N-30B-2 1 tyy_n30b2.htm PERIODIC AND INTERIM REPORTS MAILED TO SHAREHOLDERS PURSUANT TO RULE 30E-1 tyy_n30b2.htm
 


 





COMPANY AT A GLANCE
 
Tortoise Energy Capital Corp. (NYSE: TYY) is a closed-end investment company investing primarily in equity securities of publicly-traded Master Limited Partnerships (MLPs) operating energy infrastructure assets.
 
Investment Goals: Yield, Growth and Quality
 
TYY seeks a high level of total return with an emphasis on current distributions paid to stockholders.
 
In seeking to achieve yield, we target distributions to our stockholders that are roughly equal to the underlying yield on a direct investment in MLPs. In order to accomplish this, we maintain our strategy of investing primarily in energy infrastructure companies with attractive current yields and growth potential.
 
We seek to achieve distribution growth as revenues of our underlying companies grow with the economy, with the population and through rate increases. This revenue growth generally leads to increased operating profits, and when combined with internal expansion projects and acquisitions, is expected to provide attractive growth in distributions to us. We also seek distribution growth through timely debt and equity offerings.
 
TYY seeks to achieve quality by investing in companies operating energy infrastructure assets that are critical to the U.S. economy. Often these assets would be difficult to replicate. We also back experienced management teams with successful track records. By investing in us, our stockholders have access to a portfolio that is diversified through geographic regions and across product lines, including natural gas, natural gas liquids, crude oil and refined products.
 
About Energy Infrastructure Master Limited Partnerships
 
MLPs are limited partnerships whose units trade on public exchanges such as the New York Stock Exchange (NYSE), NYSE Alternext US and NASDAQ. Buying MLP units makes an investor a limited partner in the MLP. There are currently approximately 70 MLPs in the market, mostly in industries related to energy and natural resources.
 
We primarily invest in MLPs and their affiliates in the energy infrastructure sector. Energy infrastructure MLPs are engaged in the transportation, storage and processing of crude oil, natural gas and refined products from production points to the end users. Our investments are primarily in mid-stream (mostly pipeline) operations, which typically produce steady cash flows with less exposure to commodity prices than many alternative investments in the broader energy industry. With the growth potential of this sector along with our disciplined investment approach, we endeavor to generate a predictable and increasing distribution stream for our investors.
 
A TYY Investment Versus a Direct Investment in MLPs
 
We provide our stockholders an alternative to investing directly in MLPs and their affiliates. A direct MLP investment potentially offers an attractive distribution with a significant portion treated as return of capital, and a historically low correlation to returns on stocks and bonds. However, the tax characteristics of a direct MLP investment are generally undesirable for tax-exempt investors such as retirement plans. We are structured as a C Corporation — accruing federal and state income taxes, based on taxable earnings and profits. Because of this innovative structure, pioneered by Tortoise Capital Advisors, institutions and retirement accounts are able to join individual stockholders as investors in MLPs.
 
Additional features include:
  • One Form 1099 per stockholder at the end of the year, thus avoiding multiple K-1s and multiple state filings for individual partnership investments;
     
  • A professional management team, with nearly 100 years combined investment experience, to select and manage the portfolio on your behalf;
      
  • The ability to access investment grade credit markets to enhance stockholder return; and
     
  • Access to direct placements and other investments not available through the public markets.


 
 

 

 

 

 
 

September 30, 2010
 
DEAR FELLOW STOCKHOLDERS,
 
Continued expansion and acquisition activity in the energy infrastructure sector, along with a growing base of investors attracted to high current yield and cash flow stability, has led to MLP outperformance versus the broader market this year. With current yields ranging from six to seven percent, MLPs remain attractive investments when compared to other yield oriented equity investments.
 
Master Limited Partnership Sector Review and Outlook
 
The Tortoise MLP Total Return Index™ (TMLPT) gained 17.8 percent year-to-date through Aug. 31, 2010, compared to a decline of 4.6 percent for the S&P 500 over the same period. In the third quarter ended Aug. 31, 2010, the TMLPT increased by 11.3 percent compared to a drop of 3.2 percent in the S&P 500 for the same period.
 
Midstream MLPs benefitted from favorable business fundamentals during the third quarter. Demand for refined products improved as the economic recovery generated greater need for transportation fuels. Natural gas transmission operators continued to profit from growing production in emerging natural gas basins which require new pipeline takeaway capacity. Natural gas gathering and processing companies gained due to an attractive price for, and growing production of, natural gas liquids (NGLs). Our view remains optimistic for all segments of the midstream MLP sector. We think the backdrop for natural gas is particularly positive because natural gas is abundant, sourced domestically and is relatively inexpensive. It is also preferable to other traditional sources of fuel such as coal and petroleum with respect to environmental impact.
 
Year-to-date merger and acquisition activity totaled more than $35 billion in the MLP sector, an exceptionally high level relative to historical activity and the approximate $217 billion market cap of the entire sector. Acquisition activity focused on infrastructure companies with exposure to shale natural gas plays, natural gas and liquids storage, and the buyout of general partners. Several MLPs acquired their general partners to improve cost of capital and simplify corporate structures. We expect elevated acquisition activity to continue as midstream assets migrate into the MLP sector. To finance the acquisitions and internal growth projects, MLPs raised nearly $30 billion selling debt and equity securities to investors this year. Capital is needed to expand energy infrastructure networks owned by MLPs and we believe investors’ appetite to provide capital for growth remains strong.
 
Company Performance Review and Outlook
 
Our total return based on market value, including the reinvestment of distributions, was 5.8 percent for the quarter ended Aug. 31, 2010 and 17.0 percent for the nine months ended Aug. 31, 2010.
 
We paid a distribution of $0.40 per common share ($1.60 annualized) to our stockholders on Sept. 1, 2010, unchanged from the previous quarter. This represents an annualized yield of 6.4 percent based on a closing price of $24.86 on Aug. 31, 2010. We expect to maintain a quarterly distribution of $0.40 per share and intend to grow our distribution once we believe such an increase is sustainable with adequate distribution coverage.
 
Additional information about our financial performance is available in the Management’s Discussion of this report.
 
Conclusion
 
The essential nature of the underlying assets owned by MLPs, as well as their growth opportunities, favorable long-term contracts with inflation hedging mechanisms and quality management teams, make these companies attractive long-term investments, in our view.
 
Thank you for your investment. We appreciate your confidence in us and we look forward to our continued pursuit of yield, growth and quality investments on your behalf.
 
Sincerely,
 
The Managing Directors
Tortoise Capital Advisors, L.L.C.
The adviser to Tortoise Energy Capital Corp.
 
H. Kevin Birzer
Zachary A. Hamel
Kenneth P. Malvey
     
 
Terry Matlack
David J. Schulte
 
2010 3rd Quarter Report       1


 



KEY FINANCIAL DATA (Supplemental Unaudited Information)
(dollar amounts in thousands unless otherwise indicated)

 
The information presented below regarding Distributable Cash Flow and Selected Operating Ratios is supplemental non-GAAP financial information, which we believe is meaningful to understanding our operating performance. The Selected Operating Ratios are the functional equivalent of EBITDA for non-investment companies, and we believe they are an important supplemental measure of performance and promote comparisons from period-to-period. Supplemental non-GAAP measures should be read in conjunction with our full financial statements.
 
      2009   2010
         Q3(1)      Q4(1)      Q1(1)      Q2(1)      Q3(1)
Total Distributions Received from Investments                                          
     Distributions received from master limited partnerships     $ 9,407     $ 9,823     $ 10,410     $ 10,626     $ 10,637  
     Dividends paid in stock       1,313       995       983       1,006       1,043  
     Other income                   11              
     Short-term interest and dividend income       8                          
          Total from investments     10,728       10,818       11,404       11,632       11,680  
Operating Expenses Before Leverage Costs and Current Taxes                                          
     Advisory fees       1,184       1,257       1,423       1,561       1,642  
     Other operating expenses       251       284       280       281       268  
        1,435       1,541       1,703       1,842       1,910  
     Distributable cash flow before leverage costs and current taxes       9,293       9,277       9,701       9,790       9,770  
     Leverage costs(2)       1,571       1,601       2,380       2,387       2,337  
     Current income tax expense       19       19       18       98       96  
          Distributable Cash Flow(3)     $ 7,703     $   7,657     $   7,303     $   7,305     $   7,337  
Distributions paid on common stock     $ 7,022     $ 7,137     $ 7,648     $ 7,666     $ 7,710  
Distributions paid on common stock per share       0.40       0.40       0.40       0.40       0.40  
Payout percentage for period(4)       91.2 %     93.2 %     104.7 %     104.9 %     105.1 %
Net realized gain (loss), net of income taxes, for the period     (7,068 )     3,512       3,230       10,693       8,601  
Total assets, end of period       501,607       558,496       641,688       634,648       690,388  
Average total assets during period(5)       502,957       529,804       606,691       653,507       681,064  
Leverage (long-term debt obligations, preferred stock and short-term borrowings)(6)     162,300       164,600       155,000       156,600       155,500  
Leverage as a percent of total assets       32.4 %     29.5 %     24.2 %     24.7 %     22.5 %
Unrealized appreciation, net of income taxes, end of period     69,135       107,305       146,292       138,342       170,208  
Net assets, end of period     316,841       356,015       415,990       407,666       440,532  
Average net assets during period(7)     312,710       341,531       397,957       424,400       443,365  
Net asset value per common share       18.01       19.90       21.76       21.27       22.85  
Market value per share       18.23       22.38       23.66       23.89       24.86  
Shares outstanding   17,595,214   17,892,957   19,119,952   19,165,514   19,275,115  
                                           
