As
filed with the Securities and Exchange Commission on January 25,
2008
1933
Act File No. 333-146095
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. 34
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 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
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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)
_______________
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Title
of Securities
Being
Registered
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Amount
Registered(1)
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Proposed
Maximum Aggregate
Offering
Price(2)
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Amount
of Registration Fee(3)
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||||||
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Common
stock, $0.001 par value per share; preferred stock, $0.001 par
value per
share; debt securities
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$ | 92,462,604 | $ | 3,633.78 | |||||
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(1)
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There
are being registered hereunder a presently indeterminate number
of shares
of common stock, shares of preferred stock and debt securities
to be
offered on an immediate, continuous or delayed basis.
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(2)
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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 $___________.
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(3)
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$30.70
of which was previously transmitted via federal wire transfer.
Pursuant to
Rule 415(a)(6) under the Securities Act of 1933, securities having
an
aggregate offering price of $22,799,757 from our Registration Statement
on
Form N-2 (File No. 333-131204) filed on January 20, 2006 and $68,662,847
from our Registration Statement on Form N-2 (File No. 333-140457)
filed on
February 5, 2007, are included in this Registration Statement.
Pursuant to
Rule 415(a)(6) and Rule 457(p) under the Securities Act of 1933,
the
registration fees previously paid by the Registrant in connection
with
such earlier Registration Statements Nos. 333-131204 and 333-140457
in the
amount of $2,439.57 and $2,107.94, respectively, ($4,547.51 in
the
aggregate) are applied to and offset against the registration
statement fee currently due.
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The
Registrant hereby amends this Registration Statement on such date or dates
as
may be necessary to delay its effective date until the Registrant shall file
a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said
Section 8(a), may determine.
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 JANUARY 25,
2008
| Base Prospectus |
|
$___________
Tortoise
Energy Infrastructure Corporation
Common
Stock
Preferred
Stock
Debt
Securities
Tortoise
Energy Infrastructure Corporation (the “Company,” “we” or “our”) is a
nondiversified, closed-end management investment company. Our
investment objective is to seek a high level of total return with an emphasis
on
current distributions paid to stockholders. We seek to provide our
stockholders with an efficient vehicle to invest in a portfolio of publicly
traded master limited partnerships (“MLPs”) in the energy infrastructure
sector. Under normal circumstances, we invest at least 90% of our
total assets (including assets obtained through leverage) in securities of
energy infrastructure companies and invest at least 70% of our total assets
in
equity securities of MLPs. We cannot assure you that we will achieve
our investment objective. Unlike most investment companies, we have
not elected to be treated as a regulated investment company under the Internal
Revenue Code.
We
may
offer, on an immediate, continuous or delayed basis, up to $___________
aggregate initial offering price of our common stock ($0.001 par value per
share), preferred stock ($0.001 par value per share) or debt securities, which
we refer to in this prospectus collectively as our securities, in one or more
offerings. We may offer our common stock, preferred stock and debt
securities separately or together, in amounts, at prices and on terms set forth
in a prospectus supplement to this prospectus. In addition, from time
to time, certain of our stockholders may offer our common stock in one or more
offerings. The sale of such stock by certain of our stockholders may
involve shares of common stock that were issued to the stockholders in one
or
more private transactions and will be registered by us for
resale. The identity of any selling stockholder, the number of shares
of our common stock to be offered by such selling stockholder, the price and
terms upon which our shares of common stock are to be sold from time to time
by
such selling stockholder, and the percentage of common stock held by any selling
stockholder after the offering, will be set forth in a prospectus supplement
to
this prospectus. You should read this prospectus and the related
prospectus supplement carefully before you decide to invest in any of our
securities.
We
may
offer our securities, or certain of our stockholders may offer our common stock,
directly to one or more purchasers, through agents that we or they designate
from time to time, or to or through underwriters or dealers. The
prospectus supplement relating to the particular offering will identify any
agents or underwriters involved in the sale of our securities, and will set
forth any applicable purchase price, fee, commission or discount arrangement
between us or any selling stockholder and such agents or underwriters or among
the underwriters or the basis upon which such amount may be
calculated. For more information about the manner in which we may
offer our securities, or a selling stockholder may offer our common stock,
see
“Plan of Distribution” and “Selling Stockholders.” Our securities may
not be sold through agents, underwriters or dealers without delivery of a
prospectus supplement.
Our
common stock is listed on the New York Stock Exchange under the symbol
“TYG.” As of [effective date], 2008, 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 ___ 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 __________ __, 2008
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
___________ __, 2008, 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 ___ of
this prospectus, request a free copy of our annual, semi-annual and quarterly
reports, request other information or make stockholder inquiries, by calling
toll-free 1-866-362-9331 or by writing to us at 10801 Mastin Boulevard, Suite
222, Overland Park, Kansas 66210. Our annual, semi-annual and
quarterly reports and the statement of additional information also are available
on our investment adviser’s website at
www.tortoiseadvisors.com. Information included on our website does
not form part of this prospectus. You can review and copy documents
we have filed at the SEC’s Public Reference Room in Washington,
D.C. Call 1-202-551-5850 for information. The SEC charges
a fee for copies. You can get the same information free from the
SEC’s website (http://www.sec.gov). You may also e-mail requests for
these documents to publicinfo@sec.gov or make a request in writing to the
SEC’s
Public Reference Section, 100 F Street, N.E., Room 1580, Washington,
D.C. 20549.
Our
securities do not represent a deposit or obligation of, and are not guaranteed
or endorsed by, any bank or other insured depository institution and are
not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
TABLE
OF
CONTENTS
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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.
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus, any accompanying prospectus supplement and the statement of
additional information contain “forward-looking
statements.” Forward-looking statements can be identified by the
words “may,” “will,” “intend,” “expect,” “estimate,” “continue,” “plan,”
“anticipate,” and similar terms and the negative of such terms. Such
forward-looking statements may be contained in this prospectus as well as in
any
accompanying prospectus supplement. By their nature, all
forward-looking statements involve risks and uncertainties, and actual results
could differ materially from those contemplated by the forward-looking
statements. Several factors that could materially affect our actual
results are the performance of the portfolio of securities we hold, the
conditions in the U.S. and international financial, petroleum and other markets,
the price at which our shares will trade in the public markets and other factors
discussed in our periodic filings with the Securities and Exchange Commission
(the “SEC”).
Although
we believe that the expectations expressed in our forward-looking statements
are
reasonable, actual results could differ materially from those projected or
assumed in our forward-looking statements. Our future financial
condition and results of operations, as well as any forward-looking statements,
are subject to change and are subject to inherent risks and uncertainties,
such
as those disclosed in the “Risk Factors” section of this
prospectus. All forward-looking statements contained or incorporated
by reference in this prospectus or any accompanying prospectus supplement
are
made as of the date of this prospectus or the accompanying prospectus
supplement, as the case may be. Except for our ongoing obligations
under the federal securities laws, we do not intend, and we undertake no
obligation, to update any forward-looking statement. The
forward-looking statements contained in this prospectus and any accompanying
prospectus supplement are excluded from the safe harbor protection provided
by
Section 27A of the Securities Act of 1933, as amended (the “1933
Act”).
Currently
known risk factors that could cause actual results to differ materially from
our
expectations include, but are not limited to, the factors described in the
“Risk
Factors” section of this prospectus. We urge you to review carefully
that section for a more detailed discussion of the risks of an investment
in our
securities.
PROSPECTUS
SUMMARY
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 ___ of this prospectus.
The
Company
We
seek
to provide our stockholders with an efficient vehicle to invest in a portfolio
of publicly traded master limited partnerships (“MLPs”) in the energy
infrastructure sector. Our investment objective is to seek a high
level of total return with an emphasis on current distributions paid to
stockholders. For purposes of our investment objective, total return
includes capital appreciation of, and all distributions received from,
securities in which we invest regardless of the tax character of the
distributions. Similar to the tax characterization of distributions
made by MLPs to unitholders, a significant portion of our distributions have
been and are expected to continue to be treated as a return of capital to
stockholders.
We
are a
nondiversified, closed-end management investment company. We
commenced operations in February 2004 following our initial public
offering. We were the first publicly traded investment company
offering access to a portfolio of MLPs. Since that time, we completed
five additional offerings of common stock in December 2004, August 2006,
December 2006, March 2007 and December 2007. As of the date
of this prospectus, we have outstanding $185 million of auction rate preferred
stock (“Tortoise Preferred Shares”), consisting of two series designated as
Money Market Cumulative Preferred Shares (“MMP Shares®”) and two series
designated as Tortoise Auction Preferred Shares. In addition, we have
outstanding $235 million of Auction Rate Senior Notes (“Tortoise Notes”) and
have entered into an unsecured revolving credit facility with U.S. Bank N.A.
serving as a lender and the lending syndicate agent on behalf of other lenders
participating in the credit facility, which currently allows us to borrow
up to
$150,000,000. Our fiscal year ends on
November 30.
Investment
Adviser
Tortoise
Capital Advisors, L.L.C., a registered investment adviser specializing in
managing portfolios of investments in MLPs and other energy companies, serves
as
our investment adviser (the “Adviser”). As of December 31, 2007, the
Adviser managed assets of over $2.9 billion in the energy sector, including
the assets of four publicly traded and two privately held closed-end management
investment companies, and separate accounts for institutions and high net
worth
individuals. The Adviser’s investment committee is comprised of five
portfolio managers. See “Management of the
Company”.
The
principal business address of the Adviser is 10801 Mastin Boulevard, Suite
222,
Overland Park, Kansas 66210.
The
Offering
We
may offer, on an immediate, continuous or delayed basis, up to $___________
of
our securities, or certain of our stockholders who purchased shares from
us in
private placement transactions may offer our common stock, on terms to be
determined at the time of the offering. Our securities will be
offered at prices and on terms to be set forth in one or more prospectus
supplements to this prospectus. Subject to certain conditions, we may
offer our common stock at prices below our net asset value
(“NAV”). Preferred stock and debt securities (collectively, “senior
securities”) may be auction rate securities, in which case the senior securities
will not be listed on any exchange or automated quotation
system. Rather,
investors generally may only buy and sell these auction rate 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 $___________ of securities, our board of directors
(the
“Board of Directors” or the “Board”) may, without any action by the
stockholders, amend our Charter from time to time to increase or decrease the
aggregate number of shares of stock or the number of shares of stock of any
class or series that we have authority to issue under our Charter or the
Investment Company Act of 1940, as amended (the “1940 Act”).
We
may
offer our securities, or certain of our stockholders may offer our common stock,
directly to one or more purchasers, through agents that we or they designate
from time to time, or to or through underwriters or dealers. The
prospectus supplement relating to the offering will identify any agents or
underwriters involved in the sale of our securities, and will set forth any
applicable purchase price, fee, commission or discount arrangement between
us or
any selling stockholder and such agents or underwriters or among underwriters
or
the basis upon which such amount may be calculated. See “Plan of
Distribution” and “Selling Stockholders.” Our securities may not be
sold through agents, underwriters or dealers without delivery of a prospectus
supplement describing the method and terms of the offering of our
securities.
Use
of Proceeds
Unless
otherwise specified in a prospectus supplement, we intend to use the net
proceeds from the sale of our securities primarily to invest in energy
infrastructure companies in accordance with our investment objective and
policies within approximately three months of receipt of such
proceeds. We also may use sale proceeds to retire all or a portion of
any debt under our unsecured credit facility, and for working capital purposes,
including the payment of distributions, interest and operating expenses,
although there is currently no intent to issue securities primarily for this
purpose. We will not receive any of the proceeds from a sale of our
common stock by any selling stockholder.
Tax
Status of Company
Unlike
most investment companies, we have not elected to be treated as a regulated
investment company under the U.S. Internal Revenue Code of 1986, as amended
(the
“Internal Revenue Code”). Therefore, we are obligated to pay federal
and applicable state corporate taxes on our taxable income. On the
other hand, we are not subject to the Internal Revenue Code’s diversification
rules limiting the assets in which regulated investment companies can
invest. Under current federal income tax law, these rules limit the
amount that regulated investment companies may invest directly in the securities
of MLPs to 25% of the value of their total assets. We invest a
substantial portion of our assets in MLPs. Although MLPs generate
taxable income to us, we expect the MLPs to pay cash distributions in excess
of
the taxable income reportable by us. Similarly, we expect to
distribute substantially all of our distributable cash flow (“DCF”) to our
common stockholders. DCF is the amount we receive as cash or
paid-in-kind distributions from MLPs or affiliates of MLPs in which we invest,
and interest payments received on debt securities owned by us, less current
or
anticipated operating expenses, taxes on our taxable income, and leverage
costs
paid by us (including leverage costs of the Tortoise Notes and Tortoise
Preferred Shares and borrowings under our unsecured credit
facility). However, unlike regulated investment companies, we are not
effectively required by the Internal Revenue Code to distribute substantially
all of our income and capital gains. See “Certain Federal Income Tax
Matters.”
Distributions
We
expect
to distribute substantially all of our DCF to holders of common stock through
quarterly distributions. Our Board of Directors adopted a policy to
target distributions to common stockholders in an amount of at least 95%
of DCF
on an annual basis. We will pay distributions on our common stock
each fiscal quarter out of DCF, if any. As of the date of this
prospectus, we have paid distributions every quarter since the completion
of our
first full fiscal quarter ended on May 31, 2004, most of which have been
characterized as returns of capital for federal income tax
purposes. There is no assurance that we will continue to make regular
distributions. If distributions paid to holders of our common and
preferred stock exceed the current and accumulated earnings and profit allocated
to the particular shares held by a stockholder, the excess of such distribution
will constitute a tax-free return of capital to the extent of the stockholder’s
basis and capital gain thereafter. A return of capital reduces the
basis of the shares held by a stockholder, which may increase the amount
of gain
recognized upon the sale of such shares. Our preferred stock and debt
securities will pay dividends and interest, respectively, in accordance with
their terms. So long as we have preferred stock and debt securities
outstanding, we may not declare dividends on common or preferred stock unless
we
meet applicable asset coverage tests.
Principal
Investment Policies
Under
normal circumstances, we invest at least 90% of our total assets (including
assets we obtain through leverage) in securities of energy infrastructure
companies and invest at least 70% of our total assets in equity securities
of
MLPs. Energy infrastructure companies engage in the business of
transporting, processing, storing, distributing or marketing natural gas,
natural gas liquids (primarily propane), coal, crude oil or refined petroleum
products, or exploring, developing, managing or producing such
commodities. We invest primarily 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.
We
also
may invest in equity and debt securities of energy infrastructure companies
that
are organized and/or taxed as corporations to the extent consistent with
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:
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·
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We
may invest up to 30% of our total assets in restricted securities,
primarily through direct placements. Subject to this policy, we
may invest
without limitation in illiquid securities. The types of restricted
securities that we may purchase include securities of private energy
infrastructure companies and privately issued securities of publicly
traded energy infrastructure companies. Restricted securities,
whether
issued by public companies or private companies, are generally
considered
illiquid. Investments in private companies that do not have any
publicly
traded shares or units are limited to 5% of total assets.
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·
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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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We
will not invest more than 10% of total assets in any single issuer.
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We
will not engage in short sales.
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We
may
change our nonfundamental investment policies without stockholder approval
and
will provide notice to stockholders of material changes (including notice
through stockholder reports); provided, however, that a change in the policy
of
investing at least 90% of our total assets in energy infrastructure companies
requires at least 60 days’ prior written notice to
stockholders. Unless otherwise stated, these investment restrictions
apply at the time of purchase and we will not be required to reduce a position
due solely to market value fluctuations. The term total assets
includes assets obtained through leverage for the purpose of each investment
restriction.
Under
adverse market or economic conditions, we may
invest up to 100% of our total assets in securities issued or guaranteed
by the
U.S. Government or its instrumentalities or agencies, short-term debt
securities, certificates of deposit, bankers’ acceptances and other bank
obligations, commercial paper rated in the highest category by a rating agency
or other liquid fixed income securities deemed by the Adviser to be consistent
with a defensive posture (collectively, “short-term securities”), or we may hold
cash. To the extent we invest in short-term securities or cash for
defensive purposes, such investments are inconsistent with, and may result
in us
not achieving, our investment objective.
We
also
may invest in short-term securities or cash pending investment of offering
proceeds to meet working capital needs including, but not limited to, for
collateral in connection with certain investment techniques, to hold a
reserve
pending payment of distributions, and to facilitate the payment of expenses
and
settlement of trades. The yield on such securities may be lower than
the returns on MLPs or yields on lower rated fixed income
securities.
Use
of Leverage by the Company
The
borrowing of money and the issuance of preferred stock and debt securities
represents the leveraging of our common stock. The issuance of
additional common stock may enable us to increase the aggregate amount of our
leverage. Currently, our long term plan is to use leverage to
represent approximately 33% of our total assets, including the proceeds of
such
leverage. However, we reserve the right at any time, if we believe
that market conditions are appropriate, to use financial leverage to the extent
permitted by the 1940 Act (50% of total assets for preferred stock and 33⅓% of
total assets for debt) or we may elect to reduce the use of leverage or use
no
leverage at all. Our Board of Directors has approved a policy
permitting temporary increases in the amount of leverage we may use from 33%
of
our total assets to up to 38% of our total assets at the time of incurrence,
provided that (i) such leverage is consistent with the limits set forth in
the 1940 Act, and (ii) such increased leverage is reduced over time in an
orderly fashion. The timing and terms of any leverage transactions
will be determined by our Board of Directors.
Our
currently outstanding Tortoise Notes and Tortoise Preferred Shares generally
may
be bought at auctions normally held every 28 days (every 7 days for
Series C Tortoise Notes). However, with respect to several
series of our outstanding Tortoise Notes and Tortoise Preferred Shares, we
have
exercised our option to designate special rate periods for these
securities. We may exercise our option to designate special rate
periods for other series of our outstanding Tortoise Notes and Tortoise
Preferred Shares in the future. See “Leverage—Effects of
Leverage.”
The
use
of leverage creates an opportunity for increased income and capital appreciation
for common stockholders, but at the same time, it creates special risks that
may
adversely affect common stockholders. Because the Adviser’s fee is
based upon a percentage of our Managed Assets (as defined below), the Adviser’s
fee is higher when we are leveraged. Therefore, the Adviser has a
financial incentive to use leverage, which will create a conflict of interest
between the Adviser and our common stockholders, who will bear the costs of
our
leverage. There can be no assurance that a leveraging
strategy
will be successful during any period in which it is used. The use of
leverage involves risks, which can be significant. See “Leverage” and
“Risk Factors—Additional Risks to Common Stockholders—Leverage
Risk.”
We
currently use, and may in the future use, interest rate transactions for hedging
purposes only, in an attempt to reduce the interest rate risk arising from
our
leveraged capital structure. We do not intend to hedge the interest
rate risk of our portfolio holdings. Interest rate transactions that
we may use for hedging purposes may expose us to certain risks that differ
from
the risks associated with our portfolio holdings. See
“Leverage—Hedging Transactions” and “Risk Factors—Company Risks—Hedging Strategy
Risk.”
Conflicts
of Interest
Conflicts
of interest may arise from the fact that the Adviser and its affiliates carry
on
substantial investment activities for other clients, in which we have no
interest. The Adviser or its affiliates may have financial incentives
to favor certain of these accounts over us. Any of their proprietary
accounts or other customer accounts may compete with us for specific
trades. The Adviser or its affiliates may give advice and recommend
securities to, or buy or sell securities for, other accounts and customers,
which advice or securities recommended may differ from advice given to, or
securities recommended or bought or sold for, us, even though their investment
objectives may be the same as, or similar to, our objectives.
Situations
may occur when we could be disadvantaged because of the investment activities
conducted by the Adviser and its affiliates for their other
accounts. Such situations may be based on, among other things, the
following: (1) legal or internal restrictions on the combined
size of positions that may be taken for us or the other accounts, thereby
limiting the size of our position; (2) the difficulty of liquidating an
investment for us or the other accounts where the market cannot absorb the
sale
of the combined position; or (3) limits on co-investing in private
placement securities under the 1940 Act. Our investment opportunities
may be limited by affiliations of the Adviser or its affiliates with energy
infrastructure companies. See “Investment Objective and Principal
Investment Strategies—Conflicts of Interest.”
Company
Risks
Our
NAV,
our ability to make distributions, our ability to service debt securities and
preferred stock, and our ability to meet asset coverage requirements depends
on
the performance of our investment portfolio. The performance of our
investment portfolio is subject to a number of risks, including the
following:
Concentration
Risk. Under normal circumstances, we concentrate our
investments in the energy infrastructure sector, with an emphasis on securities
issued by MLPs. The primary risks inherent in the energy
infrastructure industry include the following: (1) the
performance and level of distributions of MLPs can be affected by direct and
indirect commodity price exposure, (2) a decrease in market demand for
natural gas or other energy commodities could adversely affect MLP revenues
or
cash flows, (3) energy infrastructure assets deplete over time and must be
replaced, and (4) a rising interest rate environment could increase an
MLP’s cost of capital.
Industry
Specific
Risk. Energy infrastructure companies also are subject to
risks specific to the industry they serve. For risks specific to the
pipeline, processing, propane and coal industries, see “Risk Factors—Company
Risks—Industry Specific Risk.”
MLP
Risk. We
invest primarily in equity securities of MLPs. As a result, we are
subject to the risks associated with an investment in MLPs, including cash
flow
risk and tax risk. Cash flow risk is the
risk
that
MLPs will not make distributions to holders (including us) at anticipated levels
or that such distributions will not have the expected tax
character. MLPs also are subject to tax risk, which is the risk that
MLPs might lose their partnership status for tax purposes.
Equity
Securities
Risk. MLP common units and other equity securities can be
affected by macro-economic and other factors affecting the stock market in
general, expectations of interest rates, investor sentiment toward MLPs or
the
energy sector, changes in a particular issuer’s financial condition, or
unfavorable or unanticipated poor performance of a particular issuer (in the
case of MLPs, generally measured in terms of DCF). Prices of common
units of individual MLPs and other equity securities also can be affected by
fundamentals unique to the partnership or company, including size, earnings
power, coverage ratios and characteristics and features of different classes
of
securities. See “Risk Factors—Company Risks—Equity Securities
Risk.”
Hedging
Strategy
Risk. We currently use, and may in the future use, interest
rate transactions for hedging purposes only, in an attempt to reduce the
interest rate risk arising from our leveraged capital
structure. There is no assurance that the interest rate hedging
transactions into which we enter will be effective in reducing our exposure
to
interest rate risk. Hedging transactions are subject to correlation
risk, which is the risk that payment on our hedging transactions may not
correlate exactly with our payment obligations on senior
securities. Interest rate transactions that we may use for hedging
purposes, such as swaps, caps and floors, will expose us to certain risks that
differ from the risks associated with our portfolio holdings. See
“Risk Factors—Company Risks—Hedging Strategy Risk.”
Competition
Risk. At the time we completed our initial public offering in
February 2004, we were the only publicly traded investment company offering
access to a portfolio of energy infrastructure MLPs. Since that time
a number of alternative vehicles for investment in a portfolio of energy
infrastructure MLPs, including other publicly traded investment companies and
private funds, have emerged. In addition, tax law changes have
increased the ability of regulated investment companies or other institutions
to
invest in MLPs. These competitive conditions may adversely impact our
ability to meet our investment objective, which in turn could adversely impact
our ability to make interest or dividend payments.
Restricted
Security
Risk. We may invest up to 30% of total assets in restricted
securities, primarily through direct placements. Restricted
securities are less liquid than securities traded in the open market because
of
statutory and contractual restrictions on resale. Such securities
are, therefore, unlike securities that are traded in the open market, which
can
be expected to be sold immediately if the market is adequate. This
lack of liquidity creates special risks for us. See “Risk
Factors—Company Risks—Restricted Security Risk.”
Liquidity
Risk. Certain MLP securities may trade less frequently than
those of other companies due to their smaller
capitalizations. Investments in securities that are less actively
traded or over time experience decreased trading volume may be difficult to
dispose of when we believe it is desirable to do so, may restrict our ability
to
take advantage of other opportunities, and may be more difficult to
value.
Valuation
Risk. We
may invest up to 30% of total assets in restricted securities, which are subject
to restrictions on resale. The value of such investments ordinarily
will be based on fair valuations determined by the Adviser pursuant to
procedures adopted by the Board of Directors. Restrictions on resale
or the absence of a liquid secondary market may affect adversely our ability
to
determine NAV. The sale price of securities that are restricted or
otherwise are not readily marketable may be higher or lower than our most recent
valuations.
Nondiversification
Risk. We are a nondiversified investment company under the
1940 Act and we are not a regulated investment company under the Internal
Revenue Code. Accordingly, there are no
limits
under the 1940 Act or Internal Revenue Code with respect to the number or size
of issuers held by us and we may invest more assets in fewer issuers as compared
to a diversified fund.
Management
Risk. The Adviser was formed in October 2002 to provide
portfolio management services to institutional and high net worth investors
seeking professional management of their MLP investments. The Adviser
has been managing our portfolio since we began operations in February
2004. As of December 31, 2007, the Adviser had client assets under
management of approximately $2.9 billion. 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.
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) or we may
elect to reduce the use of leverage or use no leverage at all. Common
stockholders bear the cost of leverage. Our Board of Directors has
approved a policy permitting temporary increases in the amount of leverage
we
may use from 33% of our total assets to up to 38% of our total assets at
the
time of incurrence, provided that (i) such leverage is consistent with the
limits set forth in the 1940 Act, and (ii) such increased leverage is reduced
over time in an orderly fashion. See “Leverage—Recent Developments”
for additional information.
Market
Impact
Risk. The sale of our common stock (or the perception that
such sales may occur) may have an adverse effect on prices in the secondary
market for our common stock by increasing the number of shares available, which
may put downward pressure on the market price for our common
stock. Our ability to sell shares of common stock below NAV may
increase this pressure. These sales also might make it more difficult
for us to sell additional equity securities in the future at a time and price
we
deem appropriate.
Dilution
Risk. The
voting power of current stockholders will be diluted to the extent that such
stockholders do not purchase shares in any future common stock offerings or
do
not purchase sufficient shares to maintain their percentage
interest. In addition, if we sell shares of common stock below NAV,
our NAV will fall immediately after such issuance. See “Description
of Securities—Common Stock—Issuance of Additional Shares” which includes a table
reflecting the dilutive effect of selling our common stock below
NAV.
If
we are
unable to invest the proceeds of such offering as intended, our per share
distribution may decrease and we may not participate in market advances to
the
same extent as if such proceeds were fully invested as planned.
Market
Discount Risk. Our common
stock has a
limited trading history and has traded both at a premium and at a discount
in
relation to NAV. We cannot predict whether our shares will trade in
the future at a premium or discount to NAV.
See
“Risk
Factors—Additional Risks to Common Stockholders” for a more detailed discussion
of these risks.
Additional
Risks to Senior Security Holders
Additional
risks of investing in senior securities, which will likely be auction rate
securities, include the following:
Interest
Rate
Risk. To the extent that senior securities trade through an
auction, such securities pay dividends or interest based on short-term interest
rates. If short-term interest rates rise, dividends or interest on
the auction rate senior securities may rise so that the amount of dividends
or
interest due to holders of auction rate senior securities would exceed the
cash
flow generated by our portfolio securities. This might require that
we sell portfolio securities at a time when we would otherwise not do so, which
may affect adversely our future ability to generate cash flow. In
addition, rising market interest rates could impact negatively the value of
our
investment portfolio, reducing the amount of assets serving as asset coverage
for the senior securities.
Senior
Leverage
Risk. Our preferred stock will be junior in liquidation and
with respect to distribution rights to our debt securities and any other
borrowings. Senior securities representing indebtedness may
constitute a substantial lien and burden on preferred stock by reason of their
prior claim against our income and against our net assets in
liquidation. We may not be permitted to declare dividends or other
distributions with respect to any series of our preferred stock unless at such
time we meet applicable asset coverage requirements and the payment of principal
or interest is not in default with respect to the Tortoise Notes or any other
borrowings.
Ratings
and Asset Coverage
Risk. To the extent that senior securities are rated, a rating
does not eliminate or necessarily mitigate the risks of investing in our senior
securities, and a rating may not fully or accurately reflect all of the credit
and market risks associated with that senior security. A rating
agency could downgrade the rating of our shares of preferred stock or debt
securities, which may make such securities less liquid at an auction or in
the
secondary market, though probably with higher resulting interest
rates. If a rating agency downgrades the rating assigned to a senior
security, we may alter our portfolio or redeem the senior
security. We may voluntarily redeem a senior security under certain
circumstances.
Inflation
Risk. Inflation is the reduction in the purchasing power of
money resulting from an increase in the price of goods and
services. Inflation risk is the risk that the inflation adjusted or
“real” value of an investment in preferred stock or debt securities or the
income from that investment will be worth less in the future. As
inflation occurs, the real value of the preferred stock or debt securities
and
the dividend payable to holders of preferred stock or debt securities
declines.
Auction
Risk. To
the extent that senior securities trade through an auction, there are certain
risks associated with participating in an auction and certain risks if you
try
to sell senior securities outside of an auction in the secondary
market. These risks will be described in more detail in an applicable
prospectus supplement if we issue senior securities pursuant to this
registration statement.
Decline
in Net Asset Value
Risk. A material decline in our NAV may impair our ability to
maintain required levels of asset coverage for our preferred stock or debt
securities.
See
“Risk
Factors—Additional Risks to Senior Security Holders” for a more detailed
discussion of these risks.
SUMMARY
OF
COMPANY EXPENSES
The
following table and example contain information about the costs and expenses
that common stockholders will bear directly or indirectly. In
accordance with SEC requirements, the table below shows our expenses, including
leverage costs, as a percentage of our net assets as of November 30, 2007,
and not as a percentage of gross assets or Managed Assets. By showing
expenses as a percentage of net assets, expenses are not expressed as a
percentage of all of the assets we invest. The table and example are
based on our capital structure as of November 30, 2007. As of
that date, we had $___ million in senior securities outstanding, including
Tortoise Preferred Shares with an aggregate liquidation preference of
$185 million, Tortoise Notes in an aggregate principal amount of $235
million and $_______ outstanding under our unsecured credit facility as of
that
date. Such senior securities represented ___% of total assets as of
November 30, 2007.
Stockholder
Transaction Expense
|
Sales
Load (as a percentage of offering price)
|
-- | (1) | ||
|
Offering
Expenses Borne by the Company (as a percentage of offering
price)
|
-- | (1) | ||
|
Dividend
Reinvestment and Cash Purchase Plan Fees(2)
|
None
|
|||
|
Percentage
of Net
Assets
Attributable
to
Common
Stockholders
|
||||
|
Annual
Expenses
|
||||
|
Management
Fee
|
___________
|
% | ||
|
Leverage
Costs(3)
|
___________
|
% | ||
|
Other
Expenses(4)
|
___________
|
% | ||
|
Current
Income Tax Expense
|
___________
|
% | ||
|
Deferred
Income Tax Expense(5)
|
___________
|
% | ||
|
Total
Annual Expenses(5) (6)
|
___________
|
% | ||
|
Less
Fee and Expense Reimbursement (through 2/28/09)(7)
|
( ) | % | ||
|
Net
Annual Expenses(6)
|
___________
|
% | ||
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
____% of net assets attributable to common shares in year 1 and increasing
to
____% in years 2 through 10; (2) a 5% annual return; and (iii) all
distributions are reinvested at NAV:
|
1
Year
|
3
Years
|
5
Years
|
10
Years
|
|
|
Total
Expenses Paid by Common Stockholders(8)(9)
|
$__
|
$__
|
$__
|
$__
|
The
example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those
assumed. Moreover, our actual rate of return may be greater or less
than the hypothetical 5% return shown in the example.
|
(1)
|
If
the securities to which this prospectus relates are sold to or
through
underwriters, the prospectus supplement will set forth any applicable
sales load and the estimated offering expenses borne by us.
|
|
(2)
|
Stockholders
will pay a transaction fee plus brokerage charges if they direct
the Plan
Agent to sell common stock held in a Plan account. See “Automatic Dividend
Reinvestment and Cash Purchase Plan.”
|
|
(3)
|
Leverage
Costs in the table reflect the weighted average cost of dividends
payable
on Tortoise Preferred Shares and the interest payable on Tortoise
Notes,
expressed as a percentage of net assets as of November 30,
2007. In an attempt to reduce the interest rate risk arising
from our leveraged capital structure, a substantial portion of
Tortoise
Notes and Tortoise Preferred Shares were hedged under swap agreements
as
of November 30, 2007. Our use of swap
agreements may effectively reduce, increase or have no effect on,
our
Leverage Costs. For a more detailed discussion of our use of
swap agreements, see “Leverage—Hedging Transactions” and “—Effects of
Leverage.”
|
|
(4)
|
Other
Expenses are based on amounts incurred for the fiscal year ended
November 30, 2007.
|
|
(5)
|
For
the year ended November 30, 2007, we accrued $______________ in net
deferred tax expense primarily related to net investment losses
and
realized and unrealized gains. Deferred income tax expense
represents an estimate of our potential tax liability if we were
to
recognize the unrealized appreciation of our portfolio assets accumulated
during the year ended November 30, 2007, based on the market value
and tax basis of our assets as of November 30,
2007. Actual income tax expense (if any) will be incurred over
many years, depending on if and when investment gains are realized,
the
then-current tax basis of assets, the level of net loss carryforwards
and
other factors.
|
|
(6)
|
The
table presented in this footnote presents certain of our annual
expenses
as a percentage of Managed Assets as of November 30, 2007, excluding
current and deferred income tax expense.
|
|
Percentage
of Managed
Assets
|
||||
|
Annual
Expenses
|
||||
|
Management
Fee
|
___________
|
% | ||
|
Leverage
Costs(a)
|
___________
|
% | ||
|
Other
Expenses (excluding current and deferred income tax expenses)(b)
|
___________
|
% | ||
|
Total
Annual Expenses (excluding current and deferred income tax
expenses)
|
___________
|
% | ||
|
Less
Fee and Expense Reimbursement (through 2/28/09)(c)
|
( ) | % | ||
|
Net
Annual Expenses (excluding current and deferred income tax
expenses)
|
__________
|
% | ||
_____________
|
|
(a)
|
Leverage
Costs are calculated as described in Note 3 above.
|
|
|
(b)
|
Other
Expenses are based on amounts incurred for the fiscal year ended
November 30, 2007.
|
|
|
(c)
|
Through
February 28, 2009, the Adviser has contractually agreed to reimburse
us
for expenses in an amount equal to 0.10% of our average monthly
Managed
Assets.
|
|
(7)
|
Through
February 28, 2009, the Adviser has contractually agreed to reimburse
us
for expenses in an amount equal to 0.10% of our average monthly
Managed
Assets, which represents ____% of our net assets as of November 30,
2007. The management fee and reimbursement are expressed as a
percentage of net assets in the table. Because holders of
preferred stock and debt securities do not bear management fees
and other
expenses, the cost to common stockholders increases as leverage
increases.
|
|
(8)
|
Includes
deferred income tax expense. See footnote (5) above for more details.
|
|
(9)
|
The
example does not include sales load or estimated offering costs.
|
The
purpose of the table and the example above is to help investors understand
the
fees and expenses that they, as common stockholders, would bear directly or
indirectly. For additional information with respect to our expenses,
see “Management of the Company.”
FINANCIAL
HIGHLIGHTS
Information
contained in the table below under the heading “Per Common Share Data” and
“Supplemental Data and Ratios” shows our per common share operating
performance. The information in this table is derived from our
financial statements audited by Ernst & Young LLP, whose report on such
financial statements will be contained in our 2007 Annual Report and
once available and filed with the SEC, is expected to be incorporated by
reference into the statement of additional information, both of which will
be available from us upon request. See “Available Information”
in this prospectus.
|
Year
Ended November 30, 2007
|
Year
Ended
November
30, 2006
|
Year
Ended
November
30, 2005
|
Period
from
February
27,
2004(1)
through
November
30, 2004
|
|
[TO
BE INCLUDED IN A SUBSEQUENT
PRE-EFFECTIVE
AMENDMENT]
SENIOR
SECURITIES
The
following table sets forth information about our outstanding senior securities
as of each fiscal year ended November 30 since our inception:
|
Year
|
Title
of Security
|
Total
Principal Amount/Liquidation Preference Outstanding
|
Asset
Coverage Per $1,000 of Principal Amount
|
Asset
Coverage Per Share ($25,000 Liquidation Preference)
|
Average
Fair Value Per $25,000 Denomination or Per Share Amount(1)
|
||||||||||||
|
2004
|
Tortoise
Notes
Series
A and B
|
$ | 110,000,000 | $ | 4,378 | $ | 25,000 | ||||||||||
|
Tortoise
Preferred Shares
Series
I(3)
(1,400
shares)
|
$ | 35,000,000 | $ | 83,026 | $ | 25,000 | |||||||||||
| $ | 145,000,000 | ||||||||||||||||
|
2005
|
Tortoise
Notes
Series
A, B and C
|
$ | 165,000,000 | $ | 3,874 | $ | 25,000 | ||||||||||
|
Tortoise
Preferred Shares
Series
I(3)
and II(4)
(2,800
shares)
|
$ | 70,000,000 | $ | 68,008 | $ | 25,000 | |||||||||||
| $ | 235,000,000 | ||||||||||||||||
|
2006
|
Tortoise
Notes
Series
A, B and C
|
$ | 165,000,000 | $ | 4,051 | $ | 25,000 | ||||||||||
|
Tortoise
Preferred Shares
Series
I(3)
and II(4)
(2,800
shares)
|
$ | 70,000,000 | $ | 74,769 | $ | 25,000 | |||||||||||
|
Borrowings
Unsecured
Revolving Credit Facility(4)
|
$ | 32,450,000 | $ | 4,051 | |||||||||||||
| $ | 267,450,000 | ||||||||||||||||
|
Year
|
Title
of Security
|
Total
Principal Amount/Liquidation Preference
Outstanding
|
Asset
Coverage Per $1,000 of Principal Amount
|
Asset
Coverage Per Share ($25,000 Liquidation
Preference)
|
Average
Fair Value Per $25,000 Denomination or Per Share Amount(1)
|
|||||||||
|
2007
|
Tortoise
Notes
Series
A and B
|
$ |
110,000,000
|
$ |
—
|
$ |
_____
|
(1) | ||||||
|
Tortoise
Notes
Series
C and D
|
$ |
125,000,000
|
$ |
—
|
$ | 25,000 | (2) | |||||||
|
Tortoise
Preferred Shares
Series
I(3)
and
II(4)
(2,800
shares)
|
$ |
70,000,000
|
[$_______]
|
$ |
_____
|
(1) | ||||||||
|
Tortoise
Preferred Shares
Series
III and IV
(4,600
shares)
|
$ |
115,000,000
|
[$_______]
|
$ | 25,000 | (2) | ||||||||
|
Borrowings
Unsecured
Revolving Credit Facility(5)
|
$ |
—
|
$ |
—
|
||||||||||
| $ |
|
|||||||||||||
_____________
|
(1)
|
Fair
value of the Series A and B Tortoise Notes and Series I and
II Tortoise
Preferred Shares was
calculated using the spread between the interest/dividend
rates at the
time the series’ respective special rate periods commenced to the U.S.
Treasury rates with equivalent maturity dates. At
November 30, 2007, the spread of each series was applied to the
equivalent U.S. Treasury Rate and the future cash flows
were discounted to determine the estimated fair
value.
|
|
(2)
|
Fair
value of the Series C and D Tortoise Notes and Series III and IV
Tortoise Preferred Shares approximates the principal amount
and
liquidation preference, respectively, because the interest
and dividend
rates payable on Tortoise Notes and Tortoise Preferred Shares
are
generally determined at auctions and fluctuate with changes
in prevailing
market interest rates.
|
|
(3)
|
Formerly
designated as Series I MMP
Shares.
|
|
(4)
|
Formerly
designated as Series II MMP
Shares.
|
|
(5)
|
We
have an unsecured credit facility which, as of November 30, 2007,
allowed us to borrow up to $150,000,000. The credit facility
expires on March 21, 2008, at which time we currently expect to renew
the credit facility.
|
MARKET
AND
NET ASSET VALUE INFORMATION
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 13, 2007, our common stockholders granted to us the authority to sell
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
|
|||||||||||||||
|
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, 2006
|
29.58 | 27.91 | 27.55 | 7.4 | % | 1.3 | % | |||||||||||||
|
April 30,
2006
|
28.95 | 27.56 | 28.12 | 3.0 | % | -2.0 | % | |||||||||||||
|
May 31,
2006
|
29.89 | 28.52 | 28.58 | 4.6 | % | -0.2 | % | |||||||||||||
|
June
30, 2006
|
30.01 | 27.85 | 28.91 | 3.8 | % | -3.7 | % | |||||||||||||
|
July
31, 2006
|
30.47 | 28.06 | 28.32 | 7.6 | % | -0.9 | % | |||||||||||||
|
August
31, 2006
|
30.70 | 29.10 | 29.46 | 4.2 | % | -1.2 | % | |||||||||||||
|
September
30, 2006
|
31.60 | 30.49 | 29.59 | 6.8 | % | 3.0 | % | |||||||||||||
|
October
31, 2006
|
32.80 | 31.14 | 29.34 | 11.8 | % | 6.1 | % | |||||||||||||
|
November
30, 2006
|
36.13 | 31.85 | 31.01 | 16.5 | % | 2.7 | % | |||||||||||||
|
December
31, 2006
|
36.31 | 33.48 | 31.82 | 14.1 | % | 5.2 | % | |||||||||||||
|
January
31, 2007
|
35.50 | 34.13 | 32.62 | 8.8 | % | 4.6 | % | |||||||||||||
|
February 28,
2007
|
36.64 | 35.15 | 34.27 | 6.9 | % | 2.6 | % | |||||||||||||
|
March 31,
2007
|
38.93 | 35.26 | 34.83 | 11.8 | % | 1.2 | % | |||||||||||||
|
April 30,
2007
|
41.71 | 39.13 | 36.81 | 13.3 | % | 6.3 | % | |||||||||||||
|
May 31,
2007
|
42.12 | 39.59 | 39.45 | 6.8 | % | 0.4 | % | |||||||||||||
|
June 30,
2007
|
42.68 | 40.25 | 38.73 | 10.2 | % | 3.9 | % | |||||||||||||
|
July 31,
2007
|
44.89 | 39.98 | 39.23 | 14.4 | % | 1.9 | % | |||||||||||||
|
August 31,
2007
|
39.52 | 34.39 | 38.46 | 14.1 | % | -0.7 | % | |||||||||||||
|
September 30,
2007
|
39.75 | 33.63 | 34.63 | 14.8 | % | -2.9 | % | |||||||||||||
|
October 31,
2007
|
35.43 | 33.00 | 32.71 | 8.3 | % | 0.9 | % | |||||||||||||
|
November 30,
2007
|
35.29 | 30.70 | 35.37 | -0.2 | % | -13.2 | % | |||||||||||||
|
December 31,
2007
|
33.44 | 31.72 | 32.96 | 1.5 | % | -3.8 | % | |||||||||||||
_____________
Source: Bloomberg
Financial and Fund Accounting Records.
|
(1)
|
Based
on high and low closing market price for the respective month.
|
|
(2)
|
Based
on the NAV calculated on the close of business on the last business
day of
each prior calendar month.
|
|
(3)
|
Calculated
based on the information presented. Percentages are rounded.
|
The
last
reported sale price, NAV per share and percentage [discount] to NAV per
share of
our common stock on [effective date], 2008 were $____, $____ and ___%,
respectively. As of __________, 2008,
we
had __________ shares of our common stock outstanding and net assets of
approximately $_______________.
USE
OF
PROCEEDS
Unless
otherwise specified in a prospectus supplement, we will invest the net proceeds
of any sales of securities in accordance with our investment objective and
policies as described under “Investment Objective and Principal Investment
Strategies” within approximately 3 months of receipt of such
proceeds. We may also use proceeds from the sale of our securities to
retire all or a portion of any debt we incur under our unsecured credit facility
in pursuit of our investment objective and policies, and for working capital
purposes, including the payment of distributions, interest and operating
expenses, although there is currently no intent to issue securities primarily
for this purpose. Our investments may be delayed if suitable
investments are unavailable at the time or for other reasons. Pending
such investment, we anticipate that we will invest the proceeds in securities
issued by the U.S. government or its agencies or instrumentalities or in
high
quality, short-term or long-term debt obligations. A delay in the
anticipated use of proceeds could lower returns, reduce our distribution
to
common stockholders and reduce the amount of cash available to make dividend
and
interest payments on preferred stock and debt securities,
respectively. We will not receive any of the proceeds from a sale of
our common stock by any selling stockholder.
THE
COMPANY
We
are a
nondiversified, closed-end management investment company registered under
the
1940 Act. We were organized as a corporation on October 30,
2003, pursuant to a charter (the “Charter”) governed by the laws of the State of
Maryland. Our fiscal year ends on November 30. In our
initial public offering on February 27, 2004, and the exercise of
subsequent overallotment options, we raised aggregate gross proceeds of
$315,000,000. We completed five additional offerings of common stock
in December 2004, August 2006, December 2006, March 2007 and
December 2007. As of November 30, 2007, we had net assets
of approximately $_____________ 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 outstanding four series of Tortoise Notes
and
four series of Tortoise Preferred 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 Tortoise
Preferred Shares are rated “Aa2” and “AA” by Moody’s and Fitch,
respectively.
The
following table pr-ovides information about our outstanding securities as
of
November 30, 2007:
|
Title
of Class
|
Amount
Authorized
|
Amount
Held
by the
Company
or for
its
Account
|
Amount
Outstanding
|
|||||||||
|
Common
Stock
|
100,000,000 | 0 | ________ | |||||||||
|
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 | |||||||
|
Series D
|
$ | 70,000,000 | 0 | $ | 70,000,000 | |||||||
|
Preferred
Stock
|
10,000,000 | (1) | ||||||||||
|
Series I
Tortoise Auction Preferred Shares
|
1,400 | (2) | 0 | 1,400 | ||||||||
|
Series II
Tortoise Auction Preferred Shares
|
1,400 | (2) | 0 | 1,400 | ||||||||
|
Series
III Money Market Preferred Shares
|
2,400 | (2) | 0 | 2,400 | ||||||||
|
Series
IV Money Market Preferred Shares
|
2,200 | (2) | 0 | 2,200 | ||||||||
_____________
|
(1)
|
Includes
2,800 shares of preferred stock designated as Tortoise Auction
Preferred
Shares and 4,800 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 Tortoise Auction
Preferred Shares, and $60,000,000 and $55,000,000 in the aggregate
for
Series III and Series IV MMP Shares, respectively).
|
INVESTMENT
OBJECTIVE
AND PRINCIPAL INVESTMENT
STRATEGIES
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 the MLPs’
unit holders, we believe that our common stockholders will have relatively
high
levels of return of capital associated with cash distributions we make 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 providing
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 reduce revenues
and 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 convert to common units if certain financial tests are
met.
As
a
motivation for the general partner to successfully manage the MLP and increase
cash flows, the terms of most MLP partnership agreements typically provide
that
the general partner receives a larger portion of the net income as distributions
reach higher target levels. As cash flow grows, the general partner
receives a greater interest in the incremental income compared to the interest
of limited partners. The general partner’s incentive compensation
typically increases to up to 50% of incremental income. Nevertheless,
the aggregate amount of distributions to limited partners will increase as
MLP
distributions reach higher target levels. Given this incentive
structure, the general partner has an incentive to streamline operations and
undertake acquisitions and growth projects in order to increase distributions
to
all partners.
Energy
infrastructure MLPs in which we invest generally can be classified in the
following categories:
|
|
·
|
Pipeline
MLPs. Pipeline MLPs are common carrier transporters of
natural gas, natural gas liquids (primarily propane, ethane, butane
and
natural gasoline), crude oil or refined petroleum products (gasoline,
diesel fuel and jet fuel). Pipeline MLPs also may operate
ancillary businesses such as storage and marketing of such
products. Revenue is derived from capacity and transportation
fees. Historically, pipeline output has been less exposed to
cyclical economic forces due to its low cost structure and
government-regulated nature. In addition, pipeline MLPs do not
have direct commodity price exposure because they do not own the
product
being shipped.
|
|
|
·
|
Processing
MLPs. Processing MLPs are gatherers and processors of
natural gas, as well as providers of transportation, fractionation
and
storage of natural gas liquids (“NGLs”). Revenue is derived
from providing services to natural gas producers, which require treatment
or processing before their natural gas commodity can be marketed
to
utilities and other end user markets. Revenue for the processor is
fee
based, although it is not
|
|
|
uncommon
to have some participation in the prices of the natural gas and NGL
commodities for a portion of revenue.
|
|
|
·
|
Propane
MLPs. Propane MLPs are distributors of propane to
homeowners for space and water heating. Revenue is derived from
the resale of the commodity on a margin over wholesale
cost. The ability to maintain margin is a key to
profitability. Propane serves approximately 3% of the household
energy needs in the United States, largely for homes beyond the geographic
reach of natural gas distribution pipelines. Approximately 70%
of annual cash flow is earned during the winter heating season
(October through March). Accordingly, volumes are weather
dependent, but have utility type functions similar to electricity
and
natural gas.
|
|
|
·
|
Coal
MLPs. Coal MLPs own, lease and manage coal
reserves. Revenue is derived from production and sale of coal,
or from royalty payments related to leases to coal
producers. Electricity generation is the primary use of coal in
the United States. Demand for electricity and supply of
alternative fuels to generators are the primary drivers of coal
demand. Coal MLPs are subject to operating and production
risks, such as: the MLP or a lessee meeting necessary
production volumes; federal, state and local laws and regulations
which
may limit the ability to produce coal; the MLP’s ability to manage
production costs and pay mining reclamation costs; and the effect
on
demand that the Clean Air Act standards have on coal end-users.
|
|
|
·
|
Marine
Shipping MLPs. Marine shipping MLPs are primarily marine
transporters of natural gas, crude oil or refined petroleum
products. Marine shipping MLPs derive revenue from charging
customers for the transportation of these products utilizing the
MLPs’
vessels. Transportation services are typically provided
pursuant to a charter or contract, the terms of which vary depending
on,
for example, the length of use of a particular vessel, the amount
of cargo
transported, the number of voyages made, the parties operating a
vessel or
other factors.
|
We
also
may invest in equity and debt securities of energy infrastructure companies
that
are organized and/or taxed as corporations to the extent consistent with
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 intends to use research provided by
broker-dealers and investment firms, primary emphasis will be 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 will look 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. It is anticipated that all of the
publicly traded MLPs in which we invest will have a market capitalization
greater than $100 million.
Investment
Policies
We
seek
to achieve our investment objective by investing primarily in securities of
MLPs
that the Adviser believes offer attractive distribution rates and capital
appreciation potential. We also may invest in other securities set
forth below if the Adviser expects to achieve our objective with such
investments.
Our
policy of investing at least 90% of our total assets (including assets obtained
through leverage) in securities of energy infrastructure companies is
nonfundamental and may be changed by the Board of Directors without stockholder
approval, provided that stockholders receive at least 60 days’ prior
written notice of any change.
We
have
adopted the following additional nonfundamental policies:
|
|
·
|
Under
normal circumstances, we invest at least 70% and up to 100% of our
total
assets in equity securities issued by MLPs. Equity securities currently
consist of common units, convertible subordinated units, and pay-in-kind
units.
|
|
|
·
|
We
may invest up to 30% of our total assets in restricted securities,
primarily through direct placements. Subject to this policy, we may
invest
without limitation in illiquid securities. The types of restricted
securities that we may purchase include securities of private energy
infrastructure companies and privately issued securities of publicly
traded energy infrastructure companies. Restricted securities, whether
issued by public companies or private companies, are generally considered
illiquid. Investments in private companies that do not have any publicly
traded shares or units are limited to 5% of total assets.
|
|
|
·
|
We
may invest up to 25% of our total assets in debt securities of energy
infrastructure companies, including certain securities rated below
investment grade (“junk bonds”). Below investment grade debt
securities will be rated at least B3 by Moody’s and at least B– by S&P
at the time of purchase, or comparably rated by another statistical
rating
organization or if unrated, determined to be of comparable quality
by the
Adviser.
|
|
|
·
|
We
will not invest more than 10% of our total assets in any single issuer.
|
|
|
·
|
We
will not engage in short sales.
|
Unless
otherwise stated, these investment restrictions apply at the time of purchase
and we will not be required to reduce a position due solely to market value
fluctuations.
As
used
in the bullets above, the term “total assets” includes assets to be obtained
through anticipated leverage for the purpose of each nonfundamental investment
policy. During the period in which we are investing the net proceeds
of an offering, we may deviate from our investment policies with respect
to the
net proceeds of the offering by investing the net proceeds in cash, cash
equivalents, securities issued or guaranteed by the U.S. Government or its
instrumentalities or agencies, high quality, short-term money market
instruments, short-term debt securities, certificates of deposit, bankers’
acceptances and other bank obligations, commercial paper rated in the highest
category by a rating agency or other liquid fixed income
securities.
Investment
Securities
The
types
of securities in which we may invest include, but are not limited to, the
following:
Equity
Securities of
MLPs. Consistent with our investment objective, we may invest
up to 100% of total assets in equity securities issued by energy infrastructure
MLPs, including common units, convertible subordinated units, pay-in-kind units
(typically, “I-Shares”) and common units, subordinated units and preferred units
of limited liability companies (“LLCs”) (that are treated as MLPs for federal
income tax purposes). The table below summarizes the features of
these securities, and a further discussion of these securities
follows.
|
Common
Units (for MLPs taxed as partnerships)1
|
Convertible
Subordinated
Units (for MLPs taxed as partnerships)
|
I-Shares
|
|||
|
Voting
Rights
|
Limited
to certain significant decisions; no annual election of
directors
|
Same
as common units
|
No
direct MLP voting rights
|
||
|
Dividend
Priority
|
First
right to minimum quarterly distribution (“MQD”) specified in Partnership
Agreement; arrearage rights
|
Second
right to MQD; no arrearage rights; may be paid in additional
units
|
Equal
in priority to common units but paid in additional I-Shares at current
market value of I-Shares
|
||
|
Dividend
Rate
|
Minimum
set in partnership agreement; participate pro rata with subordinated
units
after both MQDs are met
|
Equal
in amount to common units; participate pro rata with common units
above
the MQD
|
Equal
in amount to common units
|
||
|
Trading
|
Listed
on NYSE, AMEX or NASDAQ National Market
|
Not
publicly traded
|
Listed
on NYSE
|
||
|
Federal
Income Tax Treatment
|
Generally,
ordinary income to the extent of taxable income allocated to holder;
distributions are tax-free return of capital to extent of holder’s basis;
remainder as capital gain
|
Same
as common units
|
Full
distribution treated as return of capital; since distribution is
in
shares, total basis is not reduced
|
||
|
Type
of Investor
|
Retail;
creates unrelated business taxable income for tax-exempt investor;
investment by regulated investment companies limited to 25% of total
assets
|
Same
as common units
|
Retail
and Institutional; does not create unrelated business taxable income;
qualifying income for regulated investment companies
|
||
|
Liquidity
Priority
|
Intended
to receive return of all capital first
|
Second
right to return of capital; pro rata with common units
thereafter
|
Same
as common units (indirect right through I-Share issuer)
|
||
|
Conversion
Rights
|
None
|
Typically
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 than common
unit holders 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, convertible subordinated units 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.
Equity
Securities of MLP
Affiliates. In addition to equity securities of MLPs, we may
also invest in equity securities of MLP affiliates, by purchasing securities
of
limited liability entities that own general partner interests of
MLPs. General partner interests of MLPs are typically retained by an
MLP’s original sponsors, such as its founders, corporate partners, entities that
sell assets to the MLP and investors such as the entities from which we may
purchase general partner interests. An entity holding general partner
interests, but not its investors, can be liable under certain circumstances
for
amounts greater than the amount of the entity’s investment in the general
partner interest. General partner interests often confer direct board
participation rights, and in many cases, operating control over the
MLP. These interests themselves are generally not publicly traded,
although they may be owned by publicly traded entities. General
partner interests receive cash distributions, typically 2% of the MLP’s
aggregate cash distributions, which are contractually defined in the partnership
agreement. In addition, holders of general partner interests
typically hold incentive distribution rights (“IDRs”), which provide them with a
larger share of the aggregate MLP cash distributions as the distributions to
limited partner unit holders are increased to prescribed
levels. General partner interests generally cannot be converted into
common units. The general partner interest can be redeemed by the MLP
if the MLP unitholders choose to remove the general partner, typically with
a
supermajority vote by limited partner unitholders.
Other
Non-MLP Equity
Securities. In addition to equity securities of MLPs, we may
also invest in common and preferred stock, limited partner interests,
convertible securities, warrants and depository receipts of companies that
are
organized as corporations, limited liability companies or limited
partnerships. Common stock generally represents an equity ownership
interest in an issuer. Although common stocks have historically
generated higher average total returns than fixed-income securities over the
long term, common stocks also have experienced significantly more volatility
in
those returns and may under-perform relative to fixed-income securities during
certain periods. An adverse event, such as an unfavorable earnings
report, may depress the value of a particular common stock we
hold. Also, prices of common stocks are sensitive to general
movements in the stock market and a drop in the stock market may depress the
price of common stocks to which we have exposure. Common stock prices
fluctuate for several reasons including changes in investors’ perceptions of the
financial condition of an issuer or the general condition of the relevant stock
market, or when political or economic events affecting the issuers
occur. In addition, common stock prices may be particularly sensitive
to rising interest rates, which increases borrowing costs and the costs of
capital.
Debt
Securities. We may invest up to 25% of our total assets in
debt securities of energy infrastructure companies, including securities rated
below investment grade. These debt securities may have fixed or
variable principal payments and all types of interest rate and dividend payment
and reset terms, including fixed rate, adjustable rate, zero coupon, contingent,
deferred, payment-in-kind and auction rate features. To the extent
that we invest in below investment grade debt securities, such securities will
be rated, at the time of investment, at least B– by S&P or B3 by Moody’s or
a comparable rating by at least one other rating agency or, if unrated,
determined by the Adviser to be of comparable quality. If a security
satisfies our minimum rating criteria at the time of purchase and subsequently
is downgraded below such rating, we will not be required to dispose of such
security. If a downgrade occurs, the Adviser will consider what
action, including the sale of such security, is in the best interest of us
and
our stockholders.
Because
the risk of default is higher for below investment grade securities than
investment grade securities, the Adviser’s research and credit analysis is an
especially important part of managing securities of this type. The
Adviser attempts to identify those issuers of below investment grade securities
whose financial condition the Adviser believes are adequate to meet future
obligations or have improved or are expected
to improve in the
future. The Adviser’s analysis focuses on relative values based on
such factors as interest or dividend coverage, asset coverage, earnings
prospects and the experience and managerial strength of the
issuer.
