend Period is not less than the rate per annum specified in
such
Bid (and if the Auction Rate is less than such specified rate, the effect of
the
Order shall be as set forth in paragraph (b)(i)(A) of this Section);
and/or
(C) the
number of Outstanding MMP Shares, if any, of the series held by the Existing
Holder which the Existing Holder offers to sell on the next succeeding
Dividend
Payment Date without regard to the Applicable Rate for MMP Shares for
the next
succeeding Dividend Period; and
(ii) each
Potential Beneficial Owner may submit to a Broker-Dealer, in writing
or by such
other method as shall be reasonably acceptable to such Broker-Dealer,
an Order
as to the number of outstanding MMP Shares of a series which each such
Potential
Beneficial Owner offers to purchase if the Applicable Rate for the MMP
Shares of
a series for the next succeeding Dividend Period is not less than the
rate per
annum then specified by such Potential Beneficial Owner.
For
the
purposes of these Auction Procedures, an Order containing the information
referred to in clause (i)(A) of this paragraph (a) is referred to as a
“Hold Order,” an Order containing the information referred to in
clause (i)(B) or (ii) of this paragraph (a) is referred to as a
“Bid,” and an Order containing the information referred to in clause (i)(C)
of this paragraph (a) is referred to as a “Sell Order.” No Auction
Desk of a Broker-Dealer shall accept a Bid or Sell Order which is conditioned
on
being filled in whole or which does not specify a specific rate. “Auction Desk”
means the business unit of a Broker-Dealer that fulfills the responsibilities
of
a Broker-Dealer, including soliciting Bids for shares of a series while they
bear dividends at the Applicable Rate.
(b) (i)
A
Bid by
an Existing Holder shall constitute an offer to sell on the next succeeding
Dividend Payment Date:
(A) the
number of outstanding Series __ MMP Shares specified in the Bid if the
Applicable Rate determined on the Auction Date for the next succeeding Auction
Period shall be less than the rate specified in such Bid; or
(B) the
number or a lesser number of outstanding Series __ MMP Shares to be determined
as described in clause (v) of paragraph (a) of Section 5 of this
Part II if the Applicable Rate determined on the Auction Date for the next
succeeding Auction Period shall be equal to such specified rate; or
(C) a
lesser
number of outstanding Series __ MMP Shares to be determined as described
in
clause (iv) of paragraph (b) of Section 5 of this Part II if
the rate specified therein shall be higher than the Maximum Rate for shares
of
the series and Sufficient Clearing Bids for shares of the series do not
exist.
(ii) A
Sell
Order by an Existing Holder of MMP Shares of a series subject to an Auction
on
any Auction Date shall constitute an offer to sell:
(A) the
number of outstanding MMP Shares of the series specified in the Sell Order;
or
(B) the
number or a lesser number of outstanding MMP Shares of the series as set
forth
in clause (iv) of paragraph (b) of Section 5 of this Part II
if Sufficient Clearing Bids for MMP Shares of the series do not
exist;
(iii) A
Bid by
an Existing Holder or a Potential Holder of MMP Shares of a series subject
to an
Auction on any Auction Date shall constitute an offer to purchase:
(A) the
number of outstanding MMP Shares of the series specified in the Bid if
the
Applicable Rate for the MMP Shares determined on the Auction Date for
the next
succeeding Auction Period shall be higher than the rate specified therein;
or
(B) the
number or a lesser number of outstanding MMP Shares of the series as
set forth
in clause (vi) of paragraph (a) of Section 5 of this Part II
if the Applicable Rate for the MMP Shares determined on the Auction Date
shall
be equal to the rate specified therein.
(C) Anything
herein to the contrary notwithstanding:
(1) if
an
Order or Orders covering all of the outstanding MMP Shares of the series
held by
any Existing Holder is not submitted to the
Auction
Agent prior to the Submission Deadline, the Auction Agent shall deem a
Hold
Order to have been submitted by or on behalf of the Existing Holder covering
the
number of outstanding MMP Shares of the series held by the Existing Holder
and
not subject to Orders submitted to the Auction Agent; provided,
however, that if an Order or Orders covering all of the outstanding MMP
Shares
of the series held by any Existing Holder is not submitted to the Auction
Agent
prior to the Submission Deadline for an Auction relating to a Special Dividend
Period consisting of more than Standard Dividend Period, the Auction Agent
shall
deem a Sell Order to have been submitted by or on behalf of the Existing
Holder
covering the number of outstanding MMP Shares of the series held by the
Existing
Holder and not subject to Orders submitted to the Auction
Agent;
(2) for
purposes of any Auction, any Order by an Existing Holder or Potential Holder
shall be revocable until the Submission Deadline, and after the Submission
Deadline all Orders shall be irrevocable; and
(3) for
purposes of any Auction, any MMP Shares sold or purchased pursuant to clauses
(i), (ii) or (iii) of paragraph (b) of this Section 1 shall be sold or
purchased at a price equal to 100% of the aggregate liquidation preference
thereof.
2. Submission
of Orders by Broker-Dealers to Auction Agent.
(a)
Each
Broker-Dealer shall submit to the Auction Agent in writing, through the Auction
Agent’s auction processing system or by such other electronic means, as shall be
reasonably acceptable to the Auction Agent, prior to the Submission Deadline
on
each Auction Date, all Orders obtained by such Broker-Dealer and specifying
with
respect to each Order or aggregation of Orders pursuant to paragraph (e)
of this
Section 2:
(i) the
number of the Bidders placing Orders;
(ii) the
aggregate number of MMP Shares of the series, if any, that are the subject
of
the Order;
(iii) to
the
extent that the Bidder is an Existing Holder of MMP Shares of the
series:
(A) the
number of MMP Shares, if any, of the series subject to any Hold Order placed
by
the Existing Holder;
(B) the
number of MMP Shares, if any, of the series subject to any Bid placed
by the
Existing Holder and the rate specified in the Bid; and
(C) the
number of MMP Shares, if any, of the series subject to any Sell Order
placed by
the Existing Holder; and
(iv) to
the
extent the Bidder is a Potential Holder of MMP Shares of the series,
the rate
specified in such Bid.
(b) If
more
than on Bid is submitted on behalf of any Potential Beneficial Owner,
each Bid
submitted with the same rate shall be aggregated and considered a single
Bid and
each Bid submitted with a different rate shall be considered a separate
Bid with
the rate and the number of MMP Shares of the series specified
therein.
A
Broker
Dealer may aggregate the Orders of different Potential Beneficial Owners
on
whose behalf such Broker-Dealer is submitting Orders; provided, however,
Bids
may only be aggregated if the rates on the Bids are the same when rounded
pursuant to the provisions of paragraph (b) of Section 3 of this
Part II. Notwithstanding the foregoing, the Auction Agent may at any time
request that such Orders be separate for each different Potential Beneficial
Owner.
(c) None
of
the Company or the Auction Agent shall be responsible for the failure of
any
Broker-Dealer to submit an Order to the Auction Agent on behalf of any
Beneficial Owner, Potential Beneficial Owner, Existing Holder or Potential
Holder.
(d) Nothing
contained herein shall preclude a Broker-Dealer from placing an Order for
some
or all of the MMP Shares of a series for its own account.
(e) Until
the
Submission Deadline, a Broker-Dealer may, for any reason, withdraw or modify
any
Order previously submitted to the Auction Agent.
