As
filed with the Securities and Exchange Commission on May 8,
2006
1933
Act File No. 333-131204
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. 1
¨
Post-Effective Amendment No. __
and
ý
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
ý
Amendment No. 21
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
|
$125,000,000
|
$13,375
|
(1) There
are
being registered hereunder a presently indeterminate number of shares of common
stock, shares of preferred stock and debt securities.
(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 $125,000,000.
(3)
$107.00 was previously paid in connection with the initial registration
statement filed on January 20, 2006.
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 date as the Commission, acting pursuant to said
Section 8(a), may determine.
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 MAY 8, 2006
|
Base Prospectus
|
 |
$125,000,000
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 tot al 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.
We
may
offer, from time to time, up to $125,000,000 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. 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 directly to one or more purchasers, through agents that
we
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 and our agents or underwriters or among our underwriters or the
basis
upon which such amount may be calculated. For more information about the manners
in which we may offer our securities, see “Plan of Distribution.” We may not
sell any of our securities 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 _______________, 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 26 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 ______________________, 2006
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 _____________2006, 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 62 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 1-888-728-8784 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.
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 26 of this
prospectus.
The
Company
We
are 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. 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 master limited partnerships (“MLPs”) in
the energy infrastructure sector. We have a fiscal year ending
November 30.
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 an additional offering of common stock
in
December 2004. As of the date of this prospectus, we have two series of Money
Market Cumulative Preferred (MMP®) Shares
(“MMP
Shares”) and three series of Auction Rate Senior Notes (“Tortoise Notes”)
outstanding.
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
March
31, 2006, the Adviser had approximately $1.7 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 investment adviser to Tortoise Energy Capital Corporation
(“TYY”) and Tortoise North American Energy Corporation (“TYN”), which are
recently organized, nondiversified, 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. In
December 2005, the Adviser began managing the investments of Tortoise Capital
Resources Corporation (“TTO”). TTO is a private investment fund created to
invest primarily in privately held and micro-cap public companies in the
U.S.
energy infrastructure sector.
The
principal business address of the Adviser is 10801 Mastin Boulevard, Suite
222,
Overland Park, Kansas 66210.
The
Offering
We
may
offer, from time to time, up to $125,000,000 of our securities, on terms
to be
determined at the time of the offering. We will offer our securities at prices
and on terms to be set forth in one or more supplements
to this prospectus. Subject to certain conditions, offerings of our common
stock
may be 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 $125,000,000 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.
We
may
offer our securities directly to one or more purchasers, through agents that
we
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
and our agents or underwriters or among our underwriters or the basis upon
which
such amount may be calculated. See “Plan of Distribution.” We may not sell any
of our securities 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 3 months of receipt of such proceeds. We
also may
use sale proceeds 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.
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”)
(generally, cash from operations less certain operating expenses and reserves)
to our common stockholders. 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. DCF is the amount we receive as cash or paid-in-kind
distributions from MLPs or their affiliates, 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). 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
inception. 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
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 then 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 consist of MLP convertible subordinated
units, MLP common units and securities of private energy infrastructure
companies (i.e., non-MLPs). 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, all 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 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
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 Investment Company Act
of
1940, as amended (the “1940 Act”) (50% of total assets for preferred stock and
33⅓% of total assets for debt securities). 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. 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 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 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, recent 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 has seventeen
full-time
employees, but also relies on the officers, employees, and resources of
its
affiliate, Fountain Capital Management, L.L.C. ("Fountain Capital") and
its
affiliates for certain functions.
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 securities).
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. 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 contains 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 average net assets, and not as a percentage of gross assets
or
Managed Assets. By showing expenses as a percentage of average net assets,
expenses are not expressed as a percentage of all of the assets we invest.
The
table is based on our capital structure as of February 28, 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). Such senior securities
represent 32.7% of total assets as of February 28, 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 Plan Fees(2)
|
None
|
|
Percentage
of Net Assets
Attributable
to Common
Stockholders
|
||||
|
Annual
Expenses
|
||||
|
Management
Fee
|
1.62
|
% | ||
|
Leverage
Costs(3)
|
2.62
|
% | ||
|
Other
Expenses(4)
|
0.34
|
% | ||
|
Total
Annual Expenses(5)
|
4.58
|
%
|
||
|
Less
Fee and Expense Reimbursement (through
2/28/09)(6)
|
(0.17)
|
%
|
||
|
Net
Annual Expenses(5)
|
4.41
|
%
|
||
____________
|
(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 dividend reinvestment account.
See
“Automatic Dividend Reinvestment
Plan.”
|
|
(3)
|
Leverage
Costs in the table reflect the weighted average cost of MMP Shares
and
Tortoise Notes, expressed as a percentage of average net assets.
Because
Tortoise Notes and MMP Shares were fully hedged under swap agreements
as
of February 28, 2006, the Leverage Costs are based on the rates
payable under the swap agreements as of February 28, 2006. As
of that
date, the interest payable on Tortoise Notes exceeded the interest
payable
under the swap agreements. As of February 28, 2006, the interest
payable
under the swap agreements exceeded the dividends payable on MMP
Shares.
|
|
(4)
|
Other
Expenses are based on estimated amounts for the current fiscal
year and do
not include the expenses of leverage. Other Expenses do not include
income
tax expense (benefit) related to realized or unrealized investment
and
interest rate swap gains or
losses.
|
|
(5)
|
If
the Total Annual Expenses and Net Annual Expenses of the Company
were
expressed as a percentage of average Managed Assets (assuming
$235 million in leverage), Total Annual Expenses would be 2.68% and
the Net Annual Expenses would be
2.58%.
|
|
(6)
|
Beginning March
1, 2006, the Adviser has 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 average net assets as of February 28, 2006. The management
fee and reimbursement are expressed as a percentage of average
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.
|
The
purpose of the table above and the example below 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.”
Example:
The
following example illustrates the expenses that common stockholders would
pay on
a $1,000 investment in common stock, assuming (1) total annual expenses of
4.41% of average net assets attributable to common shares in years 1
through 3 and increasing to 4.58% in years 4 through 10; and
(2) a 5% annual return:(1)
|
1
Year
|
3
Years
|
5
Years
|
10
Years
|
||||||||||
|
Total
Expenses Paid by Common Stockholders (2)(3)
|
$
|
44
|
$
|
133
|
$ | 227 | $ | 465 | |||||
____________
|
(1)
|
This
example also assumes that (1) we have issued $235 million in
senior securities; (2) the estimated Other Expenses set forth in the
fee table are accurate; (3) all distributions are reinvested at NAV;
and (4) the cost of leverage is 2.62%. The cost of leverage is
expressed as a percentage and represents the weighted average
rates
payable under the swap agreements on Tortoise Notes and MMP Shares.
Without leverage, the 1 year, 3 years, 5 years and 10 years expenses
would
be $18, $56, $101, and $224, respectively. 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.
|
|
(2)
|
Assumes
reimbursement of expenses of 0.17% of average net assets in years
one
through three. The Adviser has not agreed to reimburse expenses
for any
year beyond 2009.
|
|
(3)
|
The
example above does not include sales loads or estimated offering
costs.
|
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.
Except when noted, 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 the statement of additional information and is
available from us.
|
Period
from December 1, 2005 through February 28,
2006
|
Year
Ended November
30, 2005
|
Period
from
February
27, 2004(1)
through
November
30, 2004
|
||||||||
|
(Unaudited)
|
||||||||||
|
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
and underwriting discounts and offering costs on secondary
offering(3)
|
—
|
—
|
—
|
|||||||
|
Income
(loss) from Investment Operations:
|
||||||||||
|
Net
investment loss(4)
|
(0.04
|
)
|
(0.16
|
)
|
(0.03
|
)
|
||||
|
Net
realized and unrealized gain on investments(4)
|
1.00
|
2.67
|
3.77
|
|||||||
|
Total
increase from investment operations
|
0.96
|
2.51
|
3.74
|
|||||||
|
Less
Dividends to Preferred Stockholders:
|
||||||||||
|
Net
investment income
|
—
|
—
|
—
|
|||||||
|
Return
of capital
|
(0.05
|
)
|
(0.11
|
)
|
(0.01
|
)
|
||||
|
Total
dividends to preferred stockholders
|
(0.05
|
)
|
(0.11
|
)
|
(0.01
|
)
|
||||
|
Less
Dividends to Common Stockholders:
|
||||||||||
|
Net
investment income
|
—
|
—
|
—
|
|||||||
|
Return
of capital
|
(0.48
|
)
|
(1.79
|
)
|
(0.97
|
)
|
||||
|
Total
dividends to common stockholders
|
(0.48
|
)
|
(1.79
|
)
|
(0.97
|
)
|
||||
|
Net
Asset Value, end of period
|
$
|
27.55
|
$
|
27.12
|
$
|
26.53
|
||||
|
Per
common share market value, end of period
|
$
|
29.42
|
$
|
28.72
|
$
|
27.06
|
||||
|
Total
Investment Return Based on Market Value(5)
|
4.22
|
%
|
13.06
|
%
|
12.51
|
%
|
||||
|
Supplemental
Data and Ratios
|
||||||||||
|
Net
assets applicable to common stockholders, end of period
(000’s)
|
$
|
410,642
|
404,274
|
336,553
|
||||||
|
Ratio
of expenses (including current and deferred income tax expense)
to average
net assets before waiver:(6)(7)(8)
|
12.97
|
%
|
9.10
|
%
|
15.20
|
%
|
||||
|
Ratio
of expenses (including current and deferred income tax expense)
to average
net assets after waiver:(6)(7)(8)
|
12.58
|
%
|
8.73
|
%
|
14.92
|
%
|
||||
|
Ratio
of expenses (excluding current and deferred income tax expense)
to average
net assets before waiver:(6)(7)(8)
|
3.96
|
%
|
3.15
|
%
|
2.01
|
%
|
||||
|
Ratio
of expenses (excluding current and deferred income tax expense)
to average
net assets after waiver:(6)(7)(8)
|
3.57
|
%
|
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:(6)(7)(8)
|
3.96
|
%
|
3.15
|
%
|
1.90
|
%
|
||||
|
Period
from December 1, 2005 through February 28,
2006
|
Year
Ended November
30, 2005
|
Period
from
February
27, 2004(1)
through
November
30, 2004
|
||||||||
|
(Unaudited)
|
||||||||||
|
Ratio
of expenses (excluding current and deferred income tax expense),
without
regard to non-recurring organizational expenses, to average
net assets
after waiver:(6)(7)(8)
|
3.57
|
% |
2.78
|
% |
1.62
|
%
|
||||
|
Ratio
of net investment loss to average net assets before waiver:(6)(7)(9)
|
(1.30
|
)%
|
(1.42
|
)%
|
(0.45
|
)%
|
||||
|
Ratio
of net investment loss to average net assets after waiver:(6)(7)(9)
|
(0.91
|
)%
|
(1.05
|
)%
|
(0.17
|
)%
|
||||
|
Ratio
of net investment loss to average net assets after current
and deferred
income tax expense, before waiver:(6)(8)
|
(10.31
|
)%
|
(7.37
|
)%
|
(13.37
|
)%
|
||||
|
Ratio
of net investment loss to average net assets after current
and deferred
income tax expense, after waiver:(6)(8)
|
(9.92
|
)%
|
(7.00
|
)%
|
(13.65
|
)%
|
||||
|
Portfolio
turnover rate
|
0.02
|
%
|
4.92
|
%
|
1.39
|
%
|
||||
|
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
|
$
|
11.07
|
$
|
11.07
|
$
|
8.67
|
||||
|
Per
common share amount of net assets, excluding auction rate senior
notes, at
end of period
|
$
|
38.62
|
$
|
38.19
|
$
|
35.21
|
||||
|
Asset
coverage, per $1,000 of principal amount of auction rate senior
notes
|
||||||||||
|
Series
A
|
$
|
3,913
|
$
|
3,874
|
$
|
4,378
|
||||
|
Series
B
|
$
|
3,913
|
$
|
3,874
|
$
|
4,378
|
||||
|
Series
C
|
$
|
3,913
|
$
|
3,874
|
$
|
—
|
||||
|
Asset
coverage, per $25,000 liquidation value per share of preferred
shares
|
$
|
171,658
|
$
|
169,383
|
$
|
265,395
|
||||
|
Asset
coverage ratio of auction rate senior notes(10)
|
391
|
%
|
387
|
%
|
438
|
%
|
||||
|
Asset
coverage ratio of MMP shares(11)
|
275
|
%
|
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 ending November
30,
2005.
|
|
(4)
|
The
per common share data for the period ended November 30, 2004,
do not
reflect the change in estimate of investment income and return
of capital.
See note 2 of the Accompanying Notes to the Financial
Statements.
|
|
(5)
|
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.
|
|
(6)
|
Annualized
for periods less than one full
year.
|
|
(7)
|
The
expense ratios and net investment ratios do not reflect the
effect of
dividend payments to preferred
stockholders.
|
|
(8)
|
The
Company accrued $24,659,420 and $30,330,018 for the year
ended November
30, 2005 and for the period from February 27, 2004 through
November 30,
2004, respectively, in current and deferred income
taxes.
|
|
(9)
|
The
ratio excludes net deferred income tax benefit on net investment
income.
|
|
(10)
|
Represents
value of total assets less all liabilities and indebtedness
not
represented by auction rate senior notes and MMP shares at
the end of the
period divided by auction rate senior notes outstanding at
the end of the
period.
|
|
(11)
|
Represents
value of total assets less all liabilities and indebtedness
not
represented by auction rate senior notes and MMP shares at
the end of the
period, divided by the sum of auction rate senior notes and
MMP shares
outstanding at the end of the
period.
|
See
Accompanying Notes to the Financial Statements.
The
following table sets forth information about our outstanding senior securities
as of February 28, 2006:
|
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)
|
|
Tortoise
Notes:
|
||||
|
Series
A
|
$
60,000,000
|
$3,913
|
$25,000
|
|
|
Series
B
|
$
50,000,000
|
$3,913
|
$25,000
|
|
|
Series
C
|
$
55,000,000
|
$3,913
|
$25,000
|
|
|
$165,000,000
|
||||
|
MMP
Shares
|
||||
|
Series
I (1,400 shares)
|
$
35,000,000
|
$171,658
|
$25,000
|
|
|
Series
II (1,400 shares)
|
$
35,000,000
|
$171,658
|
$25,000
|
|
|
$
70,000,000
|
||||
|
$235,000,000
|
____________
|
(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.
|
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. 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 | % | |||||||||
| February 28, 2006 | 29.48 | 28.35 | 28.17 | 4.7 | % | 0.6 | % | |||||||||
| March 31, 2005 | 29.58 | 27.91 | 27.55 | 7.4 | % | 1.3 | % | |||||||||
____________
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 premium/discount to
NAV per
share of our common stock on ________________, 2006 were $__________,
$___________ and ______%, respectively. As of March 31, 2006, we had
14,944,103 shares of our common stock outstanding and net assets of
$420,199,996.
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. 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
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. 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 an additional offering of common stock in December
2004. As of March 31, 2006, we had net assets of $420,199,996 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
March 31, 2006:
|
Title
of Class
|
Amount
Authorized
|
|
|
Amount
Held
by the
Company
or for
its
Account
|
|
|
Amount
Outstanding
|
|||
|
Common
Stock
|
100,000,000
|
0
|
14,944,103
|
|
||||||
|
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 MLPs 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 MLP convertible subordinated
units, unregistered MLP common units and securities of private companies
(i.e., non-MLPs). 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, all 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 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 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 Securities Act of 1933,
as
amended (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 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. From the commencement of operations
through November 30, 2004, our actual portfolio turnover rate was 1.39%.
For the
year ended November 30, 2005, our portfolio turnover rate was 4.92%. 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. In December 2005, the Adviser
began managing the investments of Tortoise Capital Resources Corporation
(“TTO”). TTO is a private investment fund created to invest primarily in
privately held and micro-cap public companies in the U.S. energy infrastructure
sector. 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. Until 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
securities). We generally will not use leverage unless we believe that leverage
will serve the best interests of our stockholders. The principal, although
not
exclusive, factor used in making this determination is whether the potential
return is likely to exceed the cost of leverage. Our Board also will consider
other factors, including whether the current investment opportunities will
help
us achieve our investment objective and strategies. 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. 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
February 28, 2006, we had 2,800 MMP Shares outstanding with an aggregate
liquidation preference of $70,000,000. The dividend rate payable by us
on each
series of MMP Shares outstanding varies based on auctions normally held
every
twenty-eight (28) days. As of March 31, 2006, a dividend rate of 4.87%
and 4.87% was in effect for Series I and Series II MMP Shares, respectively.
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
March 31, 2006, we are obligated to pay a rate of 5.45% and 5.46%, 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
February 28, 2006, we had three series (Series
A, Series B, and Series
C)
of Tortoise Notes outstanding in an aggregate principal amount of $165,000,000.
The interest rate payable by us on each series of Tortoise Notes outstanding
varies based on auctions normally held every twenty-eight (28) days for
Series A and B and every seven (7) days for Series C. As of
March 31, 2006, the current interest rate payable on the Series A,
Series B and Series C Tortoise Notes was 4.65%, 4.80% and 4.66%,
respectively. 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 March 31, 2006, we are obligated to pay a rate of 3.79%,
3.81%
and 4.79% 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 our leverage costs remain as described above (an average annual
cost of
4.57%, based on the amount of leverage currently outstanding), the annual
return that our portfolio must experience (net of expenses) in order
to cover
leverage costs would be 2.53%.
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
|
-21.8
|
%
|
-13.1
|
%
|
-4.3
|
%
|
4.4 |
%
|
13.1 | % |
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.
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 securities).
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.
|
| · |
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.
|
| · |
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, recent 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 47 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 in May 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 manages the investments of TTO. TTO is a private corporation which
invests
primarily in privately held and micro-cap public companies in the U.S.
energy
infrastructure sector. 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 March 31, 2006, the Adviser had client assets under
management of approximately $1.7
billion,
including our assets and those of TYY, TYN and
TTO. The Adviser has 17 full time employees, but also relies on the officers,
employees, and resources of Fountain Capital and its affiliates for certain
functions. 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 each have other significant responsibilities
with such affiliated entities. Fountain Capital and its affiliates conduct
businesses and activities of their 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. 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 March 31, 2006, the Adviser had approximately $1.7 billion
of
client assets under management. The Adviser’s investment committee is comprised
of five seasoned portfolio managers.
The
Adviser is controlled equally by Fountain Capital and KCEP. 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.
KCEP was formed in 1993 and is focused solely on managing two private equity
funds. The first of those funds, a start-up and early-stage venture capital
fund
launched in 1994, is in the process of winding down. As a part of that process,
this fund has entered into a consensual order of receivership, which was
necessary to allow it to distribute its remaining $1.6 million of assets to
the
Small Business Administration (the “SBA”). The consensual order acknowledged a
capital impairment condition and the resulting nonperformance by this fund
of
its agreement with the SBA. Mr. Schulte is a managing director of KCEP and
was involved with this fund. The second fund is
an
$85
million private equity fund founded in 1998. KCEP focuses on private equity
investments, including investments in two natural resource infrastructure
companies.
The
Adviser has seventeen
full-time employees, but also relies on the officers, employees and resources
of
its affiliate, Fountain Capital and its affiliates for certain functions.
Three
of the five members of the investment committee of the Adviser are affiliates
of, but not employees of, the Adviser, and each have other significant
responsibilities with such affiliated entities. The affiliated entities
conduct
businesses and activities of their 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 David J. Schulte, H. Kevin Birzer, Zachary A. Hamel, Kenneth P.
Malvey, and Terry C. Matlack, 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/Senior Analyst 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/Senior Analyst 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/Senior Analyst 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
renewal of the advisory agreement was last approved on December 9, 2005. A
discussion regarding the basis of the Board of Directors’ decision to approve
the renewal of the advisory agreement will be available in our
Semi-Annual Report to stockholders for the six-month period ended May 31,
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 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 recent
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 2008. 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 taxed upon the amount of distributions as if such
amount had been received by the participating stockholder and the participating
stockholder then reinvested such amount in additional common
stock.
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 2008. For corporate
holders, capital gain is generally taxed at the same rate asordinary 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 are required to 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 2008) 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 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. 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.
We
compute the NAV of our common stock as of the close of trading of 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 NAV available for publication monthly, for purposes of determining
the NAV of a share of our common stock. The NAV per share of common stock equals
our NAV divided by the number of outstanding shares of common stock. Our NAV
equals the value of our total assets (the value of the securities held plus
cash
or other assets, including interest accrued but not yet received) less
(i) all of our liabilities (including accrued expenses and both current and
deferred income taxes), (ii) accumulated and unpaid dividends on any
outstanding preferred stock, (iii) the aggregate liquidation preference of
any outstanding preferred stock, (iv) accrued and unpaid interest payments
on any outstanding indebtedness, (v) the aggregate principal amount of any
outstanding indebtedness, and (vi) any distributions payable on our common
stock.
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 updated sale price
or
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 at the next regularly scheduled
Board meeting.
General
Our
Automatic Dividend Reinvestment 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. 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
issued under the Plan will be purchased on the open market. 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 (2) 95% of the market price per common share on
the payment date. Common stock issued under the Plan
when shares are trading at a discount to NAV will be purchased in the market
at
a market price. 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 Investors Services, LLC
(“Computershare”), 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 Computershare,
as
dividend paying agent. Such stockholders may elect not to participate in
the
Plan and to receive all distributions in cash by sending written instructions
to
Computershare, 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
equivalent amount 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 has until the last business day before the
next date on which the shares trade on an “ex-dividend” basis or in no event
more than 90 days after the payment date (“last purchase date”) to invest the
distribution amount in shares acquired in open-market purchases. We expect
to
declare and pay quarterly distributions. Therefore, the period during which
open-market purchases can be made will exist only from the payment date
on the
distribution through the date before the next ex-dividend date. 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. If, before the Plan Agent has completed
its
open-market purchases, the market price of a share of common stock plus
estimated brokerage commissions exceeds the NAV per share as of the payment
date, the average per share purchase price paid by the Plan Agent may exceed
the
NAV of our shares, resulting in the
acquisition
of fewer shares than if the distribution had been paid in Additional
Common
Stock on the payment date. Because of the foregoing difficulty with respect
to
open-market purchases, the Plan provides that if the Plan Agent is unable
to
invest the full distribution amount in open-market purchases during the
purchase
period or if the market discount shifts to a market premium during the
purchase
period, the Plan Agent may cease making open-market purchases and may
invest the uninvested portion of the distribution amount in Additional
Common
Stock at the NAV per common share at the close of business on the last
purchase
date.
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 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 tax consequences of the Plan.
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 the brokerage commissions incurred 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, except when
necessary
or appropriate to comply with applicable law or the rules or policies of
the SEC
or any other regulatory authority, only by mailing to each participant
appropriate written notice at least 30 days prior to the effective date
thereof.
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
at Two
North LaSalle Street, Chicago, Illinois 60602.
Cash
Purchase Option
In
the
future, we may amend the Plan to implement a cash purchase option, whereby
participants in the Plan may elect to purchase additional shares of common
stock
through optional cash investments in limited amounts on a monthly or other
periodic basis. If and when we implement the cash purchase option under
the
Plan, common stockholders will receive notice and further details on the
cash
purchase option 60 days prior to its implementation.
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. Additionally, the Charter authorizes the Board of Directors,
without any action by the 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 their affiliates, 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 and MMP Shares). 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
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 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. 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.
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 Plan
Agent.
Computershare Investor Services, LLC, 2 North LaSalle Street, Chicago,
Illinois,
serves as the transfer agent and agent for the Automatic Dividend Reinvestment
Plan for our common stock. Computershare
Trust
Company, Inc., 2 North LaSalle Street, Chicago, Illinois serves as 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, 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:
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·
|
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
Agencies’
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 Agencies’
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.
We
may
sell up to $125,000,000 in aggregate initial offering price of our
common stock,
preferred stock and debt securities from time to time under this prospectus
and
any related prospectus supplement (1) directly to one or more purchaser;
(2) through agents; (3) through underwriters; (4) through
dealers; or (5) pursuant to our Dividend Reinvestment Plan. Each prospectus
supplement relating to an offering of securities will state the terms
of the
offering, including:
| · |
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;
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 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 may use electronic
media, including the Internet, to sell offered securities directly. We will
describe the terms of any of those sales in a prospectus
supplement.
By
Agents
We
may
offer our common stock, preferred stock and debt securities through agents
that
we designate. We will name any agent involved in the offer and sale and describe
any commissions payable by us 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 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 to underwriters,
we
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 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 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. We will set
forth the names of the dealers and the terms of the transaction 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 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.
|
| · |
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 Plan
We
may
issue and sell shares of common stock pursuant to our Automatic Dividend
Reinvestment 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., 425 Walnut Street, Cincinnati, Ohio, 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 Managed Assets and 0.01% on the balance of our Managed 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, that counsel will be named in the prospectus
supplement related to that offering.