Restricted
Securities. We may invest up to 30% of our total assets in
restricted securities, primarily through direct placements. An issuer
may be willing to offer the purchaser more attractive features with respect
to
securities issued in direct placements because it has avoided the expense and
delay involved in a public offering of securities. Adverse conditions
in the public securities markets also may preclude a public offering of
securities. MLP convertible subordinated units typically are
purchased in private placements and do not trade on a national exchange or
over-the-counter, and there is no active market for convertible subordinated
units. MLP convertible subordinated units typically are purchased
from affiliates of the issuer or other existing holders of convertible units
rather than directly from the issuer.
Restricted
securities obtained by means of direct placements are less liquid than
securities traded in the open market because of statutory and contractual
restrictions on resale. Such securities are, therefore, unlike
securities that are traded in the open market, which are likely to be sold
immediately if the market is adequate. This lack of liquidity creates
special risks. However, we could sell such securities in privately
negotiated transactions with a limited number of purchasers or in public
offerings under the 1933 Act. MLP convertible subordinated units also
convert to publicly traded common units upon the passage of time and/or
satisfaction of certain financial tests.
Temporary
and Defensive
Investments. Pending investment of offering or leverage
proceeds, we may invest such proceeds in securities issued or guaranteed by
the
U.S. Government or its instrumentalities or agencies, short-term debt
securities, certificates of deposit, bankers’ acceptances and other bank
obligations, commercial paper rated in the highest category by a rating agency
or other liquid fixed income securities deemed by the Adviser to be of similar
quality (collectively, “short-term securities”), or in cash or cash equivalents,
all of which are expected to provide a lower yield than the securities of energy
infrastructure companies. We also may invest in short-term securities
or cash on a temporary basis to meet working capital needs including, but not
limited to, for collateral in connection with certain investment techniques,
to
hold a reserve pending payment of distributions, and to facilitate the payment
of expenses and settlement of trades.
Under
adverse market or economic conditions, we may invest up to 100% of our total
assets in short-term securities or cash. The yield on short-term
securities or cash may be lower than the returns on MLPs or yields on lower
rated fixed income securities. To the extent we invest in short-term
securities or cash for defensive purposes, such investments are inconsistent
with, and may result in our not achieving, our investment
objective.
Portfolio
Turnover
Our
annual portfolio turnover rate may vary greatly from year to
year. Although we cannot accurately predict our annual portfolio
turnover rate, it is not expected to exceed 30% under normal
circumstances. For the fiscal years ended November 30, 2007 and
2006, our actual portfolio turnover rate was 9.30% and 2.18%,
respectively. Portfolio turnover rate is not considered a limiting
factor in the execution of investment decisions for us. A higher
turnover rate results in correspondingly greater brokerage commissions and
other
transactional expenses that the Company bears. High portfolio
turnover may result in our recognition of gains that will increase our tax
liability and thereby lower the amount of
our
after-tax distributions. In addition, high portfolio turnover may
increase our current and accumulated earnings and profits, resulting in a
greater portion of our distributions being treated as taxable dividends for
federal income tax purposes. See “Certain Federal Income Tax
Matters.”
Conflicts
of Interest
Conflicts
of interest may arise from the fact that the Adviser and its affiliates carry
on
substantial investment activities for other clients, in which we have no
interest, some of which may have similar investment strategies similar to
ours. The Adviser or its affiliates may have financial incentives to
favor certain of such accounts over us. For example, our Adviser may
have an incentive to allocate potentially more favorable investment
opportunities to other funds and clients that pay our Adviser an incentive
or
performance fee. Performance and incentive fees also create the
incentive to allocate potentially riskier, but potentially better performing,
investments to such funds and other clients in an effort to increase the
incentive fee. Our Adviser also may have an incentive to make
investments in one fund, having the effect of increasing the value of a security
in the same issuer held by another fund, which, in turn, may result in an
incentive fee being paid to our Adviser by that other fund. 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. Our
Adviser has written allocation policies and procedures designed to address
potential conflicts of interest. For instance, 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, fair and 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. When possible, our
Adviser combines all of the trade orders into one or more block orders, and
each
account participates at the average unit or share price obtained in a block
order. When block orders are only partially filled, our Adviser
considers a number of factors in determining how allocations are made, with
the
overall goal to allocate in a manner so that accounts are not preferred or
disadvantaged over time. Our Adviser also has allocation policies for
transactions involving private placement securities, which are designed to
result in a fair and equitable participation in offerings or sales for each
participating client. In addition, our Adviser’s compliance officer
periodically reviews the allocation of investment opportunities to ensure
compliance with its policies and procedures.
The
Adviser also serves as investment adviser for three other publicly traded and
two privately held closed-end management investment companies, all of which
invest in the energy sector. See “Management of the
Company—Investment Adviser.”
The
Adviser will evaluate a variety of factors in determining whether a particular
investment opportunity or strategy is appropriate and feasible for the relevant
account at a particular time, including, but not limited to, the
following: (1) the nature of the investment opportunity taken in
the context of the other investments at the time; (2) the liquidity of the
investment relative to the needs of the particular entity or account;
(3) the availability of the opportunity (i.e., size of obtainable
position); (4) the transaction costs involved; and (5) the investment
or regulatory limitations applicable to the particular entity or
account. Because these considerations may differ when applied to us
and relevant accounts under management in the context of any particular
investment opportunity, our investment activities, on the one hand, and other
managed accounts, on the other hand, may differ considerably from time to
time. In addition, our fees and expenses will differ from those of
the other managed accounts. Accordingly,
investors
should be aware that our future performance and future performance of other
accounts of the Adviser may vary.
Situations
may occur when we could be disadvantaged because of the investment activities
conducted by the Adviser and its affiliates for its other funds or
accounts. Such situations may be based on, among other things,
the following: (1) legal or internal restrictions on the
combined size of positions that may be taken for us or the other accounts,
thereby limiting the size of our position; (2) the difficulty of
liquidating an investment for us or the other accounts where the market cannot
absorb the sale of the combined position; or (3) limits on co-investing in
negotiated transactions under the 1940 Act, as discussed further
below.
Under
the
1940 Act, we may be precluded from co-investing in negotiated private placements
of securities with our affiliates, including other funds managed by the
Adviser. We and the Adviser have applied to the SEC for exemptive
relief to permit us and our affiliates to make such
investments. There is no guarantee that the requested relief will be
granted by SEC. Unless and until we obtain an exemptive order, we
will not co-invest with our affiliates in negotiated private placement
transactions. Unless we receive exemptive relief, the Adviser will
observe a policy for allocating negotiated private placement opportunities
among
its clients that takes into account the amount of each client’s available cash
and its investment objectives.
To
the
extent that the Adviser sources and structures private investments in MLPs,
certain employees of the Adviser may become aware of actions planned by MLPs,
such as acquisitions, that may not be announced to the public. It is
possible that we could be precluded from investing in or selling securities
of
an MLP about which the Adviser has material, non-public information; however,
it
is the Adviser’s intention to ensure that any material, non-public information
available to certain employees of the Adviser is not shared with the employees
responsible for the purchase and sale of publicly traded MLP
securities. Our investment opportunities also may be limited by
affiliations of the Adviser or its affiliates with energy infrastructure
companies.
The
Adviser and its principals, officers, employees, and affiliates may buy and
sell
securities or other investments for their own accounts and may have actual
or
potential conflicts of interest with respect to investments made on our
behalf. As a result of differing trading and investment strategies or
constraints, positions may be taken by principals, officers, employees, and
affiliates of the Adviser that are the same as, different from, or made at
a
different time than positions taken for us. Further, the Adviser may
at some time in the future, manage other investment funds with the same
investment objective as ours.
Use
of Leverage
We
currently engage in leverage and may 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, our long
term plan is to use 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) or we may elect to reduce the use of leverage or use no
leverage at all. Our Board of Directors has approved a policy
permitting temporary increases in the amount of leverage we may use from 33%
of
our total assets to up to 38% of our total assets at the time of incurrence,
provided that (i) such leverage is consistent with the limits set
forth
in
the 1940 Act, and (ii) such increased leverage is reduced over time in an
orderly fashion. We generally will not use leverage unless we believe
that leverage will serve the best interests of our stockholders. The
principal factor used in making this determination is whether the potential
return is likely to exceed the cost of leverage. We will not issue
additional leverage where the estimated costs of issuing such leverage and
the
on-going cost of servicing the payment obligations on such leverage exceed
the
estimated return on the proceeds of such leverage. We note, however,
that in making the determination of whether to issue leverage, we must rely
on
estimates of leverage costs and expected returns. Actual costs of
leverage vary over time depending on interest rates and other
factors. Actual returns vary, of course, depending on many
factors. Our Board also will consider other factors, including
whether the current investment opportunities will help us achieve our investment
objective and strategies.
We
have
established an unsecured credit facility with U.S. Bank N.A. serving as a
lender
and the lending syndicate agent on behalf of other lenders participating
in the
credit facility, which currently allows us to borrow up to
$150,000,000. Outstanding balances under the credit facility
generally accrue interest at a variable annual rate equal to the one-month
LIBOR
rate plus 0.75%. As of November 30, 2007, the current rate was
______%. The credit facility remains in effect through March 21,
2008, at which time we currently expect to renew, and we may draw on the
facility from time to time in accordance with our investment
policies. As of November 30, 2007, we had $_____ outstanding
under our credit facility.
We
also
may borrow up to an additional 5% of our total assets (not including the amount
so borrowed) for temporary purposes, including the settlement and clearance
of
securities transactions, which otherwise might require untimely dispositions
of
portfolio holdings.
Under
the
1940 Act, we are not permitted to issue preferred stock unless immediately after
such issuance, the value of our total assets (including the proceeds of such
issuance) less all liabilities and indebtedness not represented by senior
securities is at least equal to 200% of the total of the aggregate amount
of
senior securities representing indebtedness plus the aggregate liquidation
value
of the outstanding preferred stock. Stated another way, we may not
issue preferred stock that, together with outstanding preferred stock and
debt
securities, has a total aggregate liquidation value and outstanding principal
amount of more than 50% of the value of our total assets, including the proceeds
of such issuance, less liabilities and indebtedness not represented by senior
securities. In addition, we are not permitted to declare any cash
dividend or other distribution on our common stock, or purchase any of our
shares of common stock (through tender offers or otherwise) unless we would
satisfy this 200% asset coverage requirement test after deducting the amount
of
such dividend, distribution or share price, as the case may be. 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 Tortoise Preferred Shares are
outstanding, any preferred stock offered pursuant to this prospectus and
any
related prospectus supplement will rank on parity with any outstanding Tortoise
Preferred Shares.
Under
the
1940 Act, we are not permitted to issue debt securities or incur other
indebtedness constituting senior securities unless immediately thereafter,
the
value of our total assets (including the proceeds of the indebtedness) less
all
liabilities and indebtedness not represented by senior securities is at least
equal to 300% of the amount of the outstanding indebtedness. Stated
another way, we may not issue debt securities or incur other indebtedness with
an aggregate principal amount of more than 33 1/3% of the value of our total
assets, including the amount borrowed, less all liabilities and indebtedness
not
represented by senior securities. 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
requirement test 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 redeem debt securities, or 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. There is no assurance
that the interest rate hedging transactions into which we enter will be
effective in reducing our exposure to interest rate risk. Hedging
transactions are subject to correlation risk, which is the risk that payment
on
our hedging transactions may not correlate exactly with our payment obligations
on senior securities. The use of interest rate transactions is a
highly specialized activity that involves investment techniques and risks
different from those associated with ordinary portfolio security
transactions. In an interest rate swap, we would agree to pay to the
other party to the interest rate swap (which is known as the “counterparty”) a
fixed rate payment in exchange for the counterparty agreeing to pay to us
a
variable rate payment intended to approximate our variable rate payment
obligation on any variable rate borrowings, such as Tortoise Notes and variable
rate preferred shares, such as Tortoise Preferred Shares. The payment
obligations would be based on the notional amount of the swap. In an
interest rate cap, we would pay a premium to the counterparty up to the interest
rate cap and, to the extent that a specified variable rate index exceeds
a
predetermined fixed rate of interest, would receive from the counterparty
payments equal to the difference based on the notional amount of such
cap. In an interest rate floor, we would be entitled to receive, to
the extent that a specified index falls below a predetermined interest rate,
payments of interest on a notional principal amount from the party selling
the
interest rate floor. Depending on the state of interest rates in
general, our use of interest rate transactions could affect our ability to
make
required interest payments on the Tortoise Notes or dividend payments on
Tortoise Preferred 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 reduce our interest
rate risk with respect to our interest and dividend payment obligations under
the currently outstanding Tortoise Notes and Tortoise Preferred Shares,
respectively. See “Risk Factors—Company Risks—Hedging Strategy
Risk.”
Effects
of Leverage
As
of
November 30, 2007, we were obligated to pay the following rates on our
outstanding Tortoise Notes and Tortoise Preferred Shares.
|
Title
of Security
|
Aggregate
Principal Amount/Liquidation Preference
|
Term
of Current Rate Period
|
Interest/Dividend
Rate Per Annum
|
||||||
|
Series
A Tortoise
Notes
|
60,000,000 |
5
years
(9/5/07-9/4/12)
|
6.75 | % | |||||
|
Series
B Tortoise
Notes
|
50,000,000 |
1
year
9/12/07-9/11/08)
|
7.00 | % | |||||
|
Series
C Tortoise Notes(1)
|
55,000,000 |
7
days
|
5.85
|
% | |||||
|
Series
D Tortoise Notes(1)
|
70,000,000 |
28
days
|
6.10
|
% | |||||
|
Series
I Tortoise Preferred Shares
|
35,000,000 |
3
years
(9/13/07-9/12/10)
|
6.25 | % | |||||
|
Series
II Tortoise Preferred Shares
|
35,000,000 |
3
years
(9/7/07-9/6/10)
|
6.25 | % | |||||
|
Series
III MMP Shares(1)
|
60,000,000 |
28
days
|
6.35
|
% | |||||
|
Series
IV MMP Shares(1)
|
55,000,000 |
28
days
|
6.40
|
% | |||||
|
420,000,000
|
(total) | ||||||||
_____________
|
(1)
|
Includes
commissions paid to the auction agent in the amount of 0.25%.
|
As
of
November 30, 2007, we have entered into the following interest rate swap
agreements in an attempt to reduce our exposure to increasing dividend and
interest expense relating to our Tortoise Preferred Shares and Tortoise Notes,
respectively, resulting from increasing short-term interest
rates.
|
Notional
Amount
|
Rate
Payable
As
of November 30,
2007
|
Maturity
Date
|
|||||
| $ |
%
|
|
|||||
| $ |
%
|
|
|||||
| $ |
%
|
|
|||||
| $ |
%
|
|
|||||
| $ |
%
|
|
|||||
| $ |
%
|
|
|||||
| $ |
%
|
|
|||||
|
$
|
(total) |
%
|
(weighted average) | ||||
Assuming
that the dividend rates payable on the Tortoise Preferred Shares and the
interest rates payable on the Tortoise Notes remain as described above (an
average annual cost of [_____]% based on the amount of leverage outstanding
at
November 30, 2007), the annual return that our portfolio must experience
(net of expenses) in order to cover leverage costs would be
[___]%.
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
|
-__
|
% |
-__
|
% |
-__
|
% |
__
|
% |
__
|
% | ||||||||||
While
we
use leverage, the amount of the fees paid to the Adviser for investment advisory
and management services are higher than if we did not use leverage because
the
fees paid are calculated based on our Managed Assets, which include assets
purchased with leverage. Therefore, the Adviser has a
financial
incentive to use leverage, which will create a conflict of interest between
the
Adviser and our common stockholders. Because payments on any leverage
would be paid by us at a specified rate, only our common stockholders would
bear
management fees and other expenses we incur.
We
cannot
fully achieve the benefits of leverage until we have invested the proceeds
resulting from the use of leverage in accordance with our investment objective
and policies. For further information about leverage, see “Risk
Factors—Additional Risks to Common Stockholders—Leverage Risk.”
Recent
Developments
As
of the
date of this prospectus, we had outstanding $240,000,000 aggregate principal
amount/liquidation preference of auction rate Tortoise Notes and Tortoise
Preferred Shares, with interest/dividend rates that reset through auctions
conducted every 28 days or less. As described in more detail below,
we also had outstanding $180,000,000 aggregate principal amount/liquidation
preference of Tortoise Notes and Tortoise Preferred Shares, with
interest/dividend rate periods that have been extended for certain periods
as
reflected in the table above. Recent problems in the credit market
have adversely impacted borrowing costs. Borrowing costs in auction
rate markets, including the markets for Tortoise Preferred Shares and Tortoise
Notes, have become
less predictable in part as a result of widening spreads to LIBOR in recent
months. Interest/dividend rates for our auction rate securities
have been subject to greater volatility and uncertainty, which may
result
in an auction in which sufficient clearing bids are not made. In the
event sufficient clearing bids are not made, the interest/dividend rate (as
the
case may be) for a series of Tortoise Notes or Tortoise Preferred Shares,
as applicable, will be set at the maximum rate as determined by the terms
of such securities. These market developments have increased, and may
continue to increase, our financing costs. Because common
stockholders indirectly bear the cost of leverage, an increase in interest
and
dividend obligations on our Tortoise Notes and Tortoise Preferred Shares
may
reduce our total return to common stockholders and may impact our
DCF. See “Additional Risks to Common Stockholders—Leverage
Risk.”
As
noted
above, in response to these market developments, we exercised our option
to
designate special rate periods for certain series of Tortoise Notes and Tortoise
Preferred Shares as indicated above, in an attempt to limit our exposure
to
increasing interest and dividend rates and what we believe are inefficiencies
in
the auction markets. During a special rate period, each series will
have a fixed interest or dividend rate, will not be available for purchase
or
sale in an auction, and will not be subject to redemption at our option but
will
remain subject to mandatory redemption provisions under the Indenture or
corresponding articles supplementary, as applicable. We may exercise
our option to designate special rate periods for other series of our outstanding
Tortoise Notes and Tortoise Preferred Shares in the future.
RISK
FACTORS
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
non-diversified, 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.
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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.
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A
sustained decline in demand for crude oil, natural gas and refined
petroleum products could adversely affect MLP revenues and cash flows.
Factors that could lead to a decrease in market demand include a
recession
or other adverse economic conditions, an increase in the market price
of
the underlying commodity, higher taxes or other regulatory actions
that
increase costs, or a shift in consumer demand for such products.
Demand
may also be adversely impacted by consumer sentiment with respect
to
global warming and/or by any state or federal legislation intended
to
promote the use of alternative energy sources, such as bio-fuels.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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Industry
Specific
Risk. Energy infrastructure companies also are subject to
risks specific to the industry they serve.
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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.
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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.
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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.
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Coal
MLPs are subject to demand variability based on favorable weather
conditions, strong or weak domestic economy, the level of coal stockpiles
in the customer base, and the general level of prices of competing
sources
of fuel for electric generation. They also are subject to supply
variability based on the geological conditions that reduce productivity
of
mining operations, regulatory permits for mining activities and the
availability of coal that meets Clean Air Act standards. Demand and
prices
for coal may also be impacted by current and proposed laws, regulations
and/or trends, at the federal, state or local levels, to impose
limitations on chemical emissions from coal-fired power plants and
other
coal end-users. Any such limitations may reduce the demand for coal
produced, transported or delivered by coal MLPs.
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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.
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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.
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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 the securities
we hold
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.
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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
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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.
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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.
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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. There is no assurance that the interest rate hedging
transactions into which we enter will be effective in reducing our exposure
to
interest rate risk. Hedging transactions are subject to correlation
risk, which is the risk that payment on our hedging transactions may not
correlate exactly with our payment obligations on senior
securities.
Interest
rate transactions that we may use for hedging purposes will expose us to certain
risks that differ from the risks associated with our portfolio
holdings. There are economic costs of hedging reflected in the price
of interest rate swaps, floors, caps and similar techniques, the costs of which
can be significant, particularly when long-term interest rates are substantially
above short-term rates. In addition, our success in using hedging
instruments is subject to the Adviser’s ability to predict correctly changes in
the relationships of such hedging instruments to our leverage risk, and there
can be no assurance that the Adviser’s judgment in this respect will be
accurate. Consequently, the use of hedging transactions might result
in a poorer overall performance, whether or not adjusted for risk, than if
we
had not engaged in such transactions.
Depending
on the state of interest rates in general, our use of interest rate transactions
could enhance or decrease the cash available to us for payment of distributions,
dividends or interest, as the case may be. To the extent there is a
decline in interest rates, the value of interest rate swaps or caps could
decline, and result in a decline in our net assets. In addition, if
the counterparty to an interest rate transaction defaults, we would not be
able
to use the anticipated net receipts under the interest rate swap or cap to
offset our cost of financial leverage.
Competition
Risk. At the time we completed our initial public offering in
February 2004, we were the only publicly traded investment company offering
access to a portfolio of energy infrastructure MLPs. Since that time
a number of alternatives to us as vehicles for investment in a portfolio of
energy infrastructure MLPs, including other publicly traded investment companies
and private funds, have emerged. In addition, tax law changes have
increased the ability of regulated investment companies or other institutions
to
invest in MLPs. These competitive conditions may adversely impact our
ability to meet our investment objective, which in turn could adversely impact
our ability to make interest or dividend payments.
Restricted
Security
Risk. We may invest up to 30% of total assets in restricted
securities, primarily through direct placements. Restricted
securities are less liquid than securities traded in the open market because
of
statutory and contractual restrictions on resale. Such securities
are, therefore, unlike securities that are traded in the open market, which
can
be expected to be sold immediately if the market is adequate. As
discussed further below, this lack of liquidity creates special risks for
us. However, we could sell such securities in privately negotiated
transactions with a limited number of purchasers or in public offerings under
the 1933 Act. MLP convertible subordinated units 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 63 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
3 other publicly-traded and 2 privately held closed-end management
investment companies. As of December 31, 2007, the Adviser had client
assets under management of approximately $2.9 billion. 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.
Additional
Risks to Common Stockholders
Leverage
Risk. Our
use of leverage through the issuance of Tortoise Preferred 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.
Recent
problems in the credit market have adversely
impacted borrowing costs. Borrowing costs in auction rate markets,
including the markets for Tortoise Preferred Shares and Tortoise Notes, have
become less predictable in part as a result of widening spreads to LIBOR
in
recent months. Interest/dividend rates for our auction rate
securities have been subject to greater volatility and uncertainty, which
may result in an auction in which sufficient clearing bids are not
made. In the event sufficient clearing bids are not made, the
interest/dividend rate (as the case may be) for a series of Tortoise Notes
or Tortoise Preferred Shares, as applicable, will be set at the maximum
rate as determined by the terms of such securities. These market
developments have increased, and may continue to increase, our financing
costs. Because common stockholders indirectly bear the cost of
leverage, an increase in interest and dividend obligations on our Tortoise
Notes
and Tortoise Preferred Shares may reduce our total return to common stockholders
and may impact our DCF.
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” and
“—Recent Developments.”
Market
Impact
Risk. The sale of our common stock (or the perception that
such sales may occur) may have an adverse effect on prices in the secondary
market for our common stock. An increase in the number of common
shares available may put downward pressure on the market price for our common
stock. Our ability to sell shares of common stock below NAV may
increase this pressure. These sales
also might make it more difficult for us to sell additional
equity securities in the future at a time and price we deem appropriate.
Dilution
Risk. The
voting power of current stockholders will be diluted to the extent that current
stockholders do not purchase shares in any future common stock offerings
or do
not purchase sufficient shares to maintain their percentage
interest. In addition, if we sell shares of common stock below NAV,
our NAV will fall immediately after such issuance. See “Description
of Securities—Common Stock—Issuance of Additional Shares” which includes a table
reflecting the dilutive effect of selling our common stock below
NAV.
If
we are
unable to invest the proceeds of such offering as intended, our per share
distribution may decrease and we may not participate in market advances to
the
same extent as if such proceeds were fully invested as planned.
Market
Discount Risk. Our common
stock has a
limited trading history and has traded both at a premium and at a discount
in
relation to NAV. We cannot predict whether our shares will trade in
the future at a premium or discount to NAV. Shares of closed-end
investment companies frequently trade at a discount from NAV, but in some cases
have traded above NAV. Continued development of alternatives as a
vehicle for investment in MLP securities may contribute to reducing or
eliminating any premium or may result in our shares trading at a
discount. The risk of the shares of common stock trading at a
discount is a risk separate from the risk of a decline in our NAV as a result
of
investment activities. Our NAV will be reduced immediately following
an offering of our common or preferred stock, due to the offering costs for
such
stock, which are borne entirely by us. Although we also bear the
offering costs of debt securities, such costs are amortized over time and
therefore do not impact our NAV immediately following an offering.
Whether
stockholders will realize a gain or loss upon the sale of our common stock
depends upon whether the market value of the common shares at the time of sale
is above or below the price the stockholder paid, taking into account
transaction costs for the common shares, and is not directly dependent upon
our
NAV. Because the market value of our common stock will be determined
by factors such as the relative demand for and supply of the shares in the
market, general market conditions and other factors beyond our control, we
cannot predict whether our common stock will trade at, below or above NAV,
or
at, below or above the public offering price for common stock.
Additional
Risks to Senior Security Holders
Generally,
an investment in preferred stock or debt securities (collectively, “senior
securities”) is subject to the following risks:
Interest
Rate
Risk. Auction rate senior securities pay dividends or interest
based on short-term interest rates. If short-term interest rates
rise, dividends or interest on the auction rate senior securities may rise
so
that the amount of dividends or interest due to holders of auction rate senior
securities would exceed the cash flow generated by our portfolio
securities. This might require us to sell portfolio securities at a
time when we would otherwise not do so, which may affect adversely our future
ability to generate cash flow. In addition, rising market interest
rates could impact negatively the value of our investment portfolio, reducing
the amount of assets serving as asset coverage for the senior securities.
See
“—Recent Developments.”
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.
MANAGEMENT
OF
THE COMPANY
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 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 December 31,
2007, the Adviser had approximately $2.9 billion of client assets under
management. The Adviser’s investment committee is comprised of five
seasoned portfolio managers.
The
Adviser also serves as investment adviser to Tortoise Energy Capital Corporation
(“TYY”) and Tortoise North American Energy Corporation (“TYN”), which are
nondiversified, closed-end investment management companies, and managed accounts
that invest in MLPs. TYY, which commenced operations on May 31,
2005, invests primarily in equity securities of MLPs and their affiliates
in the
energy infrastructure sector. TYN, which commenced operations on
October 31, 2005, invests primarily in equity securities of companies in
the
energy sector whose primary operations are in North America. The
Adviser also serves as the investment adviser to Tortoise Capital Resources
Corporation
(“TTO”), a non-diversified closed-end management investment company that has
elected to be regulated as a business development company under the 1940
Act. TTO, which commenced operations on December 8, 2005,
invests primarily in privately held and micro-cap public energy companies
operating in the midstream and downstream segments, and to a lesser extent
the
upstream segment. In addition, the Adviser serves as the investment
adviser to two privately held, closed-end management investment
companies. 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 has 29 full-time employees, including the five members of the
investment committee of the Adviser.
The
investment management of our portfolio is the responsibility of the Adviser’s
investment committee. The investment committee’s members are H. Kevin
Birzer, Zachary A. Hamel, Kenneth P. Malvey, Terry C. Matlack and David J.
Schulte, all of whom share responsibility for such investment
management. It is the policy of the investment committee that any one
member can require the Adviser to sell a security and any one member can veto
the committee’s decision to invest in a security. Each committee
member has been a portfolio manager since we commenced operations in February
2004.
H.
Kevin
Birzer. Mr. Birzer has been a Managing Director of the
Adviser since 2002 and also is a Partner with Fountain Capital. Mr.
Birzer is also a Director of TYY, TYN, TTO, and two privately-held funds each
managed by our Adviser. Mr. Birzer, who joined Fountain Capital
in 1990, has 22 years of investment experience including 19 in high-yield
securities. Mr. Birzer began his career with Peat
Marwick. His subsequent experience includes three years working as a
Vice President for F. Martin Koenig & Co., focusing on equity and
option investments, and three years at Drexel Burnham Lambert, where he was
a
Vice President in the Corporate Finance
Department. Mr. Birzer
graduated with a Bachelor of
Business Administration degree from the University of Notre Dame and
holds a Master of Business Administration degree from New York
University. He earned his CFA designation in 1988.
Zachary A.
Hamel. Mr. Hamel has been a Managing Director of the
Adviser since 2002 and also is a Partner with Fountain Capital. Mr.
Hamel also serves as Senior Vice President of TYY, TYN, TTO, and two
privately-held funds each managed by our Adviser. Mr. Hamel
joined Fountain
Capital in 1997. He covered the energy, chemicals and utilities
sectors. Prior to joining Fountain Capital, Mr. Hamel worked for
the Federal Deposit Insurance Corporation (“FDIC”) for eight years as a Bank
Examiner and a Regional Capital Markets Specialist. Mr. Hamel
graduated from Kansas State University with a Bachelor of Science in Business
Administration. He also attained a Master in Business Administration
from the University of Kansas School of Business. He earned his CFA
designation in 1998.
Kenneth P.
Malvey. Mr. Malvey has been a Managing Director of the
Adviser since 2002 and also is a Partner with Fountain
Capital. Mr. Malvey also serves as Senior Vice President and
Treasurer of TYY, TYN, TTO, and two privately-held funds each managed by our
Adviser. 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 serves as Chief Financial Officer, Director and Assistant
Treasurer of TYY, TYN, TTO, and two privately-held funds each managed by our
Adviser. From 2001 to 2002, Mr. Matlack was a full-time 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 serves as Chief Executive Officer and President of
TYY,
TYN, and two privately-held funds each managed by our Adviser and as Chief
Executive Officer of TTO. From 1993 to 2002, Mr. Schulte was a
full-time 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
and earned his CFA designation in 1992.
The
statement of additional information provides additional information about
the
compensation structure of, the other accounts managed by, and the ownership
of
our securities by the portfolio managers listed above.
Compensation
and Expenses
Under
the
advisory agreement, we pay the Adviser quarterly, as compensation for the
services rendered by it, a fee equal on an annual basis to 0.95% of our average
monthly Managed Assets. Managed Assets means our total assets
(including any assets attributable to leverage that may be outstanding) minus
accrued liabilities other than (1) deferred taxes, (2) debt entered into for
the
purpose of leverage and (3) the aggregate liquidation preference of any
outstanding preferred stock. Because the fee paid to the Adviser is
determined on the basis of our Managed Assets, the Adviser’s interest in
determining whether we should incur additional leverage will conflict with
our
interests. Our average monthly Managed Assets are determined for the
purpose of calculating the management fee by taking the average of the monthly
determinations of Managed Assets during a given calendar quarter. The
fees are payable for each calendar quarter within five days after the end of
that quarter. The Adviser has contractually agreed to reimburse us
for fees and expenses, including the investment advisory fee and other expenses
in the amount of 0.10% of average monthly Managed Assets through
February 28, 2009.
The
advisory agreement has a term ending on December 31st of each
year. The advisory agreement was most recently approved by the Board
of Directors in November 2007. A discussion regarding the basis of
the Board of Directors’ decision to approve the renewal of the advisory
agreement is available in our Annual Report to stockholders for the fiscal
year
ended November 30, 2007.
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.
CLOSED-END
COMPANY STRUCTURE
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 in light of our investment
objective and policies and would require stockholder approval of an amendment
to
our Charter. If we converted to an open-end mutual fund, we would be
required to redeem all Tortoise Notes and Tortoise Preferred Shares then
outstanding (requiring us, in turn, to liquidate a significant portion of
our
investment portfolio), and our common stock would no longer be listed on
the
NYSE or any other exchange. In contrast to a closed-end management investment
company, shareholders of an open-end mutual fund may require a fund to redeem
its shares of common stock at any time (except in certain circumstances as
authorized by the 1940 Act or the rules thereunder) at their net asset
value. In addition, certain of our investment policies and
restrictions are incompatible with the requirements applicable to an open-end
investment company. Accordingly, conversion to an open-end investment
company would require material changes to our investment
policies.
CERTAIN
FEDERAL
INCOME TAX MATTERS
The
following is a general summary of certain federal income tax considerations
affecting us and our security holders. This discussion does not
purport to be complete or to deal with all aspects of federal income taxation
that may be relevant to stockholders in light of their particular circumstances
or who are subject to special rules, such as banks, thrift institutions and
certain other financial institutions, real estate investment trusts, regulated
investment companies, insurance companies, brokers and dealers in securities
or
currencies, certain securities traders, tax-exempt investors, individual
retirement accounts, certain tax-deferred accounts, and
foreign investors. Tax matters are very complicated, and the tax
consequences of an investment in and holding of our securities will depend
on
the particular facts of each investor’s situation. Investors are
advised to consult their own tax advisors with respect to the application
to
their own circumstances of the general federal income taxation rules described
below and with respect to other federal, state, local or foreign tax
consequences to them before making an investment in our
securities. Unless otherwise noted, this discussion assumes that the
investors are U.S. persons and hold our securities
as
capital assets. More detailed information regarding the federal
income tax consequences of investing in our securities is in the statement
of
additional information.
Pursuant
to U.S. Treasury Department Circular 230, we are informing you that
(1) this discussion is not intended to be used, was not written to be used,
and cannot be used, by any taxpayer for the purpose of avoiding penalties under
the U.S. federal tax laws, (2) this discussion was written by us in
connection with the registration of our securities and our promotion or
marketing, and (3) each taxpayer should seek advice based on his, her or
its particular circumstances from an independent tax advisor.
Company
Federal Income Taxation
We
are
treated as a corporation for federal and state income tax
purposes. Thus, we are obligated to pay federal and state income tax
on our taxable income. We invest our assets primarily in MLPs, which
generally are treated as partnerships for federal income tax
purposes. As a partner in the MLPs, we must report our allocable
share of the MLP’s taxable income in computing our taxable income regardless of
whether the MLPs make any distributions. Based upon our review of the
historic results of the type of MLPs in which we invest, we expect that the
cash
flow received by us with respect to our MLP investments will exceed the taxable
income allocated to us. There is no assurance that our expectation
regarding the tax character of MLP distributions will be realized. If
this expectation is not realized, there will be greater tax expense borne by
us
and less cash available to distribute to stockholders or to pay to
creditors. In addition, we will take into account in determining our
taxable income the amounts of gain or loss recognized on the sale of MLP
interests. Currently, the maximum regular federal income tax rate for
a corporation is 35 percent. We may be subject to a 20 percent
federal alternative minimum tax on our alternative minimum taxable income to
the
extent that the alternative minimum tax exceeds our regular federal income
tax.
We
are
not treated as a regulated investment company under the Internal Revenue
Code. The Internal Revenue Code generally provides that a regulated
investment company does not pay an entity level income tax, provided that it
distributes all or substantially all of its income. Our assets do
not, and are not expected to, meet current tests for qualification as a
regulated investment company for federal income tax purposes. The
regulated investment company taxation rules therefore have no application to
us
or to our stockholders. Although changes to the federal tax laws
permit regulated investment companies to invest up to 25% of their total assets
in securities of MLPs, such changes still would not allow us to pursue our
objective. Accordingly, we do not intend to change our tax status as
a result of such legislation.
Federal
Income Taxation of Common and Preferred Stock
Federal
Income Tax Treatment of
Holders of Common Stock. Unlike a holder of a direct interest
in MLPs, a stockholder will not include its allocable share of our income,
gains, losses or deductions in computing its own taxable
income. Instead, since we are of the opinion that, under present law,
the common stock will constitute equity, distributions with respect to such
shares (other than distributions in redemption of shares subject to
Section 302(b) of the Internal Revenue Code) will generally constitute
dividends to the extent of our allocable current or accumulated earnings and
profits, as calculated for federal income tax purposes. Generally, a
corporation’s earnings and profits are computed based upon taxable income, with
certain specified adjustments. As explained above, based upon the
historic performance of the MLPs, we anticipate that the distributed cash from
the MLPs will exceed our share of the MLPs’ income and our gain on the sale of
MLP interests. In addition, earnings and profits are treated
generally, for federal income tax purposes, as first being used to pay
distributions on preferred stock, and then to the extent remaining, if any,
to
pay distributions on the common stock. Thus, we anticipate that only
a portion of the distributions of DCF will be treated as dividend income to
common stockholders. To the extent that distributions to a
stockholder exceed our current and accumulated earnings and profits,
the stockholder’s basis in shares of stock with respect to
which the distribution is made will be reduced, which may increase the amount
of
gain realized upon the sale of such shares. If a stockholder has no
further
basis in its shares, the stockholder will report any excess as capital gain
if
the stockholder holds such shares as a capital asset.
Dividends
of current or accumulated earnings and profits generally will be taxable as
ordinary income to holders but are expected to be treated as “qualified dividend
income” that is generally subject to reduced rates of federal income taxation
for noncorporate investors and are also expected to be eligible for the
dividends received deduction available to corporate stockholders under Section
243 of the Internal Revenue Code. Under federal income tax law,
qualified dividend income received by individual and other noncorporate
stockholders is taxed at long-term capital gain rates, which currently reach
a
maximum of 15%. Qualified dividend income generally includes
dividends from domestic corporations and dividends from non-U.S. corporations
that meet certain criteria. To be treated as qualified dividend
income, the stockholder must hold the shares paying otherwise qualifying
dividend income more than 60 days during the 121-day period beginning 60 days
before the ex-dividend date (or more than 90 days during the 181-day period
beginning 90 days before the ex-dividend date in the case of certain preferred
stock dividends). A stockholder’s holding period may be reduced for
purposes of this rule if the stockholder engages in certain risk reduction
transactions with respect to the common or preferred stock. The
provisions of the Internal Revenue Code applicable to qualified dividend income
are effective through 2010. Thereafter, higher tax rates will apply
unless further legislative action is taken.
Corporate
holders should be aware that certain limitations apply to the availability
of
the dividends received deduction, including limitations on the aggregate amount
of the deduction that may be claimed and limitations based on the holding period
of the shares of common or preferred stock on which the dividend is paid, which
holding period may be reduced if the holder engages in risk reduction
transactions with respect to its shares. Corporate holders should
consult their own tax advisors regarding the application of these limitations
to
their particular situation.
If
a
common stockholder participates in our Automatic Dividend Reinvestment Plan,
such stockholder will be treated as receiving the amount of the distributions
made by the Company, which amount generally will be either equal to the amount
of the cash distribution the stockholder would have received if the stockholder
had elected to receive cash or, for shares issued by the Company, the fair
market value of the shares issued to the stockholder.
Federal
Income Tax Treatment of
Holders of Preferred Stock. Under present law, we are of the
opinion that preferred stock will constitute equity, and thus distributions
with
respect to preferred stock (other than distributions in redemption of preferred
stock subject to Section 302(b) of the Internal Revenue Code) will
generally constitute dividends to the extent of our current or accumulated
earnings and profits, as calculated for federal income tax
purposes. Such dividends generally will be taxable as ordinary income
to holders but are expected to be treated as “qualified dividend income” that is
generally subject to reduced rates of federal income taxation for noncorporate
investors and are also expected to be eligible for the dividends received
deduction available to corporate stockholders under Section 243 of the Internal
Revenue Code. Please see the discussion above on qualified dividend
income and dividends received deductions.
Earnings
and profits are generally treated, for federal income tax purposes, as first
being used to pay distributions on the preferred stock, and then to the extent
remaining, if any, to pay distributions on the common
stock. Distributions in excess of the Company’s earnings and profits,
if any, will first reduce a stockholder’s adjusted tax basis in his or her
preferred stock and, after the adjusted tax basis is reduced to zero, will
constitute capital gains to a stockholder who holds such shares as a capital
asset.
Sale
of
Shares. The sale of shares of common or preferred stock by
holders will generally be a taxable transaction for federal income tax
purposes. Holders of shares of stock who sell such shares will
generally recognize gain or loss in an amount equal to the difference between
the net proceeds of the sale and
their
adjusted tax basis in the shares sold. If the shares are held as a
capital asset at the time of the sale, the gain or loss will generally be
a
capital gain or loss. Similarly, a redemption by us (including a
redemption resulting from our liquidation), if any, of all the shares actually
and constructively held by a stockholder generally will give rise to capital
gain or loss under Section 302(b) of the Internal Revenue Code, provided
that the redemption proceeds do not represent declared but unpaid
dividends. Other redemptions may also give rise to capital gain or
loss, but certain conditions imposed by Section 302(b) of the Internal
Revenue Code must be satisfied to achieve such treatment.
Capital
gain or loss will generally be long-term capital gain or loss if the shares
were
held for more than one year and will be short-term capital gain or loss if
the
disposed shares were held for one year or less. Net long-term capital
gain recognized by a noncorporate U.S. holder generally will be subject to
federal income tax at a lower rate (currently a maximum rate of 15%) than net
short-term capital gain or ordinary income (currently a maximum rate of
35%). Under current law, the maximum federal income tax rate on
capital gain for noncorporate holders is scheduled to increase to 20% for
taxable years after 2010. For corporate holders, capital gain is
generally taxed at the same rate as ordinary income, that is, currently at
a
maximum rate of 35%. A holder’s ability to deduct capital losses may
be limited.
Investment
by Tax-Exempt Investors
and Regulated Investment Companies. Employee benefit plans,
other tax-exempt organizations and regulated investment companies may want
to
invest in our securities. Employee benefit plans and most other
organizations exempt from federal income tax, including individual retirement
accounts and other retirement plans, are subject to federal income tax on
unrelated business taxable income (“UBTI”). Because we are a
corporation for federal income tax purposes, an owner of shares of common stock
will not report on its federal income tax return any of our items of income,
gain, loss and deduction. Therefore, a tax-exempt investor generally
will not have UBTI attributable to its ownership or sale of our common or
preferred stock unless its ownership of the stock is
debt-financed. In general, stock would be debt-financed if the
tax-exempt owner of stock incurs debt to acquire the stock or otherwise incurs
or maintains debt that would not have been incurred or maintained if the stock
had not been acquired.
For
federal income tax purposes, a regulated investment company or “mutual fund,”
may not have more than 25% of the value of its total assets, at the close of
any
quarter, invested in the securities of one or more qualified publicly traded
partnerships, which will include most MLPs. Shares of our common
stock are not securities of a qualified publicly traded partnership and will
not
be treated as such for purposes of calculating the limitation imposed upon
regulated investment companies.
Backup
Withholding. We may be required to withhold, for U.S. federal
income tax purposes, a portion of all taxable distributions (including
redemption proceeds) payable to stockholders who fail to provide us with their
correct taxpayer identification number, who fail to make required certifications
or who have been notified by the Internal Revenue Service (“IRS”) that they are
subject to backup withholding (or if we have been so
notified). Certain corporate and other stockholders specified in the
Internal Revenue Code and the regulations thereunder are exempt from backup
withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the stockholder’s
U.S. federal income tax liability provided the appropriate information is
furnished to the IRS in a timely manner.
Other
Taxation. Foreign stockholders, including stockholders who are
nonresident alien individuals, may be subject to U.S. withholding tax on
certain
distributions at a rate of 30% or such lower
rates
as
may be prescribed by any applicable treaty. Our distributions also
may be subject to state and local taxes.
Federal
Income Taxation of Debt Securities
Federal
Income Tax Treatment of
Holders of Debt Securities. Under present law, we are of the
opinion that the debt securities will constitute indebtedness of the Company
for
federal income tax purposes, which the discussion below assumes. We
intend to treat all payments made with respect to the debt securities consistent
with this characterization.
Taxation
of
Interest. Payments or accruals of interest on debt securities
generally will be taxable to you as ordinary interest income at the time such
interest is received (actually or constructively) or accrued, in accordance
with
your regular method of accounting for federal income tax purposes.
Purchase,
Sale and Redemption of
Debt Securities. Initially, your tax basis in debt securities
acquired generally will be equal to your cost to acquire such debt
securities. This basis will increase by the amounts, if any, that you
include in income under the rules governing market discount, and will decrease
by the amount of any amortized premium on such debt securities, as discussed
below. When you sell or exchange any of your debt securities, or if
any of your debt securities are redeemed, you generally will recognize gain
or
loss equal to the difference between the amount you realize on the transaction
(less any accrued and unpaid interest, which will be subject to tax as interest
in the manner described above) and your tax basis in the debt securities
relinquished.
Except
as
discussed below with respect to market discount, the gain or loss that you
recognize on the sale, exchange or redemption of any of your debt securities
generally will be capital gain or loss. Such gain or loss will
generally be long-term capital gain or loss if the disposed debt securities
were
held for more than one year and will be short-term capital gain or loss if
the
disposed debt securities were held for one year or less. Net
long-term capital gain recognized by a noncorporate U.S. holder generally will
be subject to federal income tax at a lower rate (currently a maximum rate
of
15%, although this rate will increase to 20% after 2010) than net short-term
capital gain or ordinary income (currently a maximum rate of
35%). For corporate holders, capital gain is generally taxed as
ordinary income, that is, currently at a maximum rate of 35%. A
holder’s ability to deduct capital losses may be limited.
Amortizable
Premium. If you purchase
debt
securities at a cost greater than their stated principal amount, plus accrued
interest, you will be considered to have purchased the debt securities at a
premium, and you generally may elect to amortize this premium as an offset
to
interest income, using a constant yield method, over the remaining term of
the
debt securities. If you make the election to amortize the premium, it
generally will apply to all debt instruments that you hold at the time of the
election, as well as any debt instruments that you subsequently
acquire. In addition, you may not revoke the election without the
consent of the IRS. If you elect to amortize the premium, you will be
required to reduce your tax basis in the debt securities by the amount of the
premium amortized during your holding period. If you do not elect to
amortize premium, the amount of premium will be included in your tax basis
in
the debt securities. Therefore, if you do not elect to amortize the
premium and you hold the debt securities to maturity, you generally will be
required to treat the premium as a capital loss when the debt securities are
redeemed.
Market
Discount. If you purchase
debt
securities at a price that reflects a “market discount,” any principal payments
on or any gain that you realize on the disposition of the debt securities
generally will be treated as ordinary interest income to the extent of the
market discount that accrued on the debt securities during the time you held
such debt securities. “Market discount” is defined under the Internal
Revenue Code as, in general, the excess of the stated redemption price at
maturity over the purchase price of the debt security, except that if the
market
discount is less than 0.25% of the stated redemption price at
maturity
multiplied by the number of complete years to maturity, the market discount
is
considered to be zero. In addition, you may be required to defer the
deduction of all or a portion of any interest paid on any indebtedness
that you
incurred or continued to purchase or carry the debt securities that were
acquired at
a
market discount. In general, market discount will be treated as
accruing ratably over the term of the debt securities, or, at your election,
under a constant yield method.
You
may
elect to include market discount in gross income currently as it accrues (on
either a ratable or constant yield basis), in lieu of treating a portion of
any
gain realized on a sale of the debt securities as ordinary income. If
you elect to include market discount on a current basis, the interest deduction
deferral rule described above will not apply and you will increase your basis
in
the debt security by the amount of market discount you include in gross
income. If you do make such an election, it will apply to all market
discount debt instruments that you acquire on or after the first day of the
first taxable year to which the election applies. This election may
not be revoked without the consent of the IRS.
Information
Reporting and Backup
Withholding. In general, information reporting requirements
will apply to payments of principal, interest, and premium, if any, paid on
debt
securities and to the proceeds of the sale of debt securities paid to U.S.
holders other than certain exempt recipients (such as certain
corporations). Information reporting generally will apply to payments
of interest on the debt securities to non-U.S. Holders (as defined below) and
the amount of tax, if any, withheld with respect to such
payments. Copies of the information returns reporting such interest
payments and any withholding may also be made available to the tax authorities
in the country in which the non-U.S. Holder resides under the provisions of
an
applicable income tax treaty. In addition, for non-U.S. Holders,
information reporting will apply to the proceeds of the sale of debt securities
within the United States or conducted through United States-related financial
intermediaries unless the certification requirements described below have been
complied with and the statement described below in “Taxation of Non-U.S.
Holders” has been received (and the payor does not have actual knowledge or
reason to know that the holder is a United States person) or the holder
otherwise establishes an exemption.
We
may be
required to withhold, for U.S. federal income tax purposes, a portion of all
taxable payments (including redemption proceeds) payable to holders of debt
securities who fail to provide us with their correct taxpayer identification
number, who fail to make required certifications or who have been notified
by
the IRS that they are subject to backup withholding (or if we have been so
notified). Certain corporate and other shareholders specified in the
Internal Revenue Code and the regulations thereunder are exempt from backup
withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the holder’s U.S.
federal income tax liability provided the appropriate information is furnished
to the IRS. If you are a non-U.S. Holder, you may have to comply with
certification procedures to establish your non-U.S. status in order to avoid
backup withholding tax requirements. The certification procedures
required to claim the exemption from withholding tax on interest income
described below will satisfy these requirements.
Taxation
of Non-U.S.
Holders. If you are a non-resident alien individual or a
foreign corporation (a “non-U.S. Holder”), the payment of interest on the debt
securities generally will be considered “portfolio interest” and thus generally
will be exempt from United States federal withholding tax. This
exemption will apply to you provided that (1) interest paid on the debt
securities is not effectively connected with your conduct of a trade or business
in the United States, (2) you are not a bank whose receipt of interest on
the debt securities is described in Section 881(c)(3)(A) of the Internal
Revenue Code, (3) you do not actually or constructively own 10 percent
or more of the combined voting power of all classes of the Company’s stock
entitled to vote, (4) you are not a controlled foreign corporation that is
related, directly or indirectly to the Company through stock ownership, and
(5) you satisfy the certification requirements described
below.
To
satisfy the certification requirements, either (1) the holder of any debt
securities must certify, under penalties of perjury, that such holder is
a
non-U.S. person and must provide such owner’s name, address
and taxpayer identification number, if any, on IRS Form W-8BEN, or (2) a
securities clearing organization, bank or other financial institution that
holds
customer securities in the ordinary course of its trade or business and holds
the debt securities on behalf of the holder thereof must certify, under
penalties of perjury, that it has received a valid and properly executed
IRS
Form W-8BEN from the beneficial holder and comply with certain other
requirements. Special certification rules apply for debt securities
held by a foreign partnership and other intermediaries.
Interest
on debt securities received by a non-U.S. Holder that is not excluded from
U.S.
federal withholding tax under the portfolio interest exemption as described
above generally will be subject to withholding at a 30% rate, except where
a
non-U.S. Holder can claim the benefits of an applicable tax treaty to reduce
or
eliminate such withholding tax and such non-U.S. Holder provides the Company
with a properly executed IRS Form W-8BEN claiming such exemption or
reduction.
Any
capital gain that a non-U.S. Holder realizes on a sale, exchange or other
disposition of debt securities generally will be exempt from United States
federal income tax, including withholding tax. This exemption will
not apply to you if your gain is effectively connected with your conduct of
a
trade or business in the U.S. or you are an individual holder and are present
in
the U.S. for 183 days or more in the taxable year of the disposition and
either your gain is attributable to an office or other fixed place of business
that you maintain in the U.S. or you have a tax home in the United
States.
DETERMINATION
OF
NET ASSET VALUE
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. 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:
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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;
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for
fixed income securities, the Accounting Services Provider will
use readily
available market quotations based upon the last sale price of a
security
on the day we value our assets
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or
a market value from a pricing service or by obtaining a direct
written
broker-dealer quotation from a dealer who has made a market in
the
security; and
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other
assets will be valued at market value pursuant to the valuation
procedures.
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If
the
Accounting Services Provider cannot obtain a market value or the Adviser
determines that the value of a security as so obtained does not represent a
fair
value as of the valuation time (due to a significant development subsequent
to
the time its price is determined or otherwise), fair value for the security
shall be determined pursuant to the valuation procedures. A report of
any prices determined pursuant to fair value methodologies will be presented
to
the Board of Directors or a designated committee thereof for approval at the
next regularly scheduled board meeting.
AUTOMATIC
DIVIDEND
REINVESTMENT AND CASH PURCHASE
PLAN
Our
Automatic Dividend Reinvestment and Cash Purchase Plan (the “Plan”) allows
participating common stockholders to reinvest distributions including dividends,
capital gains and return of capital in additional shares of our common stock
and
allows participants to purchase additional shares of our common stock through
additional optional cash investments in amounts from a minimum of $100 to a
maximum of $5,000 per month. Shares of common stock will be issued by
us under the Plan when our common stock is trading at a premium to
NAV. If our common stock is trading at a discount to NAV, shares
distributed under the Plan will be purchased on the open market at market
price. Shares of common stock issued directly from us under the Plan
will be acquired at the greater of (1) NAV at the close of business on the
payment date of the distribution or on the day preceding the relevant cash
purchase investment date or (2) 95% of the market price per common share on
the distribution payment date or on the day preceding the relevant cash purchase
investment date. See below for more details about the
Plan.
Automatic
Dividend Reinvestment
If
a
stockholder’s shares are registered directly with us or with a brokerage firm
that participates in our Plan, all distributions are automatically reinvested
for stockholders by the Plan Agent, Computershare Trust Company, N.A. (the
“Plan
Agent”), in additional shares of our common stock (unless a stockholder is
ineligible or elects otherwise). Stockholders who elect not to
participate in the Plan will receive all distributions payable in
cash paid by check mailed directly to the stockholder of record (or, if the
shares are held in street or other nominee name, then to such nominee) by the
Plan Agent, as dividend paying agent. Such stockholders may elect not
to participate in the Plan and to receive all distributions in cash by sending
written, telephone or Internet instructions to the Plan Agent, as dividend
paying agent, at the address set forth below. Participation in the
Plan is completely voluntary and may be terminated or resumed at any time
without penalty by giving notice in writing to the Plan Agent; such termination
will be effective with respect to a particular distribution if notice is
received prior to the record date for such distribution.
Whenever
we declare a distribution payable either in
shares or in cash, non-participants in the Plan will receive cash, and
participants in the Plan will receive the amount set forth below in shares
of
common stock. The shares are acquired by the Plan Agent for the
participant’s account, depending upon the circumstances described below, either
(i) through receipt of additional common stock directly from us
(“Additional Common Stock”) or (ii) by purchase of outstanding common stock
on the open market (“open-market purchases”) on the NYSE or
elsewhere. If, on the payment date, the NAV per share of our common
stock is equal to or less than the market price per share of common stock plus
estimated brokerage commissions (such condition being referred to herein as
“market premium”), the Plan Agent will receive Additional Common Stock from us
for each participant’s account. The number of shares of
Additional
Common Stock to be credited to the participant’s account will be determined by
dividing the dollar amount of the distribution by the greater of (i) the
NAV per share of common stock on the payment date, or (ii) 95% of the
market price per share of common stock on the payment date.
If,
on
the payment date, the NAV per share of common stock exceeds the market price
plus estimated brokerage commissions (such condition being referred to herein
as
“market discount”), the Plan Agent will invest the distribution amount in shares
acquired in open-market purchases as soon as practicable but not later than
thirty (30) days following the payment date. We expect to declare and
pay quarterly distributions. The weighted average price (including
brokerage commissions) of all common stock purchased by the Plan Agent as Plan
Agent will be the price per share of common stock allocable to each
participant.
The
Plan
Agent maintains all stockholders’ accounts in the Plan and furnishes written
confirmation of each acquisition made for the participant’s account as soon as
practicable, but in no event later than 60 days after the date
thereof. Shares in the account of each Plan participant may be held
by the Plan Agent in non-certificated form in the Plan Agent’s name or that of
its nominee, and each stockholder’s proxy will include those shares purchased or
received pursuant to the Plan. The Plan Agent will forward all proxy
solicitation materials to participants and vote proxies for shares held pursuant
to the Plan first in accordance with the instructions of the participants,
and
then with respect to any proxies not returned by such participant, in the same
proportion as the Plan Agent votes the proxies returned by the
participants.
There
are
no brokerage charges with respect to shares issued directly by us as a result
of
distributions payable either in shares or in cash. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent’s open-market purchases in connection with the
reinvestment of distributions. If a participant elects to have the
Plan Agent sell part or all of his or her common stock and remit the proceeds,
such participant will be charged a transaction fee plus his or her pro rata
share of brokerage commissions on the shares sold.
The
automatic reinvestment of distributions will not relieve participants of any
federal, state or local income tax that may be payable (or required to be
withheld) on such distributions. See “Certain Federal Income Tax
Matters.”
Stockholders
participating in the Plan may receive benefits not available to stockholders
not
participating in the Plan. If the market price plus commissions of
our shares of common stock is higher than the NAV, participants in the Plan
will
receive shares of our common stock at less than they could otherwise purchase
such shares and will have shares with a cash value greater than the value of
any
cash distribution they would have received on their shares. If the
market price plus commissions is below the NAV, participants will receive
distributions of shares of common stock with a NAV greater than the value of
any
cash distribution they would have received on their shares. However,
there may be insufficient shares available in the market to make distributions
in shares at prices below the NAV. Also, because we do not redeem our
common stock, the price on resale may be more or less than the
NAV. See “Certain Federal Income Tax Matters” for a discussion of the
federal income tax consequences of the Plan.
Cash
Purchase Option
Participants
in the Plan may elect to purchase additional shares of common stock through
optional cash investments in amounts ranging from $100 to $5,000 per month
unless a request for waiver has been granted. Optional cash
investments may be delivered to the Plan Agent by personal check, by automatic
or electronic bank account transfer or by online access at
www.computershare.com. We reserve the right
to
reject
any purchase order. We do not accept cash, travelers checks, third
party checks, money orders and checks drawn on non-US banks.
In
order
for participants to participate in the cash investment option in any given
month, the Plan Agent must receive from the participant any optional cash
investment no later than two business days prior
to
the monthly investment date (the “payment date”) for purchase of common shares
on the next succeeding purchase date. All optional cash investments
received on or prior to the payment date will be applied by the Plan Agent
to
purchase shares on the next succeeding purchase date. Participants
may obtain a schedule of relevant dates on our website at
www.tortoiseadvisors.com or by calling 1-866-362-9331.
Common
stock purchased pursuant to this option will be issued by us when our shares
are
trading at a premium to net asset value. If our common stock is
trading at a discount to net asset value, shares of common stock will be
purchased in the open market by the Plan Agent as described above with respect
to reinvestments of distributions.