Selected Operating Ratios(8)                            
As a Percent of Average Total Assets                                          
     Total distributions received from investments       8.46 %     8.19 %     7.62 %     7.06 %     6.80 %
     Operating expenses before leverage costs and current taxes       1.13 %     1.17 %     1.14 %     1.12 %     1.11 %
     Distributable cash flow before leverage costs and current taxes       7.33 %     7.02 %     6.48 %     5.94 %     5.69 %
As a Percent of Average Net Assets                                          
     Distributable Cash Flow(3)       9.77 %     8.99 %     7.44 %     6.83 %     6.57 %
 
(1)  Q1 is the period from December through February. Q2 is the period from March through May. Q3 is the period from June through August. Q4 is the period from September through November.
(2) Leverage costs include interest expense, other recurring leverage expenses and distributions to preferred stockholders.
(3) “Net investment income (loss), before income taxes” on the Statement of Operations is adjusted as follows to reconcile to Distributable Cash Flow (DCF): increased by the return of capital on MLP distributions, the value of paid-in-kind distributions, other non-recurring leverage expenses and amortization of debt issuance costs; and decreased by distributions to preferred stockholders and current taxes paid.
(4) Distributions paid as a percentage of Distributable Cash Flow.
(5) Computed by averaging month-end values within each period.
(6) The balance on the short-term credit facility was $500,000 as of August 31, 2010.
(7) Computed by averaging daily values within each period.
(8) Annualized for periods less than one full year. Operating ratios contained in our Financial Highlights are based on average net assets.
 
2       Tortoise Energy Capital Corp.
 

 



MANAGEMENTS DISCUSSION (Unaudited)
 
The information contained in this section should be read in conjunction with our Financial Statements and the Notes thereto. In addition, this report contains certain forward-looking statements. These statements include the plans and objectives of management for future operations and financial objectives and can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” or “continue” or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could cause actual results and conditions to differ materially from those projected in these forward-looking statements are set forth in the “Risk Factors” section of our public filings with the SEC.
 
Overview
 
Tortoise Energy Capital Corp.’s (the “Company”) goal is to provide a stable and growing distribution stream to our investors. We seek to provide our stockholders with an efficient vehicle to invest in the energy infrastructure sector. While we are a registered investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), we are not a “regulated investment company” for federal tax purposes. Our distributions do not generate unrelated business taxable income (“UBTI”) and our stock may therefore be suitable for holding by pension funds, IRAs and mutual funds, as well as taxable accounts. We invest primarily in MLPs through private and public market purchases. MLPs are publicly traded partnerships whose equity interests are traded in the form of units on public exchanges, such as the NYSE or NASDAQ. Tortoise Capital Advisors, L.L.C. serves as our investment adviser.
 
Company Update
 
Market values of our MLP investments increased during 3rd quarter 2010 from their levels at May 31, 2010, contributing to an increase of $56 million in total assets. Distribution increases from our MLP investments were in-line with our expectations while the increase in total assets during the quarter resulted in increased asset-based expenses. Additional information on these events and results of our operations are discussed in more detail below.
 
Critical Accounting Policies
 
The financial statements are based on the selection and application of critical accounting policies, which require management to make significant estimates and assumptions. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex, or subjective judgments. Our critical accounting policies are those applicable to the valuation of investments, tax matters and certain revenue recognition matters as discussed in Note 2 in the Notes to Financial Statements.
 
Determining Distributions to Stockholders
 
Our portfolio generates cash flow from which we pay distributions to stockholders. Our Board of Directors considers our distributable cash flow (“DCF”) in determining distributions to stockholders. Our Board of Directors reviews the distribution rate quarterly, and may adjust the quarterly distribution throughout the year. Our goal is to declare what we believe to be sustainable increases in our regular quarterly distributions. We have targeted to pay at least 95 percent of DCF on an annualized basis.
 
Determining DCF
 
DCF is simply distributions received from investments less expenses. The total distributions received from our investments include the amount received by us as cash distributions from MLPs, paid-in-kind distributions, and dividend and interest payments. The total expenses include current or anticipated operating expenses, leverage costs and current income taxes (excluding taxes generated from realized gains). Each are summarized for you in the table on page 2 and are discussed in more detail below.
 
The Key Financial Data table discloses the calculation of DCF and should be read in conjunction with this discussion. The difference between distributions received from investments in the DCF calculation and total investment income as reported in the Statement of Operations, is reconciled as follows: GAAP recognizes that a significant portion of the cash distributions received from MLPs are characterized as a return of capital and therefore excluded from investment income, whereas the DCF calculation includes the return of capital; and, distributions received from investments in the DCF calculation include the value of dividends paid-in-kind (additional stock or MLP units), whereas such amounts are not included as income for GAAP purposes. The treatment of expenses in the DCF calculation also differs from what is reported in the Statement of Operations. In addition to the total operating expenses as disclosed in the Statement of Operations, the DCF calculation reflects interest expense, other recurring leverage expenses, distributions to preferred stockholders, as well as current taxes paid. A reconciliation of Net Investment Loss, before Income Taxes to DCF is included below.
 
Distributions Received from Investments
 
Our ability to generate cash is dependent on the ability of our portfolio of investments to generate cash flow from their operations. In order to maintain and grow distributions to our stockholders, we evaluate each holding based upon its contribution to our investment income, our expectation for its growth rate, and its risk relative to other potential investments.
 
We concentrate on MLPs we believe can expect an increasing demand for services from economic and population growth. We seek well-managed businesses with hard assets and stable recurring revenue streams. Our focus remains primarily on investing in fee-based service providers that operate long-haul, interstate pipelines. We further diversify among issuers, geographies and energy commodities to seek a distribution payment which approximates an investment directly in energy infrastructure MLPs. In addition, most energy infrastructure companies are regulated and utilize an inflation escalator index that factors in inflation as a cost pass-through. So, over the long-term, we believe MLPs’ distributions will outpace inflation and interest rate increases, and produce positive real returns.
 
Total distributions received from our investments for the 3rd quarter 2010 was approximately $11.7 million, representing a 9 percent increase as compared to 3rd quarter 2009 and a slight increase as compared to the 2nd quarter 2010. The difference from 2nd quarter 2010 reflects distribution increases from our MLP investments which were partially offset by the reallocation of approximately $11 million of our portfolio holdings into new MLP initial public offerings in which full distributions will not be received until future quarters.
 
Expenses
 
We incur two types of expenses: (1) operating expenses, consisting primarily of the advisory fee; and (2) leverage costs. On a percentage basis, operating expenses before leverage costs and current taxes were an annualized 1.11 percent of average total assets for the 3rd quarter 2010 as compared to 1.13 percent for the 3rd quarter 2009 and 1.12 percent for the 2nd quarter 2010. Advisory fees for the 3rd quarter 2010 increased 5 percent from 2nd quarter 2010 as a result of increased average managed assets for the quarter. Average managed assets increased primarily from increasing MLP asset values during the quarter. Yields on our MLP investments are currently slightly below their 5-year historical average of approximately 7 percent. All else being equal, if MLP yields continue to decrease and distributions remain constant or grow, MLP asset values will increase as will our managed assets and advisory fees.
 
Leverage costs consist of two major components: (1) the direct interest expense on our Tortoise Notes and short-term credit facility; and (2) distributions to preferred stockholders. Other leverage expenses include rating agency fees and commitment fees. Total leverage costs for DCF purposes were approximately $2.3 million for the 3rd quarter 2010 as compared to $1.6 million for the 3rd quarter 2009 and $2.4 million for the 2nd quarter 2010. The change in total leverage costs for these periods reflects the redemption of our auction rate preferred stock and the issuance of our mandatorily redeemable preferred (“MRP”) stock, as well as improved terms included in the amendment to our credit facility which became effective June 20, 2010.
 
The weighted average annual rate of our leverage at August 31, 2010, was 5.84 percent. This rate includes balances on our bank credit facility which accrue interest at a variable
 
2010 3rd Quarter Report      3
 

 



MANAGEMENTS DISCUSSION (Unaudited)
(Continued)
 
 
 
rate equal to one-month LIBOR plus 1.25 percent. Our weighted average rate may vary in future periods as the utilization of our credit facility varies and our leverage matures or is redeemed. Additional information on our leverage and amended credit facility is disclosed below in Liquidity and Capital Resources and in our Notes to Financial Statements.
 