A
patent
application has been filed with the United States Patent and Trademark
Office
describing the Adviser’s systems and methods for managing a portfolio of MLPs.
There is no assurance that the patent will ultimately be granted. The
scope of
the patent, if granted, is not known at this time and will not necessarily
preclude other firms from developing and operating a portfolio of
MLPs.
We
are
subject to the informational requirements of the Exchange Act and the
1940 Act
and are required to file reports, proxy statements and other information
with
the SEC. These documents are available on the SEC's EDGAR system and
can be
inspected and copied for a fee at the Commission’s public reference room, 100 F
Street, N.E., Room 1580, Washington, D.C. 20549. Reports, proxy statements,
and
other information about us can be inspected at the offices of the
SEC.
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.
62
|
Investment
Limitations
|
S-1
|
|
Investment
Objective and Principal Investment Strategies
|
S-3
|
|
Management
of the Company
|
S-15
|
|
Net
Asset Value
|
S-25
|
|
Portfolio
Transactions
|
S-26
|
|
Certain
Federal Income Tax Matters
|
S-28
|
|
Proxy
Voting Policies
|
S-35
|
|
Independent
Registered Public Accounting Firm
|
S-36
|
|
Internal
Accountant
|
S-36
|
|
Additional
Information
|
S-36
|
|
Audited
Financial Statements as of November 30, 2005
|
F-1
|
|
Unaudited
Financial Statements as of February 28, 2006
|
F-17
|
|
Appendix
A - Summary of Certain Provisions of the Indenture and Supplemental
Indenture
|
A-1
|
|
Appendix
B - Form of Articles Supplementary
|
B-1
|
|
Appendix
C - Rating of Investments
|
C-1
|
$125,000,000
Common
Stock
Preferred
Stock
Debt
Securities
Tortoise
Energy Infrastructure Corporation
________________
PROSPECTUS
________________
,
2006
The
information in this prospectus supplement 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 supplement
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 MAY 8, 2006
FORM
OF
PROSPECTUS SUPPLEMENT
(To
Prospectus Dated _________, 2006)
$_________
Tortoise
Energy Infrastructure Corporation
Auction
Rate Senior Notes (“Tortoise Notes”)
$_________
Series __, due ______, 20__
$25,000
Denominations
_______________
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 to stockholders.
We
are
offering an aggregate principal amount of $_________ Series __ Tortoise Notes
in
this Prospectus Supplement. This Prospectus Supplement does not constitute
a
complete prospectus, but 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 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.
Tortoise
Notes will not be listed on any exchange or automated quotation system.
Generally, investors 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 investors with liquidity. See “The Auction—Secondary Market Trading and
Risk.”
(continued
on next page)
_______________
Investing
in Tortoise Notes involves certain risks. See “Risk Factors” beginning on
page 26 of the Prospectus and “The Auction—Auction
Risk” beginning on page 11 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
$25,000 Principal Amount of Tortoise
Notes
|
Total
|
|||
|
Public
offering price
|
$
|
25,000
|
$
|
||||
|
Sales
load
|
$
|
$
|
|||||
|
Proceeds
to the Company (before expenses)
(1)
|
$
|
$
|
____________
|
(1)
|
Does
not include offering expenses payable by the Company, 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)]
|
|
________,
20__
|
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 (888) 728-8784 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,
and
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.
_______________
Page
|
1
|
|
|
1
|
|
|
2
|
|
|
10
|
|
|
14
|
|
|
15
|
_______________
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.
The
following table sets forth our capitalization as of _______, 20__, 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)
|
||||||
|
Long-Term
Debt:
|
|||||||
|
Tortoise
Notes, denominations of $25,000 or any multiple thereof1
|
$
|
165,000,000
|
$
|
||||
|
Preferred
Stock:
|
|||||||
|
MMP
Shares, $25,000 stated value per share at liquidation; 10,000,000
shares
authorized/2,800 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 the Ratings Agencies 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 with the Rating Agencies 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
_______, 20__, assuming the issuance of all Series __ Tortoise Notes offered
hereby, the 1940 Act 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 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 Supplement Indenture dated as of ________, 20__ (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 Prospectus under “—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, so long as we are current in the payment of interest
on the Tortoise Notes and on any of our other notes ranking on a parity with
the
Tortoise Notes with respect to the payment of interest.
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 the securities ledger
or
securities records of the Company, 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 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 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 shall deliver
to
the Trustee and the Auction Agent, who will promptly deliver to the
Broker-Dealers and Existing Holders, either:
(i) 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
(ii) 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 (ii) 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 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 the 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.
The
principal amount of Tortoise Notes to be redeemed in such 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 and that
the
foregoing shall not prevent the purchase or acquisition of 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 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.
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.
General
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.
Broker-Dealer
Agreements.
Each
Auction requires the participation of one or more Broker-Dealers. The agreements
between the Auction Agent and the broker-dealers selected by us (collectively,
the “Broker-Dealer Agreements”) provide for the participation of those
Broker-Dealers in Auctions for the Series __ Tortoise Notes.
After
each Auction for Tortoise Notes the Auction Agent will pay to each
Broker-Dealer, from funds provided by us, a service charge at the annual
rate of
¼ of 1% in the case of any Auction immediately preceding a Rate Period of less
than one year, or a percentage agreed to by us and the Broker-Dealers in
the
case of any Auction immediately preceding a Rate Period of one year or longer,
of the purchase price of Tortoise Notes placed by such Broker-Dealer at such
Auction. For the purposes of the preceding sentence, Tortoise Notes will
be
placed by a Broker-Dealer if such Tortoise Notes were (a) the subject of
Hold Orders deemed to have been submitted to the Auction Agent by the
Broker-Dealer
and
were
acquired by such Broker-Dealer for its own account or were acquired by such
Broker-Dealer for its customers who are Beneficial Owners or (b) the
subject of an Order submitted by such Broker-Dealer that is (1) a Submitted
Bid of an Existing Holder that resulted in such Existing Holder continuing
to
hold such Tortoise Notes as a result of the Auction or (2) a Submitted Bid
of a Potential Holder that resulted in such Potential Holder purchasing such
Tortoise Notes as a result of the Auction or (3) a valid Hold
Order.
We
may
request the Auction Agent to terminate one or more Broker-Dealer Agreements
at
any time, provided that at least one Broker-Dealer Agreement is in effect
after
such termination.
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. 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. If Broker-Dealers submit or are deemed to have submitted to the Auction
Agent Hold Orders with respect to all Existing Holders of a series of Tortoise
Notes, the Applicable Rate for all Tortoise Notes of such series for the
next
succeeding Rate Period will be the All Hold Rate.
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.
Broker-Dealers
The
Broker-Dealer Agreements each provide that a Broker-Dealer may submit Orders
in
Auctions for its own account unless we notify all Broker-Dealers that they
may
not submit orders for their own account. Any Broker-Dealer submitting an
Order
for its own account in any Auction could have an advantage over other Potential
Holders in that it would have knowledge of other Orders placed through it
in
that Auction. A Broker Dealer would not, however, have knowledge of Orders
submitted by other Broker-Dealers, if any. As a result of bidding by a
Broker-Dealer in an Auction, the Auction Rate may be higher or lower than
the
rate that would have prevailed had the Broker-Dealer not bid. A Broker-Dealer
may also bid in an Auction in order to prevent what would otherwise be
(a) a failed Auction, (b) an “all-hold” Auction, or (c) the
implementation of an Interest Rate that the Broker-Dealer believes, in its
sole
judgment, does not reflect the market for such securities at the time of
the
Auction. A Broker-Dealer may also encourage additional or revised investor
bidding in order to prevent an “all-hold” Auction. In the Broker-Dealer
agreements, each Broker-Dealer agrees to handle customers’ orders in accordance
with its duties under applicable securities laws and rules.
Secondary
Market Trading and Risk
The
Broker-Dealers may maintain a secondary trading market of Tortoise Notes
outside
of Auctions, but are not obligated to do so, and may discontinue such activity
at any time. There can be no assurance that a secondary trading market of
Tortoise Notes will provide owners with liquidity of investment. If you try
to
sell your Tortoise Notes between Auctions, you may not be able to sell any
or
all of your Tortoise Notes, or you may not be able to sell them in the $25,000
increments in which they were purchased plus accrued and unpaid interest.
Tortoise Notes are not listed on any exchange or automated quotation system.
Investors who purchase Tortoise Notes in an Auction for a Special Rate Period
should note that because the interest rate on such Tortoise Notes will be
fixed
for the length of such Rate Period, the value of the Tortoise Notes may
fluctuate in response to changes in interest rates, and may be more or less
than
their original cost if sold on the open market in advance of the next Auction,
depending upon market conditions.
We
are
not required to redeem Tortoise Notes if an Auction or an attempted secondary
market sale fails. Tortoise Notes are not listed on an exchange or automated
quotation system. If you sell your Tortoise Notes to a broker-dealer between
Auctions, you may receive less than the price you paid for them, especially
when
market interest rates have risen since the last Auction.
A
Beneficial Owner or an Existing Holder may sell, transfer or otherwise dispose
of an aggregate principal amount of Tortoise Notes only in $25,000 increments
and only as follows:
|
(1)
|
pursuant
to a Bid or Sell Order placed with the Auction Agent in accordance
with
the Auction Procedures,
|
|
(2)
|
to
or through a Broker-Dealer, or
|
|
(3)
|
to
us or any affiliate of ours; provided, however, that (a) a sale,
transfer or other disposition of an aggregate principal amount
of Tortoise
Notes from a customer of a Broker-Dealer who is listed on the records
of
that Broker-Dealer as the holder of such Tortoise Notes to that
Broker-Dealer or another customer of that Broker-Dealer shall not
be
deemed to be a sale, transfer or other disposition for purposes
of the
foregoing if such Broker-Dealer remains the Existing Holder of
the
Tortoise Notes so sold, transferred or disposed of immediately
after such
sale, transfer or disposition and (b) in the case of all transfers
other than pursuant to Auctions, the Broker-Dealer (or other person,
if
permitted by us) to whom such transfer is made shall advise the
Auction
Agent of such transfer.
|
[TO
BE PROVIDED BY UNDERWRITERS AT TIME OF OFFERING]
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$_________
Tortoise
Energy
Infrastructure
Corporation
Auction
Rate Senior Notes (“Tortoise Notes”)
$_________
Series __, Due ________, 20__
____________________
PROSPECTUS
SUPPLEMENT
________,
20__
____________________
|
[Underwriters]
|
The
information in this prospectus supplement 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 supplement
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 MAY 8, 2006
FORM
OF
PROSPECTUS SUPPLEMENT
(To
Prospectus Dated ________, 2006)
$__________
Tortoise
Energy Infrastructure Corporation
_______
Series __ Money Market Cumulative Preferred (MMP®)
Shares
Liquidation
Preference $25,000 per share
_______________
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 to stockholders.
We
are
offering an additional series (“Series __”) of auction rate preferred stock
(referred to as “Money Market Cumulative Preferred Shares” or “MMP Shares”) in
this Prospectus Supplement. This Prospectus Supplement does not constitute
a
complete prospectus, but 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, investors 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--Secondary Market Trading and Risk.”
(continued
on next page)
_______________
Investing
in MMP Shares involves certain risks. See “Risk Factors” beginning on
page 26 of the Prospectus and “The Auction--Auction Risk” beginning on
page 10 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
|
$
|
25,000
|
$
|
||||
|
Sales
load
|
$
|
$
|
|||||
|
Proceeds
to the Company (before expenses)(1)
|
$
|
$
|
|||||
____________
|
(1)
|
Does
not include offering expenses payable by the Company 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 (888) 728-8784 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
|
1
|
|
|
1
|
|
|
2
|
|
|
9
|
|
|
13
|
|
|
14
|
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.
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)
|
|||||||
|
Long-Term
Debt:
|
|||||||
|
Tortoise
Notes, denominations of $25,000 or any multiple thereof1
|
$
|
$
|
|||||
|
Preferred
Stock Outstanding:
|
|||||||
|
MMP
Shares, $.001 par value per share, $25,000 stated value per share
at
liquidation; 10,000,000 shares authorized; 2,800 shares issued
and _____
shares issued, as adjusted, respectively1
|
$
|
70,000,000
|
$
|
||||
|
Common
Stockholders’ Equity:
|
|||||||
|
Common
Stock, $.001 par value per share; 100,000,000 shares authorized;
__________ shares issued and outstanding1
|
$
|
$
|
|||||
|
Additional
paid-in capital
|
$
|
2
|
$
|
3
|
|||
|
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
|
Reflects
return of capital distributions to common stockholders and dividends
to
preferred stockholders in the aggregate of approximately $__
million.
|
|
3
|
As
adjusted, additional paid-in capital reflects the proceeds of all
issuances of the common stock ($___________) less $0.001 par value
per
share of common stock ($_______) and the offering costs related
to the
issuance of common stock in the amount of $______ per share of
common
stock ($_______), less return of capital distributions to common
stockholders and dividends to preferred stockholders in the aggregate
of
approximately $___ million, less the offering costs related to
the prior
issuances of preferred stock and less the estimated offering costs
related
to preferred stock for this offering in the amount of
$________.
|
The
1940
Act and the Ratings Agencies 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 with the Rating Agencies 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 Prospectus for a more detailed description of our asset
maintenance requirements.
The
following is a brief description of the terms of 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 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 the 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).
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
shall 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
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 the 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 Prospectus.
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 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 and that the foregoing shall not prevent the purchase or acquisition
of
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.
General
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.
Broker-Dealer
Agreements.
Each
Auction requires the participation of one or more Broker-Dealers. The agreements
between the Auction Agent and the broker-dealers selected by us (collectively,
the “Broker-Dealer Agreements”), provide for the participation of those
Broker-Dealers in Auctions for the Series __ MMP Shares.
After
each Auction for MMP Shares, the Auction Agent will pay to each Broker-Dealer,
from funds provided by us, a service charge at the annual rate of ¼ of 1% in the
case of any Auction immediately preceding a Dividend Period of less than
one
year, or a percentage agreed to by us and the Broker-Dealers in the case
of any
Auction immediately preceding a Dividend Period of one year or longer, of
the
purchase price of MMP Shares placed by such Broker-Dealer at such Auction.
For
the purposes of the preceding sentence, MMP Shares will be placed by a
Broker-Dealer if such shares were (a) the subject of Hold Orders deemed to
have been submitted to the Auction Agent by the Broker-Dealer and were acquired
by such Broker-Dealer for its own account or were acquired by such Broker-Dealer
for its customers who are Beneficial Owners or (b) the subject of an Order
submitted by such Broker-Dealer that is (1) a Submitted Bid of an Existing
Holder that resulted in such Existing Holder continuing to hold such shares
as a
result of the Auction or (2) a Submitted Bid of a Potential Holder that
resulted in such Potential Holder purchasing such shares as a result of the
Auction or (3) a valid Hold Order.
We
may
request the Auction Agent to terminate one or more Broker-Dealer Agreements
at
any time, provided that at least one Broker-Dealer Agreement is in effect
after
such termination.
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.
|
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 $25,000 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. 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. If Broker-Dealers submit
or
are deemed to have submitted to the Auction Agent Hold Orders with respect
to
all Existing Holders of MMP Shares, the Applicable Rate for shares for the
next
succeeding Dividend Period thereof will be the All Hold Rate.
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.
Broker-Dealers
The
Broker-Dealer agreements each provide that a Broker-Dealer may submit Orders
in
Auctions for its own account unless we notify all Broker-Dealers that they
may
not submit Orders for their own account. Any Broker-Dealer submitting an
Order
for its own account in any Auction could have an advantage over other Potential
Holders in that it would have knowledge of other Orders placed through it
in
that Auction. A Broker Dealer would not, however, have knowledge of Orders
submitted by other Broker-Dealers, if any. As a result of bidding by a
Broker-Dealer in an Auction, the Auction Rate may be higher or lower than
the
rate that would have prevailed had the Broker-Dealer not bid. A Broker-Dealer
may also bid in an Auction in order to prevent what would otherwise be
(a) a failed Auction, (b) an “all-hold” Auction, or (c) the
implementation of an Interest Rate that the Broker-Dealer believes, in its
sole
judgment, does not reflect the market for such securities at the time of
the
Auction. A Broker-Dealer may also encourage additional or revised investor
bidding in order to prevent an “all-hold” Auction. In the Broker-Dealer
agreements, each Broker-Dealer agrees to handle customers’ orders in accordance
with its duties under applicable securities laws and rules.
Secondary
Market Trading and Transfer of MMP Shares
The
Broker-Dealers may maintain a secondary trading market of MMP Shares outside
of
Auctions, but are not obligated to do so, and may discontinue such activity
at
any time. We have made no arrangements for the establishment of a secondary
market. There can be no assurance that such secondary trading market of MMP
Shares, if any is established, will provide owners with liquidity. If you
try to
sell your MMP Shares between Auctions, you may not be able to sell any or
all of
your MMP Shares, or you may not be able to sell them for the liquidation
preference plus accumulated dividends. MMP Shares are not listed on any exchange
or automated quotation system. Investors who purchase shares in an Auction
for a
Special Dividend Period should note that because the dividend rate on such
shares will be fixed for the length of such Dividend Period, the value of
the
shares may fluctuate in response to changes in interest rates, and may be
more
or less than their original cost if sold on the open market in advance of
the
next Auction therefor, depending upon market conditions.
We
are
not required to redeem shares if an Auction or an attempted secondary market
sale fails. MMP Shares are not registered on a stock exchange or the automated
quotation system. If you sell your MMP Shares to a broker-dealer between
Auctions, you may receive less than the price you paid for them, especially
when
market interest rates have risen since the last Auction.
A
Beneficial Owner or an Existing Holder may sell, transfer or otherwise dispose
of MMP Shares only in whole shares and only as follows:
|
(1)
|
pursuant
to a Bid or Sell Order placed with the Auction Agent in accordance
with
the Auction Procedures,
|
|
(2)
|
to
a Broker-Dealer, or
|
|
(3)
|
to
us or any affiliate of ours; provided, however, that (a) a sale,
transfer or other disposition of MMP Shares from a customer of
a
Broker-Dealer who is listed on the records of that Broker-Dealer
as the
holder of such shares 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 the foregoing if such Broker-Dealer
remains
the Existing Holder of the shares so sold, transferred or disposed
of
immediately after such sale, transfer or disposition and (b) in the
case of all transfers other than pursuant to Auctions, the Broker-Dealer
(or other person, if permitted by us) to whom such transfer is
made shall
advise the Auction Agent of such
transfer.
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[TO
BE ADDED BY UNDERWRITERS AT TIME OF OFFERING]
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$__________
Tortoise
Energy Infrastructure Corporation
_____
Series __ Money Market Cumulative Preferred Shares
____________________
PROSPECTUS
SUPPLEMENT
______________,
20__
____________________
[Underwriters]
SUBJECT
TO COMPLETION, DATED MAY 8, 2006
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
________________,
2006
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, from time to
time,
of up to $125,000,000 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 ______, 2006 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
(888) 728-8784. 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
_______________, 2006.
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| Unaudited Financial Statements as of February 28, 2006 | F-17 |
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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 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 direct placements
that we may purchase include MLP convertible subordinated units,
MLP
common units and securities of private energy infrastructure companies
(i.e., non-MLPs). Investments in private companies that do not have
any
publicly traded shares or units are limited to 5% of our 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 risk. 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 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, 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 MLPs 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 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;
|
|
·
|
adverse
company specific events are more likely to render the issuer unable
to
make interest and/or principal payments;
and
|
|
·
|
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 A 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 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 Director2
|
Other
Public Company Directorships Held by Director
|
|
Independent
Directors
|
||||
|
Conrad
S. Ciccotello, 45
|
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.
|
3
|
None
|
|
John
R. Graham, 60
|
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).
|
3
|
Erie
Indemnity Company; Erie Family Life Insurance Company; Kansas State
Bank
|
|
Charles
E. Heath, 63
|
Director
since 2003
|
Retired
in 1999. Formerly, Chief Investment Officer, GE Capital’s Employers
Reinsurance Corporation (1989-1999). Chartered Financial Analyst
(“CFA”)
since 1974.
|
3
|
None
|
|
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 Director2
|
Other
Public Company Directorships Held by
Director
|
|
Interested
Directors and Officers1
|
||||
|
H.
Kevin Birzer, 46
|
Director
and
Chairman
of the
Board
since 2003
|
Managing
Director of the Adviser since 2002; Partner/Senior Analyst, 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).
|
3
|
None
|
|
Terry
C. Matlack, 50
|
Director
and Chief Financial Officer since 2003, Chief Compliance Officer
since
2004; 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).
|
3
|
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.
|
None
|
||
|
Zachary
A. Hamel, 40
|
Secretary
since 2003
|
Managing
Director of the Adviser since 2002; Partner/Senior Analyst with
Fountain
Capital (1997-present).
|
None
|
||
|
Kenneth
P. Malvey, 41
|
Treasurer
since November 2005; Assistant Treasurer from 2003 to November
2005
|
Managing
Director of the Adviser since 2002; Partner/Senior Analyst, 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).
|
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”) and
Tortoise Energy Capital Corporation (“TYY”) but excludes Tortoise Capital
Resources Corporation (“TTO”). The Adviser also serves as investment
adviser to TYN, TYY and TTO.
|
Tortoise
Capital Resources Corporation (“TTO”), a private investment fund, commenced
operations in December 2005. TTO invests in privately held and micro-cap
public companies in the U.S. energy infrastructure sector. The following
individuals who are included in the table above hold the following positions
with 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,
2005.
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 0 meetings
in the
fiscal year ended November 30, 2005.
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).
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, 2005.
|
Name
and Position With the Company
|
Aggregate
Compensation From the Company
|
Aggregate
Compensation From the Company and Fund Complex Paid to Directors
(3
Companies)
|
|||||
|
Independent
Directors
|
|||||||
|
Conrad
S. Ciccotello
|
$
|
35,500 |
$
|
69,000
|
|||
|
John
R. Graham
|
$
|
32,500 |
$
|
59,333
|
|||
|
Charles
E. Heath
|
$
|
38,500 |
$
|
65,333
|
|||
|
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 March 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
(3
Companies)
|
|||||
|
Independent
Directors
|
|||||||
|
Conrad
S. Ciccotello
|
$50,001-$100,000
|
$50,001-$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 March 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
April 30, 2006,
the following persons owned of record or beneficially more than 5% of our
common
shares:
|
Stifel,
Nicolaus & Company Inc.
501
North Broadway
St.
Louis, MO 63102
|
11.45%
|
|
Merrill
Lynch Safekeeping
4
Corporate Place
Piscataway,
NJ 08854
|
8.97% |
|
RBC
Dain Rauscher Inc.
1221
Avenue of the Americas
New
York, NY 10036
|
8.39%
|
|
Charles
Schwab & Co., Inc.
101
Montgomery St.
San
Francisco, CA 94104
|
7.14% |
|
Davenport
& Company LLC
One
James Center
901
East Cary Street
Richmond,
VA 23219
|
5.78%
|
| Lehman
Brothers Inc.
745
Seventh Avenue
New
York, NY 10019
|
5.79%
|
|
Oppenheimer &
Co. Inc.
125
Broad Street
New
York, NY 10004
|
5.28%
|
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 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 is focused solely on managing two private equity funds.
The
first of those funds, a start-up and early-stage venture capital fund launched
in 1994, is in the process of winding down. As a part of that process, this
fund
has entered into a consensual order of receivership, which was necessary to
allow it to distribute its remaining $1.6 million of assets to the Small
Business Administration (the “SBA”). The consensual order acknowledged a capital
impairment condition and the resulting nonperformance by this fund of its
agreement with the SBA. Mr. Schulte is a managing director of KCEP and was
involved with this fund. The second fund is an $85 million private equity fund
founded in 1998. KCEP focuses on private equity investments, including
investments in two natural resource infrastructure companies.
The
Adviser is located at 10801 Mastin Boulevard, Suite 222, Overland Park, Kansas
66210. The Adviser specializes in managing portfolios of MLPs and other energy
infrastructure companies. As of March 31, 2006, the Adviser had approximately
$1.7 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 each
have
significant responsibilities with KCEP or 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 March 31, 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
8
213
|
$
$
$
|
738,889,785
308,882,926
2,178,416,855
|
0
4
0
|
$
$
$
|
—
57,296,248
—
|
|||||||
|
Zachary
A. Hamel
Registered investment companies
Other pooled investment vehicles
Other accounts
|
2
8
213
|
$
$
$
|
738,889,785
308,882,926
2,178,416,855
|
0
4
0
|
$
$
$
|
—
57,296,248
—
|
|||||||
|
Kenneth
P. Malvey
Registered investment companies
Other pooled investment vehicles
Other accounts
|
2
8
213
|
$
$
$
|
738,889,785
308,882,926
2,178,416,855
|
0
4
0
|
$
$
$
|
—
57,296,248
—
|
|||||||
|
Terry
C. Matlack
Registered investment companies
Other pooled investment vehicles
Other accounts
|
2
5
188
|
$
$
$
|
738,889,785
84,296,248
154,164,614
|
0
5
0
|
$
$
$
|
—
84,296,248
—
|
|||||||
|
David J.