General
Experience
under the Plan may indicate that changes are desirable. Accordingly,
we reserve the right to amend or terminate the Plan if in the judgment of the
Board of Directors such a change is warranted. The Plan may be
terminated by the Plan Agent or us upon notice in writing mailed to each
participant at least 60 days prior to the effective date of the
termination. Upon any termination, the Plan Agent will cause a
certificate or certificates to be issued for the full shares held by each
participant under the Plan and cash adjustment for any fraction of a share
of
common stock at the then current market value of common stock to be delivered
to
him or her. If preferred, a participant may request the sale of all
of the common stock held by the Plan Agent in his or her Plan account in order
to terminate participation in the Plan. If such participant elects in
advance of such termination to have the Plan Agent sell part or all of his
or
her shares, the Plan Agent is authorized to deduct from the proceeds a $15.00
transaction fee plus a $0.05 fee per share for the transaction. If a
participant has terminated his or her participation in the Plan but continues
to
have common stock registered in his or her name, he or she may re-enroll in
the
Plan at any time by notifying the Plan Agent in writing at the address
below. The terms and conditions of the Plan may be amended by the
Plan Agent or by us at any time. Any such amendments to the Plan may
be made by mailing to each participant appropriate written notice at least
30
days prior to the effective date of the amendment, except, when necessary or
appropriate to comply with applicable law or the rules or policies of the SEC
or
any other regulatory authority, such prior notice does not apply. The
amendment shall be deemed to be accepted by each participant unless, prior
to
the effective date thereof, the Plan Agent receives notice of the termination
of
the participant’s account under the Plan. Any such amendment may
include an appointment by the Plan Agent of a successor Plan Agent, subject
to
our prior written approval of the successor Plan Agent.
All
correspondence concerning the Plan should be directed to Computershare Trust
Company, N.A., P.O. Box 43078, Providence, RI 02940.
DESCRIPTION
OF
SECURITIES
The
information contained under this heading is only a summary and is subject
to the
provisions contained in our Charter and Bylaws and the laws of the State
of
Maryland.
Common
Stock
General. Our
Charter authorizes us to issue up to 100,000,000 shares of common stock,
$0.001
par value per share. The Board of Directors may, without any action
by the stockholders, amend our Charter from time to time to increase or decrease
the aggregate number of shares of stock or the number of shares of stock
of any
class or series that we have authority to issue under our Charter and the
1940
Act. Additionally, the Charter authorizes our Board of Directors,
without any action by our stockholders, to classify and reclassify any unissued
common stock and preferred stock into other classes or series of stock
from time to time by setting or changing the terms, preferences, conversion
or
other rights, voting powers, restrictions, limitations as to dividends or
other
distributions, qualifications and terms or conditions of redemption for each
class or series. Although there is no present intention of doing so,
we could issue a class or series of stock that could delay, defer or prevent
a
transaction or a change in control of us that might otherwise be in the
stockholders’ best interests. Under Maryland law, stockholders
generally are not liable for our debts or obligations.
All
common stock offered pursuant to this prospectus and any related prospectus
supplement will be, upon issuance, duly authorized, fully paid and
nonassessable. All outstanding common stock offered pursuant to this
prospectus and any related prospectus supplement will be of the same class
and
will have identical rights, as described below. Holders of shares of
common stock are entitled to receive distributions when authorized by the Board
of Directors and declared by us out of assets legally available for the payment
of distributions. Holders of common stock have no preference,
conversion, exchange, sinking fund, redemption or appraisal rights and have
no
preemptive rights to subscribe for any of our securities. All shares
of common stock have equal distribution, liquidation and other
rights.
Distributions. We
intend to pay out substantially all of our DCF to holders of common stock
through quarterly distributions. DCF is the amount we receive as cash
or paid-in-kind distributions from MLPs or affiliates of MLPs in which we
invest, and interest payments received on debt securities we own, less current
or anticipated operating expenses, taxes on our taxable income, and leverage
costs we pay (including costs related to Tortoise Notes, Tortoise Preferred
Shares and borrowings under our credit facility). Our Board of
Directors has adopted a policy to target distributions to common stockholders
in
an amount equal to at least 95% of DCF on an annual basis. It is
expected that we will declare and pay a distribution to holders of common
stock
at the end of each fiscal quarter. There is no assurance that we will
continue to make regular distributions.
If
a
stockholder’s shares are registered directly with us or with a brokerage firm
that participates in the Plan, distributions will be automatically reinvested
in
additional common stock under the Plan unless a stockholder elects to receive
distributions in cash. If a stockholder elects to receive
distributions in cash, payment will be made by check. The federal
income tax treatment of distributions is the same whether they are reinvested
in
our shares or received in cash. See “Automatic Dividend Reinvestment
and Cash Purchase Plan.”
The
yield
on our common stock will likely vary from period to period depending on factors
including the following:
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market
conditions;
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the
timing of our investments in portfolio securities;
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the
securities comprising our portfolio;
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changes
in interest rates (including changes in the relationship between
short-term rates and long-term rates);
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the
amount and timing of the use of borrowings and other leverage by
us;
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the
effects of leverage on our common stock (discussed above under
“Leverage”);
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the
timing of the investment of offering proceeds and leverage proceeds
in
portfolio securities; and
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our
net assets and operating expenses.
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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 Tortoise Preferred
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 13, 2007, our stockholders granted us the authority to sell shares of
our common stock for less than NAV, subject to the conditions listed
below. We seek re-approval by our common stockholders of this
authority at our annual meeting of stockholders. We believe that
having the ability to issue and sell 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 per share offering price, before deduction of underwriting fees, commissions
and offering expenses, will not be less than the NAV per share of our common
stock, as determined at any time within two business days prior to the pricing
of the common stock to be sold in the offering.
2.
Immediately following each offering, after deducting offering expenses and
underwriting fees and commissions, the NAV per share of our common stock, as
determined at any time within two business days prior to the pricing of the
common stock to be sold, would not have been diluted by greater than a total
of
1% of the NAV per share of all outstanding common stock as a result of such
offering. We will not be subject to a maximum number of shares that can be
sold,
a defined minimum sales price per share in any offering, or a maximum number
of
offerings we can make so long as for each offering the number of shares offered
and the price at which such shares are sold together would not result in
dilution of the NAV per share of our common stock in excess of the 1% limitation
described above.
3.
A majority of our independent directors makes a determination, based on
information and a recommendation from the Adviser, that they reasonably expect
that the investment(s) to be made with the net proceeds of such issuance will
lead to a long-term increase in distribution growth.
The
table
below sets forth the pro forma maximum dilutive effect on our NAV if we were
to
have issued shares below our NAV as of November 30, 2007. The
table assumes that we issue ____________ shares, which represents all of
the
shares we permissibly could issue under the conditions described above, at
a net
sale price to us after deducting all expenses of issuance, including
underwriting discounts and commissions, equal to $________, which is 95%
of the
NAV of our common shares as of November 30, 2007.
Pro
Forma Maximum Impact of Below NAV Issuances of Common Shares
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Common
shares currently outstanding
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Common
shares that currently may be issued below NAV
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Total
common shares outstanding if all permissible shares are issued
below
NAV
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Net
asset value per share as of November 30, 2007
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$___
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Aggregate
net asset value of all currently outstanding common shares based
on NAV as
of November 30, 2007
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Aggregate
net proceeds to the Company (assuming the Company sold all permissible
shares and received net proceeds equal to $____ per share (95%
of the NAV
as of November 30, 2007))
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Expected
aggregate net asset value of the Company after issuance
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NAV
per share after issuance
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$___
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Percentage
dilution to pre-issuance NAV
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____%
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Because
the
Adviser’s management fee is based upon our average monthly Managed Assets, the
Adviser’s interest in recommending the issuance and sale of common stock below
NAV will conflict with our interests and those of our
stockholders.
Market. Our
common
stock trades on the NYSE under the ticker symbol “TYG.” Common stock
issued pursuant to this prospectus and related prospectus supplement will
trade
on the NYSE.
Transfer
Agent, Dividend Paying
Agent and Automatic Dividend Reinvestment and Cash Purchase Plan
Agent. Computershare Trust Company, N.A., P.O. Box 43078,
Providence, Rhode Island 02940-3078, serves as the transfer
agent, the Automatic Dividend Reinvestment and Cash Purchase Plan agent
and the
dividend paying agent for our common stock.
Preferred
Stock
General. Our
Charter authorizes the issuance of up to 10,000,000 shares of preferred stock,
with preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms
and
conditions or redemption as determined by the Board of Directors.
The
Board
of Directors may, without any action by the stockholders, amend our Charter
from
time to time to increase or decrease the aggregate number of shares of stock
or
the number of shares of stock of any class or series that we have authority
to
issue. Additionally, the Charter authorizes the Board of Directors,
without any action by the stockholders, to classify and reclassify any unissued
preferred stock into other classes or series of stock from time to time by
setting or changing the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each class or
series.
Preferred
stock (including outstanding Tortoise Preferred 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 Tortoise Preferred Shares are outstanding,
additional issuances of preferred stock must be considered to be of the same
class as Tortoise Preferred Shares under the 1940 Act and interpretations
thereunder and must rank on a parity with the Tortoise Preferred Shares with
respect to the payment of dividends and upon the distribution of our
assets. Unless otherwise stated in a prospectus supplement, any
auction rate 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 auction rate
preferred stock and will be subject to the provisions
therein. Subject to the limitations of the 1940 Act, we may also
issue non-auction rate preferred stock, in which case the details
on how to buy and sell such preferred stock, along with other terms of such
preferred stock, will be described in a related prospectus supplement. The terms to be
stated
in a prospectus supplement will include the following:
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the
form and title of the security;
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the
aggregate liquidation preference of preferred stock;
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the
dividend rate of the preferred stock;
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whether
the dividend rate will be determined at an auction;
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the
frequency with which auctions, if any, will be held;
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any
optional or mandatory redemption provisions;
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any
changes in auction agents, paying agents or security registrar;
and
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any
other terms of the preferred stock.
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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 for auction rate preferred stock will generally
be
determined by the results of an auction for such shares, as more fully
described
in a related prospectus supplement. The prospectus supplement for
non-auction rate preferred stock will describe the dividend payment provisions
for those shares. 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 auction rate preferred stock
may be bought or sold at an auction that normally will be held periodically
(designated every twenty-eight (28) days for outstanding Tortoise Preferred
Shares, except for series of Tortoise Preferred Shares that have designated
a
special rate period) 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. Auction rate 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. Subject to the
limitations of the 1940 Act, we may also issue non-auction rate preferred
stock,
in which case the details on how to buy and sell such preferred stock, along
with other terms of such preferred stock, will be described in a related
prospectus supplement. We cannot assure you that any secondary market
will exist or that if a secondary market does exist, whether it will provide
holders with liquidity.
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. Unless
otherwise stated in a prospectus supplement, any additional auction rate
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 auction rate debt securities will
include specific terms relating to the offering. Subject to the
limitations of the 1940 Act, we may also issue non-auction rate debt
securities, in which case the details on how to buy and sell such debt
securities, along with other terms of such debt securities, will be described
in
a related prospectus supplement. The terms to be stated in a
prospectus supplement will include the following:
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the
form and title of the security;
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the
aggregate principal amount of the securities;
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the
interest rate of the securities;
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whether
the interest rate for the securities will be determined by auction;
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the
maturity dates on which the principal of the securities will be payable;
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the
frequency with which auctions, if any, will be held;
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any
changes to or additional events of default or covenants;
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any
optional or mandatory redemption provisions;
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any
changes in trustees, auction agents, paying agents or security registrar;
and
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any
other terms of the securities.
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Interest. Unless
otherwise stated in a prospectus supplement, auction rate 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. For non-auction rate debt securities,
the prospectus supplement will describe the interest payment provisions relating
to those debt securities. 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:
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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;
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default
in the payment of the principal of, or premium on, a series of
debt
securities at its stated maturity;
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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;
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certain
voluntary or involuntary proceedings involving us and relating
to
bankruptcy, insolvency or other similar
laws;
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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
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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.
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Upon
the
occurrence and continuance of an event of default, the holders of a majority
in
principal amount of a series of outstanding debt securities or the trustee
may
declare the principal amount of that series of debt securities immediately
due
and payable upon written notice to us. A default that relates only to
one series of debt securities does not affect any other series and the holders
of such other series of debt securities are not entitled to receive notice
of
such a default under the Indenture. Upon an event of default relating
to bankruptcy, insolvency or other similar laws, acceleration of maturity occurs
automatically with respect to all series. At any time after a
declaration of acceleration with respect to a series of debt securities has
been
made, and before a judgment or decree for payment of the money due has been
obtained, the holders of a majority in principal amount of the outstanding
debt
securities of that series, by written notice to us and the trustee, may rescind
and annul the declaration of acceleration and its consequences if all events
of
default with respect to that series of debt securities, other than the
non-payment of the principal of that series of debt securities which has become
due solely by such declaration of acceleration, have been cured or waived and
other conditions have been met.
Liquidation
Rights. In the event of (a) any insolvency or bankruptcy case
or proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relative to us or to our
creditors, as such, or to our assets, or (b) any liquidation, dissolution or
other winding up of the Company, whether voluntary or involuntary and whether
or
not involving insolvency or bankruptcy, or (c) any assignment for the benefit
of
creditors or any other marshalling of assets and liabilities of ours, then
(after any payments with respect to any secured creditor of ours outstanding
at
such time) and in any such event the holders of debt securities shall be
entitled to receive payment in full of all amounts due or to become due on
or in
respect of all debt securities (including any interest accruing thereon after
the commencement of any such case or proceeding), or provision shall be made
for
such payment in cash or cash equivalents or otherwise in a manner satisfactory
to the holders of the debt securities, before the holders of any common or
preferred stock of the Company are entitled to receive any payment on account
of
any redemption proceeds, liquidation preference or dividends from such
shares. The holders of debt securities shall be
entitled to receive, for application to the payment thereof, any payment or
distribution of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other indebtedness of ours being subordinated
to
the payment of the debt securities, which may be payable or deliverable in
respect of the debt securities in any such case, proceeding, dissolution,
liquidation or other winding up event.
Unsecured
creditors of ours may include, without limitation, service providers including
the Adviser, custodian, administrator, auction agent, broker-dealers and
the
trustee, pursuant to the terms of various contracts with us. Secured
creditors of ours may include without limitation parties entering into
any
interest rate swap, floor or cap transactions, or other similar transactions
with us that create liens, pledges, charges, security interests, security
agreements or other encumbrances on our assets.
A
consolidation, reorganization or merger of the Company with or into any other
company, or a sale, lease or exchange of all or substantially all of our assets
in consideration for the issuance of equity securities of another company shall
not be deemed to be a liquidation, dissolution or winding up of the
Company.
Voting
Rights. Debt securities have no voting rights, except to the
extent required by law or as otherwise provided in the Indenture relating to
the
acceleration of maturity upon the occurrence and continuance of an event of
default. In connection with any other borrowings (if any), the 1940
Act does in certain circumstances grant to the lenders certain voting rights
in
the event of default in the payment of interest on or repayment of
principal.
Market. Unless
otherwise stated in a prospectus supplement, our auction rate debt securities
may be bought or sold at an auction held periodically (every seven (7) or
twenty-eight (28) days for outstanding Tortoise Notes, except for series of
Tortoise Notes that have designated a special rate period), 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. Auction rate 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. Subject
to the limitations of the 1940 Act, we may also issue non-auction rate debt
securities, in which case the details on how to buy and sell such debt
securities, along with other terms of such debt securities, will be described
in
a related prospectus supplement. In the case of our non-auction rate
debt securities, we cannot assure you that any secondary market will exist
or if
a secondary market does exist, whether it will provide holders with
liquidity.
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;
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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
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an
event of default has occurred and is continuing.
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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, The Bank of New York Trust Company,
N.A., 2 N. LaSalle Street, Chicago, IL 60602, 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 auction rate debt
securities.
RATING
AGENCY
GUIDELINES
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 Tortoise
Preferred 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
Tortoise Preferred Shares) in the future, are collectively referred to as
the
“Rating Agencies.”
We
may,
but are not required to, adopt any modification to the guidelines that may
hereafter be established by any Rating Agency. Failure to adopt any
modifications, however, may result in a change in the ratings described above
or
a withdrawal of ratings altogether. In addition, any Rating Agency
may, at any time, change or withdraw any rating. The Board may,
without stockholder approval, modify, alter or repeal certain of the definitions
and related provisions which have been adopted pursuant to each Rating Agency’s
guidelines (“Rating Agency Guidelines”) only in the event we receive written
confirmation from the Rating Agency or Agencies that any amendment, alteration
or repeal would not impair the ratings then assigned to the senior
securities.
We
are
required to satisfy two separate asset maintenance requirements with respect
to
outstanding debt securities and with respect to outstanding preferred
stock: (1) we must maintain assets in our portfolio that have a
value, discounted in accordance with guidelines set forth by each Rating
Agency,
at least equal to 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 the applicable 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 the applicable Basic Maintenance
Amount as of any valuation date and such failure is not cured, we will be
required in certain circumstances to redeem certain of the senior
securities.
The
applicable Basic Maintenance Amount is defined in the Rating Agency’s
Guidelines. Each Rating Agency may amend the definition of the
applicable Basic Maintenance Amount from time to time.
The
market value of our portfolio securities (used in calculating the discounted
value of eligible assets) is calculated using readily available market
quotations when appropriate, and in any event, consistent with our valuation
procedures. For the purpose of calculating the applicable Basic
Maintenance Amount, portfolio securities are valued in the same manner as we
calculate our NAV. See “Determination of Net Asset
Value.”
Each
Rating Agency’s discount factors, the criteria used to determine whether the
assets held in our portfolio are eligible assets, and the guidelines for
determining the discounted value of our portfolio holdings for purposes of
determining compliance with the applicable Basic Maintenance Amount are based
on
Rating Agency Guidelines established in connection with rating the senior
securities. The discount factor relating to any asset, the applicable
basic maintenance amount requirement, the assets eligible for inclusion in
the
calculation of the discounted value of our portfolio and certain definitions
and
methods of calculation relating thereto may be changed from time to time by
the
applicable Rating Agency, without our approval, or the approval of our Board
of
Directors or stockholders.
A
Rating
Agency’s Guidelines will apply to the senior securities only so long as that
Rating Agency is rating such securities. We will pay certain fees to
Moody’s, Fitch and any other Rating Agency that may provide a rating for the
senior securities. The ratings assigned to the senior securities are
not recommendations to buy, sell or hold the senior securities. Such
ratings may be subject to revision or withdrawal by the assigning Rating Agency
at any time.
1940
Act Asset
Coverage. We are also required to maintain, with respect to
senior securities, as of the last business day on any month in which any senior
securities are outstanding, asset coverage of at least 300% for debt securities
and 200% for preferred stock (or such other percentage as may in the future
be
specified in or under the 1940 Act as the minimum asset coverage for senior
securities representing shares of a closed-end investment company as a condition
of declaring dividends on its common stock). If we fail to maintain
the applicable 1940 Act asset coverage as of the last business day of any month
and such failure is not cured as of the last business day of the following
month
(the “Asset Coverage Cure Date”), we will be required to redeem certain senior
securities.
Notices. Under
the
current Rating Agency Guidelines, in certain circumstances, we are required
to
deliver to any Rating Agency which is then rating the senior securities
(1) a certificate with respect to the calculation of the applicable Basic
Maintenance Amount; (2) a certificate with respect to the calculation of
the applicable 1940 Act asset coverage and the value of our portfolio holdings;
and (3) a letter prepared by our independent accountants regarding the
accuracy of such calculations.
Notwithstanding
anything herein to the contrary, the Rating Agency Guidelines, as they may
be
amended from time to time by each Rating Agency will be reflected in a written
document and may be
amended
by each Rating Agency without the vote, consent or approval of the Company,
the
Board of Directors or any stockholder of the Company.
A
copy of
the current Rating Agency Guidelines will be provided to any holder of senior
securities promptly upon request made by such holder to the Company by writing
the Company at 10801 Mastin Boulevard, Suite 222, Overland Park, Kansas
66210.
CERTAIN
PROVISIONS
IN THE COMPANY’S CHARTER AND
BYLAWS
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.
SELLING
STOCKHOLDERS
An
unspecified number of shares of our common stock may be offered and sold for
resale from time to time under this prospectus by certain of our stockholders;
provided, however, that no stockholder will be authorized to use this prospectus
for an offering of our common stock without first obtaining our
consent. We may consent to the use of this prospectus by certain of
our stockholders for a limited period of time and subject to certain limitations
and conditions depending on the terms of any agreements between us and such
stockholders. The identity of any selling stockholder, including any
material relationship between us and our affiliates and such selling
stockholder, the percentage of our common stock owned by such selling
stockholder prior to the offering, the number of shares of our common stock
to
be offered by such selling stockholder, the percentage of our common stock
to be
owned (if greater than one percent) by such selling stockholder following the
offering, and the price and terms upon which
our
shares of common stock are to be sold by such
selling stockholder will be set forth in a prospectus supplement to this
prospectus.
PLAN
OF
DISTRIBUTION
We
may
sell our common stock, preferred stock and debt securities, and certain of
our
stockholders may sell our common stock, on an immediate, continuous or delayed
basis, in one or more offerings under this prospectus and any related prospectus
supplement. The aggregate amount of securities that may be offered by
us and any selling stockholders is limited to $___________. We may
offer our common stock, preferred stock and debt
securities: (1) directly to one or more purchasers;
(2) through agents; (3) through underwriters; (4) through
dealers; or (5) pursuant to our Automatic Dividend
Reinvestment and Cash Purchase Plan. Any selling stockholders may
offer our common stock: (1) directly to one or more purchasers;
(2) through agents; (3) through underwriters; or (4) through
dealers. Each prospectus supplement relating to an offering of
securities will state the terms of the offering, including as
applicable:
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·
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the
names of any agents, underwriters or dealers;
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·
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any
sales loads or other items constituting underwriters’ compensation;
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·
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any
discounts, commissions, or fees allowed or paid to dealers or agents;
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·
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the
public offering or purchase price of the offered securities and the
net
proceeds we will receive from the sale; provided, however, that we
will
not receive any of the proceeds from a sale of our common stock by
any
selling stockholder; and
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·
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any
securities exchange on which the offered securities may be listed.
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Direct
Sales
We
may
sell our common stock, preferred stock and debt securities, or certain of our
stockholders may sell our common stock, directly to, and solicit offers from,
institutional investors or others who may be deemed to be underwriters as
defined in the 1933 Act for any resales of the securities. In this
case, no underwriters or agents would be involved. We, or any selling
stockholder, may use electronic media, including the Internet, to sell offered
securities directly. The terms of any of those sales will be
described in a prospectus supplement.
By
Agents
We
may
offer our common stock, preferred stock and debt securities, or certain of
our
stockholders may sell our common stock, through agents that we or they
designate. Any agent involved in the offer and sale will be named and
any commissions payable by us, or any selling stockholder, will be described
in
the prospectus supplement. Unless otherwise indicated in the
prospectus supplement, the agents will be acting on a best efforts basis for
the
period of their appointment.
By
Underwriters
We
may
offer and sell securities, or certain of our stockholders may offer our common
stock, from time to time to one or more underwriters who would purchase the
securities as principal for resale to the public, either on a firm commitment
or
best efforts basis. If we sell securities, or a selling stockholder
offers our common stock, to underwriters, we and such selling stockholder
will
execute an underwriting
agreement
with them at the time of the sale and will name them in the prospectus
supplement. In connection with these sales, the underwriters may be
deemed to have received compensation from us or such selling stockholder
in the
form of underwriting discounts and commissions. The underwriters also
may receive commissions from purchasers of securities for whom they may act
as
agent. Unless otherwise stated in the prospectus supplement, the
underwriters will not be obligated to purchase the securities unless the
conditions set forth in the underwriting agreement are satisfied, and if
the
underwriters purchase any of the securities, they will be required to purchase
all of the offered securities. The underwriters may sell the offered
securities to or through dealers, and those dealers may receive discounts,
concessions or commissions from the underwriters as well as from the purchasers
for whom they may act as agent. Any public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
If
a prospectus supplement so indicates, we may grant
the underwriters an option to purchase additional shares of common stock
at the
public offering price, less the underwriting discounts and commissions, within
45 days from the date of the prospectus supplement, to cover any
overallotments.
By
Dealers
We
may
offer and sell securities, or certain of our stockholders may offer our common
stock, from time to time to one or more dealers who would purchase the
securities as principal. The dealers then may resell the offered
securities to the public at fixed or varying prices to be determined by those
dealers at the time of resale. The names of the dealers and the terms
of the transaction will be set forth in the prospectus supplement.
General
Information
Agents,
underwriters, or dealers participating in an offering of securities may be
deemed to be underwriters, and any discounts and commission received by them
and
any profit realized by them on resale of the offered securities for whom they
act as agent, may be deemed to be underwriting discounts and commissions under
the 1933 Act.
We
may
offer to sell securities, or certain of our stockholders may offer our common
stock, either at a fixed price or at prices that may vary, at market prices
prevailing at the time of sale, at prices related to prevailing market prices,
or at negotiated prices.
Ordinarily,
each series of offered securities will be a new issue of securities and will
have no established trading market.
To
facilitate an offering of common stock in an underwritten transaction and in
accordance with industry practice, the underwriters may engage in transactions
that stabilize, maintain, or otherwise affect the market price of the common
stock or any other security. Those transactions may include
overallotment, entering stabilizing bids, effecting syndicate covering
transactions, and reclaiming selling concessions allowed to an underwriter
or a
dealer.
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An
overallotment in connection with an offering creates a short position
in
the common stock for the underwriter’s own account.
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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.
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·
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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
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·
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any
other securities in the open market in order to reduce a short
position
created in connection with the offering.
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·
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The
managing underwriter may impose a penalty bid on a syndicate member
to
reclaim a selling concession in connection with an offering when
the
common stock originally sold by the syndicate member is purchased
in
syndicate covering transactions or otherwise.
|
Any
of
these activities may stabilize or maintain the market price of the securities
above independent market levels. The underwriters are not required to
engage in these activities, and may end any of these activities at any
time.
Any
underwriters to whom the offered securities are sold for offering and sale
may
make a market in the offered securities, but the underwriters will not
be
obligated to do so and may discontinue any market-making at any time without
notice. The offered securities may or may not be listed on a
securities exchange. We cannot assure you that there will be a liquid
trading market for the offered securities.
Under
agreements entered into with us, underwriters and agents and related persons
(or
and their affiliates) may be entitled to indemnification by us against
certain civil liabilities, including liabilities under the 1933 Act, or to
contribution for payments the underwriters or agents may be required to
make.
The
underwriters, agents, and their affiliates may engage in financial or other
business transactions with us and our subsidiaries in the ordinary course of
business.
The
maximum commission or discount to be received by any member of the National
Association of Securities Dealers, Inc. or independent broker-dealer will not
be
greater than eight percent of the initial gross proceeds from the sale of any
security being sold.
The
aggregate offering price specified on the cover of this prospectus relates
to
the offering of the securities not yet issued as of the date of this
prospectus.
To
the
extent permitted under the 1940 Act and the rules and regulations promulgated
thereunder, the underwriters may from time to time act as a broker or dealer
and
receive fees in connection with the execution of our portfolio transactions
after the underwriters have ceased to be underwriters and, subject to certain
restrictions, each may act as a broker while it is an underwriter.
A
prospectus and accompanying prospectus supplement in electronic form may be
made
available on the websites maintained by underwriters. The
underwriters may agree to allocate a number of securities for sale to their
online brokerage account holders. Such allocations of securities for
internet distributions will be made on the same basis as other
allocations. In addition, securities may be sold by the underwriters
to securities dealers who resell securities to online brokerage account
holders.
Automatic
Dividend Reinvestment and Cash Purchase Plan
We
may
issue and sell shares of common stock pursuant to our Automatic Dividend
Reinvestment and Cash Purchase Plan.
ADMINISTRATOR
AND
CUSTODIAN
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 0.04% of the
first
$1
billion of our Managed Assets, 0.03% on the next $1 billion of our Managed
Assets and 0.02% on the balance of our Managed Assets, subject to a minimum
annual fee of $45,000.
U.S.
Bank
N.A., 1555 North Rivercenter Drive, Suite 302, Milwaukee, Wisconsin, serves
as
our custodian. We pay the custodian a monthly fee computed at an
annual rate of 0.015% on the first $100 million of our portfolio assets and
0.01% on the balance of our portfolio assets, subject to a minimum annual
fee of
$4,800.
LEGAL
MATTERS
Blackwell
Sanders, L.L.P., Kansas City, Missouri, serves as our counsel. Vedder
Price P.C. (“Vedder Price”), Chicago, Illinois, is serving as our special
counsel in connection with the offerings under this prospectus and related
prospectus supplements. Certain legal matters in connection with the
securities offered hereby will be passed upon for us by Vedder
Price. Vedder Price may rely on the opinion of Venable LLP,
Baltimore, Maryland, on certain matters of Maryland law. If certain
legal matters in connection with an offering of securities are passed
upon by
counsel for the underwriters of such offering, such matters will be passed
upon
by Morrison & Foerster LLP, New York, New York with respect to any offerings by us of our preferred
stock or debt securities
and by Andrews Kurth LLP, New York, New York with respect
to offerings of our common stock or by such other counsel to the underwriters
as
named in a prospectus supplement.
AVAILABLE
INFORMATION
We
are
subject to the informational requirements of the Exchange Act and the 1940
Act
and are required to file reports, including annual and semi-annual reports,
proxy statements and other information with the SEC. We voluntarily
file quarterly shareholder reports. Our most recent shareholder
report filed with the SEC is for our fiscal year ended November 30,
2007. These documents are available on the SEC’s EDGAR system and can
be inspected and copied for a fee at the SEC’s public reference room, 100 F
Street, N.E., Room 1580, Washington, D.C. 20549. Additional
information about the operation of the public reference room facilities may
be
obtained by calling the SEC at (202) 551-5850.
This
prospectus does not contain all of the information in our registration
statement, including amendments, exhibits, and schedules. Statements
in this prospectus about the contents of any contract or other document are
not
necessarily complete and in each instance reference is made to the copy of
the
contract or other document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by this
reference.
Additional
information about us can be found in our Registration Statement (including
amendments, exhibits, and schedules) on Form N-2 filed with the
SEC. The SEC maintains a web site (http://www.sec.gov) that contains
our Registration Statement, other documents incorporated by reference, and
other
information we have filed electronically with the SEC, including proxy
statements and reports filed under the Exchange Act.
TABLE
OF
CONTENTS
OF
THE STATEMENT OF ADDITIONAL INFORMATION
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PAGE
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INVESTMENT
LIMITATIONS
|
S-1
|
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INVESTMENT
OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
|
S-3
|
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MANAGEMENT
OF THE COMPANY
|
S-16
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NET
ASSET VALUE
|
S-26
|
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PORTFOLIO
TRANSACTIONS
|
S-27
|
|
CERTAIN
FEDERAL INCOME TAX MATTERS
|
S-28
|
|
PROXY
VOTING POLICIES
|
S-36
|
|
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
|
S-37
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|
INTERNAL
ACCOUNTANT
|
S-37
|
|
ADDITIONAL
INFORMATION
|
S-37
|
|
FINANCIAL
STATEMENTS
|
S-37
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|
APPENDIX
A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE AND FORM OF
SUPPLEMENTAL INDENTURE
|
A-1
|
|
APPENDIX
A-I – AUCTION PROCEDURES
|
A-I-1
|
|
APPENDIX
B – FORM OF ARTICLES SUPPLEMENTARY
|
B-1
|
|
APPENDIX
C – RATING OF INVESTMENTS
|
C-1
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$___________
Common
Stock
Preferred
Stock
Debt
Securities
Tortoise
Energy Infrastructure Corporation
________________
PROSPECTUS
________________
____________ __,
2008
The
information in this prospectus supplement, which relates to an effective
registration statement under the Securities Act of 1933, as amended, is not
complete and may be changed. We may not sell these securities until
we deliver a final prospectus supplement and the attached
prospectus. This prospectus supplement and the attached prospectus do
not constitute an offer to sell these securities or a solicitation of an
offer
to buy these securities in any jurisdiction where the offer or sale is not
permitted.
SUBJECT
TO COMPLETION, DATED JANUARY 25, 2008
FORM
OF
PROSPECTUS SUPPLEMENT
(To
prospectus dated _________, 200__)
$_____________
Tortoise
Energy Infrastructure Corporation
_____
Series ___ Tortoise Auction Preferred Shares
Liquidation
Preference $25,000 per share
Tortoise
Energy Infrastructure Corporation (the “Company,” “we”, “us” or “our”) is a
nondiversified, closed-end management investment company. Our
investment objective is to seek a high level of total return with an
emphasis on
current distributions to stockholders.
We
are
offering an additional series (“Series ___”) of our auction rate preferred
stock (referred to as “Tortoise Auction Preferred Shares”) with an aggregate
liquidation preference of $__________ in this prospectus
supplement. This prospectus supplement is not complete and should be
read in conjunction with our prospectus dated __________ ___, 200__ (the
“prospectus”), which accompanies this prospectus supplement. This
prospectus supplement does not include all information that you should
consider
before purchasing any Tortoise Auction Preferred Shares. You should
read this prospectus supplement and the accompanying prospectus prior to
purchasing any Tortoise Auction Preferred Shares.
The
Series ___ Tortoise Auction Preferred Shares offered in this prospectus
supplement, together with the previously issued and currently outstanding
Money
Market Cumulative Preferred Shares (“MMP® Shares”) and Tortoise Auction
Preferred Shares, are collectively referred to as “Tortoise Preferred
Shares.” Individual series of Tortoise Auction Preferred Shares or
MMP Shares are referred to as a “series.” Except as otherwise
described in this prospectus supplement, the terms of the Series ___
Tortoise Auction Preferred Shares 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 Tortoise Auction Preferred 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 ___ Tortoise Auction
Preferred Shares from and including the issue date through __________,
200_ 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. Generally,
following the initial dividend period, each dividend period will be ____
days.
Tortoise
Auction Preferred Shares will not be listed on any exchange or automated
quotation system. Generally, you may only buy and sell Tortoise
Auction Preferred 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 Tortoise Auction
Preferred Shares, and a secondary market, if one develops, may not provide
you
with liquidity. See “The Auction—Certain Considerations Affecting
Auction Rate Securities—Existing Holder’s Ability to Resell Auction Rate
Securities May Be Limited.”
Investing
in Tortoise Auction Preferred Shares involves certain risks. See
“Risk Factors” beginning on page ___ of the accompanying prospectus and
“The Auction—Auction Risk” beginning on page S-___ of this prospectus
supplement.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
supplement or accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Per
Share
|
Total
|
|||||||
|
Public
offering price
|
$ | 25,000 | $ | |||||
|
Sales
load
|
$ | $ | ||||||
|
Proceeds
to us (before expenses)(1)
|
$ | $ | ||||||
_____________
|
(1)
|
Does
not include offering expenses payable by us, estimated to be
$__________.
|
The
underwriters expect to deliver the Series ___ Tortoise Auction Preferred
Shares in book-entry form, through the facilities of The Depository Trust
Company, to broker-dealers on or about __________, 200_.
|
[Underwriter(s)]
|
|||
__________,
____
The
offering is conditioned upon the Series ___ Tortoise Auction Preferred
Shares receiving a rating of “Aa2” from Moody’s and “AA” 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 1-866-362-9331
or by
writing to us, or you may obtain copies (and other information regarding
us)
from the SEC’s web site (http://www.sec.gov). You also may e-mail
requests for these documents to the SEC at publicinfo@sec.gov or make a
request
in writing to the SEC’s Public Reference Section, 100 F Street, N.E., Room 1580,
Washington, D.C. 20549.
This
prospectus supplement, which describes the specific terms of this offering,
also
adds to and updates information contained in the accompanying prospectus
and the
documents incorporated by reference in the prospectus. The prospectus
gives more general information, some of which may not apply to this
offering.
If
the
description of this offering varies between this prospectus supplement
and the
accompanying prospectus, you should rely on the information contained in
this
prospectus supplement; provided that if any statement in one of these documents
is inconsistent with a statement in another document having a later date,
the
statement in the document having the later date modifies or supersedes
the
earlier statement.
The
Tortoise Auction Preferred 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.
TABLE
OF
CONTENTS
Prospectus
Supplement
Page
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ii
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S-1
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S-3
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S-3
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S-4
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S-5
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S-5
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S-13
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S-19
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S-20
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S-20
|
Prospectus
|
Prospectus
Summary
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1
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Summary
of Company Expenses
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9
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Financial
Highlights
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11
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Senior
Securities
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13
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Market
and Net Asset Value Information
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14
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Use
of Proceeds
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15
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The
Company
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16
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Investment
Objective and Principal Investment Strategies
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17
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Leverage
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26
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Risk
Factors
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29
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Management
of the Company
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39
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Closed-End
Company Structure
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43
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Certain
Federal Income Tax Matters
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43
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Determination
of Net Asset Value
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49
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Automatic
Dividend Reinvestment and Cash Purchase Plan
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50
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Description
of Securities
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52
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Rating
Agency Guidelines
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62
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Certain
Provisions in the Company’s Charter and Bylaws
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63
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Selling
Stockholders
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65
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Plan
of Distribution
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65
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Administrator
and Custodian
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68
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Legal
Matters
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68
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Available
Information
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69
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Table
of Contents of the Statement of Additional Information
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70
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_______________
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 Series ___ Tortoise
Auction Preferred 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.
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus supplement, the accompanying prospectus and the statement of
additional information contain “forward-looking
statements.” Forward-looking statements can be identified by the
words “may,” “will,” “intend,” “expect,” “estimate,” “continue,” “plan,”
“anticipate,” and similar terms and the negative of such terms. Such
forward-looking statements may be contained in this prospectus supplement,
as
well as in the accompanying prospectus. By their nature, all
forward-looking statements involve risks and uncertainties, and actual
results
could differ materially from those contemplated by the forward-looking
statements. Several factors that could materially affect our actual
results are the performance of the portfolio of securities we hold, the
conditions in the U.S. and international financial, petroleum and other
markets,
the price at which our shares will trade in the public markets and other
factors
discussed in our periodic filings with the SEC.
Although
we believe that the expectations expressed in our forward-looking statements
are
reasonable, actual results could differ materially from those projected
or
assumed in our forward-looking statements. Our future financial
condition and results of operations, as well as any forward-looking statements,
are subject to change and are subject to inherent risks and uncertainties,
such
as those disclosed in the “Risk Factors” section of the prospectus accompanying
this prospectus supplement. All forward-looking statements contained
or incorporated by reference in this prospectus supplement or the accompanying
prospectus are made as of the date of this prospectus supplement or the
accompanying prospectus, as the case may be. Except for our ongoing
obligations under the federal securities laws, we do not intend, and we
undertake no obligation, to update any forward-looking statement. The
forward-looking statements contained in this prospectus supplement and
the
accompanying prospectus are excluded from the safe harbor protection provided
by
Section 27A of the Securities Act of 1933, as amended (the “1933
Act”).
Currently
known risk factors that could cause actual results to differ materially
from our
expectations include, but are not limited to, the factors described in
the “Risk
Factors” section of the prospectus accompanying this prospectus supplement as
well as in “—Auction Risk” and “—Certain Considerations Affecting Auction Rate
Securities—Existing Holder’s Ability to Resell Auction Rate Securities May Be
Limited” in “The Auction” section of this prospectus supplement. We
urge you to review carefully those sections for a more detailed discussion
of
the risks of an investment in the Tortoise Auction Preferred
Shares.
PROSPECTUS
SUPPLEMENT SUMMARY
This
summary contains basic information about us but does not contain all of
the
information that is important to your investment decision. You should
read this summary together with the more detailed information contained
elsewhere in this prospectus supplement and accompanying prospectus and
in the
statement of additional information, especially the information set forth
under
the heading “Risk Factors” beginning on page ___ of the accompanying
prospectus and “The Auction—Auction Risk” beginning on page S-___ of this
prospectus supplement.
The
Company
We
seek
to provide our stockholders with an efficient vehicle to invest in a portfolio
of publicly traded master limited partnerships (“MLPs”) in the energy
infrastructure sector. Our investment objective is to seek a high
level of total return with an emphasis on current distributions paid to
stockholders. For purposes of our investment objective, total return
includes capital appreciation of, and all distributions received from,
securities in which we invest regardless of the tax character of the
distributions. Similar to the tax characterization of distributions
made by MLPs to unitholders, a significant portion of our distributions
to
stockholders have been and are expected to continue to be treated as a
return of
capital to stockholders.
We
are a
nondiversified, closed-end management investment company. We
commenced operations in February 2004 following our initial public
offering. We were the first publicly traded investment company
offering access to a portfolio of MLPs. Since that time, we completed
five additional offerings of common stock in December 2004,
August 2006, December 2006, March 2007 and December
2007. As of the date of this prospectus supplement, we have
outstanding four series of auction rate preferred stock (consisting of
two
series designated as Money Market Cumulative Preferred Shares (“MMP® Shares”)
and two series designated as Tortoise Auction Preferred Shares) (“Tortoise
Preferred Shares”) and four series of auction rate senior notes (“Tortoise
Notes”). We may borrow from time to time using our unsecured credit
facility. We have a fiscal year ending
November 30.
Investment
Adviser
Tortoise
Capital Advisors, L.L.C., a registered investment adviser specializing
in
managing portfolios of investments in MLPs and other energy companies,
serves as
our investment adviser (the “Adviser”). As of __________, 20__, the
Adviser managed assets of over $_________ billion in the energy sector,
including the assets of four publicly traded and two privately held closed-end
management investment companies, and separate accounts for institutions
and high
net worth individuals. The Adviser’s investment committee is
comprised of five portfolio managers. See “Management of the Company”
in the accompanying prospectus.
The
principal business address of the Adviser is 10801 Mastin Boulevard, Suite
222,
Overland Park, Kansas 66210.
The
Offering
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Tortoise
Auction Preferred Shares
offered
by the Company
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_____
Series ___ Tortoise Auction Preferred Shares, $25,000 liquidation
preference per share ($__________ aggregate liquidation
preference). The Series ___ Tortoise Auction Preferred
Shares are being offered by
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[Underwriters]
(the “Underwriters”). See
“Underwriting.”
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Use
of proceeds
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We
estimate that our net proceeds from this offering after expenses
will be
approximately $____ million. We intend to use the net proceeds:
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·
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to
[retire/reduce] our debt under our unsecured credit facility
of
approximately $____ million, which we incurred in connection
with the
acquisition of equity portfolio securities and certain open market
purchases in pursuit of our investment objective and policies
and for
working capital purposes;
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·
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to
invest in energy infrastructure companies in accordance with
our
investment objective and policies; and
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·
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for
working capital purposes.
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Auction
Agent
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[Auction
Agent]
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Broker-Dealers
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[Broker-Dealers]
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Risk
factors
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See
“Risk Factors” and other information included in the accompanying
prospectus, as well as “—Auction Risk” and “—Certain Considerations
Affecting Auction Rate Securities—Existing Holder’s Ability to Resell
Auction Rate Securities May Be Limited” under “The Auction” in this
prospectus supplement, for a discussion of factors you should
carefully
consider before deciding to invest in the Series ____ Tortoise
Auction Preferred Shares.
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[FINANCIAL
HIGHLIGHTS] [IF AVAILABLE]
USE
OF
PROCEEDS
The
net
proceeds of the offering of the Series ___ Tortoise Auction Preferred
Shares will be approximately $____ million, after payment of the Underwriters’
discounts and commissions and estimated offering costs.
We
intend
to use [a portion/all] of the net proceeds of this offering to [retire/reduce]
our outstanding balance under our unsecured credit
facility. Outstanding balances under the credit facility generally
accrue interest at a variable annual rate equal to the one-month LIBOR
rate plus
0.75%. As of the date of this prospectus supplement, the current rate
is ____%. The credit facility remains in effect through __________, ____, and we may
draw on the facility from time to time to invest in accordance with our
investment policies and for working capital purposes. As of the date
of this prospectus supplement, we had approximately $____ million outstanding
under our credit facility. We will use any remaining net proceeds of
this offering to make investments in energy infrastructure companies in
accordance with our investment objective and policies as described under
“Investment Objective and Principal Investment Strategies” in the accompanying
prospectus, and for working capital purposes.
The
following table sets forth our capitalization: (i) as of __________, ____;
(ii) pro forma
to reflect ____________; and (iii) pro forma as adjusted to give effect
to the
issuance of the Series ___ Tortoise Auction Preferred Shares offered hereby
and the [retirement/reduction] of the outstanding balance under our unsecured
credit facility with the proceeds of such offering. As indicated
below, common stockholders will bear the offering costs associated with
this
offering.
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Actual
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Pro
Forma
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Pro
Forma
as
Adjusted
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||||||||||
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(Unaudited)
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(Unaudited)
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|||||||||||
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Short-Term
Debt:
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||||||||||||
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Unsecured
credit facility: $_________ available
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$ | $ | ||||||||||
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Long-Term
Debt:
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||||||||||||
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Tortoise
Notes, denominations of $25,000 or any multiple thereof(1)
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$ | $ | $ | |||||||||
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Preferred
Stock:
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||||||||||||
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Tortoise
Preferred Shares, $.001 par value per share, $25,000 stated value
per
share at liquidation; 10,000,000 shares authorized; _____ shares
(_____
pro forma as adjusted) issued(1)
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$ | $ | $ | |||||||||
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Common
Stockholders’ Equity:
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||||||||||||
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Common
Stock, $.001 par value per share; 100,000,000 shares authorized;
__________ shares (__________ pro forma and pro forma as adjusted)
outstanding(1)
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$ | $ | $ | |||||||||
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Additional
paid-in capital
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$ | $ | $ | (2) | ||||||||
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Accumulated
net investment loss, net of deferred tax benefit
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$ | $ | $ | |||||||||
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Undistributed
realized gain, net of deferred tax expense
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$ | $ | $ | |||||||||
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Net
unrealized gain on investments and interest rate swap contracts,
net of
deferred tax expense
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$ | $ | $ | |||||||||
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Net
assets applicable to common stockholders
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$ | $ | $ | |||||||||
_____________
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(1)
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None
of these outstanding shares/notes are held by us or for our account.
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(2)
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As
adjusted, additional paid-in capital reflects the proceeds of
the issuance
of the Tortoise Auction Preferred Shares offered hereby ($__________),
less the underwriting commissions and the estimated offering
expenses
borne by us ($__________) related to the issuance of the Series ___
Tortoise Auction Preferred Shares.
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ASSET
COVERAGE REQUIREMENTS
The
1940
Act and each Rating Agency 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 each Rating Agency that
such
action will not impair the ratings.
We
are
required to satisfy two separate asset maintenance requirements with respect
to
outstanding Tortoise Preferred 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 the aggregate
liquidation preference of the Tortoise Preferred Shares, plus specified
liabilities, payment obligations and other amounts (the “Tortoise Preferred
Shares Basic Maintenance Amount”); and (2) we must satisfy the 1940 Act
asset coverage requirements (the “1940 Act Tortoise Preferred Shares Asset
Coverage”).
The
Tortoise Preferred Shares Basic Maintenance Amount is defined in the Rating
Agency Guidelines. Each Rating Agency may amend the definition of
Tortoise Preferred Shares Basic Maintenance Amount from time to
time.
With
respect to the 1940 Act Tortoise Preferred Shares Asset Coverage requirement,
we
are required to maintain, with respect to outstanding Tortoise Preferred
Shares,
asset coverage of at least 200%. We estimate that based on the
composition of our portfolio as of __________, ____ [(adjusted to
reflect __________)], assuming the issuance of all Series ___ Tortoise
Auction Preferred Shares offered hereby, the application of the net proceeds
received in this offering to [retire/reduce] our outstanding balance under
our
credit facility and giving effect to the deduction of the sales load and
estimated offering costs related thereto estimated at $__________, the
1940 Act
Tortoise Preferred Shares Asset Coverage would be:
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Value
of Company assets less all liabilities and indebtedness not represented
by
senior securities
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=
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$
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=
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___%
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Senior
securities representing indebtedness, plus the aggregate liquidation
preference of
Tortoise
Preferred Shares
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$
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A
copy of
the current Rating Agency Guidelines will be provided to any holder of
Tortoise
Preferred Shares promptly upon written request by such holder to the Company
at
10801 Mastin Boulevard, Suite 222, Overland Park, Kansas 66210. See
“Rating Agency Guidelines” in the accompanying prospectus for a more detailed
description of our asset maintenance requirements.
DESCRIPTION
OF
TORTOISE PREFERRED
SHARES
The
following is a brief description of the terms of the Tortoise Preferred
Shares. This description does not purport to be complete and is
subject to and qualified in its entirety by reference to the more detailed
description of the Tortoise Preferred Shares in the Articles Supplementary,
a
form of which is attached as Appendix B to the statement of additional
information, which is on file with the SEC. 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 Tortoise Preferred 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 ___ Tortoise Auction Preferred 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 Tortoise Preferred Shares will be
subject to optional and mandatory redemption as described below under
“—Redemption.”
Holders
of Tortoise Preferred 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 Tortoise Preferred 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 Tortoise Preferred
Shares. Furthermore, the Auction Agent will send notices to holders
of Tortoise Preferred Shares of any meeting at which holders of Tortoise
Preferred Shares have the right to vote. See “Description of
Securities—Preferred Stock—Voting Rights” in the accompanying
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 Tortoise Preferred Share, so long
as we are
current in the payment of dividends on the Tortoise Preferred Shares and
on any
of our other shares ranking on a parity with the Tortoise Preferred Shares
with
respect to the payment of dividends or upon liquidation.
Dividends
and Dividend Periods
General. Holders
of Tortoise Preferred Shares will be entitled to receive cash dividends,
when,
as and if authorized by the Board of Directors and declared by us, out
of funds
legally available therefor, on the initial Dividend Payment Date with respect
to
the initial Dividend Period and, thereafter, on each Dividend Payment Date
with
respect to a subsequent Dividend Period (generally a period of ___ days,
subject
to certain exceptions) at the rate per annum equal to the Applicable Rate
for
each Dividend Period. Dividends so declared and payable shall be paid
to the extent permitted under Maryland law and to the extent available
and in
preference to and priority over any distribution declared and payable on
our
common stock. Dividends shall be treated for federal income tax
purposes as payable from our earnings and profits allocable to the Tortoise
Preferred Shares. Because of our emphasis on investments in MLPs,
there is a possibility that dividends on Tortoise Preferred 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 Tortoise Preferred Shares, and thereafter as capital gain. See
“Certain Federal Income Tax Matters” in the accompanying
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 Holder as its name appears 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
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 ___ Tortoise Auction Preferred
Shares will be ___ days. Dividend Periods after the initial Dividend
Period shall either be Standard Dividend Periods or, subject to certain
conditions and with notice to Holders, Special Dividend
Periods.
A
Special
Dividend Period will not be effective unless, among other things, Sufficient
Clearing Bids exist at the Auction in respect of such Special Dividend
Period
(that is, in general, the number of shares subject to Buy Orders by Potential
Holders is at least equal to the number of shares subject to Sell Orders
by
Existing Holders).
Dividends
will accumulate at the Applicable Rate from the Original Issue Date and
shall be
payable on each subsequent Dividend Payment Date. For Dividend
Periods of less than 30 days, Dividend Payment Dates shall occur on the
first
Business Day following the last day of such Dividend Period and, if greater
than
30 days, then on a monthly basis on the first Business Day of each month
within
such Dividend Period and on the Business Day following the last day of
such
Dividend Period. Dividends will be paid through the Securities
Depository on each Dividend Payment Date.
Except
during a Default Period as described below, the Applicable Rate resulting
from
an Auction will not be greater than the Maximum Rate, which is equal to
the
Applicable Percentage of the Reference Rate, subject to upward but not
downward
adjustment in the discretion of the Board of Directors after consultation
with
the Broker-Dealers. The Applicable Percentage will be determined
based on the lower of the credit ratings assigned on that date to that
series of
Tortoise Auction Preferred Shares by Moody’s and Fitch, as
follows:
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Moody’s
Credit
Rating
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Fitch
Credit
Rating
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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 shorter periods
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 Tortoise Preferred 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 Tortoise Preferred Shares were
subject to Submitted Hold Orders). 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 Applicable Rate on the Tortoise
Preferred 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 Tortoise Preferred Shares 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, the 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, the
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 subsequent Dividend
Periods for each series of Tortoise Preferred 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 in the
Articles Supplementary, (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, a
series of Tortoise Preferred 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 Tortoise Preferred Shares, as described
under
“—Redemption” below, the Redemption Price with respect to such Tortoise
Preferred Shares 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 Dividend Period, we have Eligible Assets with an aggregate
Discounted Value at least equal to the Tortoise Preferred Shares Basic
Maintenance Amount and we have consulted with the Broker-Dealers and have
provided notice of such designation and otherwise complied with Rating
Agency
Guidelines.
Designation
of a Special Dividend
Period. If we propose to designate any Special Dividend
Period, not fewer than seven (7) (or two (2) Business Days in the event
the
duration of the Dividend Period prior to such Special Dividend Period is
fewer
than eight (8) 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 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. There is no limit on the duration of a
Special 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, we will
deliver
to the Auction Agent, who will promptly deliver to the Broker-Dealers and
Existing Holders, either:
(1) a
notice stating (A) that we have determined to designate the next succeeding
Dividend Period as a Special Dividend Period, specifying the first and
last days
thereof and (B) the terms of any Specific Redemption Provisions;
or
(2) a
notice stating that we have determined not to exercise our option to designate
a
Special Dividend Period.
If
we
fail to deliver either such notice with respect to any designation of any
proposed Special Dividend Period to the Auction Agent 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 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 a particular series of Tortoise Preferred 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 on that series payable on the
Dividend Payment Date (a “Dividend Default”), or (B) the full amount of any
redemption price (the “Redemption Price”) payable on the date fixed for
redemption (the “Redemption Date”) (a “Redemption Default”, and together with a
Dividend Default, hereinafter referred to as “Default”).
Subject
to cure provisions, a Default Period with respect to a Dividend Default
or a
Redemption Default shall end on the Business Day on which, by 12:00 noon,
New York City time, all unpaid dividends and any unpaid Redemption Price,
respectively, shall have been deposited irrevocably in trust in same-day
funds
with the Paying Agent. In the case of a Dividend Default, the
Applicable Rate for each Dividend Period commencing during a Default Period
will
be equal to the Default Rate, and each subsequent Dividend Period commencing
after the beginning of a Default Period shall be a Standard Dividend Period;
provided, however, that the commencement of a Default Period will not by
itself
cause the commencement of a new Dividend Period.
No
Auction shall be held during a Default Period with respect to a Dividend
Default
applicable to that series of Tortoise Preferred Shares. 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 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 Preferred Shares having
a
Dividend Period of one year or less, in whole or in part, out of funds
legally
available therefor, on any Dividend Payment Date upon not less than 15
calendar
days’ and not more than 40 calendar days’ prior notice. This optional
redemption is not available during the initial Dividend Period or during
other
limited circumstances. The optional redemption price per share shall
be equal to the liquidation preference per share, plus an amount equal
to
accumulated but unpaid dividends thereon (whether or not earned or declared)
to
the date fixed for redemption. Tortoise Preferred 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 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 Preferred Shares by reason of the redemption of Tortoise
Preferred 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
Tortoise Preferred Shares Basic Maintenance Amount.
We
also
reserve the right to repurchase Tortoise Preferred 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 Tortoise
Preferred 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 Tortoise Preferred Shares
Basic
Maintenance Amount as of any Valuation Date or, fail to satisfy the 1940
Act
Tortoise Preferred Shares Asset Coverage as of the last Business Day of
any
month, and such failure is not cured within ten (10) Business Days following
such Valuation Date in the case of a failure to maintain the Tortoise Preferred
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 Tortoise Preferred
Shares Asset Coverage (each an “Asset Coverage Cure Date”), the Tortoise
Preferred Shares will be subject to mandatory redemption out of funds legally
available therefor. See “Rating Agency Guidelines” in the
accompanying prospectus.
The
number of Tortoise Preferred Shares to be redeemed under these circumstances
will be equal to the lesser of (1) the minimum number of Tortoise Preferred
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 Eligible Assets with an aggregate Discounted Value at least
equal
to the Tortoise Preferred Shares Basic Maintenance Amount or sufficient
to
satisfy the 1940 Act Tortoise Preferred 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 Tortoise Preferred Shares then outstanding will be redeemed),
and (2) the maximum number of Tortoise Preferred 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 Tortoise
Preferred Shares Basic Maintenance Amount or the 1940 Act Tortoise Preferred
Shares Asset Coverage, as the case
may
be,
pro rata among the Holders of Tortoise Preferred 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 are not otherwise
legally permitted to redeem, all of the required number of Tortoise Preferred
Shares 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 Preferred Shares on the earliest practicable
date
on which we will have such funds available, upon notice to record owners of
shares of Tortoise Preferred 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 Tortoise Preferred Shares 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 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 record of
Tortoise
Preferred Shares called for redemption, the Paying Agent (if different
from the
Auction Agent) and the Securities Depository (“Notice of
Redemption”). The Notice of Redemption will be addressed to the
registered owners of the Tortoise Preferred Shares at their addresses appearing
on our books or records. Such notice will set forth (1) the
redemption date, (2) the number and identity of Tortoise Preferred 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 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 shares of Tortoise Preferred Shares are redeemed on any
date,
the shares per Holder 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. Tortoise
Preferred Shares 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 Preferred 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 Tortoise Preferred 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 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, 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 Tortoise
Preferred Shares called for redemption on such date and (2) such other
amounts, if any, to which Holders of Tortoise Preferred Shares 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 Preferred 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 our request. Subsequent to such payment, Holders of
Tortoise Preferred Shares called for redemption may look only to us for
payment.
So
long
as any Tortoise Preferred 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 Tortoise Preferred Shares
may
be redeemed unless all dividends in arrears on the outstanding Tortoise
Preferred Shares, and any of our shares ranking on a parity with the Tortoise
Preferred 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 Tortoise Preferred
Shares
and all shares ranking in parity with the Tortoise Preferred Shares must
receive
proportionate amounts. At any time we may purchase or acquire all the
outstanding Tortoise Preferred 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 Tortoise Preferred
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 Tortoise Preferred 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 Tortoise Preferred Shares for which
Notice
of Redemption has been given and we are in compliance with the 1940 Act
Tortoise
Preferred Shares Asset Coverage and have Eligible Assets with an aggregate
Discounted Value at least equal to the Tortoise Preferred 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 less than all outstanding Tortoise Preferred 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.
THE
AUCTION
Role
of Auction Agent
Articles
Supplementary. The Articles Supplementary provide that, except
as otherwise described herein, the Applicable Rate for the shares of each
series
of preferred stock, for each Dividend Period of shares of such series after
the
initial Dividend Period thereof, shall be equal to the rate per annum that
the
Auction Agent advises has resulted on the Business Day preceding the first
day
of such Subsequent Dividend Period (an “Auction Date”) from implementation of
the auction procedures (the “Auction Procedures”), in which persons determine to
hold or offer to sell or, based on dividend rates bid by them, offer to
purchase
or sell shares of such series. Each periodic implementation of the
Auction Procedures is referred to herein as an Auction. See the Form
of 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 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 Auction Preferred Shares so long as the Applicable Rate
for the Series ___ Tortoise Auction Preferred Shares is to be based on the
results of an Auction. The Auction Agent acts as a non-fiduciary
agent for us in connection with Auctions. In the absence of bad faith
or gross negligence on its part, the Auction Agent will not be liable for
any
action taken, suffered, or omitted or for any error of judgment made by
it in
the performance of its duties under the Auction Agency Agreement and will
not be
liable for any error of judgment made in good faith unless the Auction
Agent
will have been grossly negligent in ascertaining the pertinent
facts.