Distributable Cash Flow
 
For 3rd quarter 2010, our DCF was approximately $7.3 million, a decrease of 5 percent as compared to 3rd quarter 2009 and a slight increase as compared to 2nd quarter 2010. These changes are the net result of increased distributions and expenses as outlined above. Throughout the 2009 fiscal year, we anticipated and planned for the impact the redemption of our auction rate preferred and the issuance of our MRP shares at current market rates would have on our DCF. In an effort to smooth the refinancing impact, we distributed only 90.4 percent of available DCF for fiscal year 2009, which equates to approximately $2 million of undistributed DCF carried into fiscal year 2010. For 3rd quarter 2010, we declared a distribution of $7.7 million, or 105.1 percent of DCF. As a result, we utilized approximately $0.4 million of our fiscal year 2009 undistributed DCF. We currently anticipate that our DCF payout ratio will decrease in future quarters as expected distribution increases from our MLPs exceed projected increases in expenses. On a per share basis, we declared a $0.40 distribution on August 9, 2010. This is unchanged as compared to 3rd quarter 2009 and 2nd quarter 2010. We currently expect to maintain a quarterly distribution to our stockholders of $0.40 per share for the 4th quarter 2010.
 
Net investment loss before income taxes on the Statement of Operations is adjusted as follows to reconcile to DCF for 2010 YTD and the 3rd quarter 2010 (in thousands):
 
    2010 YTD       3rd Qtr 2010
Net Investment Loss, before Income Taxes   $ (12,262 )   $ (3,123 )
Adjustments to reconcile to DCF:                
     Dividends paid in stock     3,032       1,043  
     Return of capital on distributions     31,171       9,440  
     Amortization of debt issuance costs     216       73  
     Current income tax expenses     (212 )     (96 )
          DCF   $      21,945     $      7,337  
                 
Liquidity and Capital Resources
 
We had total assets of $690 million at quarter-end. Our total assets reflect the value of our investments, which are itemized in the Schedule of Investments. It also reflects cash, interest and receivables and any expenses that may have been prepaid. During 3rd quarter 2010, total assets increased $56 million to $690 million. This change was primarily the result of a net realized and unrealized gain on investments of approximately $56 million during the quarter (excluding return of capital on distributions reflected during the quarter).
 
Total leverage outstanding at August 31, 2010 of $155.5 million is comprised of $90 million in senior notes, $65 million in MRP stock and $0.5 million outstanding under the credit facility. Total leverage represented 22.5 percent of total assets at August 31, 2010, as compared to 24.7 percent as of May 31, 2010 and 32.4 percent as of August 31, 2009. We have a long-term leverage target ratio of 25 percent of total assets at time of incurrence. Temporary increases of up to 30 percent of our total assets may be permitted, provided that such leverage is consistent with the limits set forth in the 1940 Act, and that such leverage is expected to be reduced over time in an orderly fashion to reach our long-term target. Our leverage ratio is impacted by increases or decreases in MLP values, issuance of equity and/or the sale of securities where proceeds are used to reduce leverage.
 
Our longer-term leverage (excluding our bank credit facility) of $155 million is comprised of 58 percent private placement debt and 42 percent publicly placed preferred equity with a weighted average fixed rate of 5.81 percent and weighted average laddered maturity of 4.4 years.
 
Our MRP stock has an optional redemption feature allowing us to redeem all or a portion of the stock after November 30, 2010 and on or prior to November 30, 2011 at $10.10 per share. An optional redemption after November 30, 2011 and on or prior to November 30, 2012 will be at $10.05 per share. Any redemption after November 30, 2012 will be at the liquidation preference amount of $10.00 per share.
 
We have used leverage to acquire MLPs consistent with our investment philosophy. The terms of our leverage are governed by regulatory and contractual asset coverage requirements that arise from the use of leverage. Additional information on our leverage and asset coverage requirements is discussed in Note 8 and Note 9 in the Notes to Financial Statements. Our coverage ratios are updated each week on our web site at www.tortoiseadvisors.com.
 
During the quarter, we issued 66,100 shares under our at-the-market equity program for gross proceeds of approximately $1.6 million and 43,501 shares as part of our dividend reinvestment plan.
 
Taxation of our Distributions and Income Taxes
 
We invest in partnerships which generally have larger distributions of cash than the accounting income which they generate. Accordingly, the distributions include a return of capital component for accounting and tax purposes. Distributions declared and paid by us in a year generally differ from taxable income for that year, as such distributions may include the distribution of current year taxable income or return of capital.
 
The taxability of the distribution you receive depends on whether we have annual earnings and profits. If so, those earnings and profits are first allocated to the preferred shares and then to the common shares.
 
In the event we have earnings and profits allocated to the common shares, all or a portion of our distribution will be taxable at the 15 percent Qualified Dividend Income (“QDI”) rate, assuming various holding requirements are met by the stockholder. The 15 percent QDI rate is currently effective through 2010. The portion of our distribution that is taxable may vary for either of two reasons: first, the characterization of the distributions we receive from MLPs could change annually based upon the K-1 allocations and result in less return of capital and more in the form of income. Second, we could sell an MLP investment and realize a gain or loss at any time. It is for these reasons that we inform you of the tax treatment after the close of each year as the ultimate characterization of our distributions is undeterminable until the year is over.
 
For book and tax purposes, distributions to stockholders for the fiscal year ended 2009 were comprised of 100 percent return of capital. A holder of our common stock would reduce their cost basis for income tax purposes by the entire amount of the 2009 distribution. This information is reported to stockholders on Form 1099-DIV and is available on our web site at www.tortoiseadvisors.com. We currently expect the tax characterization of our 2010 distributions to be in the range of 30 percent to 50 percent return of capital.
 
The unrealized gain or loss we have in the portfolio is reflected in the Statement of Assets and Liabilities. At August 31, 2010, our investments are valued at $689 million, with an adjusted cost of $424 million. The $265 million difference reflects unrealized appreciation that would be realized for financial statement purposes if those investments were sold at those values. The Statement of Assets and Liabilities also reflects either a deferred tax liability or deferred tax asset depending primarily upon unrealized gains (losses) on investments, realized gains (losses) on investments, capital loss carryforward and net operating losses. At August 31, 2010, the balance sheet reflects a net deferred tax liability of approximately $83.7 million or $4.34 per share. Accordingly, our net asset value per share represents the amount which would be available for distribution to stockholders after payment of taxes. Details of our deferred taxes are disclosed in Note 5 in our Notes to Financial Statements.
 
4       Tortoise Energy Capital Corp.
 

 



SCHEDULE OF INVESTMENTS
August 31, 2010
 
(Unaudited)

        Shares       Fair Value
Master Limited Partnerships and            
     Related Companies — 156.3%(1)            
         
Crude/Refined Products Pipelines — 67.9%(1)        
United States — 67.9%(1)            
Blueknight Energy Partners, L.P.(2)   436,674   $ 3,842,731  
Buckeye Partners, L.P.   189,200     11,552,552  
Enbridge Energy Partners, L.P.   1,064,000     57,190,000  
Holly Energy Partners, L.P.   312,000     15,600,000  
Kinder Morgan Management, LLC(3)   974,270     57,550,146  
Magellan Midstream Partners, L.P.   598,700     29,013,002  
NuStar Energy L.P.   583,557     33,256,913  
Plains All American Pipeline, L.P.   680,400     40,851,216  
Sunoco Logistics Partners L.P.   677,300     50,154,065  
          299,010,625  
Natural Gas/Natural Gas Liquids Pipelines — 59.9%(1)    
United States — 59.9%(1)            
Boardwalk Pipeline Partners, LP   746,157     22,802,558  
Duncan Energy Partners L.P.   283,800     7,872,612  
El Paso Pipeline Partners, L.P.   875,500     27,411,905  
Energy Transfer Equity, L.P.   121,000     4,204,750  
Energy Transfer Partners, L.P.   1,153,600     52,707,984  
Enterprise Products Partners L.P.   1,291,800     47,757,846  
Niska Gas Storage Partners LLC   265,600     5,014,528  
ONEOK Partners, L.P.   380,000     26,144,000  
PAA Natural Gas Storage, L.P.   150,919     3,602,437  
Spectra Energy Partners, LP   303,900     9,791,658  
TC PipeLines, LP   869,100     37,762,395  
Williams Partners L.P.   184,096     7,752,283  
Williams Pipeline Partners L.P.   342,800     10,921,608  
          263,746,564  
Natural Gas Gathering/Processing — 22.5%(1)        
United States — 22.5%(1)            
Chesapeake Midstream Partners, L.P.   189,874     4,471,533  
Copano Energy, L.L.C.   736,700     18,505,904  
DCP Midstream Partners, LP   404,100     12,834,216  
MarkWest Energy Partners, L.P.   612,600     20,411,832  
Regency Energy Partners LP   623,900     14,836,342  
Targa Resources Partners LP   970,238     24,537,319  
Western Gas Partners LP   141,430     3,405,634  
          99,002,780  
Propane Distribution — 5.3%(1)            
United States — 5.3%(1)            
Inergy, L.P.   627,000     23,349,480  
Shipping — 0.7%(1)            
Republic of the Marshall Islands — 0.7%(1)            
Teekay LNG Partners L.P.   98,200     3,225,870  
Total Master Limited Partnerships and            
     Related Companies (Cost $424,185,995)         688,335,319  
Short-Term Investment — 0.0%(1)            
United States Investment Company — 0.0%(1)            
Fidelity Institutional Government Portfolio —            
     Class I, 0.06%(4) (Cost $219,453)   219,453     219,453  
Total Investments — 156.3%(1)            
     (Cost $424,405,448)         688,554,772  
Other Assets and Liabilities — (21.1%)(1)         (93,022,954 )
Long-Term Debt Obligations — (20.4%)(1)         (90,000,000 )
Mandatory Redeemable Preferred Stock            
     at Liquidation Value — (14.8%)(1)         (65,000,000 )
Total Net Assets Applicable to            
     Common Stockholders — 100.0%(1)       $  440,531,818  
             
(1)  Calculated as a percentage of net assets applicable to common stockholders.
(2) Non-income producing.
(3) Security distributions are paid-in-kind.
(4) Rate indicated is the current yield as of August 31, 2010.
 