(f) After
the
Submission Deadline, and prior to the Error Correction Deadline, a Broker-Dealer
may:
(i) submit
to
the Auction Agent an Order received from a Beneficial Owner or Potential
Beneficial Owner or generated from its own account by the Broker-Dealer,
in
either case prior to the Submission Deadline and not submitted to the Auction
Agent prior to the Submission Deadline as a result of (A) an event of force
majeure or a technological failure which made delivery prior to the Submission
Deadline impossible or (B) a clerical error on the part of the
Broker-Dealer; or
(ii) modify
or
withdraw an Order received or generated for its own account by the Broker-Dealer
and submitted to the Auction Agent prior to the Submission Deadline, if the
Broker-Dealer determines that such Order contained a clerical error on the
part
of the Broker-Dealer.
In
the
event a Broker-Dealer makes such a submission, modification or withdrawal
and
the Auction Agent has already run the Auction, the Auction Agent shall rerun
the
Auction, taking into account such submission, modification or withdrawal.
Such a
submission, modification or withdrawal shall be deemed to constitute a
representation by the Broker-Dealer that, in the case of a newly submitted
Order, the failure to submit such Order prior to the Submission Deadline
resulted from an event described in clause (i) above and such Order was received
from an Beneficial Owner or Potential Beneficial Owner prior to the Submission
Deadline or generated internally by the Broker-Dealer for its own account
prior
to the Submission Deadline and, in the case of a modified or withdrawn Order,
that the Order as originally submitted contained a clerical error on the
part of
the Broker-Dealer. The Auction Agent shall be entitled to rely conclusively
(and
shall be fully protected in so relying) for any and all purposes of the Auction
Procedures on any Order submitted to, modified or withdrawn from, the Auction
Agent after the Submission Deadline and prior to the Error Correction Deadline
as having been submitted, modified or withdrawn in compliance with the Auction
Procedures.
(g) If
after
the Auction Agent announces the results of an Auction a Broker-Dealer becomes
aware that an error was made by the Auction Agent, the Broker-Dealer may
communicate its concern to the Auction Agent prior to the Error Correction
Deadline. If the Auction Agent determines there has been such an error
(as a
result of either a communication from a Broker-Dealer or its own internal
review) prior to the final settlement of transfers with respect to such
Auction
at the Securities Depository, the Auction Agent shall correct the error
and
notify each Broker-Dealer that submitted Bids or held a position in the
MMP
Shares of the series subject to such Auction of the corrected results. If
an
error
by
the Auction
Agent is discovered after such final settlement, the Auction Agent may
make the
change and post new results if the Auction Agent receives consent (which
may be
oral) from each Broker-Dealer that submitted a Bid or held a position in
the
Auction.
(h) Nothing
contained herein shall preclude the Auction Agent from:
(i) advising
a Broker-Dealer prior to the Submission Deadline that it has not received
Sufficient Clearing Bids for MMP Shares of the series, provided, however,
that
if the Auction Agent so advises any Broker-Dealer, it shall so advise all
Broker-Dealers;
(ii) verifying
the Orders of a Broker-Dealer prior to the Submission Deadline, provided,
however, that if the Auction Agent verifies the Orders of any Broker-Dealer,
it
shall verify the Orders of all Broker-Dealers requesting such verification;
or
(iii) contacting
a Broker-Dealer who has submitted an Order that does not conform to the
requirements of these Auction Procedures and requesting that such Broker-Dealer
resubmit such Order so that it conforms to the requirements of these Auction
Procedures; provided, however, that if the Auction Agent has not received
a
corrected conforming Order within one hour of the Submission Deadline, the
Auction Agent shall, to the extent possible, adjust such Order in conformity
with the provisions of these Auction Procedures, and, if the Auction Agent
is
unable to so adjust such Order, the Auction Agent shall reject such
Order.
3. Treatment
of Orders by the Auction Agent.
Anything herein to the contrary notwithstanding:
(a) If
the
Auction Agent receives an Order which does not conform to the requirements
of
these Auction Procedures, the Auction Agent may contact the Broker-Dealer
submitting such Order for a period of up to one hour after the Submission
Deadline and request that such Broker-Dealer resubmit such Order so that
it
conforms to the requirements of these Auction Procedures. If the Auction
Agent
has not received a corrected conforming Order within one hour of the Submission
Deadline, the Auction Agent shall, to the extent possible, adjust such Order
in
conformity with the provisions of these Auction Procedures and, if the Auction
Agent is unable to so adjust such Order, the Auction Agent shall reject such
Order.
(b) If
any
rate specified in any Bid contains more than three figures to the right of
the
decimal point, the Auction Agent shall round the rate up to the next highest
one
thousandth (.001) of 1%.
(c) If
one or
more Orders covering in the aggregate more than the number of outstanding
MMP
Shares of the series subject to an Auction held by any Existing Holder is
submitted to the Auction Agent, such Orders shall be considered valid
as
follows:
(i) all
Hold
Orders for MMP Shares of a series shall be considered Hold Orders, but
only up
to and including in the aggregate the number of outstanding MMP Shares
of the
series held by such Existing Holder;
(ii) (A)
any
Bid
of an Existing Holder shall be considered valid as a Bid of an Existing
Holder
up to and including the excess of the number of outstanding MMP Shares
of a
series held by the Existing Holder over the number of MMP Shares of the
series
subject to any Hold Orders referred to in clause (i) above;
(B)
subject
to subclause (A), all Bids of any Existing Holder with the same rate shall
be aggregated and considered a single Bid of an Existing Holder up to
and
including
the excess of the number of outstanding MMP Shares of the series held by
the
Existing Holder over the number of MMP Shares of the series subject to any
Hold
Orders referred to in clause (i) above;
(C) subject
to subclause (A), if more than one Bid with different rates is submitted on
behalf of such Existing Holder, such Bids shall be considered Bids of an
Existing Holder in the ascending order of their respective rates up to
the
amount of excess of the number of outstanding MMP Shares of the series
held by
the Existing Holder over the number of MMP Shares of the series subject
to any
Hold Orders referred to in clause (i) above;
(D) the
number, if any, of outstanding MMP Shares of the series subject to Bids
not
considered to be Bids of an Existing Holder under this clause (ii) shall be
treated as the subject of a Bid for MMP Shares of the series by a Potential
Holder; and
(iii) all
Sell
Orders shall be considered Sell Orders, but only up to and including a number
of
MMP Shares of the series equal to the excess of the number of outstanding
MMP
Shares of the series held by such Existing Holder over the sum of the number
of
MMP Shares of such series subject to Hold Orders referred to in clause (i)
above and the number of MMP Shares of such series considered to be subject
to
Bids of such Existing Holder pursuant to clause (ii) above.
(d) If
any
Order specifies a number of MMP Shares of a series that includes a fraction
of
an MMP Share to be held, purchased or sold, the Auction Agent shall round
the
number down so that the number of MMP Shares so held, purchased or sold shall
be
whole shares of MMP Shares, and the Auction Agent shall conduct the Auction
Procedures as if such Order had been submitted in such lower
amount.
(e) If
any
portion of an Order of an Existing Holder relates to an MMP Share of
a series that has been called for redemption on or prior to the
Dividend Payment Date next succeeding such Auction, the Order shall be invalid
with respect to such portion and the Auction Agent shall conduct the Auction
Procedures as if such portion of such Order had not been submitted.
(f) No
MMP
Share of a series which has been called for redemption on or prior to the
Dividend Payment Date next succeeding such Auction shall be included in the
calculation of Available MMP Shares for such Auction.
4. Determination
of Applicable Rate.
(a)
Promptly
after the Submission Deadline for the MMP Shares of a series on each Auction
Date, the Auction Agent shall assemble all Orders submitted or deemed submitted
to it by the Broker-Dealers (each such Order as submitted or deemed submitted
by
a Broker-Dealer being hereinafter referred to as a “Submitted Hold Order,” a
“Submitted Bid” or a “Submitted Sell Order,” as the case may be, and
collectively as a “Submitted Order”) and shall determine (i) the Available
MMP Shares, (ii) whether there are Sufficient Clearing Bids, and
(iii) the Applicable Rate.