The
Auction Agent may terminate the Auction Agency Agreement upon notice to
us on a
date no earlier than 60 days after the notice. If the Auction Agent
should resign, we will use our best efforts to enter into an agreement
with a
successor Auction Agent containing substantially the same terms and conditions
as the Auction Agency Agreement. We may remove the Auction Agent
provided that prior to such removal we shall have entered into such an
agreement
with a successor Auction Agent.
Auction
Risk
You
may
not be able to sell your Tortoise Preferred Shares at an Auction if the
Auction
fails; that is, if there are more Tortoise Preferred Shares offered for
sale
than there are buyers for those Tortoise Preferred Shares. Also, if
you place hold orders (orders to retain Tortoise Preferred 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 Tortoise Preferred Shares. Finally, if you
buy Tortoise Preferred Shares or elect to retain Tortoise Preferred Shares
without specifying a rate below which you would not wish to buy or continue
to
hold those Tortoise Preferred Shares, and the Auction sets a below-market
rate,
you may receive a lower rate of return on your Tortoise Preferred Shares
than
the market rate.
Auction
Procedures
Beneficial
Owners. Prior to the Broker-Dealer Deadline on each Auction
Date for Tortoise Preferred 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 Tortoise Preferred Shares
of such
series (a “Beneficial Owner”) may submit orders (“Orders”) with respect to
Tortoise Preferred Shares to that Broker-Dealer as follows:
|
·
|
Hold
Order—indicating its desire to hold Tortoise Preferred Shares of such
series without regard to the Applicable Rate for Tortoise Preferred
Shares
of such series for the next Dividend Period
thereof.
|
|
·
|
Bid—indicating
its desire to sell Tortoise Preferred Shares, if any, of such
series held
by such Beneficial Owner which such Beneficial Owner offers to
sell if the
Applicable Rate for Tortoise Preferred Shares of such series
for the next
succeeding Dividend Period of Tortoise Preferred Shares 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 number of Tortoise Preferred
Shares, 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 Preferred Shares of such series for the next succeeding
Dividend
Period of Tortoise Preferred Shares 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 Preferred Shares of such series that submits a Bid with
respect to Tortoise Preferred Shares of such series to its Broker-Dealer
having
a rate higher than the Maximum Rate for Tortoise Preferred Shares of such
series
on the Auction Date therefore will be treated as having submitted a Sell
Order
with respect to such Tortoise Preferred Shares.
A
Beneficial Owner of Tortoise Preferred Shares of such series that fails
to
submit an Order with respect to such Tortoise Preferred Shares to its
Broker-Dealer will be deemed to have submitted a Hold Order with respect
to such
Tortoise Preferred Shares of such series; provided, however, that if a
Beneficial Owner of Series ___ Tortoise Auction Preferred Shares fails to
submit an Order with respect to such Series ___ Tortoise Auction Preferred
Shares to its Broker-Dealer for an Auction relating to a Special Dividend
Period
of more than ___ days, such Beneficial Owner will be deemed to have submitted
a
Sell Order with respect to such Tortoise Preferred Shares. A Sell
Order shall constitute an irrevocable offer to sell the Tortoise Preferred
Shares subject thereto. A Beneficial Owner that offers to become the
Beneficial Owner of additional Tortoise Preferred 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 a series of Tortoise Preferred Shares but that wishes to purchase
Tortoise Preferred Shares of such series, or that is a Beneficial Owner
of
Tortoise Preferred Shares of such series that wishes to purchase additional
Tortoise Preferred Shares of such series (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 Tortoise Preferred Share of such series specified
in such
Bid if the Applicable Rate for Tortoise Preferred Shares 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 Preferred Shares
of such
series specifying a rate higher than the Maximum Rate for Tortoise Preferred
Shares of such series on the Auction Date therefore will not be
accepted.
The
Auction
Process. Each Broker-Dealer shall submit in writing, which
shall include a writing delivered via e-mail other electronic means, to
the
Auction Agent, prior to the Submission Deadline on each Auction Date, all
Orders
for Tortoise Preferred Shares of a series subject to an Auction on such
Auction
Date accepted by such Broker-Dealer, designating itself (unless otherwise
permitted by us) as an Existing Holder in respect of Tortoise Preferred
Shares
subject to Orders submitted or deemed submitted to it by Beneficial Owners
and
as a Potential Holder in respect of Tortoise Preferred Shares 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 Preferred 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 Tortoise Preferred 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 a series of Tortoise Preferred Shares exist
(that
is, the number of Tortoise Preferred Shares of such series subject to Submitted
Bids of Potential Holders specifying one or more rates between the Minimum
Rate
(for Standard Dividend Periods or shorter periods, only) and the Maximum
Rate
(for all Dividend Periods) for Tortoise Preferred Shares of such series
exceeds
or is equal to the number of Tortoise Preferred Shares of such series subject
to
Sell Submitted Orders, the Applicable Rate for Tortoise Preferred Shares
of such
series 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 Tortoise Preferred Shares of such series available for purchase in
the
Auction (such rate, the “Winning Bid Rate”). If Sufficient Clearing
Bids for Tortoise Preferred Shares of a series do not exist (other than
because
all of the outstanding Tortoise Preferred Shares of a series are subject
to
Submitted Hold Orders), then the Applicable Rate for all Tortoise Preferred
Shares of such series for the next succeeding Dividend Period thereof will
be
equal to the Maximum Rate for Tortoise Preferred Shares of such
series. In such event, Holders of Tortoise Preferred Shares of such
series that have submitted or are deemed to have submitted Sell Orders
may not
be able to sell in such Auction all Tortoise Preferred Shares of such series
subject to such Sell Orders. In any particular Auction, if all
outstanding Tortoise Preferred Shares of a series are the subject of Submitted
Hold Orders, the Applicable Rate for such series of Tortoise Preferred
Shares
for the next succeeding Auction Period will be the All Hold Rate (such
a
situation is called an “All Hold Auction”).
The
Auction Procedures include a pro rata allocation of Tortoise Preferred
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 Tortoise Preferred
Shares that is less than the number of Tortoise Preferred Shares specified
in
its Order. To the extent the allocation procedures have that result,
Broker-Dealers that have designated themselves as Existing Holders or Potential
Holders in respect of customer Orders will be required to make appropriate
pro
rata allocations among their respective customers.
Settlement
of purchases and sales will be made on the next Business Day (also a Dividend
Payment Date) after the Auction Date through the Securities
Depository. Purchasers will make payment through their Agent Members
in same-day funds to the Securities Depository against delivery to their
respective Agent Members. The Securities Depository will make payment
to the sellers’ Agent Members in accordance with the Securities Depository’s
normal procedures, which now provide for payment against delivery by their
Agent
Members in same-day funds.
Certain
Considerations Affecting Auction Rate Securities
Role
of
Broker-Dealers. [Broker-Dealers] (the “Broker-Dealers”) have
been appointed by the issuers or obligors of various auction rate securities
to
serve as a dealer in the auctions for those securities and are paid by
the
issuers or obligors for their services. The Broker-Dealers receive
broker-dealer fees from such issuers or obligors at an agreed upon annual
rate
that is applied to the principal amount of securities sold or successfully
placed through them in such auctions.
The
Broker-Dealers are designated in the Broker-Dealer Agreements as the
Broker-Dealers to contact Existing Holders and Potential Holders and solicit
Bids for the Tortoise Preferred Shares. The Broker-Dealers will
receive Broker-Dealer Fees from us with respect to the Tortoise Preferred
Shares
sold or successfully placed through them in Auctions. The
Broker-Dealers may share a portion of such fees with other dealers that
submit
Orders through them that are filled in the Auction.
Bidding
by
Broker-Dealers. A Broker-Dealer is permitted, but not
obligated, to submit Orders in Auctions for its own account either as a
buyer or
seller and routinely does so in the auction rate securities market in its
sole
discretion. If a Broker-Dealer submits an Order for its own account,
it would have an advantage over other Bidders because a Broker-Dealer would
have
knowledge of the other Orders placed through it in that Auction and thus
could
determine the rate and size of its Order so as to increase the likelihood
that
(i) its Order will be accepted in the Auction and (ii) the Auction
will clear at a particular rate. For this reason, and because a
Broker-Dealer is appointed and paid by us to serve as a Broker-Dealer in
the
Auction, a Broker-Dealer’s interests in serving as a Broker-Dealer in an Auction
may differ from those of Existing Holders and Potential Holders who participate
in Auctions. See “—Role of Broker-Dealers.” A
Broker-Dealer would not have knowledge of Orders submitted to the Auction
Agent
by any other firm that may in the future be appointed to accept Orders
pursuant
to a Broker-Dealer Agreement.
The
Broker-Dealers are the only Broker-Dealers appointed by us to serve as
a
Broker-Dealer in the Auction, and as long as that remains the case, they
will be
the only Broker-Dealers that submit Orders to the Auction Agent in that
Auction. As a result, in such circumstances, the Broker-Dealers may
discern the clearing rate before the Orders are submitted to the Auction
Agent
and set the clearing rate with their respective Orders.
A
Broker-Dealer may place one or more Bids in an Auction for its own account
to
acquire securities for its inventory, to prevent an Auction Failure (which
occurs if there are insufficient clearing bids and results in the auction
rate
being set at the Maximum Rate) or to prevent Auctions from clearing at
a rate
that the Broker-Dealer believes does not reflect the market for the Tortoise
Preferred Shares. A Broker-Dealer may place such Bids even after
obtaining knowledge of some or all of the other Orders submitted through
it. When bidding in an Auction for its own account, a Broker-Dealer
also may Bid inside or outside the range of rates that it posts in its
Price
Talk (as defined herein). See “—Price Talk.”
A
Broker-Dealer also may encourage bidding by others in Auctions for which
it
serves as broker-dealer, including to prevent an Auction Failure or to
prevent
an Auction from clearing at a rate that a Broker-Dealer believes does not
reflect the market for the Tortoise Preferred Shares. A Broker-Dealer
may encourage such Bids even after obtaining knowledge of some or all of
the
other Orders submitted through it.
Bids
by a
Broker-Dealer or by those it may encourage to place Bids are likely to
affect
(i) the Applicable Rate—including preventing the Applicable Rate from being
set at the Maximum Rate or otherwise causing bidders to receive a lower
rate
than they might have received had a Broker-Dealer not Bid (or not encouraged
others to Bid) and (ii) the allocation of the Tortoise Preferred Shares
being auctioned, including displacing some Potential Beneficial Owners
who may
have their Bids rejected or receive fewer Tortoise Preferred Shares than
they
would have received if a Broker-Dealer had not Bid (or encouraged others
to
Bid). Because of these practices, the fact that an Auction clears
successfully does not mean that an investment in the Tortoise Preferred
Shares
involves no significant liquidity or credit risk. A Broker-Dealer is
not obligated to continue to place such Bids (or to continue to encourage
other
Bidders to do so) in any particular Auction to prevent an Auction Failure
or an
Auction from clearing at a rate a Broker-Dealer believes does not reflect
the
market for the Tortoise Preferred Shares. Investors should not assume
that a Broker-Dealer will place Bids or encourage others to do so or that
Auction
Failures
will not occur. Investors should also be aware that Bids by a
Broker-Dealer (or by those it may encourage to place Bids) may cause lower
Applicable Rates to occur.
The
statements herein regarding Bidding by a Broker-Dealer apply only to a
Broker-Dealer’s auction desk and any other business units of a Broker-Dealer
that are not separated from the auction desk by an information barrier
designed
to limit inappropriate dissemination of bidding information.
In
an
Auction, if an All Hold Auction results because all outstanding Tortoise
Preferred Shares of a series are the subject of Submitted Hold Orders,
then the
Applicable Rate for the next succeeding Auction Period will be the All
Hold
Rate. If a Broker-Dealer holds any Tortoise Preferred Shares of a
series for its own account on an Auction Date, it is the Broker-Dealer’s
practice to submit a Sell Order into the Auction with respect to such shares,
which would prevent that Auction from being an All Hold Auction. A
Broker-Dealer may, but is not obligated to, submit Bids for its own account
in
that same Auction, as set forth above.
Price
Talk. Before
the start of an Auction, a Broker-Dealer, in its discretion, may make available
to its customers who are Existing Holders and Potential Holders a
Broker-Dealer’s good faith judgment of the range of likely clearing rates for
the Auction based on market and other information. This is known as
“Price Talk.” Price Talk is not a guaranty that the Applicable Rate established
through the Auction will be within the Price Talk, and Existing Holders
and
Potential Holders are free to use it or ignore it. A Broker-Dealer
occasionally may update and change the Price Talk based on changes in our
credit
quality or macroeconomic factors that are likely to result in a change
in
interest rate levels, such as an announcement by the Federal Reserve Board
of a
change in the Federal Funds rate or an announcement by the Bureau of Labor
Statistics of unemployment numbers. Potential Holders should confirm
with a Broker-Dealer the manner by which such Broker-Dealer will communicate
Price Talk and any changes to Price Talk. The Broker-Dealer may
communicate this information by updating its internal systems, notifying
investors electronically or any other reasonable means.
“All-or-Nothing”
Bids. The Broker-Dealers will not accept “all-or-nothing” Bids
(i.e., Bids whereby the bidder proposes to reject an allocation smaller
than the
entire quantity Bid) or any other type of Bid that allows the bidder to
avoid
Auction Procedures that require the pro rata allocation of Tortoise Preferred
Shares of a series where there are not sufficient Sell Orders to fill all
Bids
at the Winning Bid Rate.
No
Assurances Regarding Auction
Outcomes. The Broker-Dealers provide no assurance as to the
outcome of any Auction. The Broker-Dealers also do not provide any
assurance that any Bid will be successful, in whole or in part, or that
the
Auction will clear at a rate that a bidder considers acceptable. Bids
may be only partially filled, or not filled at all, and the Applicable
Rate on
any Tortoise Preferred Shares purchased or retained in the Auction may
be lower
than the market rate for similar investments.
The
Broker-Dealers will not agree before an Auction to buy Tortoise Preferred
Shares
of any series from, or sell Tortoise Preferred Shares of any series to,
a
customer after the Auction.
Deadlines. Each
particular Auction has a formal deadline by which all Bids must be submitted
by
the Broker-Dealers to the Auction Agent. This deadline is called the
“Submission Deadline.” To provide sufficient time to process and
submit customer Bids to the Auction Agent before the Submission Deadline,
each
Broker-Dealer imposes an earlier deadline for all customers, called the
“Broker-Dealer Deadline,” by which bidders must submit Bids to a
Broker-Dealer. The Broker-Dealer Deadline is subject to change by a
Broker-Dealer. Potential Beneficial Owners should consult with their
Broker-Dealer as to its Broker-Dealer Deadline. The Broker-Dealer may
communicate this information by updating its internal systems, notifying
investors electronically or any other reasonable means. A
Broker-Dealer may correct clerical errors by the Broker-Dealer after the
Broker-Dealer Deadline and prior to the
Submission
Deadline. A Broker-Dealer may submit Bids for its own account at any
time until the Submission Deadline and may change Bids it has submitted
for its
own account at any time until the Submission Deadline. The Auction
Procedures provide that until one hour after the Auction Agent completes
the
dissemination of the results of an Auction, new Orders can be submitted
to the
Auction Agent if such Orders were received by a Broker-Dealer or generated
by a
Broker-Dealer for its own account prior to the Submission Deadline and
the
failure to submit such Orders prior to the Submission Deadline was the
result of
force majeure, a technological failure or a clerical error. In
addition, until one hour after the Auction Agent completes dissemination
of the
results of an Auction, a Broker-Dealer may modify or withdraw an Order
submitted
to the Auction Agent prior to the Submission Deadline if a Broker-Dealer
determines that such Order contained a clerical error. In the event
of such a submission, modification or withdrawal, the Auction Agent will
rerun
the Auction, if necessary, taking into account such submission, modification
or
withdrawal.
Existing
Holder’s Ability to Resell
Auction Rate Securities May Be Limited. An Existing Holder may
sell, transfer or dispose of Tortoise Preferred Shares of a series (i) in
an Auction, only pursuant to a Bid or Sell Order in accordance with the
Auction
Procedures, or (ii) outside an Auction, only to or through the
Broker-Dealer.
Existing
Holders will be able to sell all of the Tortoise Preferred Shares of a
series
that are the subject of their Submitted Sell Orders only if there are bidders
willing to purchase all those shares in the Auction. If Sufficient
Clearing Bids have not been made, Existing Holders that have submitted
Sell
Orders will not be able to sell in the Auction all, and may not be able
to sell
any, of the Tortoise Preferred Shares of such series subject to such Submitted
Sell Orders. As discussed above (See “—Bidding by Broker-Dealers”), a
Broker-Dealer may submit a Bid in an Auction to avoid an Auction Failure,
but it
is not obligated to do so. There may not always be enough bidders to
prevent an Auction Failure in the absence of bidding by a Broker-Dealer
in the
Auction for its own account or encouraging others to Bid. Therefore,
Auction Failures are possible, especially if our credit were to deteriorate,
if
a market disruption were to occur or if, for any reason, a Broker-Dealer
were
unable or unwilling to Bid.
Between
Auctions, there can be no assurance that a secondary market for the Tortoise
Preferred Shares of any series will develop or, if it does develop, that
it will
provide Existing Holders the ability to resell the Tortoise Preferred Shares
of
such series on the terms or at the times desired by an Existing
Holder. A Broker-Dealer, in its own discretion, may decide to buy or
sell the Tortoise Preferred Shares of a series in the secondary market
for its
own account from or to investors at any time and at any price, including
at
prices equivalent to, below, or above par for the Tortoise Preferred Shares
of
such series. However, a Broker-Dealer is not obligated to make a
market in the Tortoise Preferred Shares of a series and may discontinue
trading
in the Tortoise Preferred Shares of such series without notice for any
reason at
any time. Existing Holders who resell between Auctions may receive an
amount less than par, depending on market conditions.
If
an
Existing Holder purchased Tortoise Preferred Shares through a dealer which
is
not a Broker-Dealer for the securities, such Existing Holder’s ability to sell
its securities may be affected by the continued ability of its dealer to
transact trades for the Tortoise Preferred Shares through a
Broker-Dealer.
The
ability to resell the Tortoise Preferred Shares of any series will depend
on
various factors affecting the market for the Tortoise Preferred Shares,
including news relating to us, the attractiveness of alternative investments,
investor demand for short term securities, the perceived risk of owning
the
Tortoise Preferred Shares (whether related to credit, liquidity or any
other
risk), the tax or accounting treatment accorded the Tortoise Preferred
Shares
(including U.S. generally accepted accounting principles as they apply
to the
accounting treatment of auction rate securities), reactions of market
participants to regulatory actions (such as those described in “—Securities and
Exchange Commission Settlements”
below)
or
press reports, financial reporting cycles and market conditions
generally. Demand for the Tortoise Preferred Shares may change
without warning, and declines in demand may be short-lived or continue
for
longer periods.
Resignation
of the Auction Agent or
a Broker-Dealer Could Impact the Ability to Hold Auctions. The
Auction Agent Agreement provides that the Auction Agent may resign from
its
duties as Auction Agent by giving us at least 60 days’ notice and does not
require, as a condition to the effectiveness of such resignation, that
a
replacement Auction Agent be in place. The Broker-Dealer Agreements
provide that a Broker-Dealer thereunder may resign upon five days’ notice or
suspend its duties immediately in certain circumstances and does not require,
as
a condition to the effectiveness of such resignation or suspension, that
a
replacement Broker-Dealer be in place. For any Auction Period during
which there is no duly appointed Auction Agent or Broker-Dealer, it will
not be
possible to hold Auctions for the Tortoise Preferred Shares, with the result
that the dividend rate on the Tortoise Preferred Shares will be determined
as
described in the Articles Supplementary.
Securities
and Exchange Commission
Settlements. On May 31, 2006, the SEC announced that it
had settled its investigation of 15 firms, including [Settling Broker-Dealers]
(the “Settling Broker-Dealers”), that participate in the auction rate securities
market regarding their respective practices and procedures in this
market. The SEC alleged in the settlement that the firms had managed
auctions for auction rate securities in which they participated in ways
that
were not adequately disclosed or that did not conform to disclosed auction
procedures. As part of the settlement, the Settling Broker-Dealers
agreed to pay civil penalties. In addition, each Settling
Broker-Dealer, without admitting or denying the SEC’s allegations, agreed to
provide to customers written descriptions of its material auction practices
and
procedures, and to implement procedures reasonably designed to detect and
prevent any failures by that Settling Broker-Dealer to conduct the auction
process in accordance with disclosed procedures. No assurance can be
provided as to how the settlement may affect the market for auction rate
securities or the Tortoise Preferred Shares.
In
addition on January 9, 2007, the SEC announced that it had settled its
investigation of three banks, including [Settling Auction Agents] (the
“Settling
Auction Agents”), that participate as auction agents in the auction rate
securities market, regarding their respective practices and procedures
in this
market. The SEC alleged in the settlement that the Settling Auction
Agents allowed broker-dealers in auctions to submit bids or revise bids
after
the submission deadlines and allowed broker-dealers to intervene in auctions
in
ways that affected the rates paid on the auction rate securities. As
part of the settlement, the Settling Auction Agents agreed to pay civil
penalties. In addition, each Settling Auction Agent, without
admitting or denying the SEC’s allegations, agreed to provide to broker-dealers
and issuers written descriptions of its material auction practices and
procedures and to implement procedures reasonably designed to detect and
prevent
any failures by that Settling Auction Agent to conduct the auction process
in
accordance with disclosed procedures.
[TO
BE ADDED BY UNDERWRITERS AT TIME
OF OFFERING]
WHERE
YOU
CAN
FIND MORE INFORMATION
We
are
subject to the informational requirements of the Securities Exchange Act
of
1934, as amended (the “1934 Act”) and the 1940 Act and are required to file
reports, including annual and semi-annual reports, proxy statements and
other
information with the SEC. We voluntarily file quarterly shareholder
reports. Our most recent shareholder report filed with the SEC is for
the period ended _________, ____ and is incorporated by reference into
our
statement of additional information. These documents are available on
the SEC’s EDGAR system and can be inspected and copied for a fee at the SEC’s
public reference room, 100 F Street, N.E., Room 1580, Washington, D.C.
20549. Additional information about the operation of the public
reference room facilities may be obtained by calling the SEC at (202)
551-5850.
This
prospectus supplement and the accompanying prospectus do not contain all
of the
information in our registration statement, including amendments, exhibits,
and
schedules. Statements in this prospectus supplement and the
accompanying prospectus about the contents of any contract or other document
are
not necessarily complete and in each instance reference is made to the
copy of
the contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by this
reference.
Additional
information about us can be found on our Adviser’s website at www.tortoiseadvisors.com
and in our registration statement (including amendments, exhibits, and
schedules) on Form N-2 filed with the SEC. Information included
on our Adviser’s website does not form part of this prospectus
supplement. The SEC maintains a website (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 1934 Act.
LEGAL
MATTERS
Blackwell
Sanders Peper Martin, L.L.P. (“Blackwell”), Kansas City, Missouri, serves as our
counsel. Vedder Price P.C. (“Vedder Price”), Chicago, Illinois, is
serving as our special counsel in connection with the offering under this
prospectus supplement and accompanying prospectus. Certain legal
matters in connection with the securities offered hereby will be passed
upon for
us by Vedder Price. Vedder Price may rely on the opinion of Venable
LLP, Baltimore, Maryland, on certain matters of Maryland
law. Morrison & Foerster LLP, New York, New York, is serving
as counsel to the Underwriters.
$___________
Tortoise
Energy Infrastructure Corporation
_______
Series _____ Tortoise Auction Preferred Shares
LIQUIDATION
PREFERENCE $25,000 PER SHARE
PROSPECTUS
SUPPLEMENT
,
____________________
[Underwriter(s)]
____________________
The
information in this prospectus supplement, which relates to an effective
registration statement under the Securities Act of 1933, as amended,
is not
complete and may be changed. We may not sell these securities until
we deliver a final prospectus supplement and the attached
prospectus. This prospectus supplement and the attached prospectus do
not constitute an offer to sell these securities or a solicitation
of an offer
to buy these securities in any jurisdiction where the offer or sale
is not
permitted.
SUBJECT
TO COMPLETION, DATED JANUARY 25, 2008
FORM
OF
PROSPECTUS SUPPLEMENT
(To
prospectus dated ____________, 200__)
$______________
Tortoise
Energy Infrastructure Corporation
Auction
Rate Senior Notes (“Tortoise Notes”)
$____________
Series __, Due ____________ ___, 20__
$25,000
Denominations
Tortoise
Energy Infrastructure Corporation (the “Company,” “we,” “us” or “our”) is a
nondiversified, closed-end management investment company. Our
investment objective is to seek a high level of total return with an
emphasis on
current distributions to stockholders.
We
are
offering an aggregate principal amount of $____________ of our auction
rate
senior notes (“Series __ Tortoise Notes”) in this prospectus
supplement. This prospectus supplement is not complete and should be
read in conjunction with our prospectus dated ___________ ___, 200___ (the
“prospectus”), which accompanies this prospectus supplement. This
prospectus supplement does not include all information that you should
consider
before purchasing any Series __ Tortoise Notes. You should read
this prospectus supplement and the accompanying prospectus prior to purchasing
any Series __ Tortoise Notes.
The
Series __ Tortoise Notes together with the Series A, Series B,
Series C and Series D Tortoise 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 the Series __ Tortoise Notes and all
other series are the same. Capitalized terms used but not defined in
this prospectus supplement shall have the meanings given to such terms
in
Appendix A to the statement of additional information, which is available
from
us upon request.
The
Tortoise Notes will be issued without coupons in denominations of $25,000
and
any integral multiple thereof. The principal amount of the Series
__ Tortoise Notes will be due and payable on ___________ ___, 20___
(the “Stated Maturity”). There is no sinking fund with respect to the
Tortoise Notes. The Tortoise Notes will be our unsecured obligations
and, upon our liquidation, dissolution or winding up, will
rank: (1) senior to all of our outstanding common stock and any
outstanding preferred stock; (2) on a parity with any of our unsecured
creditors and any unsecured senior securities representing our indebtedness,
including other series of Tortoise Notes; and (3) junior to any of our
secured creditors. We may redeem the Tortoise Notes prior to their
Stated Maturity in certain circumstances described in this prospectus
supplement.
Holders
of the Tortoise Notes will be entitled to receive cash interest payments
at an
annual rate that may vary for each rate period. The initial rate
period for the Series __ Tortoise Notes is from the issue date through
___________ ___, 200_. The interest rate for the initial rate
period from and including the issue date through ___________ ___, 200_,
will be ____% per year for the Series __ Tortoise Notes. For
each subsequent rate period, the interest rate will be determined by
an auction
conducted in accordance with the procedures described in this prospectus
supplement. Generally, following the initial rate period, each rate
period will be ___ days for the Series __ Tortoise Notes.
The
Tortoise Notes will not be listed on any exchange or automated quotation
system. Generally, you may only buy and sell Tortoise Notes through
an order placed at an auction with or through a broker-dealer that has
entered
into an agreement with the auction agent or in a secondary market that
those
broker-dealers may maintain. These broker-dealers are not required to
maintain a market in the Tortoise Notes, and a secondary market, if one
develops, may not provide you with liquidity. See “The Auction —
Certain Considerations Affecting Auction Rate Securities — Existing Holder’s
Ability to Resell Auction Rate Securities May Be Limited.”
Investing
in Tortoise Notes involves certain risks. See “Risk Factors”
beginning on page ___ of the accompanying prospectus and “The Auction —
Auction Risk” beginning on page S-___ of this prospectus
supplement.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
supplement or accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
|
Per
$25,000 Principal
Amount
of Series ___
Tortoise
Notes
|
Total
|
|||||||
|
Public
offering price
|
$ | 25,000 | $ | |||||
|
Sales
load
|
$ | $ | ||||||
|
Proceeds
to us (before expenses)(1)
|
$ | $ | ||||||
_____________
|
(1)
|
Does
not include offering expenses payable by us, estimated to
be $________.
|
The
underwriters expect to deliver the Series __ Tortoise Notes in book-entry
form, through the facilities of The Depository Trust Company, to Broker-Dealers
on or about ___________ ___, 20___.
[Underwriter(s)]
__________ ___,
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
___________ ___, 20___, as supplemented from time to time, are available by
calling 1-866-362-9331 or by writing to us, or you may obtain copies
(and other
information regarding us) from the SEC’s web site
(http://www.sec.gov). You also may e-mail requests for these
documents to the SEC at publicinfo@sec.gov or make a request in writing
to the
SEC’s Public Reference Section, 100 F Street, N.E., Room 1580, Washington,
D.C.
20549.
This
prospectus supplement, which describes the specific terms of this offering,
also
adds to and updates information contained in the accompanying prospectus
and the
documents incorporated by reference in the prospectus. The prospectus
gives more general information, some of which may not apply to this
offering.
If
the
description of this offering varies between this prospectus supplement
and the
accompanying prospectus, you should rely on the information contained
in this
prospectus supplement; provided that if any statement in one of these
documents
is inconsistent with a statement in another document having a later date,
the
statement in the document having the later date modifies or supersedes
the
earlier statement.
The
Tortoise Notes do not represent a deposit or obligation of, and are not
guaranteed or endorsed by, any bank or other insured depository institution,
and
are not federally insured by the Federal Deposit Insurance Corporation,
the
Federal Reserve Board or any other government agency.
TABLE
OF
CONTENTS
Prospectus
Supplement
Page
|
ii
|
|
|
S-1
|
|
|
S-3
|
|
|
S-3
|
|
|
S-4
|
|
|
S-5
|
|
|
S-6
|
|
|
S-14
|
|
|
S-20
|
|
|
S-20
|
|
|
S-21
|
Prospectus
|
Prospectus
Summary
|
1
|
|
Summary
of Company Expenses
|
9
|
|
Financial
Highlights
|
11
|
|
Senior
Securities
|
13
|
|
Market
and Net Asset Value Information
|
14
|
|
Use
of Proceeds
|
15
|
|
The
Company
|
16
|
|
Investment
Objective and Principal Investment Strategies
|
17
|
|
Leverage
|
26
|
|
Risk
Factors
|
29
|
|
Management
of the Company
|
39
|
|
Closed-End
Company Structure
|
43
|
|
Certain
Federal Income Tax Matters
|
43
|
|
Determination
of Net Asset Value
|
49
|
|
Automatic
Dividend Reinvestment and Cash Purchase Plan
|
50
|
|
Description
of Securities
|
52
|
|
Rating
Agency Guidelines
|
62
|
|
Certain
Provisions in the Company’s Charter and Bylaws
|
63
|
|
Selling
Stockholders
|
65
|
|
Plan
of Distribution
|
65
|
|
Administrator
and Custodian
|
68
|
|
Legal
Matters
|
68
|
|
Available
Information
|
69
|
|
Table
of Contents of the Statement of Additional Information
|
70
|
______________
You
should rely on the information contained in or incorporated by reference
in this
prospectus supplement in making an investment decision. Neither we
nor the underwriters have authorized anyone to provide you with different
or
inconsistent information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and
the underwriters are not, making an offer to sell these Series ___ Tortoise
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.
CAUTIONARY
NOTICE
REGARDING FORWARD-LOOKING
STATEMENTS
This
prospectus supplement, the accompanying prospectus and the statement
of
additional information contain “forward-looking
statements.” Forward-looking statements can be identified by the
words “may,” “will,” “intend,” “expect,” “estimate,” “continue,” “plan,”
“anticipate,” and similar terms and the negative of such terms. Such
forward-looking statements may be contained in this prospectus supplement,
as
well as in the accompanying prospectus. By their nature, all
forward-looking statements involve risks and uncertainties, and actual
results
could differ materially from those contemplated by the forward-looking
statements. Several factors that could materially affect our actual
results are the performance of the portfolio of securities we hold, the
conditions in the U.S. and international financial, petroleum and other
markets,
the price at which our shares will trade in the public markets and other
factors
discussed in our periodic filings with the SEC.
Although
we believe that the expectations expressed in our forward-looking statements
are
reasonable, actual results could differ materially from those projected
or
assumed in our forward-looking statements. Our future financial
condition and results of operations, as well as any forward-looking statements,
are subject to change and are subject to inherent risks and uncertainties,
such
as those disclosed in the “Risk Factors” section of the prospectus accompanying
this prospectus supplement. All forward-looking statements contained
or incorporated by reference in this prospectus supplement or the accompanying
prospectus are made as of the date of this prospectus supplement or the
accompanying prospectus, as the case may be. Except for our ongoing
obligations under the federal securities laws, we do not intend, and
we
undertake no obligation, to update any forward-looking statement. The
forward-looking statements contained in this prospectus supplement and
the
accompanying prospectus are excluded from the safe harbor protection
provided by
Section 27A of the Securities Act of 1933, as amended (the “1933
Act”).
Currently
known risk factors that could cause actual results to differ materially
from our
expectations include, but are not limited to, the factors described in
the “Risk
Factors” section of the prospectus accompanying this prospectus supplement as
well as in “— Auction Risk” and “— Certain Considerations Affecting Auction Rate
Securities — Existing Holder’s Ability to Resell Auction Rate Securities
May Be Limited” in “The Auction” section of this prospectus
supplement. We urge you to review carefully those sections for a more
detailed discussion of the risks of an investment in the Tortoise
Notes.
PROSPECTUS
SUPPLEMENT
SUMMARY
This
summary contains basic information about us but does not contain
all of the
information that is important to your investment decision. You should
read this summary together with the more detailed information contained
elsewhere in this prospectus supplement and accompanying prospectus
and in the
statement of additional information, especially the information set
forth under
the heading “Risk Factors” beginning on page __ of the accompanying
prospectus and “The Auction—Auction Risk” beginning on page S-__ of this
prospectus supplement.
The
Company
We
seek to provide our stockholders with an efficient vehicle to invest
in a
portfolio of publicly traded master limited partnerships (“MLPs”) in the energy
infrastructure sector. Our investment objective is to seek a high
level of total return with an emphasis on current distributions paid
to
stockholders. For purposes of our investment objective, total return
includes capital appreciation of, and all distributions received
from,
securities in which we invest regardless of the tax character of
the
distributions. Similar to the tax characterization of distributions
made by MLPs to unitholders, a significant portion of our distributions
to
stockholders have been and are expected to continue to be treated
as a return of
capital to stockholders.
We
are a nondiversified, closed-end management
investment company. We commenced operations in February 2004
following our initial public offering. We were the first publicly
traded investment company offering access to a portfolio of
MLPs. Since that time, we completed five additional offerings of
common stock in December 2004, August 2006, December 2006,
March 2007 and December 2007. As of the date of this prospectus
supplement, we have outstanding four series of auction rate preferred
stock
(consisting of two series designated as Money Market Cumulative
Preferred Shares
(“MMP® Shares”) and two series designated as Tortoise Auction Preferred Shares)
(“Tortoise Preferred Shares”) and four series of Tortoise
Notes. We may borrow from time to time using our unsecured credit
facility. We have a fiscal year ending
November 30.
Investment
Adviser
Tortoise
Capital Advisors, L.L.C., a registered investment adviser specializing
in
managing portfolios of investments in MLPs and other energy companies,
serves as
our investment adviser (the “Adviser”). As of __________, 20__, the
Adviser managed assets of over $_________ billion in the energy sector,
including the assets of four publicly traded and two privately
held closed-end
management investment companies, and separate accounts for institutions
and high
net worth individuals. The Adviser’s investment committee is
comprised of five portfolio managers. See “Management of the Company”
in the accompanying prospectus.
The
Offering
|
Tortoise
Notes offered by the Company
|
Series __
Tortoise Notes in an aggregate principal amount of
$__________. The Series __ Tortoise Notes will be sold in
denominations of $25,000 and any integral multiple thereof. The
Series __ Tortoise Notes are being offered by [Underwriters] (the
“Underwriters”). See “Underwriting.”
|
|
|
Use
of proceeds
|
We
estimate that our net proceeds from this offering after
expenses will be
approximately $____ million. We intend to use the net
proceeds:
|
|
|
·
|
to
[retire/reduce] our debt under our unsecured credit facility
of
approximately $____ million, which we incurred in connection
with the
acquisition of equity portfolio securities and certain
open market
purchases in pursuit of our investment objective and policies
and for
working capital purposes;
|
|
|
·
|
to
invest in energy infrastructure companies in accordance
with our
investment objective and policies; and
|
|
|
·
|
for
working capital purposes.
|
|
|
Trustee
|
[Trustee]
|
|
|
Auction
Agent
|
[Auction
Agent]
|
|
|
Broker-Dealers
|
[Broker-Dealers]
|
|
|
Risk
factors
|
See
“Risk Factors” and other information included in the accompanying
prospectus, as well as “— Auction Risk” and “— Certain Considerations
Affecting Auction Rate Securities — Existing Holder’s Ability to Resell
Auction Rate Securities May Be Limited” under “The Auction” in this
prospectus supplement, for a discussion of factors you
should carefully
consider before deciding to invest in the Series __ Tortoise
Notes.
|
|
[FINANCIAL
HIGHLIGHTS]
[IF AVAILABLE]
USE
OF
PROCEEDS
The
net
proceeds of the offering of Series __ Tortoise Notes will be approximately
$____ million, after payment of the underwriters’ discounts and commissions and
estimated offering costs.
We
intend
to use [a portion/all] of the net proceeds of this offering to [retire/reduce]
our outstanding balance under our unsecured credit
facility. Outstanding balances under the credit facility generally
accrue interest at a variable annual rate equal to the one-month LIBOR
rate plus
0.75%. As of the date of this prospectus supplement, the current rate
is ____%. The credit facility remains in effect through
_____________ ___, _____, and we may draw on the facility from time to time
to invest in accordance with our investment policies and for working
capital
purposes. As of the date of this prospectus supplement, we had
approximately $____ million outstanding under our credit facility. We
will use any remaining net proceeds of this offering to make investments
in
energy infrastructure companies in accordance with our investment objective
and
policies as described under “Investment Objective and Principal Investment
Strategies” in the accompanying prospectus, and for working capital
purposes.
The
following table sets forth our capitalization: (i) as of
_____________ ___, _____; (ii) pro forma to reflect ___________; and
(iii) pro forma as adjusted to give effect to the issuance of the
Series __ Tortoise Notes offered hereby and the [retirement/reduction] of
the outstanding balance under our unsecured credit facility with the
proceeds of
such offering. As indicated below, common stockholders will bear the
offering costs associated with this offering.
|
|
Actual
|
Pro
Forma
|
Pro
Forma
as
Adjusted
|
|||||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||||||
|
Short-Term
Debt:
|
||||||||||||
|
Unsecured
credit facility: $____________ available
|
$ | $ | $ | |||||||||
|
Long-Term
Debt:
|
||||||||||||
|
Tortoise
Notes, denominations of $25,000 or any multiple thereof(1)
|
$ | $ | $ | |||||||||
|
Preferred
Stock:
|
||||||||||||
|
Tortoise
Preferred Shares, $0.001 per value per share, $25,000 stated
value per
share at liquidation; 10,000,000 shares authorized; ______
(______ Pro
Forma and Pro Forma as Adjusted) shares issued(1)
|
$ | $ | $ | |||||||||
|
Common
Stockholders’ Equity:
|
||||||||||||
|
Common
Stock, $0.001 par value per share; 100,000,000 shares authorized;
______
(______ Pro Forma and Pro Forma as Adjusted) shares outstanding(1)
|
$ | $ | $ | |||||||||
|
Additional
paid-in capital
|
$ | $ | $ | (2) | ||||||||
|
Accumulated
net investment loss, net of deferred tax benefit
|
$ | $ | $ | |||||||||
|
Undistributed
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 stockholders
|
$ | $ | $ | |||||||||
_____________
|
(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.
|
ASSET
COVERAGE
REQUIREMENTS
The
1940
Act and each Rating Agency 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 each Rating Agency that
such
action will not impair the ratings.
We
are
required to satisfy two separate asset maintenance requirements with
respect to
outstanding Tortoise Notes: (1) we must maintain assets in our
portfolio that have a value, discounted in accordance with guidelines
set forth
by each Rating Agency, at least equal to 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 Act 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 ____________ ___, _____ [(adjusted to reflect __________)],
assuming the issuance of all Series __ Tortoise Notes offered hereby and
the application of the net proceeds received in this offering to [retire/reduce]
our outstanding balance under our credit facility, the 1940 Act Tortoise
Notes
Asset Coverage would be:
|
Value
of Company assets less all liabilities and
indebtedness
not represented by senior securities
|
=
|
$
|
=
|
____%
|
|
Senior
securities representing indebtedness, including the aggregate
principal
amount of Tortoise Notes
|
$
|
A
copy of
the current Rating Agency Guidelines will be provided to any holder of
Tortoise
Notes promptly upon written request by such holder to the Company at
10801
Mastin Boulevard, Suite 222, Overland Park, Kansas 66210. See “Rating
Agency Guidelines” in the accompanying prospectus for a more detailed
description of our asset maintenance requirements.
DESCRIPTION
OF
TORTOISE NOTES
Tortoise
Notes of each series will rank on a parity with any other series of Tortoise
Notes as to the payment of interest and distribution of assets upon
liquidation. All Tortoise Notes rank senior to our common and
preferred stock as to the payment of interest and distribution of assets
upon
liquidation. Under the 1940 Act, we may only issue one class of
senior securities representing indebtedness.
The
Series __ Tortoise Notes will be issued pursuant to the Original Indenture
and a Supplemental Indenture dated as of ____________ ___, _____ (referred
to herein collectively with the Original Indenture as the
“Indenture”). The following summaries of certain significant
provisions of the Series __ Tortoise Notes and 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 Tortoise Preferred Shares;
(2) on a parity with any of our unsecured creditors, including any other
series of Tortoise Notes; and (3) junior to any of our secured
creditors. The Tortoise Notes are subject to optional and mandatory
redemption as described below under “—Redemption,” and acceleration of maturity,
as described in the accompanying prospectus under “Description of
Securities—Debt Securities—Events of Default and Acceleration of Maturity of
Debt Securities; Remedies.”
While
serving as the Auction Agent in connection with the Auction Procedures
described
below, the Auction Agent generally will serve merely as our agent, acting
in
accordance with our instructions.
We
have
the right (to the extent permitted by applicable law) to purchase or
otherwise
acquire any Tortoise Notes outside of an auction, so long
as: (1) we are current in the payment of interest on such
Tortoise Notes and on any other series of Tortoise Notes, (2) there is no
arrearage in the mandatory or optional redemption price respecting any
Tortoise
Notes for which a Notice of Redemption has been given, and (3) we are in
compliance with the 1940 Act Tortoise Notes Asset Coverage requirements
and
other applicable asset requirements. See “—Redemption”
below.
The
Tortoise Notes have no voting rights, except to the extent required by
law or as
otherwise provided in the Indenture relating to the acceleration of maturity
upon the occurrence and continuance of an event of default.
Unsecured
Investment
The
Tortoise Notes represent our unsecured obligation 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. The Depository Trust Company initially
will act as Securities Depository for the Agent Members with respect
to the
Tortoise Notes.
Interest
and Rate Periods
General. Tortoise
Notes will bear interest at the Applicable Rate determined as set forth
below
under “—Determination of Interest Rate.” Interest on the Tortoise
Notes shall be payable when due as described below. If we do not pay
interest when due, it will trigger an event of default under the Indenture
(subject to the cure provisions), and we will be restricted from declaring
dividends and making other distributions with respect to our common stock
and
preferred stock.
On
the
Business Day next preceding each Interest Payment Date, we are required
to
deposit with the Paying Agent sufficient funds for the payment of
interest. We do not intend to establish any reserves for the payment
of interest.
All
moneys paid to the Paying Agent for the payment of interest shall be
held in
trust for the payment of such interest to the Holder. Interest will
be paid by the Paying Agent to the Holder as its name appears on our
securities
ledger or securities records, which Holder is expected to be the nominee
of the
Securities Depository. The Securities Depository will credit the
accounts of the Agent Members of the Beneficial Owners in accordance
with the
Securities Depository’s normal procedures. The Securities
Depository’s current procedures provide for it to distribute interest in
same-day funds to Agent Members who are, in turn, expected to distribute
such
interest to the persons for whom they are acting as agents. The Agent
Member of a Beneficial Owner will be responsible for holding or disbursing
such
payments on the applicable Interest Payment Date to such Beneficial Owner
in
accordance with the instructions of such Beneficial Owner.
Interest
in arrears for any past Rate Period may be subject to a Default Rate
of interest
(described below) and may be paid at any time, without reference to any
regular
Interest Payment Date, to the Holder as its name appears on our securities
ledger or securities records on such date, not exceeding 15 days preceding
the
payment date thereof, as may be fixed by the Board of Directors. Any
interest payment shall first be credited against the earliest accrued
but unpaid
interest. No interest will be payable in respect of any payment or
payments which may be in arrears. See “—Default Period”
below.
The
amount of interest payable on each Interest Payment Date (or in respect
of
interest on another date in connection with a redemption during such
Rate
Period) shall be computed by multiplying the
Applicable
Rate (or the Default Rate) for such Rate Period (or a portion thereof)
by a
fraction, the numerator of which will be the number of days in such Rate
Period
(or portion thereof) that such Tortoise Notes were outstanding and for
which the
Applicable Rate or the Default Rate was applicable and the denominator
of which
will be 360, multiplying the amount so obtained by the applicable principal
amount, and rounding the amount so obtained to the nearest cent.
Determination
of Interest
Rate. The interest rate for the initial Rate Period for
Series __ Tortoise Notes (i.e., the period from and including the Original
Issue Date to and including the initial Auction Date) and the initial
Auction
Date are set forth on the cover page of this prospectus
supplement. After the initial Rate Period, subject to certain
exceptions, the Series __ Tortoise Notes will bear interest at the
Applicable Rate that the Auction Agent advises us has resulted from an
Auction.
The
initial Rate Period for the Series __ Tortoise Notes will be __
days. Rate Periods after the initial Rate Period shall either be
Standard Rate Periods or, subject to certain conditions and with notice
to the
Holder, Special Rate Periods.
A
Special
Rate Period will not be effective unless, among other things, Sufficient
Clearing Bids exist at the Auction in respect of such Special Rate Period
(that
is, in general, the aggregate amount of a series of Tortoise Notes subject
to
Buy Orders by Potential Holders is at least equal to the aggregate amount
of
that series of Tortoise Notes subject to Sell Orders by Existing
Holders).
Interest
will accrue at the Applicable Rate from the Original Issue Date and shall
be
payable on each Interest Payment Date thereafter. For Rate Periods of
less than 30 days, Interest Payment Dates shall occur on the first Business
Day
following such Rate Period and, if greater than 30 days, then on a monthly
basis
on the first Business Day of each month within such Rate Period, not
including
the initial Rate Period, and on the Business Day following the last day
of such
Rate Period. Interest will be paid through the Securities Depository
on each Interest Payment Date.
Except
during a Default Period as described below, the Applicable Rate resulting
from
an Auction will not be greater than the Maximum Rate, which is equal
to the
Applicable Percentage of the Reference Rate, subject to upward but not
downward
adjustment in the discretion of the Board of Directors after consultation
with
the Broker-Dealers. The Applicable Percentage will be determined
based on the lower of the credit ratings assigned on that date to a series
of
Tortoise Notes by Moody’s and Fitch, as follows:
|
Moody’s
Credit Rating
|
Fitch
Credit Rating
|
Applicable
Percentage
|
||
The
Reference Rate is the greater of (1) the applicable AA Composite Commercial
Paper Rate (for a Rate Period of fewer than 184 days) or the applicable
Treasury
Index Rate (for a Rate Period of 184 days or more), or (2) the applicable
LIBOR. For Standard Rate Periods or shorter periods only, the
Applicable Rate resulting from an Auction will not be less than the Minimum
Rate, which is 70% of the applicable AA Composite Commercial Paper
Rate. No Minimum Rate is specified for Auctions in respect to Rate
Periods of more than the Standard Rate Period.
The
Maximum Rate for a series of Tortoise Notes will apply automatically
following
an Auction for the Tortoise Notes in which Sufficient Clearing Bids have
not
been made (other than because all Tortoise Notes were subject to Submitted
Hold
Orders). If an Auction for any subsequent Rate Period is not held for
any reason, including because there is no Auction Agent or Broker-Dealer,
then
the Interest
Rate
on a
series of Tortoise Notes for any such Rate Period shall be the Maximum
Rate
(except for circumstances in which the Interest Rate is the Default Rate,
as
described below).
The
All
Hold Rate will apply automatically following an Auction in which all
of the
outstanding Tortoise Notes of a series are subject to (or are deemed
to be
subject to) Submitted Hold Orders. The All Hold Rate is 80% of the
applicable AA Composite Commercial Paper Rate.
Prior
to
each Auction, Broker-Dealers will notify Holders and the Trustee of the
term of
the next succeeding Rate Period as soon as practicable after the Broker-Dealers
have been so advised by us. After each Auction, on the Auction Date,
the 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 in the Supplemental
Indenture, (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 (or two Business Days in the event the duration
of the Rate
Period prior to such Special Rate Period is fewer than eight days) nor
more than
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. There is no limit on the
duration of a Special Rate Period.
No
later
than 3:00 p.m., New York City time, on the second Business Day next
preceding the first day of any proposed Special Rate Period, we will
deliver to
the Trustee and the Auction Agent, who will promptly deliver to the
Broker-Dealers and Existing Holders, either:
(1)
a notice stating (A) that we have determined to designate the next
succeeding Rate Period as a Special Rate Period, specifying the first
and last
days thereof and (B) the terms of any Specific Redemption Provisions;
or
(2)
a notice stating that we have determined not to exercise our option to
designate
a Special Rate Period.
If
we
fail to deliver either such notice with respect to any designation of
any
proposed Special Rate Period to the Auction Agent and the Auction Agent
is
unable to make the confirmation described above by 3:00 p.m., New York City
time, on the second Business Day next preceding the first day of such
proposed
Special Rate Period, we shall be deemed to have delivered a notice to
the
Auction Agent with respect to such Rate Period to the effect set forth
in clause
(2) above, thereby resulting in a Standard Rate Period.
Default
Period. Subject to cure provisions, a “Default Period” with
respect to a particular series of Tortoise Notes will commence on any
date on
which, when required to do so, we fail to deposit irrevocably in trust
in
same-day funds, with the Paying Agent by 12:00 noon, New York City time,
(A) the full amount of any accrued interest on that series payable on the
Interest Payment Date (an “Interest Default”), or (B) the full amount of
any redemption price (the “Redemption Price”) payable on the date fixed for
redemption (the “Redemption Date”) (a “Redemption Default” and together with an
Interest Default, hereinafter referred to as “Default”).
Subject
to cure provisions, a Default Period with respect to an Interest Default
or a
Redemption Default shall end on the Business Day on which, by 12:00 noon,
New
York City time, all unpaid interest and any unpaid Redemption Price,
respectively, shall have been deposited irrevocably in trust in same-day
funds
with the Paying Agent. In the case of an Interest Default, the
Applicable Rate for each Rate Period commencing during a Default Period
will be
equal to the Default Rate, and each subsequent Rate Period commencing
after the
beginning of a Default Period shall be a Standard Rate Period; provided,
however, that the commencement of a Default Period will not by itself
cause the
commencement of a new Rate Period.
No
Auction shall be held during a Default Period with respect to an Interest
Default applicable to that series of Tortoise Notes. No Default
Period with respect to an Interest Default or Redemption Default shall
be deemed
to commence if the amount of any interest or any Redemption Price due
(if such
default is not solely due to our willful failure) is deposited irrevocably
in
trust, in same-day funds with the Paying Agent by 12:00 noon, New York
City
time, within three Business Days after the applicable Interest Payment
Date or
Redemption Date, together with an amount equal to the Default Rate applied
to
the amount of such non-payment based on the actual number of days comprising
such period divided by 360 for each series. The Default Rate shall be
equal to the Reference Rate multiplied by three.
Redemption
Optional
Redemption. To the extent permitted under the 1940 Act and
Maryland law, we may, at our option, redeem Tortoise Notes having a Rate
Period
of one year or less, in whole or in part, out of funds legally available
therefor, on any Interest Payment Date, upon not less than 15 days’ and not more
than 40 days’ prior notice. This optional redemption is not available
during the initial Rate Period or during other limited
circumstances. The optional redemption price shall be equal to the
aggregate principal amount of the Tortoise Notes to be redeemed, plus
an amount
equal to accrued but unpaid interest to the date fixed for
redemption. Tortoise Notes having a Rate Period of more than one year
are redeemable at our option, in whole or in part, out of funds legally
available therefor, prior to the end of the relevant Rate Period, upon
not less
than 15 days’, and not more than 40 days’, prior notice, subject to any Specific
Redemption Provisions, which may include the payment of redemption premiums
in
the sole discretion of the Board of Directors. We shall not effect
any optional redemption unless after giving effect thereto (1) we have
available on such date fixed for the redemption certain Deposit Securities
with
maturity or tender dates not later than the day preceding the applicable
redemption date and having a value not less than the amount (including
any
applicable premium) due to Holders of a series of Tortoise Notes by reason
of
the redemption of a series of Tortoise Notes and (2) we would have Eligible
Assets with an aggregate Discounted Value at least equal to the Tortoise
Notes
Basic Maintenance Amount
immediately
subsequent to such redemption. Although we ordinarily will not redeem
the Tortoise Notes prior to their Stated Maturity, we may voluntarily
redeem
Tortoise Notes if, for example, the Board of Directors determines that
we could
obtain more favorable interest rates from an alternative source of
financing.
Mandatory
Redemption. If we fail to maintain Eligible Assets with an
aggregate Discounted Value at least equal to the Tortoise Notes Basic
Maintenance Amount as of any Valuation Date or, fail to satisfy the 1940
Act
Tortoise Notes Asset Coverage as of the last Business Day of any month,
and such
failure is not cured within 10 Business Days following such Valuation
Date, in
the case of a failure to maintain the Tortoise Notes Basic Maintenance
Amount,
or on the last Business Day of the following month, in the case of a
failure to
maintain the 1940 Act Tortoise Notes Asset Coverage as of such last Business
Day
(each an “Asset Coverage Cure Date”), the Tortoise Notes will be subject to
mandatory redemption out of funds legally available therefor. See
“Rating Agency Guidelines” in the accompanying prospectus.
The
principal amount of Tortoise Notes to be redeemed under these circumstances
will
be equal to the lesser of (1) the minimum principal amount of Tortoise
Notes the redemption of which, if deemed to have occurred immediately
prior to
the opening of business on the relevant Asset Coverage Cure Date, would
result
in our having Eligible Assets with an aggregated Discounted Value at
least equal
to the Tortoise Notes Basic Maintenance Amount or sufficient to satisfy
the 1940
Act Tortoise Notes Asset Coverage, as the case may be, in either case
as of the
relevant Asset Coverage Cure Date (provided that, if there is no such
minimum
principal amount of Tortoise Notes the redemption of which would have
such
result, all Tortoise Notes then outstanding will be redeemed), and (2) the
maximum principal amount of Tortoise Notes that can be redeemed out of
funds
expected to be available therefor on the Mandatory Redemption Date (as
defined
below) at the Mandatory Redemption Price (as defined below).
Any
redemption of less than all of the outstanding Tortoise Notes of a series
will
be made from Tortoise Notes designated by us. We shall designate
Tortoise Notes to be redeemed on a pro rata basis among the Holders in
proportion to the principal amount of Tortoise Notes they hold, by lot
or such
other method as we shall deem equitable. No optional or mandatory
redemption of less than all outstanding Tortoise Notes of a series will
be made
unless the aggregate principal amount of Tortoise Notes to be redeemed
is equal
to $25,000 or integral multiples thereof. Any redemption of less than
all Tortoise Notes outstanding will be made in such a manner that all
Tortoise
Notes outstanding after such redemption are in authorized
denominations.
We
are
required to effect such a mandatory redemption not later than 40 days
after the
Asset Coverage Cure Date, as the case may be (the “Mandatory Redemption Date”),
except that if we do not have funds legally available for the redemption
of, or
are not otherwise legally permitted to redeem, all of the outstanding
Tortoise
Notes of a series that are subject to mandatory redemption, or we otherwise
are
unable to effect such redemption on or prior to such Mandatory Redemption
Date,
we will redeem those Tortoise Notes on the earliest practicable date
on which we
will have such funds available, upon notice to record owners of Tortoise
Notes
and the Paying Agent. Our ability to make a mandatory redemption may
be limited by the provisions of the 1940 Act or Maryland law. The
redemption price per Tortoise Note in the event of any mandatory redemption
will
be the principal amount, plus an amount equal to accrued but unpaid interest
to
the date fixed for redemption, plus (in the case of a Rate Period of
more than
one year) a redemption premium, if any, determined by the Board of Directors
in
its sole discretion after consultation with the Broker-Dealers and set
forth in
any applicable Specific Redemption Provisions (the “Mandatory Redemption
Price”).
Redemption
Procedure. Pursuant to Rule 23c-2 under the 1940 Act, we will
file a notice of our intention to redeem with the SEC so as to provide
at least
the minimum notice required by such rule or
any
successor provision (notice currently must be filed with the SEC generally
at
least 30 days prior to the redemption date). We shall deliver a
notice of redemption to the Auction Agent and the Trustee containing
the
information described below one Business Day prior to the giving of notice
to
Holders in the case of an optional redemption and on or prior to the
30th day
preceding the Mandatory Redemption Date in the case of a mandatory
redemption. The Trustee will use its reasonable efforts to provide
notice to each Holder of Tortoise Notes called for redemption by electronic
means not later than the close of business on the Business Day immediately
following the Business Day on which the Trustee determines the principal
amount
of Tortoise Notes to be redeemed (or, during a Default Period with respect
to
such Tortoise Notes, not later than the close of business on the Business
Day
immediately following the day on which the Trustee receives notice of
redemption
from us). Such notice will be confirmed promptly by the Trustee in
writing not later than the close of business on the third Business Day
preceding
the redemption date by providing the notice to each Holder of record
of Tortoise
Notes called for redemption, the Paying Agent (if different from the
Trustee)
and the Securities Depository (“Notice of Redemption”). The Notice of
Redemption will be addressed to the registered owners of the Tortoise
Notes at
their addresses appearing on our books or records. Such notice will
set forth (1) the redemption date, (2) the principal amount and
identity of Tortoise Notes to be redeemed, (3) the redemption price
(specifying the amount of accrued interest to be included therein and
the amount
of the redemption premium, if any), (4) that interest on the Tortoise Notes
to be redeemed will cease to accrue on such redemption date, and (5) the
1940 Act provision under which redemption shall be made. No defect in
the Notice of Redemption or in the transmittal or mailing thereof will
affect
the validity of the redemption proceedings, except as required by applicable
law.