See accompanying Notes to Financial Statements.
 
2010 3rd Quarter Report       5
 

 



STATEMENT OF ASSETS & LIABILITIES
August 31, 2010
 
(Unaudited)

Assets            
     Investments at fair value (cost $424,405,448)   $ 688,554,772  
     Prepaid expenses and other assets     1,833,260  
               Total assets     690,388,032  
Liabilities        
     Payable to Adviser     1,134,230  
     Distributions payable to common stockholders     7,710,047  
     Accrued expenses and other liabilities     1,665,454  
     Current tax liability     134,986  
     Deferred tax liability     83,711,497  
     Short-term borrowings     500,000  
     Long-term debt obligations     90,000,000  
     Mandatory redeemable preferred stock ($10.00 liquidation        
          value per share; 6,500,000 shares outstanding)     65,000,000  
               Total liabilities     249,856,214  
               Net assets applicable to common stockholders   $   440,531,818  
Net Assets Applicable to Common Stockholders Consist of:    
     Capital stock, $0.001 par value; 19,275,115 shares issued        
          and outstanding (100,000,000 shares authorized)   $ 19,275  
     Additional paid-in capital     306,188,716  
     Accumulated net investment loss, net of income taxes     (46,282,375 )
     Accumulated realized gain, net of income taxes     10,397,837  
     Net unrealized appreciation of investments, net of income taxes     170,208,365  
               Net assets applicable to common stockholders   $ 440,531,818  
     Net Asset Value per common share outstanding        
          (net assets applicable to common stock,        
          divided by common shares outstanding)   $ 22.85  
         
STATEMENT OF OPERATIONS
Period from December 1, 2009 through August 31, 2010
 
(Unaudited)

Investment Income            
     Distributions from master limited partnerships   $ 31,673,304  
     Less return of capital on distributions     (31,171,494 )
     Net distributions from master limited partnerships     501,810  
     Other income     11,396  
     Dividends from money market mutual funds     145  
          Total Investment Income     513,351  
Operating Expenses        
     Advisory fees     4,625,639  
     Administrator fees     205,663  
     Professional fees     171,847  
     Reports to stockholders     89,522  
     Franchise fees     84,718  
     Directors’ fees     75,017  
     Fund accounting fees     45,994  
     Custodian fees and expenses     42,325  
     Registration fees     33,757  
     Stock transfer agent fees     12,413  
     Other operating expenses     68,030  
          Total Operating Expenses     5,454,925  
     Interest expense     4,207,206  
     Distributions to mandatory redeemable preferred stockholders     2,730,799  
     Amortization of debt issuance costs     216,615  
     Other leverage expenses     166,277  
          Total Leverage Expenses     7,320,897  
          Total Expenses     12,775,822  
Net Investment Loss, before Income Taxes     (12,262,471 )
     Current tax expense     (277,130 )
     Deferred tax benefit     3,653,507  
    Income tax benefit, net     3,376,377  
Net Investment Loss     (8,886,094 )
Realized and Unrealized Gain on Investments        
     Net realized gain on investments, before income taxes     36,270,955  
     Deferred tax expense     (13,746,692 )
          Net realized gain on investments     22,524,263  
     Net unrealized appreciation of investments, before income taxes     101,293,186  
     Deferred tax expense     (38,390,117 )
          Net unrealized appreciation of investments     62,903,069  
Net Realized and Unrealized Gain on Investments     85,427,332  
Net Increase in Net Assets Applicable to Common Stockholders        
     Resulting from Operations   $ 76,541,238  
         
See accompanying Notes to Financial Statements.
 
6       Tortoise Energy Capital Corp.
 

 



STATEMENT OF CHANGES IN NET ASSETS
 

    Period from    
    December 1, 2009    
    through   Year Ended
        August 31, 2010       November 30, 2009
    (Unaudited)        
Operations                
     Net investment loss   $ (8,886,094 )   $ (4,441,015 )
     Net realized gain (loss) on investments     22,524,263       (19,884,908 )
     Net unrealized appreciation of investments     62,903,069       176,711,971  
     Distributions to auction preferred stockholders           (783,875 )
          Net increase in net assets applicable to common stockholders resulting from operations     76,541,238       151,602,173  
Distributions to Common Stockholders                
     Net investment income            
     Return of capital     (23,024,232 )     (28,135,706 )
          Total distributions to common stockholders     (23,024,232 )     (28,135,706 )
Capital Stock Transactions                
     Proceeds from shelf offerings of 1,293,095 and 310,701 common shares, respectively     29,448,376       6,220,926  
     Underwriting discounts and offering expenses associated with the issuance of common stock     (465,446 )     (282,725 )
     Issuance of 89,063 and 111,583 common shares from reinvestment of distributions to stockholders, respectively     2,017,089       2,126,976  
          Net increase in net assets applicable to common stockholders from capital stock transactions     31,000,019       8,065,177  
     Total increase in net assets applicable to common stockholders     84,517,025       131,531,644  
Net Assets                
     Beginning of period     356,014,793       224,483,149  
     End of period   $ 440,531,818     $ 356,014,793  
     Accumulated net investment loss, net of income taxes, end of period   $     (46,282,375 )   $      (37,396,281 )
                 
See accompanying Notes to Financial Statements.
 
2010 3rd Quarter Report       7
 

 



STATEMENT OF CASH FLOWS
Period from December 1, 2009 through August 31, 2010
 
(Unaudited)

Cash Flows From Operating Activities            
     Distributions received from master limited partnerships   $ 31,673,304  
     Dividend income received     136  
     Other income received     11,396  
     Purchases of long-term investments     (97,047,286 )
     Proceeds from sales of long-term investments     71,391,023  
     Purchases of short-term investments, net     (195,060 )
     Interest expense paid     (4,222,054 )
     Distributions to mandatory redeemable preferred stockholders     (2,436,798 )
     Income taxes paid     (121,802 )
     Other leverage expenses paid     (83,449 )
     Operating expenses paid     (5,236,525 )
          Net cash used in operating activities     (6,267,115 )
Cash Flows From Financing Activities        
     Advances from revolving line of credit     43,050,000  
     Repayments on revolving line of credit     (57,150,000 )
     Issuance of common stock     29,448,376  
     Issuance of mandatory redeemable preferred stock     5,000,000  
     Common stock issuance costs     (469,742 )
     Debt issuance costs     (314,144 )
     Distributions paid to common stockholders     (13,297,375 )
          Net cash provided by financing activities     6,267,115  
     Net change in cash      
     Cash — beginning of period      
     Cash — end of period   $  
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   $ 76,541,238  
     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     (96,863,204 )
               Return of capital on distributions received     31,171,494  
               Proceeds from sales of long-term investments     70,681,905  
               Purchases of short-term investments, net     (195,060 )
               Deferred tax expense     48,483,302  
               Net unrealized appreciation of investments     (101,293,186 )
               Net realized gain on investments     (36,270,955 )
               Amortization of debt issuance costs     216,615  
               Changes in operating assets and liabilities:        
                    Decrease in receivable for investments sold     709,083  
                    Decrease in prepaid expenses and other assets     41,570  
                    Increase in payable to Adviser     274,705  
                    Decrease in payable for investments purchased     (184,082 )
                    Increase in current tax liability     134,986  
                    Increase in accrued expenses and other liabilities     284,474  
                         Total adjustments     (82,808,353 )
     Net cash used in operating activities   $ (6,267,115 )
Non-Cash Financing Activities        
     Reinvestment of distributions by common stockholders        
          in additional common shares   $ 2,017,089  
         
See accompanying Notes to Financial Statements.
 