(b) Promptly
after the Auction Agent has made such determination, it shall advise the
Company
of the Applicable Rate for the next succeeding Dividend Period.
5. Allocation
of Shares.
(a)
In the
event of Sufficient Clearing Bids for the MMP Shares of a series subject
to the
further provisions of paragraphs (c) and (d) of this Section 5.
Submitted Orders for shares of the series shall be accepted or rejected
as
follows in the following order of priority:
(i) the
Submitted Hold Order of each Existing Holder shall be accepted, thus requiring
each such Existing Holder to continue to hold the MMP Shares that are the
subject of such Submitted Hold Order;
(ii) the
Submitted Sell Order of each Existing Holder shall be accepted and the Submitted
Bids of each Existing Holder specifying any rate that is higher than the
Winning
Bid Rate shall be accepted, thus requiring each Existing Holder to sell the
MMP
Shares that are the subject of such Submitted Sell Order or Submitted
Bid;
(iii) the
Submitted Bid of each Existing Holder specifying any rate that is lower than
the
Winning Bid Rate shall be rejected, thus requiring each such Existing Holder
to
continue to hold the MMP Shares that are the subject of the Submitted
Bid;
(iv) the
Submitted Bid of each Potential Holder specifying any rate that is lower
than
the Winning Bid Rate for shares of the series shall be accepted, thus requiring
each such Potential Holder to purchase the MMP Shares that are the subject
of
the Submitted Bid;
(v) the
Submitted Bid of each Existing Holder specifying a rate that is equal to
the
Winning Bid Rate shall be accepted, thus requiring each such Existing Holder
to
continue to hold the MMP Shares of the series that are the subject of the
Submitted Bid, but only up to and including the number of MMP Shares of such
series obtained by multiplying (A) the number of Outstanding MMP Shares
which are not the subject of Submitted Hold Orders described in clause (i)
of
this paragraph (a) or of Submitted Bids described in clauses (iii) and (iv)
of
this paragraph (a) by (B) a fraction, the numerator of which shall be the
principal amount of Outstanding MMP Shares held by such Existing Holder subject
to such Submitted Bid and the denominator of which shall be the aggregate
principal amount of Outstanding MMP Shares subject to such Submitted Bids
made
by all such Existing Holders that specified a rate equal to the Winning Bid
Rate, and the remainder, if any, of such Submitted Bid shall be rejected,
thus
requiring each such Existing Holder to sell any excess amount of MMP
Shares;
(vi) the
Submitted Bid of each Potential Holder specifying a rate that is equal to
the
Winning Bid Rate shall be accepted, thus requiring each such Potential Holder
to
purchase the MMP Shares of the series that are the subject of such Submitted
Bid, but only in an amount equal to the number of MMP Shares of such series
obtained by multiplying (A) the number of Outstanding MMP Shares which are
not the subject of Submitted Hold Orders described in clause (i) of this
paragraph (a) or of Submitted Bids described in clauses (iii), (iv) or (v)
of
this paragraph (a) by (B) a fraction, the numerator of which shall be the
Outstanding MMP Shares subject to such Submitted Bid and the
denominator of which shall be the sum of the Outstanding MMP Shares subject
to
such Submitted Bids made by all such Potential Holders that specified a rate
equal to the Winning Bid Rate, and the remainder of such Submitted Bid shall
be
rejected; and
(vii) the
Submitted Bid of each Potential Holder specifying any rate that is higher
than
the Winning Bid Rate shall be rejected.
(b) In
the
event there are not Sufficient Clearing Bids for the MMP Shares of the
series
subject to the provisions of paragraphs (c) and (d) of this Section 5,
Submitted Orders for the MMP Shares of the series shall be accepted or
rejected
as follows in the following order of priority:
(i) the
Submitted Hold Order of each Existing Holder shall be accepted, thus
requiring
each such Existing Holder to continue to hold the MMP Shares that are
the
subject of such Submitted Hold Order;
(ii) the
Submitted Bid of each Existing Holder specifying any rate that is not higher
than the Maximum Rate shall be accepted, thus requiring each such Existing
Holder to continue to hold the MMP Shares that are the subject of such
Submitted
Bid;
(iii) the
Submitted Bids specifying any rate that is not higher than the Maximum Rate
for
the MMP Shares shall be accepted, thus requiring each such Potential Holder
to
purchase the MMP Shares that are the subject of such Submitted Bid;
and
(iv) the
Submitted Sell Orders of each Existing Holder shall be accepted as Submitted
Sell Orders and the Submitted Bids of each Existing Holder specifying any
rate
that is higher than the Maximum Rate shall be deemed to be and shall be accepted
as Submitted Sell Orders, in both cases only up to and including the number
of
MMP Shares of such series obtained by multiplying (A) the number of MMP
Shares subject to Submitted Bids described in clause (iii) of this
paragraph (b) by (B) a fraction, the numerator of which shall be the
Outstanding MMP Shares held by such Existing Holder subject to such Submitted
Sell Order or such Submitted Bid deemed to be a Submitted Sell Order and
the
denominator of which shall be the aggregate number of Outstanding MMP Shares
subject to all such Submitted Sell Orders and such Submitted Bids deemed
to be
Submitted Sell Orders, and the remainder of each such Submitted Sell Order
or
Submitted Bid shall be deemed to be and shall be accepted as a Hold Order
and
each such Existing Holder shall be required to continue to hold such excess
amount of MMP Shares; and
(v) the
Submitted Bid of each Potential Holder specifying any rate that is higher
than
the Maximum Rate shall be rejected.
(c) If,
as a
result of the procedures described in paragraphs (a) or (b) of this
Section 5, any Existing Holder or any Potential Holder would be required to
purchase or sell a fraction of an MMP Share of a series on any Auction Date,
the
Auction Agent shall by lot, in such manner as it shall determine in its sole
discretion, round up or down the number of MMP Shares of the series to be
purchased or sold by any Existing Holder or Potential Holder on the Auction
Date
so that the number of MMP Shares so purchased or sold by each Existing Holder
or
Potential Holder on the Auction Date shall be whole MMP Shares, even if such
allocation results in one or more of such Existing Holders or Potential Holders
not purchasing or selling any MMP Shares on such Auction Date.
(d) If,
as a
result of the procedures described in paragraph (a) of this Section 5,
any Potential Holder would be required to purchase less than a whole MMP
Share
of a series on any Auction Date, the Auction Agent shall by lot, in such
manner
as it shall determine in its sole discretion, allocate MMP Shares of a series
for purchase among Potential Holders so that only whole MMP Shares of the
series
are purchased by any Potential Holder on the Auction Date as a result of
such procedures, even if the allocation results in one or more Potential
Holders
not purchasing MMP Shares on the Auction Date.
6. Notice
of Applicable Rate. (a)
On each
Auction Date, the Auction Agent shall notify each Broker-Dealer that
participated in the Auction held on such Auction Date by electronic means
acceptable to the Auction Agent and the applicable Broker-Dealer of the
following, with respect to the MMP Shares of a series for which an Auction
was
held on such Auction Date:
(i) the
Applicable Rate determined on such Auction Date for the succeeding Dividend
Period;
(ii) whether
Sufficient Clearing Bids existed for the determination of the Winning Bid
Rate;
(iii) if
such
Broker-Dealer submitted a Bid or a Sell Order on behalf of an Existing
Holder,
whether such Bid or Sell Order was accepted or rejected and the number
of MMP
Shares of the series, if any, to be sold by such Existing Holder;
(iv) if
such
Broker-Dealer submitted a Bid on behalf of a Potential Holder, whether such
Bid
was accepted or rejected and the number of MMP Shares of the series, if any,
to
be purchased by such Potential Holder;
(v) if
the
number of MMP Shares of a series to be sold by all Existing Holders on whose
behalf such Broker-Dealer submitted Bids or Sell Orders is different from
the
number of MMP Shares of such series to be purchased by all Potential Holders
on
whose behalf such Broker-Dealer submitted a Bid, the name or names of one
or
more Broker-Dealers (and the Agent Member, if any, of each such other
Broker-Dealer) and the number of MMP Shares of such series to be
(A) purchased from one or more Existing Holders on whose behalf such other
Broker-Dealers submitted Bids or Sell Orders or (B) sold to one or more
Potential Holders on whose behalf such Broker-Dealer submitted Bids;
and
(vi) the
immediately succeeding Auction Date.