If
less
than all of the outstanding Tortoise Notes of a series are redeemed on
any date,
the amount per Holder to be redeemed on such date will be selected by
us on a
pro rata basis in proportion to the principal amount of Tortoise Notes
held by
such Holder, by lot or by such other method as is determined by us to
be fair
and equitable, subject to the terms of any Specific Redemption Provisions
and
subject to maintaining authorized denominations as described
above. Tortoise Notes may be subject to mandatory redemption as
described herein notwithstanding the terms of any Specific Redemption
Provisions. The Auction Agent will give notice to the Securities
Depository, whose nominee will be the record Holder of all of the Tortoise
Notes, and the Securities Depository will determine the Tortoise Notes
to be
redeemed from the account of the Agent Member of each Beneficial
Owner. Each Agent Member will determine the principal amount of
Tortoise Notes to be redeemed from the account of each Beneficial Owner
for
which it acts as agent. An Agent Member may select for redemption
Tortoise Notes from the accounts of some Beneficial Owners without selecting
for
redemption any Tortoise Notes from the accounts of other Beneficial
Owners. In this case, in selecting the Tortoise Notes to be redeemed,
the Agent Member will select by lot or by other fair and equitable
method. Notwithstanding the foregoing, if neither the Securities
Depository nor its nominee is the record Holder of all of the Tortoise
Notes,
the particular principal amount to be redeemed shall be selected by us
by lot,
on a pro rata basis between each series or by such other method as we
shall deem
fair and equitable, as contemplated above.
If
Notice
of Redemption has been given, then upon the deposit of funds with the
Paying
Agent sufficient to effect such redemption, interest on such Tortoise
Notes will
cease to accrue and such Tortoise Notes will no longer be deemed to be
outstanding for any purpose and all rights of the holders of the Tortoise
Notes
so called for redemption will cease and terminate, except the right of
the
holders of such Tortoise Notes to receive the redemption price, but without
any
interest or additional amount. We shall be entitled to receive from
the Paying Agent, promptly after the date fixed for redemption, any cash
deposited with the Paying Agent in excess of (1) the aggregate redemption
price of the Tortoise Notes called for redemption on such date and (2) such
other amounts, if any, to which owners of Tortoise Notes called for redemption
may be entitled. We will be entitled to receive, from time to time
after the date fixed for redemption, from the Paying Agent the interest,
if any,
earned on such funds deposited with the Paying Agent and the owners of
Tortoise
Notes so redeemed will have no claim to any such
interest. Any
funds
so
deposited which are unclaimed two years after such redemption date will
be paid,
to the extent permitted by law, by the Paying Agent to us upon our
request. After such payment, Holders of Tortoise Notes called for
redemption may look only to us for payment.
So
long
as any Tortoise Notes are held of record by the nominee of the Securities
Depository, the redemption price for such Tortoise Notes will be paid
on the
redemption date to the nominee of the Securities Depository. The
Securities Depository’s normal procedures provide for it to distribute the
amount of the redemption price to Agent Members who, in turn, are expected
to
distribute such funds to the persons for whom they are acting as
agent.
Notwithstanding
the provisions for redemption described above, no Tortoise Notes may
be redeemed
unless all interest in arrears on the outstanding Tortoise Notes, and
any of our
indebtedness ranking on a parity with the Tortoise Notes, have been or
are being
contemporaneously paid or set aside for payment, except in connection
with our
liquidation, in which case all Tortoise Notes and all indebtedness ranking
on a
parity with the Tortoise Notes must receive proportionate amounts. At
any time we may purchase or acquire all the outstanding Tortoise Notes
pursuant
to the successful completion of an otherwise lawful purchase or exchange
offer
made on the same terms to, and accepted by, Holders of all outstanding
Tortoise
Notes.
Except
for the provisions described above, nothing contained in the Indenture
limits
any legal right of ours to purchase or otherwise acquire Tortoise Notes
outside
of an Auction at any price, whether higher or lower than the price that
would be
paid in connection with an optional or mandatory redemption, so long
as, at the
time of any such purchase, there is no arrearage in the payment of interest
on,
or the mandatory or optional redemption price with respect to, any Tortoise
Notes for which Notice of Redemption has been given and we are in compliance
with the 1940 Act Tortoise Notes Asset Coverage and have Eligible Assets
with an
aggregate Discounted Value at least equal to the Tortoise Notes Basic
Maintenance Amount after giving effect to such purchase or acquisition
on the
date thereof. If less than all outstanding Tortoise Notes are
redeemed or otherwise acquired by us, we shall give notice of such transaction
to the Auction Agent, in accordance with the procedures agreed upon by
the Board
of Directors.
Payment
of Proceeds Upon Dissolution, Etc.
In
the
event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
in
connection therewith, relative to us or to our creditors, as such, or
to our
assets, or (b) our liquidation, dissolution or other winding up, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy,
or (c) our assignment for the benefit of creditors or any other marshalling
of assets and liabilities, then (after any payments with respect to our
secured
creditor outstanding at such time) and in any such event the holders
of Tortoise
Notes shall be entitled to receive payment in full of all amounts due
or to
become due on or in respect of all Tortoise Notes (including any interest
accruing thereon after the commencement of any such case or proceeding),
or
provision shall be made for such payment in cash or cash equivalents
or
otherwise in a manner satisfactory to the holders of the Tortoise Notes,
before
the holders of any of our common or preferred stock are entitled to receive
any
payment on account of any redemption proceeds, liquidation preference
or
dividends from such shares, and to that end the holders of Tortoise Notes
shall
be entitled to receive, for application to the payment thereof, any payment
or
distribution of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any of our other indebtedness being subordinated
to
the payment of the Tortoise Notes, which may be payable or deliverable
in
respect of the Tortoise Notes in any such case, proceeding, dissolution,
liquidation or other winding up event.
Unsecured
creditors of ours may include, without limitation, service providers
including
the Adviser, Custodian, Auction Agent, the Broker-Dealers and Trustee,
pursuant
to the terms of various contracts with us. Secured creditors of ours
may include, without limitation, parties entering into any interest rate
swap,
floor or cap transactions, or other similar transactions with us that
create
liens, pledges, charges, security interests, security agreements or other
encumbrances on our assets.
Our
consolidation, reorganization or merger with or into any other company,
or a
sale, lease or exchange of all or substantially all of our assets of
in
consideration for the issuance of equity securities of another company
shall not
be deemed to be a liquidation, dissolution or winding up of the
Company.
THE
AUCTION
Role
of Auction Agent
Auction
Agency
Agreement. The Auction Agency Agreement between us and the
Auction Agent (currently, The Bank of New York) (the “Auction Agency Agreement”)
provides, among other things, that the Auction Agent will follow the
Auction
Procedures for purposes of determining the Applicable Rate for the
Series __ Tortoise Notes so long as the Applicable Rate for the
Series __ Tortoise Notes is to be based on the results of an
Auction. The Auction Agent acts as a non-fiduciary agent for us in
connection with Auctions. In the absence of bad faith or gross
negligence on its part, the Auction Agent will not be liable for any
action
taken, suffered, or omitted or for any error of judgment made by it in
the
performance of its duties under the Auction Agency Agreement and will
not be
liable for any error of judgment made in good faith unless the Auction
Agent
will have been grossly negligent in ascertaining the pertinent
facts.
The
Auction Agent may terminate the Auction Agency Agreement upon notice
to us on a
date no earlier than 60 days after the notice. If the Auction Agent
should resign, we will use our best efforts to enter into an agreement
with a
successor Auction Agent containing substantially the same terms and conditions
as the Auction Agency Agreement. We may remove the Auction Agent
provided that prior to such removal we shall have entered into such an
agreement
with a successor Auction Agent.
Auction
Risk
You
may
not be able to sell your Tortoise Notes at an Auction if the Auction
fails; that
is, if there are more Tortoise Notes offered for sale than there are
buyers for
those Tortoise Notes. Also, if you place hold orders (orders to
retain Tortoise Notes) at an Auction only at a specified rate, and that
bid rate
exceeds the rate set at the Auction, you will not retain your Tortoise
Notes. Finally, if you buy Tortoise Notes or elect to retain Tortoise
Notes without specifying a rate below which you would not wish to buy
or
continue to hold those Tortoise Notes, and the Auction sets a below-market
rate,
you may receive a lower rate of return on your Tortoise Notes than the
market
rate.
Auction
Procedures
Beneficial
Owners. Prior to the Broker-Dealer 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:
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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.
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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).
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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.
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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
accepted 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 shorter periods, only) and
the
Maximum Rate (for all Rate Periods) for Tortoise Notes of such series
exceeds or
is equal to the sum of the aggregate principal amount of outstanding
Tortoise
Notes of such series subject to Submitted Sell Orders), the Applicable
Rate for
Tortoise Notes of such series for the next succeeding Rate Period thereof
will
be the lowest rate specified in the Submitted Bids which, taking into
account
such rate and all lower rates bid by Broker-Dealers as or on behalf of
Existing
Holders and Potential Holders, would result in Existing Holders and Potential
Holders owning the aggregate principal amount of Tortoise Notes of such
series
available for purchase in the Auction (such rate, the “Winning Bid
Rate”). If Sufficient Clearing Bids for a series of Tortoise Notes do
not exist (other than because all of the outstanding Tortoise Notes of
such
series are subject to Submitted Hold Orders), then the Applicable Rate
for all
Tortoise Notes of such series for the next succeeding Rate Period thereof
will
be equal to the Maximum Rate for Tortoise Notes of such series. In
such event, Holders of Tortoise Notes of such series that have submitted
or are
deemed to have submitted Sell Orders may not be able to sell in such
Auction all
aggregate principal amount of Tortoise Notes of such series subject to
such Sell
Orders. In any particular Auction, if all outstanding Tortoise Notes
of a series are the subject of Submitted Hold Orders, the Applicable
Rate for
such series of Tortoise Notes for the next succeeding Auction Period
will be the
All Hold Rate (such a situation is called an “All Hold Auction”).
The
Auction Procedures include a pro rata allocation of Tortoise Notes for
purchase
and sale, which may result in an Existing Holder continuing to hold or
selling,
or a Potential Holder purchasing, a number of Tortoise Notes that is
less than
the number of Tortoise Notes specified in its Order. To the extent
the allocation procedures have that result, Broker-Dealers that have
designated
themselves as Existing Holders or Potential Holders in respect of customer
Orders will be required to make appropriate pro rata allocations among
their
respective customers.
Settlement
of purchases and sales will be made on the next Business Day (also an
Interest
Payment Date) after the Auction Date through the Securities
Depository. Purchasers will make payment through their Agent Members
in same-day funds to the Securities Depository against delivery to their
respective Agent Members. The Securities Depository will make payment
to the sellers’ Agent Members in accordance with the Securities Depository’s
normal procedures, which now provide for payment against delivery by
their Agent
Members in same-day funds.
Certain
Considerations Affecting Auction Rate Securities
Role
of
Broker-Dealers. [Broker-Dealer] (the “Broker-Dealers”) have
been appointed by the issuers or obligors of various auction rate securities
to
serve as a dealer in the auctions for those securities and is paid by
the
issuers or obligors for its services. The Broker-Dealers receive
broker-dealer fees from such issuers or obligors at an agreed upon annual
rate
that is applied to the principal amount of securities sold or successfully
placed through them in such auctions.
The
Broker-Dealers are designated in the Broker-Dealer Agreements as the
Broker-Dealers to contact Existing Holders and Potential Holders and
solicit
Bids for the Tortoise Notes. The Broker-Dealers will receive
Broker-Dealer Fees from us with respect to the Tortoise Notes sold or
successfully placed through it in Auctions. The Broker-Dealers may
share a portion of such fees with other dealers that submit Orders through
it
that are filled in the Auction.
Bidding
by
Broker-Dealers. A Broker-Dealer is permitted, but not
obligated, to submit Orders in Auctions for its own account either as
a buyer or
seller and routinely does so in the auction rate securities market in
its sole
discretion. If a Broker-Dealer submits an Order for its own account,
it would have an advantage over other Bidders because a Broker-Dealer
would have
knowledge of the other Orders placed
through
it in that Auction and thus could determine the rate and size of its
Order so as
to increase the likelihood that (i) its Order will be accepted in the
Auction and (ii) the Auction will clear at a particular
rate. For this reason, and because the Broker-Dealers are appointed
and paid by us to serve as a Broker-Dealer in the Auction, a Broker-Dealer’s
interests in serving as a Broker-Dealer in an Auction may differ from
those of
Existing Holders and Potential Holders who participate in
Auctions. See “—Role of Broker-Dealers.” A Broker-Dealer
would not have knowledge of Orders submitted to the Auction Agent by
any other
firm that may in the future be appointed to accept Orders pursuant to
a
Broker-Dealer Agreement.
The
Broker-Dealers are the only Broker-Dealers appointed by us to serve as
a
Broker-Dealer in the Auction, and as long as that remains the case, they
will be
the only Broker-Dealers that submit Orders to the Auction Agent in that
Auction. As a result, in such circumstances, the Broker-Dealers may
discern the clearing rate before the Orders are submitted to the Auction
Agent
and set the clearing rate with their respective Orders.
A
Broker-Dealer may place one or more Bids in an Auction for its own account
to
acquire securities for its inventory, to prevent an Auction Failure (which
occurs if there are insufficient clearing bids and results in the auction
rate
being set at the Maximum Rate) or to prevent Auctions from clearing at
a rate
that the Broker-Dealer believes does not reflect the market for the Tortoise
Notes. A Broker-Dealer may place such Bids even after obtaining
knowledge of some or all of the other Orders submitted through
it. When bidding in an Auction for its own account, a Broker-Dealer
also may Bid inside or outside the range of rates that it posts in its
Price
Talk (as defined herein). See “—Price Talk.”
A
Broker-Dealer also may encourage bidding by others in Auctions for which
it
serves as broker-dealer, including to prevent an Auction Failure or to
prevent
an Auction from clearing at a rate that a Broker-Dealer believes does
not
reflect the market for the Tortoise Notes. A Broker-Dealer may
encourage such Bids even after obtaining knowledge of some or all of
the other
Orders submitted through it.
Bids
by a
Broker-Dealer or by those it may encourage to place Bids are likely to
affect
(i) the Applicable Rate — including preventing the Applicable Rate from
being set at the Maximum Rate or otherwise causing bidders to receive
a lower
rate than they might have received had a Broker-Dealer not Bid (or not
encouraged others to Bid) and (ii) the allocation of the Tortoise Notes
being auctioned, including displacing some Potential Beneficial Owners
who may
have their Bids rejected or receive fewer Tortoise Notes than they would
have
received if a Broker-Dealer had not Bid (or encouraged others to
Bid). Because of these practices, the fact that an Auction clears
successfully does not mean that an investment in the Tortoise Notes involves
no
significant liquidity or credit risk. A Broker-Dealer is not
obligated to continue to place such Bids (or to continue to encourage
other
Bidders to do so) in any particular Auction to prevent an Auction Failure
or an
Auction from clearing at a rate a Broker-Dealer believes does not reflect
the
market for the Tortoise Notes. Investors should not assume that a
Broker-Dealer will place Bids or encourage others to do so or that Auction
Failures will not occur. Investors should also be aware that Bids by
a Broker-Dealer (or by those it may encourage to place Bids) may cause
lower
Applicable Rates to occur.
The
statements herein regarding Bidding by a Broker-Dealer apply only to
a
Broker-Dealer’s auction desk and any other business units of a Broker-Dealer
that are not separated from the auction desk by an information barrier
designed
to limit inappropriate dissemination of bidding information.
In
an
Auction, an All Hold Auction will result if all outstanding Tortoise
Notes of a
series are the subject of Submitted Hold Orders, the Applicable Rate
for the
next succeeding Auction Period will be the All Hold Rate. If a
Broker-Dealer holds any Tortoise Notes of a series for its own account
on an
Auction Date, it is the Broker-Dealer’s practice to submit a Sell Order into the
Auction with respect to such
Tortoise
Notes, which would prevent that Auction from being an All Hold
Auction. A Broker-Dealer may, but is not obligated to, submit Bids
for its own account in that same Auction, as set forth above.
Price
Talk. Before
the start of an Auction, a Broker-Dealer, in its discretion, may make
available
to its customers who are Existing Holders and Potential Holders a
Broker-Dealer’s good faith judgment of the range of likely clearing rates for
the Auction based on market and other information. This is known as
“Price Talk.” Price Talk is not a guaranty that the Applicable Rate
established through the Auction will be within the Price Talk, and Existing
Holders and Potential Holders are free to use it or ignore it. A
Broker-Dealer occasionally may update and change the Price Talk based
on changes
in our credit quality or macroeconomic factors that are likely to result
in a
change in interest rate levels, such as an announcement by the Federal
Reserve
Board of a change in the Federal Funds rate or an announcement by the
Bureau of
Labor Statistics of unemployment numbers. Potential Holders should
confirm with a Broker-Dealer the manner by which such Broker-Dealer will
communicate Price Talk and any changes to Price Talk. The
Broker-Dealer may communicate this information by updating its internal
systems,
notifying investors electronically or any other reasonable means.
“All-or-Nothing”
Bids. The Broker-Dealers will not accept “all-or-nothing” Bids
(i.e., Bids whereby
the
bidder proposes to reject an allocation smaller than the entire quantity
Bid) or
any other type of Bid that allows the bidder to avoid Auction Procedures
that
require the pro rata allocation of Tortoise Notes of a series where there
are
not sufficient Sell Orders to fill all Bids at the Winning Bid
Rate.
No
Assurances Regarding Auction
Outcomes. The Broker-Dealers provide no assurance as to the
outcome of any Auction. The Broker-Dealers also do not provide any
assurance that any Bid will be successful, in whole or in part, or that
the
Auction will clear at a rate that a bidder considers acceptable. Bids
may be only partially filled, or not filled at all, and the Applicable
Rate on
any Tortoise Notes purchased or retained in the Auction may be lower
than the
market rate for similar investments.
The
Broker-Dealers will not agree before an Auction to buy Tortoise Notes
of any
series from, or sell Tortoise Notes of any series to, a customer after
the
Auction.
Deadlines. Each
particular Auction has a formal deadline by which all Bids must be submitted
by
the Broker-Dealers to the Auction Agent. This deadline is called the
“Submission Deadline.” To provide sufficient time to process and
submit customer Bids to the Auction Agent before the Submission Deadline,
each
Broker-Dealer imposes an earlier deadline for all customers, called the
“Broker-Dealer Deadline,” by which bidders must submit Bids to a
Broker-Dealer. The Broker-Dealer Deadline is subject to change by a
Broker-Dealer. Potential Beneficial Owners should consult with their
Broker-Dealer as to its Broker-Dealer Deadline. The Broker-Dealer may
communicate this information by updating its internal systems, notifying
investors electronically or any other reasonable means. A
Broker-Dealer may correct clerical errors by the Broker-Dealer after
the
Broker-Dealer Deadline and prior to the Submission Deadline. A
Broker-Dealer may submit Bids for its own account at any time until the
Submission Deadline and may change Bids it has submitted for its own
account at
any time until the Submission Deadline. The Auction Procedures
provide that until one hour after the Auction Agent completes the dissemination
of the results of an Auction, new Orders can be submitted to the Auction
Agent
if such Orders were received by a Broker-Dealer or generated by a Broker-Dealer
for its own account prior to the Submission Deadline and the failure
to submit
such Orders prior to the Submission Deadline was the result of force
majeure, a
technological failure or a clerical error. In addition until one hour
after the Auction Agent completes dissemination of the results of an
Auction, a
Broker-Dealer may modify or withdraw an Order submitted to the Auction
Agent
prior to the Submission Deadline if a Broker-Dealer determines that such
Order
contained a clerical error. In the event of such a submission,
modification
or withdrawal the Auction Agent will rerun the Auction, if necessary,
taking
into account such submission, modification or withdrawal.
Existing
Holder’s Ability to Resell
Auction Rate Securities May Be Limited. An Existing
Holder may sell, transfer or dispose of a Tortoise Note of a series (i) in
an Auction, only pursuant to a Bid or Sell Order in accordance with the
Auction
Procedures, or (ii) outside an Auction, only to or through the
Broker-Dealer.
Existing
Holders will be able to sell all of the Tortoise Notes of a series that
are the
subject of their Submitted Sell Orders only if there are bidders willing
to
purchase all those Tortoise Notes in the Auction. If Sufficient
Clearing Bids have not been made, Existing Holders that have submitted
Sell
Orders will not be able to sell in the Auction all, and may not be able
to sell
any, of the Tortoise Notes of such series subject to such Submitted Sell
Orders. As discussed above (See “—Bidding by Broker-Dealers”), a
Broker-Dealer may submit a Bid in an Auction to avoid an Auction Failure,
but it
is not obligated to do so. There may not always be enough bidders to
prevent an Auction Failure in the absence of bidding by a Broker-Dealer
in the
Auction for its own account or encouraging others to Bid. Therefore,
Auction Failures are possible, especially if our credit were to deteriorate,
if
a market disruption were to occur or if, for any reason, a Broker-Dealer
were
unable or unwilling to Bid.
Between
Auctions, there can be no assurance that a secondary market for the Tortoise
Notes of any series will develop or, if it does develop, that it will
provide
Existing Holders the ability to resell the Tortoise Notes of such series
on the
terms or at the times desired by an Existing Holder. A Broker-Dealer,
in its own discretion, may decide to buy or sell the Tortoise Notes of
a series
in the secondary market for its own account from or to investors at any
time and
at any price, including at prices equivalent to, below, or above par
for the
Tortoise Notes of such series. However, a Broker-Dealer is not
obligated to make a market in the Tortoise Notes of a series and may
discontinue
trading in the Tortoise Notes of such series without notice for any reason
at
any time. Existing Holders who resell between Auctions may receive an
amount less than par, depending on market conditions.
If
an
Existing Holder purchased Tortoise Notes through a dealer which is not
a
Broker-Dealer for the securities, such Existing Holder’s ability to sell its
securities may be affected by the continued ability of its dealer to
transact
trades for the Tortoise Notes through a Broker-Dealer.
The
ability to resell the Tortoise Notes of any series will depend on various
factors affecting the market for the Tortoise Notes, including news relating
to
us, the attractiveness of alternative investments, investor demand for
short
term securities, the perceived risk of owning the Tortoise Notes (whether
related to credit, liquidity or any other risk), the tax or accounting
treatment
accorded the Tortoise Notes (including U.S. generally accepted accounting
principles as they apply to the accounting treatment of auction rate
securities), reactions of market participants to regulatory actions (such
as
those described in “—Securities and Exchange Commission Settlements” below) or
press reports, financial reporting cycles and market conditions
generally. Demand for the Tortoise Notes may change without warning,
and declines in demand may be short-lived or continue for longer
periods.
Resignation
of the Auction Agent or
a Broker-Dealer Could Impact the Ability to Hold Auctions. The
Auction Agent Agreement provides that the Auction Agent may resign from
its
duties as Auction Agent by giving us at least 60 days’ notice and does not
require, as a condition to the effectiveness of such resignation, that
a
replacement Auction Agent be in place. The Broker-Dealer Agreement
provides that a Broker-Dealer thereunder may resign upon five days’ notice or
suspend its duties immediately in certain circumstances and does not
require, as
a condition to the effectiveness of such resignation or suspension, that
a
replacement Broker-Dealer be in place. For any Auction Period during
which there is no duly appointed Auction Agent or Broker-Dealer, it will
not be
possible to hold Auctions for theTortoise
Notes, with the result that the dividend rate on the Tortoise Notes will
be
determined as described in the supplemental indenture.
Securities
and Exchange Commission
Settlements. On May 31, 2006, the SEC announced that it
had settled its investigation of 15 firms, including [Settling Broker-Dealers]
(the “Settling Broker-Dealers”), that participate in the auction rate securities
market regarding their respective practices and procedures in this
market. The SEC alleged in the settlement that the firms had managed
auctions for auction rate securities in which they participated in ways
that
were not adequately disclosed or that did not conform to disclosed auction
procedures. As part of the settlement, the Settling Broker-Dealers
agreed to pay civil penalties. In addition, the Settling
Broker-Dealers, without admitting or denying the SEC’s allegations, agreed to
provide to customers written descriptions of its material auction practices
and
procedures, and to implement procedures reasonably designed to detect
and
prevent any failures by the Settling Broker-Dealers to conduct the auction
process in accordance with disclosed procedures. No assurance can be
provided as to how the settlement may affect the market for auction rate
securities or the Tortoise Notes.
In
addition, on January 9, 2007, the SEC announced that it had settled its
investigation of three banks, including [Settling Auction Agents] (the
“Settling
Auction Agents”), that participate as auction agents in the auction rate
securities market, regarding their respective practices and procedures
in this
market. The SEC alleged in the settlement that the Settling Auction
Agents allowed broker-dealers in auctions to submit bids or revise bids
after
the submission deadlines and allowed broker-dealers to intervene in auctions
in
ways that affected the rates paid on the auction rate securities. As
part of the settlement, the Settling Auction Agents agreed to pay civil
penalties. In addition, each Settling Auction Agent, without
admitting or denying the SEC’s allegations, agreed to provide to broker-dealers
and issuers written descriptions of its material auction practices and
procedures and to implement procedures reasonably designed to detect
and prevent
any failures by that Settling Auction Agent to conduct the auction process
in
accordance with disclosed procedures.
[TO
BE ADDED BY UNDERWRITERS AT TIME
OF OFFERING]
WHERE
YOU
CAN FIND MORE INFORMATION
We
are
subject to the informational requirements of the Securities Exchange
Act of
1934, as amended (the “1934 Act”) and the 1940 Act and are required to file
reports, including annual and semi-annual reports, proxy statements and
other
information with the SEC. We voluntarily file quarterly shareholder
reports. Our most recent shareholder report filed with the SEC is for
the period ended _____________ ___, 20__ and is hereby incorporated by
reference into the statement of additional information. You may
request a free copy of our statement of additional information, our annual,
semi-annual and quarterly reports, request other information or make
stockholder
inquiries, by calling toll-free 1-866-362-9331 or by writing to us at
10801
Mastin Boulevard, Suite 222, Overland Park, Kansas 66210. These
documents are also available on the SEC’s EDGAR system and can be inspected and
copied for a fee at the SEC’s public reference room, 100 F Street, N.E., Room
1580, Washington, D.C. 20549. Additional information about the
operation of the public reference room facilities may be obtained by
calling the
SEC at (202) 551-5850.
This
prospectus supplement and the accompanying prospectus do not contain
all of the
information in our registration statement, including amendments, exhibits,
and
schedules. Statements in this prospectus supplement and the
accompanying prospectus about the contents of any contract or otherdocument
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 on our Adviser’s website at
www.tortoiseadvisors.com and in our registration statement (including
amendments, exhibits, and schedules) on Form N-2 filed with the
SEC. Information included on our Adviser’s website does not form part
of this prospectus supplement. 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
1934
Act.
LEGAL
MATTERS
Blackwell
Sanders Peper Martin, L.L.P. (“Blackwell”), Kansas City, Missouri, serves as our
counsel. Vedder Price P.C. (“Vedder Price”), Chicago, Illinois, is
serving as our special counsel in connection with the offering under
this
prospectus supplement and accompanying prospectus. Certain legal
matters in connection with the securities offered hereby will be passed
upon for
us by Vedder Price. Vedder Price may rely on the opinion of Venable
LLP, Baltimore, Maryland, on certain matters of Maryland
law. Morrison & Foerster LLP, New York, New York, is serving
as counsel to the Underwriters.
$_________
Tortoise
Energy
Infrastructure
Corporation
Auction
Rate Senior Notes (“Tortoise Notes”)
$_________
Series __ Due ________, 20__
____________________
PROSPECTUS
SUPPLEMENT
________,
20__
____________________
[UNDERWRITERS]
SUBJECT
TO COMPLETION, DATED JANUARY 25, 2008
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
_____ __,
2008
STATEMENT
OF ADDITIONAL INFORMATION
Tortoise
Energy Infrastructure Corporation, a Maryland corporation (the “Company”, “we”
or “our”), is a nondiversified, closed-end management investment company that
commenced operations in February 2004.
This
Statement of Additional Information relates to the offering, on an
immediate,
continuous or delayed basis, of up to $_____________ 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 ______ __, 2008 and any related prospectus supplement. This
Statement of Additional Information does not include all information
that you
should consider before purchasing any of our securities. You should
obtain and read our prospectus and any related prospectus supplements
prior to
purchasing any of our securities. A copy of our prospectus and any
related prospectus supplement may be obtained without charge by calling
(866) 362-9331. You also may obtain a copy of our prospectus and
any related prospectus supplement on the SEC’s web site
(http://www.sec.gov). Capitalized terms used but not defined in this
Statement of Additional Information have the meanings ascribed to
them in the
prospectus and any related prospectus supplement. This Statement of
Additional Information is dated _____ __, 2008.
TABLE
OF
CONTENTS
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S-26
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S-27
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S-28
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S-36
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S-37
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S-37
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S-37
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A-1
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A-I-1
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B-1
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C-1
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INVESTMENT
LIMITATIONS
This
section supplements the disclosure in the prospectus and provides additional
information on our investment limitations. Investment limitations
identified as fundamental may not be changed without the approval of
the holders
of a majority of our outstanding voting securities (which for this
purpose and
under the Investment Company Act of 1940, as amended (the “1940 Act”), means the
lesser of (1) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (2) more than 50% of the
outstanding shares).
Investment
limitations stated as a maximum percentage of our assets are only applied
immediately after, and because of, an investment or a transaction by
us to which
the limitation is applicable (other than the limitations on
borrowing). Accordingly, any later increase or decrease resulting
from a change in values, net assets or other circumstances will not
be
considered in determining whether the investment complies with our
investment
limitations. All limitations that are based on a percentage of total
assets include assets obtained through leverage.
Fundamental
Investment Limitations
The
following are our fundamental investment limitations set forth in their
entirety. We may not:
(1)
issue senior securities, except as permitted by the 1940 Act and the
rules and
interpretive positions of the SEC thereunder;
(2)
borrow money, except as permitted by the 1940 Act and the rules and
interpretive
positions of the SEC thereunder;
(3)
make loans, except by the purchase of debt obligations, by entering
into
repurchase agreements or through the lending of portfolio securities
and as
otherwise permitted by the 1940 Act and the rules and interpretive
positions of
the SEC thereunder;
(4)
concentrate (invest 25% or more of total assets) our investments in
any
particular industry, except that we will concentrate our assets in
the group of
industries constituting the energy infrastructure sector;
(5)
underwrite securities issued by others, except to the extent that we
may be
considered an underwriter within the meaning of the Securities Act
of 1933, as
amended (the “1933 Act”), in the disposition of restricted securities held in
our portfolio;
(6)
purchase or sell real estate unless acquired as a result of ownership
of
securities or other instruments, except that we may invest in securities
or
other instruments backed by real estate or securities of companies
that invest
in real estate or interests therein; and
(7)
purchase or sell physical commodities unless acquired as a result of
ownership
of securities or other instruments, except that we may purchase or
sell options
and futures contracts or invest in securities or other instruments
backed by
physical commodities.
All
other
investment policies are considered nonfundamental and may be changed
by the
Board of Directors of the Company (the “Board”) without prior approval of our
outstanding voting securities.
Nonfundamental
Investment Policies
We
have
adopted the following nonfundamental policies:
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(1)
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Under
normal circumstances, we will invest at least 90% of our
total assets in
securities of energy infrastructure companies.
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(2)
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Under
normal circumstances, we will invest at least 70% of our
total assets in
equity securities issued by master limited partnerships (“MLPs”).
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(3)
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We
may invest up to 30% of our total assets in restricted securities,
primarily through direct placements. Subject to this policy,
we may invest
without limitation in illiquid securities. The types of restricted
securities that we may purchase include securities of private
energy
infrastructure companies and privately issued securities
of publicly
traded energy infrastructure companies. Restricted securities,
whether
issued by public companies or private companies, are generally
considered
illiquid. Investments in private companies that do not have
any publicly
traded shares or units are limited to 5% of total assets.
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(4)
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We
may invest up to 25% of our total assets in debt securities
of energy
infrastructure companies, including securities rated below
investment
grade (commonly referred to as “junk bonds”). Below investment
grade debt securities will be rated at least B3 by Moody’s Investors
Service, Inc. (“Moody’s”) and at least B- by
Standard & Poor’s Ratings Group (“S&P”) at the time of
purchase, or comparably rated by another statistical rating
organization
or if unrated, determined to be of comparable quality by
the Adviser.
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(5)
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We
will not invest more than 10% of our total assets in any
single issuer.
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(6)
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We
will not engage in short sales.
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For
purposes of restrictions (3)-(5), during the periods in which we anticipate
receiving proceeds from an offering of securities pursuant to this
registration
statement, we include the amount of the anticipated proceeds in our
calculation
of total assets. Accordingly, holdings in the specified securities
may temporarily exceed the amounts shown.
Currently
under the 1940 Act, we are not permitted to incur indebtedness unless
immediately after such borrowing we have asset coverage of at least
300% of the
aggregate outstanding principal balance of indebtedness (i.e., such
indebtedness
may not exceed 33 1/3% of the value of our total assets including the
amount
borrowed, less all liabilities and indebtedness not represented by
senior
securities). 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 total of the aggregate amount of senior securities
representing indebtedness plus the aggregate liquidation value of the
outstanding preferred stock (i.e., the aggregate principal amount of
such
indebtedness and liquidation value may not exceed 50% of the value
of our total
assets, including the proceeds of such issuance, less liabilities and
indebtedness not represented by senior securities). In addition,
currently under the 1940 Act, we are not permitted to declare any cash
dividend
or other distribution on our common stock or purchase any such common
stock
unless, at the time of such declaration or purchase, we would
satisfy
this
200%
asset coverage requirement test after deducting the amount of such
dividend,
distribution or share price.
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 interpretive 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.
INVESTMENT
OBJECTIVE
AND PRINCIPAL
INVESTMENT STRATEGIES
The
prospectus presents our investment objective and the principal investment
strategies and risks. This section supplements the disclosure in the
prospectus and provides additional information on our investment policies,
strategies and risks. Restrictions or policies stated as a maximum
percentage of our assets are only applied immediately after a portfolio
investment to which the policy or restriction is applicable (other
than the
limitations on borrowing). Accordingly, any later increase or
decrease resulting from a change in values, net assets or other circumstances
will not be considered in determining whether the investment complies
with our
restrictions and policies.
Our
investment objective is to seek a high level of total return with an
emphasis on
current distributions paid to stockholders. For purposes of our
investment objective, total return includes capital appreciation of,
and all
distributions received from, securities in which we invest regardless
of the tax
character of the distribution. There is no assurance that we will
achieve our objective. Our investment
objective
and the investment policies discussed below are nonfundamental. Our
Board may change the investment objective, or any policy or limitation
that is
not fundamental, without a stockholder vote. Stockholders will
receive at least 60 days prior written notice of any change to the
nonfundamental investment policy of investing at least 90% of total
assets in
energy infrastructure companies. Unlike most other investment
companies, we are not treated as a regulated investment company under the
U.S. Internal Revenue Code of 1986, as amended (the “Internal Revenue
Code”). Therefore, we are 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 providing 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 reduce
revenues
and adversely affect profitability. Most pipeline MLPs are subject to
government regulation concerning the construction, pricing and operation
of
pipelines. Pipeline MLPs are able to set prices (rates or
tariffs) to cover operating costs, depreciation and taxes, and provide a
return on investment. These rates are monitored by the Federal Energy
Regulatory Commission (FERC) which seeks to ensure that consumers receive
adequate and reliable supplies of energy at the lowest possible price
while
providing energy suppliers and transporters a just and reasonable
return on
capital investment and the opportunity to adjust to changing market
conditions.
Energy
infrastructure MLPs in which we will invest generally can be classified
in the
following categories:
Pipeline
MLPs. Pipeline MLPs are common carrier transporters of natural
gas, natural gas liquids (primarily propane, ethane, butane and natural
gasoline), crude oil or refined petroleum products (gasoline, diesel
fuel and
jet fuel). Pipeline MLPs also may operate ancillary businesses such
as storage and marketing of such products. Revenue is derived from
capacity and transportation fees. Historically, pipeline output has
been less exposed to cyclical economic forces due to its low cost structure
and
government-regulated nature. In addition, most pipeline MLPs have
limited direct commodity price exposure because they do not own the
product
being shipped.
Processing
MLPs. Processing MLPs are gatherers and processors of natural
gas as well as providers of transportation, fractionation and storage
of natural
gas liquids (“NGLs”). Revenue is derived from providing services to
natural gas producers, which require treatment or processing before
their
natural gas commodity can be marketed to utilities and other end user
markets. Revenue for the processor is fee based, although it is not
uncommon to have some participation in the prices of the natural gas
and NGL
commodities for a portion of revenue.
Propane
MLPs. Propane MLPs are distributors of propane to homeowners
for space and water heating. Revenue is derived from the resale of
the commodity on a margin over wholesale cost. The ability to
maintain margin is a key to profitability. Propane serves
approximately 3% of the household energy needs in the United States,
largely for
homes beyond the geographic reach of natural gas distribution
pipelines. Approximately 70% of annual cash flow is earned during the
winter heating season (October through March). Accordingly,
volumes are weather dependent, but have utility type functions similar
to
electricity and natural gas.
Coal
MLPs. Coal
MLPs own, lease and manage coal reserves. Revenue is derived from
production and sale of coal, or from royalty payments related to leases
to coal
producers. Electricity generation is the primary use of coal in the
United States. Demand for electricity and supply of alternative fuels
to generators are the primary drivers of coal demand. Coal MLPs are
subject to operating and production risks, such as: the MLP or a
lessee meeting necessary production volumes; federal, state and local
laws and
regulations which may limit the ability to produce coal; the MLP’s ability to
manage production costs and pay mining reclamation costs; and the effect
on
demand that the Clean Air Act standards or other laws, regulations
or trends
have on coal end-users.
Marine
Shipping
MLPs. Marine shipping MLPs are primarily marine transporters
of natural gas, crude oil or refined petroleum products. Marine
shipping MLPs derive revenue from
charging
customers for the transportation of these products utilizing the MLPs’
vessels. Transportation services are typically provided pursuant to a
charter or contract, the terms of which vary depending on, for example,
the
length of use of a particular vessel, the amount of cargo transported,
the
number of voyages made, the parties operating a vessel or other
factors.
MLPs
typically achieve distribution growth by internal and external
means. MLPs achieve growth internally by experiencing higher
commodity volume driven by the economy and population, and through
the expansion
of existing operations including increasing the use of underutilized
capacity,
pursuing projects that can leverage and gain synergies with existing
infrastructure and pursuing so called “greenfield projects.” External
growth is achieved by making accretive acquisitions. While
opportunities for growth by acquisition appear abundant based on current
market
conditions, especially for smaller MLPs, the Adviser expects MLPs to
grow
primarily through internal means.
MLPs
are
subject to various federal, state and local environmental laws and
health and
safety laws as well as laws and regulations specific to their particular
activities. Such laws and regulations address: health and
safety standards for the operation of facilities, transportation systems
and the
handling of materials; air and water pollution requirements and standards;
solid
waste disposal requirements; land reclamation requirements; and requirements
relating to the handling and disposition of hazardous
materials. Energy infrastructure MLPs are subject to the costs of
compliance with such laws applicable to them, and changes in such laws
and
regulations may affect adversely their results of operations.
MLPs
operating interstate pipelines and storage facilities are subject to
substantial
regulation by FERC, which regulates interstate transportation rates,
services
and other matters regarding natural gas pipelines including: the
establishment of rates for service; regulation of pipeline storage
and liquified
natural gas facility construction; issuing certificates of need for
companies
intending to provide energy services or constructing and operating
interstate
pipeline and storage facilities; and certain other matters. FERC also
regulates the interstate transportation of crude oil,
including: regulation of rates and practices of oil pipeline
companies; establishing equal service conditions to provide shippers
with equal
access to pipeline transportation; and establishment of reasonable
rates for
transporting petroleum and petroleum products by pipeline.
Energy
infrastructure MLPs may be subject to liability relating to the release
of
substances into the environment, including liability under federal
“SuperFund”
and similar state laws for investigation and remediation of releases
and
threatened releases of hazardous materials, as well as liability for
injury and
property damage for accidental events, such as explosions or discharges
of
materials causing personal injury and damage to property. Such
potential liabilities could have a material adverse effect upon the
financial
condition and results of operations of energy infrastructure MLPs.
Energy
infrastructure MLPs are subject to numerous business related risks,
including: deterioration of business fundamentals reducing
profitability due to development of alternative energy sources, consumer
sentiment with respect to global warming, changing demographics in
the markets
served, unexpectedly prolonged and precipitous changes in commodity
prices and
increased competition which takes market share; the lack of growth
of markets
requiring growth through acquisitions; disruptions in transportation
systems;
the dependence of certain MLPs upon the energy exploration and development
activities of unrelated third parties; availability of capital for
expansion and
construction of needed facilities; a significant decrease in natural
gas
production due to depressed commodity prices or otherwise; the inability
of MLPs
to successfully integrate recent or future acquisitions; and the general
level
of the economy.
Non-MLPs. Although
we emphasize investments in MLPs, we also may invest in energy infrastructure
companies that are not organized as MLPs. Non-MLP companies may
include companies that operate energy assets but which are organized
as
corporations or limited liability companies rather than in partnership
form. Generally, the partnership form is more suitable for companies
that operate assets which generate more stable cash flows. Companies
that operate “midstream” assets (e.g., transporting, processing, storing,
distributing and marketing) tend to generate more stable cash flows than
those that engage in exploration and development or delivery of products
to the
end consumer. Non-MLP companies also may include companies that
provide services directly related to the generation of income from
energy-related assets, such as oil drilling services, pipeline construction
and
maintenance, and compression services.
The
energy industry and particular energy infrastructure companies may
be adversely
affected by possible terrorist attacks, such as the attacks that occurred
on
September 11, 2001. It is possible that facilities of energy
infrastructure companies, due to the critical nature of their energy
businesses
to the United States, could be direct targets of terrorist attacks
or be
indirectly affected by attacks on others. They may incur significant
additional costs in the future to safeguard their assets. In
addition, changes in the insurance markets after September 11, 2001 may
make certain types of insurance more difficult to obtain or obtainable
only at
significant additional cost. To the extent terrorism results in a
lower level economic activity, energy consumption could be adversely
affected,
which would reduce revenues and impede growth. Terrorist or war
related disruption of the capital markets could also affect the ability
of
energy infrastructure companies to raise needed capital.
Master
Limited Partnerships
Under
normal circumstances we invest at least 70% of our total assets in
equity
securities of MLPs. An MLP is an entity that is taxed as a
partnership and that derives each year at least 90% of its gross income
from
Qualifying Income. An MLP is typically a limited partnership, the
interests in which (known as units) are traded on securities exchanges or
over-the-counter. Organization as a partnership and compliance with
the Qualifying Income rules eliminates federal income tax at the entity
level.
An
MLP
has one or more general partners (who may be individuals, corporations,
or other
partnerships) which manage the partnership, and limited partners, which
provide capital to the partnership but have no role in its
management. Typically, the general partner is owned by company
management or another publicly traded sponsoring corporation. When an
investor buys units in an 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 an 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 an MLP, although the tax consequences make this
an unappealing
option for most corporations. Also, a newly formed company may
operate as an MLP from its inception.
The
sponsor or general partner of an MLP, other energy companies, and utilities
may
sell assets to MLPs in order to generate cash to fund expansion projects
or
repay debt. The MLP structure essentially transfers cash flows
generated from these acquired assets directly to MLP limited partner
unit
holders.
In
the
case of an MLP buying assets from its sponsor or general partner, the
transaction is intended to be based upon comparable terms in the acquisition
market for similar assets. To help insure that appropriate
protections are in place, the board of the MLP generally creates an
independent
committee
to review and approve the terms of the transaction. The committee
often obtains a fairness opinion and can retain counsel or other experts
to
assist its evaluation. Since both parties normally have a significant
equity stake in the MLP, both parties are aligned to see that the transaction
is
accretive and fair to the MLP.
MLPs
tend
to pay relatively higher distributions than other types of companies,
and we
intend to use these MLP distributions in an effort to meet our investment
objective.
As
a
motivation for the general partner to successfully manage the MLP and
increase
cash flows, the terms of MLP partnership agreements typically provide
that the
general partner receives a larger portion of the net income as distributions
reach higher target levels. As cash flow grows, the general partner
receives a greater interest in the incremental income compared to the
interest
of limited partners. Although the percentages vary among MLPs, the
general partner’s marginal interest in distributions generally increases from 2%
to 15% at the first designated distribution target level moving to
up to 25% and
ultimately to 50% as pre-established distribution per unit thresholds
are
met. Nevertheless, the aggregate amount of distributions to limited
partners will increase as MLP distributions reach higher target
levels. Given this incentive structure, the general partner has an
incentive to streamline operations and undertake acquisitions and growth
projects in order to increase distributions to all partners.
Because
the MLP itself does not pay federal income tax, its income or loss
is allocated
to its investors, irrespective of whether the investors receive any
cash payment
or other distributions from the MLP. An MLP typically makes quarterly
cash distributions. Although they resemble corporate dividends, MLP
distributions are treated differently for federal income tax
purposes. The MLP distribution is treated as a return of capital to
the extent of the investor’s basis in his MLP interest and, to the extent the
distribution exceeds the investor’s basis in the MLP interest, capital
gain. The investor’s original basis is the price paid for the
units. The basis is adjusted downwards with each distribution and
allocation of deductions (such as depreciation) and losses, and upwards
with each allocation of income and gain.
The
partner generally will not incur federal income tax on distributions
until
(1) he sells his MLP units and pays tax on his gain, which gain is
increased due to the basis decrease resulting from prior distributions;
or
(2) his basis reaches zero. When the units are sold, the
difference between the sales price and the investor’s adjusted basis is gain or
loss for federal income tax purposes.
For
a
further discussion and a description of MLP federal income tax matters,
see the
section entitled “Certain Federal Income Tax Matters–Federal Income Taxation of
MLPs.”
The
Company’s Investments
The
types
of securities in which we may invest include, but are not limited to,
the
following:
Equity
Securities. Consistent with our investment objective, we may
invest up to 100% of our total assets in equity securities issued by
energy
infrastructure MLPs, including common units, convertible subordinated
units,
I-Shares and common units, and subordinated units and preferred units
of limited
liability companies (that are treated as MLPs for federal income tax
purposes)
(“LLCs”) (each discussed below). We also may invest up to 30% of
total assets in equity securities of non-MLPs.
The
value
of equity securities will be affected by changes in the stock markets,
which may
be the result of domestic or international political or economic news,
changes
in interest rates or changing investor sentiment. At times, stock
markets can be volatile and stock prices can change
substantially. Equity securities risk will affect our net asset value
per share, which will fluctuate as the value of the securities held
by us
change. Not all stock prices change uniformly or at the same time,
and not all stock
markets
move in the same direction at the same time. Other factors affect a
particular stock’s prices, such as poor earnings reports by an issuer, loss of
major customers, major litigation against an issuer, or changes in
governmental
regulations affecting an industry. Adverse news affecting one company
can sometimes depress the stock prices of all companies in the same
industry. Not all factors can be predicted.
Investing
in securities of smaller companies may involve greater risk than is
associated
with investing in more established companies. Smaller capitalization
companies may have limited product lines, markets or financial resources;
may
lack management depth or experience; and may be more vulnerable to
adverse
general market or economic developments than larger, more established
companies.
MLP
Common
Units. MLP common units represent an equity ownership interest
in a partnership, providing limited voting rights and entitling the
holder to a
share of the company’s success through distributions and/or capital
appreciation. Unlike stockholders of a corporation, common unit
holders do not elect directors annually and generally have the right
to vote
only on certain significant events, such as mergers, a sale of substantially
all
of the assets, removal of the general partner or material amendments
to the
partnership agreement. MLPs are required by their partnership
agreements to distribute a large percentage of their current operating
earnings. Common unit holders generally have first right to a minimum
quarterly distribution (“MQD”) prior to distributions to the convertible
subordinated unit holders or the general partner (including incentive
distributions). Common unit holders typically have arrearage rights
if the MQD is not met. In the event of liquidation, MLP common unit
holders have first rights to the partnership’s remaining assets after
bondholders, other debt holders, and preferred unit holders have been
paid in
full. MLP common units trade on a national securities exchange or
over-the-counter.
Limited
Liability Company Common
Units. Some energy infrastructure companies in which we may
invest have been organized as LLCs. Such LLCs are generally treated
in the same manner as MLPs for federal income tax purposes and, unless
otherwise
noted, the term MLP includes all entities that are treated in the same
manner as
MLPs for federal income tax purposes, regardless of their form of
organization. Consistent with our investment objective and policies,
we may invest in common units or other securities of such LLCs including
preferred and subordinated units and debt securities. LLC common
units represent an equity ownership interest in an LLC, entitling the
holders to
a share of the LLC’s success through distributions and/or capital
appreciation. Similar to MLPs, LLCs typically do not pay federal
income tax at the entity level and are required by their operating
agreements to
distribute a large percentage of their current operating
earnings. LLC common unit holders generally have first right to a MQD
prior to distributions to subordinated unit holders and typically have
arrearage
rights if the MQD is not met. In the event of liquidation, LLC common
unit holders have a right to the LLC’s remaining assets after bondholders, other
debt holders and preferred unit holders, if any, have been paid in
full. LLC common units typically trade on a national securities
exchange or over-the-counter.
In
contrast to MLPs, LLCs have no general partner and there are no incentives
that
entitle management or other unit holders to increased percentages of
cash
distributions as distributions reach higher target levels. In
addition, LLC common unit holders typically have voting rights with
respect to
the LLC, whereas MLP common units have limited voting rights.
MLP
Convertible Subordinated
Units. MLP convertible subordinated units typically are issued
by MLPs to founders, corporate general partners of MLPs, entities that
sell
assets to MLPs, and institutional investors. The purpose of the
convertible subordinated units is to increase the likelihood that during
the
subordination period there will be available cash to be distributed
to common
unit holders. We expect to purchase convertible subordinated units in
direct placements from such persons. Convertible subordinated units
generally are not entitled to distributions until holders of common
units have
received
specified
MQD, plus any arrearages, and may receive less than common unit
holders 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, convertible subordinated units 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.
Equity
Securities of MLP
Affiliates. In addition to equity securities of MLPs, we may
also invest in equity securities of MLP affiliates, by purchasing securities
of
limited liability entities that own general partner interests of
MLPs. General partner interests of MLPs are typically retained by an
MLP’s original sponsors, such as its founders, corporate partners, entities
that
sell assets to the MLP and investors such as the entities from which
we may
purchase general partner interests. An entity holding general partner
interests, but not its investors, can be liable under certain circumstances
for
amounts greater than the amount of the entity’s investment in the general
partner interest. General partner interests often confer direct board
participation rights and, in many cases, operating control over the
MLP. These interests themselves are generally not publicly traded,
although they may be owned by publicly traded entities. General
partner interests receive cash distributions, typically 2% of the MLP’s
aggregate cash distributions, which are contractually defined in the
partnership
agreement. In addition, holders of general partner interests
typically hold incentive distribution rights (“IDRs”), which provide them with a
larger share of the aggregate MLP cash distributions as the distributions
to
limited partner unit holders are increased to prescribed
levels. General partner interests generally cannot be converted into
common units. The general partner interest can be redeemed by the MLP
if the MLP unitholders choose to remove the general partner, typically
with a
supermajority vote by limited partner unitholders.
Other
Non-MLP Equity
Securities. In addition to equity securities of MLPs, we may
also invest in common and preferred stock, limited partner interests,
convertible securities, warrants and depository receipts of companies
that are
organized as corporations, limited liability companies or limited
partnerships. Common stock generally represents an equity ownership
interest in an issuer. Although common stocks have historically
generated higher average total returns than fixed-income securities
over the
long term, common stocks also have experienced significantly more volatility
in
those returns and may under-perform relative to fixed-income securities
during
certain periods. An adverse event, such as an unfavorable earnings
report, may depress the value of a particular common stock we
hold. Also, prices of common stocks are sensitive to general
movements in the stock market and a drop in the stock market may depress
the
price of common stocks to which we have exposure. Common stock prices
fluctuate for several reasons including changes in investors’ perceptions of the
financial condition of an issuer or the general condition of the relevant
stock
market, or when political or economic events affecting the issuers
occur. In
addition, common stock prices may be particularly sensitive to rising
interest
rates, which increases borrowing costs and the costs of capital.
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:
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increased
price sensitivity to changing interest rates and to a deteriorating
economic environment;
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greater
risk of loss due to default or declining credit quality;
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adverse
company specific events are more likely to render the issuer
unable to
make interest and/or principal payments; and
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if
a negative perception of the below investment grade debt
market develops,
the price and liquidity of below investment grade debt securities
may be
depressed. This negative perception could last for a significant
period of
time.
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Adverse
changes in economic conditions are more likely to lead to a weakened
capacity of
a below investment grade debt issuer to make principal payments and
interest
payments than an investment grade issuer. The principal amount of
below investment grade securities outstanding has proliferated in the
past
decade as an increasing number of issuers have used below investment
grade
securities for corporate financing. An economic downturn could affect
severely the ability of highly leveraged issuers to service their debt
obligations or to repay their obligations upon maturity. Similarly,
down-turns in profitability in specific industries, such as the energy
infrastructure industry, could adversely affect the ability of below
investment
grade debt issuers in that industry to meet their obligations. The
market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level
of
interest rates. Factors having an adverse impact on the market value
of lower quality securities we own may have an adverse effect on our
net asset
value and the market value of our common stock. In addition, we may
incur additional expenses to the extent we are required to seek recovery
upon a
default in payment of principal or interest on our portfolio
holdings. In certain circumstances, we may be required
to
foreclose on an issuer’s assets and take possession of its property or
operations. In such circumstances, we would incur additional costs in
disposing of such assets and potential liabilities from operating any
business
acquired.
The
secondary market for below investment grade securities may not be as
liquid as
the secondary market for more highly rated securities, a factor which
may have
an adverse effect on our ability to dispose of a particular security
when
necessary to meet our liquidity needs. There are fewer dealers in the
market for below investment grade securities than investment grade
obligations. The prices quoted by different dealers may vary
significantly and the spread between the bid and asked price is generally
much
larger than higher quality instruments. Under adverse market or
economic conditions, the secondary market for below investment grade
securities
could contract further, independent of any specific adverse changes
in the
condition of a particular issuer, and these instruments may become
illiquid. As a result, we could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower
than if
such securities were widely traded. Prices realized upon the sale of
such lower rated or unrated securities, under these circumstances,
may be less
than the prices used in calculating our net asset value.
Because
investors generally perceive that there are greater risks associated
with lower
quality debt securities of the type in which we may invest a portion
of our
assets, the yields and prices of such securities may tend to fluctuate
more than
those for higher rated securities. In the lower quality segments of
the debt securities market, changes in perceptions of issuers’ creditworthiness
tend to occur more frequently and in a more pronounced manner than
do changes in
higher quality segments of the debt securities market, resulting in
greater
yield and price volatility.
We
will
not invest in distressed, below investment grade securities (those
that are in
default or the issuers of which are in bankruptcy). If a debt
security becomes distressed while held by us, we may be required to
bear
extraordinary expenses in order to protect and recover our investment
if it is
recoverable at all.
See
Appendix C to this Statement of Additional Information for a description of
ratings of Moody’s, Fitch Ratings (“Fitch”) and S&P.
Restricted,
Illiquid and
Thinly-Traded Securities. We may invest up to 30% of our total
assets in restricted securities, primarily through direct placements
of MLP
securities. Restricted securities obtained by means of direct
placement are less liquid than securities traded in the open market;
therefore,
we may not be able to readily sell such securities. Investments
currently considered by the Adviser to be illiquid because of such
restrictions
include convertible subordinated units and certain direct placements
of common
units. Such securities are unlike securities that are traded in the
open market and which can be expected to be sold immediately if the
market is
adequate. The sale price of securities that are not readily
marketable may be lower or higher than our most recent determination
of their
fair value. Additionally, the value of these securities typically
requires more reliance on the judgment of the Adviser than that required
for
securities for which there is an active trading market. Due to the
difficulty in valuing these securities and the absence of an active
trading
market for these investments, we may not be able to realize these securities’
true value, or may have to delay their sale in order to do so.
Restricted
securities generally can be sold in privately negotiated transactions,
pursuant
to an exemption from registration under the 1933 Act, or in a registered
public
offering. The Adviser has the ability to deem restricted securities
as liquid. To enable us to sell our holdings of a restricted security
not registered under the 1933 Act, we may have to cause those securities
to be
registered. When we must arrange registration because we wish to sell
the security, a considerable period may elapse between the time the
decision is
made to sell the security and the time the security is registered so
that we
could sell it. We would bear the risks of any downward price
fluctuation during that period.
In
recent
years, a large institutional market has developed for certain securities
that
are not registered under the 1933 Act, including private placements,
repurchase
agreements, commercial paper, foreign securities and corporate bonds
and
notes. These instruments are often restricted securities because the
securities are either themselves exempt from registration or sold in
transactions not requiring registration, such as Rule 144A
transactions. Institutional investors generally will not seek to sell
these instruments to the general public, but instead will often depend
on an
efficient institutional market in which such unregistered securities
can be
readily resold or on an issuer’s ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal
restrictions on resale to the general public or certain institutions
is not
dispositive of the liquidity of such investments.
Rule
144A
under the 1933 Act establishes a “safe harbor” from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities
that exist or may develop as a result of Rule 144A may provide both
readily
ascertainable values for restricted securities and the ability to liquidate
an
investment. An insufficient number of qualified institutional buyers
interested in purchasing Rule 144A-eligible securities held by us,
however,
could affect adversely the marketability of such portfolio securities
and we
might not be able to dispose of such securities promptly or at reasonable
prices.
We
also
may invest in securities that may not be restricted, but are
thinly-traded. Although securities of certain MLPs trade on the NYSE,
the AMEX, the NASDAQ National Market or other securities exchanges
or markets,
such securities may trade less than those of larger companies due to
their
relatively smaller capitalizations. Such securities may be difficult
to dispose of at a fair price during times when we believe it is desirable
to do
so. Thinly-traded securities are also more difficult to value, and
the Adviser’s judgment as to value will often be given greater weight than
market quotations, if any exist. If market quotations are not
available, thinly-traded securities will be valued in accordance with
procedures
established by the Board. Investment of our capital in thinly-traded
securities may restrict our ability to take advantage of market
opportunities. The risks associated with thinly-traded securities may
be particularly acute in situations in which our operations require
cash and
could result in us borrowing to meet our short term needs or incurring
losses on
the sale of thinly-traded securities.