8       Tortoise Energy Capital Corp.
 

 



FINANCIAL HIGHLIGHTS

   
    Period from                                   Period from
    December 1, 2009   Year Ended   Year Ended   Year Ended   Year Ended   May 31, 2005(1)
    through   November 30,   November 30,   November 30,   November 30,   through
    August 31, 2010   2009   2008   2007   2006   November 30, 2005
      (Unaudited)                                                  
Per Common Share Data(2)                                                
     Net Asset Value, beginning of period   $ 19.90     $ 12.85     $ 27.84     $ 26.79     $ 23.23     $  
     Public offering price                                   25.00  
     Income (Loss) from Investment Operations                                                
          Net investment income (loss)(3)(4)     (0.47 )     (0.20 )     (0.89 )     (0.64 )     (0.36 )     0.04  
          Net realized and unrealized gains (losses) on investments and                                                
               interest rate swap contracts(3)(4)     4.55       8.88       (12.05 )     3.80       5.68       (0.05 )
                    Total income (loss) from investment operations     4.08       8.68       (12.94 )     3.16       5.32       (0.01 )
     Distributions to Auction Preferred Stockholders                                                
          Net investment income                                    
          Return of capital           (0.04 )     (0.35 )     (0.33 )     (0.19 )      
                    Total distributions to auction preferred stockholders           (0.04 )     (0.35 )     (0.33 )     (0.19 )      
     Distributions to Common Stockholders                                                
          Net investment income                                   (0.03 )
          Return of capital     (1.20 )     (1.60 )     (1.70 )     (1.63 )     (1.51 )     (0.55 )
                    Total distributions to common stockholders     (1.20 )     (1.60 )     (1.70 )     (1.63 )     (1.51 )     (0.58 )
     Capital Stock Transactions                                                
          Underwriting discounts and offering costs on issuance                                                
               of common and auction preferred stock(5)                       (0.03 )     (0.06 )     (1.18 )
          Premiums less underwriting discounts and offering costs                                                
               on issuance of common stock(6)     0.07       0.01             (0.12 )            
                    Total capital stock transactions     0.07       0.01             (0.15 )     (0.06 )     (1.18 )
     Net Asset Value, end of period   $ 22.85     $ 19.90     $ 12.85     $ 27.84     $ 26.79     $ 23.23  
     Per common share market value, end of period   $ 24.86     $ 22.38     $ 11.11     $ 25.47     $ 26.50     $ 22.09  
     Total Investment Return Based on Market Value(7)     16.98 %     120.32 %     (52.44 )%     1.73 %     27.67 %     (8.33 )%
Supplemental Data and Ratios                                                
     Net assets applicable to common stockholders, end of period (000’s)   $ 440,532     $ 356,015     $ 224,483     $ 484,645     $ 429,010     $ 370,455  
     Average net assets (000’s)   $ 422,082     $ 289,712     $ 402,149     $ 501,668     $ 390,212     $ 374,721  
     Ratio of Expenses to Average Net Assets(8)                                                
          Advisory fees     1.46 %     1.51 %     1.84 %     1.69 %     1.41 %     0.94 %
          Other operating expenses     0.26       0.38       0.30       0.25       0.28       0.25  
               Subtotal     1.72       1.89       2.14       1.94       1.69       1.19  
          Leverage expenses(9)     2.31       2.02       4.37       2.51       1.78       0.20  
          Income tax expense (benefit)(10)     15.39       22.42       (28.32 )     6.06       13.91       (0.10 )
                    Total expenses     19.42 %     26.33 %     (21.81 )%     10.51 %     17.38 %     1.29 %
                                                 
See accompanying Notes to Financial Statements.
 
2010  3rd Quarter Report       9
 

 
 



FINANCIAL HIGHLIGHTS
(Continued)
  
    Period from                                   Period from
    December 1, 2009   Year Ended   Year Ended   Year Ended   Year Ended   May 31, 2005(1)
    through   November 30,   November 30,   November 30,   November 30,   through
    August 31, 2010   2009   2008   2007   2006   November 30, 2005
      (Unaudited)                                                  
Ratio of net investment income (loss) to average net assets(8)(9)     (2.80 )%     (1.53 )%     (3.67 )%     (2.33 )%     (1.47 )%     0.30 %
Portfolio turnover rate(8)     14.61 %     14.86 %     6.44 %     9.90 %     5.56 %     0.08 %
Long-term debt obligations, end of period (000’s)   $ 90,000     $ 90,000     $ 90,000     $ 190,000     $ 120,000     $ 120,000  
Short-term borrowings, end of period (000’s)   $ 500     $ 14,600           $ 24,700     $ 28,000        
Preferred stock, end of period (000’s)   $ 65,000     $ 60,000     $ 95,000     $ 110,000     $ 70,000        
Per common share amount of long-term debt obligations outstanding,                                                
     end of period   $ 4.67     $ 5.03     $ 5.15     $ 10.92     $ 7.49     $ 7.52  
Per common share amount of net assets, excluding long-term debt                                                
     obligations, end of period   $ 27.52     $ 24.93     $ 18.00     $ 38.76     $ 34.28     $ 30.75  
Asset coverage, per $1,000 of principal amount of long-term debt                                                
     obligations and short-term borrowings(11)   $ 6,586     $ 4,977     $ 4,550     $ 3,770     $ 4,372     $ 4,087  
Asset coverage ratio of long-term debt obligations and short-term                                                
     borrowings(11)     659 %     498 %     455 %     377 %     437 %     409 %
Asset coverage, per $25,000 liquidation value per share of auction                                                
     preferred stock(12)               $ 55,336     $ 62,315     $ 74,198        
Asset coverage, per $10 liquidation value per share of mandatory                                                
     redeemable preferred stock(12)   $ 38     $ 32                          
Asset coverage ratio of preferred stock(12)     383 %     316 %     221 %     249 %     297 %      

(1)   Commencement of Operations.
(2)   Information presented relates to a share of common stock outstanding for the entire period.
(3)   The per common share data for the periods ended November 30, 2009, 2008, 2007, 2006 and 2005 do not reflect the change in estimate of investment income and return of capital, for the respective period. See Note 2C to the financial statements for further disclosure.
(4)   The per common share data for the year ended November 30, 2008 reflects the cumulative effect of adopting ASC 740-10, which was a $776,852 increase to the beginning balance of accumulated net investment loss, or $(0.04) per share.
(5)   Represents the issuance of auction preferred stock for the years ended November 30, 2007 and 2006. Represents the issuance of common stock for the period from May 31, 2005 through November 30, 2005.
(6)   Represents the premiums on the shelf offerings of $0.10 per share, less the underwriting discount and offering costs of $0.03 per share for the period from December 1, 2009 through August 31, 2010. Represents the premiums on the shelf offerings of $0.02 per share, less the underwriting discount and offering costs of $0.01 per share for the year ended November 30, 2009. Represents the premium on the shelf offering of less than $0.01 per share, less the underwriting and offering costs of $0.13 per share for the year ended November 30, 2007.
(7)   Not annualized. Total investment return is calculated assuming a purchase of common stock at the beginning of the period (or initial public offering price) and a sale at the closing price on the last day of the period reported (excluding brokerage commissions). The calculation also assumes reinvestment of distributions at actual prices pursuant to the Company’s dividend reinvestment plan.
(8)   Annualized for periods less than one full year.
(9)   The expense ratios and net investment income (loss) ratios do not reflect the effect of distributions to auction preferred stockholders.
(10)   For the period from December 1, 2009 through August 31, 2010, the Company accrued $277,130 for current income tax expense and $48,483,302 for net deferred income tax expense. For the year ended November 30, 2009, the Company accrued $302,906 for net current income tax benefit and $65,242,595 for net deferred income tax expense. For the year ended November 30, 2008, the Company accrued $427,891 for current income tax expense and $114,309,765 for net deferred income tax benefit. The Company accrued $30,376,674 and $54,292,114 for the years ended November 30, 2007 and 2006, respectively, for current and deferred income tax expense. For the period from May 31, 2005 through November 30, 2005, the Company accrued $192,462 in net deferred income tax benefit.
(11)   Represents value of total assets less all liabilities and indebtedness not represented by long-term debt obligations, short-term borrowings and preferred stock at the end of the period divided by long-term debt obligations and short-term borrowings outstanding at the end of the period.
(12)   Represents value of total assets less all liabilities and indebtedness not represented by long-term debt obligations, short-term borrowings and preferred stock at the end of the period divided by the sum of long-term debt obligations, short-term borrowings and preferred stock outstanding at the end of the period.
 
See accompanying Notes to Financial Statements.
 
10       Tortoise Energy Capital Corp.
 

 
 


NOTES TO FINANCIAL STATEMENTS (Unaudited)
August 31, 2010
 
1. Organization
 
Tortoise Energy Capital Corporation (the “Company”) was organized as a Maryland corporation on March 4, 2005, and is a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company’s investment objective is to seek a high level of total return with an emphasis on current distributions to stockholders. The Company seeks to provide its stockholders with an efficient vehicle to invest in the energy infrastructure sector. The Company received the proceeds of its initial public offering and commenced operations on May 31, 2005. The Company’s stock is listed on the New York Stock Exchange under the symbol “TYY.”
 
2. Significant Accounting Policies
 
A. Use of Estimates
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of distribution income, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
 
B. Investment Valuation
 
The Company primarily owns securities that are listed on a securities exchange or over-the-counter market. The Company values those securities at their last sale price on that exchange or over-the-counter market on the valuation date. If the security is listed on more than one exchange, the Company uses the price from the exchange that it considers to be the principal exchange on which the security is traded. Securities listed on the NASDAQ will be valued at the NASDAQ Official Closing Price, which may not necessarily represent the last sale price. If there has been no sale on such exchange or over-the-counter market on such day, the security will be valued at the mean between the last bid price and last ask price on such day.
 