(b) On
each
Auction Date, with respect to each series of MMP Shares for which an Auction
was
held on such Auction Date, each Broker-Dealer that submitted an Order on
behalf
of any Existing Holder or Potential Holder shall, if requested: (i) advise
each Existing Holder and Potential Holder on whose behalf such Broker-Dealer
submitted an Order as to (A) the Applicable Rate determined on such Auction
Date, (B) whether any Bid or Sell Order submitted on behalf of each such
Owner was accepted or rejected and (C) the immediately succeeding Auction
Date; (ii) instruct each Potential Holder on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, to
instruct such Potential Holder’s Agent Member to pay to such Broker-Dealer (or
its Agent Member) through the Securities Depository the amount necessary
to
purchase the number of MMP Shares of such series to be purchased pursuant
to
such Bid against receipt of such shares; and (iii) instruct each Existing
Holder on whose behalf such Broker-Dealer submitted a Sell Order that was
accepted or a Bid that was rejected in whole or in part, to instruct such
Existing Holder’s Agent Member to deliver to such Broker-Dealer (or its Agent
Member) through the Securities Depository the number of MMP Shares of the
series
to be sold pursuant to such Bid or Sell Order against payment
therefor.
7. Changes
in Auction Period or Auction Date.
(a) Changes
in Auction Period.
(i)
During
any Auction Period, the Company, may, from time to time on the Dividend
Payment
Date immediately following the end of any Auction Period, change the length
of
the Auction Period with respect to all of the MMP Shares of a series in
order to
accommodate economic and financial factors that may affect or be relevant
to the
length of the Auction Period and the rate applicable to MMP Shares of such
series. The Company shall initiate the change in the length of the Auction
Period by giving written notice to the Auction Agent, the Broker-Dealers
and the
Securities Depository that the Auction Period shall change if the conditions
described herein are satisfied and the proposed effective date of the change,
at
least 10 Business Days prior to the Auction Date for such Auction
Period.
(ii) Any
such
changed Auction Period shall be for a period of one day, seven-days, 28-days,
35-days, three months, six months and shall be for all of the shares of
a series
of MMP Shares in an Auction Period.
(iii) The
change in the length of the Auction Period shall not be allowed unless
Sufficient Clearing Bids existed at the Auction immediately preceding
the
proposed change.
(iv) The
change in length of the Auction Period shall take effect only if Sufficient
Clearing Bids exist at the Auction on the Auction Date for such first Auction
Period. For
purposes of the Auction for such first Auction Period only, each Existing
Holder
shall be deemed to have submitted Sell Orders with respect to all of its
shares
of a series MMP Shares except to the extent such Existing Holder submits
an
Order with respect to such shares.
(b) Changes
in Auction Date.
The
Auction Agent, at the direction of the Company, may specify an earlier Auction
Date (but in no event more than five Business Days earlier) than the Auction
Date that would otherwise be determined in accordance with the definition
of
“Auction Date” in order to conform with then current market practice with
respect to similar securities or to accommodate economic and financial factors
that may affect or be relevant to the day of the week constituting an Auction
Date and the rate of the shares of the series of MMP Shares. The Auction
Agent
shall provide notice of the Company’s direction to specify an earlier Auction
Date for an Auction Period by means of a written notice delivered at least
45
days prior to the proposed changed Auction Date to the Company, the
Broker-Dealers and the Securities Depository. In the event that Auction Agent
is
instructed to specify an earlier Auction Date, the days of the week on which
an
Auction Period begins and ends and the Dividend Payment Date shall be adjusted
accordingly.
SECOND:
The Money Market Cumulative Preferred Shares have been classified and designated
by the Board of Directors under the authority contained in the
charter.
THIRD:
These Articles Supplementary have been approved by the Board of Directors
in the
manner and by the vote required by law.
FOURTH:
The undersigned President of the Company acknowledges these Articles
Supplementary to be the corporate act of the Company and, as to all matters
or
facts required to be verified under oath, the undersigned President acknowledges
that, to the best of his knowledge, information and belief, these matters
and
facts are true in all material respects and that this statement is made
under
the penalties for perjury.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Company has caused these Articles Supplementary to
be
signed in its name and on its behalf by its President and attested to by
its
Secretary on this ___ day of __________, 200_.
|
ATTEST:
|
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
|
|
|
|
|
Zachary
H. Hamel
Secretary
|
David J.
Schulte
President
|
MOODY’S
INVESTORS SERVICE, INC.
Moody’s
long-term obligation ratings are opinions of the relative credit risk of
fixed-income obligations with an original maturity of one year or more. They
address the possibility that a financial obligation will not be honored as
promised. Such ratings reflect both the likelihood of default and any financial
loss suffered in the even of default.
“Aaa”
Obligations rated Aaa are judged to be of the highest quality, with minimal
credit risk.
“Aa”
Obligations rated Aa are judged to be of high quality and are subject to
very
low credit risk.
“A”
Obligations rated A are considered upper-medium grade and are subject to
low
credit risk.
“Baa”
Obligations rated Baa are subject to moderate credit risk. They are considered
medium-grade and as such may possess certain speculative
characteristics.
“Ba”
Obligations rated Ba are judged to have speculative elements and are subject
to
substantial credit risk.
“B”
Obligations rated B are considered speculative and are subject to high credit
risk.
“Caa”
Obligations rated Caa are judged to be of poor standing and are subject to
very
high credit risk.
“Ca”
Obligations rated Ca are highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal and interest.
“C”
Obligations rated C are the lowest rated class of bonds and are typically
in
default, with little prospect for recovery of principal and
interest.
Note:
Moody’s
appends numerical modifiers 1, 2, and 3 to each generic rating classification
from Aa through Caa. The modifier 1 indicates that the obligation ranks in
the
higher end of its generic rating category; the modifier 2 indicates a mid-range;
and the modifier 3 indicates a ranking in the lower end of that generic rating
category.
US
Municipal and Tax-Exempt Ratings
Municipal
ratings are based upon the analysis of four primary factors relating to
municipal finance: economy, debt, finances, and administration/management
strategies. Each of the factors is evaluated individually and for its effect
on
the other factors in the context of the municipality’s ability to repay its
debt.
“Aaa”
Issuers or issues rated Aaa demonstrate the strongest creditworthiness relative
to other US municipal or tax-exempt issuers or issues.
“Aa”
Issuers or issues rated Aa demonstrate very strong creditworthiness relative
to
other US municipal or tax-exempt issuers or issues.
“A”
Issuers or issues rated A present above average creditworthiness relative
to
other US municipal or tax-exempt issuers or issues.
“Baa”
Issuers or issues rated Baa represent average creditworthiness relative to
other
US municipal or tax-exempt issuers or issues.
“Ba”
Issuers or issues rated Ba demonstrate below-average creditworthiness relative
to other US municipal or tax-exempt issuers or issues.
“B”
Issuers or issues rated B demonstrate weak creditworthiness relative to other
US
municipal or tax-exempt issuers or issues.
“Caa”
Issuers or issues rated Caa demonstrate very weak creditworthiness relative
to
other US municipal or tax-exempt issuers or issues.