Commercial
Paper. We may invest in commercial
paper. Commercial paper is a debt obligation usually issued by
corporations and may be unsecured or secured by letters of credit or
a surety
bond. Commercial paper usually is repaid at maturity by the issuer
from the proceeds of the issuance of new commercial paper. As a
result, investment in commercial paper is subject to the risk that
the issuer
cannot issue enough new commercial paper to satisfy its outstanding
commercial
paper, also known as rollover risk.
Asset-backed
commercial paper is a debt obligation generally issued by a corporate-sponsored
special purpose entity to which the corporation has contributed cash-flowing
receivables like credit card receivables, auto and equipment leases,
and other
receivables. Investment in asset-backed commercial paper is subject
to the risk that insufficient proceeds from the projected cash flows
of the
contributed receivables are available to repay the commercial
paper.
U.S.
Government
Securities. We may invest in U.S. Government
securities. There are two broad categories of U.S. Government-related
debt instruments: (a) direct obligations of the U.S. Treasury,
and (b) securities issued or guaranteed by U.S. Government
agencies.
Examples
of direct obligations of the U.S. Treasury are Treasury bills, notes,
bonds and
other debt securities issued by the U.S. Treasury. These instruments
are backed by the “full faith and credit” of the United States. They
differ primarily in interest rates, the length of maturities and the
dates of
issuance. Treasury bills have original maturities of one year or
less. Treasury notes have original
maturities
of one to ten years, and Treasury bonds generally have original maturities
of
greater than ten years.
Some
agency securities are backed by the full faith and credit of the United
States,
and others are backed only by the rights of the issuer to borrow from
the U.S.
Treasury (such as Federal Home Loan Bank Bonds and Federal National
Mortgage
Association Bonds), while still others, such as the securities of the
Federal
Farm Credit Bank, are supported only by the credit of the
issuer. With respect to securities supported only by the credit of
the issuing agency or by an additional line of credit with the U.S.
Treasury,
there is no guarantee that the U.S. Government will provide support
to such
agencies, and such securities may involve risk of loss of principal
and
interest.
Repurchase
Agreements. We may enter into “repurchase agreements” backed
by U.S. Government securities. A repurchase agreement arises when we
purchase a security and simultaneously agree to resell it to the
vendor at an
agreed upon future date. The resale price is greater than the
purchase price, reflecting an agreed upon market rate of return that
is
effective for the period of time we hold the security and that is
not related to
the coupon rate on the purchased security. Such agreements generally
have maturities of no more than seven days and could be used to permit
us to
earn interest on assets awaiting long term investment. We require
continuous maintenance by our custodian for our account in the Federal
Reserve/Treasury Book-Entry System of collateral in an amount equal
to, or in
excess of, the market value of the securities that are the subject
of a
repurchase agreement. Repurchase agreements maturing in more than
seven days are considered illiquid securities. In the event of a
bankruptcy or other default of a seller of a repurchase agreement,
we could
experience both delays in liquidating the underlying security and
losses,
including: (a) possible decline in the value of the underlying
security during the period while we seek to enforce our rights thereto;
(b) possible subnormal levels of income and lack of access to income
during
this period; and (c) expenses of enforcing our rights.
Reverse
Repurchase
Agreements. We may enter into reverse repurchase agreements
for temporary purposes with banks and securities dealers if the creditworthiness
of the bank or securities dealer has been determined by the Adviser
to be
satisfactory. A reverse repurchase agreement is a repurchase
agreement in which we are the seller of, rather than the investor in,
securities
and agree to repurchase them at an agreed-upon time and price. Use of
a reverse repurchase agreement may be preferable to a regular sale
and later
repurchase of securities because it avoids certain market risks and
transaction
costs.
At
the
time when we enter into a reverse repurchase agreement, liquid assets
(cash,
U.S. Government securities or other “high-grade” debt obligations) having a
value at least as great as the purchase price of the securities to
be purchased
will be segregated on our books and held by our custodian throughout
the period
of the obligation. The use of reverse repurchase agreements creates
leverage which increases our investment risk. If the income and gains
on securities purchased with the proceeds of these transactions exceed
the cost,
our earnings or net asset value will increase faster than otherwise
would be the
case; conversely, if the income and gains fail to exceed the cost,
earnings or
net asset value would decline faster than otherwise would be the
case. We intend to enter into reverse repurchase agreements only if
the income from the investment of the proceeds is greater than the
expense of
the transaction, because the proceeds are invested for a period no
longer than
the term of the reverse repurchase agreement.
Margin
Borrowing. Although we do not currently intend to, we may in
the future use margin borrowing of up to 33 1/3% of total assets for
investment
purposes when the Adviser believes it will enhance returns. Margin
borrowings create certain additional risks. For example, should the
securities that are pledged to brokers to secure margin accounts decline
in
value, or should brokers from which we have borrowed increase their
maintenance
margin requirements (i.e., reduce the percentage of a position
that
can
be financed), then we could be subject to a “margin call,” pursuant to which we
must either deposit additional funds with the broker or suffer mandatory
liquidation of the pledged securities to compensate for the decline
in
value. In the event of a precipitous drop in the value of our assets,
we might not be able to liquidate assets quickly enough to pay off
the margin
debt and might suffer mandatory liquidation of positions in a declining
market
at relatively low prices, thereby incurring substantial losses. For
these reasons, the use of borrowings for investment purposes is considered
a
speculative investment practice. Any use of margin borrowing by us
would be subject to the limitations of the 1940 Act, including the
prohibition
from us issuing more than one class of senior securities, and the asset
coverage
requirements discussed earlier in this Statement of Additional
Information. See “Investment Limitations.”
Interest
Rate
Transactions. In an attempt to reduce the interest rate risk
arising from our leveraged capital structure, we currently use, and
may in the
future use, interest rate transactions such as swaps, caps and
floors. There is no assurance that the interest rate hedging
transactions into which we enter will be effective in reducing our
exposure to
interest rate risk. Hedging transactions are subject to correlation
risk, which is the risk that payment on our hedging transactions may
not
correlate exactly with our payment obligations on senior
securities.
The
use
of interest rate transactions is a highly specialized activity that
involves
investment techniques and risks different from those associated with
ordinary
portfolio security transactions. In an interest rate swap, we would
agree to pay to the other party to the interest rate swap (which is
known as the
“counterparty”) a fixed rate payment in exchange for the counterparty
agreeing to pay to us a variable rate payment that is intended to approximate
our variable rate payment obligation on any variable rate
borrowings. The payment obligations would be based on the notional
amount of the swap. In an interest rate cap, we would pay a premium
to the counterparty to the interest rate cap and, to the extent that
a specified
variable rate index exceeds a predetermined fixed rate, would receive
from the
counterparty payments of the difference based on the notional amount
of such
cap. In an interest rate floor, we would be entitled to receive, to
the extent that a specified index falls below a predetermined interest
rate,
payments of interest on a notional principal amount from the party
selling the
interest rate floor. Depending on the state of interest rates in
general, our use of interest rate transactions could enhance or decrease
distributable cash flow (generally, cash from operations less certain
operating
expenses and reserves) available to the shares of our common
stock. To the extent there is a decline in interest rates, the value
of the interest rate transactions could decline, and could result in
a decline
in the net asset value of the shares of our common stock. In
addition, if the counterparty to an interest rate transaction defaults,
we would
not be able to use the anticipated net receipts under the interest
rate
transaction to offset our cost of financial leverage. When interest
rate swap transactions are outstanding, we will segregate liquid assets
with our
custodian in an amount equal to our net payment obligation under the
swap.
Delayed-Delivery
Transactions. Securities may be bought and sold on a
delayed-delivery or when-issued basis. These transactions involve a
commitment to purchase or sell specific securities at a predetermined
price or
yield, with payment and delivery taking place after the customary settlement
period for that type of security. Typically, no interest accrues to
the purchaser until the security is delivered. We may receive fees or
price concessions for entering into delayed-delivery transactions.
When
purchasing securities on a delayed-delivery basis, the purchaser assumes
the
rights and risks of ownership, including the risks of price and yield
fluctuations and the risk that the security will not be issued as
anticipated. Because payment for the securities is not required until
the delivery date, these risks are in addition to the risks associated
with our
investments. If we remain substantially fully invested at a time when
delayed-delivery purchases are outstanding, the delayed-delivery purchases
may
result in a form of leverage. When delayed-delivery purchases are
outstanding, we will segregate appropriate liquid assets with our custodian
to
cover the purchase obligations. When we have sold a security on a
delayed-
delivery
basis, we do not participate in further gains or losses with respect
to the
security. If the other party to a delayed-delivery transaction fails
to deliver or pay for the securities, we could miss a favorable price
or yield
opportunity or suffer a loss.
Securities
Lending. We may lend securities to parties such as
broker-dealers or institutional investors. Securities lending allows
us to retain ownership of the securities loaned and, at the same time,
to earn
additional income. Since there may be delays in the recovery of
loaned securities, or even a loss of rights in collateral supplied
should the
borrower fail financially, loans will be made only to parties deemed
by the
Adviser to be of good credit and legal standing. Furthermore, loans
of securities will only be made if, in the Adviser’s judgment, the consideration
to be earned from such loans would justify the risk.
The
Adviser understands that it is the current view of the SEC staff that
we may
engage in loan transactions only under the following
conditions: (1) we must receive 100% collateral in the form of
cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned (determined on a daily basis) rises above
the value of the collateral; (3) after giving notice, we must be able to
terminate the loan at any time; (4) we must receive reasonable interest on
the loan or a flat fee from the borrower, as well as amounts equivalent
to any
dividends, interest, or other distributions on the securities loaned
and to any
increase in market value; (5) we may pay only reasonable custodian fees in
connection with the loan; and (6) the Board must be able to vote proxies on
the securities loaned, either by terminating the loan or by entering
into an
alternative arrangement with the borrower.
Temporary
and Defensive
Investments. Pending investment of offering or leverage
proceeds, we may invest such proceeds in securities issued or guaranteed
by the
U.S. Government or its instrumentalities or agencies, short-term debt
securities, certificates of deposit, bankers’ acceptances and other bank
obligations, commercial paper rated in the highest category by a rating
agency
or other liquid fixed income securities deemed by the Adviser to be
of similar
quality (collectively, “short-term securities”), or we may invest in cash or
cash equivalents, all of which are expected to provide a lower yield
than the
securities of energy infrastructure companies. We also may invest in
short-term securities or cash on a temporary basis to meet working
capital needs
including, but not limited to, for collateral in connection with certain
investment techniques, to hold a reserve pending payment of distributions,
and
to facilitate the payment of expenses and settlement of trades.
Under
adverse market or economic conditions, we may invest up to 100% of
our total
assets in short-term securities or cash. The yield on short-term
securities or cash may be lower than the returns on MLPs or yields
on lower
rated fixed income securities. To the extent we invest in short-term
securities or cash for defensive purposes, such investments are inconsistent
with, and may result in our not achieving, our investment
objective.
MANAGEMENT
OF
THE COMPANY
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, 47
|
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,
formerly Editor,
“Financial Services Review” (an academic journal dedicated to the study of
individual financial management) (2001-2007); formerly,
faculty member,
Pennsylvania State University (1997-1999).
|
6
|
None
|
|
John
R. Graham, 62
|
Director
since 2003
|
Executive-in-Residence
and Professor of Finance (part-time), 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, investment
company and venture capital company; Owner of Graham Ventures, a
business services and venture capital firm; part-time Vice
President
Investments, FB Capital Management, Inc. (a registered
investment
adviser), since 2007; formerly, CEO, Kansas Farm Bureau
Financial
Services, including seven affiliated insurance or financial
service
companies (1979-2000).
|
6
|
Kansas
State Bank
|
|
Charles
E. Heath, 65
|
Director
since 2003
|
Retired
in 1999. Formerly, Chief Investment Officer, GE Capital’s
Employers Reinsurance Corporation (1989-1999). Chartered
Financial Analyst (“CFA”) designation since 1974.
|
6
|
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, 48
|
Director
and Chairman of the Board since 2003
|
Managing
Director of the Adviser since 2002; Partner, Fountain Capital
Management,
L.L.C. (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). CFA designation since 1988.
|
6
|
None
|
|
Terry
C. Matlack, 51
|
Director
and Chief Financial Officer since 2003, Chief Compliance
Officer from 2004
through May 2006; Assistant Treasurer since November 2005;
Treasurer from 2003 to November 2005
|
Managing
Director of the Adviser since 2002; full-time Managing
Director, KCEP
(2001-2002); formerly, President, GreenStreet Capital,
a private
investment firm (1998-2001). CFA designation since
1985.
|
6
|
None
|
|
David J.
Schulte, 46
|
President
and Chief Executive Officer since 2003
|
Managing
Director of the Adviser since 2002; full-time Managing
Director, KCEP
(1993-2002); CFA designation since 1992.
|
N/A
|
None
|
|
Zachary
A. Hamel, 42
|
Senior
Vice President since April 2007; Secretary from 2003 to
April 2007
|
Managing
Director of the Adviser since 2002; Partner, Fountain Capital
Management,
L.L.C. (1997-present). CFA designation since 1998.
|
N/A
|
None
|
|
Kenneth
P. Malvey, 42
|
Treasurer
since November 2005; Senior Vice President since April 2007;
Assistant Treasurer from 2003 to November 2005
|
Managing
Director of the Adviser since 2002; Partner, Fountain Capital
Management,
L.L.C. (2002-present); formerly, Investment Risk Manager and member
of the Global Office of Investments, GE Capital’s Employers Reinsurance
Corporation (1996-2002). CFA designation since
1996.
|
N/A
|
None
|
_____________
|
(1)
|
As
a result of their respective positions held with the Adviser
or its
affiliates, these individuals are considered our “interested persons”
within the meaning of the 1940 Act.
|
|
(2)
|
This
number includes us, Tortoise North American Energy Corporation
(“TYN”),
Tortoise Energy Capital Corporation (“TYY”), Tortoise Capital Resources
Corporation (“TTO”) and two privately held closed-end management
investment companies. This number does not include a registered
investment company which has not yet commenced operations
and for which
the advisory agreement with the Adviser has not become
effective. The Adviser also serves as investment adviser to
TYN, TYY, TTO and the two privately held closed-end management
investment
companies.
|
The
following individuals who are included in the table above hold the
following
positions with TYN, TYY, TTO and two privately held closed-end management
investment companies: 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 and Assistant Treasurer;
Mr. Schulte is the President and Chief Executive Officer of TYN, TYY and
two privately held closed-end management investment companies and the
Chief
Executive Officer of TTO; Mr. Hamel is Senior Vice President; and
Mr. Malvey is Senior Vice President and 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 two meetings
in the fiscal year ended November 30, 2007.
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 three meetings
in the fiscal year ended November 30, 2007.
We
also
have a Compliance Committee formed in December 2005 that consists
exclusively of three Independent Directors. The Compliance
Committee’s function is to review and assess management’s compliance with
applicable securities laws, rules and regulations, monitor compliance
with our
Code of Ethics, and handle other matters as the Board or committee
chair deems
appropriate. The Compliance Committee members are Conrad S.
Ciccotello, John R. Graham and Charles E. Heath (Chairman). The
Compliance Committee held one meeting in the fiscal year ended November 30,
2007.
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 $28,000
(plus an
additional $4,000 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 is 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, 2007.
|
Name
and Position With the Company
|
Aggregate
Compensation From
the
Company
|
Aggregate
Compensation From the Company and Fund Complex Paid to
Directors*
|
|
Independent
Directors
|
||
|
Conrad
S. Ciccotello
|
$41,000
|
$145,000
|
|
John
R. Graham
|
$35,000
|
$124,000
|
|
Charles
E. Heath
|
$37,000
|
$132,000
|
|
Interested
Directors
|
|
|
|
H.
Kevin Birzer
|
$ 0
|
$ 0
|
|
Terry
C. Matlack
|
$ 0
|
$ 0
|
The
following table sets forth the dollar range of equity securities
beneficially
owned by each director of the Company as of December 31,
2007.
|
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*
|
|
Independent
Directors
|
||
|
Conrad
S. Ciccotello
|
$50,001-$100,000
|
Over
$100,000
|
|
John
R. Graham
|
Over
$100,000
|
Over
$100,000
|
|
Charles
E. Heath
|
Over
$100,000
|
Over
$100,000
|
|
Interested
Directors
|
||
|
H.
Kevin Birzer
|
Over
$100,000
|
Over
$100,000
|
|
Terry
C. Matlack
|
Over
$100,000
|
Over
$100,000
|
_____________
|
*
|
Includes
TYG, TYY, TYN and TTO and the two privately held closed-end
management
investment companies. Does not include meeting fees paid by the
registered investment company that has not yet commenced
operations in the
amount of $2,000 for each of Mr. Graham and Mr. Heath and
$1,000 for Mr.
Ciccotello.
|
|
**
|
As
of December 31, 2007, 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
November 30, 2007, the following persons owned of record or beneficially
more
than 5% of our common shares:
|
Merrill
Lynch Safekeeping
4
Corporate Place
Piscataway,
NJ 08854
|
17.3%
|
|
Charles
Schwab & Co., Inc.
101
Montgomery St.
San
Francisco, CA 94104
|
9.8%
|
|
Stifel,
Nicolaus & Company Inc.
501
North Broadway
St.
Louis, MO 63102
|
7.0% |
|
National
Financial Services LLC.
200
Liberty Street
One
World Financial Center
New
York, NY 10281
|
6.2%
|
|
RBC
Dain Rauscher Inc.
1221
Avenue of the Americas
New
York, NY 10036
|
5.7%
|
|
First
Clearing, LLC
Riverfront
Plaza (West Tower)
901
East Byrd Street
Richmond,
VA 23219
|
5.3%
|
Indemnification
of Directors and Officers
Maryland
law permits a Maryland corporation to include in its charter a provision
limiting the liability of its directors and officers to the corporation
and its
stockholders for money damages except for liability resulting from
(a) actual receipt of an improper benefit or profit in money, property
or
services or (b) active and deliberate dishonesty which is established by a
final judgment as being material to the cause of action. The Charter
contains such a provision which eliminates directors’ and officers’ liability to
the maximum extent permitted by Maryland law and the 1940 Act.
The
Charter authorizes us, to the maximum extent permitted by Maryland
law and the
1940 Act, to indemnify any present or former director or officer or
any
individual who, while a director or officer of ours and at our request,
serves
or has served another corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or other enterprise as
a director,
officer, partner or trustee, from and against any claim or liability
to which
that person may become subject or which that person may incur by reason
of his
or her status as a present or former director or officer of ours and
to pay or
reimburse his or her reasonable expenses in advance of final disposition
of a
proceeding. The Bylaws obligate us, to the maximum extent permitted
by Maryland law and the 1940 Act, to indemnify any present or former
director or
officer or any individual who, while a director of ours and at our
request,
serves or has served another corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or other enterprise
as
a director, officer, partner or trustee and who is made a party to
the
proceeding by reason of his or her service in that capacity from and
against any
claim or liability to which that person may become subject or which
that person
may incur by reason of his or her status as a present or former director
or
officer of ours and to pay or reimburse his or her reasonable expenses
in
advance of final disposition of a proceeding. The Charter and Bylaws
also permit us to indemnify and advance expenses to any person who
served a
predecessor of ours in any of the capacities described above and any
employee or
agent of ours or a predecessor of ours. The 1940 Act prohibits us
from indemnifying any director, officer or other individual from any
liability
resulting directly from the willful misconduct, bad faith, gross negligence
in
the performance of duties or reckless disregard of applicable obligations
and
duties of the directors, officers or other individuals.
Maryland
law requires a corporation (unless its charter provides otherwise,
which our
Charter does not) to indemnify a director or officer who has been successful
in
the defense of any proceeding to which he or she is made, or threatened
to be
made, a party by reason of his or her service in that
capacity.
Maryland law permits a
corporation to
indemnify its present and former directors and officers, among others,
against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may
be made, or
threatened to be made, a party by reason of their service in those
or other
capacities unless it is established that (a) the act or omission of
the
director
or officer was material to the matter giving rise to the proceeding
and
(i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services or (c) in the case
of any criminal proceeding, the director or officer had reasonable
cause to
believe that the act or omission was unlawful. However, under
Maryland law, a Maryland corporation may not indemnify for an adverse
judgment
in a suit by or in the right of the corporation or for a judgment of
liability
on the basis that personal benefit was improperly received, unless
in either
case a court orders indemnification and then only for expenses. In
addition, Maryland law permits a corporation to advance reasonable
expenses to a
director or officer upon the corporation’s receipt of (a) a written
affirmation by the director or officer of his or her good faith belief
that he
or she has met the standard of conduct necessary for indemnification
by the
corporation and (b) a written undertaking by him or her or on his or her
behalf to repay the amount paid or reimbursed by the corporation if
it is
ultimately determined that the standard of conduct was not met.
Investment
Adviser
Tortoise
Capital Advisors, L.L.C. (the “Adviser”) serves as our investment
adviser. The Adviser specializes in managing portfolios of
investments in MLPs and other energy infrastructure companies. The
Adviser was formed by Fountain Capital Management, L.L.C. (“Fountain Capital”)
and Kansas City Equity Partners, L.C. (“KCEP”) in October 2002 to provide
portfolio management services exclusively with respect to energy
infrastructure
investments. Fountain Capital's ownership in the Adviser was
transferred to FCM Tortoise, L.L.C. (“FCM”), a recently formed entity with the
same principals as Fountain Capital. FCM has no operations and serves
as a holding company. The transfer was effective as of August 2, 2007, and
did not result in a change of control of the Adviser. The Adviser is
controlled equally by FCM and KCEP, each of which own approximately
half of all
of the voting shares of the Adviser.
Fountain
Capital was formed in 1990 and is focused primarily on providing
investment
advisory services to institutional investors with respect to below
investment
grade debt. Atlantic Asset Management, L.L.C. (“Atlantic”) is a
minority owner, and an affiliate, of Fountain Capital. Atlantic was
formed in 1992 and provides, directly or through affiliates, a variety
of fixed
income investment advisory services including investment grade bond
and
high-yield bond strategies, investment grade collateralized debt
obligations and
mortgage hedge funds.
KCEP
was
formed in 1993 and until recently, managed KCEP Ventures II, L.P.
(“KCEP II”), a private equity fund with committed capital of $55 million
invested in a variety of companies in diverse
industries. KCEP II wound up its operations in late 2006, has no
remaining portfolio investments and has distributed proceeds to its
partners. KCEP I, L.P. (“KCEP I”), a start-up and
early-stage venture capital fund launched in 1994 and previously managed
by
KCEP, also recently completed the process of winding down. As a part
of that process, KCEP I entered into a consensual order of receivership,
which was necessary to allow KCEP I to distribute its remaining $1.3
million of assets to creditors and the SBA. The consensual order
acknowledged a capital impairment condition and the resulting nonperformance
by
KCEP I of its agreement with the SBA, both of which were violations of the
provisions requiring repayment of capital under the Small Business
Investment
Act of 1958 and the regulations thereunder.
The
Adviser is located at 10801 Mastin Boulevard, Suite 222, Overland
Park, Kansas
66210. As of December 31, 2007, the Adviser had approximately
$2.9 billion in assets under management in the energy
sector.
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 members of its investment committee
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. All members of our Adviser’s investment committee are
full-time employees of the Adviser.
The
following table provides information about the number of and total
assets in
other accounts managed on a day-to-day basis by each of the portfolio
managers
as of November 30, 2007.
|
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
|
_____
|
$
|
_____
|
—
|
|
Zachary
A. Hamel
|
|
|
|
|
|
Registered
investment companies
|
_____
|
$
|
_____
|
—
|
|
Other
pooled investment vehicles
|
_____
|
$
|
_____
|
$
|
|
Other
accounts
|
_____
|
$
|
_____
|
—
|
|
Kenneth
P. Malvey
|
|
|
|
|
|
Registered
investment companies
|
_____
|
$
|
_____
|
—
|
|
Other
pooled investment vehicles
|
_____
|
$
|
_____
|
$
|
|
Other
accounts
|
_____
|
$
|
_____
|
—
|
|
Terry
C. Matlack
|
|
|
|
|
|
Registered
investment companies
|
_____
|
$
|
_____
|
—
|
|
Other
pooled investment vehicles
|
_____
|
$
|
_____
|
$
|
|
Other
accounts
|
_____
|
$
|
_____
|
—
|
|
David J.
Schulte
|
|
|
|
|
|
Registered
investment companies
|
_____
|
$
|
_____
|
—
|
|
Other
pooled investment vehicles
|
_____
|
$
|
_____
|
$
|
|
Other
accounts
|
_____
|
$
|
_____
|
—
|
None
of
Messrs. Schulte, Matlack, Birzer, Hamel or Malvey receive any direct
compensation from the Company or any other of the managed accounts
reflected in
the table above. All such accounts are managed by the Adviser or
Fountain Capital. Messrs. Birzer, Hamel, Malvey, Matlack and
Schulte are full-time employees of the Adviser and receive a fixed
salary for
the services they provide. Each of Messrs. Schulte, Matlack,
Birzer, Hamel and Malvey own an equity interest in either KCEP or
FCM, the two
entities that control the Adviser, and each thus benefits from increases
in the
net income of the Adviser.
The
following table sets forth the dollar range of our equity securities
beneficially owned by each of the portfolio managers as of November 30,
2007.
|
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
fiscal year ending November 30, 2005, the Adviser received $4,804,810 as
compensation for advisory services, net of $1,534,870, in reimbursed
fees and
expenses. For our fiscal year ending November 30, 2006, the
Adviser received $6,253,972 as compensation for advisory services,
net of
$987,587, in reimbursed fees and expenses. For our fiscal year ending
November 30, 2007, the Adviser received $10,571,172 as compensation for
advisory services, net of $1,243,667, in reimbursed fees and
expenses.
The
Advisory Agreement provides that we will pay all expenses other than
those
expressly stated to be payable by the Adviser, which expenses payable
by us
shall include, without implied limitation: (1) expenses of
maintaining the Company and continuing our existence and related overhead,
including, to the extent services are provided by personnel of the
Adviser or
its affiliates, office space and facilities and personnel compensation,
training
and benefits; (2) registration under the 1940 Act; (3) commissions,
spreads, fees and other expenses connected with the acquisition, holding
and
disposition of securities and other investments including placement
and similar
fees in connection with direct placements in which we participate;
(4) auditing, accounting and legal expenses; (5) taxes and interest;
(6) governmental fees; (7) expenses of listing our shares with a stock
exchange, and expenses of issuance, sale, repurchase and
redemption
(if any) of our interests, including expenses of conducting tender offers
for the purpose of repurchasing our interests; (8) expenses of registering
and qualifying us and our shares under federal and state securities
laws and of
preparing and filing registration statements and amendments for such
purposes;
(9) expenses of communicating with stockholders; including website expenses
and the expenses of preparing, printing and mailing press releases,
reports and
other notices to stockholders and of meetings of stockholders and proxy
solicitations therefor; (10) expenses of reports to governmental officers
and commissions; (11) insurance expenses; (12) association membership
dues; (13) fees, expenses and disbursements of custodians and subcustodians
for all services to us (including without limitation safekeeping of
funds,
securities and other investments, keeping of books, accounts and records,
and
determination of net asset values); (14) fees, expenses and disbursements
of transfer agents, dividend paying agents, stockholder servicing agents
and
registrars for all services to us; (15) compensation and expenses of our
directors who are not members of the Adviser’s organization; (16) pricing
and valuation services employed by us; (17) all expenses incurred in
connection with leveraging of our assets through a line of credit,
or issuing
and maintaining preferred stock or instruments evidencing indebtedness
of the
Company; (18) all expenses incurred in connection with the offering of our
common and preferred stock and debt securities; and (19) such non-recurring
items as may arise, including expenses incurred in connection with
litigation,
proceedings and claims and our obligation to indemnify our directors,
officers
and stockholders with respect thereto.
The
Advisory Agreement provides that the Adviser will not be liable in
any way for
any default, failure or defect in any of the securities comprising
our portfolio
if it has satisfied the duties and the standard of care, diligence
and skill set
forth in the Advisory Agreement. However, the Adviser shall be liable
to us for any loss, damage, claim, cost, charge, expense or liability
resulting
from the Adviser’s willful misconduct, bad faith or gross negligence or
disregard by the Adviser of the Adviser’s duties or standard of care, diligence
and skill set forth in the Advisory Agreement or a material breach
or default of
the Adviser’s obligations under the Advisory Agreement.
The
Advisory Agreement has a term ending on December 31st of each year and is
submitted to the Board of Directors for renewal each year. A
discussion regarding the basis of the Board of Directors’ decision to approve
the renewal of the Advisory Agreement is available in our Annual
Report to
stockholders for the fiscal year ended November 30, 2007. 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. Our Code of Ethics is also available on our Adviser’s
website at www.tortoiseadvisors.com.
NET
ASSET
VALUE
We
will
compute our net asset value for our shares of common stock as of the
close of
trading on the NYSE (normally 4:00 p.m. Eastern time) no less
frequently than the last business day of each calendar month and at
such other
times as the Board may determine. We make our net asset value
available for publication monthly. Our investment transactions are
generally recorded on a trade date plus one day basis, other than for
quarterly
and annual reporting purposes. For purposes of determining the net
asset value of a share of common stock, our net asset value will equal
the value
of our total assets (the value of the securities we hold, plus cash
or other
assets, including interest accrued but not yet received) less (1) all
of its liabilities (including without limitation accrued expenses and
both
current and deferred income taxes), (2) accumulated and unpaid interest
payments and dividends on any outstanding debt or preferred stock,
respectively,
(3) the aggregate liquidation value of any outstanding preferred stock,
(4) the aggregate principal amount of any outstanding senior notes,
including any series of Tortoise Notes, and (5) any distributions payable
on the common stock. The net asset value per share of our common
stock will equal our net asset value divided by the number of outstanding
shares
of common stock.
Pursuant
to an agreement with U.S. Bancorp Fund Services, LLC (the “Accounting Services
Provider”), the Accounting Services Provider will value our assets in accordance
with Valuation Procedures adopted by the Board of Directors. The
Accounting Services Provider will obtain securities market quotations
from
independent pricing services approved by the Adviser and ratified by
the
Board. Securities for which market quotations are readily available
shall be valued at “market value.” Any other securities shall be
valued at “fair value.”
Valuation
of certain assets at market value will be as follows. For equity
securities, the Accounting Services Provider will first use readily
available
market quotations and will obtain direct written broker-dealer quotations
if a
security is not traded on an exchange or quotations are not available
from an
approved pricing service. For fixed income securities, the Accounting
Services Provider will use readily available market quotations based
upon the
last sale price of a security on the day we value our assets or a market
value
from a pricing service or by obtaining a direct written broker-dealer
quotation
from a dealer who has made a market in the security. For options,
futures contracts and options on futures contracts, the Accounting
Services
Provider will use readily available market quotations. If no sales
are reported on any exchange or over-the-counter (“OTC”) market for an option,
futures contract or option on futures contracts, the Accounting Services
Provider will use the calculated mean based on bid and asked prices
obtained
from the primary exchange or OTC market.
If
the
Accounting Services Provider cannot obtain a market value or the Adviser
determines that the value of a security as so obtained does not represent
a fair
value as of the valuation time (due to a significant development subsequent
to
the time its price is determined or otherwise), fair value for the
security
shall be determined pursuant to the Valuation Procedures adopted by
the
Board. The Valuation Procedures provide that the Adviser will
consider a variety of factors with respect to the individual issuer
and security
in determining and monitoring the continued appropriateness of fair
value,
including, without
limitation,
financial statements and fundamental data with respect to the issuer,
cost, the
amount of any discount, restrictions on transfer and registration
rights and
other information deemed relevant. A report of any prices determined
pursuant to certain preapproved methodologies will be presented to
the Board or
a designated committee thereof for approval no less frequently than
quarterly. The Valuation Procedures currently provide for
methodologies to be used to fair value equity securities and debt
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 Investment
Committee of
the Adviser (the "Pricing Committee") based on all relevant factors and
such valuation will be presented to the Board for review and ratification
no
less frequently than quarterly. If a security has a common share
counterpart trading in a public market or is convertible into publicly-traded
common shares, the Pricing Committee shall determine an appropriate
percentage
discount for the security in light of its resale restrictions and/or,
as
applicable, conversion 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.
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) on the treatment of distributions by us to our
stockholders.
The
allocation between current and deferred income taxes is determined
based upon
the value of assets reported for book purposes compared to the respective
net
tax bases of assets for federal income tax purposes. It is
anticipated that cash distributions from MLPs in which we invest will
not equal
the amount of taxable income allocable to us primarily as a result
of
depreciation and amortization deductions recorded by the MLPs. This
may result, in effect, in a portion of the cash distribution received
by us not
being treated as income for federal income tax purposes. The relative
portion of such distributions not treated as income for tax purposes
will vary
among the MLPs, and also will vary year by year for each MLP, but in
each case
will reduce our remaining tax basis, if any, in the particular
MLP. The Adviser will be able to directly confirm the portion of each
distribution recognized as taxable income when it receives annual tax
reporting
information from each MLP.
PORTFOLIO
TRANSACTIONS
Execution
of Portfolio Transactions
The
Adviser is responsible for decisions to buy and sell securities
for the Company,
broker-dealer selection, and negotiation of brokerage commission
rates. The Adviser’s primary consideration in effecting a security
transaction will be to obtain the best execution. In selecting a
broker-dealer to execute each particular transaction, the Adviser
will take the
following into consideration: the
best
net price available; the reliability, integrity and financial condition
of the
broker-dealer; the size of and the difficulty in executing the
order; and the
value of the expected contribution of the broker-dealer to our
investment
performance on a continuing basis. Accordingly, our price in any
transaction may be less
favorable
than that available from another broker-dealer if the difference
is reasonably
justified by other aspects of the execution services offered.
The
ability to invest in direct placements of MLP securities is critical
to our
ability to meet our investment objective because of the limited number
of MLP
issuers available for investment and, in some cases, the relative small
trading
volumes of certain securities. Accordingly, we may from time to time
enter into arrangements with placement agents in connection with direct
placement transactions.
In
evaluating placement agent proposals, we consider each broker’s access to
issuers of MLP securities and experience in the MLP market, particularly
the
direct placement market. In addition to these factors, we consider
whether the proposed services are customary, whether the proposed fee
schedules
are within the range of customary rates, whether any proposal would
obligate us
to enter into transactions involving a minimum fee, dollar amount or
volume of
securities, or into any transaction whatsoever, and other terms such
as
indemnification provisions.
Subject
to such policies as the Board may from time to time determine, the
Adviser shall
not be deemed to have acted unlawfully or to have breached any duty
solely by
reason of its having caused us to pay a broker or dealer that provides
brokerage
and research services to the Adviser an amount of commission for
effecting a
portfolio transaction in excess of the amount of commission another
broker or
dealer would have charged for effecting that transaction, if the
Adviser
determines in good faith that such amount of commission was reasonable
in
relation to the value of the brokerage and research services provided
by such
broker or dealer, viewed in terms of either that particular transaction
or the
Adviser’s overall responsibilities with respect to us and to other clients
of
the Adviser as to which the Adviser exercises investment
discretion. The Adviser is further authorized to allocate the orders
placed by it on our behalf to such brokers and dealers who also provide
research
or statistical material or other services to us or the Adviser. Such
allocation shall be in such amounts and proportions as the Adviser
shall
determine and the Adviser will report on said allocations regularly
to the Board
indicating the brokers to whom such allocations have been made and
the basis
therefor. For the fiscal years ended November 30, 2005,
November 30, 2006 and November 30, 2007, we paid aggregate brokerage
commissions of $18,465, $20,190 and $811,320, respectively, and direct
placement
fees of $80,000, $0 and $0, respectively.
Portfolio
Turnover
Our
annual portfolio turnover rate may vary greatly from year to
year. Although we cannot accurately predict our annual portfolio
turnover rate, it is not expected to exceed 30% under normal
circumstances. For the fiscal years ended November 30, 2007 and
2006 the portfolio turnover rate was 9.30% and 2.18%,
respectively. However, portfolio turnover rate is not considered a
limiting factor in the execution of investment decisions for us. A
higher turnover rate results in correspondingly greater brokerage
commissions
and other transactional expenses that are borne by us. High portfolio
turnover also may result in recognition of gains that will increase
our taxable
income,
possibly
resulting in an increased tax liability, as well as increasing
our current and
accumulated earnings and profits resulting in a greater portion
of the
distributions on our stock being treated as taxable dividends for
federal income
tax purposes. See “Certain Federal Income Tax
Matters.”
CERTAIN
FEDERAL
INCOME TAX MATTERS
The
following is a summary of certain material U.S. federal income tax
considerations relating to us and our investments in MLPs and to
the purchase,
ownership and disposition of our securities. The discussion generally
applies only to holders of securities that are U.S. holders. You will
be a U.S. holder if you are an individual who is a citizen or resident
of the
United States, a U.S. domestic corporation, or
any
other
person that is subject to U.S. federal income tax on a net income basis
in
respect of an investment in our securities. This summary deals only
with U.S. holders that hold our securities as capital assets and who
purchase
the securities in connection with the offering(s) herein. It does not
address considerations that may be relevant to you if you are an investor
that
is subject to special tax rules, such as a financial institution, insurance
company, regulated investment company, real estate investment trust,
investor in
pass-through entities, U.S. holder of securities whose “functional currency” is
not the United States dollar, tax-exempt organization, dealer in securities
or
currencies, trader in securities or commodities that elects mark to
market
treatment, a person who holds the securities in a qualified tax deferred
account
such as an IRA, or a person who will hold the securities as a position
in a
“straddle,” “hedge” or as part of a “constructive sale” for federal income tax
purposes. In addition, this discussion does not address the possible
application of the U.S. federal alternative minimum tax.
This
summary is based on the provisions of the Internal Revenue Code, the
applicable
Treasury regulations promulgated thereunder, judicial authority and
current
administrative rulings, as in effect on the date of this Statement
of Additional
Information, all of which may change. Any change could apply
retroactively and could affect the continued validity of this
summary.
As
stated
above, this discussion does not discuss all aspects of U.S. federal
income
taxation that may be relevant to a particular holder of our securities
in light
of such holder’s particular circumstances and income tax
situation. Prospective holders should consult their own tax advisors
as to the specific tax consequences to them of the purchase, ownership
and
disposition of the securities, including the application and the effect
of
state, local, foreign and other tax laws and the possible effects of
changes in
U.S. or other tax laws.
Taxation
of the Company
We
are
treated as a C corporation for federal and state income tax
purposes. We compute and pay federal and state income tax on our
taxable income. Thus, we are subject to federal income tax on our
taxable income at tax rates up to 35%. Additionally, in certain
instances we could be subject to the federal alternative minimum tax
of 20% on
our alternative minimum taxable income to the extent that the alternative
minimum tax exceeds our regular federal income tax.
As
indicated above, we generally invest our assets primarily in
MLPs. MLPs generally are treated as partnerships for federal income
tax purposes. Since partnerships are generally not subject to federal
income tax, the partnership’s partners must report as their income their
proportionate share of the partnership’s income. Thus, as
a partner in MLPs, we will report our proportionate share of the MLPs’ income in
computing our federal taxable income, irrespective of whether any cash
or other
distributions are made by the MLPs to us. We will also take into
account in computing our taxable income any other items of our income,
gain,
deduction or loss. We anticipate that these may include interest
income earned on our investment in debt securities, deductions for
our operating
expenses and gain or loss recognized by us on the sale of MLP interests
or any
other security.
As
explained below, based upon the historic performance of MLPs, we
anticipate
initially that our proportionate share of the MLPs’ taxable income will be
significantly less than the amount of cash distributions we receive
from the
MLPs. In such case, we anticipate that we will not incur federal
income tax on a significant portion of our cash flow, particularly
after taking
into account our current operational expenses. If the MLPs’ taxable
income is a significantly greater portion of the MLPs’ cash distributions, we
will incur additional current federal income tax liability, possibly
in excess
of the cash distributions we receive.
We
anticipate that each year we will turn over a certain portion of
our investment
assets. We will recognize gain or loss on the disposition of all or a
portion of our interests in MLPs in an amount equal to
the
difference between the sales price and our basis in the MLP interests
sold. To the extent we receive MLP cash distributions in excess of
the taxable income reportable by us with respect to such MLP interest,
our basis
in the MLP interest will be reduced and our gain on the sale of the
MLP interest
likewise will be increased.
We
are
not treated as a regulated investment company under the federal income
tax
laws. The Internal Revenue Code generally provides that a regulated
investment company does not pay an entity level income tax, provided
that it
distributes all or substantially all of its income. Our assets do
not, and are not expected to, meet current tests for qualification
as a
regulated investment company for federal income tax purposes. The
regulated investment company taxation rules have no application to
us or our
stockholders. Although changes to the federal tax laws permit
regulated investment companies to invest up to 25% of the value of
their total
assets in securities of MLPs, such changes still would not allow us
to pursue
our objective. Accordingly, we do not intend to change our tax status
as a result of such legislation.
Federal
Income Taxation of MLPs
MLPs
are
similar to corporations in many respects, but differ in others, especially
in
the way they are taxed for federal income tax purposes. A corporation
is a distinct legal entity, separate from its stockholders and employees
and is
treated as a separate entity for federal income tax purposes as
well. Like individual taxpayers, a corporation must pay a federal
income tax on its income. To the extent the corporation distributes
its income to its stockholders in the form of dividends, the stockholders
must
pay federal income tax on the dividends they receive. For this
reason, it is said that corporate income is double-taxed, or taxed
at two
levels.
An
MLP
that satisfies the Qualifying Income rules described below, and does
not elect
otherwise, is treated for federal income tax purposes as a pass-through
entity. No federal income tax is paid at the partnership
level. A partnership’s income is considered earned by all the
partners; it is allocated among all the partners in proportion to their
interests in the partnership (generally as provided in the partnership
agreement), and each partner pays tax on his, her or its share of the
partnership’s income. All the other items that go into determining
taxable income and tax owed are passed through to the partners as well
– capital
gains and losses, deductions, credits, etc. Partnership income is
thus said to be single-taxed or taxed only at one level – that of the
partner.
The
Internal Revenue Code generally requires “publicly-traded partnerships” to be
treated as corporations for federal income tax purposes. However, if
the publicly-traded partnership satisfies certain requirements and
does not
elect otherwise, the publicly-traded partnership will be taxed as a
partnership
for federal income tax purposes, referred to herein as an MLP. Under
these requirements, an MLP must derive each year at least 90% of its
gross
income from Qualifying Income.
Qualifying
Income for MLPs includes interest, dividends, real estate rents, gain
from the
sale or disposition of real property, certain income and gain from
commodities
or commodity futures, and income
and gain from certain mineral or natural resources
activities. Mineral or natural resources activities that generate
Qualifying Income include income and gains from the exploration, development,
mining or production, processing, refining, transportation (including
pipelines
transporting gas, oil or products thereof), or the marketing of any
mineral or
natural resource (including fertilizer, geothermal energy, and
timber). This means that most MLPs today are in energy, timber, or
real estate related businesses.
Because
the MLP itself does not pay federal income tax, its income or loss
is allocated
to its investors, irrespective of whether the investors receive any
cash or
other payment from the MLP. It is important to note that an MLP
investor is taxed on his share of partnership income whether or not
he
actually
receives any cash or other property from the partnership. The tax is
based not on money or other property he actually receives, but his
proportionate
share of what the partnership earns. However, most MLPs make it a
policy to make quarterly distributions to their partners that will
comfortably
exceed any income tax owed. Although they resemble corporate
dividends, MLP distributions are treated differently. The MLP
distribution is treated as a return of capital to the extent of the
investor’s
basis in his MLP interest and, to the extent the distribution exceeds
the
investor’s basis in the MLP interest, capital gain. The investor’s
original basis is generally the price paid for the units. The basis
is adjusted downward with each distribution and allocation of deductions
(such
as depreciation) and losses, and upwards with each allocation of income and
gain.
The
partner generally will not be taxed on MLP distributions until (1) he sells
his MLP units and pays tax on his gain, which gain is increased due
to the basis
decrease resulting from prior distributions; or (2) his basis reaches
zero. When the units are sold, the difference between the sales price
and the investor’s adjusted basis is the gain or loss for federal income tax
purposes.
At
tax
filing season an MLP investor will receive a Schedule K-1 form showing the
investor’s share of each item of the partnership’s income, gain, loss,
deductions and credits. The investor will use that information to
figure the investor’s taxable income (MLPs generally provide their investors
with material that walks them through all the steps). If there is net
income derived from the MLP, the investor pays federal income tax at
his, her or
its tax rate. If there is a net loss derived from the MLP, it is
generally considered a “passive loss” under the Internal Revenue Code and
generally may not be used to offset income from other sources, but
must be
carried forward.
Because
we are a corporation, we, and not our stockholders, will report the
income or
loss of the MLPs. Thus, our stockholders will not have to deal with
any Schedules K-1 reporting income and loss items of the
MLPs. Stockholders, instead, will receive a Form 1099 from
us. In addition, due to our broad public ownership, we do not expect
to be subject to the passive loss limitation rules mentioned in the
preceding
paragraph.
Common
and Preferred Stock
Federal
Income Tax Treatment of
Common Stock Distributions. Unlike a holder of a direct
interest in MLPs, a stockholder will not include its allocable share
of our
income, gains, losses or deductions in computing its own taxable
income. Instead, since we are of the opinion that, under present law,
our shares of common stock will constitute equity, distributions with
respect to
such shares (other than distributions in redemption of shares subject
to
Section 302(b) of the Internal Revenue Code) will generally constitute
dividends to the extent of our allocable current or accumulated earnings
and
profits, as calculated for federal income tax purposes. Generally, a
corporation’s earnings and profits are computed based upon taxable income, with
certain specified adjustments. As explained above, based upon the
historic performance of the MLPs, we anticipate that the distributed
cash from
the MLPs will exceed our share of the MLPs’ income. In addition,
earnings and profits are treated generally, for federal income tax
purposes, as
first being used to pay distributions on preferred stock, and then
to the
extent
remaining,
if any, to pay distributions on the common stock. Thus, we anticipate
that only a portion of the distributions of distributable cash flow
(“DCF”) will
be treated as dividend income to common stockholders. To the extent
that distributions to a stockholder exceed our current and accumulated
earnings
and profits, such distributions will be treated as a return of capital
and the
stockholder’s basis in shares of stock with respect to which the distributions
are made will be reduced and, if a stockholder has no further basis
in the
shares, the stockholder will report any excess as capital gain if
the
stockholder holds such shares as a capital asset.
Dividends
of current or accumulated earnings and profits generally will be
taxable as
ordinary income to holders but are expected to be treated as “qualified dividend
income” that is generally subject
to
reduced rates of federal income taxation for noncorporate investors
and are also
expected to be eligible for the dividends received deduction available
to
corporate stockholders under Section 243 of the Internal Revenue
Code. Under federal income tax law, qualified dividend income
received by individual and other noncorporate stockholders is taxed
at long-term
capital gain rates, which currently reach a maximum of 15%. Qualified
dividend income generally includes dividends from domestic corporations
and
dividends from non-U.S. corporations that meet certain criteria. To
be treated as qualified dividend income, the stockholder must hold
the shares
paying otherwise qualifying dividend income more than 60 days during
the 121-day
period beginning 60 days before the ex-dividend date (or more than
90 days
during the 181-day period beginning 90 days before the ex-dividend
date in the
case of certain preferred stock dividends). A stockholder’s holding
period may be reduced for purposes of this rule if the stockholder
engages in
certain risk reduction transactions with respect to the common or preferred
stock. The provisions of the Internal Revenue Code applicable to
qualified dividend income are effective through 2010. Thereafter,
higher tax rates will apply unless further legislative action is
taken.
Corporate
holders should be aware that certain limitations apply to the availability
of
the dividends received deduction, including limitations on the aggregate
amount
of the deduction that may be claimed and limitations based on the holding
period
of the shares on which the dividend is paid, which holding period may
be reduced
if the holder engages in risk reduction transactions with respect to
its
shares. Corporate holders should consult their own tax advisors
regarding the application of these limitations to their particular
situation.
If
a
common stockholder participates in our Automatic Dividend Reinvestment
Plan,
such stockholder will be treated as receiving the amount of the distributions
made by the Company, which amount generally will be either equal to
the amount
of cash distribution the stockholder would have received if the stockholder
had
elected to receive cash or, for shares issued by the Company, the fair
market
value of the shares issued to the stockholder.
Federal
Income Tax Treatment of
Preferred Stock Distributions. Under present law, we believe
that our preferred stock will constitute equity for federal income
tax purposes,
and thus distributions with respect to the preferred stock (other than
distributions in redemption of preferred stock subject to Section 302(b) of
the Internal Revenue Code) will generally constitute dividends to the
extent of
our current or accumulated earnings and profits allocable to such shares,
as
calculated for federal income tax purposes. Earnings and profits are
generally treated, for federal income tax purposes, as first being
allocable to
distributions on the preferred stock and then to the extent remaining,
if any,
to distributions on our common stock. Dividends generally will be
taxable as ordinary income to holders, but are expected to be treated
as
“qualified dividend income” that is generally subject to reduced rates of
federal income taxation for noncorporate investors, as described
above. In the case of corporate holders of preferred stock, subject
to applicable requirements and limitations, dividends may be eligible
for the
dividends received deduction available to corporations under Section 243 of
the Internal Revenue Code (see discussion above). Distributions in
excess of our earnings and profits allocable to preferred stock, if
any, will
first reduce a shareholder’s adjusted tax basis in his or her shares and, after
the adjusted tax basis is
reduced to zero, will constitute capital gains to a holder who holds
such shares
as a capital asset. Because we have elected not to be treated as a
regulated investment company under the Internal Revenue Code, we are
not
entitled to designate any dividends made with respect to our stock
as capital
gain distributions.
Sale
of
Shares. The sale of shares of common or preferred stock by
holders will generally be a taxable transaction for federal income
tax
purposes. Holders of shares who sell such shares will generally
recognize gain or loss in an amount equal to the difference between
the net
proceeds of the sale and their adjusted tax basis in the shares
sold. If the shares are held as a capital asset at the time of the
sale, the gain or loss will generally be a capital gain or
loss. Similarly, a redemption by us (including a redemption
resulting
from our liquidation), if any, of all the shares actually and constructively
held by a stockholder generally will give rise to capital gain or loss
under
Section 302(b) of the Internal Revenue Code, provided that the redemption
proceeds do not represent declared but unpaid dividends. Other
redemptions may also give rise to capital gain or loss, but certain
conditions
imposed by Section 302(b) of the Internal Revenue Code must be satisfied to
achieve such treatment.
Capital
gain or loss will generally be long-term capital gain or loss if the
shares were
held for more than one year and will be short-term capital gain or
loss if the
disposed shares were held for one year or less. Net long-term capital
gain recognized by a noncorporate U.S. holder generally will be subject
to
federal income tax at a lower rate (currently a maximum rate of 15%)
than net
short-term capital gain or ordinary income (currently a maximum rate
of
35%). Under current law, the maximum federal income tax rate on
capital gain for noncorporate holders is scheduled to increase to 20%
for
taxable years after 2010. For corporate holders, capital gain is
generally taxed at the same rate as ordinary income, that is, currently
at a
maximum rate of 35%. A holder’s ability to deduct capital losses may
be limited.
Investment
by Tax-Exempt Investors
and Regulated Investment Companies. Employee benefit plans,
other tax-exempt organizations and regulated investment companies may
want to
invest in our securities. Employee benefit plans and most other
organizations exempt from federal income tax, including individual
retirement
accounts and other retirement plans, are subject to federal income
tax on
unrelated business taxable income (“UBTI”). Because we are a
corporation for federal income tax purposes, an owner of shares will
not report
on its federal income tax return any of our items of income, gain,
loss and
deduction. Therefore, a tax-exempt investor generally will not have
UBTI attributable to its ownership or sale of our stock unless its
ownership of
the stock is debt-financed. In general, stock would be debt-financed
if the tax-exempt owner of stock incurs debt to acquire the stock or
otherwise
incurs or maintains debt that would not have been incurred or maintained
if the
stock had not been acquired.
For
federal income tax purposes, a regulated investment company, or “mutual fund,”
may not have more than 25% of the value of its total assets, at the
close of any
fiscal quarter, invested in the securities of one or more qualified
publicly
traded partnerships, which will include most MLPs. Shares of our
stock are not securities of a qualified publicly traded partnership
and will not
be treated as such for purposes of calculating the limitation imposed
upon
regulated investment companies.
Backup
Withholding. We may be required to withhold, for U.S. federal
income tax purposes, a portion of all taxable distributions (including
redemption proceeds) payable to stockholders who fail to provide us
with their
correct taxpayer identification number, who fail to make required certifications
or who have been notified by the Internal Revenue Service (“IRS”) that they are
subject to backup withholding (or if we have been so
notified). Certain corporate and other stockholders specified in the
Internal Revenue Code and the regulations thereunder are exempt from
backup
withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the stockholder’s
U.S.
federal income tax liability provided the appropriate information is
furnished
to the IRS in a timely manner.
Other
Taxation. Foreign stockholders, including stockholders who are
nonresident alien individuals, may be subject to U.S. withholding
tax on certain
distributions at a rate of 30% or such lower rates as may be prescribed
by any
applicable treaty. Our distributions also may be subject to state and
local taxes.
Debt
Securities
Federal
Income Tax Treatment of
Holders of Debt Securities. Under present law, we are of the
opinion that our debt securities will constitute indebtedness for federal
income
tax purposes, which the discussion below assumes. We intend to treat
all payments made with respect to the debt securities consistent with
this
characterization.
Taxation
of
Interest. Payments or accruals of interest on debt securities
generally will be taxable to you as ordinary interest income at the
time such
interest is received (actually or constructively) or accrued, in accordance
with
your regular method of accounting for federal income tax purposes.
Purchase,
Sale and Redemption of
Debt Securities. Initially, your tax basis in debt securities
acquired generally will be equal to your cost to acquire such debt
securities. This basis will increase by the amounts, if any, that you
include in income under the rules governing market discount, and will
decrease
by the amount of any amortized premium on such debt securities, as
discussed
below. When you sell or exchange any of your debt securities, or if
any of your debt securities are redeemed, you generally will recognize
gain or
loss equal to the difference between the amount you realize on the
transaction
(less any accrued and unpaid interest, which will be subject to tax
as interest
in the manner described above) and your tax basis in the debt securities
relinquished.
Except
as
discussed below with respect to market discount, the gain or loss that
you
recognize on the sale, exchange or redemption of any of your debt securities
generally will be capital gain or loss. Such gain or loss will
generally be long-term capital gain or loss if the disposed debt securities
were
held for more than one year and will be short-term capital gain or
loss if the
disposed debt securities were held for one year or less. Net
long-term capital gain recognized by a noncorporate U.S. holder generally
will
be subject to federal income tax at a lower rate (currently a maximum
rate of
15%, although this rate will increase to 20% after 2010) than net short-term
capital gain or ordinary income (currently a maximum rate of
35%). For corporate holders, capital gain is generally taxed at the
same rate as ordinary income, that is, currently at a maximum rate
of
35%. A holder’s ability to deduct capital losses may be
limited.
Amortizable
Premium. If
you purchase debt
securities at a cost greater than their stated principal amount, plus
accrued
interest, you will be considered to have purchased the debt securities
at a
premium, and you generally may elect to amortize this premium as an
offset to
interest income, using a constant yield method, over the remaining
term of the
debt securities. If you make the election to amortize the premium, it
generally will apply to all debt instruments that you hold at the time
of the
election, as well as any debt instruments that you subsequently
acquire. In addition, you may not revoke the election without the
consent of the IRS. If you elect to amortize the premium, you will be
required to reduce your tax basis in the debt securities by the amount
of the
premium amortized during your holding period. If you do not elect to
amortize premium, the amount of premium will be included in your tax
basis in
the debt securities. Therefore, if you do not elect to amortize the
premium and you hold the debt securities to maturity, you generally
will be
required to treat the premium as a capital loss when the debt securities
are
redeemed.
Market
Discount. If
you purchase debt securities at a price that reflects a “market discount,” any
principal payments on, or any gain that you realize on the disposition
of, the
debt securities generally will be treated as ordinary interest income
to the
extent of the market discount that accrued on the debt securities during
the
time you held such debt securities. “Market discount” is defined
under the Internal Revenue Code as, in general, the excess of the stated
redemption price at maturity over the purchase price of the debt security,
except that if the market discount is less than 0.25% of the stated
redemption
price at maturity multiplied by the number of complete years to maturity,
the
market discount is considered to be zero. In addition, you may be
required to defer the deduction of all or a portion of any interest
paid on any
indebtedness that you incurred or continued to purchase or carry the
debt
securities that were acquired
at
a
market discount. In general, market discount will be treated as
accruing ratably over the term of the debt securities, or, at your
election,
under a constant yield method.
You
may
elect to include market discount in gross income currently as it accrues
(on
either a ratable or constant yield basis), in lieu of treating a portion
of any
gain realized on a sale of the debt securities as ordinary income. If
you elect to include market discount on a current basis, the interest
deduction
deferral rule described above will not apply and you will increase
your basis in
the debt security by the amount of market discount you include in gross
income. If you do make such an election, it will apply to all market
discount debt instruments that you acquire on or after the first day
of the
first taxable year to which the election applies. This election may
not be revoked without the consent of the IRS.
Information
Reporting and Backup
Withholding. In general, information reporting requirements
will apply to payments of principal, interest, and premium, if any,
paid on debt
securities and to the proceeds of the sale of debt securities paid
to U.S.
holders other than certain exempt recipients (such as certain
corporations). Information reporting generally will apply to payments
of interest on the debt securities to non-U.S. Holders (as defined
below) and
the amount of tax, if any, withheld with respect to such
payments. Copies of the information returns reporting such interest
payments and any withholding may also be made available to the tax
authorities
in the country in which the non-U.S. Holder resides under the provisions
of an
applicable income tax treaty. In addition, for non-U.S. Holders,
information reporting will apply to the proceeds of the sale of debt
securities
within the United States or conducted through United States-related
financial
intermediaries unless the certification requirements described below
have been
complied with and the statement described below in “Taxation of Non-U.S.
Holders” has been received (and the payor does not have actual knowledge or
reason to know that the holder is a United States person) or the holder
otherwise establishes an exemption.
We
may be
required to withhold, for U.S. federal income tax purposes, a portion
of all
taxable payments (including redemption proceeds) payable to holders
of debt
securities who fail to provide us with their correct taxpayer identification
number, who fail to make required certifications or who have been notified
by
the IRS that they are subject to backup withholding (or if we have
been so
notified). Certain corporate and other shareholders specified in the
Internal Revenue Code and the regulations thereunder are exempt from
backup
withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the holder’s U.S.
federal income tax liability provided the appropriate information is
furnished
to the IRS. If you are a non-U.S. Holder, you may have to comply with
certification procedures to establish your non-U.S. status in order
to avoid
backup withholding tax requirements. The certification procedures
required to claim the exemption from withholding tax on interest income
described below will satisfy these requirements.
Taxation
of Non-U.S.