Schulte
Registered investment companies
Other pooled investment vehicles
Other accounts
|
2
5
188
|
$
$
$
|
738,889,785
84,296,248
154,164,614
|
0
5
0
|
$
$
$
|
—
84,296,248
—
|
|||||||
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 shown 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 the date of
this
Statement of Additional Information.
|
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.
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
renewal of the Advisory Agreement was last approved on December
9, 2005. A discussion regarding the basis of the Board’s decision to
approve the renewal of the Advisory Agreement will be available in our
Semi-Annual Report to stockholders for the six-month period ended May 31,
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 updated sale price
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, 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 at
the
next regularly scheduled Board meeting; otherwise
approval
of the Board shall be sought promptly. 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.
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 fiscal years ended
November 30, 2004 and November 30, 2005, we paid aggregate brokerage commissions
of $114,532 and $18,465, respectively and direct placement fees of $1,668,861
and $80,000, 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. From the commencement of operations
through November 30, 2004, our actual portfolio turnover rate was 1.39%.
For the year ended November 30, 2005, the portfolio turnover rate was 4.92%.
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.
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.
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 provide 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 recent 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.
S-29
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
activity 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 2008.
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 taxed upon the amount of distributions as if such
amount had been received by the participating stockholder and the participating
stockholder then reinvested such amount in additional common
stock.
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 2008. 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 the debt securities will constitute
indebtedness of ours 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 are required to 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 2008) 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. 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 and shall be executed
by
the Chief Executive Officer. 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, 2005, is available without charge by calling us
at 1-888-728-8784. 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 Managed Assets, 0.0125% on the next $200 million of Managed
Assets and 0.0075% on the balance of our Managed 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 year ended November 30, 2005, we paid U.S. Bancorp $60,831 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.
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors and Stockholders
Tortoise
Energy Infrastructure Corporation
We
have
audited the accompanying statement of assets and liabilities of Tortoise
Energy
Infrastructure Corporation (the Company), including the schedule of investments,
as of November 30, 2005, and the related statements of operations and cash
flows for the year then ended, the statements of changes in net assets
and
financial highlights for the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements and financial highlights are free of material misstatement.
We were
not engaged to perform an audit of the Company’s internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate
in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles
used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation
of
securities owned as of November 30, 2005, by correspondence with the
custodian and brokers. We believe that our audits provide a reasonable
basis for
our opinion.
In
our
opinion, the financial statements and financial highlights referred to
above
present fairly, in all material respects, the financial position of the
Company
at November 30, 2005, the results of its operations and its cash flows for
the year then ended, the changes in its net assets and financial highlights
for
the periods indicated therein, in conformity with U.S. generally accepted
accounting principles.
|
/s/
Ernst & Young LLP
|
Kansas
City, Missouri
January 6,
2006
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
SCHEDULE OF
INVESTMENTS
|
Shares
|
Value
|
||||||
|
COMMON
STOCK—0.9%+
|
|||||||
|
Natural
Gas Gathering/Processing—0.9%+
|
|||||||
|
Crosstex
Energy, Inc. (Cost $2,280,917)
|
56,836
|
$
|
3,715,369
|
||||
|
MASTER
LIMITED PARTNERSHIPS—166.9%+
|
|||||||
|
Coal—1.2%+
|
|||||||
|
Natural
Resource Partners L.P.
|
86,400
|
$
|
4,975,776
|
||||
|
Crude/Refined
Products Pipelines—99.4%+
|
|||||||
|
Buckeye
Partners, L.P.
|
568,802
|
24,805,455
|
|||||
|
Enbridge
Energy Partners, L.P.
|
904,000
|
41,584,000
|
|||||
|
Holly
Energy Partners, L.P.
|
427,070
|
16,519,068
|
|||||
|
Kinder
Morgan Management, LLC #
|
1,436,408
|
68,803,943
|
|||||
|
Magellan
Midstream Partners, L.P.
|
1,668,474
|
53,641,439
|
|||||
|
Magellan
Midstream Partners, L.P.^
|
521,739
|
15,568,692
|
|||||
|
Pacific
Energy Partners, L.P.
|
656,500
|
19,478,355
|
|||||
|
Pacific
Energy Partners, L.P.^
|
325,200
|
9,060,072
|
|||||
|
Plains
All American Pipeline, L.P.
|
1,247,155
|
49,536,997
|
|||||
|
Sunoco
Logistics Partners, L.P.
|
934,625
|
35,469,019
|
|||||
|
TEPPCO
Partners, L.P.
|
812,745
|
29,900,888
|
|||||
|
Valero,
L.P.
|
709,874
|
37,268,385
|
|||||
|
401,636,313
|
|||||||
|
Natural
Gas/Natural Gas Liquid Pipelines—16.1%+
|
|||||||
|
Enterprise
GP Holdings, L.P.
|
71,400
|
2,463,300
|
|||||
|
Enterprise
Products Partners, L.P.
|
2,248,940
|
56,290,968
|
|||||
|
Northern
Border Partners, L.P.
|
144,600
|
6,172,974
|
|||||
|
64,927,242
|
|||||||
|
Natural
Gas Gathering/Processing—33.1%+
|
|||||||
|
Copano
Energy, LLC
|
91,950
|
3,447,205
|
|||||
|
Copano
Energy, LLC^
|
531,701
|
19,534,695
|
|||||
|
Crosstex
Energy L.P.^
|
160,009
|
4,957,079
|
|||||
|
Crosstex
Energy L.P.^
|
108,578
|
3,449,523
|
|||||
|
Energy
Transfer Partners, L.P.
|
1,804,600
|
60,941,342
|
|||||
|
Hiland
Partners, L.P.
|
36,548
|
1,450,225
|
|||||
|
Markwest
Energy Partners, L.P.
|
805,810
|
37,937,535
|
|||||
|
Williams
Partners, L.P.
|
59,750
|
2,011,782
|
|||||
|
133,729,386
|
|||||||
|
Shipping—5.1%+
|
|||||||
|
K-Sea
Transportation Partners, L.P.
|
71,300
|
2,489,083
|
|||||
|
K-Sea
Transportation Partners, L.P.^
|
500,000
|
16,245,000
|
|||||
|
Teekay
LNG Partners, L.P.
|
67,200
|
1,883,616
|
|||||
|
20,617,699
|
|||||||
|
Propane
Distribution—12.0%+
|
|||||||
|
Inergy,
L.P.
|
1,767,979
|
44,641,470
|
|||||
|
Inergy,
L.P.^
|
82,655
|
1,848,992
|
|||||
|
Inergy
Holdings, L.P.
|
61,761
|
2,204,868
|
|||||
|
48,695,330
|
|||||||
|
Total
Master Limited Partnerships (Cost $540,092,473)
|
674,581,746
|
||||||
|
Principal
Amount
|
Value
|
||||||
|
PROMISSORY
NOTES—1.6%+
|
|||||||
|
Shipping—1.6%+
|
|||||||
|
E.W.
Transportation, LLC—Unregistered, 8.56%, Due 3/31/2009 (Cost $6,309,278)
^@
|
$
|
6,379,054
|
6,309,278
|
||||
|
Shares
|
|||||||
|
SHORT-TERM
INVESTMENTS—1.3%+
|
|||||||
|
First
American Government Obligations Money Market Fund—Class Y, 3.67% (Cost
$5,329,456)(1)
|
5,329,456
|
5,329,456
|
|||||
|
TOTAL
INVESTMENTS—170.7%+
(Cost $554,012,124)
|
689,935,849
|
||||||
|
Auction
Rate Senior Notes—(40.8%)+
|
(165,000,000
|
)
|
|||||
|
Interest
Rate Swap Contracts—0.7%+
|
|||||||
|
$345,000,000
notional—Unrealized Appreciation, Net(2)
|
2,902,516
|
||||||
|
Liabilities
in Excess of Other Assets—(13.3%)+
|
(53,564,865
|
)
|
|||||
|
Preferred
Shares at Redemption Value—(17.3%)+
|
(70,000,000
|
)
|
|||||
|
TOTAL
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS—100.00%+
|
$
|
404,273,500
|
|||||
____________
|
+
|
Calculated
as a percentage of net assets applicable to common
stockholders.
|
|
^
|
Fair
valued securities represent a total market value of $76,973,331
which
represents 19.1% of net assets. These securities are deemed
to be
restricted; see Note 6 for further
disclosure.
|
|
#
|
Security
distributions are paid in
kind.
|
|
@
|
Security
is a variable rate instrument. Interest rate is as of November 30,
2005.
|
|
(1)
|
7-day
effective yield.
|
|
(2)
|
See
Note 10 for further
disclosure.
|
See
Accompanying Notes to the Financial Statements.
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
STATEMENT
OF ASSETS & LIABILITIES
|
November 30,
2005
|
||||
|
Assets
|
||||
|
Investments
at value (cost $554,012,124)
|
$
|
689,935,849
|
||
|
Cash
|
45,422
|
|||
|
Receivable
for Adviser reimbursement
|
275,801
|
|||
|
Receivable
for investments sold
|
366,959
|
|||
|
Interest
and dividend receivable
|
37,763
|
|||
|
Unrealized
appreciation on interest rate swap contracts
|
2,902,516
|
|||
|
Prepaid
expenses and other assets
|
2,413,455
|
|||
|
Total
assets
|
695,977,765
|
|||
|
Liabilities
|
||||
|
Payable
to Adviser
|
1,139,177
|
|||
|
Dividend
payable on preferred shares
|
183,726
|
|||
|
Accrued
expenses and other liabilities
|
391,924
|
|||
|
Current
tax liability
|
214,261
|
|||
|
Deferred
tax liability
|
54,775,177
|
|||
|
Auction
rate senior notes payable:
|
||||
|
Series
A, due July 15, 2044
|
60,000,000
|
|||
|
Series
B, due July 15, 2044
|
50,000,000
|
|||
|
Series
C, due April 10, 2045
|
55,000,000
|
|||
|
Total
liabilities
|
221,704,265
|
|||
|
Preferred
Shares
|
||||
|
$25,000
liquidation value per share applicable to 2,800 outstanding
shares (7,500
shares authorized)
|
70,000,000
|
|||
|
Net
assets applicable to common stockholders
|
$
|
404,273,500
|
||
|
Net
Assets Applicable to Common Stockholders Consist
of
|
||||
|
Capital
stock, $0.001 par value; 14,905,515 shares issued and outstanding
(100,000,000 shares authorized)
|
$
|
14,906
|
||
|
Additional
paid-in capital
|
318,834,703
|
|||
|
Accumulated
net investment loss, net of income tax effect
|
(2,907,862
|
)
|
||
|
Undistributed
realized gain, net of income tax effect
|
3,875,986
|
|||
|
Net
unrealized gain on investments and interest rate swap contracts,
net of
income tax effect
|
84,455,767
|
|||
|
Net
assets applicable to common stockholders
|
$
|
404,273,500
|
||
|
Net
Asset Value per common share outstanding (net assets applicable
to common
shares, divided by common shares outstanding)
|
$
|
27.12
|
||
See
Accompanying Notes to the Financial Statements.
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
STATEMENT
OF OPERATIONS
|
Year
Ended
November 30,
2005
|
||||
|
Investment
Income
|
||||
|
Distributions
received from master limited partnerships
|
$
|
36,171,740
|
||
|
Less
return of capital on distributions
|
(30,211,629
|
)
|
||
|
Distribution
income from master limited partnerships
|
5,960,111
|
|||
|
Dividends
from common stock
|
95,813
|
|||
|
Dividends
from money market mutual funds
|
486,361
|
|||
|
Interest
|
634,686
|
|||
|
Total
Investment Income
|
7,176,971
|
|||
|
Expenses
|
||||
|
Advisory
fees
|
6,339,680
|
|||
|
Administrator
fees
|
437,139
|
|||
|
Professional
fees
|
405,980
|
|||
|
Reports
to stockholders
|
193,624
|
|||
|
Directors’
fees
|
102,170
|
|||
|
Custodian
fees and expenses
|
67,768
|
|||
|
Fund
accounting fees
|
60,831
|
|||
|
Registration
fees
|
46,182
|
|||
|
Stock
transfer agent fees
|
14,508
|
|||
|
Other
expenses
|
121,917
|
|||
|
Total
Expenses before Interest Expense and Auction Agent Fees
|
7,789,799
|
|||
|
Interest
expense
|
4,812,145
|
|||
|
Auction
agent fees
|
478,051
|
|||
|
Total
Interest Expense and Auction Agent Fees
|
5,290,196
|
|||
|
Total
Expenses
|
13,079,995
|
|||
|
Less
expense reimbursement by Adviser
|
(1,534,870
|
)
|
||
|
Net
Expenses
|
11,545,125
|
|||
|
Net
Investment Loss, before income taxes
|
(4,368,154
|
)
|
||
|
Current
tax expense
|
(214,261
|
)
|
||
|
Deferred
tax benefit
|
1,917,841
|
|||
|
Total
income taxes
|
1,703,580
|
|||
|
Net
Investment Loss
|
(2,664,574
|
)
|
||
|
Realized
and Unrealized Gain (Loss) on Investments
|
||||
|
Net
realized gain on investments
|
7,264,671
|
|||
|
Net
realized loss on interest rate swap settlements
|
(854,814
|
)
|
||
|
Net
realized gain, before deferred tax expense
|
6,409,857
|
|||
|
Deferred
tax expense
|
(2,499,844
|
)
|
||
|
Net
realized gain on investments and interest rate swap
settlements
|
3,910,013
|
|||
|
Net
unrealized appreciation of investments
|
57,338,735
|
|||
|
Net
unrealized appreciation of interest rate swap contracts
|
3,111,046
|
|||
|
Net
unrealized gain, before deferred tax expense
|
60,449,781
|
|||
|
Deferred
tax expense
|
(23,863,156
|
)
|
||
|
Net
unrealized appreciation of investments and interest rate
swap
contracts
|
36,586,625
|
|||
|
Net
Realized and Unrealized Gain on Investments
|
40,496,638
|
|||
|
Dividends
to Preferred Stockholders
|
(1,639,910
|
)
|
||
|
Net
Increase in Net Assets Applicable to Common Stockholders
Resulting from
Operations
|
$
|
36,192,154
|
See
Accompanying Notes to the Financial Statements
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
STATEMENT
OF CHANGES IN NET ASSETS
|
Year
Ended November 30, 2005
|
Period
from February 27, 2004(1)
through November 30, 2004
|
||||||
|
Operations
|
|||||||
|
Net
investment loss
|
$
|
(2,664,574
|
)
|
$
|
(243,288
|
)
|
|
|
Net
realized gain (loss) on investments and interest rate swap
settlements
|
3,910,013
|
(34,027
|
)
|
||||
|
Net
unrealized appreciation of investments and interest rate
swap
contracts
|
36,586,625
|
47,869,142
|
|||||
|
Dividends
to preferred stockholders
|
(1,639,910
|
)
|
(152,568
|
)
|
|||
|
Net
increase in net assets applicable to common stockholders
resulting from
operations
|
36,192,154
|
47,439,259
|
|||||
|
Dividends
and Distributions to Common Stockholders
|
|||||||
|
Net
investment income
|
—
|
—
|
|||||
|
Return
of capital
|
(26,506,341
|
)
|
(12,278,078
|
)
|
|||
|
Total
dividends to common stockholders
|
(26,506,341
|
)
|
(12,278,078
|
)
|
|||
|
Capital
Share Transactions
|
|||||||
|
Proceeds
from initial public offering of 11,000,000 common shares
|
—
|
275,000,000
|
|||||
|
Proceeds
from issuance of 1,600,000 common shares in connection
with exercising an
overallotment option granted to underwriters of the initial
public
offering
|
—
|
40,000,000
|
|||||
|
Proceeds
from secondary offering of 1,755,027 common shares
|
47,999,988
|
—
|
|||||
|
Proceeds
from issuance of 263,254 common shares in connection with
exercising an
overallotment option granted to underwriters of the secondary
offering
|
7,199,997
|
—
|
|||||
|
Underwriting
discounts and offering expenses associated with the issuance
of common
shares
|
(2,443,688
|
)
|
(14,705,165
|
)
|
|||
|
Underwriting
discounts and offering expenses associated with the issuance
of preferred
shares
|
(356,815
|
)
|
(725,000
|
)
|
|||
|
Issuance
of 203,080 and 61,107 common shares from reinvestment of
dividend
distributions to stockholders, respectively
|
5,635,662
|
1,453,105
|
|||||
|
Net
increase in net assets, applicable to common stockholders,
from capital
share transactions
|
58,035,144
|
301,022,940
|
|||||
|
Total
increase in net assets applicable to common stockholders
|
67,720,957
|
336,184,121
|
|||||
|
Net
Assets
|
|||||||
|
Beginning
of period
|
336,552,543
|
368,422
|
|||||
|
End
of period
|
$
|
404,273,500
|
$
|
336,552,543
|
|||
|
Accumulated
net investment loss, net of deferred tax benefit, at end
of
period
|
$
|
(2,907,862
|
)
|
$
|
(243,288
|
)
|
|
____________
|
(1)
|
Commencement
of Operations.
|
See
Accompanying Notes to the Financial Statements.
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
STATEMENT
OF CASH FLOWS
|
Year
Ended November 30, 2005
|
||||
|
Cash
Flows from Operating Activities
|
||||
|
Distributions
received from master limited partnerships
|
$
|
36,171,740
|
||
|
Interest
and dividend income received
|
1,183,801
|
|||
|
Purchases
of long-term investments
|
(172,064,905
|
)
|
||
|
Proceeds
from sale of long-term investments
|
31,230,812
|
|||
|
Purchases
of short-term investments
|
(2,487,089
|
)
|
||
|
Payments
for interest rate swap contracts, net
|
(854,814
|
)
|
||
|
Interest
expense paid
|
(5,349,296
|
)
|
||
|
Operating
expenses paid
|
(6,003,206
|
)
|
||
|
Net
cash used in operating activities
|
(118,172,957
|
)
|
||
|
Cash
Flows from Financing Activities
|
||||
|
Issuance
of common stock
|
55,199,985
|
|||
|
Issuance
of preferred stock
|
35,000,000
|
|||
|
Issuance
of auction rate senior notes payable
|
55,000,000
|
|||
|
Common
and preferred stock issuance costs
|
(2,632,812
|
)
|
||
|
Debt
issuance costs
|
(804,099
|
)
|
||
|
Dividends
paid to preferred stockholders
|
(1,498,670
|
)
|
||
|
Dividends
paid to common stockholders
|
(26,324,865
|
)
|
||
|
Net
cash provided by financing activities
|
113,939,539
|
|||
|
Net
increase in cash
|
(4,233,418
|
)
|
||
|
Cash—beginning
of period
|
4,278,840
|
|||
|
Cash—end
of period
|
$
|
45,422
|
||
|
Reconciliation
of net increase in net assets applicable to common stockholders
resulting
from operations to net
cash used in operating activities
|
||||
|
Net
increase in net assets applicable to common stockholders
resulting from
operations
|
36,192,154
|
|||
|
Adjustments
to reconcile net increase in net assets applicable to
common stockholders
resulting from operations to net cash used in operating
activities:
|
||||
|
Purchases
of long-term investments, net of return of capital
adjustments
|
(141,853,276
|
)
|
||
|
Proceeds
from sales of long-term investments
|
31,230,812
|
|||
|
Purchases
of short-term investments
|
(2,487,089
|
)
|
||
|
Deferred
income taxes
|
24,445,159
|
|||
|
Net
unrealized appreciation on investments and interest rate
swap
contracts
|
(60,449,781
|
)
|
||
|
Realized
gains on investments and interest rate swap settlements
|
(6,409,857
|
)
|
||
|
Accretion
of discount on investments
|
(19,327
|
)
|
||
|
Amortization
of debt issuance costs
|
50,730
|
|||
|
Dividends
to preferred stockholders
|
1,639,910
|
|||
|
Changes
in operating assets and liabilities:
|
||||
|
Increase
in interest and dividend receivable
|
(13,732
|
)
|
||
|
Increase
in prepaid expenses and other assets
|
(523,770
|
)
|
||
|
Increase
in payable to Adviser, net of expense reimbursement
|
290,078
|
|||
|
Increase
in current tax liability
|
214,261
|
|||
|
Decrease
in accrued expenses and other liabilities
|
(479,229
|
)
|
||
|
Total
adjustments
|
(154,365,111
|
)
|
||
|
Net
cash used in operating activities
|
$
|
(118,172,957
|
)
|
|
|
Non-Cash
Financing Activities
|
||||
|
Reinvestment
of distributions by common stockholders in additional
common
shares
|
$
|
5,635,662
|
||
See
Accompanying Notes to the Financial
Statements.
F-6
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
FINANCIAL
HIGHLIGHTS
|
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
|
$
|
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
and underwriting discounts and offering costs on secondary
offering(7)
|
—
|
—
|
|||||
|
Income
(loss) from Investment Operations:
|
|||||||
|
Net
investment loss(8)
|
(0.16
|
)
|
(0.03
|
)
|
|||
|
Net
realized and unrealized gain on investments(8)
|
2.67
|
3.77
|
)
|
||||
|
Total
increase from investment operations
|
2.51
|
3.74
|
)
|
||||
|
Less
Dividends to Preferred Stockholders:
|
|||||||
|
Net
investment income
|
—
|
—
|
|||||
|
Return
of capital
|
(0.11
|
)
|
(0.01
|
)
|
|||
|
Total
dividends to preferred stockholders
|
(0.11
|
)
|
(0.01
|
||||
|
Less
Dividends to Common Stockholders:
|
|||||||
|
Net
investment income
|
—
|
—
|
|||||
|
Return
of capital
|
(1.79
|
)
|
(0.97
|
)
|
|||
|
Total
dividends to common stockholders
|
(1.79
|
)
|
(0.97
|
)
|
|||
|
Net
Asset Value, end of period
|
$
|
27.12
|
$
|
26.53
|
|||
|
Per
common share market value, end of period
|
$
|
28.72
|
$
|
27.06
|
|||
|
Total
Investment Return Based on Market Value(3)
|
13.06
|
%
|
12.51
|
%
|
|||
|
Supplemental
Data and Ratios
|
|||||||
|
Net
assets applicable to common stockholders, end of period
(000’s)
|
404,274
|
336,553
|
|||||
|
Ratio
of expenses (including current and deferred income tax expense)
to average
net assets before waiver:(4)(6)(9)
|
9.10
|
%
|
15.20
|
%
|
|||
|
Ratio
of expenses (including current and deferred income tax expense)
to average
net assets after waiver:(4)(6)(9)
|
8.73
|
%
|
14.92
|
%
|
|||
|
Ratio
of expenses (excluding current and deferred income tax expense)
to average
net assets before waiver:(4)(6)(9)
|
3.15
|
%
|
2.01
|
%
|
|||
|
Ratio
of expenses (excluding current and deferred income tax expense)
to average
net assets after waiver:(4)(6)(9)
|
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:(4)(6)(9)
|
3.15
|
%
|
1.90
|
%
|
|||
|
Ratio
of expenses (excluding current and deferred income tax expense),
without
regard to non-recurring organizational expenses, to average
net assets
after waiver:(4)(6)(9)
|
2.78
|
%
|
1.62
|
%
|
|||
|
Ratio
of net investment loss to average net assets before waiver:(4)(6)(10)
|
(1.42
|
)%
|
(0.45
|
)%
|
|||
F-7
|
Year
Ended November 30, 2005
|
Period
from
February 27,
2004(1)
through
November 30,
2004
|
||||||
|
Ratio
of net investment loss to average net assets after waiver:(4)(6)(10)
|
(1.05
|
)%
|
(0.17
|
)%
|
|||
|
Ratio
of net investment loss to average net assets after current
and deferred
income tax expense, before waiver:(4)(9)
|
(7.37
|
)%
|
(13.37
|
)%
|
|||
|
Ratio
of net investment loss to average net assets after current
and deferred
income tax expense, after waiver:(4)(9)
|
(7.00
|
)%
|
(13.65
|
)%
|
|||
|
Portfolio
turnover rate
|
4.92
|
%
|
1.39
|
%
|
|||
|
Tortoise
Auction Rate Senior Notes, end of period (000’s)
|
$
|
165,000
|
$
|
110,000
|
|||
|
Tortoise
Preferred Shares, end of period (000’s)
|
$
|
70,000
|
$
|
35,000
|
|||
|
Per
common share amount of auction rate senior notes outstanding
at end of
period
|
$
|
11.07
|
$
|
8.67
|
|||
|
Per
common share amount of net assets, excluding auction rate senior
notes, at
end of period
|
$
|
38.19
|
$
|
35.21
|
|||
|
Asset
coverage, per $1,000 of principal amount of auction rate senior
notes
|
|||||||
|
Series
A
|
$
|
3,874
|
$
|
4,378
|
|||
|
Series
B
|
$
|
3,874
|
$
|
4,378
|
|||
|
Series
C
|
$
|
3,874
|
$
|
—
|
|||
|
Asset
coverage, per $25,000 liquidation value per share of preferred
shares
|
$
|
169,383
|
$
|
265,395
|
|||
|
Asset
coverage ratio of auction rate senior notes(5)
|
387
|
%
|
438
|
%
|
|||
|
Asset
coverage ratio of MMP shares(11)
|
272
|
%
|
332
|
%
|
____________
|
(1)
|
Commencement
of Operations.
|
|
(2)
|
Information
presented relates to a share of common stock outstanding for
the entire
period.
|
|
(3)
|
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. otal
investment return does not reflect brokerage
commissions.
|
|
(4)
|
Annualized
for periods less than one full
year.
|
|
(5)
|
Represents
value of total assets less all liabilities and indebtedness
not
represented by auction rate senior notes and MMP shares at
the end of the
period divided by auction rate senior notes outstanding at
the end of the
period.
|
|
(6)
|
The
expense ratios and net investment ratios do not reflect the
effect of
dividend payments to preferred
stockholders.
|
|
(7)
|
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 ending November
30,
2005.
|
|
(8)
|
The
ratios for the period ended November 30, 2004, do not reflect
the change
in estimate of investment income and return of capital. See
note
2.
|
|
(9)
|
The
Company accrued $24,659,420 and $30,330,018 for the year ended
November
30, 2005 and for the period from February 27, 2004 through
November 30,
2004, respectively, in current and deferred income
taxes.
|
|
(10)
|
The
ratio excludes net deferred income tax benefit on net investment
income.
|
|
(11)
|
Represents
value of total assets less all liabilities and indebtedness
not
represented by auction rate senior notes and MMP shares at
the end of the
period, divided by the sum of auction rate senior notes and
MMP shares
outstanding at the end of the
period.
|
See
Accompanying Notes to the Financial Statements.