The Company may invest up to 50 percent of its total assets in restricted securities. Restricted securities are subject to statutory or contractual restrictions on their public resale, which may make it more difficult to obtain a valuation and may limit the Company’s ability to dispose of them. Investments in restricted securities and other securities for which market quotations are not readily available will be valued in good faith by using fair value procedures approved by the Board of Directors. Such fair value procedures consider factors such as discounts to publicly traded issues, time until conversion date, securities with similar yields, quality, type of issue, coupon, duration and rating. If events occur that affect the value of the Company’s portfolio securities before the net asset value has been calculated (a “significant event”), the portfolio securities so affected will generally be priced using fair value procedures.
 
An equity security of a publicly traded company acquired in a direct placement transaction may be subject to restrictions on resale that can affect the security’s liquidity and fair value. Such securities that are convertible or otherwise will become freely tradable will be valued based on the market value of the freely tradable security less an applicable discount. Generally, the discount will initially be equal to the discount at which the Company purchased the securities. To the extent that such securities are convertible or otherwise become freely tradable within a time frame that may be reasonably determined, an amortization schedule may be used to determine the discount.
 
The Company generally values debt securities at prices based on market quotations for such securities, except those securities purchased with 60 days or less to maturity are valued on the basis of amortized cost, which approximates market value.
 
C. Security Transactions and Investment Income
 
Security transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses are reported on an identified cost basis. Interest income is recognized on the accrual basis, including amortization of premiums and accretion of discounts. Dividend and distribution income is recorded on the ex-dividend date. Distributions received from the Company’s investments in master limited partnerships (“MLPs”) generally are comprised of ordinary income, capital gains and return of capital from the MLPs. The Company allocates distributions between investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are based on historical information available from each MLP and other industry sources. These estimates may subsequently be revised based on actual allocations received from MLPs after their tax reporting periods are concluded, as the actual character of these distributions is not known until after the fiscal year end of the Company.
 
For the period from December 1, 2008 through November 30, 2009, the Company estimated the allocation of investment income and return of capital for the distributions received from MLPs within the Statement of Operations. For this period, the Company had estimated approximately 13 percent of total distributions as investment income and approximately 87 percent as return of capital.
 
Subsequent to November 30, 2009, the Company reallocated the amount of investment income and return of capital it recognized for the period from December 1, 2008 through November 30, 2009 based on the 2009 tax reporting information received from the individual MLPs. This reclassification amounted to a decrease in pre-tax net investment income of approximately $3,083,000 or $0.160 per share ($1,914,000 or $0.099 per share, net of deferred tax benefit); an increase in unrealized appreciation of investments of approximately $2,730,000 or $0.142 per share ($1,695,000 or $0.088 per share, net of deferred tax expense) and an increase in realized gains of approximately $353,000 or $0.018 per share ($219,000 or $0.011 per share, net of deferred tax expense) for the period from December 1, 2009 through August 31, 2010.
 
Subsequent to the period ended February 28, 2010, the Company reallocated the amount of investment income and return of capital recognized in the current fiscal year based on its revised 2010 estimates. This reclassification amounted to a decrease in pre-tax net investment income of approximately $434,000 or $0.022 per share ($270,000 or $0.014 per share, net of deferred tax benefit); an increase in unrealized appreciation of investments of approximately $560,000 or $0.029 per share ($348,000 or $0.018 per share, net of deferred tax expense) and a decrease in realized gains of approximately $126,000 or $0.007 per share ($78,000 or $0.004 per share, net of deferred tax benefit).
 
2010 3rd Quarter Report       11
 

 
 


NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Continued)
  

D. Distributions to Stockholders
 
Distributions to common stockholders are recorded on the ex-dividend date. The Company may not declare or pay distributions to its common stockholders if it does not meet asset coverage ratios required under the 1940 Act or the rating agency guidelines for its debt and preferred stock following such distribution. The character of distributions to common stockholders made during the year may differ from their ultimate characterization for federal income tax purposes. For the year ended November 30, 2009 and the period ended August 31, 2010, the Company’s distributions to common stockholders for book purposes were comprised of 100 percent return of capital. For the year ended November 30, 2009, the Company’s distributions to common stockholders for tax purposes were comprised of 100 percent return of capital. The tax character of distributions paid to common stockholders for the current year will be determined subsequent to November 30, 2010.
 
Distributions to mandatory redeemable preferred stockholders are paid on the first business day of each month. These distributions are accrued daily based on a fixed annual rate of 5.60 percent. The Company may not declare or pay distributions to its mandatory redeemable preferred stockholders if it does not meet a 200 percent asset coverage ratio for its debt or the rating agency basic maintenance amount for the debt following such distribution. The character of distributions to preferred stockholders made during the year may differ from their ultimate characterization for federal income tax purposes. For the year ended November 30, 2009 and for the period ended August 31, 2010, the Company’s distributions to preferred stockholders for book purposes were comprised of 100 percent return of capital. For the year ended November 30, 2009, the Company’s distributions to preferred stockholders for tax purposes were comprised of 100 percent return of capital. The tax character of distributions paid to preferred stockholders for the current year will be determined subsequent to November 30, 2010.
 
E. Federal Income Taxation
 
The Company, as a corporation, is obligated to pay federal and state income tax on its taxable income. Currently, the highest regular marginal federal income tax rate for a corporation is 35 percent. The Company may be subject to a 20 percent federal alternative minimum tax on its federal alternative minimum taxable income to the extent that its alternative minimum tax exceeds its regular federal income tax.
 
The Company invests its assets primarily in MLPs, which generally are treated as partnerships for federal income tax purposes. As a limited partner in the MLPs, the Company reports its allocable share of the MLP’s taxable income in computing its own taxable income. The Company’s tax expense or benefit is included in the Statement of Operations based on the component of income or gains (losses) to which such expense or benefit relates. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.
 
F. Offering and Debt Issuance Costs
 
Offering costs related to the issuance of common and preferred stock are charged to additional paid-in capital when the stock is issued. Offering costs (excluding underwriter commissions) of $139,050 related to the issuance of common stock were recorded to additional paid-in capital during the period ended August 31, 2010. Debt issuance costs related to long-term debt obligations and Mandatory Redeemable Preferred (“MRP”) Stock are capitalized and amortized over the period the debt and MRP Stock is outstanding. The amount of such capitalized costs (excluding underwriter commissions) for the MRP Stock issued in December 2009 was $263,960.
 
G. Derivative Financial Instruments
 
The Company may use derivative financial instruments (principally interest rate swap contracts) in an attempt to manage interest rate risk. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not hold or issue derivative financial instruments for speculative purposes. All derivative financial instruments are recorded at fair value with changes in fair value during the reporting period, and amounts accrued under the agreements, included as unrealized gains or losses in the accompanying Statement of Operations. Monthly cash settlements under the terms of the derivative instruments and termination of such contracts are recorded as realized gains or losses in the accompanying Statement of Operations. The Company did not hold any derivative financial instruments during the period ended August 31, 2010.
 
H. Indemnifications
 
Under the Company’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Company. In addition, in the normal course of business, the Company may enter into contracts that provide general indemnifications to other parties. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred, and may not occur. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
 
I. Recent Accounting Pronouncement Standard on Fair Value Measurement
 
On January 21, 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2010-06, Improving Disclosures about Fair Value Measurements, which amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, and requires additional disclosures regarding fair value measurements. Specifically, the amendment requires reporting entities to disclose (i) the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements, for Level 2 or Level 3 positions, (ii) transfers between all levels (including Level 1 and Level 2) on a gross basis (i.e. transfers out must be disclosed separately from transfers in) as well as the
 
12       Tortoise Energy Capital Corp.
 


 



NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Continued)
 
reason(s) for the transfer, and (iii) purchases, sales, issuances, and settlements on a gross basis in the Level 3 rollforward rather than as one net number. The effective date of the amendment is for interim and annual periods beginning after December 15, 2009; however, the requirement to provide the Level 3 activity for purchases, sales, issuances, and settlements on a gross basis will be effective for interim and annual periods beginning after December 15, 2010. The Company has adopted the disclosures required by this amendment, which did not have a material impact on the financial statements.
 
3. Concentration of Risk
 
Under normal circumstances, the Company will have at least 80 percent of its net assets, plus any borrowings for investment purposes, invested in equity securities of entities in the energy sector and at least 80 percent of its total assets in equity securities of MLPs and their affiliates in the energy infrastructure sector. The Company will not invest more than 15 percent of its total assets in any single issuer as of the time of purchase. The Company may invest up to 50 percent of its total assets in restricted securities, all of which may be illiquid securities. The Company may invest up to 20 percent of its total assets in debt securities, including securities rated below investment grade. In determining application of these policies, the term “total assets” includes assets obtained through leverage. Companies that primarily invest in a particular sector may experience greater volatility than companies investing in a broad range of industry sectors. The Company may, for defensive purposes, temporarily invest all or a significant portion of its assets in investment grade securities, short-term debt securities and cash or cash equivalents. To the extent the Company uses this strategy, it may not achieve its investment objective.
 
4. Agreements
 
The Company has entered into an Investment Advisory Agreement with Tortoise Capital Advisors, L.L.C. (the “Adviser”). Under the terms of the agreement, the Company pays the Adviser a fee equal to an annual rate of 0.95 percent of the Company’s average monthly total assets (including any assets attributable to leverage and excluding any net deferred tax asset) minus accrued liabilities (other than net deferred tax liability, debt entered into for purposes of leverage and the aggregate liquidation preference of outstanding preferred stock) (“Managed Assets”), in exchange for the investment advisory services provided.
 