Holders. If you are a non-resident alien individual or a
foreign corporation (a “non-U.S. Holder”), the payment of interest on the debt
securities generally will be considered “portfolio interest” and thus generally
will be exempt from United States federal withholding tax. This
exemption will apply to you provided that (1) interest paid on the debt
securities is not effectively connected
with your conduct of a trade or business in the United States, (2) you are
not a bank whose receipt of interest on the debt securities is described
in
Section 881(c)(3)(A) of the Internal Revenue Code, (3) you do not
actually or constructively own 10 percent or more of the combined voting
power of all classes of our stock entitled to vote, (4) you are not a
controlled foreign corporation that is related, directly or indirectly
to us
through stock ownership, and (5) you satisfy the certification requirements
described below.
To
satisfy the certification requirements, either (1) the holder of any debt
securities must certify, under penalties of perjury, that such holder
is a
non-U.S. person and must provide such owner’s name,
address
and taxpayer identification number, if any, on IRS Form W-8BEN, or
(2) a
securities clearing organization, bank or other financial institution
that holds
customer securities in the ordinary course of its trade or business
and holds
the debt securities on behalf of the holder thereof must certify, under
penalties of perjury, that it has received a valid and properly executed
IRS
Form W-8BEN from the beneficial holder and comply with certain other
requirements. Special certification rules apply for debt securities
held by a foreign partnership and other intermediaries.
Interest
on debt securities received by a non-U.S. Holder that is not excluded
from U.S.
federal withholding tax under the portfolio interest exemption as described
above generally will be subject to withholding at a 30% rate, except
where a
non-U.S. Holder can claim the benefits of an applicable tax treaty
to reduce or
eliminate such withholding tax and such non-U.S. Holder provides us
with a
properly executed IRS Form W-8BEN claiming such exemption or
reduction.
Any
capital gain that a non-U.S. Holder realizes on a sale, exchange or
other
disposition of debt securities generally will be exempt from United
States
federal income tax, including withholding tax. This exemption will
not apply to you if your gain is effectively connected with your conduct
of a
trade or business in the U.S. or you are an individual holder and are
present in
the U.S. for 183 days or more in the taxable year of the disposition and
either your gain is attributable to an office or other fixed place
of business
that you maintain in the U.S. or you have a tax home in the United
States.
PROXY
VOTING
POLICIES
We
and
the Adviser have adopted proxy voting policies and procedures (“Proxy Policy”),
which we believe are reasonably designed to ensure that proxies are
voted in our
best interests and our stockholders best interests. Subject to the
oversight of the Board, the Board has delegated responsibility for
implementing
the Proxy Policy to the Adviser. Because of the unique nature of MLPs
in which we primarily invest, the Adviser shall evaluate each proxy
on a
case-by-case basis. Because proxies of MLPs are expected to relate
only to extraordinary measures, we do not believe it is prudent to
adopt
pre-established voting guidelines.
In
the
event requests for proxies are received with respect to the voting
of equity
securities other than MLP equity units, on routine matters, such as
election of
directors or approval of auditors, the proxies usually will be voted
with
management unless the Adviser determines it has a conflict or the Adviser
determines there are other reasons not to vote with management. On
non-routine matters, such as amendments to governing instruments, proposals
relating to compensation and stock option and equity compensation plans,
corporate governance proposals and stockholder proposals, the Adviser
will vote,
or abstain from voting if deemed appropriate, on a case-by-case basis
in a
manner it believes to be in the best economic interest of our
stockholders. In the event requests for proxies are received with
respect to debt securities, the Adviser will vote on a case-by-case
basis in a
manner it believes to be in the best economic interest of our
stockholders.
The
Chief
Executive Officer is responsible for monitoring corporate actions and
ensuring
that (1) proxies are received and forwarded to the appropriate decision
makers; and (2) proxies are voted in a timely manner upon receipt of voting
instructions. We are not responsible for voting proxies we do not
receive, but will make reasonable efforts to obtain missing
proxies. The Chief Executive Officer shall implement procedures to
identify and monitor potential conflicts of interest that could affect
the proxy
voting process, including (1) significant client relationships;
(2) other potential material business relationships; and (3) material
personal and family relationships. All decisions regarding proxy
voting shall be determined by the Investment Committee of the Adviser,
or a
Manager of the Adviser designated by the Investment Committee, and
shall be
executed by the Chief Executive Officer or, if the proxy may be voted
electronically, electronically voted by the Chief Executive Officer
or his
designee. Every effort
shall
be
made to consult with the portfolio manager and/or analyst covering
the
security. We may determine not to vote a particular proxy, if the
costs and burdens exceed the benefits of voting (e.g., when securities
are
subject to loan or to share blocking restrictions).
If
a
request for proxy presents a conflict of interest between our stockholders
on
the one hand, and the Adviser, the principal underwriters, or any affiliated
persons of us, on the other hand, management may (i) disclose the potential
conflict to the Board of Directors and obtain consent; or (ii) establish an
ethical wall or other informational barrier between the persons involved
in the
conflict and the persons making the voting decisions.
Information
regarding how we voted proxies for the period from our commencement
of
operations through June 30, 2007, is available without charge by calling us
at 1-866-362-9331. You also may access this information on the SEC’s
website at http://www.sec.gov. The
Adviser’s website at www.tortoiseadvisors.com
provides a link to all of our reports filed with the SEC.
INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING
FIRM
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.
INTERNAL
ACCOUNTANT
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
$24,000 for the first $50 million of our net assets, 0.0125% on the
next $200
million of net assets and 0.0075% on the balance of our net
assets. For the fiscal years ended November 30, 2007, 2006 and
2005, we paid U.S. Bancorp $88,428, $67,856 and $60,831, respectively,
for
internal accounting services.
ADDITIONAL
INFORMATION
A
Registration Statement on Form N-2, including amendments thereto, relating
to
the common stock, preferred stock and debt securities offered hereby,
has been
filed by us with the SEC. The prospectus, prospectus supplement, and
this Statement of Additional Information do not contain all of the
information
set forth in the Registration Statement, including any exhibits and
schedules
thereto. Please refer to the Registration Statement for further
information with respect to us and the offering of our
securities. Statements contained in the prospectus, prospectus
supplement, and this Statement of Additional Information as to the
contents of
any contract or other document referred to are not necessarily complete
and in
each instance reference is made to the copy of such contract or other
document
filed as
an
exhibit to a Registration Statement, each such statement being qualified
in all
respects by such reference. Copies of the Registration Statement may
be inspected without charge at the SEC’s principal office in Washington, D.C.,
and copies of all or any part thereof may be obtained from the SEC
upon the
payment of certain fees prescribed by the SEC.
FINANCIAL
STATEMENTS
Our
2007
Annual Report, which contains our financial statements as of November 30,
2007, notes thereto, and other information about us, will be filed
with the SEC,
and once filed, is expected to be incorporated by reference into,
and shall accompany, this Statement of Additional
Information.
Our
2007
Annual Report includes supplemental financial information which presents
selected ratios as a percentage of our total investment portfolio
and a
calculation of our distributable cash flow (“DCF”) and related
information. You may request a free copy of the Statement of
Additional Information, our annual, semi-annual and quarterly reports,
or make
other requests for information about us, by calling toll-free 1-866-362-9331,
or
by writing to us at 10801 Mastin Boulevard, Suite 222, Overland Park,
Kansas 66210.
APPENDIX
A
–
SUMMARY
OF CERTAIN PROVISIONS OF THE INDENTURE
AND
FORM OF SUPPLEMENTAL INDENTURE
The
following is a summary of certain provisions of the indenture dated
July 13, 2004 (the “Original Indenture”) and the form of Supplemental
Indenture dated ___________. This summary does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
a copy
of which is on file with the SEC.
DEFINITIONS
“‘AA’
Composite
Commercial Paper
Rate” on any date means (i) the interest equivalent of (1) the
7-day rate, in the case of a Rate Period which is 7 days or shorter,
(2) the 30-day rate, in the case of a Rate Period which is a Standard Rate
Period greater than 7 days but fewer than or equal to 31 days, or
(3) the 180-day rate, in the case of all other Rate Periods, on financial
commercial paper on behalf of issuers whose corporate bonds are rated
“AA” by
S&P, or the equivalent of such rating by another nationally recognized
rating agency, as announced by the Federal Reserve Bank of New York
for the
close of business on the Business Day immediately preceding such date;
or
(ii) if the Federal Reserve Bank of New York does not make available such
a
rate, then the arithmetic average of the interest equivalent of such
rates on
financial commercial paper placed on behalf of such issuers, as quoted
on a
discount basis or otherwise by the Commercial Paper Dealers to the
Auction Agent
for the close of business on the Business Day immediately preceding
such date
(rounded to the next highest .001 of 1%). If any Commercial Paper
Dealer does not quote a rate required to determine the “AA” Composite Commercial
Paper Rate, such rate shall be determined on the basis of the quotations
(or
quotation) furnished by the remaining Commercial Paper Dealers (or
Dealer), if
any, or, if there are no such Commercial Paper Dealers, a nationally
recognized
dealer in commercial paper of such issues then making such quotations
selected
by the Company. For purposes of this definition, (A) “Commercial
Paper Dealers” shall mean (1) Citigroup Global Markets Inc., Lehman
Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Goldman Sachs & Co.; (2) in lieu of any thereof, its respective
Affiliate or successor; and (3) in the event that any of the foregoing
shall cease to quote rates for financial commercial paper of issuers
of the sort
described above, in substitution therefor, a nationally recognized
dealer in
financial commercial paper of such issuers then making such quotations
selected
by the Company, and (B) “interest equivalent” of a rate stated on a
discount basis for financial commercial paper of a given number of
days’
maturity shall mean a number equal to the quotient (rounded upward
to the next
higher one-thousandth of 1%) of (1) such rate expressed as a decimal,
divided by (2) the difference between (x) 1.00 and (y) a
fraction, the numerator of which shall be the product of such rate
expressed as
a decimal, multiplied by the number of days in which such 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 is
also a
Director of the Company be deemed to be an Affiliate solely because
such
director or executive officer is also a Director of the Company.
“Agent
Member” means a member
of or participant in the Securities Depository that will act on behalf
of a
Bidder.
“All
Hold Rate” means 80% of
the “AA” Composite Commercial Paper Rate.
“Applicable
Rate” means the
rate determined in accordance with the procedures in paragraph (c)(i) of
Interest in this Appendix A.
“Auction”
means
each periodic
implementation of the Auction Procedures.
“Auction
Agent” means The Bank
of New York unless and until another commercial bank, trust company,
or other
financial institution appointed by a resolution of the Board of Directors
enters
into an agreement with the Company to follow the Auction Procedures
for the
purpose of determining the Applicable Rate.
“Auction
Agreement” means the
agreement between the Auction Agent and the Company pursuant to which
the
Auction Agent agrees to follow the procedures specified in Appendix A-I
Tortoise Notes Auction Procedures, as such agreement may from time
to time be
amended or supplemented.
“Auction
Date” means the first
Business Day next preceding the first day of a Rate Period for each
series of
Tortoise Notes.
“Auction
Desk” means the
business unit of a Broker-Dealer that fulfills the responsibilities
of the
Broker-Dealer under a Broker-Dealer Agreement, including soliciting
Bids for the
Tortoise Notes, and units of the Broker-Dealer which are not separated
from such
business unit by information controls appropriate to control, limit
and monitor
the inappropriate dissemination of information about Bids.
“Auction
Period” means with
respect to the Tortoise Notes, either a Standard Auction Period or
a Special
Auction Period, as applicable.
“Auction
Procedures” means the
procedures for conducting Auctions set forth in Appendix A-I
hereto.
“Auction
Rate” means for each
series of Tortoise Notes for each Auction Period, (i) if Sufficient
Clearing Bids exist, the Winning Bid Rate, provided, however, if all
of the
Tortoise Notes are the subject of Submitted Hold Orders, the All Hold
Rate for
such series of Tortoise Notes and (ii) if Sufficient Clearing Bids do not
exist, the Maximum Rate for such series of Tortoise Notes.
“Authorized
Denomination” means
$25,000 and any integral multiple thereof.
“Available
Tortoise Notes”
means for each series of Tortoise Notes on each Auction Date,
the number of
Units of Tortoise Notes of such series that are not the subject of
Submitted
Hold Orders.
“Beneficial
Owner,” with
respect to each series of Tortoise Notes, means a customer of a Broker-Dealer
who is listed on the records of that Broker-Dealer (or, if applicable,
the
Auction Agent) as a holder of such series of Tortoise Notes.
“Bid”
shall
have the meaning
specified in Appendix A-I Tortoise Notes Auction Procedures.
“Bidder”
means
each Beneficial
Owner, Potential Beneficial Owner and Broker Dealer who places an
Order.
“Board
of Directors” or “Board”
means
the Board of
Directors of the Company or any duly authorized committee thereof as
permitted
by applicable law.
“Broker-Dealer”
means
any
broker-dealer or broker-dealers, or other entity permitted by law to
perform the
function required of a Broker-Dealer by the Auction Procedures, that
has been
selected by the Company and that is a party to a Broker-Dealer Agreement
with
the Auction Agent. The “Broker-
Dealer”
of record with respect to any Tortoise Notes is the Broker-Dealer which
placed
the Order for such Tortoise Note or whom the Existing Holder of such
Tortoise
Note has designated as its Broker-Dealer with respect to such Tortoise
Note, in
each case as reflected in the records of the Auction Agent.
“Broker-Dealer
Agreement” means
an agreement between the Auction Agent and a Broker-Dealer, pursuant
to which
such Broker-Dealer agrees to follow the Auction Procedures.
“Broker-Dealer
Deadline” means,
with respect to an Order, the internal deadline established by the
Broker-Dealer
through which the Order was placed after which it will not accept Orders
or any
change in any Order previously placed with such Broker-Dealer; provided,
however, that nothing shall prevent the Broker-Dealer from correcting
Clerical
Errors by the Broker-Dealer with respect to Orders from Bidders after
the
Broker-Dealer Deadline pursuant to the provisions herein. Any
Broker-Dealer may change the time or times of its Broker-Dealer Deadline
as it
relates to such Broker-Dealer by giving notice not less than two Business
Days
prior to the date such change is to take effect to Bidders who place
Orders
through such Broker-Dealer.
“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, days on which the Federal
Reserve
Bank of New York is not open for business, days on which banking institutions
or
trust companies located in the state in which the operations of the
Auction
Agent are conducted are authorized or required to be closed by law,
regulation
or executive order of the state in which the Auction Agent conducts
operations
with respect to the Tortoise Notes.
“Clerical
Error” means a
clerical error in the processing of an Order, and includes, but is
not limited
to, the following: (i) a transmission error, including but not
limited to, an Order sent to the wrong address or number, failure to
transmit
certain pages or illegible transmission, (ii) failure to transmit an Order
received from one or more Existing Holders or Potential Beneficial
Owners
(including Orders from the Broker-Dealer which were not originated
by the
Auction Desk) prior to the Broker-Dealer Deadline or generated by the
Broker-Dealer’s Auction Desk for its own account prior to the Submission
Deadline or (iii) a typographical error. Determining whether an
error is a “Clerical Error” is within the reasonable judgment of the
Broker-Dealer, provided that the Broker-Dealer has a record of the
correct Order
that shows it was so received or so generated prior to the Broker-Dealer
Deadline or the Submission Deadline, as applicable.
“Code”
means
the Internal
Revenue Code of 1986, as amended.
“Commercial
Paper Dealers” has
the meaning set forth in the definition of AA Composite Commercial
Paper
Rate.
“Commission”
means
the
Securities and Exchange Commission.
“Default
Rate” means the
Reference Rate multiplied by three (3).
“Deposit
Securities” means cash
and any obligations or securities, including short term money market
instruments
that are Eligible Assets, rated at least AAA, A-2 or SP-2 by Fitch,
except that,
such obligations or securities shall be considered “Deposit Securities” only if
they are also rated at least P-2 by Moody’s.
“Discount
Factor” means the
Moody’s Discount Factor (if Moody’s is then rating the Tortoise Notes), Fitch
Discount Factor (if Fitch is then rating the Tortoise Notes) or an
Other Rating
Agency Discount Factor, whichever is applicable.
“Discounted
Value” means the
quotient of the Market Value of an Eligible Asset divided by the applicable
Discount Factor, provided that with respect to an Eligible Asset that
is
currently callable, Discounted Value will be equal to the quotient
as calculated
above or the call price, whichever is lower, and that with respect
to an
Eligible Asset that is prepayable, Discounted Value will be equal to
the
quotient as calculated above or the par value, whichever is lower.
“Eligible
Assets” means Moody’s
Eligible Assets or Fitch’s Eligible Assets (if Moody’s or Fitch are then rating
the Tortoise Notes) and/or Other Rating Agency Eligible Assets, whichever
is
applicable.
“Error
Correction Deadline”
means one hour after the Auction Agent completes the dissemination
of the
results of the Auction to Broker-Dealers without regard to the time
of receipt
of such results by any Broker-Dealer; provided, however, in no event
shall the
Error Correction Deadline extend past 4:00 p.m., New York City time unless
the Auction Agent experiences technological failure or force majeure
in
disseminating the Auction results which causes a delay in dissemination
past
3:00 p.m., New York City time.
“Existing
Holder,” with respect
to Tortoise Notes of a series, shall mean a Broker-Dealer (or any such
other
Person as may be permitted by the Company) that is listed on the records
of the
Auction Agent as a holder of Tortoise Notes of such series.
“Fitch”
means
Fitch Ratings and
its successors at law.
“Fitch
Discount Factor” means
the discount factors set forth in the Fitch Guidelines for use in calculating
the Discounted Value of the Company’s assets in connection with Fitch’s ratings
of Tortoise Notes.
“Fitch
Eligible Asset” means
assets of the Company set forth in the Fitch Guidelines as eligible
for
inclusion in calculating the Discounted Value of the Company’s assets in
connection with Fitch’s ratings of Tortoise Notes.
“Fitch
Guidelines” mean the
guidelines provided by Fitch, as may be amended from time to time,
in connection
with Fitch’s ratings of Tortoise Notes.
“Hold
Order” shall have the
meaning specified in Appendix A-I Tortoise Notes Auction Procedures or an
Order deemed to have been submitted as provided in paragraph (a) of
Section 1 of Appendix A-I Tortoise Notes 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.
“Index”
means
on any Auction
Date with respect to Tortoise Notes in any Auction Period of 35 days
or less the
applicable LIBOR rate. The Index with respect to Tortoise Notes in
any Auction Period of more than 35 days shall be the rate on United
States
Treasury Securities having a maturity which most closely approximates
the length
of the Auction Period as last published in The Wall Street Journal
or such other
source as may be mutually agreed upon by the Trustee and the
Broker-Dealers. If either rate is unavailable, the Index shall be an
index or rate agreed to by all Broker-Dealers and consented to by the
Company. For the purpose of this definition an Auction Period of 35
days or less means a 35-day Auction Period or shorter Auction Period,
i.e., a
35-day Auction Period which is extended because of a holiday would
still be
considered an Auction Period of 35 days or less.
“Interest
Payment Date” when
used with respect to any Tortoise Notes, means the date on which an
installment
of interest on such Tortoise Notes shall be due and payable which generally
shall be the day next following an Auction Date.
“LIBOR”
means,
for purposes of
determining the Reference Rate, (i) the rate for deposits in
U.S. dollars for the designated Rate Period, which appears on display
page 3750 of Moneyline’s Telerate Service (“Telerate Page 3750”) (or
such other page as may replace that page on that service, or such
other service as may be selected by Lehman Brothers Inc. or its successors)
as
of 11:00 a.m., London time, on the day that is the Business Day on the
Auction Date or, if the Auction Date is not a Business Day, the Business
Day
preceding the Auction Date (the “LIBOR Determination Date”), or (ii) if
such rate does not appear on Telerate Page 3750 or such other page as
may replace such Telerate Page 3750, (A) Lehman Brothers Inc. shall
determine the arithmetic mean of the offered quotations of the reference
banks
to leading banks in the London interbank market for deposits in U.S.
dollars for
the designated Rate Period in an amount determined by Lehman Brothers
Inc. by
reference to requests for quotations as of approximately 11:00 a.m. (London
time) on such date made by Lehman Brothers Inc. to the reference
banks,
(B) if at least two of the reference banks provide such quotations, LIBOR
shall equal such arithmetic mean of such quotations, (C) if only one or
none of the reference banks provide such quotations, LIBOR shall
be deemed to be
the arithmetic mean of the offered quotations that leading banks
in The City of
New York, New York selected by Lehman Brothers Inc. (after obtaining
the
Company’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 Company’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 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, 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 than 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 but fewer than 365
days, such rate shall be the twelve-month LIBOR rate.
“Market
Value” means the market
value of an asset of the Company determined as follows: For equity
securities, the value obtained from readily available market
quotations. If an equity security is not traded on an exchange or not
available from a Board-approved pricing service, the value obtained
from written
broker-dealer quotations. For fixed-income securities, the value
obtained from readily available market quotations based on the last
sale price
of a security on the day the Company values its assets or the market
value
obtained from a pricing service or the value obtained from a direct
written
broker-dealer quotation from a dealer who has made a market in the
security. “Market Value” for other securities will mean the value
obtained pursuant to the Company’s valuation procedures. If the
market value of a security cannot be obtained, or the Company’s investment
adviser determines that the value of a security
as
so
obtained does not represent the fair value of a security, fair value
for that
security shall be determined pursuant to the valuation procedures adopted
by the
Board of Directors.
“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 Investment Company 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 Investment Company Act as the
minimum
asset coverage for senior securities representing indebtedness of a
closed-end
investment company as a condition of declaring dividends on its common
stock),
determined on the basis of values calculated as of a time within 48
hours next
preceding the time of such determination.
“Notes”
means
Securities of the
Company ranking on a parity with the Tortoise Notes that may be issued
from time
to time pursuant to the Indenture.
“Order”
means
a Hold Order, Bid
or Sell Order.
“Original
Issue Date” means,
with respect to the Tortoise Notes, Series __, _________.
“Other
Rating Agency” means
each rating agency, if any, other than Moody’s or Fitch then providing a rating
for the Tortoise Notes pursuant to the request of the Company.
“Other
Rating Agency Discount
Factor” means the discount factors set forth in the Other Rating Agency
Guidelines of each Other Rating Agency for use in calculating the Discounted
Value of the Company’s assets in connection with the Other Rating Agency’s
rating of Tortoise Notes.
“Other
Rating Agency Eligible
Assets” means assets of the Company set forth in the Other Rating Agency
Guidelines of each Other Rating Agency as eligible for inclusion in
calculating
the
Discounted
Value of the Company’s assets in connection with the Other Rating Agency’s
rating of Tortoise Notes.
“Other
Rating Agency
Guidelines” mean the guidelines provided by each Other Rating Agency, as
may be amended from time to time, in connection with the Other Rating
Agency’s
rating of Tortoise Notes.
“Outstanding”
or
“outstanding”
means,
as of any
date, Tortoise Notes theretofore issued by the Company except, without
duplication, (i) any Tortoise Notes theretofore canceled, redeemed or
repurchased by the Company, or delivered to the Trustee for cancellation
or with
respect to which the Company has given notice of redemption and irrevocably
deposited with the Paying Agent sufficient funds to redeem such Tortoise
Notes
and (ii) any Tortoise Notes represented by any certificate in lieu of which
a new certificate has been executed and delivered by the
Company. Notwithstanding the foregoing, (A) in connection with
any Auction, any series of Tortoise Notes as to which the Company or
any person
known to the Auction Agent to be an Affiliate of the Company shall
be the
Existing Holder thereof shall be disregarded and deemed not to be Outstanding;
and (B) for purposes of determining the Tortoise Notes Basic Maintenance
Amount, Tortoise Notes held by the Company shall be disregarded and
not deemed
Outstanding but Tortoise Notes held by any Affiliate of the Company
shall be
deemed Outstanding.
“Paying
Agent” means BNY
Midwest Trust Company unless and until another entity appointed by
a resolution
of the Board of Directors enters into an agreement with the Company
to serve as
paying agent, transfer agent, registrar, and redemption agent with
respect to
the Tortoise Notes, which Paying Agent may be the same as the Trustee
or the
Auction Agent.
“Person”
or
“person”
means
and includes an
individual, a corporation, a partnership, a trust, a company, an unincorporated
association, a joint venture or other entity or a government or any
agency or
political subdivision thereof.
“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; provided, however, that for
purposes
of conducting an Auction, the Auction Agent may consider a Broker-Dealer
acting
on behalf of its customer as a Potential Beneficial Owner.
“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; provided, however, that for
purposes
of conducting an Auction, the Auction Agent may consider a Broker-Dealer
acting
on behalf of its customer as a Potential Holder.
“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 (if any other Rating Agency is then rating Tortoise Notes),
whichever
is applicable.
“Redemption
Date,” when used
with respect to any Tortoise Note to be redeemed, means the date fixed
for such
redemption by or pursuant to the Indenture.
“Redemption
Price,” when used
with respect to any Tortoise Note to be redeemed, means the price at
which it is
to be redeemed pursuant to the Indenture.
“Reference
Rate” means, with
respect to the determination of the Maximum Rate and Default Rate,
the greater
of (i) 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 (ii) the applicable LIBOR
Rate.
“Securities
Act” means the
Securities Act of 1933, as amended from time to time.
“Securities
Depository” means
The Depository Trust Company and its successors and assigns or any
successor
securities depository selected by the Company that agrees to follow
the
procedures required to be followed by such securities depository in
connection
with the Tortoise Notes Series __.
“Sell
Order” shall have the
meaning specified in Appendix A-I Tortoise Notes Auction
Procedures.
“Special
Auction Period” means
an Auction Period that is not a Standard Auction Period.
“Special
Rate Period” means a
Rate Period that is not a Standard Rate Period.
“Specific
Redemption
Provisions” means, with respect to any Special Rate Period of more than
one year, either, or any combination of (i) 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 Issuer pursuant to Section
2.03(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 Tortoise Notes
subject to
such Special Rate Period shall be redeemable at the Issuer’s option pursuant to
Section 2.03(a)(i) and/or in connection with any mandatory redemption
pursuant
to Section 2.03(a)(ii) at a price equal to the principal amount plus
accrued but
unpaid interest plus a premium expressed as a percentage or percentages
of
$25,000 or expressed as a formula using specified variables as determined
by the
Board of Directors after consultation with the
Broker-Dealers.
“Standard
Auction Period” means
an Auction Period of ___ days.
“Standard
Rate Period” means a
Rate Period of ____ days.
“Stated
Maturity” with respect
to Tortoise Notes Series __, shall mean _________.
“Submission
Deadline” means
1:00 P.M., New York City time, on any Auction Date or such other time on
such date as shall be specified by the Auction Agent from time to time
pursuant
to the Auction Agreement as the time by which the Broker-Dealers are
required to
submit Orders to the Auction Agent. Notwithstanding the foregoing,
the Auction Agent will follow the Securities Industry and Financial
Markets
Association’s Early Market Close Recommendations for shortened trading days for
the bond markets (the “SIFMA Recommendation”) unless the Auction Agent is
instructed otherwise in
writing
by the Company. In the event of a SIFMA Recommendation with respect
to an Auction Date, the Submission Deadline will be 11:30 A.M., instead of
1:00 P.M., New York City time.
“Submitted
Bid” shall have the
meaning specified in Appendix A-I Tortoise Notes Auction
Procedures.
“Submitted
Hold Order” shall
have the meaning specified in Appendix A-I Tortoise Notes Auction
Procedures.
“Submitted
Order” shall have
the meaning specified in Appendix A-I Tortoise Notes Auction
Procedures.
“Submitted
Sell Order” shall
have the meaning specified in Appendix A-I Tortoise Notes Auction
Procedures.
“Sufficient
Clearing Bids”
means for each series of Tortoise Notes, an Auction for which
the number of
Units of Tortoise Notes of such series that are the subject of Submitted
Bids by
Potential Beneficial Owners specifying one or more rates not higher
than the
Maximum Rate is not less than the number of Units of Tortoise Notes
of such
series that are the subject of Submitted Sell Orders and of Submitted
Bids by
Existing Holders specifying rates higher than the Maximum Rate.
“Tortoise
Notes Basic Maintenance
Amount” as of any Valuation Date has the meaning set forth in the Rating
Agency Guidelines.
“Tortoise
Notes Series __”
means the Series __ Tortoise Notes or any other Notes 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.
“Unit”
means,
with respect to
each series of Tortoise Notes, the principal amount of the minimum
Authorized
Denomination of the Tortoise Notes.
“Valuation
Date” means every
Friday, or, if such day is not a Business Day, the next preceding Business
Day;
provided, however, that the first Valuation Date may occur on any other
date
established by the Company; provided, further, however, that such first
Valuation Date shall be not more than one week from the date on which
Tortoise
Notes Series ___ initially are issued.
“Winning
Bid Rate” means for
each series of Tortoise Notes, the lowest rate specified in any Submitted
Bid of
such series of Tortoise Notes which if selected by the Auction Agent
as the
Applicable
Rate
would cause the number of Units of Tortoise Notes of such series that
are the
subject of Submitted Bids specifying a rate not greater than such rate
to be not
less than the number of Units of Available Tortoise Notes of such
series.
NOTE
DETAILS, FORM OF NOTES AND REDEMPTION OF NOTES
Section
2.02 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) of this
Section 2.02. Interest on the Outstanding Tortoise Notes of any
series issued on the Original Issue Date shall accumulate from the
Original
Issue Date.
(b)(i) Interest
shall be payable, subject to subparagraph (b)(ii) below, on each series
of
Tortoise Notes, with respect to any Rate Period on the first Business
Day
following the last day of such Rate Period; provided, however, if the
Rate
Period is greater than 30 days then on a monthly basis on the first
Business Day of each month within such Rate Period, not including the
initial
Rate Period, and on the Business Day following the last day of such
Rate
Period.
(ii)
If a day for payment of interest resulting from the application of
subparagraph
(b)(i) above is not a Business Day, then the Interest Payment Date
shall be the
first Business Day following such day for payment of interest in the
case of a
series of Tortoise Notes designated as “Series __.”
(iii)
The Company shall pay to the Paying Agent not later than 3:00 p.m., New
York City time, on the Business Day next preceding each Interest Payment
Date
for each series of Tortoise Notes, an aggregate amount of funds available
on the
next Business Day in the City of New York, New York, equal to the interest
to be
paid to all Holders of such Tortoise Notes on such Interest Payment
Date. The Company shall not be required to establish any reserves for
the payment of interest.
(iv)
All moneys paid to the Paying Agent for the payment of interest shall
be held in
trust for the payment of such interest by the Paying Agent for the
benefit of
the Holders specified in subparagraph (b)(v) below. Any moneys paid
to the
Paying Agent in accordance with the foregoing but not applied by the
Paying
Agent to the payment of interest, including interest earned on such
moneys,
will, to the extent permitted by law, be repaid to the Company at the
end of
90 days from the date on which such moneys were to have been so
applied.
(v)
Each interest payment on a series of Tortoise Notes shall be paid on
the
Interest Payment Date therefor to the Holders of that series as their
names
appear on the security ledger or security records of the Company on
the Business
Day next preceding such Interest Payment Date. Interest in arrears
for any past
Rate Period may be declared and paid at any time, without reference
to any
regular Interest Payment Date, to the Holders as their names appear
on the books
or records of the Company on such date, not exceeding 15 days preceding the
payment date thereof, as may be fixed by the Board of Directors. No
interest will be payable in respect of any Interest Payment or payments
which
may be in arrears.
(c)(i)
The interest rate on Outstanding Tortoise Notes of each series during
the period
from and after the Original Issue Date to and including the last day
of the
initial Rate Period therefor shall be equal to __%. For each subsequent
Rate
Period with respect to the Tortoise Notes Outstanding thereafter,
the
interest
rate shall be equal to the rate per annum that results from an Auction;
provided, however, that if an Auction for any subsequent Rate Period
of a series
of Tortoise Notes is not held for any reason or if Sufficient Clearing
Bids have
not been made in an Auction (other than as a result of all series of
Tortoise
Notes being the subject of Submitted Hold Orders), then the interest
rate on a
series of Tortoise Notes for any such Rate Period shall be the Maximum
Rate
(except during a Default Period (as defined below) 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 Section 2(c)(i)
shall be the “Applicable Rate.” For Standard Rate Periods or shorter
periods only, the Applicable Rate resulting from an Auction will not
be less
than the Minimum Rate.
(ii)
Subject to the cure provisions below, a “Default Period” with respect to a
particular series will commence on any date the Company fails to deposit
irrevocably in trust in same-day funds, with the Paying Agent by 12:00
noon, New
York City time, (A) the full amount of any redemption price (the
“Redemption Price”) payable on the date fixed for redemption (the “Redemption
Date”) (a “Redemption Default,” which shall constitute an Event of Default
pursuant to Section 5.1(7) of the Original Indenture) or (B) the full
amount of any accrued interest on that series payable on the Interest
Payment
Date (an “Interest Default” and together with a Redemption 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 per Unit of Tortoise Notes 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 Unit of Tortoise Notes 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.
Section
2.03 Redemption
(a)(i)
After the initial Rate Period, subject to the provisions of the Indenture
and to
the extent permitted under the Investment Company 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 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 aggregate 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
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 aggregate
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 aggregate principal amount of Tortoise Notes they
hold, by lot
or by 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
aggregate
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 aggregate 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
aggregate principal amount of Tortoise Notes to be redeemed shall be
redeemed
pro rata from the Holders of such Tortoise Notes in proportion to the
aggregate
principal amount of such Tortoise Notes 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 Investment
Company
Act or any successor provision. In addition, the Company shall deliver
a notice
of redemption to the Auction Agent and the Trustee (the “Notice of Redemption”)
containing the information set forth below (i) in the case of an optional
redemption pursuant to subparagraph (a)(i) above, at least three Business
Days
prior to the giving of notice to the Holders and (ii) in the case of a
mandatory redemption pursuant to subparagraph (a)(ii) above, on or
prior to the
30th day preceding the Mandatory Redemption Date. The Trustee will
use its reasonable efforts to provide notice to each Holder of Tortoise
Notes
called for redemption by electronic or other reasonable means not later
than the
close of business on the Business Day immediately following the day
on which the
Trustee determines the Tortoise Notes to be redeemed (or, during a
Default
Period with respect to such Tortoise Notes, not later than the close
of business
on the Business Day immediately following the day on which the Trustee
receives
Notice of Redemption from the Company). The Trustee shall confirm
such notice in writing not later than the close of business on the
third
Business Day preceding the date fixed for redemption by providing the
Notice of
Redemption to each Holder of Tortoise Notes called for redemption,
the Paying
Agent (if different from the Trustee) and the Securities
Depository. Notice of Redemption will be addressed to the registered
owners of each series of Tortoise Notes at their addresses appearing
on the
books or records of the Company. Such Notice of Redemption will set
forth (i) the date fixed for redemption, (ii) the principal amount and
identity of Tortoise Notes to be redeemed, (iii) the redemption price
(specifying the amount of accrued interest to be included therein and
any
redemption premium, if any), (iv) that interest on the Tortoise Notes to be
redeemed will cease to accrue on such date fixed for redemption,
(v) applicable cusip number(s) and (vi) 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 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 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. 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 herein
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 the Tortoise
Notes
Basic Maintenance Amount after giving effect to such purchase or acquisition
on
the date thereof. If fewer 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 Investment Company 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), Notice of Redemption
as
contemplated by Section 2.03(b) has been delivered prior thereto or is
sent promptly thereafter, and such proceeds are used to redeem all
Outstanding
Tortoise Notes or (B) the Company would meet the 1940 Act Tortoise Notes
Asset Coverage, the Tortoise Notes Basic Maintenance Amount and the
requirements
set forth below in “Certain Other Restrictions.”
(j)
If any Tortoise Notes are to be redeemed and such Tortoise Notes are
held by the
Securities Depository, the Company shall include in the notice of redemption
delivered to the Securities Depository: (i) under an item entitled
“Publication Date for Securities Depository Purposes”, the Interest Payment Date
prior to the Redemption Date, and (ii) an instruction to the Securities
Depository to (x) determine on such Publication Date after the Auction held
on the immediately preceding Auction Date has settled, the Depository
participants whose Securities Depository positions will be redeemed
and the
principal amount of such Tortoise Notes to be redeemed from each such
position
(the “Securities Depository Redemption Information”), and (y) notify the
Auction Agent immediately after such determination of (A) the positions of
the Depository Participants in such Tortoise Notes immediately prior
to such
Auction settlement, (B) the positions of the Depository Participants in
such Tortoise Notes immediately following such Auction settlement and
(C) the Securities Depository Redemption
Information. “Publication Date” shall mean three Business Days after
the Auction Date next preceding such Redemption Date.
Section
2.04 Designation of Rate Period
The
initial Rate Period for each series of Tortoise Notes is as set forth
under
“Designation” in the Indenture. 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
herein, (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 the
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.
Section
2.05 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.
Section
2.06 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.
Section
2.07 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
the
Tortoise Notes Basic Maintenance Amount; provided, however, that
Section 2.03(a)(ii) shall be the sole remedy in the event the Company fails
to do so.
Section
2.08 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.
A
declaration of a dividend or other distribution on or purchase or redemption
of
any common or preferred shares of capital stock of the Company is prohibited
(i) at any time that an Event of Default under the Indenture has occurred
and is continuing, (ii) if after giving effect to such declaration, the
Company would not have Eligible Assets with an aggregate Discounted
Value at
least equal to the Tortoise Notes Basic Maintenance Amount or the 1940
Act
Tortoise Notes Asset Coverage, or (iii) the Company has not redeemed the
full amount of Tortoise Notes required to be redeemed by any provisions
for
mandatory redemption contained herein.
Section
2.09 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 herein (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 under the
Indenture.
(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.
Section
2.10 Delivery of Notes
Upon
the
execution and delivery of the Supplemental 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 and as hereinafter
in this
Section provided.
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.
(d)
An Opinion of Counsel and an Officers’ Certificate pursuant to Sections 3.3
and 9.3 of the Original Indenture.
Section
2.11 Trustee’s Authentication
Certificate
The
Trustee’s authentication certificate upon the Tortoise Notes shall be
substantially in the forms 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
–
AUCTION
PROCEDURES
1.
Orders by
Existing
Holders and Potential Beneficial Owners. (a) Prior to the
Broker-Dealer Deadline for each Series of Tortoise Notes on each Auction
Date:
(i)
each Existing Holder may submit to a Broker-Dealer, in writing or by
such other
method as shall be reasonably acceptable to such Broker-Dealer, one
or more
Orders as to:
(A)
the principal amount of Tortoise Notes, if any, of the series held
by the
Existing Holder which the Existing Holder commits to continue to hold
for the
next succeeding Auction Period without regard to the Applicable Rate
for such
Auction Period;
(B)
the principal amount of Tortoise Notes, if any, of the series held
by the
Existing Holder which the Existing Holder commits to continue to hold
for the
next succeeding Auction Period if the Applicable Rate for Tortoise
Notes for the
next succeeding Auction Period is not less than the rate per annum
specified in
such Order (and if the Auction Rate is less than such specified rate,
the effect
of the Order shall be as set forth in paragraph (b)(i)(A) of this Section);
and/or
(C)
the principal amount of Tortoise Notes, if any, of the series held
by the
Existing Holder which the Existing Holder offers to sell on the first
Business
Day of the next succeeding Auction Period without regard to the Applicable
Rate
for Tortoise Notes for the next succeeding Auction Period; and
(ii)
each Potential Beneficial Owner may submit to a Broker-Dealer, in writing
or by
such other method as shall be reasonably acceptable to such Broker-Dealer,
an
Order as to the principal amount of outstanding Tortoise Notes of a
series which
each such Potential Beneficial Owner offers to purchase if the Applicable
Rate
for the Tortoise Notes of such series for the next succeeding Rate
Period is not
less than the rate per annum then specified by such Potential Beneficial
Owner.
For
the
purposes of the Auction Procedures, an Order containing the information
referred
to in clause (i)(A) of this paragraph (a) is referred to as a “Hold
Order,” an Order containing the information referred to in clause (i)(B) or
(ii) of this paragraph (a) is referred to as a “Bid,” and an Order
containing the information referred to in clause (i)(C) of this
paragraph (a) is referred to as a “Sell Order.”
No
Auction Desk of a Broker-Dealer shall accept as an Order a submission
(whether
received from an Existing Holder or a Potential Beneficial Owner or
generated by
the Broker-Dealer for its own account) which does not conform to the
requirements of the Auction Procedures, including, but not limited
to,
submissions which are not in Authorized Denominations, specify a rate
which
contains more than three figures to the right of the decimal point
or specify an
amount greater than the amount of outstanding Tortoise Notes. No
Auction Desk of a Broker-Dealer shall accept a Bid or Sell Order which
is
conditioned on being filled in whole or a Bid which does not specify
a specific
interest rate.
(b)
(i) A Bid by an Existing Holder shall constitute an offer to sell on the
first Business Day of the next succeeding Auction Period:
(A)
the principal amount of outstanding Tortoise Notes specified in the
Bid if the
Applicable Rate for the next succeeding Auction Period shall be less
than the
rate specified in such Bid; or
(B)
the principal amount or a lesser principal amount of outstanding Tortoise
Notes
to be determined as described in clause (v) of paragraph (a) of
Section 5 of this Appendix A-I if the Applicable Rate for the next
succeeding Auction Period shall be equal to such specified rate; or
(C)
a lesser principal amount of outstanding Tortoise Notes be determined
as
described in clause (iv) of paragraph (b) of Section 5 of this
Appendix A-I if the rate specified therein shall be higher than the Maximum
Rate and Sufficient Clearing Bids do not exist.
(ii)
A Sell Order by an Existing Holder shall constitute an offer to
sell:
(A)
the principal amount of outstanding Tortoise Notes of the series specified
in
the Sell Order; or
(B)
the principal amount or a lesser principal amount of outstanding Tortoise
Notes
of the series as set forth in clause (iv) of paragraph (b) of
Section 5 of this Appendix A-I if Sufficient Clearing Bids for
Tortoise Notes of the series do not exist;
(iii)
A Bid by a Potential Holder of Tortoise Notes shall constitute an offer
to
purchase:
(A)
the principal amount of outstanding Tortoise Notes of the series specified
in
the Bid if the Applicable Rate for the next succeeding Auction Period
shall be
higher than the rate specified therein; or
(B)
the principal amount or a lesser principal amount of outstanding Tortoise
Notes
of the series as set forth in clause (vi) of paragraph (a) of
Section 5 of this Appendix A-I if the Applicable Rate for the Tortoise
Notes determined on the Auction Date shall be equal to the rate specified
therein.
(C)
Anything herein to the contrary notwithstanding:
(1)
if an Order or Orders covering all of the Tortoise Notes of a particular
series
held by any Existing Holder is not submitted to the Broker-Dealer prior
to the
Broker-Dealer Deadline, such Broker-Dealer shall deem a Hold Order
to have been
submitted on behalf of the Existing Holder covering the principal amount
of
outstanding Tortoise Notes of the series held by the Existing Holder
and not
subject to Orders submitted to the Auction Agent; provided, however,
that if
there is a conversion from one Auction Period to a longer Auction Period
and
Orders have not been submitted to such Broker-Dealer prior to the Broker-Dealer
Deadline covering the aggregate principal amount of Tortoise Notes
of a
particular series to be converted held by such Existing Holder, such
Broker-Dealer shall deem a Sell Order to have been submitted on behalf
of the
Existing Holder covering the principal amount of Tortoise Notes to
be converted
held by the Existing Holder and not subject to Orders submitted to
such
Broker-Dealer;
(2)
for purposes of any Auction, any Order by an Existing Holder or Potential
Holder
shall be revocable until the Broker-Dealer Deadline, and after the
Broker-Dealer
Deadline all such Orders shall be irrevocable except as provided in
Sections 2(e)(ii) and 2(f); and
(3)
for purposes of any Auction, any Tortoise Notes sold or purchased pursuant
to
clauses (i), (ii) or (iii) of paragraph (b) of this Section 1
shall be sold or purchased at a price equal to 100% of the principal
amount
thereof.
2.
Submission
of Orders
by Broker-Dealers to Auction Agent.
(a)
Each Broker-Dealer shall submit to the Auction Agent in writing, or
by such
other electronic means, as shall be reasonably acceptable to the Auction
Agent,
prior to the Submission Deadline on each Auction Date for Tortoise
Notes of a
series, all Orders with respect to Tortoise Notes of such series accepted
by
such Broker-Dealer in accordance with Section 1 above and specifying with
respect to each Order or aggregation of Orders pursuant to paragraph (b) of
this Section 2:
(i)
the name of the Broker-Dealer;
(ii)
the number of Bidders placing Orders, if requested by the Auction
Agent;
(iii)
the aggregate number of Units of Tortoise Notes of the series, if any,
that are
the subject of the Order;
(iv)
to the extent that the Bidder is an Existing Holder of Tortoise Notes
of the
series:
(A)
the number of Units of Tortoise Notes, if any, of the series subject
to any Hold
Order placed by the Existing Holder;
(B)
the number of Units of Tortoise Notes, if any, of the series subject
to any Bid
placed by the Existing Holder and the rate specified in the Bid;
and
(C)
the number of Units of Tortoise Notes, if any, of the series subject
to any Sell
Order placed by the Existing Holder; and
(v)
to the extent the Bidder is a Potential Holder of Tortoise Notes of
the series,
the rate specified in such Bid.
(b)
If more than one Bid is submitted to a Broker-Dealer on behalf of any
single
Potential Beneficial Owner, the Broker-Dealer shall aggregate each
Bid on behalf
of such Potential Beneficial Owner submitted with the same rate and
consider
such Bids as a single Bid and shall consider each Bid submitted with
a different
rate a separate Bid with the rate and the number of Units of Tortoise
Notes of
the series specified therein.
A
Broker-Dealer may aggregate the Orders of different Potential Beneficial
Owners
with those of other Potential Beneficial Owners on whose behalf the
Broker-Dealer is submitting Orders and may aggregate the Orders of
different
Existing Holders with other Existing Holders on whose behalf the Broker-Dealer
is submitting Orders; provided, however, Bids may only be aggregated
if the
interest rates on the Bids are the same.
(c) None of
the Company, the Trustee or the Auction Agent shall be responsible
for the
failure of any Broker-Dealer to submit an Order to the Auction Agent
on behalf
of any Beneficial Owner, Potential Beneficial Owner, Existing Holder
or
Potential Holder.
(d)
Nothing contained herein shall preclude a Broker-Dealer from placing
an Order
for some or all of the Tortoise Notes of a series for its own
account.
(e)
Until the Submission Deadline, a Broker-Dealer may withdraw or modify
any Order
previously submitted to the Auction Agent (i) for any reason if the Order
was generated by the Auction Desk of the Broker-Dealer for the account
of the
Broker-Dealer or (ii) to correct a Clerical Error on the part of the
Broker-Dealer in the case of any other Order, including Orders from
the
Broker-Dealer which were not originated by the Auction Desk.
(f)
After the Submission Deadline, and prior to the Error Correction Deadline,
a
Broker-Dealer may:
(i)
submit to the Auction Agent an Order received from an Existing Holder,
Potential
Beneficial Owner or a Broker-Dealer which is not an Order generated
by the
Auction Desk, in each case prior to the Broker-Dealer Deadline, or
an Order
generated by the Broker-Dealer’s Auction Desk for its own account prior to the
Submission Deadline (provided that in each case the Broker-Dealer has
a record
of such Order and the time when such Order was received or generated)
and not
submitted to the Auction Agent prior to the Submission Deadline (provided
that
the Broker-Dealer has a record of such Order and the time when such
Order was
received or granted) as a result of (A) an event of force majeure or a
technological failure which made delivery prior to the Submission Deadline
impossible or, under the conditions then prevailing, impracticable
or (B) a
clerical error on the part of the Broker-Dealer; or
(ii)
modify or withdraw an Order received from an Existing Holder or a Potential
Beneficial Owner or generated by the Broker-Dealer (whether generated
by the
Broker-Dealer’s Auction Desk or elsewhere within the Broker-Dealer) for its own
account and submitted to the Auction Agent prior to the Submission
Deadline or
pursuant to clause (i) above, if the Broker-Dealer determines that such
Order contained a Clerical Error on the part of the Broker-Dealer.
In
the
event a Broker-Dealer makes a submission, modification or withdrawal
pursuant to
this Section 2(f) and the Auction Agent has already run the Auction, the
Auction Agent shall rerun the Auction, taking into account such submission,
modification or withdrawal. Each submission, modification or
withdrawal of an Order submitted pursuant to this Section 2(f) by a
Broker-Dealer after the Submission Deadline and prior to the Error
Correction
Deadline shall constitute a representation by the Broker-Dealer that
(A) in
the case of a newly submitted Order or portion thereof or revised Order,
the
failure to submit such Order prior to the Submission Deadline resulted
from an
event described in clause (i) above and such Order was received from an
Existing Holder or Potential Beneficial Owner or is an Order received
from the
Broker-Dealer that was not originated by the Auction Desk, in each
case, prior
to the Broker-Dealer Deadline, or generated internally by such Broker-Dealer’s
Auction Desk for its own account prior to the Submission Deadline or
(B) in
the case of a modified or withdrawn Order, such Order was received
from an
Existing Holder, a Potential Beneficial Owner or the Broker-Dealer
which was not
originated by the Auction Desk prior to the Broker-Dealer Deadline,
or generated
internally by such Broker-Dealer’s Auction Desk for its own account prior to the
Submission Deadline and such Order as submitted to the Auction Agent
contained a
Clerical Error on the part of the Broker-Dealer and that such Order
has been
modified or withdrawn solely to effect a correction of such Clerical
Error, and
in the case of either (A) or (B), as applicable, the Broker-Dealer
has a record
of such Order and the time when such Order was received or
generated. The
Auction Agent shall be entitled to rely conclusively (and shall have
no
liability for relying) on such representation for any and all purposes
of the
Auction Procedures.
(g)
If after the Auction Agent announces the results of an Auction, a Broker-Dealer
becomes aware that an error was made by the Auction Agent, the Broker-Dealer
shall communicate such awareness to the Auction Agent prior to 5:00 p.m.,
New York City time on the Auction Date. If the Auction Agent
determines there has been such an error (as a result of either a communication
from a Broker-Dealer or its own discovery) prior to 3:00 p.m., New York
City time on the first day of the Auction Period with respect to which
such
Auction was conducted, the Auction Agent shall correct the error and
notify each
Broker-Dealer that submitted Bids or held a position in the Tortoise
Notes of
the series subject to such Auction of the corrected results.
(h)
Nothing contained herein shall preclude the Auction Agent from:
(i)
advising a Broker-Dealer prior to the Submission Deadline that it has
not
received Sufficient Clearing Bids for Tortoise Notes of the series,
provided,
however, that if the Auction Agent so advises any Broker-Dealer, it
shall so
advise all Broker-Dealers; or
(ii)
verifying the Orders of a Broker-Dealer prior to the Submission Deadline,
provided, however, that if the Auction Agent verifies the Orders of
any
Broker-Dealer, it shall verify the Orders of all Broker-Dealers requesting
such
verification.
3.
Treatment
of Orders by
the Auction Agent. Anything herein to the contrary
notwithstanding:
(a)
If the Auction Agent receives an Order which does not conform to the
requirements of the Auction Procedures, the Auction Agent may contact
the
Broker-Dealer submitting such Order until one hour after the Submission
Deadline
and inform such Broker-Dealer that it may resubmit such Order so that
it
conforms to the requirements of the Auction Procedures. Upon being
so informed,
such Broker-Dealer may correct and resubmit to the Auction Agent any
such Order
that, solely as a result of a Clerical Error on the part of such Broker-Dealer,
did not conform to the requirements of the Auction Procedures when
previously
submitted to the Auction Agent. Any such resubmission by a Broker-Dealer
shall
constitute a representation by such Broker-Dealer that the failure
of such Order
to have so conformed was solely as a result of a Clerical Error on
the part of
such Broker-Dealer. If the Auction Agent has not received a corrected
conforming
Order within one hour and fifteen minutes of the Submission Deadline,
the
Auction Agent shall, if and to the extent applicable, adjust or apply
such
Order, as the case may be, in conformity with the provisions of
subsections (b), (c) or (d) of this Section 3 and, if the Auction
Agent is unable to so adjust or apply such Order, the Auction Agent
shall reject
such Order.
(b)
If any rate specified in any Bid contains more than three figures to
the right
of the decimal point, the Auction Agent shall round the rate up to
the next
highest one thousandth of one percent (0.001%).
(c)
If one or more Orders covering in the aggregate more than the number
of Units of
Tortoise Notes of a particular series are submitted by a Broker-Dealer
to the
Auction Agent, such Orders shall be considered valid in the following
order of
priority:
(i)
all Hold Orders for Tortoise Notes of a series shall be considered
Hold Orders,
but only up to and including in the aggregate the number of Units of
outstanding
Tortoise Notes of the series for which such Broker-Dealer is the Broker-Dealer
of record;
(ii)
(A) any Bid of a Broker-Dealer shall be considered valid as a Bid of an
Existing Holder up to and including the excess of the number of Units
of
outstanding Tortoise Notes of such series for which such Broker-Dealer
is the
Broker-Dealer of record over the number of Units of Tortoise Notes
of such
series subject to any Hold Orders referred to in clause (i)
above;
(B)
subject to subclause (A), all Bids of a Broker-Dealer with the same rate
shall be aggregated and considered a single Bid of an Existing Holder
up to and
including the excess of the number of Units of Tortoise Notes of the
series for
which such Broker-Dealer is the Broker-Dealer of record over the number
of Units
of Tortoise Notes of such series for which the Broker-Dealer is the
Broker-Dealer of record subject to any Hold Orders referred to in
clause (i) above;
(C)
subject to subclause (A), if more than one Bid with different rates is
submitted by a Broker-Dealer, such Bids shall be considered Bids of
an Existing
Holder in the ascending order of their respective rates up to the amount
of
excess of the number of Units of Tortoise Notes of the series for which
such
Broker-Dealer is the Broker-Dealer of record over the number of Units
of
Tortoise Notes of such Series for which such Broker-Dealer is the Broker-Dealer
of record subject to any Hold Orders referred to in clause (i)
above;
(D)
the number of Units, if any, of outstanding Tortoise Notes of the series
subject
to Bids not considered to be Bids for which such Broker-Dealer is the
Broker-Dealer of record under this clause (ii) shall be treated as the
subject of a Bid for Tortoise Notes of the series by a Potential Beneficial
Owner; and
(iii)
all Sell Orders shall be considered Sell Orders, but only up to and
including
the number of Units of Tortoise Notes of such series equal to the excess
of the
number of Units of Tortoise Notes of such series for which such Broker-Dealer
is
the Broker-Dealer of record over the sum of the number of Units of
Tortoise
Notes of such series subject to Hold Orders referred to in clause (i) above
and the number of Units of Tortoise Notes of such series considered
to be
subject to Bids for which such Broker-Dealer is the Broker-Dealer of
record
pursuant to clause (ii) above.
(d)
If an Order is for other than an integral number of Units, then the
Auction
Agent shall round the number down to the nearest number of whole Units,
and the
Auction Agent shall conduct the Auction Procedures as if such Order
had been
submitted in such number of Units.
(e)
If the Auction Agent has been notified by the Trustee or the Company
that any
portion of an Order by a Broker-Dealer relates to a Tortoise Note of
a series
that has been called for redemption on or prior to the Interest Payment
Date
next succeeding such Auction, the Order shall be invalid with respect
to such
portion and the Auction Agent shall conduct the Auction Procedures
as if such
portion of such Order had not been submitted.
(f)
No Tortoise Note of a series which the Auction Agent has been notified
by the
Trustee or the Company has been called for redemption on or prior to
the
Interest Payment Date next succeeding such Auction shall be included
in the
calculation of Available Tortoise Notes for such Auction.
(g)
If an Order or Orders covering all of the Tortoise Notes of a particular
series
is not submitted by a Broker-Dealer of record prior to the Submission
Deadline,
the Auction Agent shall deem a Hold Order to have been submitted on
behalf of
such Broker-Dealer covering the number of Units
of
Tortoise Notes for which such Broker-Dealer is the Broker-Dealer of
record and
not subject to Orders submitted to the Auction Agent; provided, however,
that if
there is a conversion from one Auction Period to a longer Auction Period
and
Orders have not been submitted by such Broker-Dealer prior to the Submission
Deadline covering the number of Units of Tortoise Notes of a particular
series
to be converted for which such Broker-Dealer is the Broker-Dealer of
record, the
Auction Agent shall deem a Sell Order to have been submitted on behalf
of such
Broker-Dealer covering the number of Units of Tortoise Notes to be
converted for
which such Broker-Dealer is the Broker-Dealer of record not subject
to Orders
submitted by such Broker-Dealer.
4.
Determination
of
Applicable Rate. (a) If requested by the Trustee or a
Broker-Dealer, not later than 10:30 a.m., New York City time (or such other
time as may be agreed to by the Auction Agent and all Broker-Dealers),
on each
Auction Date for each series of Tortoise Notes, the Auction Agent shall
advise
such Broker-Dealer (and thereafter confirm to the Trustee, if requested)
of the
All Hold Rate. Such advice, and confirmation, shall be made by
telephone or other electronic means acceptable to the Auction
Agent.
(b)
Promptly after the Submission Deadline for the Tortoise Notes of a
series on
each Auction Date, the Auction Agent shall assemble all Orders submitted
or
deemed submitted to it by the Broker-Dealers (each such Order as submitted
or
deemed submitted by a Broker-Dealer being hereinafter referred to as
a
“Submitted Hold Order,” a “Submitted Bid” or a “Submitted Sell Order,” as the
case may be, and collectively as a “Submitted Order”) and shall determine
(i) the Available Tortoise Notes, (ii) whether there are Sufficient
Clearing Bids, and (iii) the Applicable Rate.