“Ca”
Issuers or issues rated Ca demonstrate extremely weak creditworthiness relative
to other US municipal or tax-exempt issuers or issues.
“C”
Issuers or issues rated C demonstrate the weakest creditworthiness relative
to
other US municipal or tax-exempt issuers or issues.
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating category
from Aa through Caa. The modifier 1 indicates that the issuer or obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower
end of
that generic rating category.
Description
of Moody’s Highest Ratings of State and Municipal Notes and Other Short-Term
Loans
Moody’s
ratings for state and municipal notes and other short-term loans are designated
“Moody’s Investment Grade” (“MIG” or, for variable or floating rate obligations,
“VMIG”). Such ratings recognize the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower and
short-term cyclical elements are critical in short-term ratings. Symbols
used
will be as follows:
“MIG-1”
This designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.
“MIG-2”
This designation denotes strong credit quality. Margins of protection are
ample,
although not as large as in the preceding group.
“MIG-3”
This designation denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to
be less
well-established.
“SG”
This
designation denotes speculative-grade credit quality. Debt instruments in
this
category may lack sufficient margins of protection. Demand features rated
in
this category may be supported by a liquidity provider that does not have
an
investment grade short-term rating or may lack the structural and/or legal
protections necessary to ensure the timely payment of purchase price upon
demand.
“VMIG
1”
This designation denotes superior credit quality. Excellent protection is
afforded by the superior short-term credit strength of the liquidity provider
and structural and legal protections that ensure the timely payment of purchase
price upon demand.
C-2
“VMIG
2”
This designation denotes strong credit quality. Good protection is afforded
by
the strong short-term credit strength of the liquidity provider and structural
and legal protections that ensure the timely payment of purchase price upon
demand.
“VMIG
3”
This designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment
of
purchase price upon demand.
Description
of Moody’s Short Term Ratings
Moody’s
short-term ratings are opinions of the ability of issuers to honor short-term
financial obligations. Ratings may be assigned to issuers, short-term programs
or to individual short-term debt instruments. Such obligations generally
have an
original maturity not exceeding thirteen months, unless explicitly noted.
“P-1” Issuers
(or supporting institutions) rated Prime-1 have a superior ability to repay
short-term debt obligations.
“P-2” Issuers
(or supporting institutions) rated Prime-2 have a strong ability to repay
short-term debt obligations.
“P-3” Issuers
(or supporting institutions) rated Prime-3 have an acceptable ability to
repay short-term obligations.
“NP” Issuers
(or supporting institutions) rated Not Prime do not fall within any of the
Prime rating categories.
C-3
FITCH
RATINGS
A
brief
description of the applicable Fitch Ratings (“Fitch”) ratings symbols and
meanings (as published by Fitch) follows:
Long-Term
Credit Ratings
Investment
Grade
“AAA”
—
Highest credit quality. ‘AAA’ ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for
timely
payment of financial commitments. This capacity is highly unlikely to be
affected adversely by foreseeable events.
“AA”
—
Very high credit quality. ‘AA’ ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
“A”
—
High credit quality. ‘A’ ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong.
This
capacity may, nevertheless, be more vulnerable to changes in circumstances
or in
economic conditions than is the case for higher ratings.
“BBB”
—
Good credit quality. ‘BBB’ ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances
and in
economic conditions are more likely to impair this capacity. This is the
lowest
investment-grade category.
Speculative
Grade
“BB”
—
Speculative. ‘BB’ ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
“B”
—
Highly speculative. ‘B’ ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent
upon
a sustained, favorable business and economic environment.
“CCC”,
“CC”, “C” — High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A ‘CC’ rating indicates that default of some
kind appears probable. ‘C’ ratings signal imminent default.
“DDD”,
“DD”, And “D” Default — The ratings of obligations in this category are based on
their prospects for achieving partial or full recovery in a reorganization
or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve
as
general guidelines. ‘DDD’ obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. ‘DD’ indicates
potential recoveries in the range of 50%-90%, and ‘D’ the lowest recovery
potential, i.e., below 50%. Entities rated in this category have defaulted
on
some or all of their obligations. Entities rated ‘DDD’ have the highest prospect
for resumption of performance or continued operation with or without a formal
reorganization process. Entities rated ‘DD’ and ‘D’ are generally undergoing a
formal reorganization or liquidation process; those rated ‘DD’ are likely to
satisfy a higher portion of their outstanding obligations, while entities
rated
‘D’ have a poor prospect for repaying all obligations.
C-4
Short-Term
Credit Ratings
A
short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and
thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
“F1”
—
Highest credit quality. Indicates the strongest capacity for timely payment
of
financial commitments; may have an added “+” to denote any exceptionally strong
credit feature.
“F2”
—
Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
“F3”
—
Fair credit quality. The capacity for timely payment of financial commitments
is
adequate; however, near-term adverse changes could result in a reduction
to
non-investment grade.
“B”
—
Speculative. Minimal capacity for timely payment of financial commitments,
plus
vulnerability to near-term adverse changes in financial and economic
conditions.
“C”
—
High default risk. Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
“D”
—
Default. Denotes actual or imminent payment default.
Notes
to
Long-term and Short-term ratings:
“+”
or
“-” may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the ‘AAA’ Long-term rating category,
to categories below ‘CCC’, or to Short-term ratings other than
‘F1’.
“NR”
indicates that Fitch Ratings does not rate the issuer or issue in
question.
“Withdrawn”
— A rating is withdrawn when Fitch Ratings deems the amount of information
available to be inadequate for rating purposes, or when an obligation matures,
is called, or refinanced.
“Rating
Watch” — Ratings are placed on Rating Watch to notify investors that there is a
reasonable probability of a rating change and the likely direction of such
change. These are designated as “Positive”, indicating a potential upgrade,
“Negative”, for a potential downgrade, or “Evolving”, if ratings may be raised,
lowered or maintained. Rating Watch typically is resolved over a relatively
short period.
A
Rating
Outlook indicates the direction a rating is likely to move over a one to
two
year period. Outlooks may be positive, stable, or negative. A positive or
negative Rating Outlook does not imply a rating change is inevitable. Similarly,
ratings for which outlooks are `stable’ could be downgraded before an outlook
moves to positive or negative if circumstances warrant such an action.
Occasionally, Fitch Ratings may be unable to identify the fundamental trend.
In
these cases, the Rating Outlook may be described as evolving.
C-5
STANDARD &
POOR’S CORPORATION
A
brief
description of the applicable Standard & Poor’s Corporation, a division
of The McGraw-Hill Companies (“Standard & Poor’s” or “S&P”), rating
symbols and their meanings (as published by S&P) follows:
A
Standard & Poor’s issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations, or a specific financial program
(including ratings on medium term note programs and commercial paper programs).
It takes into consideration the creditworthiness of guarantors, insurers,
or
other forms of credit enhancement on the obligation. The issue credit rating
is
not a recommendation to purchase, sell, or hold a financial obligation, inasmuch
as it does not comment as to market price or suitability for a particular
investor.
Issue
credit ratings are based on current information furnished by the obligors
or
obtained by Standard & Poor’s from other sources it considers reliable.
Standard & Poor’s does not perform an audit in connection with any
credit rating and may, on occasion, rely on unaudited financial information.
Credit ratings may be changed, suspended, or withdrawn as a result of changes
in, or unavailability of, such information, or based on other
circumstances.
Issue
credit ratings can be either long-term or short-term. Short-term ratings
are
generally assigned to those obligations considered short-term in the relevant
market. In the U.S., for example, that means obligations with an original
maturity of no more than 365 days - including commercial paper.