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
NOTES
TO FINANCIAL STATEMENTS
November 30,
2005
1. Organization
Tortoise
Energy Infrastructure Corp. (the “Company”) was organized as a Maryland
corporation on October 29, 2003, and is a non-diversified, closed-end
management investment company under the Investment Company Act of 1940,
as
amended (the “1940 Act”). The Company’s investment objective is to seek a high
level of total return with an emphasis on current dividends paid to
shareholders. The Company seeks to provide its shareholders with an
efficient
vehicle to invest in the energy infrastructure sector. The Company
commenced
operations on February 27, 2004. The Company’s shares are listed on the
NYSE under the symbol “TYG.”
2. Significant
Accounting Policies
A. Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally
accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amount of assets and liabilities, recognition of
distribution income and disclosure of contingent assets and liabilities
at the
date of the financial statements. Actual results could differ from
those
estimates.
B. Investment
Valuation
The
Company primarily owns securities that are listed on a securities exchange.
The
Company values those securities at their last sale price on that exchange
on the
valuation date. If the security is listed on more than one exchange,
the Company
will use the price of the exchange that it generally considers to be
the
principal exchange on which the security is traded. Securities listed
on the
NASDAQ will be valued at the NASDAQ Official Closing Price, which may
not
necessarily represent the last sale price. If there has been no sale
on such
exchange or NASDAQ on such day, the security will be valued at the
mean between
bid and ask price on such day.
The
Company may invest up to 30 percent of its total assets in restricted
securities. Restricted securities are subject to statutory or contractual
restrictions on their public resale, which may make it more difficult
to obtain
a valuation and may limit the Company’s ability to dispose of them. Investments
in private placement securities and other securities for which market
quotations
are not readily available will be valued in good faith by using fair
value
procedures approved by the Board of Directors. Such fair value procedures
consider factors such as discounts to publicly traded issues, securities
with
similar yields, quality, type of issue, coupon, duration and
rating.
The
Company generally values its interest rate swap contracts by discounting
the
future cash flows from the stated terms of the interest rate swap agreement
by
using interest rates currently available in the market, or based on
dealer
quotations, if available.
The
Company generally values short-term debt securities at prices based
on market
quotations for such securities, except those securities purchased with
60 days
or less to maturity are valued on the basis of amortized cost, which
approximates market value.
If
events
occur that will affect the value of the Company’s portfolio securities before
the net asset value has been calculated (a “significant event”), the portfolio
securities so affected will generally be priced using a fair value
procedure.
C. Security
Transactions and Investment Income
Security
transactions are accounted for on the date the securities are purchased
or sold
(trade date). Realized gains and losses are reported on an identified
cost
basis. Interest income is recognized on the accrual basis, including
amortization of premiums and accretion of discounts. Distributions
are recorded
on the ex-dividend date. Distributions received from the Company’s investments
in master limited partnerships (MLPs) generally are comprised of
ordinary
income, capital gains and return of capital from the MLP. The Company
records
investment income and return of capital based on estimates made at
the time such
distributions are received. Such estimates are based on historical
information
available from each MLP and other industry sources. These estimates
may
subsequently be revised based on information received from MLPs after
their tax
reporting periods are concluded, as the actual character of these
distributions
are not known until after the Company’s fiscal year-end.
For
the
period from February 27, 2004 (commencement of operations) through
November 30, 2004, the Company estimated the allocation of investment
income and return of capital for the distributions received from
MLPs within the
Statement of Operations. For this period, the Company had estimated
approximately 18 percent as investment income and approximately 82
percent as
return of capital.
Subsequent
to November 30, 2004, the Company reclassified the amount of investment
income and return of capital it recognized based on the 2004 tax
reporting
information received from the individual MLPs. This reclassification
amounted to
a decrease in pre-tax net investment income of approximately $2.2
million or
$0.15 per share ($1.3 million or $0.09 per share, net of deferred
tax benefit),
and a corresponding increase in unrealized appreciation of investments
for the
year ended November 30, 2005. The reclassification is reflected in the
accompanying financial statements, and had no impact on the net assets
applicable to common stockholders.
D. Dividends
to Stockholders
Dividends
to common stockholders are recorded on the ex-dividend date. The
character of
dividends to common stockholders made during the year may differ
from their
ultimate characterization for federal income tax purposes. For the
period ended
November 30, 2004, and the year ended November 30, 2005, the Company’s
dividend, for book purposes, was comprised entirely of return of
capital as a
result of the net investment loss incurred by the Company in each
reporting
period. For the periods ended November 30, 2004 and 2005, for tax purposes,
the Company determined the current dividend to common stockholders
is also
comprised of 100 percent return of capital.
Dividends
to preferred shareholders are based on variable rates set at auctions,
normally
held every 28 days. Dividends on preferred shares are accrued on
a daily basis
for the subsequent 28 day period at a rate as determined on the auction
date.
Dividends on preferred shares are payable every 28 days, on the first
day
following the end of the dividend period.
E. Federal
Income Taxation
The
Company, as a corporation, is obligated to pay federal and state
income tax on
its taxable income. The Company invests its assets primarily in MLPs,
which
generally are treated as partnerships for federal income tax purposes.
As a
limited partner in the MLPs, the Company reports its allocable share
of the
MLP’s taxable income in computing its own taxable income. The Company’s tax
expense or benefit will
be
included in the Statement of Operations based on the component of
income or
gains (losses) to which such expense or benefit relates. Deferred
income taxes
reflect the net tax effects of temporary differences between the
carrying
amounts of assets and liabilities for financial reporting purposes
and the
amounts used for income tax purposes.
F. Organization
Expenses, Offering and Debt Issuance Costs
The
Company is responsible for paying all organizational expenses, which
are
expensed as incurred. Offering costs related to the issuance of common
and
preferred stock are charged to additional paid-in capital when the
shares are
issued. Offering costs (excluding underwriter commissions) of $695,476
and
$905,165 were charged to additional paid-in capital for the year
ended
November 30, 2005 and for the period from February 27, 2004 through
November 30, 2004, respectively. Debt issuance costs related to the auction
rate senior notes payable are capitalized and amortized over the
period the
notes are outstanding. The amounts of such costs (excluding underwriter
commissions) capitalized in the year ended November 30, 2005 and the period
from February 27, 2004 through November 30, 2004 were $254,099 and
$724,986, respectively.
G. Derivative
Financial Instruments
H. Indemnifications
Under
the
Company’s organizational documents, its officers and directors are indemnified
against certain liabilities arising out of the performance of their
duties to
the Company. In addition, in the normal course of business, the Company
may
enter into contracts that provide general indemnification to other
parties. The
Company’s maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Company that have
not yet
occurred, and may not occur. However, the Company has not had prior
claims or
losses pursuant to these contracts and expects the risk of loss to
be
remote.
I. Reclassification
Certain
amounts from prior year were reclassified to conform to the current
year
presentation.
3. Concentration
of Risk
The
Company’s investment objective is to seek a high level of total return with
an
emphasis on current dividends paid to its shareholders. Under normal
circumstances, the Company intends to invest at least 90 percent
of its total
assets in securities of domestic energy infrastructure companies,
and will
invest at least 70 percent of its total assets in equity securities
of MLPs. The
Company will not invest more than 10 percent of its total assets
in any single
issuer as of the time of purchase. The Company may invest up to 25
percent of
its assets in debt securities, which may include below investment
grade
securities. Companies that primarily invest in a particular sector
may
experience greater volatility than companies
investing
in a broad range of industry sectors. The Company may, for defensive
purposes,
temporarily invest all or a significant portion of its assets in
investment
grade securities, short-term debt securities and cash or cash equivalents.
To
the extent the Company uses this strategy, it may not achieve its
investment
objectives.
4. Agreements
The
Company has entered into an Investment Advisory Agreement with
Tortoise Capital
Advisors, LLC (the “Adviser”). Under the terms of the agreement, the Company
will pay the Adviser a fee equal to an annual rate of 0.95 percent
of the
Company’s average monthly total assets (including any assets attributable
to
leverage) minus the sum of accrued liabilities (other than deferred
income
taxes, debt entered into for purposes of leverage and the aggregate
liquidation
preference of outstanding preferred shares) (Managed Assets), in
exchange for
the investment advisory services provided. For the period following
the
commencement of the Company’s operations through February 28, 2006, the
Adviser has agreed to waive or reimburse the Company for fees and
expenses in an
amount equal to 0.23 percent of the average monthly Managed Assets
of the
Company. For years ending February 28, 2007, 2008 and 2009, the Adviser has
agreed to waive or reimburse the Company for fees and expenses
in an amount
equal to 0.10 percent of the average monthly Managed Assets of
the
Company.
The
Company has engaged U.S. Bancorp Fund Services, LLC to serve as
the Company’s
administrator. The Company will pay the administrator a monthly
fee computed at
an annual rate of 0.07 percent of the first $300 million of the
Company’s
Managed Assets, 0.06 percent on the next $500 million of Managed
Assets and 0.04
percent on the balance of the Company’s Managed Assets, subject to a minimum
annual fee of $45,000.
Computershare
Investor Services, LLC serves as the Company’s transfer agent, dividend paying
agent, and agent for the automatic dividend reinvestment
plan.
U.S.
Bank, N.A. serves as the Company’s custodian. The Company pays the custodian a
monthly fee computed at an annual rate of 0.015 percent on the
first $100
million of the Company’s Managed Assets and 0.01 percent on the balance of the
Company’s Managed Assets, subject to a minimum annual fee of
$4,800.
5. Income
Taxes
Deferred
income taxes reflect the net tax effect of temporary differences
between the
carrying amount of assets and liabilities for financial reporting
and tax
purposes. Components of the Company’s deferred tax assets and liabilities as of
November 30, 2005 are as follows:
|
Deferred
tax assets:
|
||||
|
Net
operating loss carryforwards
|
$
|
6,566,312
|
||
|
Organization
costs
|
63,056
|
|||
|
Other
|
214,261
|
|||
|
6,843,629
|
||||
|
Deferred
tax liabilities:
|
||||
|
Unrealized
gains on investment securities and interest rate swap
contracts
|
54,142,234
|
|||
|
Basis
reduction of investment in MLPs
|
7,476,572
|
|||
|
61,618,806
|
||||
|
Total
net deferred tax liability
|
$
|
54,775,177
|
For
the
year ended November 30, 2005, the components of income tax expense include
foreign taxes of $214,261 and deferred federal and state income
taxes (net of
federal tax benefit) of $21,915,988 and $2,529,171, respectively.
As of
November 30, 2005, the Company had a net operating loss for federal
income
tax purposes of approximately $19,171,000. If not utilized,
this net operating
loss will expire as follows: $2,833,000 and $16,338,000 in
the years ending
November 30, 2024 and 2025, respectively.
Total
income taxes differ from the amount computed by applying the
federal statutory
income tax rate of 35 percent to net investment income and
realized and
unrealized gains on investments and interest rate swap contracts
before taxes as
follows:
|
Application
of statutory income tax rate
|
$
|
21,872,019
|
||
|
State
income taxes, net of federal tax benefit
|
2,499,659
|
|||
|
Other,
net
|
287,742
|
|||
|
Total
|
$
|
24,659,420
|
At
November 30, 2005, the cost basis of investments for federal income
tax
purposes was $534,841,426 and gross unrealized appreciation
and depreciation of
investments for federal income tax purposes were as follows:
|
Gross
unrealized appreciation
|
$
|
155,094,423
|
||
|
Gross
unrealized depreciation
|
—
|
|||
|
Net
unrealized appreciation
|
$
|
155,094,423
|
6. Restricted
Securities
Certain
of the Company’s investments are restricted and are valued as determined in
accordance with procedures established by the Board of Directors
and more fully
described in Note 2. The table below shows the number of units
held or principal
amount, the acquisition dates, acquisition costs, value per
unit of such
securities and percent of net assets which the securities
comprise.
|
Investment
Security
|
Number
of Units or Principal Amount
|
Acquisition
Date
|
Acquisition
Cost
|
Value
Per Unit
|
Percent
of Net Assets
|
||||||||||||||
|
K-Sea
Transportation Partners, L.P.
|
Common
Units
|
500,000
|
6/01/05
|
$
|
16,080,000
|
$
|
32.49
|
4.0
|
%
|
||||||||||
|
Magellan
Midstream Partners, L.P.
|
Subordinated
Units
|
521,739
|
4/13/05
|
14,999,996
|
29.84
|
3.9
|
|||||||||||||
|
Copano
Energy, LLC
|
Common
Units
|
531,701
|
8/01/05
|
15,000,089
|
36.74
|
4.8
|
|||||||||||||
|
Crosstex
Energy, L.P.
|
Subordinated
Units
|
160,009
|
6/24/05
|
5,350,004
|
30.98
|
1.2
|
|||||||||||||
|
Crosstex
Energy, L.P.
|
Common
Units
|
108,578
|
11/01/05
|
4,000,014
|
31.77
|
0.9
|
|||||||||||||
|
Pacific
Energy Partners, L.P.
|
Common
Units
|
325,200
|
9/30/05
|
9,824,902
|
27.86
|
2.2
|
|||||||||||||
|
Inergy,
L.P.
|
Subordinated
Units
|
82,655
|
9/14/04-
2/04/05
|
2,232,123
|
22.37
|
0.5
|
|||||||||||||
|
E.W.
Transportation, LLC
|
Promissory
Note
|
$
|
6,379,054
|
5/03/04
|
8,569,500
|
N/A
|
1.6
|
||||||||||||
|
$
|
76,056,625
|
19.1
|
%
|
||||||||||||||||
7. Investment
Transactions
For
the
year ended November 30, 2005, the Company purchased (at cost) and sold
securities (at proceeds) in the amount of $172,064,905 and
$31,230,812
(excluding short-term debt securities and interest rate swaps),
respectively.
8. Auction
Rate Senior Notes
The
Company has issued $60,000,000, $50,000,000, and $55,000,000
aggregate principal
amount of auction rate senior notes Series A, Series B, and
Series C,
respectively (collectively, the “Notes”). The Notes were issued in denominations
of $25,000. The principal amount of the Notes will be due
and payable on
July 15, 2044 for Series A and Series B, and April 10, 2045 for Series
C. Fair value of the notes approximates carrying amount because
the interest
rate fluctuates with changes in interest rates available
in the current
market.
Holders
of the Notes are entitled to receive cash interest payments
at an annual rate
that may vary for each rate period. Interest rates for Series
A, Series B, and
Series C as of November 30, 2005 were 4.30 percent, 4.34 percent, and 4.25
percent, respectively. The weighted average interest rates
for Series A and
Series B for the year ended November 30, 2005, were 3.40 percent and 3.43
percent, respectively. The weighted average interest rate
for Series C for the
period from April 11, 2005 through November 30, 2005 was 3.72 percent.
These rates include the applicable rate based on the latest
results of the
auction, plus commissions paid to the auction agent in the
amount of 0.25
percent. For each subsequent rate period, the interest rate
will be determined
by an auction conducted in accordance with the procedures
described in the
Notes’ prospectus. Generally, the rate period will be 28 days for
Series A and
Series B, and 7 days for Series C. The Notes will not be
listed on any exchange
or automated quotation system.
The
Notes
are redeemable in certain circumstances at the option of
the Company. The Notes
are also subject to a mandatory redemption if the Company
fails to meet an asset
coverage ratio required by law, or fails to cure a deficiency
as stated in the
Company’s rating agency guidelines in a timely manner.
The
Notes
are unsecured obligations of the Company and, upon liquidation,
dissolution or
winding up of the Company, will rank: (1) senior to all the Company’s
outstanding preferred shares; (2) senior to all of the Company’s
outstanding common shares; (3) on a parity with any unsecured creditors of
the Company and any unsecured senior securities representing
indebtedness of the
Company; and (4) junior to any secured creditors of the
Company.
9. Preferred
Shares
The
Company has 7,500 authorized preferred shares, of which 2,800
shares (1,400 MMP
Shares and 1,400 MMP II Shares) are currently outstanding. The MMP and
MMP II Shares have rights determined by the Board of Directors.
The MMP and
MMP II Shares have a liquidation value of $25,000 per share plus
any
accumulated, but unpaid dividends, whether or not declared.
Holders
of the MMP and MMP II Shares are entitled to receive cash dividend payments
at an annual rate that may vary for each rate period. The
dividend rates for MMP
and MMP II Shares as of November 30, 2005 were 4.37 percent and 4.35
percent, respectively. The weighted average dividend rate
for MMP shares for the
year ended November 30, 2005, was 3.44 percent. The weighted average
dividend rate for MMP II shares for the period from July 11, 2005
through November 30, 2005, was 4.03 percent. These rates include the
applicable rate based on the latest results of the auction,
plus commissions
paid to the auction agent in the amount of 0.25 percent.
Under the Investment
Company Act of 1940, the Company may not declare dividends
or make other
distribution on shares of common stock or purchases of such
shares if, at the
time of the declaration, distribution or purchase, asset
coverage with respect
to the outstanding Preferred Shares would be less than 200
percent.
The
MMP
and MMP II Shares are redeemable in certain circumstances at the
option of
the Company. The MMP and MMP II Shares are also subject to a mandatory
redemption if the Company fails to meet
an
asset
coverage ratio required by law, or fails to cure a deficiency
as stated in the
Company’s rating agency guidelines in a timely manner.
The
holders of MMP and MMP II Shares have voting rights equal to the holders of
common stock (one vote per share) and will vote together
with the holders of
shares of common stock as a single class except on matters
affecting only the
holders of preferred stock or the holders of common stock.
10. Interest
Rate Swap Contracts
The
Company has entered into interest rate swap contracts to
protect itself from
increasing interest expense on its leverage resulting from
increasing short-term
interest rates. A decline in interest rates may result
in a decline in the value
of the swap contracts, which may result in a decline in
the net assets of the
Company. In addition, if the counterparty to the interest
rate swap contracts
defaults, the Company would not be able to use the anticipated
receipts under
the swap contracts to offset the interest payments on the
Company’s leverage. At
the time the interest rate swap contracts reach their scheduled
termination,
there is a risk that the Company would not be able to obtain
a replacement
transaction or that the terms of the replacement would
not be as favorable as on
the expiring transaction. In addition, if the Company is
required to terminate
any swap contract early due to the Company failing to maintain
a required 300
percent asset coverage of the liquidation value of the
outstanding auction rate
senior notes or if the Company loses its credit rating
on its auction rate
senior notes, then the Company could be required to make
a termination payment,
in addition to redeeming all or some of the auction rate
senior notes. Details
of the interest rate swap contracts outstanding as of November 30, 2005,
were as follows:
|
Counterparty
|
Maturity
Date
|
Notional
Amount
|
Fixed
Rate Paid by The Company
|
Floating
Rate Received by The Company
|
Unrealized
Appreciation/ (Depreciation)
|
|||||||||||
|
U.
S. Bank, N.A.
|
7/10/2007
|
$
|
60,000,000
|
3.54
|
%
|
1
month U.S. Dollar LIBOR
|
$
|
1,116,589
|
||||||||
|
U.
S. Bank, N.A.*
|
7/10/2011
|
60,000,000
|
4.63
|
%
|
1
month U.S. Dollar LIBOR
|
499,536
|
||||||||||
|
U.
S. Bank, N.A.
|
7/17/2007
|
50,000,000
|
3.56
|
%
|
1
month U.S. Dollar LIBOR
|
943,766
|
||||||||||
|
U.
S. Bank, N.A.*
|
7/17/2011
|
50,000,000
|
4.64
|
%
|
1
month U.S. Dollar LIBOR
|
409,492
|
||||||||||
|
U.
S. Bank, N.A.
|
5/1/2014
|
55,000,000
|
4.54
|
%
|
1
week U.S. Dollar LIBOR
|
1,296,705
|
||||||||||
|
U.
S. Bank, N.A.
|
11/12/2020
|
35,000,000
|
5.20
|
%
|
1
month U.S. Dollar LIBOR
|
(667,614
|
)
|
|||||||||
|
U.
S. Bank, N.A.
|
11/18/2020
|
35,000,000
|
5.21
|
%
|
1
month U.S. Dollar LIBOR
|
(695,958
|
)
|
|||||||||
|
$
|
345,000,000
|
$
|
2,902,516
|
|||||||||||||
____________
|
*
|
The
Company has entered into additional interest
rate swap contracts for
Series A and Series B notes with settlements
commencing on 7/10/2007 and
7/17/2007, respectively.
|
The
Company is exposed to credit risk on the interest rate
swap contracts if the
counterparty should fail to perform under the terms of
the interest rate swap
contracts. The amount of credit risk is limited to the
net appreciation of the
interest rate swap contract, as no collateral is pledged
by the
counterparty.
The
net
realized loss on interest rate swap settlements of $854,814
is derived by
summing the interest rate swap expense of $848,850 and
the change in interest
rate swap expense payable from November 30, 2004 of
$5,964.
11. Common
Stock
The
Company has 100,000,000 shares of capital stock authorized
and 14,905,515 shares
outstanding at November 30, 2005. Transactions in common shares for the
period February 27, 2004 (commencement of operations) to November 30,
2004 and the year ended November 30, 2005, were as
follows:
|
Shares
at February 27, 2004
|
23,047
|
|||
|
Shares
sold through initial public offering and exercise
of overallotment
options
|
12,600,000
|
|||
|
Shares
issued through reinvestment of dividends
|
61,107
|
|||
|
Shares
at November 30, 2004
|
12,684,154
|
|||
|
Shares
sold through secondary offering and exercise
of overallotment
options
|
2,018,281
|
|||
|
Shares
issued through reinvestment of dividends
|
203,080
|
|||
|
Shares
at November 30, 2005
|
14,905,515
|
12. Subsequent
Event
On
December 9, 2005, the Company’s Board of Directors authorized the Company
to file with the SEC one or more shelf registrations
to permit the Company to
issue, in one or more offerings: (1) Common Stock, including Common Stock
issued pursuant to the Company’s Dividend Reinvestment Plan; (2) Preferred
Stock; and (3) debt securities of the Company as the Board of Directors
or
a duly appointed committee shall deem to be in the best
interests of the
Company.