U.S. Bancorp Fund Services, LLC serves as the Company’s administrator. The Company pays the administrator a monthly fee computed at an annual rate of 0.04 percent of the first $1,000,000,000 of the Company’s Managed Assets, 0.01 percent on the next $500,000,000 of Managed Assets and 0.005 percent on the balance of the Company’s Managed Assets.
 
Computershare Trust Company, N.A. serves as the Company’s transfer agent and registrar and Computershare Inc. serves as the Company’s 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 0.004 percent of the Company’s portfolio assets, plus portfolio transaction fees.
 
5. Income Taxes
 
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of the Company’s deferred tax assets and liabilities as of August 31, 2010, are as follows:
 
Deferred tax assets:      
     Net operating loss carryforwards       $ 17,666,947
     Capital loss carryforwards     25,991,622
     Alternative minimum tax credit carryforward     135,201
     Organization costs     15,121
      43,808,891
Deferred tax liabilities:      
     Basis reduction of investment in MLPs     27,407,794
     Net unrealized gains on investment securities     100,112,594
      127,520,388
Total net deferred tax liability   $ 83,711,497
       
At August 31, 2010, a valuation allowance on deferred tax assets was not deemed necessary because the Company believes it is more likely than not that there is an ability to realize its deferred tax assets based on the Company’s estimates of the timing of the reversal of deferred tax liabilities. Any adjustments to such estimates will be made in the period such determination is made. The Company’s policy is to record interest and penalties on uncertain tax positions as part of tax expense. As of August 31, 2010, the Company had no uncertain tax positions and no penalties and interest were accrued. All tax years since inception remain open to examination by federal and state tax authorities.
 
Total income tax expense differs from the amount computed by applying the federal statutory income tax rate of 35 percent to net investment loss and realized and unrealized gains on investments before taxes for the period ended August 31, 2010, as follows:
 
Application of statutory income tax rate   $ 43,855,585
State income taxes, net of federal tax benefit     3,633,748
Foreign tax expense, net of federal tax benefit     172,098
Other     1,099,001
Total income tax expense   $ 48,760,432
       
Total income taxes are computed by applying the federal statutory rate plus a blended state income tax rate.
 
For the period from December 1, 2009 through August 31, 2010, the components of income tax expense include current foreign tax expense (for which the federal tax benefit is reflected in deferred tax expense) of $277,130 and deferred federal and state income tax expense (net of federal tax benefit) of $44,773,498 and $3,709,804, respectively.
 
2010 3rd Quarter Report       13
 

 
 


NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Continued)
 
As of November 30, 2009, the Company had a net operating loss for federal income tax purposes of approximately $41,000,000. The net operating loss may be carried forward for 20 years. If not utilized, this net operating loss will expire as follows: $12,452,000, $18,390,000, $31,000 and $10,127,000 in the years ending November 30, 2026, 2027, 2028 and 2029, respectively. As of November 30, 2009, the Company had a capital loss carryforward of approximately $87,000,000, which may be carried forward for 5 years. If not utilized, this capital loss will expire as follows: $48,000,000 and $39,000,000 in the years ending November 30, 2013 and 2014, respectively. The amount of deferred tax asset for these items at August 31, 2010 also includes amounts for the period from December 1, 2009 through August 31, 2010. For corporations, capital losses can only be used to offset capital gains and cannot be used to offset ordinary income. As of November 30, 2009, an alternative minimum tax credit of $135,201 was available, which may be credited in the future against regular income tax. This credit may be carried forward indefinitely.
 
As of August 31, 2010, the aggregate cost of securities for federal income tax purposes was $352,089,368. The aggregate gross unrealized appreciation for all securities in which there was an excess of fair value over tax cost was $341,422,916, the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over fair value was $4,957,512 and the net unrealized appreciation was $336,465,404.
 
6. Fair Value of Financial Instruments
 
Various inputs are used in determining the value of the Company’s investments. These inputs are summarized in the three broad levels listed below:
 
      Level 1  —  quoted prices in active markets for identical investments
       
  Level 2  — other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)
       
  Level 3  —  significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 
The following table provides the fair value measurements of applicable Company assets by level within the fair value hierarchy as of August 31, 2010. These assets are measured on a recurring basis.
 
    Fair Value at                      
Description     August 31, 2010     Level 1     Level 2      Level 3
Equity Securities:                              
     Master Limited Partnerships                              
          and Related Companies(a)   $ 688,335,319     $ 688,335,319     $     $
Total Equity Securities     688,335,319       688,335,319            
Other:                              
     Short-Term Investment(b)     219,453       219,453            
Total Other     219,453       219,453            
Total   $ 688,554,772     $ 688,554,772     $     $
                               
(a)    All other industry classifications are identified in the Schedule of Investments.
(b)   Short-term investment is a sweep investment for cash balances in the Company at August 31, 2010.
 
Valuation Techniques
 
In general, and where applicable, the Company uses readily available market quotations based upon the last updated sales price from the principal market to determine fair value. This pricing methodology applies to the Company’s Level 1 investments.
 
There were no transfers between levels for the period from December 1, 2009 through August 31, 2010.
 
7. Investment Transactions
 
For the period from December 1, 2009 through August 31, 2010, the Company purchased (at cost) and sold securities (proceeds received) in the amount of $96,863,204 and $70,681,905 (excluding short-term debt securities), respectively.
 
8. Long-Term Debt Obligations
 
The Company has $90,000,000 aggregate principal amount of private senior notes, Series D, Series E and Series F (collectively, the “Notes”), outstanding. The Notes are unsecured obligations of the Company and, upon liquidation, dissolution or winding up of the Company, will rank: (1) senior to all of the Company’s outstanding preferred shares; (2) senior to all of the Company’s outstanding common stock; (3) on parity with any unsecured creditors of the Company and any unsecured senior securities representing indebtedness of the Company and (4) junior to any secured creditors of the Company. Holders of the Notes are entitled to receive cash interest payments each quarter at a fixed annual rate until maturity. The Notes are not listed on any exchange or automated quotation system.
 
The Notes are redeemable in certain circumstances at the option of the Company. The Notes are also subject to a mandatory redemption if the Company fails to meet asset coverage ratios required under the 1940 Act or the rating agency guidelines if such failure is not waived or cured. At August 31, 2010, the Company was in compliance with asset coverage covenants and basic maintenance covenants for its senior notes.
 
Estimated fair values of the Notes were calculated, for disclosure purposes, using the spread between the AAA corporate finance debt rate and the U.S. Treasury rate with an equivalent maturity date plus the average spread between the fixed rates of the Notes and the AAA corporate finance debt rate. At August 31, 2010, the total spread was applied to the equivalent U.S. Treasury rate for the series and future cash flows were discounted to determine the estimated fair value. The following table shows the issue date, maturity date, notional/carrying amount, estimated fair value and fixed rate for each series of Notes outstanding at August 31, 2010.
 
            Notional/          
    Issue   Maturity   Carrying   Estimated   Fixed
Series       Date       Date       Amount       Fair Value       Rate
Series D   December 21, 2007   December 21, 2014   $ 39,400,000   $ 44,006,839   6.07%
Series E   June 17, 2008   June 17, 2011     15,900,000     16,571,052   5.56%
Series F   June 17, 2008   June 17, 2013     34,700,000     38,501,903   6.02%
            $ 90,000,000   $ 99,079,794    
                         
14       Tortoise Energy Capital Corp.
 

 
 



NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Continued)
 
9. Preferred Stock
 
The Company has 10,000,000 shares of preferred stock authorized. Of that amount, the Company has 6,500,000 authorized shares of Mandatory Redeemable Preferred (“MRP”) Stock and all 6,500,000 shares are outstanding at August 31, 2010. The MRP Stock has a liquidation value of $10.00 per share plus any accumulated but unpaid distributions, whether or not declared. The Company issued 6,000,000 and 500,000 shares MRP Stock on November 30, 2009 and December 4, 2009, respectively, and they are mandatorily redeemable on November 30, 2016. The MRP Stock pays cash distributions on the first business day of each month at an annual rate of 5.60 percent. The shares of MRP Stock trade on the NYSE under the symbol “TYY Pr A.”
 
The MRP Stock has rights determined by the Board of Directors. Except as otherwise indicated in the Company’s Charter or Bylaws, or as otherwise required by law, the holders of MRP Stock have voting rights equal to the holders of common stock (one vote per MRP share) and will vote together with the holders of shares of common stock as a single class except on matters affecting only the holders of preferred stock or the holders of common stock. The 1940 Act requires that the holders of any preferred stock (including MRP Stock), voting separately as a single class, have the right to elect at least two directors at all times.
 
At August 31, 2010, the estimated fair value of the MRP Stock is based on the closing market price of $10.44 per share. The following table shows the mandatory redemption date, number of shares outstanding, aggregate liquidation preference, estimated fair value and the fixed rate as of August 31, 2010.
 