Short-term
ratings are also used to indicate the creditworthiness of an obligor with
respect to put features on long-term obligations. The result is a dual rating,
in which the short-term ratings address the put feature, in addition to the
usual long-term rating. Medium-term notes are assigned long-term
ratings.
Long-Term
Issue Credit Ratings
Issue
credit ratings are based in varying degrees, on the following
considerations:
1. Likelihood
of payment - capacity and willingness of the obligor to meet its financial
commitment on an obligation in accordance with the terms of the
obligation;
2. Nature
of
and provisions of the obligation; and
3. Protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors’ rights. The issue ratings definitions are
expressed in terms of default risk. As such, they pertain to senior obligations
of an entity. Junior obligations are typically rated lower than senior
obligations, to reflect the lower priority in bankruptcy, as noted
above.
“AAA”
—
An obligation rated ‘AAA’ has the highest rating assigned by Standard &
Poor’s. The obligor’s capacity to meet its financial commitment on the
obligation is extremely strong.
“AA”
—
An
obligation rated ‘AA’ differs from the highest-rated obligations only in small
degree. The obligor’s capacity to meet its financial commitment on the
obligation is very strong.
“A”
—
An
obligation rated ‘A’ is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its financial
commitment on the obligation is still strong.
C-6
BBB
—
An
obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to
a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB,
B,
CCC, CC, AND C — Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded
as having significant speculative characteristics. ‘BB’ indicates the least
degree of speculation and ‘C’ the highest. While such obligations will likely
have some quality and protective characteristics, these may be outweighed
by
large uncertainties or major exposures to adverse conditions.
BB
—
An
obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions, which could lead to the obligor’s
inadequate capacity to meet its financial commitment on the
obligation.
B
—
An
obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated
‘BB’, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor’s capacity or willingness to meet its
financial commitment on the obligation.
CCC
—
An
obligation rated ‘CCC’ is currently vulnerable to nonpayment and is dependent
upon favorable business, financial, and economic conditions for the obligor
to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to
have
the capacity to meet its financial commitment on the obligation.
CC
—
An
obligation rated ‘CC’ is currently highly vulnerable to nonpayment.
C
—
The
‘C’ rating may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on this obligation are
being continued.
D
—
An
obligation rated ‘D’ is in payment default. The ‘D’ rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless Standard & Poor’s believes that
such payments will be made during such grace period. The ‘D’ rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar
action
if payments on an obligation are jeopardized.
“+/-”
—
Plus (+) or minus (-). The ratings from ‘AA’ to ‘CCC’ may be modified by
the addition of a plus or minus sign to show relative standing within the
major
rating categories.
“c”
—
The
‘c’ subscript is used to provide additional information to investors that the
bank may terminate its obligation to purchase tendered bonds if the long-term
credit rating of the issuer is below an investment-grade level and/or the
issuer’s bonds are deemed taxable.
“P”
—
The
letter ‘p’ indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project financed by the debt being
rated and indicates that payment of debt service requirements is largely
or
entirely dependent upon the successful, timely completion of the project.
This
rating, however, while addressing credit quality subsequent to completion
of the
project, makes no comment on the likelihood of or the risk of default upon
failure of such completion. The investor should exercise his own judgment
with
respect to such likelihood and risk.
“*”
—
Continuance of the ratings is contingent upon Standard & Poor’s receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
C-7
“r”
—
The
‘r’ highlights derivative, hybrid, and certain other obligations that
Standard & Poor’s believes may experience high volatility or high
variability in expected returns as a result of noncredit risks. Examples
of such
obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an ‘r’
symbol should not be taken as an indication that an obligation will exhibit
no
volatility or variability in total return.
N.R.
—
Not rated.
Debt
obligations of issuers outside the United States and its territories are
rated
on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond
Investment Quality Standards
Under
present commercial bank regulations issued by the Comptroller of the Currency,
bonds rated in the top four categories (‘AAA’, ‘AA’, ‘A’, ‘BBB’, commonly known
as investment-grade ratings) generally are regarded as eligible for bank
investment. Also, the laws of various states governing legal investments
impose
certain rating or other standards for obligations eligible for investment
by
savings banks, trust companies, insurance companies, and fiduciaries in
general.
Short-Term
Issue Credit Ratings
Notes
Standard &
Poor’s note ratings reflects the liquidity factors and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that
assessment:
Amortization
schedule -- the larger the final maturity relative to other maturities, the
more
likely it will be treated as a note; and
Source
of
payment -- the more dependent the issue is on the market for its refinancing,
the more likely it will be treated as a note.
Note
rating symbols are as follows:
“SP-1”
—
Strong capacity to pay principal and interest. An issue determined to possess
a
very strong capacity to pay debt service is given a plus
(+) designation.
“SP-2”
—
Satisfactory capacity to pay principal and interest, with some vulnerability
to
adverse financial and economic changes over the term of the notes.
“SP-3”
—
Speculative capacity to pay principal and interest.
A
note
rating is not a recommendation to purchase, sell, or hold a security inasmuch
as
it does not comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished to S&P by the issuer
or obtained by S&P from other sources it considers reliable.
C-8
S&P
does not perform an audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended,
or withdrawn as a result of changes in or unavailability of such information
or
based on other circumstances.
Commercial
Paper
An
S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from ‘A-1’ for the highest
quality obligations to ‘D’ for the lowest. These categories are as
follows:
“A-1”
—
A
short-term obligation rated ‘A-1’ is rated in the highest category by
Standard & Poor’s. The obligor’s capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor’s capacity to meet its financial commitment on these obligations is
extremely strong.
“A-2”
—
A
short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in
higher rating categories. However, the obligor’s capacity to meet its financial
commitment on the obligation is satisfactory.
“A-3”
—
A
short-term obligation rated ‘A-3’ exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
“B”
—
A
short-term obligation rated ‘B’ is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor’s inadequate capacity to meet its financial
commitment on the obligation.
“C”
—
A
short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for
the
obligor to meet its financial commitment on the obligation.
“D”
—
A
short-term obligation rated ‘D’ is in payment default. The ‘D’ rating category
is used when payments on an obligation are not made on the date due even
if the
applicable grace period has not expired, unless Standard & Poor’s
believes that such payments will be made during such grace period. The ‘D’
rating also will be used upon the filing of a bankruptcy petition or the
taking
of a similar action if payments on an obligation are jeopardized.
A
commercial rating is not a recommendation to purchase, sell, or hold a security
inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished
to
S&P by the issuer or obtained by S&P from other sources it considers
reliable.
S&P
does not perform an audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended,
or withdrawn as a result of changes in or unavailability of such information
or
based on other circumstances.
C-9
Tortoise
Energy Infrastructure Corporation
_____________________________________________________
STATEMENT
OF ADDITIONAL INFORMATION
_____________________________________________________
___________,
2007
PART
C - OTHER INFORMATION
Item
25. Financial Statements and Exhibits
1. Financial
Statements:
The
Registrant’s audited financial statements dated November 30, 2006, notes to
such financial statements and report of independent registered public accounting
firm thereon, are incorporated by reference into Part B:
Statement of Additional Information.