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
SCHEDULE OF
INVESTMENTS (Unaudited)
|
February 28,
2006
|
|||||||
|
Shares
|
Value
|
||||||
|
COMMON
STOCK—1.0%(1)
|
|||||||
|
Natural
Gas Gathering/Processing—1.0%(1)
|
|||||||
|
Crosstex
Energy, Inc. (Cost $2,172,703)
|
54,136
|
$
|
4,307,602
|
||||
|
MASTER
LIMITED PARTNERSHIPS AND RELATED COMPANIES—167.9%(1)
|
|||||||
|
Coal—0.9%(1)
|
|||||||
|
Natural
Resource Partners, L.P.
|
71,800
|
$
|
3,781,706
|
||||
|
Crude/Refined
Products Pipelines—99.4%(1)
|
|||||||
|
Buckeye
Partners, L.P.
|
568,802
|
25,175,177
|
|||||
|
Enbridge
Energy Partners, L.P.
|
904,000
|
40,408,800
|
|||||
|
Holly
Energy Partners, L.P.
|
427,070
|
17,129,778
|
|||||
|
Kinder
Morgan Management, LLC(3)
|
1,464,699
|
64,051,287
|
|||||
|
Magellan
Midstream Partners, L.P.
|
2,190,213
|
68,969,807
|
|||||
|
Pacific
Energy Partners, L.P.
|
656,500
|
20,318,675
|
|||||
|
Pacific
Energy Partners, L.P.(2)
|
325,200
|
9,450,312
|
|||||
|
Plains
All American Pipeline, L.P.
|
1,247,155
|
55,885,016
|
|||||
|
Sunoco
Logistics Partners, L.P.
|
934,625
|
40,058,028
|
|||||
|
TEPPCO
Partners, L.P.
|
812,745
|
29,608,300
|
|||||
|
Valero,
L.P.
|
709,874
|
36,927,645
|
|||||
|
407,982,825
|
|||||||
|
Natural
Gas/Natural Gas Liquid Pipelines—15.7%(1)
|
|||||||
|
Enterprise
GP Holdings, L.P.
|
71,400
|
2,845,290
|
|||||
|
Enterprise
Products Partners, L.P.
|
2,248,940
|
54,604,263
|
|||||
|
Northern
Border Partners, L.P.
|
144,600
|
6,955,260
|
|||||
|
64,404,813
|
|||||||
|
Natural
Gas Gathering/Processing—33.8%(1)
|
|||||||
|
Copano
Energy, LLC
|
91,950
|
3,740,526
|
|||||
|
Copano
Energy, LLC(2)
|
531,701
|
21,198,919
|
|||||
|
Crosstex
Energy, L.P.
|
160,009
|
5,920,333
|
|||||
|
Crosstex
Energy, L.P.(2)
|
108,578
|
3,776,343
|
|||||
|
Energy
Transfer Partners, L.P.
|
1,804,600
|
64,460,312
|
|||||
|
Hiland
Partners, L.P.
|
36,548
|
1,498,468
|
|||||
|
Markwest
Energy Partners, L.P.
|
805,810
|
36,261,450
|
|||||
|
Williams
Partners, L.P.
|
59,750
|
1,977,725
|
|||||
|
138,834,076
|
|||||||
|
Shipping—5.3%(1)
|
|||||||
|
K-Sea
Transportation Partners, L.P.
|
571,300
|
19,806,971
|
|||||
|
Teekay
LNG Partners, L.P.
|
67,200
|
2,042,880
|
|||||
|
21,849,851
|
|||||||
|
Propane
Distribution—12.8%(1)
|
|||||||
|
Inergy,
L.P.
|
1,767,979
|
$
|
48,336,546
|
||||
|
Inergy,
L.P.(2)
|
82,655
|
2,001,904
|
|||||
|
Inergy
Holdings, L.P.
|
61,761
|
2,099,874
|
|||||
|
52,438,324
|
|||||||
| Total Master Limited Partnerships and Related Companies (Cost $531,602,985) |
689,291,595
|
||||||
|
February 28,
2006
|
|||||||
|
Shares
|
Value
|
||||||
|
|
|
||||||
|
Promissory
Note — 1.5%(1)
|
Principal
Amount
|
||||||
|
Shipping
— 1.5%(1)
|
|||||||
|
E.W.
Transportation, LLC — Unregistered, 8.72%, Due
3/31/2009 (Cost $6,133,985)(2)(4)
|
$
|
6,197,549
|
6,133,985
|
||||
|
Short-Term
Investments — 1.5%(1)
|
Shares
|
||||||
|
First
American Government Obligations Money
Market
Fund — Class Y, 4.16%(5)
(Cost $6,196,023)
|
6,196,023
|
6,196,023
|
|||||
|
Total
Investments — 171.9%(1)
(Cost
$546,105,696)
|
705,929,205
|
||||||
|
Auction
Rate Senior Notes — (40.2%)(1)
|
(165,000,000
|
)
|
|||||
|
Interest
Rate Swap Contracts — 0.7%(1)
|
|||||||
|
$345,000,000
notional — Unrealized Appreciation, Net(6)
|
2,965,831
|
||||||
|
Liabilities
in Excess of Cash and Other Assets — (15.4%)(1)
|
(63,252,871
|
)
|
|||||
|
Preferred
Shares at Redemption Value — (17.0%)(1)
|
(70,000,000
|
)
|
|||||
|
Total
Net Assets Applicable to Common Stockholders
— 100.0%(1)
|
$
|
410,642,165
|
|||||
____________
|
(1)
|
Calculated
as a percentage of net assets applicable
to common
stockholders.
|
|
(2)
|
Fair
valued securities represent a total market
value of $42,561,463 which
represents 10.4% of net assets. These
securities are deemed to be
restricted; see Note 6 for further
disclosure.
|
|
(3)
|
Security
distributions are paid in kind. Related
company of master limited
partnership.
|
|
(4)
|
Security
is a variable rate instrument. Interest
rate is as of February 28,
2006.
|
|
(5)
|
Rate
indicated is the 7-day effective
yield.
|
|
(6)
|
See
Note 10 for further
disclosure.
|
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
STATEMENT
OF ASSETS & LIABILITIES (Unaudited)
|
February 28,
2006
|
||||
|
Assets
|
||||
|
Investments
at value (cost $546,105,696)
|
$
|
705,929,205
|
||
|
Cash
|
6,511,031
|
|||
|
Receivable
for Adviser reimbursement
|
263,596
|
|||
|
Receivable
for investments sold
|
—
|
|||
|
Interest
and dividend receivable
|
39,240
|
|||
|
Distribution
receivable
|
—
|
|||
|
Unrealized
appreciation on interest rate swap contracts,
net
|
2,965,831
|
|||
|
Prepaid
expenses and other assets
|
2,557,302
|
|||
|
Total
assets
|
718,266,205
|
|||
|
Liabilities
|
||||
|
Payable
to Adviser
|
1,088,765
|
|||
|
Dividend
payable on common shares
|
7,154,647
|
|||
|
Dividend
payable on preferred shares
|
133,017
|
|||
|
Accrued
expenses and other liabilities
|
272,046
|
|||
|
Current
tax liability
|
58,500
|
|||
|
Deferred
tax liability
|
63,917,065
|
|||
|
Auction
rate senior notes payable:
|
||||
|
Series
A, due July 15, 2044
|
60,000,000
|
|||
|
Series
B, due July 15, 2044
|
50,000,000
|
|||
|
Series
C, due April 10, 2045
|
55,000,000
|
|||
|
Total
liabilities
|
237,624,040
|
|||
|
Preferred
Shares
|
||||
|
$25,000
liquidation value per share applicable
to 2,800 outstanding shares (7,500
shares authorized)
|
70,000,000
|
|||
|
Net
assets applicable to common stockholders
|
$
|
410,642,165
|
||
|
Net
Assets Applicable to Common Stockholders
Consist
of
|
||||
|
Capital
stock, $0.001 par value; 14,905,515 shares
issued and outstanding
(100,000,000 shares authorized)
|
$
|
14,906
|
||
|
Additional
paid-in capital
|
310,907,047
|
|||
|
Accumulated
net investment loss, net of deferred
tax benefit
|
(3,468,317
|
)
|
||
|
Undistributed
realized gain, net of deferred tax expense
|
4,116,258
|
|||
|
Net
unrealized gain on investments and interest
rate swap contracts, net of
deferred tax expense
|
99,072,271
|
|||
|
Net
assets applicable to common stockholders
|
$
|
410,642,165
|
||
|
Net
Asset Value per common share outstanding
(net assets applicable to common
shares, divided by common shares outstanding)
|
$
|
27.55
|
||
See
Accompanying Notes to the Financial Statements.
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
STATEMENT
OF OPERATIONS (Unaudited)
|
Period
from
December 1,
2005 through
February 28,
2006
|
||||
|
Investment
Income
|
||||
|
Distributions
received from master limited partnerships
|
$
|
10,600,860
|
||
|
Less
return of capital on distributions
|
(8,132,187
|
)
|
||
|
Distribution
income from master limited partnerships
|
2,468,673
|
|||
|
Dividends
from common stock
|
30,988
|
|||
|
Dividends
from money market mutual funds
|
53,431
|
|||
|
Interest
|
143,188
|
|||
|
Total
Investment Income
|
2,696,280
|
|||
|
Expenses
|
||||
|
Advisory
fees
|
1,646,552
|
|||
|
Administrator
fees
|
114,464
|
|||
|
Professional
fees
|
95,911
|
|||
|
Reports
to stockholders
|
33,140
|
|||
|
Directors’
fees
|
29,178
|
|||
|
Custodian
fees and expenses
|
16,274
|
|||
|
Fund
accounting fees
|
14,794
|
|||
|
Registration
fees
|
14,041
|
|||
|
Stock
transfer agent fees
|
3,373
|
|||
|
Other
expenses
|
22,161
|
|||
|
Total
Expenses before Interest Expense and
Auction Agent
Fees
|
1,989,888
|
|||
|
Interest
expense
|
1,805,794
|
|||
|
Auction
agent fees
|
159,515
|
|||
|
Total
Interest Expense and Auction Agent
Fees
|
1,965,309
|
|||
|
Total
Expenses
|
3,955,197
|
|||
|
Less
expense reimbursement by Adviser
|
(398,639
|
)
|
||
|
Net
Expenses
|
3,556,558
|
|||
|
Net
Investment Loss, before income taxes
|
(860,278
|
)
|
||
|
Current
tax expense
|
(58,500
|
)
|
||
|
Deferred
tax benefit
|
358,323
|
|||
|
Income
tax benefit
|
299,823
|
|||
|
Net
Investment Loss
|
(560,455
|
)
|
||
|
Realized
and Unrealized Gain on Investments
|
||||
|
Net
realized gain on investments
|
$
|
380,366
|
||
|
Net
realized gain on interest rate swap
settlements
|
13,522
|
|||
|
Net
realized gain, before deferred tax
expense
|
393,888
|
|||
|
Deferred
tax expense
|
(153,616
|
)
|
||
|
Net
realized gain on investments and interest
rate swap
settlements
|
240,272
|
|||
|
Net
unrealized appreciation of investments
|
23,899,784
|
|||
|
Net
unrealized appreciation of interest
rate swap contracts
|
63,315
|
|||
|
Net
unrealized gain, before deferred tax
expense
|
23,963,099
|
|||
|
Deferred
tax expense
|
(9,346,595
|
)
|
||
|
Net
unrealized appreciation of investments
and interest rate swap
contracts
|
14,616,504
|
|||
|
Net
Realized and Unrealized Gain on Investments
|
14,856,776
|
|||
| Dividends to Preferred Stockholders |
(773,009
|
) | ||
| Net Increase in Net Assets Applicable to Common Stockholders Resulting from Operations | $ | 13,523,312 | ||
See
Accompanying Notes to the Financial Statements.
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
STATEMENT
OF CHANGES IN NET ASSETS
|
Period
from December 1, 2005 through
February 28,
2006
(unaudited)
|
Year
Ended
November 30,
2005
|
||||||
|
Operations
|
|||||||
|
Net
investment loss
|
$
|
(560,455
|
)
|
$
|
(2,664,574
|
)
|
|
|
Net
realized gain on investments and
interest rate swap
settlements
|
240,272
|
3,910,013
|
|||||
|
Net
unrealized appreciation of investments
and interest rate swap
contracts
|
14,616,504
|
36,586,625
|
|||||
|
Dividends
to preferred stockholders
|
(773,009
|
)
|
(1,639,910
|
)
|
|||
|
Net
increase in net assets applicable
to common stockholders resulting
from
operations
|
13,523,312
|
36,192,154
|
|||||
|
Dividends
and Distributions to Common Stockholders
|
|||||||
|
Net
investment income
|
—
|
—
|
|||||
|
Return
of capital
|
(7,154,647
|
)
|
(26,506,341
|
)
|
|||
|
Total
dividends to common stockholders
|
(7,154,647
|
)
|
(26,506,341
|
)
|
|||
|
Capital
Share Transactions
|
|||||||
|
Proceeds
from secondary offering of 1,755,027
common shares
|
—
|
47,999,988
|
|||||
|
Proceeds
from issuance of 263,254 common
shares in connection with exercising
an
overallotment option granted to
underwriters of the secondary
offering
|
—
|
7,199,997
|
|||||
|
Underwriting
discounts and offering expenses
associated with the issuance of
common
shares
|
—
|
(2,443,688
|
)
|
||||
|
Underwriting
discounts and offering expenses
associated with the issuance of
preferred
shares
|
—
|
(356,815
|
)
|
||||
|
Issuance
of 203,080 common shares from reinvestment
of dividend distributions to
stockholders
|
—
|
5,635,662
|
|||||
|
Net
increase in net assets, applicable
to common stockholders, from capital
share transactions
|
—
|
58,035,144
|
|||||
|
Total
increase in net assets applicable
to common stockholders
|
6,368,665
|
67,720,957
|
|||||
|
Net
Assets
|
|||||||
|
Beginning
of period
|
404,273,500
|
336,552,543
|
|||||
|
End
of period
|
$
|
410,642,165
|
$
|
404,273,500
|
|||
|
Accumulated
net investment loss, net of deferred
tax benefit, at end of
period
|
$
|
(3,468,317
|
)
|
$
|
(2,907,862
|
)
|
|
See
Accompanying Notes to the Financial Statements.
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
STATEMENT
OF CASH FLOWS (Unaudited)
|
Period
from December 1, 2005 through
February 28,
2006
|
||||
|
Cash
Flows from Operating Activities
|
||||
|
Distributions
received from master limited
partnerships
|
$
|
10,600,860
|
||
|
Interest
and dividend income received
|
221,788
|
|||
|
Purchases
of long-term investments
|
(157,675
|
)
|
||
|
Proceeds
from sale of long-term investments
|
1,183,191
|
|||
|
Purchases
of short-term investments, net
|
(499,609
|
)
|
||
|
Proceeds
from interest rate swap settlements,
net
|
13,522
|
|||
|
Interest
expense paid
|
(2,034,307
|
)
|
||
|
Operating
expenses paid
|
(2,038,443
|
)
|
||
|
Net
cash provided by operating activities
|
7,289,327
|
|||
|
Cash
Flows from Financing Activities
|
||||
|
Dividends
paid to preferred stockholders
|
(823,718
|
)
|
||
|
Net
cash used in financing activities
|
(823,718
|
)
|
||
|
Net
increase in cash
|
6,465,609
|
|||
|
Cash—beginning
of period
|
45,422
|
|||
|
Cash—end
of period
|
$
|
6,511,031
|
||
|
Reconciliation
of net increase in net assets
applicable to common stockholders
resulting
from operations to net cash provided
by operating
activities
|
||||
|
Net
increase in net assets applicable
to common stockholders resulting
from
operations
|
$
|
13,523,312
|
||
|
Adjustments
to reconcile net increase in
net assets applicable to common
stockholders
resulting from operations to
net cash provided by operating
activities:
|
||||
|
Purchases
of long-term investments
|
(157,675
|
)
|
||
|
Return
of capital adjustments
|
8,132,187
|
|||
|
Proceeds
from sales of long-term investments
|
1,183,191
|
|||
|
Purchases
of short-term investments, net
|
(499,609
|
)
|
||
|
Deferred
income taxes
|
9,141,888
|
|||
|
Net
unrealized appreciation on investments
and interest rate swap
contracts
|
(23,963,099
|
)
|
||
|
Realized
gains on investments and interest
rate swap settlements
|
(393,888
|
)
|
||
|
Accretion
of discount on investments
|
(4,342
|
)
|
||
|
Amortization
of debt issuance costs
|
14,198
|
|||
|
Dividends
to preferred stockholders
|
773,009
|
|||
|
Changes
in operating assets and liabilities:
|
||||
|
Increase
in interest and dividend receivable
|
(1,477
|
)
|
||
|
Increase
in prepaid expenses and other
assets
|
(143,847
|
)
|
||
|
Decrease
in receivable for investments
sold
|
—
|
|||
|
Decrease
in current tax liability
|
(155,761
|
)
|
||
|
Decrease
in payable to Adviser, net of
expense reimbursement
|
(38,207
|
)
|
||
|
Decrease
in accrued expenses and other
liabilities
|
(120,553
|
)
|
||
|
Total
adjustments
|
(6,233,985
|
)
|
||
|
Net
cash provided by operating activities
|
$
|
7,289,327
|
||
See
Accompanying Notes to the Financial Statements.
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
FINANCIAL
HIGHLIGHTS
|
Period
from December 1, 2005 through February 28,
2006
|
Year
Ended
November
30, 2005
|
Period
from
February
27, 2004(1)
through
November
30, 2004
|
||||||||
|
(Unaudited)
|
||||||||||
|
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
and underwriting discounts
and offering costs on secondary
offering(3)
|
—
|
—
|
—
|
|||||||
|
Income
(loss) from Investment Operations:
|
||||||||||
|
Net
investment loss(4)
|
(0.04
|
)
|
(0.16
|
)
|
(0.03
|
)
|
||||
|
Net
realized and unrealized gain
on investments(4)
|
1.00
|
2.67
|
3.77
|
|||||||
|
Total
increase from investment
operations
|
0.96
|
2.51
|
3.74
|
|||||||
|
Less
Dividends to Preferred Stockholders:
|
||||||||||
|
Net
investment income
|
—
|
—
|
—
|
|||||||
|
Return
of capital
|
(0.05
|
)
|
(0.11
|
)
|
(0.01
|
)
|
||||
|
Total
dividends to preferred stockholders
|
(0.05
|
)
|
(0.11
|
)
|
(0.01
|
)
|
||||
|
Less
Dividends to Common Stockholders:
|
||||||||||
|
Net
investment income
|
—
|
—
|
—
|
|||||||
|
Return
of capital
|
(0.48
|
)
|
(1.79
|
)
|
(0.97
|
)
|
||||
|
Total
dividends to common stockholders
|
(0.48
|
)
|
(1.79
|
)
|
(0.97
|
)
|
||||
|
Net
Asset Value, end of period
|
$
|
27.55
|
$
|
27.12
|
$
|
26.53
|
||||
|
Per
common share market value,
end of period
|
$
|
29.42
|
$
|
28.72
|
$
|
27.06
|
||||
|
Total
Investment Return Based on
Market Value(5)
|
4.22
|
%
|
13.06
|
%
|
12.51
|
%
|
||||
|
Supplemental
Data and Ratios
|
||||||||||
|
Net
assets applicable to common
stockholders, end of period
(000’s)
|
$
|
410,642
|
404,274
|
336,553
|
||||||
|
Ratio
of expenses (including current
and deferred income tax expense)
to average
net assets before waiver:(6)(7)(8)
|
12.97
|
%
|
9.10
|
%
|
15.20
|
%
|
||||
|
Ratio
of expenses (including current
and deferred income tax expense)
to average
net assets after waiver:(6)(7)(8)
|
12.58
|
%
|
8.73
|
%
|
14.92
|
%
|
||||
|
Ratio
of expenses (excluding current
and deferred income tax expense)
to average
net assets before waiver:(6)(7)(8)
|
3.96
|
%
|
3.15
|
%
|
2.01
|
%
|
||||
|
Ratio
of expenses (excluding current
and deferred income tax expense)
to average
net assets after waiver:(6)(7)(8)
|
3.57
|
%
|
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:(6)(7)(8)
|
3.96
|
%
|
3.15
|
%
|
1.90
|
%
|
||||
|
Ratio
of expenses (excluding current
and deferred income tax expense),
without
regard to non-recurring organizational
expenses, to average net
assets
after waiver:(6)(7)(8)
|
3.57
|
%
|
2.78
|
%
|
1.62
|
%
|
||||
F-24
|
Period
from December 1, 2005 through February 28,
2006
|
Year
Ended
November
30, 2005
|
Period
from
February
27, 2004(1)
through
November
30, 2004
|
||||||||
|
Ratio
of net investment loss to
average net assets before
waiver:(6)(7)(9)
|
(1.30
|
)%
|
(1.42
|
)%
|
(0.45
|
)%
|
|
Ratio
of net investment loss to
average net assets after
waiver:(6)(7)(9)
|
(0.91
|
)%
|
(1.05
|
)%
|
(0.17
|
)%
|
||||
|
Ratio
of net investment loss to
average net assets after
current and deferred
income tax expense, before
waiver:(6)(8)
|
(10.31
|
)%
|
(7.37
|
)%
|
(13.37
|
)%
|
||||
|
Ratio
of net investment loss to
average net assets after
current and deferred
income tax expense, after
waiver:(6)(8)
|
(9.92
|
)%
|
(7.00
|
)%
|
(13.65
|
)%
|
||||
|
Portfolio
turnover rate
|
0.02
|
%
|
4.92
|
%
|
1.39
|
%
|
||||
|
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
|
$
|
11.07
|
$
|
11.07
|
$
|
8.67
|
||||
|
Per
common share amount of net
assets, excluding auction
rate senior notes, at
end of period
|
$
|
38.62
|
$
|
38.19
|
$
|
35.21
|
||||
|
Asset
coverage, per $1,000 of principal
amount of auction rate senior
notes
|
||||||||||
|
Series
A
|
$
|
3,913
|
$
|
3,874
|
$
|
4,378
|
||||
|
Series
B
|
$
|
3,913
|
$
|
3,874
|
$
|
4,378
|
||||
|
Series
C
|
$
|
3,913
|
$
|
3,874
|
$
|
—
|
||||
|
Asset
coverage, per $25,000 liquidation
value per share of preferred
shares
|
$
|
171,658
|
$
|
169,383
|
$
|
265,395
|
||||
|
Asset
coverage ratio of auction
rate senior notes(10)
|
391
|
%
|
387
|
%
|
438
|
%
|
||||
|
Asset
coverage ratio of MMP shares(11)
|
275
|
%
|
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 ending November
30,
2005.
|
|
(4)
|
The
per common share data for the
period ended November 30, 2004,
do not
reflect the change in estimate
of investment income and return
of capital.
See note 2 of the Accompanying
Notes to the Financial
Statements.
|
|
(5)
|
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.
|
|
(6)
|
Annualized
for periods less than one full
year.
|
|
(7)
|
The
expense ratios and net investment
ratios do not reflect the effect
of
dividend payments to preferred
stockholders.
|
|
(8)
|
The
Company accrued $24,659,420
and $30,330,018 for the year
ended November
30, 2005 and for the period
from February 27, 2004 through
November 30,
2004, respectively, in current
and deferred income
taxes.
|
|
(9)
|
The
ratio excludes net deferred
income tax benefit on net investment
income.
|
|
(10)
|
Represents
value of total assets less
all liabilities and indebtedness
not
represented by auction rate
senior notes and MMP shares
at the end of the
period divided by auction rate
senior notes outstanding at
the end of the
period.
|
|
(11)
|
Represents
value of total assets less
all liabilities and indebtedness
not
represented by auction rate
senior notes and MMP shares
at the end of the
period, divided by the sum
of auction rate senior notes
and MMP shares
outstanding at the end of the
period.
|
See
Accompanying Notes to the Financial Statements.
F-25
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
February 28,
2006
1. Organization
Tortoise
Energy Infrastructure Corp. (the “Company”) was organized as a Maryland
corporation on October 29, 2003, and is a non-diversified, closed-end
management investment company under the
Investment Company Act of 1940, as
amended (the “1940 Act”). The Company’s investment objective is to seek a high
level of total return with an emphasis
on current dividends paid to
shareholders. The Company seeks to provide
its shareholders with an efficient
vehicle to invest in the energy infrastructure
sector. The Company commenced
operations on February 27, 2004. The Company’s shares are listed on the New
York Stock Exchange under the symbol
“TYG.”
2. Significant
Accounting Policies
A. Use
of Estimates
The
preparation of financial statements in
conformity with U.S. generally accepted
accounting principles requires management
to make estimates and assumptions that
affect the reported amount of assets
and liabilities, recognition of
distribution income and disclosure of
contingent assets and liabilities at
the
date of the financial statements. Actual
results could differ from those
estimates.
B. Investment
Valuation
The
Company primarily owns securities that
are listed on a securities exchange.
The
Company values those securities at their
last sale price on that exchange on the
valuation date. If the security is listed
on more than one exchange, the Company
will use the price of the exchange that
it generally considers to be the
principal exchange on which the security
is traded. Securities listed on the
NASDAQ will be valued at the NASDAQ Official
Closing Price, which may not
necessarily represent the last sale price.
If there has been no sale on such
exchange or NASDAQ on such day, the security
will be valued at the mean between
bid and ask price on such day.
The
Company may invest up to 30 percent of
its total assets in restricted
securities. Restricted securities are
subject to statutory or contractual
restrictions on their public resale,
which may make it more difficult to obtain
a valuation and may limit the Company’s ability to dispose of them. Investments
in private placement securities and other
securities for which market quotations
are not readily available will be valued
in good faith by using fair value
procedures approved by the Board of Directors.
Such fair value procedures
consider factors such as discounts to
publicly traded issues, securities with
similar yields, quality, type of issue,
coupon, duration and rating. If events
occur that will affect the value of the
Company’s portfolio securities before
the net asset value has been calculated
(a “significant event”), the portfolio
securities so affected will generally
be priced using a fair value
procedure.