    Mandatory       Aggregate        
    Redemption   Shares   Liquidation   Estimated   Fixed
Series       Date       Outstanding        Preference       Fair Value       Rate
MRP Stock   November 30, 2016   6,500,000   $65,000,000   $67,860,000   5.60%

The MRP Stock is redeemable in certain circumstances at the option of the Company. Under the Investment Company Act of 1940, the Company may not declare dividends or make other distributions on shares of common stock or purchases of such shares if, at the time of the declaration, distribution or purchase, asset coverage with respect to the outstanding MRP Stock would be less than 200 percent. The MRP Stock is also subject to a mandatory redemption if the Company fails to meet an asset coverage ratio of at least 225 percent as determined in accordance with the 1940 Act or a rating agency basic maintenance amount if such failure is not waived or cured. At August 31, 2010, the Company was in compliance with asset coverage covenants and basic maintenance covenants for its MRP Stock.
 
10. Credit Facility
 
The Company had a revolving loan commitment amount of $35,000,000 that matured on June 20, 2010. U.S. Bank, N.A. served as a lender and the lending syndicate agent on behalf of other lenders participating in the credit facility. Outstanding balances on the credit facility accrued interest at a variable annual rate equal to one-month LIBOR plus 2.00 percent and unused portions of the credit facility accrued a non-usage fee equal to an annual rate of 0.25 percent.
 
On June 20, 2010, the Company entered into an amendment to its credit facility that extends the credit facility through June 20, 2011. The terms of the amendment provide for an unsecured revolving credit facility of $35,000,000. During the extension, outstanding balances generally will accrue interest at a variable rate equal to one-month LIBOR plus 1.25 percent and unused portions of the credit facility will accrue a non-usage fee equal to an annual rate of 0.20 percent.
 
The average principal balance and interest rate for the period during which the credit facility was utilized during the period ended August 31, 2010 was approximately $7,800,000 and 2.06 percent, respectively. At August 31, 2010, the principal balance outstanding was $500,000 at an interest rate of 1.51 percent.
 
Under the terms of the credit facility, the Company must maintain asset coverage required under the 1940 Act. If the Company fails to maintain the required coverage, it may be required to repay a portion of an outstanding balance until the coverage requirement has been met. At August 31, 2010, the Company was in compliance with the terms of the credit facility.
 
11. Common Stock
 
The Company has 100,000,000 shares of capital stock authorized and 19,275,115 shares outstanding at August 31, 2010. Transactions in common stock for the period ended August 31, 2010, were as follows:
 
Shares at November 30, 2009 17,892,957
Shares sold through shelf offerings 1,293,095
Shares issued through reinvestment of distributions 89,063
Shares at August 31, 2010 19,275,115
   
12. Subsequent Events
 
On September 1, 2010, the Company paid a distribution in the amount of $0.40 per common share, for a total of $7,710,046. Of this total, the dividend reinvestment amounted to $802,869.
 
The Company has performed an evaluation of subsequent events through the date the financial statements were issued and has determined that no additional items require recognition or disclosure.
 
2010 3rd Quarter Report        15
 


 



ADDITIONAL INFORMATION (Unaudited)
 
 
Director and Officer Compensation
 
The Company does not compensate any of its directors who are “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, nor any of its officers. For the period ended August 31, 2010, the aggregate compensation paid by the Company to the independent directors was $72,750. The Company did not pay any special compensation to any of its directors or officers.
 
Forward-Looking Statements
 
This report contains “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. By their nature, all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several factors that could materially affect the Company’s actual results are the performance of the portfolio of investments held by it, the conditions in the U.S. and international financial, petroleum and other markets, the price at which shares of the Company will trade in the public markets and other factors discussed in filings with the SEC.
 
Proxy Voting Policies
 
A description of the policies and procedures that the Company uses to determine how to vote proxies relating to portfolio securities owned by the Company and information regarding how the Company voted proxies relating to the portfolio of securities during the 12-month period ended June 30, 2010 are available to stockholders (i) without charge, upon request by calling the Company at (913) 981-1020 or toll-free at (866) 362-9331 and on the Company’s Web site at www.tortoiseadvisors.com; and (ii) on the SEC’s Web site at www.sec.gov.
 
Form N-Q
 
The Company files its complete schedule of portfolio holdings for the first and third quarters of each fiscal year with the SEC on Form N-Q. The Company’s Form N-Q is available without charge upon request by calling the Company at (866) 362-9331 or by visiting the SEC’s Web site at www.sec.gov. In addition, you may review and copy the Company’s Form N-Q at the SEC’s Public Reference Room in Washington D.C. You may obtain information on the operation of the Public Reference Room by calling (800) SEC-0330.
 
The Company’s Form N-Qs are also available on the Company’s Web site at www. tortoiseadvisors.com.
 
Statement of Additional Information
 
The Statement of Additional Information (“SAI”) includes additional information about the Company’s directors and is available upon request without charge by calling the Company at (866) 362-9331 or by visiting the SEC’s Web site at www.sec.gov.
 
Certifications
 
The Company’s Chief Executive Officer has submitted to the New York Stock Exchange the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual.
 
The Company has filed with the SEC, as an exhibit to its most recently filed N-CSR, the certification of its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act.
 
Privacy Policy
 
In order to conduct its business, the Company collects and maintains certain nonpublic personal information about its stockholders of record with respect to their transactions in shares of the Company’s securities. This information includes the stockholder’s address, tax identification or Social Security number, share balances, and distribution elections. We do not collect or maintain personal information about stockholders whose share balances of our securities are held in “street name” by a financial institution such as a bank or broker.
 
We do not disclose any nonpublic personal information about you, the Company’s other stockholders or the Company’s former stockholders to third parties unless necessary to process a transaction, service an account, or as otherwise permitted by law.
 
To protect your personal information internally, we restrict access to nonpublic personal information about the Company’s stockholders to those employees who need to know that information to provide services to our stockholders. We also maintain certain other safeguards to protect your nonpublic personal information.
 
16        Tortoise Energy Capital Corp.
 

 




Office of the Company and
of the Investment Adviser
Tortoise Capital Advisors, L.L.C.
11550 Ash Street, Suite 300
Leawood, Kan. 66211
(913) 981-1020
(913) 981-1021 (fax)
www.tortoiseadvisors.com
 
Managing Directors of
Tortoise Capital Advisors, L.L.C.
H. Kevin Birzer
Zachary A. Hamel
Kenneth P. Malvey
Terry Matlack
David J. Schulte
 
Board of Directors of
Tortoise Energy Capital Corp.
 
H. Kevin Birzer, Chairman
Tortoise Capital Advisors, L.L.C.
 
Conrad S. Ciccotello
Independent
 
John R. Graham
Independent
 
Charles E. Heath
Independent
 
ADMINISTRATOR
U.S. Bancorp Fund Services, LLC
615 East Michigan St.
Milwaukee, Wis. 53202
 
CUSTODIAN
U.S. Bank, N.A.
1555 North Rivercenter Drive, Suite 302
Milwaukee, Wis. 53212
 
TRANSFER, DIVIDEND DISBURSING
AND REINVESTMENT AGENT
Computershare Trust Company, N.A./Computershare Inc.
P.O. Box 43078
Providence, R.I. 02940-3078
(888) 728-8784
(312) 588-4990
www.computershare.com
 
Legal Counsel
Husch Blackwell LLP
4801 Main St.
Kansas City, Mo. 64112
 
INVESTOR RELATIONS
(866) 362-9331
info@tortoiseadvisors.com
 
STOCK SYMBOL
Listed NYSE Symbol: TYY
 
This report is for stockholder information. This is not a prospectus intended for use in the purchase or sale of fund shares. Past performance is no guarantee of future results and your investment may be worth more or less at the time you sell.


Tortoise Capital Advisors’ Public Investment Companies
        Total Assets
  Ticker/ Primary Target Investor as of 9/30/10
Name Inception Date Investments Suitability ($ in millions)
 
Tortoise Energy Capital Corp. TYY U.S. Energy Infrastructure Retirement Accounts $729
  May 2005   Pension Plans  
      Taxable Accounts  
         
 
Tortoise Energy TYG U.S. Energy Retirement Accounts $1,382
 Infrastructure Corp. Feb. 2004  Infrastructure Pension Plans  
      Taxable Accounts  
         
 
Tortoise North American TYN U.S. Energy Retirement Accounts $183
 Energy Corp. Oct. 2005  Infrastructure Pension Plans  
      Taxable Accounts  
         
 
Tortoise Power and Energy TPZ U.S. Power and Energy Retirement Accounts $199
Infrastructure Fund, Inc. July 2009 Investment Grade Debt and Pension Plans  
    Dividend-Paying Equity Securities Taxable Accounts  
         
         
Tortoise MLP Fund, Inc. NTG U.S. Energy Infrastructure Retirement Accounts $1,084
  July 2010 Natural Gas Energy Pension Plans (as of 8/31/10)
    Infrastructure Emphasis Taxable Accounts  
         
         
Tortoise Capital Resources Corp. TTO U.S. Energy Infrastructure Retirement Accounts $90
  Dec. 2005 Private and Micro Cap Pension Plans (as of 8/31/10)
  (Feb. 2007 – IPO) Public Companies Taxable Accounts