2. Exhibits:
|
a.1.
|
Articles
of Incorporation.1
|
|
|
a.2.
|
Articles
of Amendment and Restatement.2
|
|
|
a.3.
|
Articles
Supplementary relating to Series I MMP Shares.5
|
|
|
a.4.
|
Articles
Supplementary relating to Series II MMP Shares.10
|
|
|
a.5.
|
Form
of Articles Supplementary relating to Preferred Stock, included
in
Part B: Statement of Additional Information.*
|
|
|
a.6.
|
Articles
of Amendment.8
|
|
|
b.1.
|
By-laws.1
|
|
|
b.2.
|
Amended
and Restated Bylaws.2
|
|
|
c.
|
None.
|
|
|
d.1.
|
Form
of Common Share Certificate.**
|
|
|
d.2.
|
Form
of Preferred (MMP) Stock Certificate.**
|
|
|
d.3.
|
Form
of Note.**
|
|
|
d.4.
|
Indenture
of Trust.10
|
|
|
d.5.
|
Form
of Supplemental Indenture of Trust.*
|
|
|
d.6.
|
Statement
of Eligibility of Trustee on Form T-1.3
|
|
|
d.7.
|
Form
of Fitch Rating Guidelines and Moody’s Rating Guidelines.**
|
|
|
e.
|
Terms
and Conditions of the Amended Dividend Reinvestment and Cash
Purchase
Plan.**
|
|
|
f.
|
Not
applicable.
|
|
|
g.1.
|
Investment
Advisory Agreement with Tortoise Capital Advisors, L.L.C.3
|
|
|
g.2.
|
Reimbursement
Agreement.3
|
|
|
h.1.
|
Form
of Underwriting Agreement relating to Common Stock.**
|
|
|
h.2.
|
Form
of Underwriting Agreement relating to Preferred Stock.**
|
|
|
h.3.
|
Form
of Underwriting Agreement relating to Notes.**
|
|
|
i.
|
None.
|
|
|
j.
|
Custody
Agreement.3
|
|
|
k.1.
|
Stock
Transfer Agency Agreement.3
|
|
|
k.2.
|
Administration
Agreement.3
|
|
|
k.3.
|
Fund
Accounting Agreement.3
|
|
|
k.4.
|
Form
of Auction Agency Agreement relating to Preferred Stock.**
|
|
|
k.5.
|
Form
of Auction Agency Agreement relating to Notes.**
|
|
|
k.6.
|
Form
of Broker-Dealer Agreement relating to Preferred Stock.**
|
|
|
k.7.
|
Form
of Broker-Dealer Agreement relating to Notes.**
|
|
|
k.8.
|
DTC
Representation Letter relating to Preferred Stock and Notes.7
|
|
|
k.9.
|
Credit
Agreement.9
|
|
|
l.
|
Opinion
of Venable LLP.**
|
|
|
m.
|
Not
applicable.
|
|
|
n.
|
Consent
of Ernst & Young LLP.*
|
|
|
o.
|
Not
applicable.
|
|
|
p.
|
Subscription
Agreement.3
|
|
|
q.
|
None.
|
|
r.1.
|
Code
of Ethics for the Registrant.6
|
C-1
|
r.2.
|
Code
of Ethics for the Adviser.6
|
|
|
s.
|
Powers
of Attorney.**
|
_____________
|
(*)
|
Filed
herewith.
|
|
(**)
|
Previously
filed.
|
|
(1)
|
Incorporated
by reference to Registrant’s Registration Statement on Form N-2, filed on
October 31, 2003 (File Nos. 333-110143 and
811-21462).
|
|
(2)
|
Incorporated
by reference to Pre-Effective Amendment No. 1 to Registrant’s
Registration Statement on Form N-2, filed on January 30, 2004 (File
Nos. 333-110143 and 811-21462).
|
|
(3)
|
Incorporated
by reference to Pre-Effective Amendment No. 1 to Registrant’s
Registration Statement on Form N-2, filed on June 28, 2004 (File Nos.
333-114545 and 811-21462).
|
|
(4)
|
Incorporated
by reference to Pre-Effective Amendment No. 3 to Registrant’s
Registration Statement on Form N-2, filed on February 20, 2004 (File
Nos. 333-110143 and 811-21462).
|
|
(5)
|
Incorporated
by reference to Registrant's Registration Statement on Form N-2,
filed on
October 15, 2004 (File Nos. 333-119784 and
811-21462).
|
|
(6)
|
Incorporated
by reference to Pre-Effective Amendment No. 1 to Registrant’s
Registration Statement on Form N-2, filed on November 24, 2004 (File
Nos. 333-119784 and 811-21462).
|
|
(7)
|
Incorporated
by reference to Pre-Effective Amendment No. 1 to Registrant’s
Registration Statement on Form N-2, filed on April 1, 2005 (File Nos.
333-122350 and 811-21462).
|
|
(8)
|
Incorporated
by reference to Pre-Effective Amendment No. 1 to Registrant’s
Registration Statement on Form N-2, filed on July 7, 2005 (File Nos.
333-124079 and 811-21462).
|
|
(9)
|
Incorporated
by reference to Post-Effective Amendment No. 1 to Registrant’s
Registration Statement on Form N-2, filed on August 10, 2006
(File Nos. 333-131204 and
811-21462).
|
|
(10)
|
Incorporated
by reference to Registrant’s Registration Statement on Form N-2, filed on
January 20, 2006 (File Nos. 333-131204 and
811-21462).
|
Item
26. Marketing Arrangements
The
information contained under the heading “Plan of Distribution” in
the prospectus is incorporated herein by reference, and information
concerning any underwriters will be contained in an
accompanying prospectus supplement.
Item
27. Other Expenses and Distribution
The
following table sets forth the estimated expenses to be incurred in connection
with all potential offerings described in this Registration
Statement:
|
Securities
and Exchange Commission Fees
|
$10,745
|
|
|
Directors’
Fees and Expenses
|
6,500
|
|
|
Printing
(other than certificates)
|
112,500
|
|
|
Accounting
fees and expenses
|
163,000
|
|
|
Legal
fees and expenses
|
280,000
|
|
|
NASD
fee
|
7,000
|
|
|
Rating
Agency Fees
|
0
|
|
|
Miscellaneous
|
61,725
|
|
|
Total
|
$641,470
|
*
|
_____________
|
(*)
|
These
expenses will be borne by the Company unless otherwise specified
in a
prospectus supplement.
|
Item
28. Persons Controlled by or Under Common Control
None.
C-2
Item
29. Number of Holders of Securities
As
of
January 31,
2007, the number of record holders of each class of securities of the
Registrant was:
|
Title
of Class
|
Number
of Record Holders
|
|
Common
Shares ($0.001 par value)
|
67
|
|
Preferred
Stock (Liquidation Preference $25,000 per share)
|
8
|
|
Long-term
Debt ($165,000,000 aggregate principal amount)
|
1
|
Item
30. Indemnification
Maryland
law permits a Maryland corporation to include in its charter a provision
limiting the liability of its directors and officers to the corporation and
its
stockholders for money damages except for liability resulting from
(a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty which is established by a
final judgment as being material to the cause of action. The Registrant’s
charter contains such a provision which eliminates directors’ and officers’
liability to the maximum extent permitted by Maryland law.
The
Registrant’s charter authorizes it, to the maximum extent permitted by Maryland
law and the Investment Company Act of 1940, as amended (the “1940 Act”), to
indemnify any present or former director or officer or any individual who,
while
a director of the Registrant and at the request of the Registrant, serves
or has
served another corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise as a director,
officer, partner or trustee, from and against any claim or liability to which
that person may become subject or which that person may incur by reason of
his
or her status as a present or former director or officer of the Registrant
and
to pay or reimburse his or her reasonable expenses in advance of final
disposition of a proceeding. The Registrant’s Bylaws obligate it, to the maximum
extent permitted by Maryland law and the 1940 Act, to indemnify any present
or
former director or officer or any individual who, while a director of the
Registrant and at the request of the Registrant, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise as a director, officer, partner
or
trustee and who is made a party to the proceeding by reason of his service
in
that capacity from and against any claim or liability to which that person
may
become subject or which that person may incur by reason of his or her status
as
a present or former director or officer of the Registrant and to pay or
reimburse his or her reasonable expenses in advance of final disposition
of a
proceeding. The charter and Bylaws also permit the Registrant to indemnify
and
advance expenses to any person who served as a predecessor of the Registrant
in
any of the capacities described above and any employee or agent of the
Registrant or a predecessor of the Registrant.