The
Company generally values short-term debt
securities at prices based on market
quotations for such securities, except
those securities purchased with 60 days
or less to maturity are valued on the
basis of amortized cost, which
approximates market value.
The
Company generally values its interest
rate swap contracts by discounting the
future cash flows from the stated terms
of the interest rate swap agreement by
using interest rates currently available
in the market, or based on dealer
quotations, if available.
C. Security
Transactions and Investment Income
Security
transactions are accounted for on the
date the securities are purchased or
sold
(trade date). Realized gains and losses
are reported on an identified cost
basis. Interest income is recognized
on the accrual basis, including
amortization of premiums and accretion
of discounts. Distributions are recorded
on the ex-dividend date. Distributions
received from the Company’s investments
in master limited partnerships (“MLPs”) generally are comprised of ordinary
income, capital gains and return of capital
from the MLP. The Company records
investment income and return of capital
based on estimates made at the time such
distributions are received. Such estimates
are based on historical information
available from each MLP and other industry
sources. These estimates may
subsequently be revised based on information
received from MLPs after their tax
reporting periods are concluded, as the
actual character of these distributions
are not known until after the fiscal
year-end of the Company.
D. Dividends
to Stockholders
Dividends
to common stockholders are recorded on
the ex-dividend date. The character of
dividends to common stockholders made
during the year may differ from their
ultimate characterization for federal
income tax purposes. For the year ended
November 30, 2005 and the period ended February 28, 2006, the
Company’s dividends, for book purposes, were
comprised entirely of return of
capital as a result of the net investment
loss incurred by the Company in each
reporting period. For the year ended
November 30, 2005, for tax purposes,
the Company determined the dividends
to common stockholders were comprised
of
100 percent return of capital.
Dividends
to preferred stockholders are based on
variable rates set at auctions, normally
held every 28 days. Dividends on preferred
shares are accrued on a daily basis
for the subsequent 28 day period at a
rate as determined on the auction date.
Dividends on preferred shares are payable
every 28 days, on the first day
following the end of the dividend period.
E. Federal
Income Taxation
The
Company, as a corporation, is obligated
to pay federal and state income tax on
its taxable income. The Company invests
its assets primarily in MLPs, which
generally are treated as partnerships
for federal income tax purposes. As a
limited partner in the MLPs, the Company
reports its allocable share of the
MLP’s taxable income in computing its own
taxable income. The Company’s tax
expense or benefit will be included in
the Statement of Operations based on
the
component of income or gains (losses)
to which such expense or benefit relates.
Deferred income taxes reflect the net
tax effects of temporary differences
between the carrying amounts of assets
and liabilities for financial reporting
purposes and the amounts used for income
tax purposes.
F. Organization
Expenses, Offering and Debt Issuance
Costs
The
Company is responsible for paying all
organizational expenses, which were
expensed as incurred. Offering costs
related to the issuance of common and
preferred stock are charged to additional
paid-in capital when the shares are
issued. Offering costs (excluding underwriter
commissions) of $164,530 were
charged to additional paid-in capital
for the MMP II preferred shares
issued in July of 2005. Debt issuance costs related
to the auction rate
senior notes payable are capitalized
and amortized over the
period
the notes are outstanding. The amount
of such capitalized costs (excluding
underwriter commissions) for Auction
Rate Senior Notes Series C issued in
April of 2005, was $254,099.
G. Derivative
Financial Instruments
The
Company uses derivative financial instruments
(principally interest rate swap
contracts) to manage interest rate
risk. The Company has established policies
and procedures for risk assessment
and the approval, reporting and monitoring
of
derivative financial instrument activities.
The Company does not hold or issue
derivative financial instruments for
speculative purposes. All derivative
financial instruments are recorded
at fair value with changes in value
during
the reporting period, and amounts accrued
under the agreements, included as
unrealized gains or losses in the Statement
of Operations. Monthly cash
settlements under the terms of the
interest rate swap agreements are recorded
as
realized gains or losses in the Statement
of Operations.
H. Indemnifications
Under
the
Company’s organizational documents, its officers
and directors are indemnified
against certain liabilities arising
out of the performance of their duties
to
the Company. In addition, in the normal
course of business, the Company may
enter into contracts that provide general
indemnification to other parties. The
Company’s maximum exposure under these arrangements
is unknown, as this would
involve future claims that may be made
against the Company that have not yet
occurred, and may not occur. However,
the Company has not had prior claims
or
losses pursuant to these contracts
and expects the risk of loss to be
remote.
3. Concentration
of Risk
The
Company’s investment objective is to seek a
high level of total return with an
emphasis on current dividends paid
to its shareholders. Under normal
circumstances, the Company intends
to invest at least 90 percent of its
total
assets in securities of domestic energy
infrastructure companies, and will
invest at least 70 percent of its total
assets in equity securities of MLPs.
The
Company will not invest more than 10
percent of its total assets in any
single
issuer as of the time of purchase.
The Company may invest up to 25 percent
of
its assets in debt securities, which
may include below investment grade
securities. Companies that primarily
invest in a particular sector may
experience greater volatility than
companies investing in a broad range
of
industry sectors. The Company may,
for defensive purposes, temporarily
invest
all or a significant portion of its
assets in investment grade securities,
short-term debt securities and cash
or cash equivalents. To the extent
the
Company uses this strategy, it may
not achieve its investment
objectives.
4. Agreements
The
Company has entered into an Investment
Advisory Agreement with Tortoise Capital
Advisors, LLC (the “Adviser”). Under the terms of the agreement,
the Company
will pay the Adviser a fee equal to
an annual rate of 0.95 percent of the
Company’s average monthly total assets (including
any assets attributable to
leverage) minus the sum of accrued
liabilities (other than deferred income
taxes, debt entered into for purposes
of leverage and the aggregate liquidation
preference of outstanding preferred
shares) (“Managed Assets”), in exchange for
the investment advisory services provided.
For the period following the
commencement of the Company’s operations through February 28, 2006, the
Adviser has agreed to waive or reimburse
the Company for fees and expenses in
an
amount equal to 0.23 percent of the
average monthly Managed Assets of the
Company. For years ending February 28, 2007, 2008 and 2009, the Adviser
has
agreed to waive or reimburse the Company
for fees and expenses in an amount
equal to 0.10 percent of the average
monthly Managed Assets of the
Company.
The
Company has engaged U.S. Bancorp
Fund Services, LLC to serve as the
Company’s
administrator. The Company pays the
administrator a monthly fee computed
at an
annual rate of 0.07 percent of the
first $300 million of the Company’s Managed
Assets, 0.06 percent on the next
$500 million of Managed Assets and
0.04 percent
on the balance of the Company’s Managed Assets, subject to a minimum
annual fee
of $45,000.
Computershare
Investor Services, LLC serves as
the Company’s transfer agent, dividend paying
agent, and agent for the automatic
dividend reinvestment
plan.
U.S.
Bank, N.A. serves as the Company’s custodian. The Company pays the
custodian a
monthly fee computed at an annual
rate of 0.015 percent on the first
$100
million of the Company’s Managed Assets and 0.01 percent
on the balance of the
Company’s Managed Assets, subject to a minimum
annual fee of
$4,800.
5. Income
Taxes
Deferred
income taxes reflect the net tax
effect of temporary differences between
the
carrying amount of assets and liabilities
for financial reporting and tax
purposes. Components of the Company’s deferred tax assets and liabilities
as of
February 28, 2006 are as follows:
|
Deferred
tax assets:
|
||||
|
Net
operating loss carryforwards
|
$
|
8,564,090
|
||
|
Organization
costs
|
58,267
|
|||
|
8,622,357
|
||||
|
Deferred
tax liabilities:
|
||||
|
Unrealized
gains on investment securities
and interest rate swap
contracts
|
63,487,843
|
|||
|
Basis
reduction of investment
in MLPs
|
9,051,579
|
|||
|
72,539,422
|
||||
|
Total
net deferred tax liability
|
$
|
63,917,065
|
For
the
period from December 1, 2005 to February 28, 2006, the components of
income tax expense include foreign
taxes of $58,500 and deferred federal
and
state income taxes (net of federal
tax benefit) of $8,204,258 and $937,630,
respectively. As of November 30, 2005, the Company had a net operating
loss
for federal income tax purposes of
approximately $19,171,000. If not
utilized,
this net operating loss will expire
as follows: $2,833,000 and $16,338,000
in
the years ending November 30, 2024 and 2025, respectively.
Total
income taxes differ from the amount
computed by applying the federal
statutory
income tax rate of 35 percent to
net investment income and realized
and
unrealized gains on investments and
interest rate swap contracts before
taxes
for the period from December 1, 2005 through February 28, 2006, as
follows:
|
Application
of statutory income tax
rate
|
$
|
8,223,848
|
||
|
State
income taxes, net of federal
tax benefit
|
939,868
|
|||
|
Other,
net
|
36,672
|
|||
|
Total
|
$
|
9,200,388
|
6. Restricted
Securities
Certain
of the Company’s investments are restricted and
are valued as determined in
accordance with procedures established
by the Board of Directors and more
fully
described in Note 2. The table below
shows
the
number of units held or principal
amount, the acquisition dates,
acquisition
costs, value per unit of such
securities and percent of net
assets which the
securities comprise.
|
Investment
Security
|
Number
of Units or Principal
Amount
|
Acquisition
Date
|
Acquisition
Cost
|
Value
Per Unit
|
Percent
of Net Assets
|
||||||||||||||
|
Copano
Energy, LLC
|
Common
Units
|
531,701
|
8/01/05
|
$
|
15,000,089
|
$
|
39.87
|
5.2
|
%
|
||||||||||
|
Crosstex
Energy, L.P.
|
Common
Units
|
108,578
|
11/01/05
|
4,000,014
|
34.78
|
0.9
|
|||||||||||||
|
Pacific
Energy Partners,
L.P.
|
Common
Units
|
325,200
|
9/30/05
|
9,824,902
|
29.06
|
2.3
|
|||||||||||||
|
Inergy,
L.P.
|
Subordinated
Units
|
82,655
|
9/14/04-
2/04/05
|
2,232,123
|
24.22
|
0.5
|
|||||||||||||
|
E.W.
Transportation, LLC
|
Promissory
Note
|
$
|
6,197,549
|
5/03/04
|
8,569,500
|
N/A
|
1.5
|
||||||||||||
|
$
|
39,626,628
|
10.4
|
%
|
||||||||||||||||
7. Investment
Transactions
For
the
period ended February 28, 2006, the Company purchased
(at cost) and sold
securities (at proceeds) in
the amount of $157,675 and
$1,183,191 (excluding
short-term debt securities
and interest rate swaps),
respectively.
8. Auction
Rate Senior Notes
The
Company has issued $60,000,000,
$50,000,000, and $55,000,000
aggregate principal
amount of auction rate senior
notes Series A, Series B, and
Series C,
respectively (collectively, the
“Notes”). The Notes were issued in denominations
of $25,000. The principal amount
of the Notes will be due and
payable on
July 15, 2044 for Series A and Series
B, and April 10, 2045 for Series
C. Fair value of the notes approximates
carrying amount because the interest
rate fluctuates with changes
in interest rates available in
the current
market.
Holders
of the Notes are entitled to
receive cash interest payments
at an annual rate
that may vary for each rate period.
Interest rates for Series A,
Series B, and
Series C as of February 28, 2006 were 4.79 percent, 4.80
percent, and 4.81
percent, respectively. The weighted
average interest rates for Series
A, Series
B, and Series C for the period
ended February 28, 2006, were 4.63 percent,
4.64 percent, and 4.51 percent,
respectively. These rates include
the applicable
rate based on the latest results
of the auction, plus commissions
paid to the
auction agent in the amount of
0.25 percent. For each subsequent
rate period,
the interest rate will be determined
by an auction conducted in accordance
with
the procedures described in the
Notes’ prospectus. Generally, the rate
period
will be 28 days for Series A
and Series B, and 7 days for
Series C. The Notes
are not listed on any exchange
or automated quotation system.
The
Notes
are redeemable in certain circumstances
at the option of the Company.
The Notes
are also subject to a mandatory
redemption if the Company fails
to meet an asset
coverage ratio required by law,
or fails to cure a deficiency
as stated in the
Company’s rating agency guidelines in
a timely manner.
The
Notes
are unsecured obligations of
the Company and, upon liquidation,
dissolution or
winding up of the Company, will
rank: (1) senior to all the Company’s
outstanding preferred shares;
(2) senior to all of the Company’s outstanding
common shares; (3) on a parity
with any unsecured creditors
of the Company and
any unsecured senior securities
representing indebtedness of
the Company; and
(4) junior to any secured creditors
of the Company.
9. Preferred
Shares
The
Company has 7,500 authorized
Money Market Preferred (“MMP”) Shares, of which
2,800 shares (1,400 MMP Shares
and 1,400 MMP II Shares) are currently
outstanding. The MMP and MMP II Shares
have
rights determined by the Board
of Directors. The MMP and MMP II Shares have
a liquidation value of $25,000
per share plus any accumulated,
but unpaid
dividends, whether or not declared.
Holders
of the MMP and MMP II Shares are entitled to receive
cash dividend payments
at an annual rate that may
vary for each rate period.
The dividend rates for MMP
and MMP II Shares as of February 28, 2006, were 4.80 percent
and 4.88
percent, respectively. The
weighted average dividend rate
for MMP and
MMP II Shares for the period ended
February 28, 2006, were 4.64
percent and 4.71 percent, respectively.
These rates include the applicable
rate
based on the latest results
of the auction, plus commissions
paid to the auction
agent in the amount of 0.25
percent. Under the Investment
Company Act of 1940,
the Company may not declare
dividends or make other distribution
on shares of
common stock or purchases of
such shares if, at the time
of the declaration,
distribution or purchase, asset
coverage with respect to the
outstanding MMP
Shares would be less than 200
percent.
The
MMP
and MMP II Shares are redeemable in
certain circumstances at the
option of
the Company. The MMP and MMP II Shares are also subject
to a mandatory
redemption if the Company fails
to meet an asset coverage ratio
required by law,
or fails to cure a deficiency
as stated in the Company’s rating agency
guidelines in a timely manner.
The
holders of MMP and MMP II Shares have voting rights
equal to the holders of
common stock (one vote per
share) and will vote together
with the holders of
shares of common stock as a
single class except on matters
affecting only the
holders of preferred stock
or the holders of common stock.
10. Interest
Rate Swap Contracts
The
Company has entered into interest
rate swap contracts to protect
itself from
increasing interest expense
on its leverage resulting from
increasing short-term
interest rates. A decline in
interest rates may result in
a decline in the value
of the swap contracts, which
may result in a decline in
the net assets of the
Company. In addition, if the
counterparty to the interest
rate swap contracts
defaults, the Company would
not be able to use the anticipated
receipts under
the swap contracts to offset
the interest payments on the
Company’s leverage. At
the time the interest rate
swap contracts reach their
scheduled termination,
there is a risk that the Company
would not be able to obtain
a replacement
transaction or that the terms
of the replacement would not
be as favorable as on
the expiring transaction. In
addition, if the Company is
required to terminate
any swap contract early due
to the Company failing to maintain
a required 300
percent asset coverage of the
liquidation value of the outstanding
auction rate
senior notes or if the Company
loses its credit rating on
its auction rate
senior notes, then the Company
could be required to make a
termination payment,
in addition to redeeming all
or some of the auction rate
senior notes. Details
of the interest rate swap contracts
outstanding as of February 28, 2006,
were as follows:
|
Counterparty
|
Maturity
Date
|
Notional
Amount
|
Fixed
Rate Paid by the
Company
|
Floating
Rate Received by
the Company
|
Unrealized
Appreciation/ (Depreciation)
|
|||||||||||
|
U.
S. Bank, N.A.
|
7/10/2007
|
$
|
60,000,000
|
3.54
|
%
|
1
month U.S. Dollar
LIBOR
|
$
|
1,164,255
|
||||||||
|
U.
S. Bank, N.A.*
|
7/10/2011
|
60,000,000
|
4.63
|
%
|
1
month U.S. Dollar
LIBOR
|
610,359
|
||||||||||
|
U.
S. Bank, N.A.
|
7/17/2007
|
50,000,000
|
3.56
|
%
|
1
month U.S. Dollar
LIBOR
|
1,005,206
|
||||||||||
|
U.
S. Bank, N.A.*
|
7/17/2011
|
50,000,000
|
4.64
|
%
|
1
month U.S. Dollar
LIBOR
|
499,466
|
||||||||||
|
U.
S. Bank, N.A.
|
5/01/2014
|
55,000,000
|
4.54
|
%
|
1
week U.S. Dollar
LIBOR
|
1,489,314
|
||||||||||
|
U.
S. Bank, N.A.
|
11/12/2020
|
35,000,000
|
5.20
|
%
|
1
month U.S. Dollar
LIBOR
|
(880,707
|
)
|
|||||||||
|
U.
S. Bank, N.A.
|
11/18/2020
|
35,000,000
|
5.21
|
%
|
1
month U.S. Dollar
LIBOR
|
(922,062
|
)
|
|||||||||
|
$
|
345,000,000
|
$
|
2,965,831
|
|||||||||||||
____________
* The
Company has entered into additional
interest rate swap contracts
for Series A
and Series B notes with settlements
commencing on 7/10/2007 and
7/17/2007,
respectively.
The
Company is exposed to credit
risk on the interest rate
swap contracts if the
counterparty should fail
to perform under the terms
of the interest rate swap
contracts. The amount of
credit risk is limited to
the net appreciation of the
interest rate swap contract,
as no collateral is pledged
by the
counterparty.
11. Common
Stock
The
Company has 100,000,000 shares
of capital stock authorized
and 14,905,515 shares
outstanding at February 28,
2006. Transactions in common
shares for the year
ended November 30, 2005 were
as follows:
|
Shares
at November 30, 2004
|
12,684,154
|
|||
|
Shares
sold through secondary
offering and exercise
of overallotment
options
|
2,018,281
|
|||
|
Shares
issued through
reinvestment of
dividends
|
203,080
|
|||
|
Shares
at November 30, 2005
|
14,905,515
|
There
were no transactions in common
shares for the period from
December 1, 2005
through February 28, 2006.
12. Subsequent
Event
On
March
1, 2006, the Company paid
a dividend in the amount
of $0.48 per share, for a
total of $7,154,647. Of this
total, the dividend reinvestment
amounted to
$1,063,107.
APPENDIX
A
-
SUMMARY
OF CERTAIN
PROVISIONS OF THE INDENTURE
AND
SUPPLEMENTAL
INDENTURE
The
following is a summary of certain provisions of the indenture dated July 13,
2004 (the “Original Indenture”) and the 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 a Standard Rate Period or shorter, (2) the 30-day
rate, in the case of Rate Periods 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
the
Auction Agent. 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
Corporation, 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 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,
with respect to each series of Tortoise Notes for each Rate Period (i) if
Sufficient Clearing Orders exist for the Auction in respect thereof, the Winning
Bid Rate, (ii) if
Sufficient
Clearing Orders do not exist for the Auction in respect thereof, the Maximum
Rate, (iii) in the case where all the Tortoise Notes of a series 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.
“Auction”
means
each periodic operation of the procedures set forth in Appendix I—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
Date”
means
the first Business Day next preceding the first day of a Rate Period for each
series of Tortoise Notes.
“Auction
Procedures”
means
the procedures for conducting Auctions set forth in Appendix I
hereto.
“Authorized
Denominations”
means
$25,000 and any integral multiple thereof.
“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 I—Auction Procedures.
“Bidder”
shall
have the meaning in Appendix I—Auction Procedures; provided, however, that
neither the Company nor any affiliate thereof shall be permitted to be a Bidder
in an Auction, except that any Broker-Dealer that is an affiliate of the Company
may be a Bidder in an Auction, but only if the Orders placed by such
Broker-Dealer are not for its own account.
“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 among 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.
“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 I—Auction Procedures.
“Holder”
means,
with respect to Tortoise Notes, the registered holder of notes of each series
of
Tortoise Notes as the same appears on the books or records of the
Company.
“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 as 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 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”
shall
have the meaning specified in Appendix I—Auction Procedures.
“Original
Issue Date”
means,
with respect to Series __ of 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, 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.
“Reference
Rate”
means,
with respect to the determination of the Maximum Rate and Default Rate, the
greater of (1) 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 I—Auction Procedures.
“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
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., Eastern Standard time, on any Auction Date or such other time on
any
Auction Date by which Broker-Dealers are required to submit Orders to the
Auction Agent as specified by the Auction Agent from time to time.
“Submitted
Bid”
shall
have the meaning specified in Appendix I—Auction Procedures.
“Submitted
Hold Order”
shall
have the meaning specified in Appendix I—Auction Procedures.
“Submitted
Order”
shall
have the meaning specified in Appendix I—Auction Procedures.
“Submitted
Sell Order”
shall
have the meaning specified in Appendix I—Auction Procedures.
“Sufficient
Clearing Bids”
shall
have the meaning specified in Appendix I—Auction Procedures.
“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 __ of the Tortoise Notes or any other Notes hereinafter designated
as
Series __ of the 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 C initially
are
issued.
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 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 the rate per annum set forth
under (a) above. 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 less 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, one Business Day 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, and (v) 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.”
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 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.
(a) Prior
to
the Submission Deadline on each Auction Date for a series of Tortoise
Notes:
| (i) |
each
Beneficial Owner of Tortoise Notes of such series may submit to
its
Broker-Dealer information as to:
|
| (A) |
the
principal amount of Outstanding Tortoise Notes, if any, of such
series
held by such Beneficial Owner which such Beneficial Owner desires
to
continue to hold without regard to the Applicable Rate for Tortoise
Notes
of such series for the next succeeding Rate Period of such
series;
|
| (B) |
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;
and/or
|
| (C) |
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;
|
and
| (ii) |
one
or more Broker-Dealers, using lists of Potential Beneficial Owners,
shall
in good faith for the purpose of conducting a competitive Auction
in a
commercially reasonable manner, contact Potential Beneficial Owners
(by
telephone or otherwise), including Persons that are not Beneficial
Owners,
on such lists to determine the principal amount of Tortoise Notes,
if any,
of such series which each such Potential Beneficial Owner offers
to
purchase if the Applicable Rate for Tortoise Notes of such series
for the
next succeeding Rate Period of Tortoise Notes of such series shall
not be
less than the rate per annum specified by such Potential Beneficial
Owner.
|
For
the
purposes hereof, the communication by a Beneficial Owner or Potential Beneficial
Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent, of
information referred to in clause (i) (A), (i) (B), (i) (C) or (ii) of this
paragraph (a) is hereinafter referred to as an “Order” and collectively as
“Orders” and each Beneficial Owner and each Potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with
the
Auction Agent, is hereinafter referred to as a “Bidder” and collectively as
“Bidders”; an Order containing the information referred to in clause (i)(A) of
this
paragraph
(a) is hereinafter referred to as a “Hold Order” and collectively as “Hold
Orders”; an Order containing the information referred to in clause (i)(B) or
(ii) of this paragraph (a) is hereinafter referred to as a “Bid” and
collectively as “Bids”; and an Order containing the information referred to in
clause (i)(C) of this paragraph (a) is hereinafter referred to as a “Sell Order”
and collectively as “Sell Orders.”
(b) (i) A
Bid by a Beneficial Owner or an Existing Holder of Tortoise Notes of a series
subject to an Auction on any Auction Date shall constitute an irrevocable
offer
to sell:
| (A) |
the
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 less than the rate specified
therein;
|
| (B) |
such
principal amount or a lesser principal amount of Outstanding Tortoise
Notes of such series to be determined as set forth in clause (iv)
of
paragraph (a) of Section 4 of this Appendix I if the Applicable
Rate for
Tortoise Notes of such series determined on such Auction Date shall
be
equal to the rate specified therein;
or
|
| (C) |
the
principal amount of Outstanding Tortoise Notes of such series specified
in
such Bid if the rate specified therein shall be higher than the
Maximum
Rate for Tortoise Notes of such series, or such principal amount
or a
lesser principal amount of Outstanding Tortoise Notes of such series
to be
determined as set forth in clause (iii) of paragraph (b) of Section
4 of
this Appendix I if the rate specified therein shall be higher than
the
Maximum Rate for Tortoise Notes of such series and Sufficient Clearing
Bids for Tortoise Notes of such series do not
exist.
|
| (ii) |
A
Sell Order by a Beneficial Owner or an Existing Holder of Tortoise
Notes
of a series of Tortoise Notes subject to an Auction on any Auction
Date
shall constitute an irrevocable offer to
sell:
|
| (A) |
the
principal amount of Outstanding Tortoise Notes of such series specified
in
such Sell Order; or
|
| (B) |
such
principal amount or a lesser principal amount of Outstanding Tortoise
Notes of such series as set forth in clause (iii) of paragraph (b) of
Section 4 of this Appendix I if Sufficient Clearing Bids for Tortoise
Notes of such series do not exist;
|
PROVIDED,
HOWEVER, that a Broker-Dealer that is an Existing Holder with respect to
a
series of Tortoise Notes shall not be liable to any Person for failing to
sell
such Tortoise Notes pursuant to a Sell Order described in the proviso to
paragraph (c) of Section 2 of this Appendix I if (1) such Tortoise Notes
were
transferred by the Beneficial Owner thereof without compliance by such
Beneficial Owner or its transferee Broker-Dealer (or other transferee person,
if
permitted by the Company) with the provisions of the Indenture or (2) such
Broker-Dealer has
informed
the Auction Agent pursuant to the terms of its Broker-Dealer Agreement that,
according to such Broker-Dealer’s records, such Broker-Dealer believes it is not
the Existing Holder of such Tortoise Notes.
| (iii) |
A
Bid by a Potential Beneficial Owner or a Potential Holder of Tortoise
Notes of a series subject to an Auction on any Auction Date shall
constitute an irrevocable offer to
purchase:
|
| (A) |
the
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
therein; or
|
| (B) |
such
principal amount or a lesser principal amount of Outstanding Tortoise
Notes of such series as set forth in clause (v) of paragraph (a)
of
Section 4 of this Appendix I if the Applicable Rate for Tortoise
Notes of
such series determined on such Auction Date shall be equal to the
rate
specified therein.
|
2. Submission
of Orders by Broker-Dealers to Auction Agent.
(a) Each
Broker-Dealer shall submit in writing 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 the Company)
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, and shall specify with respect to each such Order:
| (i) |
the
name of the Bidder placing such Order (which shall be the Broker-Dealer
unless otherwise permitted by the
Company);
|
| (ii) |
the
aggregate principal amount of Tortoise Notes of such series that
are the
subject of such Order;
|
| (iii) |
to
the extent that such Bidder is an Existing Holder of Tortoise Notes
of
such series:
|
| (A) |
the
principal amount of Tortoise Notes, if any, of such series subject
to any
Hold Order of such Existing Holder;
|
| (B) |
the
principal amount of Tortoise Notes, if any, of such series subject
to any
Bid of such Existing Holder and the rate specified in such Bid;
and
|
| (C) |
the
principal amount of Tortoise Notes, if any, of such series subject
to any
Sell Order of such Existing Holder;
and
|
| (iv) |
to
the extent such Bidder is a Potential Holder of Tortoise Notes
of such
series, the rate and principal amount of Tortoise Notes of such
series
specified in such Potential Holder’s
Bid.
|
(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 such rate up to the next highest
one thousandth (.001) of 1%.
(c) If
an
Order or Orders covering all of the Outstanding Tortoise Notes of a 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 such Existing Holder covering the principal
amount
of Outstanding Tortoise Notes of such series held by such 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 such
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 Rate Period consisting
of more than 7 Rate Period Days, the Auction Agent shall deem a Sell Order
to
have been submitted by or on behalf of such Existing Holder covering the
principal amount of outstanding Tortoise Notes of such series held by such
Existing Holder and not subject to Orders submitted to the Auction
Agent.
(d) If
one or
more Orders of an Existing Holder is submitted to the Auction Agent covering
in
the aggregate more than the principal amount of Outstanding Tortoise Notes
of a
series subject to an Auction held by such Existing Holder, such Orders shall
be
considered valid in the following order of priority:
| (i) |
all
Hold Orders for Tortoise Notes of such series shall be considered
valid,
but only up to and including in the aggregate principal amount
of
Outstanding Tortoise Notes of such series held by such Existing
Holder,
and if the aggregate principal amount of Tortoise Notes of such
series
subject to such Hold Orders exceeds the aggregate principal amount
of
Outstanding Tortoise Notes of such series held by such Existing
Holder,
the principal amount of Tortoise Notes subject to each such Hold
Order
shall be reduced pro rata to cover the principal amount of Outstanding
Tortoise Notes of such series held by such Existing
Holder;
|
| (ii) (A) |
any
Bid for Tortoise Notes of such series shall be considered valid
up to and
including the excess of the principal amount of Outstanding Tortoise
Notes
of such series subject to any Hold Orders referred to in clause
(i)
above;
|
| (B) |
subject
to subclause (A), if more than one Bid of an Existing Holder for
Tortoise
Notes of such series is submitted to the Auction Agent with the
same rate
and the aggregate principal amount of Outstanding Tortoise Notes
of such
series subject to such Bids is greater than such excess, such Bids
shall
be considered valid up to and including the amount of such excess,
and the
principal amount of Tortoise Notes of such series subject to each
Bid with
the same rate shall be reduced pro rata to cover the principal
amount of
Tortoise Notes of such series equal to such
excess;
|
| (C) |
subject
to subclauses (A) and (B), if more than one Bid of an Existing
Holder for
Tortoise Notes of such series is submitted to the Auction Agent
with
different rates, such Bids shall be
|
|
considered
valid in the ascending order of their respective rates up to
and including
the amount of such excess; and
|
| (D) |
in
any such event, the principal amount, if any, of such Outstanding
Tortoise
Notes of such series subject to any portion of Bids considered
not valid
in whole or in part under this clause (ii) shall be treated as
the subject
of a Bid for Tortoise Notes of such series by or on behalf of a
Potential
Holder at the rate therein specified;
and
|
| (iii) |
all
Sell Orders for Tortoise Notes of such series shall be considered
valid up
to and including the excess of the principal amount of Outstanding
Tortoise Notes of such series held by such Existing Holder over
the
aggregate principal amount of Tortoise Notes of such series subject
to
valid Hold Orders referred to in clause (i) above and valid Bids
referred
to in clause (ii) above.
|
(e) If
more
than one Bid for one or more Tortoise Notes of a series is submitted to the
Auction Agent by or on behalf of any Potential Holder, each such Bid submitted
shall be a separate Bid with the rate and principal amount therein
specified.
(f) Any
Order
submitted by a Beneficial Owner or a Potential Beneficial Owner to its
Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the
Submission Deadline on any Auction Date, shall be irrevocable.
3. Determination
of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate.
(a) Not
earlier than the Submission Deadline on each Auction Date for a series of
Tortoise Notes, the Auction Agent shall assemble all valid Orders submitted
or
deemed submitted to it by the Broker-Dealers in respect of Tortoise Notes
of
such series (each such Order as submitted or deemed submitted by a Broker-Dealer
being hereinafter referred to individually as a “Submitted Hold Order,” a
“Submitted Bid” or a “Submitted Sell Order,” as the case may be, or as a
“Submitted Order” and collectively as “Submitted Hold Orders,” “Submitted Bids”
or “Submitted Sell Orders,” as the case may be, or as “Submitted Orders”) and
shall determine for such series:
| (i) |
the
excess of the aggregate principal amount of Outstanding Tortoise
Notes of
such series over the principal amount of Outstanding Tortoise Notes
of
such series subject to Submitted Hold Orders (such excess being
hereinafter referred to as the “Available Tortoise Notes” of such
series);
|
| (ii) |
from
the Submitted Orders for Tortoise Notes of such series
whether:
|
| (A) |
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:
|
| (B) |
the
aggregate principal amount of Outstanding Tortoise Notes of such
series
subject to Submitted Bids of Existing 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; and
| (C) |
the
aggregate principal amount of Outstanding Tortoise Notes of such
series
subject to Submitted Sell Orders (in the event such excess or such
equality exists (other than because all of the Outstanding Tortoise
Notes
of such series are subject to Submitted Hold Orders), such Submitted
Bids
in subclause (A) above being hereinafter referred to collectively
as
“Sufficient Clearing Bids” for Tortoise Notes of such series);
and
|
| (iii) |
if
Sufficient Clearing Bids for Tortoise Notes of such series exist,
the
lowest rate specified in such Submitted Bids (the “Winning Bid Rate” for
Tortoise Notes of such series) which if:
|
| (A) (I) |
each
such Submitted Bid of Existing Holders specifying such lowest rate
and
|
| (II) |
all
other such Submitted Bids of Existing Holders specifying lower
rates were
rejected, thus entitling such Existing Holders to continue to hold
the
Tortoise Notes of such series that are subject to such Submitted
Bids;
and
|
| (B) (I) |
each
such Submitted Bid of Potential Holders specifying such lowest
rate and
|
| (II) |
all
other such Submitted Bids of Potential Holders specifying lower
rates were
accepted; would result in such Existing Holders described in subclause
(A)
above continuing to hold an aggregate principal amount of Outstanding
Tortoise Notes of such series which, when added to the aggregate
principal
amount of Outstanding Tortoise Notes of such series to be purchased
by
such Potential Holders described in subclause (B) above, would
equal not
less than the Available Tortoise Notes of such
series.
|
(b) Promptly
after the Auction Agent has made the determinations pursuant to paragraph
(a) of
this Section 3, the Auction Agent shall advise the Company of the Minimum
Rate
and Maximum Rate for the series of Tortoise Notes for which an Auction is
being
held on the Auction Date and, based on such determination, the Applicable
Rate
for Tortoise Notes of such series for the next succeeding Rate Period thereof
as
follows:
| (i) |
if
Sufficient Clearing Bids for Tortoise Notes of such series exist,
that the
Applicable Rate for all Tortoise Notes of such series for the next
succeeding Rate Period thereof shall be equal to the Winning Bid
Rate for
Tortoise Notes of such series so
determined;
|
| (ii) |
if
Sufficient Clearing Bids for Tortoise Notes of such series do not
exist
(other than because all of the Outstanding Tortoise Notes of such
series
|
are
subject to Submitted Hold Orders), that the
Applicable Rate for all Tortoise Notes of such series for the next succeeding
Rate Period thereof shall be equal to the Maximum Rate for Tortoise Notes
of
such series; or
| (iii) |
if
all of the Outstanding Tortoise Notes of such series are subject
to
Submitted Hold Orders, that the Applicable Rate for all Tortoise
Notes of
such series for the next succeeding Rate Period thereof shall be
All Hold
Rate.
|
4. Acceptance
and Rejection of Submitted Bids and Submitted Sell Orders and Allocation
of
Tortoise Notes.
Existing
Holders
shall continue to hold the Tortoise Notes that are subject to Submitted Hold
Orders, and, based on the determinations made pursuant to paragraph (a) of
Section 3 of this Appendix I, the Submitted Bids and Submitted Sell Orders
shall
be accepted or rejected by the Auction Agent and the Auction Agent shall
take
such other action as set forth below:
(a) If
Sufficient Clearing Bids for a series of Tortoise Notes have been made, all
Submitted Sell Orders with respect to Tortoise Notes of such series shall
be
accepted and, subject to the provisions of paragraphs (d) and (e) of this
Section 4, Submitted Bids with respect to Tortoise Notes of such series shall
be
accepted or rejected as follows in the following order of priority and all
other
Submitted Bids with respect to Tortoise Notes of such series shall be
rejected:
| (i) |
Existing
Holders’ Submitted Bids for Tortoise Notes of such series specifying any
rate that is higher than the Winning Bid Rate for Tortoise Notes
of such
series shall be accepted, thus requiring each such Existing Holder
to sell
the Tortoise Notes subject to such Submitted
Bids;
|
| (ii) |
Existing
Holders’ Submitted Bids for Tortoise Notes of such series specifying any
rate that is lower than the Winning Bid Rate for Tortoise Notes
of such
series shall be rejected, thus entitling each such Existing Holder
to
continue to hold the Tortoise Notes subject to such Submitted
Bids;
|
| (iii) |
Potential
Holders’ Submitted Bids for Tortoise Notes of such series specifying any
rate that is lower than the Winning Bid Rate for Tortoise Notes
of such
series shall be accepted;
|
| (iv) |
each
Existing Holder’s Submitted Bid for Tortoise Notes of such series
specifying a rate that is equal to the Winning Bid Rate for Tortoise
Notes
of such series shall be rejected, thus entitling such Existing
Holder to
continue to hold the Tortoise Notes subject to such Submitted Bid,
unless
the aggregate principal amount of Outstanding Tortoise Notes subject
to
all such Submitted Bids shall be greater than the principal amount
of
Tortoise Notes (“remaining Tortoise Notes”) in the excess of the Available
Tortoise Notes of such series over the principal amount of Tortoise
Notes
subject to Submitted Bids described in clauses (ii) and (iii) of
this
paragraph (a), in which event such Submitted Bid of such Existing Holder
shall be rejected in part, and such Existing Holder shall be entitled
to
continue to hold Tortoise Notes subject to such Submitted Bid,
but only in
an amount equal to the principal amount of Tortoise Notes of such
series
obtained by multiplying the remaining principal amount by 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 for Tortoise Notes of such series; and
| (v) |
each
Potential Holder’s Submitted Bid for aggregate principal amount of such
series specifying a rate that is equal to the Winning Bid Rate
for
aggregate principal amount of such series shall be accepted but
only in an
amount equal to the principal amount of Tortoise Notes of such
series
obtained by multiplying the principal amount of Tortoise Notes
in the
excess of the Available Tortoise Notes of such series over the
principal
amount of Tortoise Notes subject to Submitted Bids described in
clauses
(ii) through (iv) of this paragraph (a) by 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
aggregate
principal amount of Outstanding Tortoise Notes subject to such
Submitted
Bids made by all such Potential Holders that specified a rate equal
to the
Winning Bid Rate for Tortoise Notes of such
series.
|
(b) If
Sufficient Clearing Bids for a series of Tortoise Notes have not been made
(other than because all of the Outstanding Tortoise Notes of such series
are
subject to Submitted Hold Orders), subject to the provisions of paragraph
(d) of
this Section 4, Submitted Orders for Tortoise Notes of such series shall
be
accepted or rejected as follows in the following order of priority and all
other
Submitted Bids for Tortoise Notes of such series shall be rejected:
| (i) |
Existing
Holders’ Submitted Bids for Tortoise Notes of such series specifying any
rate that is equal to or lower than the Maximum Rate for Tortoise
Notes of
such series shall be rejected, thus entitling such Existing Holders
to
continue to hold the Tortoise Notes subject to such Submitted
Bids;
|
| (ii) |
Potential
Holders’ Submitted Bids for Tortoise Notes of such series specifying any
rate that is equal to or lower than the Maximum Rate for Tortoise
Notes of
such series shall be accepted; and
|
| (iii) |
Each
Existing Holder’s Submitted Bid for Tortoise Notes of such series
specifying any rate that is higher than the Maximum Rate for Tortoise
Notes of such series and the Submitted Sell Orders for Tortoise
Notes of
such series of each Existing Holder shall be accepted, thus entitling
each
Existing Holder that submitted or on whose behalf was submitted
any such
Submitted Bid or Submitted Sell Order to sell the Tortoise Notes
of such
series subject to such Submitted Bid or Submitted Sell Order, but
in both
cases only in an amount equal to the principal amount of Tortoise
Notes of
such series obtained by multiplying the principal amount of Tortoise
Notes
of such series subject to Submitted Bids described in clause (ii)
of this
paragraph (b) by a fraction, the numerator of which shall be the
principal
amount of Outstanding Tortoise Notes of such series held by such
Existing
Holder subject to such Submitted Bid or Submitted Sell Order and
the
denominator of which shall be the
|
aggregate
principal amount of Outstanding Tortoise Notes
of such series subject to all such Submitted Bids and Submitted Sell
Orders.
(c) If
all of
the Outstanding Tortoise Notes of a series are subject to Submitted Hold
Orders,
all Submitted Bids for Tortoise Notes of such series shall be
rejected.
(d) If,
as a
result of the procedures described in clause (iv) or (v) of paragraph (a)
or
clause (iii) of paragraph (b) of this Section 4, any Existing Holder would
be
entitled or required to sell, or any Potential Holder would be entitled or
required to purchase, less than an Authorized Denomination of Tortoise Notes
on
any Auction Date, the Auction Agent shall, 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 such Auction Date shall be equal to an Authorized
Denomination.
(e) If,
as a
result of the procedures described in clause (v) of paragraph (a) of this
Section 4, any Potential Holder would be entitled or required to purchase
less
than an Authorized Denomination of Tortoise Notes on any Auction Date, the
Auction Agent shall, in such manner as it shall determine in its sole
discretion, allocate Tortoise Notes of such series or purchase among Potential
Holders so that only Tortoise Notes of such series in Authorized Denominations
are purchased on such Auction Date as a result of such procedures by any
Potential Holder, even if such allocation results in one or more Potential
Holders not purchasing Tortoise Notes of such series on such Auction
Date.
(f) Based
on
the results of each Auction for a series of Tortoise Notes, the Auction Agent
shall determine the aggregate principal amount of Tortoise Notes of such
series
to be purchased and the aggregate principal amount of Tortoise Notes of such
series to be sold by Potential Holders and Existing Holders and, with respect
to
each Potential Holder and Existing Holder, to the extent that such aggregate
principal amount of Tortoise Notes and such aggregate principal amount of
Tortoise Notes to be sold differ, determine to which other Potential Holder(s)
or Existing Holder(s) they shall deliver, or from which other Potential
Holder(s) or Existing Holder(s) they shall receive, as the case may be, Tortoise
Notes of such series. Notwithstanding any provision of the Auction Procedures
or
the Settlement Procedures to the contrary, in the event an Existing Holder
or
Beneficial Owner of Tortoise Notes of a series with respect to whom a
Broker-Dealer submitted a Bid to the Auction Agent for such Tortoise Notes
that
was accepted in whole or in part, or submitted or is deemed to have submitted
a
Sell Order for such Tortoise Notes that was accepted in whole or in part,
fails
to instruct its Agent Member to deliver such Tortoise Notes against payment
therefor, partial deliveries of Tortoise Notes that have been made in respect
of
Potential Holders’ or Potential Beneficial Owners’ Submitted Bids for Tortoise
Notes of such series that have been accepted in whole or in part shall
constitute good delivery to such Potential Holders and Potential Beneficial
Owners.
(g) Neither
the Company nor the Auction Agent nor any affiliate of either shall have
any
responsibility or liability with respect to the failure of an Existing Holder
or
a Potential Holder to deliver Tortoise Notes of any series or to pay for
Tortoise Notes of any series sold or purchased pursuant to the Auction
Procedures or otherwise.
A-I-9
APPENDIX
B - FORM OF ARTICLES
SUPPLEMENTARY
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 (“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.
I.
MMP
SHARES TERMS
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 funds available on the next Business Day
in
the City of New York, New York, 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 (as set forth
in
Section 2(c) (ii) below)). 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 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 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 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. The Default Rate shall
be
equal to the Reference Rate multiplied by three (3).
(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 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, it being understood that the provisions
of paragraph (d) of this Section 3 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 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 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 clause (A) of 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 on the date fixed for redemption sufficient to redeem MMP
Shares with the Paying Agent 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
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 shares for which
such Notice of Redemption has been given. 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), 6(f) and 11 of Part I hereof, the Board of Directors
may authorize, create or issue any class or series of shares of capital stock,
including other series of Preferred 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, 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 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 and such other holders 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) increase
the authorized number of shares of Preferred Shares;
(iii) create,
authorize or issue shares of any class of shares of 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, 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);
(iv) 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;
(v) 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
(vi) 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 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 (1) the 30-day rate, in the case of a Dividend Period which
is a Standard Dividend Period or shorter or (2) the 180-day rate, in the
case of all other Dividend 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 financial 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 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.
(b) “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 that will
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 Dividend Period (i) if
Sufficient Clearing Orders exist for the Auction in respect thereof, the
Winning
Bid Rate, (ii) if Sufficient Clearing Orders 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 operation of the procedures set forth under “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
Date” means the first Business Day next preceding the first day of a Dividend
Period.
(k) “Auction
Procedures” means the procedures for conducting Auctions set forth in
Part II hereof.
(l) “Beneficial
Owner,” with respect to 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.
(m) “Bid”
shall have the meaning specified in paragraph (a) of Section 1 of
Part II of these terms of the MMP Shares.
(n) “Bidder”
shall have the meaning specified in paragraph (a) of Section 1 of
Part II of these terms of the MMP Shares; provided, however, that neither
the Company nor any affiliate thereof shall be permitted to be a Bidder in
an
Auction, except that any Broker-Dealer that is an affiliate of the Company
may
be a Bidder in an Auction, but only if the Orders placed by such Broker-Dealer
are not for its own account.
(o) “Board
of
Directors” or “Board” means the Board of Directors of the Company or any duly
authorized committee thereof as permitted by applicable law.
(p) “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.
(q) “Broker-Dealer
Agreement” means an agreement among the Auction Agent and a Broker-Dealer,
pursuant to which the Broker-Dealer agrees to follow the Auction
Procedures.
(r) “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.
(s) “Code”
means the Internal Revenue Code of 1986, as amended.
(t) “Commercial
Paper Dealers” has the meaning set forth in the definition of “AA” Composite
Commercial Paper Rate.
(u) “Commission”
means the Securities and Exchange Commission.
(v) “Common
Shares” means the shares of common stock, par value $.001 per share, of the
Company.
(w) “Default”
has the meaning set forth in Section 2(c)(ii) of this
Part I.
(x) “Default
Period” has the meaning set forth in Section 2(c)(ii) of this
Part I.
(y) “Default
Rate” means the Reference Rate multiplied by three (3).
(z) “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.
(aa) “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.
(bb) “Discounted
Value” has the meaning set forth in the Rating Agency Guidelines.
(cc) “Dividend
Default” has the meaning set forth in Section 2(c)(ii) of this
Part I.
(dd) “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.
(ee) “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.
(ff) “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.
(gg) “Existing
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 listed on
the
records of the Auction Agent as a holder of shares of such series.
(hh) “Fitch”
means Fitch Ratings and its successors at law.
(ii) “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.
(jj) “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.
(kk) “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.
(ll) “Hold
Order” shall have the meaning specified in paragraph (a) of Section 1
of Part II of these terms of the MMP Shares.
(mm) “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.
(nn) “London
Business Day” means any day on which commercial banks are generally open for
business in London.
(oo) “MMP
Shares” means Series __ Money Market Cumulative Preferred Shares,
liquidation preference $25,000 per share.
(pp) “MMP
Shares Basic Maintenance Amount” as of any Valuation Date has the meaning set
forth in the Rating Agency Guidelines.
(qq) “Mandatory
Redemption Date” has the meaning set forth in Section 3(a)(iii) of this
Part I.
(rr) “Mandatory
Redemption Price” has the meaning set forth in Section 3(a)(iii) of this
Part I.
(ss) “Market
Value” means the market value of an asset of the Company as 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 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.
(tt) “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.
(uu) “Minimum
Rate” means, on any Auction Date with respect to a Dividend 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 a Dividend Period of more than the
Standard Dividend Period.
(vv) “Moody’s”
means Moody’s Investors Service, Inc. or its successors.
(ww) “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.
(xx) “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.
(yy) “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.
(zz) “1940
Act” means the Investment Company Act of 1940, as amended from time to
time.
(aaa) “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.
(bbb) “Notice
of Redemption” means any notice with respect to the redemption of MMP Shares
pursuant to Section 3.
(ccc) “Order”
shall have the meaning specified in paragraph (a) of Section 1 of
Part II of these terms of the MMP Shares.
(ddd) “Original
Issue Date” means, with respect to the MMP Shares, ________, 200_.
(eee) “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.
(fff) “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.
(ggg) “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.
(hhh) “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.
(iii) “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.
(jjj) “Paying
Agent” means 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.
(kkk) “Performing”
means with respect to any asset, the issuer of such investment is not in
default
of any payment obligations in respect thereof.
(lll) “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.
(mmm) “Potential
Beneficial Owner,” with respect to shares 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.
(nnn) “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.
(ooo) “Preferred
Shares” means the shares of preferred stock, par value $.001 per share,
including the MMP Shares, of the Company from time to time.
(ppp) “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.
(qqq) “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.
(rrr) “Redemption
Default” has the meaning set forth in Section 2(c)(ii) of this
Part I.
(sss) “Redemption
Price” has the meaning set forth in Section 3(a)(i) of this
Part I.
(ttt) “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.
(uuu) “Securities
Act” means the Securities Act of 1933, as amended from time to
time.
(vvv) “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.
(www) “Sell
Order” shall have the meaning specified in paragraph (a) of Section 1
of Part II of these terms of the MMP Shares.
(xxx) “Special
Dividend Period” means a Dividend Period that is not a Standard Dividend
Period.
(yyy) “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.
(zzz) “Standard
Dividend Period” means a Dividend Period of __ days.
(aaaa) “Submission
Deadline” means 1:00 P.M., Eastern Standard time, on any Auction Date or
such other time on any Auction Date by which Broker-Dealers are required to
submit Orders to the Auction Agent as specified by the Auction Agent from time
to time.
(bbbb) “Submitted
Bid” shall have the meaning specified in paragraph (a) of Section 3 of
Part II of these terms of the MMP Shares.
(cccc) “Submitted
Hold Order” shall have the meaning specified in paragraph (a) of
Section 3 of Part II of these terms of the MMP Shares.
(dddd) “Submitted
Order” shall have the meaning specified in paragraph (a) of Section 3
of Part II of these terms of the MMP Shares.