Maryland
law requires a corporation (unless its charter provides otherwise, which
the
Registrant’s charter does not) to indemnify a director or officer who has been
successful in the defense of any proceeding to which he is made a party by
reason of his service in that capacity. Maryland law permits a corporation
to
indemnify its present and former directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made
a
party by reason of their service in those or other capacities unless it is
established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed
in bad faith or (ii) was the result of active and deliberate dishonesty,
(b) the director or officer actually received an improper personal benefit
in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that
the act
or omission was unlawful. However, under Maryland law, a Maryland
corporation
C-3
may
not
indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, Maryland law permits a corporation
to
advance reasonable expenses to a director or officer upon the corporation’s
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or
on his behalf to repay the amount paid or reimbursed by the corporation if
it is
ultimately determined that the standard of conduct was not met.
The
provisions set forth above apply insofar as they are consistent with
Section 17(h) of the 1940 Act, which prohibits indemnification of any
director or officer of the Registrant against any liability to the Registrant
or
its stockholders to which such director or officer otherwise would be subject
by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933,
as
amended (“1933 Act”), may be provided to directors, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim
for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Registrant by such director, officer or controlling
person
in connection with the securities being registered, the Registrant will,
unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933
Act
and will be governed by the final adjudication of such issue.
Item
31. Business and Other Connections of Investment Adviser
The
information in the Statement of Additional Information under the caption
“Management of the Company—Directors and Officers” is hereby incorporated by
reference.
Item
32. Location of Accounts and Records
All
such
accounts, books, and other documents are maintained at the offices of the
Registrant, at the offices of the Registrant’s investment adviser, Tortoise
Capital Advisors, L.L.C., 10801 Mastin Boulevard, Suite 222, Overland Park,
Kansas 66210, at the offices of the custodian, U.S. Bank National Association,
1555 North Rivercenter Drive, Suite 302, Milwaukee, Wisconsin 53212, at the
offices of the transfer agent, Computershare Trust Company N.A., P.O. Box
43078,
Providence, Rhode Island 02940-3078, at the offices of the administrator,
U.S.
Bancorp Fund Services, LLC, 615 East Michigan Street, Milwaukee, WI 53202,
at
the offices of the Auction Agent and Paying Agent, The Bank of New York,
101
Barclay Street, 7W, New York, NY 10280 or at the offices of the Trustee,
BNY
Midwest Trust Company, N.A. 2 N. LaSalle Street, Chicago, IL 60602.
Item
33. Management Services
Not
applicable.
C-4
Item
34. Undertakings
1. The
Registrant undertakes to suspend the offering of common stock until the
prospectus is amended if (1) subsequent to the effective date of this
registration statement, the net asset value declines more than ten percent
from
its net asset value as of the effective date of this registration statement
or
(2) the net asset value increases to an amount greater than its net
proceeds as stated in the prospectus.
2. Not
applicable.
3. Not
applicable.
4. (a) to
file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(1) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
(2) to
reflect in the prospectus any facts or events arising after the effective
date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change
in the information set forth in the registration statement; and
(3) to
include any material information with respect to the plan of distribution
not
previously disclosed in the registration statement or any material change
to
such information in the registration statement.
(b) that,
for
the purpose of determining any liability under the Securities Act of 1933,
each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of those securities
at that time shall be deemed to be the initial bona fide offering thereof;
and
(c) to
remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the
offering;
(d) that,
for
the purpose of determining liability under the 1933 Act to any purchaser,
if the
Registrant is subject to Rule 430C: each prospectus filed pursuant to Rule
497(b), (c), (d) or (e) under the 1933 Act as part of this registration
statement relating to an offering, other than prospectuses filed in reliance
on
Rule 430A under the 1933 Act, shall be deemed to be part of and included
in this
registration statement as of the date it is first used after effectiveness.
Provided,
however,
that no
statement made in this registration statement or prospectus that is part
of this
registration statement or made in a document incorporated or deemed incorporated
by reference into this registration or prospectus that is part of this
registration statement will, as to a purchaser with a time of contract of
sale
prior to such first use, supersede or modify any statement that was made
in this
registration statement or prospectus that was part of this registration
statement or made in any such document immediately prior to such date of
first
use.
(e) that
for
the purpose of determining liability of the Registrant under the 1933 Act
to any
purchaser in the initial distribution of securities:
The
undersigned Registrant undertakes that in a primary offering of securities
of
the undersigned Registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the
C-5
securities
to the purchaser, if the securities are offered or sold to such purchaser
by
means of any of the following communications, the undersigned Registrant
will be
a seller to the purchaser and will be considered to offer or sell such
securities to the purchaser:
(1) any
preliminary prospectus or prospectus of the undersigned Registrant relating
to
the offering required to be filed pursuant to Rule 497 under the 1933
Act;
(2) the
portion of any advertisement pursuant to Rule 482 under the 1933 Act relating
to
the offering containing material information about the undersigned Registrant
or
its securities provided by or on behalf of the undersigned Registrant;
and
(3) any
other
communication that is an offer in the offering made by the undersigned
Registrant to the purchaser.
5. (a) That
for
the purpose of determining any liability under the 1933 Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by
the
Registrant under Rule 497(h) under the 1933 Act [17 CFR 230.497(h)] shall
be
deemed to be part of this registration statement as of the time it was declared
effective; and
(b) for
the
purpose of determining any liability under the 1933 Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of the securities at that time shall be deemed to be the initial
bona
fide offering thereof.
6. The
Registrant undertakes to send by first class mail or other means designed
to
ensure equally prominent delivery within two business days of receipt of
a
written or oral request the Registrant’s statement of additional
information.
7. Upon
each
issuance of securities pursuant to this Registration Statement, the Registrant
undertakes to file a form of prospectus and/or form of prospectus supplement
pursuant to Rule 497 and a post-effective amendment to the extent required
by
the 1933 Act and the rules and regulations thereunder, including, but not
limited to a post-effective amendment pursuant to Rule 462(c) or Rule 462(d)
under the 1933 Act.
C-6
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933 and the Investment Company
Act
of 1940, the Registrant has duly caused this registration statement to
be signed
on its behalf by the undersigned, thereunto duly authorized, in this City
of
Overland Park and State of Kansas, on the 9th day of March,
2007.
| Tortoise Energy Infrastructure Corporation | ||
| |
|
|
| By: | /s/ David J. Schulte | |
| David J. Schulte, President | ||
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the date
indicated.
|
/s/
Terry C.
Matlack
Terry
C. Matlack
|
Director
(and Principal Financial and Accounting Officer)
|
March 9,
2007
|
|
/s/
Conrad S.
Ciccotello*
Conrad
S. Ciccotello
|
Director
|
March 9,
2007
|
|
/s/
John R.
Graham*
John
R. Graham
|
Director
|
March 9,
2007
|
|
/s/
Charles E.
Heath*
Charles
E. Heath
|
Director
|
March 9,
2007
|
|
/s/
H. Kevin
Birzer*
H.
Kevin Birzer
|
Director
|
March 9,
2007
|
|
/s/
David J.
Schulte
David J.
Schulte
|
President
and Chief Executive Officer (Principal Executive Officer)
|
March 9,
2007
|
_____________
|
*
|
By David
J. Schulte pursuant to power of attorney, filed with
the initial registration statement on February 5,
2007.
|
|
|
By:
/s/David
J. Schulte
|
Attorney-in-Fact
C-7
EXHIBIT INDEX
|
d.5.
|
Form
of Supplemental Indenture of Trust.
|
| n. |
Consent
of Ernst & Young
LLP.
|
C-8