(eeee) “Submitted
Sell Order” shall have the meaning specified in paragraph (a) of
Section 3 of Part II of these terms of the MMP Shares.
(ffff) “Sufficient
Clearing Bids” shall have the meaning specified in paragraph (a) of
Section 3 of Part II of these terms of the MMP Shares.
(gggg) “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.
(hhhh) “Valuation
Date” has the meaning set forth in the Rating Agency Guidelines.
(iiii) “Winning
Bid Rate” has the meaning set forth in Section 3(a)(iii) of Part II of
these terms of the 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.
II.
AUCTION
PROCEDURES
1. Orders.
(a)
Prior to the Submission Deadline on each Auction Date for shares of MMP
Shares:
(i) each
Beneficial Owner of shares of the series may submit to its Broker-Dealer
information as to:
(A) the
number of Outstanding shares, if any, of the series held by the Beneficial
Owner
which the Beneficial Owner desires to continue to hold without regard to the
Applicable Rate for shares of the series for the next succeeding Dividend Period
of the shares;
(B) the
number of Outstanding shares, if any, of the series held by the Beneficial
Owner
which the Beneficial Owner offers to sell if the Applicable Rate for shares
of
the series for the next succeeding Dividend Period of shares of the series
shall
be less than the rate per annum specified by the Beneficial Owner;
and/or
(C) the
number of Outstanding shares, if any, of the series held by the Beneficial
Owner
which the Beneficial Owner offers to sell without regard to the Applicable
Rate
for shares of the series for the next succeeding Dividend Period of shares
of
the series; and
(ii) one
or
more Broker-Dealers, using lists of Potential Beneficial Owners, shall in good
faith for the purpose of conducting a competitive Auction in a commercially
reasonable manner, contact Potential Beneficial Owners (by telephone or
otherwise), including Persons that are not Beneficial Owners, on such lists
to
determine the number of shares, if any, of that series which each Potential
Beneficial Owner offers to purchase if the Applicable Rate for shares for the
next succeeding Dividend Period of shares of that series shall not be less
than
the rate per annum specified by the Potential Beneficial Owner.
For
the
purposes hereof, the communication by a Beneficial Owner or Potential Beneficial
Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent, of
information referred to in clause (i)(A)(i), (B), (i)(C) or (ii) of
this paragraph (a) is hereinafter referred to as an “Order” and
collectively as “Orders” and each Beneficial Owner and each Potential Beneficial
Owner placing an Order with a Broker-Dealer, and such Broker-Dealer placing
an
Order with the Auction Agent, is hereinafter referred to as a “Bidder” and
collectively as “Bidders”; an Order containing the information referred to in
clause (i)(A) of this paragraph (a) is hereinafter referred to as a
“Hold Order” and collectively as “Hold Orders”; an Order containing the
information referred to in clause (i)(B) or (ii) of this
paragraph (a) is hereinafter referred to as a “Bid” and collectively as
“Bids”; and an Order containing the information referred to in
clause (i)(C) of this paragraph (a) is hereinafter referred to as a
“Sell Order” and collectively as “Sell Orders.”
(b) (i) A
Bid by
a Beneficial Owner or an Existing Holder of shares of MMP Shares subject to
an
Auction on any Auction Date shall constitute an irrevocable offer to
sell:
(A) the
number of outstanding shares of the series specified in the Bid if the
Applicable Rate for shares of the series determined on the Auction Date shall
be
less than the rate specified therein;
(B) the
number or a lesser number of outstanding shares of the series to be determined
as set forth in clause (iv) of paragraph (a) of Section 4 of this
Part II if the
Applicable Rate for shares of the series determined on the Auction Date shall
be
equal to the rate specified therein; or
(C) the
number of outstanding shares of the series specified in the Bid if the rate
specified therein shall be higher than the Maximum Rate for shares of the
series, or the number or a lesser number of outstanding shares of the series
to
be determined as set forth in clause (iii) of paragraph (b) of
Section 4 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 a Beneficial Owner or an Existing Holder of shares of MMP Shares
subject to an Auction on any Auction Date shall constitute an irrevocable offer
to sell:
(A) the
number of Outstanding shares of the series specified in the Sell Order;
or
(B) the
number or a lesser number of outstanding shares of the series as set forth
in
clause (iii) of paragraph (b) of Section 4 of this Part II
if Sufficient Clearing Bids for shares of the series do not exist;
provided,
however, that a Broker-Dealer that is an Existing Holder with respect to shares
of MMP Shares shall not be liable to any Person for failing to sell the shares
pursuant to a Sell Order described in the proviso to paragraph (c) of
Section 2 of this Part II if (1) the shares were transferred by
the Beneficial Owner thereof without compliance by the Beneficial Owner or
its
transferee Broker-Dealer (or other transferee person, if permitted by the
Company) with the provisions of Section 7 of this Part II or
(2) such Broker-Dealer has informed the Auction Agent pursuant to the terms
of its Broker-Dealer Agreement that, according to the Broker-Dealer’s records,
the Broker-Dealer believes it is not the Existing Holder of such
shares.
(iii) A
Bid by
a Potential Beneficial Holder or a Potential Holder of shares of MMP Shares
subject to an Auction on any Auction Date shall constitute an irrevocable offer
to purchase:
(A) the
number of outstanding shares of the series specified in the Bid if the
Applicable Rate for shares of the series determined on the Auction Date shall
be
higher than the rate specified therein; or
(B) the
number or a lesser number of outstanding shares of the series as set forth
in
clause (v) of paragraph (a) of Section 4 of this Part II if
the Applicable Rate for shares of the series determined on the Auction Date
shall be equal to the rate specified therein.
(C) No
Order
for any number of MMP Shares other than whole shares shall be
valid.
2. Submission
of Orders by Broker-Dealers to Auction Agent.
(a)
Each Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders for MMP Shares subject
to an
Auction on the Auction Date, designating itself (unless otherwise permitted
by
the Company) as an Existing Holder in respect of shares subject to Orders
submitted or deemed submitted to it by Beneficial Owners and as a Potential
Holder in respect of shares subject to Orders submitted to it by Potential
Beneficial Owners, and shall specify with respect to each Order for the
shares:
(i) the
name
of the Bidder placing the Order (which shall be the Broker-Dealer unless
otherwise permitted by the Company);
(ii) the
aggregate number of shares of the series that are the subject of the
Order;
(iii) to
the
extent that the Bidder is an Existing Holder of shares of the
series:
(A) the
number of shares, if any, of the series subject to any Hold Order of the
Existing Holder;
(B) the
number of shares, if any, of the series subject to any Bid of the Existing
Holder and the rate specified in the Bid; and
(C) the
number of shares, if any, of the series subject to any Sell Order of the
Existing Holder; and
(iv) to
the
extent the Bidder is a Potential Holder of shares of the series, the rate and
number of shares of the series specified in the Potential Holder’s
Bid.
(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
an
Order or Orders covering all of the Outstanding MMP Shares 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 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 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 [__] Dividend Period Days,
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 shares of the series
held
by the Existing Holder and not subject to Orders submitted to the Auction
Agent.
(d) If
one or
more Orders of an Existing Holder is submitted to the Auction Agent covering
in
the aggregate more than the number of outstanding MMP Shares subject to an
Auction held by the Existing Holder, the Orders shall be considered valid in
the
following order of priority:
(i) all
Hold
Orders for shares of the series shall be considered valid, but only up to and
including in the aggregate the number of outstanding shares of the series held
by such Existing Holder, and if the number of shares of the series subject
to
Hold Orders exceeds the number of outstanding shares of the series held by
such
Existing Holder, the number of shares subject to each Hold Order shall be
reduced pro rata to cover the number of outstanding shares of the series held
by
such Existing Holder;
(ii) (A) any
Bid
for shares of the series shall be considered valid up to and including the
excess of the number of outstanding shares of the series held by the Existing
Holder over the number of shares of the series subject to any Hold Orders
referred to in clause (i) above;
(B) subject
to subclause (A), if more than one Bid of an Existing Holder for shares of
the series is submitted to the Auction Agent with the same rate and the
number of Outstanding shares of the series subject to Bids is greater than
such
excess, the Bids shall be considered valid up to and including the amount of
the
excess, and the number of shares of the series subject to each Bid with the
same
rate shall be reduced pro rata to cover the number of shares of the series
equal
to such excess;
(C) subject
to subclauses (A) and (B), if more than one Bid of an Existing Holder for
shares of the series is submitted to the Auction Agent with different rates,
the
Bids shall be considered valid in the ascending order of their respective rates
up to and including the amount of the excess; and
(D) in
any
such event, the number, if any, of Outstanding shares of the series subject
to
any portion of Bids considered not valid in whole or in part under this
clause (ii) shall be treated as the subject of a Bid for shares of the
series by or on behalf of a Potential Holder at the rate therein specified;
and
(iii) all
Sell
Orders for shares of the series shall be considered valid up to and including
the excess of the number of Outstanding shares of the series held by the
Existing Holder over the sum of shares of such series subject to valid Hold
Orders referred to in clause (i) above and valid Bids referred to in
clause (ii) above.
(e) If
more
than one Bid for one or more shares of MMP Shares is submitted to the Auction
Agent by or on behalf of any Potential Holder, each Bid submitted shall be
a
separate Bid with the rate and number of shares therein specified.
(f) Any
Order
submitted by a Beneficial Owner or a Potential Beneficial Owner to its
Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the
Submission Deadline on any Auction Date, shall be irrevocable.
3. Determination
of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate.
(a) Not earlier than the Submission Deadline on each Auction Date for
shares of MMP Shares, the Auction Agent shall assemble all valid Orders
submitted or deemed submitted to it by the Broker-Dealers in respect of shares
of the series (each Order as submitted or deemed submitted by a Broker-Dealer
being hereinafter referred to individually as a “Submitted Hold Order,” a
“Submitted Bid” or a “Submitted Sell Order,” as the case may be, or as a
“Submitted Order” and collectively as “Submitted Hold Orders,” “Submitted Bids”
or “Submitted Sell Orders,” as the case may be, or as “Submitted Orders”) and
shall determine for the series:
(i) the
excess of the number of Outstanding shares of the series over the number of
Outstanding shares of the series subject to Submitted Hold Orders (the excess
being hereinafter referred to as the “Available MMP Shares”);
(ii) from
the
Submitted Orders for shares of such series whether:
(A) the
number of Outstanding shares of the series subject to Submitted Bids of
Potential Holders specifying one or more rates between the Minimum Rate (for
Standard Dividend Periods or less, only) and the Maximum Rate (for all Dividend
Periods) for shares of the series; exceeds or is equal to the sum
of:
(B) the
number of Outstanding shares of the series subject to Submitted Bids of Existing
Holders specifying one or more rates between the Minimum Rate (for Standard
Dividend Periods or less, only) and the Maximum Rate (for all Dividend Periods)
for shares of the series; and
(C) the
number of Outstanding shares of the series subject to Submitted Sell
Orders
(in
the
event the excess or the equality exists (other than because the number of shares
of the series in subclauses (B) and (C) above is zero because all of the
Outstanding shares of the series are subject to Submitted Hold Orders), the
Submitted Bids in subclause (A) above being hereinafter referred to
collectively as “Sufficient Clearing Bids” for shares of the series);
and
(iii) if
Sufficient Clearing Bids for shares of the series exist, the lowest rate
specified in such Submitted Bids (the “Winning Bid Rate” for shares of such
series) which if:
(A) (I)
each
Submitted Bid of Existing Holders specifying the lowest rate and (II) all
other such Submitted Bids of Existing Holders specifying lower rates were
rejected, thus entitling the Existing Holders to continue to hold the shares
of
the series that are subject to the Submitted Bids; and
(B) (I)
each
Submitted Bid of Potential Holders specifying the lowest rate and (II) all
other the Submitted Bids of Potential Holders specifying lower rates were
accepted;
would
result in such Existing Holders described in subclause (A) above continuing
to hold an aggregate number of Outstanding shares of the series which, when
added to the number of Outstanding shares of the series to be purchased by
the
Potential Holders described in subclause (B) above, would equal not less
than the Available MMP Shares.
(b) Promptly
after the Auction Agent has made the determinations pursuant to
paragraph (a) of this Section 3, the Auction Agent shall advise the
Company of the Minimum Rate and Maximum Rate for MMP Shares for which an Auction
is being held on the Auction Date and, based on such determination, the
Applicable Rate for shares of the series for the next succeeding Dividend Period
thereof as follows:
(i) if
Sufficient Clearing Bids for shares of the series exist, that the Applicable
Rate for all shares of the series for the next succeeding Dividend Period
thereof shall be equal to the Winning Bid Rate for shares of the series so
determined;
(ii) if
Sufficient Clearing Bids for shares of the series do not exist (other than
because all of the Outstanding shares of the series are subject to Submitted
Hold Orders), that the Applicable Rate for all shares of the series for the
next
succeeding Dividend Period thereof shall be equal to the Maximum Rate for shares
of the series; or
(iii) if
all of
the Outstanding shares of the series are subject to Submitted Hold Orders,
that
the Applicable Rate for all shares of the series for the next succeeding
Dividend Period thereof shall be All Hold Rate.
4. Acceptance
and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of
Shares.
Existing Holders shall continue to hold the MMP Shares that are subject to
Submitted Hold Orders, and, based on the determinations made pursuant to
paragraph (a) of Section 3 of this Part II, the Submitted Bids
and Submitted Sell Orders shall be accepted or rejected by the Auction Agent
and
the Auction Agent shall take such other action as set forth below:
(a) If
Sufficient Clearing Bids for shares of MMP Shares have been made, all Submitted
Sell Orders with respect to shares of the series shall be accepted and, subject
to the provisions of
paragraphs (d) and (e) of this Section 4, Submitted Bids with respect
to shares of the series shall be accepted or rejected as follows in the
following order of priority and all other Submitted Bids with respect to shares
of the series shall be rejected:
(i) Existing
Holders’ Submitted Bids for shares of the series specifying any rate that is
higher than the Winning Bid Rate for shares of the series shall be accepted,
thus requiring each Existing Holder to sell the MMP Shares subject to the
Submitted Bids;
(ii) Existing
Holders’ Submitted Bids for shares of the series specifying any rate that is
lower than the Winning Bid Rate for shares of the series shall be rejected,
thus
entitling each Existing Holder to continue to hold the MMP Shares subject to
the
Submitted Bids;
(iii) Potential
Holders’ Submitted Bids for shares of the series specifying any rate that is
lower than the Winning Bid Rate for shares of the series shall be
accepted;
(iv) Each
Existing Holder’s Submitted Bid for shares of the series specifying a rate that
is equal to the Winning Bid Rate for shares of the series shall be rejected,
thus entitling the Existing Holder to continue to hold the MMP Shares subject
to
the Submitted Bid, unless the number of Outstanding MMP Shares subject to all
Submitted Bids shall be greater than the number of MMP Shares (“remaining
shares”) in the excess of the Available MMP Shares over the number of MMP Shares
subject to Submitted Bids described in clauses (ii) and (iii) of this
paragraph (a), in which event the Submitted Bid of the Existing Holder
shall be rejected in part, and the Existing Holder shall be entitled to continue
to hold MMP Shares subject to the Submitted Bid, but only in an amount equal
to
the number of MMP Shares obtained by multiplying the number of remaining shares
by a fraction, the numerator of which shall be the number of Outstanding MMP
Shares held by the Existing Holder subject to the Submitted Bid and the
denominator of which shall be the aggregate number of Outstanding MMP Shares
subject to the Submitted Bids made by all such Existing Holders that specified
a
rate equal to the Winning Bid Rate for shares of the series; and
(v) Each
Potential Holder’s Submitted Bid for shares of the series specifying a rate that
is equal to the Winning Bid Rate for shares of the series shall be accepted
but
only in an amount equal to the number of shares of the series obtained by
multiplying the number of shares in the excess of the Available MMP Shares
over
the number of MMP Shares subject to Submitted Bids described in
clauses (ii) through (iv) of this paragraph (a) by a fraction, the
numerator of which shall be the number of Outstanding MMP Shares subject to
the
Submitted Bid and the denominator of which shall be the aggregate number of
Outstanding MMP Shares subject to Submitted Bids made by all such Potential
Holders that specified a rate equal to the Winning Bid Rate for shares of the
series.
(b) If
Sufficient Clearing Bids for shares of MMP Shares have not been made (other
than
because all of the Outstanding shares of the series are subject to Submitted
Hold Orders), subject to the provisions of paragraph (d) of this
Section 4, Submitted Orders for shares of the series shall be accepted or
rejected as follows in the following order of priority and all other Submitted
Bids for shares of the series shall be rejected:
(i) Existing
Holders’ Submitted Bids for shares of the series specifying any rate that is
equal to or lower than the Maximum Rate for shares of the series shall be
rejected, thus entitling Existing Holders to continue to hold the MMP Shares
subject to the Submitted Bids;
(ii) Potential
Holders’ Submitted Bids for shares of the series specifying any rate that is
equal to or lower than the Maximum Rate for shares of the series shall be
accepted; and
(iii) Each
Existing Holder’s Submitted Bid for shares of the series specifying any rate
that is higher than the Maximum Rate for shares of the series and the Submitted
Sell Orders for shares of the series of each Existing Holder shall be accepted,
thus entitling each Existing Holder that submitted or on whose behalf was
submitted any Submitted Bid or Submitted Sell Order to sell the shares of the
series subject to the Submitted Bid or Submitted Sell Order, but in both cases
only in an amount equal to the number of shares of such series obtained by
multiplying the number of shares of the series subject to Submitted Bids
described in clause (ii) of this paragraph (b) by a fraction, the
numerator of which shall be the number of Outstanding shares of the series
held
by the Existing Holder subject to such Submitted Bid or Submitted Sell Order
and
the denominator of which shall be the aggregate number of Outstanding shares
of
such series subject to all such Submitted Bids and Submitted Sell
Orders.
(c) If
all of
the Outstanding shares of MMP Shares are subject to Submitted Hold Orders,
all
Submitted Bids for shares of the series shall be rejected.
(d) If,
as a
result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this
Section 4, any Existing Holder would be entitled or required to sell, or
any Potential Holder would be entitled or required to purchase, a fraction
of a
share of MMP Shares on any Auction Date, the Auction Agent shall, in the manner
as it shall determine in its sole discretion, round up or down the number of
MMP
Shares to be purchased or sold by any Existing Holder or Potential Holder on
the
Auction Date as a result of the procedures so that the number of shares so
purchased or sold by each Existing Holder or Potential Holder on the Auction
Date shall be whole shares of MMP Shares.
(e) If,
as a
result of the procedures described in clause (v) of paragraph (a) of
this Section 4, any Potential Holder would be entitled or required to
purchase less than a whole share of MMP Shares on any Auction Date, the Auction
Agent shall, in the manner as it shall determine in its sole discretion,
allocate MMP Shares or purchase among Potential Holders so that only whole
shares of MMP Shares are purchased on the Auction Date as a result of such
procedures by any Potential Holder, even if the allocation results in one or
more Potential Holders not purchasing MMP Shares on the Auction
Date.
(f) Based
on
the results of each Auction for shares of MMP Shares, the Auction Agent shall
determine the aggregate number of shares of the series to be purchased and
the
aggregate number of shares of the series to be sold by Potential Holders and
Existing Holders and, with respect to each Potential Holder and Existing Holder,
to the extent that the aggregate number of shares to be purchased and the
aggregate number of shares to be sold differ, determine to which other Potential
Holder(s) or Existing Holder(s) they shall deliver, or from which other
Potential Holder(s) or Existing Holder(s) they shall receive, as the case may
be, MMP Shares. Notwithstanding any provision of the Auction Procedures or
the
Settlement Procedures to the contrary, in the event an Existing Holder or
Beneficial Owner of shares of MMP Shares with respect to whom a Broker-Dealer
submitted a Bid to the Auction Agent for the shares that was accepted in whole
or in part, or submitted or is deemed to have submitted a Sell Order for such
shares that was accepted in whole or in part, fails to instruct its Agent Member
to deliver the shares against payment therefor, partial deliveries of MMP Shares
that have been made in respect of Potential Holders’ or Potential Beneficial
Owners’ Submitted Bids for shares of the series that have been accepted in whole
or in part shall constitute good delivery to such Potential Holders and
Potential Beneficial Owners.
(g) Neither
the Company nor the Auction Agent nor any affiliate of either shall have any
responsibility or liability with respect to the failure of an Existing Holder,
a
Potential Holder, a Beneficial
Owner, a Potential Beneficial Owner or its respective Agent Member to deliver
MMP Shares or to pay for MMP Shares sold or purchased pursuant to the Auction
Procedures or otherwise.
SECOND:
The Series II 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 of 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
Treasurer on this ___ day of __________, 200_.
| ATTEST: | TORTOISE ENERGY INFRASTRUCTURE CORPORATION | ||
|
Terry
C. Matlack
Treasurer
|
David J.
Schulte
President
|
APPENDIX
C - RATING OF INVESTMENTS
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.
“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.
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.
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.
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.
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.
“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.
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.
Tortoise
Energy Infrastructure Corporation
_____________________________________________________
STATEMENT
OF ADDITIONAL INFORMATION
_____________________________________________________
_______________________,
2006
PART
C - OTHER INFORMATION
Item
25: Financial Statements and Exhibits
1. Financial
Statements:
The
Registrant’s audited financial statements dated November 30, 2005, notes to such
financial statements and report of independent registered public accounting
firm
thereon and unaudited financial statements dated February 28, 2006 and
notes to
such financial statements, are filed herein and appear in the 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.
6
|
|
a.4.
|
Articles
Supplementary relating to Series II MMP Shares.
***
|
|
a.5
|
Form
of Articles Supplementary relating to Preferred Stock, incorporated
by
reference to Appendix B of the Registrant’s Statement of Additional
Information, filed herewith.
|
|
a.6.
|
Articles
of Amendment. 7
|
|
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. ***
|
|
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 Plan.
3
|
|
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.
6
|
|
l.
|
Opinion
of Venable LLP. *
|
|
m.
|
Not
applicable.
|
|
n.
|
Consent
of Auditors. *
|
|
o.
|
Not
applicable.
|
|
p.
|
Subscription
Agreement. 3
|
|
q.
|
None.
|
|
r1.
|
Code
of Ethics for the Registrant. 5
|
|
r2.
|
Code
of Ethics for the Adviser. 5
|
|
s.
|
Powers
of Attorney. ***
|
|
(*)
|
Filed
herewith.
|
|
(**)
|
To
be filed by amendment.
|
| (***) | 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 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).
|
|
(6)
|
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).
|
|
(7)
|
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).
|
Item
26: Marketing Arrangements
Reference
is made to the forms of underwriting agreement for the Registrant’s Common
Stock, Tortoise Notes and MMP Shares, which are filed herein as exhibits
h.1,
h.3 and h.2, respectively.
Item
27: Other Expenses and Distribution
The
following table sets forth the estimated expenses to be incurred in connection
with the offering described in this Registration Statement:
|
Securities
and Exchange Commission Fees
|
$
|
13,375
|
||
|
Directors’
Fees and Expenses
|
6,500
|
|||
|
Printing
(other than certificates)
|
7,500
|
|||
|
Accounting
fees and expenses
|
40,000
|
|||
|
Legal
fees and expenses
|
285,000
|
|||
|
NASD
fee
|
8,500
|
|||
|
Rating
Agency Fees
|
30,000
|
|||
|
Miscellaneous
|
6,600 | |||
|
Total
|
$
|
397,475
|
Item
28. Persons Controlled by or Under Common Control
None.
Item
29. Number of Holders of Securities
As
of
March 31, 2006, 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)
|
89
|
|||
|
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
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,
425 Walnut Street, M.L. CN-OH-W6TC, Cincinnati, Ohio 45202, at the offices
of
the transfer agent, Computershare Investor Services, LLC, Two North LaSalle
Street, Chicago, Illinois 60602, 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.
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,
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 Securities Act
of
1933 shall be deemed to be part of this registration statement as of the time
it
was declared effective;
(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 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. Not
applicable.
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.
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 5th day of May,
2006.
| 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)
|
May
5, 2006
|
|
/s/
Conrad S. Ciccotello*
Conrad
S. Ciccotello
|
Director
|
May
5, 2006
|
|
/s/
John R. Graham*
John
R. Graham
|
Director
|
May
5, 2006
|
|
/s/
Charles E. Heath*
Charles
E. Heath
|
Director
|
May
5, 2006
|
|
/s/
H. Kevin Birzer*
H.
Kevin Birzer
|
Director
|
May
5, 2006
|
|
/s/
David J. Schulte
David J.
Schulte
|
President
and Chief Executive Officer
(Principal
Executive Officer)
|
May
5, 2006
|
|
*
|
By
David J. Schulte pursuant to power of attorney, filed previously
in the
initial registration statement on January 20,
2006.
|
EXHIBIT
INDEX
|
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.
|
|
l.
|
Opinion
of Venable LLP
|
|
n.
|
Consent
of Auditors.
|