(c)
In the event the Auction Agent shall fail to calculate or, for any
reason, fails
to provide the Auction Rate on the Auction Date, for any Auction Period
(i) if the preceding Auction Period was a period of 35 days or less,
(A) a new Auction Period shall be established for the same length of time
as the preceding Auction Period, if the failure to make such calculation
was
because there was not at the time a duly appointed and acting Auction
Agent or
Broker-Dealer, and the Applicable Rate for the new Auction Period shall
be the
percentage of the Index set forth in Section 4(f) below if the Index is
ascertainable on such date (by the Auction Agent, if there is at the
time an
Auction Agent, or the Trustee, if at the time there is no Auction Agent)
or,
(B) if the failure to make such calculation was for any other reason or
if
the Index is not ascertainable on such date, the prior Auction Period
shall be
extended to the seventh day following the day that would have been
the last day
of the preceding Auction Period (or if such seventh day is not followed
by a
Business Day then to the next succeeding day that is followed by a
Business Day)
and the Applicable Rate for the period as so extended shall be the
same as the
Applicable Rate for the Auction Period prior to the extension, and
(ii) if
the preceding Auction Period was a period of greater than 35 days,
(A) a
new Auction Period shall be established for a period that ends on the
seventh
day following the day that was the last day of the preceding Auction
Period, (or
if such seventh day is not followed by a Business Day then to the next
succeeding day which is followed by a Business Day) if the failure
to make such
calculation was because there was not at the time a duly appointed
and acting
Auction Agent or Broker-Dealer, and the Applicable Rate for the new
Auction
Period shall be the percentage of the Index set forth in Section 4(f) below
if the Index is ascertainable on such date (by the Auction Agent, if
there is at
the time an Auction Agent, or the Trustee, if at the time there is
no Auction
Agent) or, (B) if the failure to make such calculation was for any other
reason or if the Index is not ascertainable on such date, the prior
Auction
Period shall be extended to the seventh day following the day that
would have
been the last day of the preceding Auction Period (or if such seventh
day is not
followed by a Business Day then to the next succeeding day that is
followed by a
Business Day) and the Applicable Rate for the period as so extended
shall be the
same as the Applicable Rate for the Auction Period prior to the
extension. In the event a new Auction Period is established as set
forth in clause (ii) (A) above, an Auction shall be held on the last
Business Day of the new Auction Period to determine an Auction Rate
for an
Auction Period beginning on the Business Day immediately following
the last day
of
the
new
Auction Period and ending on the date on which the Auction Period otherwise
would have ended had there been no new Auction Period or Auction Periods
subsequent to the last Auction Period for which a Winning Bid Rate
had been
determined. In the event an Auction Period is extended as set forth
in clause (i) (B) or (ii) (B) above, an Auction shall be held on the last
Business Day of the Auction Period as so extended to determine an Auction
Rate
for an Auction Period beginning on the Business Day immediately following
the
last day of the extended Auction Period and ending on the date on which
the
Auction Period otherwise would have ended had there been no extension
of the
prior Auction Period.
Notwithstanding
the foregoing, neither new nor extended Auction Periods shall total
more than 35
days in the aggregate. If at the end of the 35 days the Auction Agent
fails to calculate or provide the Auction Rate, or there is not at
the time a
duly appointed and acting Auction Agent or Broker-Dealer, the Applicable
Rate
shall be the Maximum Rate.
(d)
In the event of a failed conversion from an Auction Period to any other
period
or in the event of a failure to change the length of the current Auction
Period
due to the lack of Sufficient Clearing Bids at the Auction on the Auction
Date
for the first new Auction Period, the Applicable Rate for the next
Auction
Period shall be the Maximum Rate and the Auction Period shall be a
seven-day
Auction Period.
(e)
If the Tortoise Notes are no longer maintained in book-entry-only form
by the
Securities Depository, then the Auctions shall cease and the Applicable
Rate
shall be the Maximum Rate.
(f)
The percentage of the Index in Section 4(c) is 100%.
5.
Allocation
of Tortoise
Notes. (a) In the event of Sufficient Clearing Bids for
the Tortoise Notes of a series subject to the further provisions of
paragraphs (c) and (d) of this Section 5. Submitted Orders
for Tortoise Notes of the series shall be accepted or rejected as follows
in the
following order of priority:
(i)
the Submitted Hold Order of each Existing Holder shall be accepted,
thus
requiring each such Existing Holder to continue to hold the Tortoise
Notes that
are the subject of such Submitted Hold Order;
(ii)
the Submitted Sell Order of each Existing Holder shall be accepted
and the
Submitted Bids of each Existing Holder specifying any rate that is
higher than
the Winning Bid Rate shall be rejected, thus requiring each Existing
Holder to
sell the Tortoise Notes that are the subject of such Submitted Sell
Order or
Submitted Bid;
(iii)
the Submitted Bid of each Existing Holder specifying any rate that
is lower than
the Winning Bid Rate shall be accepted, thus requiring each such Existing
Holder
to continue to hold the Tortoise Notes that are the subject of the
Submitted
Bid;
(iv)
the Submitted Bid of each Potential Holder specifying any rate that
is lower
than the Winning Bid Rate for Tortoise Notes of the series shall be
accepted,
thus requiring each such Potential Holder to purchase the Tortoise
Notes that
are the subject of the Submitted Bid;
(v)
the Submitted Bid of each Existing Holder specifying a rate that is
equal to the
Winning Bid Rate shall be accepted, thus requiring each such Existing
Holder to
continue to hold the Tortoise Notes of the series that are the subject
of the
Submitted Bid, but only up to and including the number of Units of
Tortoise
Notes of such series obtained by multiplying (A) the aggregate number of
Units of Tortoise Notes which are not the subject of Submitted Hold
Orders
described in clause (i) of this paragraph (a) or of Submitted Bids
described in clauses (iii) and (iv) of this paragraph (a) by
(B) a fraction, the numerator of which shall be the number of Units of
Tortoise Notes held by such Existing Holder subject to such Submitted
Bid and
the denominator of which shall be the aggregate number of Units of
Tortoise
Notes subject to such Submitted Bids made by all such Existing Holders
that
specified a rate equal to the Winning Bid Rate, and the remainder,
if any, of
such Submitted Bid shall be rejected, thus requiring each such Existing
Holder
to sell any excess amount of Tortoise Notes;
(vi)
the Submitted Bid of each Potential Holder specifying a rate that is
equal to
the Winning Bid Rate shall be accepted, thus requiring each such Potential
Holder to purchase the Tortoise Notes of the series that are the subject
of such
Submitted Bid, but only in an amount equal to the number of Units of
Tortoise
Notes of such series obtained by multiplying (A) the aggregate number of
Units of Outstanding Tortoise Notes which are not the subject of Submitted
Hold
Orders described in clause (i) of this paragraph (a) or of Submitted
Bids described in clauses (iii), (iv) or (v) of this paragraph (a) by
(B) a fraction, the numerator of which shall be the number of Units of
Tortoise Notes subject to such Submitted Bid and the denominator of
which shall
be the sum of the aggregate number of Units of Tortoise Notes subject
to such
Submitted Bids made by all such Potential Holders that specified a
rate equal to
the Winning Bid Rate, and the remainder of such Submitted Bid shall
be rejected;
and
(vii)
the Submitted Bid of each Potential Holder specifying any rate that
is higher
than the Winning Bid Rate shall be rejected.
(b)
In the event there are not Sufficient Clearing Bids for the Tortoise
Notes of a
series, Submitted Orders for the Tortoise Notes of the series shall
be accepted
or rejected as follows in the following order of priority:
(i)
the Submitted Hold Order of each Existing Holder shall be accepted,
thus
requiring each such Existing Holder to continue to hold the Tortoise
Notes that
are the subject of such Submitted Hold Order;
(ii)
the Submitted Bid of each Existing Holder specifying any rate that
is not higher
than the Maximum Rate shall be accepted, thus requiring each such Existing
Holder to continue to hold the Tortoise Notes that are the subject
of such
Submitted Bid;
(iii)
the Submitted Bids specifying any rate that is not higher than the
Maximum Rate
for the Tortoise Notes shall be accepted, thus requiring each such
Potential
Holder to purchase the Tortoise Notes that are the subject of such
Submitted
Bid; and
(iv)
the Submitted Sell Orders of each Existing Holder shall be accepted
as Submitted
Sell Orders and the Submitted Bids of each Existing Holder specifying
any rate
that is higher than the Maximum Rate shall be deemed to be and shall
be accepted
as Submitted Sell Orders, in both cases only up to and including the
number of
Units of Tortoise Notes of such series obtained by multiplying (A) the
number of Units of Tortoise Notes subject to Submitted Bids described
in
clause (iii) of this paragraph (b) by (B) a fraction, the
numerator of which shall be the number of Units of Tortoise Notes held
by such
Existing Holder subject to such Submitted Sell Order or such Submitted
Bid
deemed to be a Submitted Sell Order and the denominator of which shall
be the
number of Units of Tortoise Notes subject to all such Submitted Sell
Orders and
such Submitted Bids deemed to be Submitted Sell Orders, and the remainder
of
each such Submitted Sell Order or Submitted Bid shall be deemed to
be and shall
be accepted as a Hold Order and each such Existing Holder shall be
required to
continue to hold such excess amount of Tortoise Notes; and
(v)
the Submitted Bid of each Potential Holder specifying any rate that
is higher
than the Maximum Rate shall be rejected.
(c)
If, as a result of the undertakings described in Section 5(a) or (b)
above, any
Existing Holder or Potential Holder would be required to purchase or
sell an
aggregate principal amount of Tortoise Notes that is not an integral
multiple of
an Authorized Denomination on any Auction Date, the Auction Agent shall
by lot,
in such manner as it shall determine in its sole discretion, round
up or down
the principal amount of the Tortoise Notes to be purchased or sold
by any
Existing Holder or Potential Holder on such Auction Date so that the
aggregate
principal amount of the Tortoise Notes purchased or sold by each Existing
Holder
or Potential Holder on such Auction Date shall be an integral multiple
of such
Authorized Denomination, even if such allocation results in one or
more of such
Existing Holder or Potential Holder not purchasing or selling any Tortoise
Notes
on such Auction Date.
(d)
If, as a result of the undertakings described in Section 5(a) above,
any
Potential Holder would be required to purchase less than an Authorized
Denomination in principal amount of the Tortoise Notes on any Auction
Date, the
Auction Agent shall by lot, in such manner as it shall determine in
its sole
discretion, allocate the Tortoise Notes for purchase among Potential
Holders so
that the principal amount of the Tortoise Notes purchased on such Auction
Date
by any Potential Holder shall be an integral multiple of such Authorized
Denomination, even if such allocation results in one or more of such
Potential
Holders not purchasing the Tortoise Notes on such Auction Date.
6.
Notice of
Applicable
Rate. (a) On each Auction Date, the Auction Agent shall notify
each Broker-Dealer that participated in the Auction held on such Auction
Date by
electronic means acceptable to the Auction Agent and the applicable
Broker-Dealer of the following, with respect to the Tortoise Notes
of a series
for which an Auction was held on such Auction Date:
(i)
the Applicable Rate determined on such Auction Date for the succeeding
Auction
Period;
(ii)
whether Sufficient Clearing Bids existed for the determination of the
Winning
Bid Rate;
(iii)
if such Broker-Dealer submitted a Bid or a Sell Order on behalf of
an Existing
Holder, whether such Bid or Sell Order was accepted or rejected and
the number
of Units of Tortoise Notes of the series, if any, to be sold by such
Existing
Holder;
(iv)
if such Broker-Dealer submitted a Bid on behalf of a Potential Holder,
whether
such Bid was accepted or rejected and the number of Units of Tortoise
Notes of
the series, if any, to be purchased by such Potential Holder;
(v)
if the aggregate number of Units of Tortoise Notes of a series to be
sold by all
Existing Holders on whose behalf such Broker-Dealer submitted Bids
or Sell
Orders is different from the aggregate number of Units of Tortoise
Notes of such
series to be purchased by all Potential Holders on whose behalf such
Broker-Dealer submitted a Bid, the name or names of one or more Broker-Dealers
(and the Agent Member, if any, of each such other Broker-Dealer) and
the number
of Units of Tortoise Notes of such series to be (A) purchased from one or
more Existing Holders on whose behalf such other Broker-Dealers submitted
Bids
or Sell Orders or (B) sold to one or more Potential Holders on whose behalf
such Broker-Dealer submitted Bids;
(vi)
the amount of interest payable per Unit on each Interest Payment Date
with
respect to such Auction Period; and
(vii)
the immediately succeeding Auction Date.
(b)
On each Auction Date, with respect to each series of Tortoise Notes
for which an
Auction was held on such Auction Date, each Broker-Dealer that submitted
an
Order on behalf of any Existing Holder or Potential Holder shall: (i) if
requested by an Existing Holder or a Potential Holder advise such Existing
Holder or Potential Holder on whose behalf such Broker-Dealer submitted
an Order
as to (A) the Applicable Rate determined on such Auction Date,
(B) whether any Bid or Sell Order submitted on behalf of each such Owner
was accepted or rejected and (C) the immediately succeeding Auction Date;
(ii) instruct each Potential Holder on whose behalf such Broker-Dealer
submitted a Bid that was accepted, in whole or in part, to instruct
such
Potential Holder’s Agent Member to pay to such Broker-Dealer (or its Agent
Member) through the Securities Depository the amount necessary to purchase
the
number of Units of Tortoise Notes of such series to be purchased pursuant
to
such Bid against receipt of such Tortoise Notes; and (iii) instruct each
Existing Holder on whose behalf such Broker-Dealer submitted a Sell
Order that
was accepted or a Bid that was rejected in whole or in part, to instruct
such
Existing Holder’s Agent Member to deliver to such Broker-Dealer (or its Agent
Member) through the Securities Depository the number of Units of Tortoise
Notes
of the series to be sold pursuant to such Bid or Sell Order against
payment
therefor.
(c)
The Auction Agent shall give notice of the Auction Rate to the Company
and the
Trustee by mutually acceptable electronic means and the Trustee shall
promptly
give notice of such Auction Rate to the Securities Depository.
7.
Miscellaneous
Provisions Regarding Auctions. (a) In this
Appendix A-I, each reference to the purchase, sale or holding of Tortoise
Notes shall refer to beneficial interests in Tortoise Notes, unless
the context
clearly requires otherwise.
(b)
During an auction Rate Period with respect to each series of Tortoise
Notes, the
provisions of the Indenture and the definitions contained therein and
described
in this Appendix A-I, including without limitation the definitions of All
Hold Rate, Interest Payment Date, Maximum Rate, and Applicable Rate,
may be
amended pursuant to the Indenture by obtaining the consent of the majority
of
the owners of the affected Outstanding Tortoise Notes of a series bearing
interest at the Applicable Rate as follows. If on the first Auction
Date occurring at least 20 days after the date on which the Trustee
mailed
notice of such proposed amendment to the registered owners of the affected
Outstanding Tortoise Notes of the series, (i) the Applicable Rate which is
determined on such date is the Winning Bid Rate or the All Hold Rate
and
(ii) there is delivered to the Company and the Trustee an opinion of
counsel to the effect that such amendment shall not adversely affect
the
validity of the Tortoise Notes of the series, the proposed amendment
shall be
deemed to have been consented to by the owners of all affected Outstanding
Tortoise Notes of the series bearing interest at the Applicable
Rate.
(c)
If the Securities Depository notifies the Company that it is unwilling
or unable
to continue as registered owner of the Tortoise Notes of a series or
if at any
time the Securities Depository shall no longer be registered or in
good standing
under the Securities Exchange Act of 1934, as amended, or other applicable
statute or regulation and a successor to the Securities Depository
is not
appointed by the Company within 90 days after the Company receives
notice or
becomes aware of such condition, as the case may be, the Auctions shall
cease
and the Company shall execute and the Trustee shall authenticate and
deliver
certificates representing the Tortoise Notes of the series. Such Tortoise
Notes
shall be registered in such names and Authorized Denominations as the
Securities
Depository, pursuant to instructions from the Agent Members or otherwise,
shall
instruct the Company and the Trustee.
(d)
During an Auction Period, so long as the ownership of the Tortoise
Notes of a
series is maintained in book-entry form by the Securities Depository,
an
Existing Holder or a Beneficial Owner may sell, transfer or otherwise
dispose of
a Tortoise Note only pursuant to a Bid or Sell Order in
accordance
with the Auction Procedures or to or through a Broker-Dealer, provided
that
(i) in the case of all transfers other than pursuant to Auctions such
Existing Holder or its Broker-Dealer or its Agent Member advises the
Auction
Agent of such transfer and (ii) a sale, transfer or other disposition of
Tortoise Notes of the series from a customer of a Broker-Dealer who
is listed on
the records of that Broker-Dealer as the holder of such Tortoise Notes
to that
Broker-Dealer or another customer of that Broker-Dealer shall not be
deemed to
be a sale, transfer or other disposition for purposes of this paragraph
if such
Broker-Dealer remains the Existing Holder of the Tortoise Notes so
sold,
transferred or disposed or immediately after such sale, transfer or
disposition.
8.
Changes
in Auction
Period or Auction Date.
(a)
Changes in Auction Period.
(i)
During any Auction Period, the Issuer, may, from time to time on the
Interest
Payment Date immediately following the end of any Auction Period, change
the
length of the Auction Period with respect to all of the Tortoise Notes
of a
series in order to accommodate economic and financial factors that
may affect or
be relevant to the length of the Auction Period and the rate of Tortoise
Notes
of such series. The Company shall initiate the change in the length
of the
Auction Period by giving written notice to the Trustee, Auction Agent,
the
Broker-Dealers and the Securities Depository that the Auction Period
shall
change if the conditions described herein are satisfied and the proposed
effective date of the change, at least 10 Business Days prior to the
Auction
Date for such Auction Period.
(ii)
Any such changed Auction Period shall be for a period of one day, seven-days,
28-days, 35-days, three months, six months and shall be for all of
the Tortoise
Notes of such series.
(iii)
The change in length of the Auction Period shall take effect only if
Sufficient
Clearing Bids exist at the Auction on the Auction Date for such new
Auction
Period. For purposes of the Auction for such new Auction Period only,
except to
the extent any Existing Holder submits an Order with respect to such
Tortoise
Notes of any series each Existing Holder shall be deemed to have submitted
Sell
Orders with respect to all of its Tortoise Notes of such series if
the change is
to a longer Auction Period and a Hold Order if the change is to a shorter
Auction Period. If there are not Sufficient Clearing Bids for the first
Auction
Period, the Auction Rate for the new Auction Period shall be the Maximum
Rate,
and the Auction Period shall be a seven-day Auction Period.
(b)
Changes in Auction Date. During any
Auction Period, the Auction Agent, at the direction of the Company,
may specify
an earlier or later Auction Date (but in no event more than five Business
Days
earlier or later) than the Auction Date that would otherwise be determined
in
accordance with the definition of “Auction Date” in order to conform with then
current market practice with respect to similar securities or to accommodate
economic and financial factors that may affect or be relevant to the
day of the
week constituting an Auction Date and the rate of the Tortoise Notes
of the
series. The Auction Agent shall provide notice of the Company’s
direction to specify an earlier Auction Date for an Auction Period
by means of a
written notice delivered at least 45 days prior to the proposed changed
Auction
Date to the Company and the Broker-Dealers with a copy to the Securities
Depository. In the event the Auction Agent is instructed to specify
an earlier or later Auction Date, the days of the week on which an
Auction
Period begins and ends and the Interest Payment Dates shall be adjusted
accordingly.
(c)
Changes Resulting from Unscheduled
Holidays. If, in the opinion of the Auction Agent and the Broker-Dealers,
there is insufficient notice of an unscheduled holiday to allow the
efficient
implementation of the Auction Procedures set forth herein, the Auction
Agent and
the Broker-Dealers
may,
as
they deem appropriate, and after providing notice to the Company, set
a
different Auction Date and adjust any Interest Payment Dates and Auction
Periods
affected by such unscheduled holiday. In the event there is not agreement
among
the Broker-Dealers, the Auction Agent shall set the different Auction
Date and
make such adjustments as directed by a majority of the Broker-Dealers
(based on
the number of Units for which a Broker-Dealer is listed as the Broker-Dealer
in
the Existing Holder registry maintained by the Auction Agent pursuant
to Section
2.2 of the Auction Agreement), and, if there is not a majority so directing,
the
Auction Date shall be moved to the next succeeding Business Day following
the
scheduled Auction Date, and the Interest Payment Date and the Auction
Period
shall be adjusted accordingly.
9.
Index.
(a)
If for any reason on any Auction Date the Index shall not be determined
as
provided in Appendix A-I Tortoise Notes Auction Procedures, the Index
shall be
the Index for the prior Business Day.
(b)
The determination of the Index as provided in the Indenture and Appendix
A-I
Tortoise Notes Auction Procedures shall be conclusive and binding upon
the
Company, the Trustee, the Broker-Dealers, the Auction Agent and the
holders of
the Tortoise Notes.
APPENDIX
B
–
FORM
OF ARTICLES SUPPLEMENTARY
SERIES __
TORTOISE AUCTION 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 __ Tortoise Auction 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.
TORTOISE
AUCTION PREFERRED SHARES
DESIGNATION
Tortoise
Auction Preferred Shares: _____ shares of Preferred Stock are
classified and designated as Series __ Tortoise Auction Preferred Shares,
liquidation preference $______ per share (“Series __ Tortoise Auction
Preferred Shares”). The initial Dividend Period for the Tortoise
Auction Preferred Shares shall be the period from and including the
Original
Issue Date thereof to but excluding _________, 200_. Each Tortoise
Auction Preferred Share shall have an Applicable Rate for its initial
Dividend
Period equal to ____% per annum and an initial Dividend Payment Date
of
___________, 200_. Each Tortoise Auction Preferred 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 Tortoise Auction
Preferred Shares. The Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 the Articles Supplementary relating to such additional
Tortoise Auction Preferred Shares.
As
used
in Part I and Part II of these terms of the Tortoise Auction Preferred
Shares, capitalized terms shall have the meanings provided in Section 17 of
Part I.
PART
I. TORTOISE AUCTION PREFERRED SHARES TERMS
1.
Number
of Shares;
Ranking. (a) The initial number of authorized Tortoise Auction
Preferred Shares is _____ shares. No fractional Tortoise Auction
Preferred Shares shall be issued.
(b)
Any Tortoise Auction Preferred 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 Tortoise Auction Preferred Shares shall rank on a parity with
shares of any
other series of Preferred Shares (including any other Tortoise Auction
Preferred
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 Tortoise Auction Preferred Shares shall have, solely
by reason of
being a Holder, any preemptive right, or, unless otherwise determined
by the
Board of Directors, other right to acquire, purchase or subscribe
for any
Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred
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 Tortoise Auction Preferred
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 Tortoise Auction Preferred Shares, an aggregate amount of
federal funds
or similar same-day funds, equal to the dividends to be paid to all
Holders of
such shares on such Dividend Payment Date. The Company shall not be
required to establish any reserves for the payment of
dividends.
(iv)
All moneys paid to the Paying Agent for the payment of dividends shall
be held
in trust for the payment of such dividends by the Paying Agent for
the benefit
of the Holders specified in subparagraph (b)(v) of this
Section 2. Any moneys paid to the Paying Agent in accordance
with the foregoing but not applied by the Paying Agent to the payment
of
dividends, will, to the extent permitted by law, be repaid to the Company
at the
end of 90 days from the date on which such moneys were to have been
so
applied.
(v)
Each dividend on Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred
Shares being
the subject of Submitted Hold Orders), then the dividend rate on
the Tortoise
Auction Preferred Shares for any such Dividend Period shall be the
Maximum Rate
(except during a Default Period when the dividend rate shall be the
Default
Rate). If an Auction for any subsequent Dividend Period is not held
for any reason, including because there is no Auction Agent or Broker-Dealer,
then the dividend rate on the Tortoise Auction Preferred Shares for
such
Dividend Period shall be the Maximum Rate (except during a Default
Period when
the dividend rate shall be the Default Rate).
The
All
Hold Rate will apply automatically following an Auction in which
all of the
Outstanding Tortoise Auction Preferred Shares are subject (or are
deemed to be
subject) to Hold Orders. The rate per annum at which dividends are
payable on Tortoise Auction Preferred Shares as determined pursuant
to this
Section 2(c)(i) shall be the “Applicable Rate.”
(ii)
Subject to the cure provisions below, a “Default Period” will commence on any
Dividend Payment Date or any date fixed for redemption, as applicable,
if the
Company fails to deposit irrevocably in trust in federal funds or similar
same-day funds, with the Paying Agent by 12:00 noon, New York City
time,
(A) the full amount of any declared dividend payable on the Dividend
Payment Date (a “Dividend Default”) or (B) the full amount of any
Redemption Price payable on the date fixed for redemption (the “Redemption
Date”) (a “Redemption Default”, and together with a Dividend Default,
hereinafter referred to as “Default”). Subject to the cure provisions
of Section 2(c)(iii) below, a Default Period with respect to a Dividend
Default or a Redemption Default shall end on the Business Day on which,
by 12:00
noon, New York City time, all unpaid dividends and any unpaid Redemption
Price
shall have been deposited irrevocably in trust in same-day funds with
the Paying
Agent. In the case of a Dividend Default, the Applicable Rate for
each Dividend Period commencing during a Default Period will be equal
to the
Default Rate, and each subsequent Dividend Period commencing after
the beginning
of a Default Period shall be a Standard Dividend Period; provided,
however, that
the commencement of a Default Period will not by itself cause the commencement
of a new Dividend Period. No Auction shall be held during a Default
Period.
(iii)
No Default Period with respect to a Dividend Default or Redemption
Default shall
be deemed to commence if the amount of any dividend or any Redemption
Price due
(if such default is not solely due to the willful failure of the Company)
is
deposited irrevocably in trust, in same-day funds with the Paying Agent
by 12:00
noon, New York City time within three Business Days after the applicable
Dividend Payment Date or Redemption Date, together with an amount equal
to the
Default Rate applied to the amount of such non-payment based on the
actual
number of days comprising such period divided by 360.
(iv)
The amount of dividends per share payable (if declared) on each Dividend
Payment
Date of each Dividend Period (or in respect of dividends on another
date in
connection with a redemption during such Dividend Period) shall be
computed by
multiplying the Applicable Rate (or the Default Rate) for such Dividend
Period
(or a portion thereof) by a
fraction,
the numerator of which will be the number of days in such Dividend
Period (or
portion thereof) that such share was Outstanding and for which the
Applicable
Rate or the Default Rate was applicable and the denominator of which
will be
360, multiplying the amount so obtained by the liquidation preference
per share,
and rounding the amount so obtained to the nearest cent.
(d)
Any dividend payment made on Tortoise Auction Preferred Shares shall
first be
credited against the earliest accumulated but unpaid dividends due
with respect
to such Tortoise Auction Preferred Shares.
(e)
For so long as the Tortoise Auction Preferred Shares are Outstanding,
except as
contemplated by Part I of these terms of the Tortoise Auction Preferred
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 Tortoise
Auction
Preferred 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 Tortoise Auction Preferred 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 Tortoise
Auction
Preferred 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 Tortoise Auction Preferred 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 Tortoise
Auction
Preferred Shares Basic Maintenance Amount and the 1940 Act Tortoise
Auction
Preferred 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 Tortoise
Auction Preferred 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
Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction
Preferred Shares; provided, however, that during a Dividend Period
of more than
one year no Tortoise Auction Preferred 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 Tortoise Auction Preferred Shares by reason of the redemption
of such
Tortoise Auction Preferred 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 Tortoise Auction Preferred Shares Basic
Maintenance
Amount immediately subsequent to such redemption, if such redemption
were to
occur on such date.
(ii)
If the Company fails to maintain, as of any Valuation Date, Eligible
Assets with
an aggregate Discounted Value at least equal to the Tortoise Auction
Preferred
Shares Basic Maintenance Amount or, as of the last Business Day of
any month,
the 1940 Act Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred Shares
Asset
Coverage (each an “Asset Coverage Cure Date”), the Tortoise Auction Preferred
Shares will be subject to mandatory redemption out of funds legally
available
therefor. The number of Tortoise Auction Preferred Shares to be
redeemed in such circumstances will be equal to the lesser of (1) the
minimum number of Tortoise Auction Preferred 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 Tortoise
Auction
Preferred Shares Basic Maintenance Amount, or sufficient to satisfy
the 1940 Act
Tortoise Auction Preferred 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 Tortoise Auction Preferred Shares the redemption
of which
would have such result, all Tortoise Auction Preferred Shares then
Outstanding
will be redeemed), and (2) the maximum number of Tortoise Auction Preferred
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 Tortoise Auction Preferred 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 Tortoise
Auction
Preferred Shares Basic Maintenance Amount or the 1940 Act Tortoise
Auction
Preferred Shares Asset Coverage, as the case may be, pro rata among
the Holders
of Tortoise Auction Preferred 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 Tortoise Auction Preferred
Shares
which would be required to be redeemed by the Company under
subparagraph (a)(ii) of this Section 3 if sufficient funds were
available, together with shares of other Preferred Shares which are
subject to
mandatory redemption under provisions similar to those contained
in this
Section 3, or the Company otherwise is unable to effect such redemption on
or prior to such Mandatory Redemption Date, the Company shall redeem
those
Tortoise Auction Preferred 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 Tortoise Auction Preferred Shares to be redeemed and
the Paying
Agent. The Company will deposit with the Paying Agent funds
sufficient to redeem the specified number of Tortoise Auction
Preferred
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 Tortoise
Auction Preferred 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 Tortoise
Auction
Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred Shares may be
redeemed unless all dividends in arrears on the Outstanding Tortoise
Auction
Preferred Shares and all shares of capital stock of the Company ranking
on a
parity with the Tortoise Auction Preferred 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 Tortoise Auction Preferred
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 Tortoise Auction Preferred Shares.
(d)
Upon the deposit of funds sufficient to redeem Tortoise Auction Preferred
Shares
with the Paying Agent on the date fixed for redemption and the giving
of the
Notice of Redemption to the Auction Agent under paragraph (b) of this
Section 3, dividends on such shares shall cease to accumulate
and
such
shares shall no longer be deemed to be Outstanding for any purpose
(including,
without limitation, for purposes of calculating whether the Company
has
maintained the requisite Tortoise Auction Preferred Shares Basic
Maintenance
Amount or the 1940 Act Tortoise Auction Preferred 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 Tortoise Auction Preferred
Shares
called for redemption on such date and (2) such other amounts, if any, to
which Holders of Tortoise Auction Preferred 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
Tortoise Auction Preferred 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 Tortoise Auction Preferred
Shares
shall be deemed to exist when the Company shall have failed, for
any reason
whatsoever, to deposit in trust with the Paying Agent the redemption
price with
respect to any shares for which such Notice of Redemption has been
given in
accordance with Section 2(c)(ii) hereof. Notwithstanding the
fact that the Company may not have redeemed Tortoise Auction Preferred
Shares
for which a Notice of Redemption has been given, dividends may be
declared and
paid on Tortoise Auction Preferred Shares and shall include those
Tortoise
Auction Preferred 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
Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred Shares limits any right of the Company
to
purchase or otherwise acquire any Tortoise Auction Preferred 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
Tortoise
Auction Preferred Shares for which Notice of Redemption has been
given and the
Company is in compliance with the 1940 Act Tortoise Auction Preferred
Shares
Asset Coverage and has Eligible Assets with an aggregate Discounted
Value at
least equal to the Tortoise Auction Preferred Shares Basic Maintenance
Amount
after giving effect to such purchase or acquisition on the date thereof.
If
fewer than all the Outstanding Tortoise Auction Preferred 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
Tortoise Auction Preferred Shares shall be redeemed, and in the event
that any
provision of the Charter would require redemption of a fractional
share, the
Auction Agent shall be authorized to round up so that only whole
shares are
redeemed.
(j)
Notwithstanding anything herein to the contrary, including, without
limitation,
Sections 2(e) and 6(f) hereof, the Board of Directors may authorize, create
or issue any class or series of shares of capital stock, including
other series
of Tortoise Auction Preferred Shares, ranking prior to or on a parity
with the
Tortoise Auction Preferred 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 Tortoise Auction
Preferred
Shares Asset Coverage, the Tortoise Auction Preferred 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
Tortoise Auction Preferred Shares is as set forth under “Designation”
above. The Company will designate the duration of subsequent Dividend
Periods of Tortoise Auction Preferred 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, Tortoise Auction Preferred
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 Tortoise Auction Preferred
Shares Basic
Maintenance Amount, and the Company has consulted with the Broker-Dealers
and
has provided notice of such designation and a Tortoise Auction Preferred
Shares
Basic Maintenance Report to Moody’s (if Moody’s is then rating the Tortoise
Auction Preferred Shares), Fitch (if Fitch is then rating the Tortoise
Auction
Preferred Shares) and any Other Rating Agency which is then rating
the Tortoise
Auction Preferred Shares and so requires.
(b)
If the Company proposes to designate any Special Dividend Period, not
fewer than
seven (or two Business Days in the event the duration of the Dividend
Period
prior to such Special Dividend Period is fewer than eight days) nor
more than 30
Business Days prior to the first day of such Special Dividend Period,
notice
shall be (1) made by press release and (2) communicated by the Company
by telephonic or other means to the Auction Agent and confirmed in
writing
promptly thereafter. Each such notice shall state (A) that the
Company proposes to exercise its option to designate a succeeding Special
Dividend Period, specifying the first and last days thereof and (B) that
the Company will by 3:00 p.m., New York City time, on the second Business
Day next preceding the first day of such Special Dividend Period, notify
the
Auction Agent, who will promptly notify the Broker-Dealers and the
Existing
Holders, of either (x) its determination, subject to certain conditions, to
proceed with such Special Dividend Period, subject to the terms of
any Specific
Redemption Provisions, or (y) its determination not to proceed with such
Special Dividend Period, in which latter event the succeeding Dividend
Period
shall be a Standard Dividend Period.
No
later
than 3:00 p.m., New York City time, on the second Business Day next
preceding the first day of any proposed Special Dividend Period, the
Company
shall deliver to the Auction Agent, who will promptly deliver to the
Broker-Dealers and Existing Holders, either:
(i) a notice
stating (A) that the Company has determined to designate the next
succeeding Dividend Period as a Special Dividend Period, specifying
the first
and last days thereof and (B) the terms of any Specific Redemption
Provisions; or
(ii)
a notice stating that the Company has determined not to exercise its
option to
designate a Special Dividend Period.
If
the
Company fails to deliver either such notice with respect to any designation
of
any proposed Special Dividend Period to the Auction Agent or is unable
to make
the confirmation provided in clause (v) of paragraph (a) of this
Section 4 by 3:00 p.m., New York City time, on the second Business Day
next preceding the first day of such proposed Special Dividend Period,
the
Company shall be deemed to have delivered a notice to the Auction Agent
with
respect to such Dividend Period to the effect set forth in clause (ii)
above, thereby resulting in a Standard Dividend Period.
5.
Restrictions
on
Transfer. Tortoise Auction Preferred 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 Tortoise Auction Preferred Shares
through
different Broker-Dealers, advises the Auction Agent of such
transfer. The certificate representing the Tortoise Auction Preferred
Shares issued to the Securities Depository will bear legends with
respect to the
restrictions described above and stop-transfer instructions will
be issued to
the Transfer Agent and/or Registrar.
6.
Voting
Rights. (a) Except for matters which do not require the vote
of holders of Preferred Shares under the 1940 Act and except as otherwise
provided in the Charter or Bylaws, herein or as otherwise required
by applicable
law, (1) each holder of Tortoise Auction Preferred Shares shall be entitled
to one vote for each Tortoise Auction Preferred Share held on each
matter
submitted to a vote of stockholders of the Company, and (2) the holders of
Outstanding Preferred Shares, including the Tortoise Auction Preferred
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 Tortoise Auction Preferred 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
Tortoise Auction Preferred 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 Tortoise
Auction
Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred
Shares and
holders of other Preferred Shares to elect Directors shall continue,
notwithstanding the election at such meeting by the holders of the
Tortoise
Auction Preferred Shares and such holders of other Preferred Shares
of the
number of Directors that they are entitled to elect, and the persons
so elected
by such holders, together with the two incumbent Directors elected
by such
holders and the remaining incumbent Directors, shall constitute the
duly elected
Directors of the Company.
(e)
Simultaneously with the termination of a Voting Period, the terms
of office of
the additional Directors elected by the holders of the Tortoise Auction
Preferred 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 Tortoise
Auction
Preferred Shares, are Outstanding, the Company will not, without
the affirmative
vote of the holders of a majority of the outstanding Preferred Shares
determined
with reference to a “majority of outstanding voting securities” as that term is
defined in Section 2(a)(42) of the 1940 Act (a “1940 Act Majority”), voting
as a separate class:
(i)
amend, alter or repeal any of the preferences, rights or powers of
such class of
Preferred Shares so as to affect materially and adversely such preferences,
rights or powers as defined in Section 6(h) below;
(ii)
create, authorize or issue shares of any class of capital stock ranking
senior
to or on a parity with the Preferred Shares with respect to the payment
of
dividends or the distribution of assets, or any securities convertible
into, or
warrants, options or similar rights to purchase, acquire or receive,
such shares
of capital stock ranking senior to or on a parity with the Preferred
Shares or
reclassify any authorized shares of capital stock of the Company
into any shares
ranking senior to or on a parity with the Preferred Shares (except
that,
notwithstanding the foregoing, but subject to the provisions of either
Section 3(j) or 11, as applicable, the Board of Directors, without the vote
or consent of the holders of the Preferred Shares, including the
Tortoise
Auction Preferred Shares, may from time to time authorize, create
and classify,
and the Company may from time to time issue, shares or series of
Preferred
Shares, including other series of Tortoise Auction Preferred Shares,
ranking on
a parity with the Tortoise Auction Preferred Shares with respect
to the payment
of dividends and the distribution of assets upon dissolution, liquidation
or
winding up of the affairs of the Company, and may authorize, reclassify
and/or
issue any additional Tortoise Auction Preferred Shares, including
shares
previously purchased or redeemed by the Company, subject to continuing
compliance by the Company with 1940 Act Tortoise Auction Preferred
Shares Asset
Coverage and Tortoise Auction Preferred Shares Basic Maintenance
Amount
requirements);
(iii)
institute any proceedings to be adjudicated bankrupt or insolvent,
or consent to
the institution of bankruptcy or insolvency proceedings against it,
or file a
petition seeking or consenting to reorganization or relief under any
applicable
federal or state law relating to bankruptcy or insolvency, or consent
to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other
similar official) of the Company or a substantial part of its property,
or make
any assignment for the benefit of creditors, or, except as may be required
by
applicable law, admit in writing its inability to pay its debts generally
as
they become due or take any corporate action in furtherance of any
such
action;
(iv)
create, incur or suffer to exist, or agree to create, incur or suffer
to exist,
or consent to cause or permit in the future (upon the happening of
a contingency
or otherwise) the creation, incurrence or existence of any material
lien,
mortgage, pledge, charge, security interest, security agreement,
conditional
sale or trust receipt or other material encumbrance of any kind upon
any of the
Company’s assets as a whole, except (A) liens the validity of which are
being contested in good faith by appropriate proceedings, (B) liens for
taxes that are not then due and payable or that can be paid thereafter
without
penalty, (C) liens, pledges, charges, security interests, security
agreements or other encumbrances arising in connection with any indebtedness
senior to the Tortoise Auction Preferred Shares or arising in connection
with
any futures contracts or options thereon, interest rate swap or cap
transactions, forward rate transactions, put or call options, short
sales of
securities or other similar transactions; (D) liens, pledges, charges,
security interests, security agreements or other encumbrances arising
in
connection with any indebtedness permitted under clause (vi) below and
(E) liens to secure payment for services rendered including, without
limitation, services rendered by the Company’s custodian and the Auction Agent;
or
(v)
create, authorize, issue, incur or suffer to exist any indebtedness
for borrowed
money or any direct or indirect guarantee of such indebtedness for
borrowed
money or any direct or indirect guarantee of such indebtedness, except
the
Company may borrow and issue senior securities as may be permitted
by the
Company’s investment restrictions or as may be permitted by the 1940 Act;
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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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
Preferred Shares, including the Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction
Preferred
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
Tortoise Auction Preferred 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 Tortoise Auction Preferred Shares) that any such modification,
alteration
or repeal would not adversely affect the rating then assigned by
such Rating
Agency.
The
terms
of the Tortoise Auction Preferred 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 Tortoise Auction
Preferred
Shares are then rated by the applicable Rating Agency. Such Rating
Agency Guidelines may be amended by the respective Rating Agency
without the
vote, consent or approval of the Company, the Board of Directors
and any holder
of shares of Preferred Shares, including any series of Tortoise Auction
Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred Shares Basic Maintenance
Amount.
(j)
Unless otherwise required by law, Holders of Tortoise Auction Preferred
Shares
shall not have any relative rights or preferences or other special
rights other
than those specifically set forth herein. The Holders of Tortoise
Auction
Preferred Shares shall have no rights to cumulative voting. If the
Company fails
to pay any dividends on the Tortoise Auction Preferred 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
Tortoise
Auction Preferred 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
Tortoise Auction Preferred Shares then outstanding, together with
holders of
shares of any class of shares ranking on a parity with the Tortoise
Auction
Preferred 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 Tortoise
Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise
Auction
Preferred Shares, of the full preferential amounts provided for in
this
Section 7, the holders of Preferred Shares, including Tortoise Auction
Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction
Preferred
Shares unless proportionate distributive amounts shall be paid on
account of the
Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction
Preferred
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 Tortoise
Auction Preferred Shares shall not be entitled to share
therein.
8.
Auction
Agent. For so long as any Tortoise Auction Preferred 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 Tortoise Auction Preferred 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
Tortoise
Auction Preferred Shares Asset Coverage. The Company shall
maintain, as of the last Business Day of each month in which any
shares of the
Tortoise Auction Preferred Shares are Outstanding, asset coverage
with respect
to the Tortoise Auction Preferred Shares which is equal to or greater
than the
1940 Act Tortoise Auction Preferred Shares Asset Coverage; provided,
however,
that Section 3(a)(ii) shall be the sole remedy if the Company fails to do
so.
10.
Tortoise
Auction
Preferred Shares Basic Maintenance Amount. So long as the
Tortoise Auction Preferred Shares are Outstanding and Moody’s, Fitch or any
Other Rating Agency which so requires is then rating the shares of
the Tortoise
Auction Preferred Shares, the Company shall maintain, as of each
Valuation Date,
Moody’s Eligible Assets (if Moody’s is then rating the Tortoise Auction
Preferred Shares), Fitch Eligible Assets (if Fitch is then rating
the Tortoise
Auction Preferred Shares) and (if applicable) Other Rating Agency
Eligible
Assets having an aggregate Discounted Value equal to or greater than
the
Tortoise Auction Preferred 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 Tortoise Auction Preferred
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 Tortoise
Auction Preferred 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 Tortoise Auction Preferred
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
Tortoise Auction Preferred Shares Asset Coverage, Tortoise Auction
Preferred
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 Tortoise Auction Preferred 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 Tortoise Auction Preferred 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 Tortoise Auction Preferred
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 Tortoise Auction Preferred 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 Tortoise
Auction
Preferred Shares, shall terminate.
16.
Facts
Ascertainable
Outside Charter. Subject to the provisions of these terms of
the Tortoise Auction Preferred Shares, the Board of Directors may,
by resolution
duly adopted, without stockholder approval (except as otherwise provided
by
these terms of the Tortoise Auction Preferred Shares or required
by applicable
law), modify these terms of the Tortoise Auction Preferred 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
Tortoise Auction Preferred 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 Tortoise Auction
Preferred Shares, the following terms shall have the following meanings
(with
terms defined in the singular having comparable meanings when used
in the plural
and vice versa), unless the context otherwise requires:
(a)
“AA Composite Commercial Paper Rate” on any date means (i) the interest
equivalent of the 30-day rate, in the case of a Dividend Period which
is a
Standard Dividend Period or shorter, or the 180-day rate, in the
case of all
other Dividend Periods, on commercial paper on behalf of issuers
whose corporate
bonds are rated “AA” by Standard & Poor’s, 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 commercial paper placed on behalf of such issuers,
as quoted on
a discount basis or otherwise by the Commercial Paper Dealers to the
Auction
Agent for the close of business on the Business Day immediately preceding
such
date (rounded to the next highest .001 of 1%). If any Commercial
Paper Dealer does not quote a rate required to determine the “AA” Composite
Commercial Paper Rate, such rate shall be determined on the basis of
the
quotations (or quotation) furnished by the remaining Commercial Paper
Dealers
(or Dealer), if any, or, if there are no such Commercial Paper Dealers,
by a
nationally recognized dealer in commercial paper of such issuers then
making
such quotations selected by the Company. For purposes of this
definition, (A) “Commercial
Paper Dealers” shall mean (1) Citigroup Global Markets Inc., Lehman
Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Goldman Sachs & Co.; (2) in lieu of any thereof, its respective
Affiliate or successor; and (3) if any of the foregoing shall cease to
quote rates for commercial paper of issuers of the sort described above,
in
substitution therefor, a nationally recognized dealer in commercial
paper of
such issuers then making such quotations selected by the Company, and
(B) “interest
equivalent” of a rate stated on a discount basis for commercial paper of a given
number of days’ maturity shall mean a number equal to the quotient (rounded
upward to the next higher one-thousandth of 1%) of (1) such rate expressed
as a decimal, divided by (2) the difference between (x) 1.00 and
(y) a fraction, the numerator of which shall be the product of such rate
expressed as a decimal, multiplied by the number of days in which such
commercial paper shall mature and the denominator of which shall be
360.
(b)
“Affiliate” or “affiliate” means any person controlled by, in control of or
under common control with the Company; provided that no Broker-Dealer
controlled
by, in control of or under common control with the Company shall be
deemed to be
an Affiliate nor shall any corporation or any person controlled by,
in control
of or under common control with such corporation, one of the directors
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.
(c)
“Agent Member” means a member of, or participant in, the Securities Depository
who shall act on behalf of a Bidder.
(d)
“All Hold Rate” means 80% of the “AA” Composite Commercial Paper
Rate.
(e)
“Applicable Percentage” means the percentage associated with the lower of the
credit ratings assigned to the Tortoise Auction Preferred 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 Tortoise Auction Preferred Shares
for each Auction Period (i) if Sufficient Clearing Bids exist for the
Auction in respect thereof, the Winning Bid Rate, (ii) if Sufficient
Clearing Bids do not exist for the Auction in respect thereof, the
Maximum Rate,
(iii) in the case where all the Tortoise Auction Preferred Shares are the
subject of Hold Orders for the Auction in respect thereof, the All
Hold Rate,
(iv) if a Default Period is occurring, the Default Rate, and (v) if an
Auction is not held for any reason (including the circumstance where
there is no
Auction Agent or Broker-Dealer), the Maximum Rate.
(g)
“Asset Coverage Cure Date” has the meaning set forth in
Section 3(a)(ii).
(h)
“Auction” means each periodic implementation of the Auction
Procedures.
(i)
“Auction Agent” means The Bank of New York unless and until another commercial
bank, trust company, or other financial institution appointed by a
resolution of
the Board of Directors enters into an agreement with the Company to
follow the
Auction Procedures for the purpose of determining the Applicable
Rate.
(j)
“Auction Agreement” means the agreement between the Auction Agent and the
Company pursuant to which the Auction Agent agrees to follow the
procedures
specified in Part II of these terms of the Tortoise Auction Preferred
Shares, as such agreement may from time to time be amended or
supplemented.
(k)
“Auction Date” means the first Business Day next preceding the first day of a
Dividend Period.
(l)
“Auction Desk” means the business unit of a Broker-Dealer that fulfills the
responsibilities of the Broker-Dealer under a Broker-Dealer Agreement,
including
soliciting Bids for the Tortoise Auction Preferred Shares, and units
of the
Broker-Dealer which are not separated from such business unit by
information
controls appropriate to control, limit and monitor the inappropriate
dissemination of information about Bids.
(m)
“Auction Period” means with respect to the Tortoise Auction Preferred Shares,
either a Standard Auction Period or a Special Auction Period, as
applicable.
(n)
“Auction Procedures” means the procedures for conducting Auctions set forth in
Part II hereof.
(o)
“Available Tortoise Auction Preferred Shares” means for each series of Tortoise
Auction Preferred Shares on each Auction Date, the number of Outstanding
Tortoise Auction Preferred Shares of the series that are not the
subject of
Submitted Hold Orders.
(p)
“Beneficial Owner,” with respect to the Tortoise Auction Preferred 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.
(q)
“Bid” shall have the meaning specified in paragraph (a) of Section 1
of Part II of these terms of the Tortoise Auction Preferred
Shares.
(r)
“Bidder” means each Beneficial Owner, Potential Beneficial Owner and Broker
Dealer who places an Order.
(s)
“Board of Directors” or “Board” means the Board of Directors of the Company or
any duly authorized committee thereof as permitted by applicable
law.
(t)
“Broker-Dealer” means any broker-dealer or broker-dealers, or other entity
permitted by law to perform the function required of a Broker-Dealer
by the
Auction Procedures, that has been selected by the Company and that
is a party to
a Broker-Dealer Agreement with the Auction Agent. The “Broker-Dealer”
of record with respect to any Tortoise Auction Preferred Share is
the
Broker-Dealer which placed the Order for such Tortoise Auction Preferred
Share
or whom the Existing Holder of such Tortoise Auction Preferred Share
has
designated as its Broker-Dealer with respect to such Tortoise Auction
Preferred
Share, in each case as reflected in the records of the Auction
Agent.
(u)
“Broker-Dealer Agreement” means an agreement between the Auction Agent and a
Broker-Dealer, pursuant to which the Broker-Dealer agrees to follow
the Auction
Procedures.
(v)
“Broker-Dealer Deadline” means, with respect to an Order, the internal deadline
established by the Broker-Dealer through which the Order was placed
after which
it will not accept Orders or any change in any Order previously placed
with such
Broker-Dealer; provided, however, that nothing shall prevent the Broker-Dealer
from correcting Clerical Errors by the Broker-Dealer with respect to
Orders from
Bidders after the Broker-Dealer Deadline pursuant to the provisions
herein. Any Broker-Dealer may change the time or times of its
Broker-Dealer Deadline as it relates to such Broker-Dealer by giving
notice not
less than two Business Days prior to the date such change is to take
effect to
Bidders who place Orders through such Broker-Dealer.
(w)
“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, days on
which the Federal Reserve Bank of New York is not open for business,
days on
which banking institutions or trust companies located in the state
in which the
operations of the Auction Agent are conducted are authorized or required
to be
closed by law, regulation or executive order of the state in which
the Auction
Agent conducts operations with respect to the Tortoise Auction Preferred
Shares.
(x)
“Clerical Error” means a clerical error in the processing of an Order, and
includes, but is not limited to, the following: (i) a
transmission error, including but not limited to, an Order sent to
the wrong
address or number, failure to transmit certain pages or illegible transmission,
(ii) failure to transmit an Order received from one or more Existing
Holders or Potential Beneficial Owners (including Orders from the Broker-Dealer
which were not originated by the Auction Desk) prior to the Broker-Dealer
Deadline or generated by the Broker-Dealer’s Auction Desk for its own account
prior to the Submission Deadline or (iii) a typographical
error. Determining whether an error is a “Clerical Error” is within
the reasonable judgment of the Broker-Dealer, provided that the Broker-Dealer
has a record of the correct Order that shows it was so received or
so generated
prior to the Broker-Dealer Deadline or the Submission Deadline, as
applicable.
(y)
“Commercial Paper Dealers” has the meaning set forth in the definition of “AA”
Composite Commercial Paper Rate.
(z)
“Commission” means the Securities and Exchange Commission.
(aa)
“Common Shares” means the shares of common stock, par value $.001 per share, of
the Company.
(bb)
“Default” has the meaning set forth in Section 2(c)(ii) of this
Part I.
(cc)
“Default Period” has the meaning set forth in Section 2(c)(ii) of this
Part I.
(dd)
“Default Rate” means the Reference Rate multiplied by three (3).
(ee)
“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 Standard & Poor’s, 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.
(ff)
“Discount Factor” means the Fitch Discount Factor (if Fitch is then rating the
Tortoise Auction Preferred Shares), the Moody’s Discount Factor (if Moody’s is
then rating the Tortoise
Auction
Preferred Shares) or any Other Rating Agency Discount Factor (if any
Other
Rating Agency is then rating the Tortoise Auction Preferred Shares),
whichever
is applicable.
(gg)
“Discounted Value” has the meaning set forth in the Rating Agency
Guidelines.
(hh)
“Dividend Default” has the meaning set forth in Section 2(c)(ii) of this
Part I.
(ii)
“Dividend Payment Date” with respect to the Tortoise Auction Preferred Shares
means any date on which dividends are payable pursuant to Section 2(b) of
this Part I.
(jj)
“Dividend Period” means, with respect to the Tortoise Auction Preferred 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.
(kk)
“Eligible Assets” means Fitch’s Eligible Assets or Moody’s Eligible Assets (if
Moody’s or Fitch are then rating the Tortoise Auction Preferred Shares)
and/or
Other Rating Agency Eligible Assets (if any Other Rating Agency is
then rating
the Tortoise Auction Preferred Shares), whichever is
applicable.
(ll)
“Error Correction Deadline” means one hour after the Auction Agent completes the
dissemination of the results of the Auction to Broker-Dealers without
regard to
the time of receipt of such results by any Broker-Dealer; provided,
however, in
no event shall the Error Correction Deadline extend past 4:00 p.m., New
York City time unless the Auction Agent experiences technological failure
or
force majeure in disseminating the Auction results which causes a delay
in
dissemination past 3:00 p.m., New York City time.
(mm)
“Existing Holder,” with respect to the Tortoise Auction Preferred 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.
(nn)
“Fitch” means Fitch Ratings and its successors at law.
(oo)
“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 Auction Preferred
Shares.
(pp)
“Fitch Eligible Assets” means the assets of the Company set forth in the Fitch
Guidelines as eligible for inclusion in calculating the Discounted
Value of the
Company’s assets in connection with Fitch’s ratings of Tortoise Auction
Preferred Shares.
(qq)
“Fitch Guidelines” mean the guidelines provided by Fitch, as may be amended from
time to time, in connection with Fitch’s ratings of Tortoise Auction Preferred
Shares.
(rr)
“Hold Order” shall have the meaning specified in paragraph (a) of Section 1
of Part II of these terms of the Tortoise Auction Preferred Shares or an
Order deemed to have been submitted as provided in paragraph (c)
of
Section 1 of Part II of these terms of the Tortoise Auction Preferred
Shares.
(ss)
“Holder” means, with respect to Tortoise Auction Preferred Shares, the
registered holder of Tortoise Auction Preferred Shares as the same
appears on
the share ledger or share records of the Company.
(tt)
“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 than 168 days, such rate shall be the five-month LIBOR
rate;
(vii) 168 or more but fewer than 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 but fewer than 365 days,
such rate shall be the twelve-month LIBOR rate.
(uu)
“London Business Day” means any day on which commercial banks are generally open
for business in London.
(vv)
“Mandatory Redemption Date” has the meaning set forth in Section 3(a)(iii)
of this Part I.
(ww) “Mandatory
Redemption Price” has the meaning set forth in Section 3(a)(iii) of this
Part I.
(xx)
“Market Value” means the market value of an asset of the Company determined as
follows: For equity securities, the value obtained from readily
available market quotations. If an equity security is not traded on
an exchange or not available from a Board-approved pricing service,
the value
obtained from written broker-dealer quotations. For fixed-income
securities, the value obtained from readily available market quotations
based on
the last sale price of a security on the day the Company values its
assets or
the market value obtained from a pricing service or the value obtained
from a
direct written broker-dealer quotation from a dealer who has made a
market in
the security. “Market Value” for other securities will mean the value
obtained pursuant to the Company’s valuation procedures. If the
market value of a security cannot be obtained, or the Company’s investment
adviser determines that the value of a security as so obtained does
not
represent the fair value of a security, fair value for that security
shall be
determined pursuant to the valuation procedures adopted by the Board
of
Directors.
(yy)
“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
Auction
Preferred Shares Basic Maintenance Amount.
(zz)
“Minimum Rate” means, on any Auction Date with respect to an Auction Period of
30 days or fewer, 70% of the “AA” Composite Commercial Paper Rate at the close
of business on the Business Day next preceding such Auction
Date. There shall be no Minimum Rate on any Auction Date with respect
to an Auction Period of more than the Standard Auction Period.
(aaa)
“Moody’s” means Moody’s Investors Service, Inc., a Delaware corporation, and its
successors at law.
(bbb)
“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 Tortoise Auction
Preferred Shares.
(ccc)
“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 Auction
Preferred Shares.
(ddd)
“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
Auction Preferred Shares.
(eee)
“1940 Act” means the Investment Company Act of 1940, as amended from time to
time.
(fff)
“1940 Act Majority” has the meaning set forth in Section 6(f) of this
Part I.
(ggg) “1940
Act Tortoise Auction Preferred 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 Tortoise Auction Preferred 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.
(hhh)
“Notice of Redemption” means any notice with respect to the redemption of
Tortoise Auction Preferred Shares pursuant to Section 3.
(iii)
“Order” means a Hold Order, Bid or Sell Order.
(jjj)
“Original Issue Date” means, with respect to the Tortoise Auction Preferred
Shares, Series ___, ________, 200_.
(kkk)
“Other Rating Agency” means each rating agency, if any, other than Fitch or
Moody’s then providing a rating for the Tortoise Auction Preferred Shares
pursuant to the request of the Company.
(lll)
“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 Tortoise Auction Preferred Shares.
(mmm)
“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 Tortoise Auction Preferred Shares.
(nnn) “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 Tortoise Auction Preferred Shares.
(ooo) “Outstanding”
or “outstanding” means, as of any date, Tortoise Auction Preferred Shares
theretofore issued by the Company except, without duplication, (i) any
Tortoise Auction Preferred 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 Tortoise
Auction
Preferred Shares and (ii) any Tortoise Auction Preferred 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 Tortoise Auction Preferred
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 Tortoise Auction Preferred 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 Tortoise Auction
Preferred Shares Basic Maintenance Amount, Tortoise Auction Preferred
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.
(ppp) “Paying
Agent” means The Bank of New York unless and until another entity appointed
by a
resolution of the Board of Directors enters into an agreement with
the Company
to serve as paying agent.
(qqq) “Person”
or “person” means and includes an individual, a corporation, a partnership, a
trust, a company, an unincorporated association, a joint venture or
other entity
or a government or any agency or political subdivision thereof.
(rrr)
“Potential Beneficial Owner,” with respect to shares of a series of Tortoise
Auction Preferred 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; provided, however,
that
for
purposes
of conducting an Auction, the Auction Agent may consider a Broker-Dealer
acting
on behalf of its customer as a Potential Beneficial Owner.
(sss)
“Potential Holder,” with respect to shares of a series of Tortoise Auction
Preferred 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 Tortoise
Auction
Preferred Shares of such series or that is an Existing Holder of
Tortoise
Auction Preferred Shares of such series that wishes to become the
Existing
Holder of additional Tortoise Auction Preferred Shares of such series;
provided,
however, that for purposes of conducting an Auction, the Auction
Agent may
consider a Broker-Dealer acting on behalf of its customer as a Potential
Holder.
(ttt)
“Preferred Shares” means the shares of preferred stock, par value $.001 per
share, including the Tortoise Auction Preferred Shares, of the Company
from time
to time.
(uuu)
“Rating Agency” means each of Fitch (if Fitch is then rating Tortoise Auction
Preferred Shares), Moody’s (if Moody’s is then rating Tortoise Auction Preferred
Shares), and any Other Rating Agency.
(vvv) “Rating
Agency Guidelines” mean Fitch Guidelines (if Fitch is then rating Tortoise
Auction Preferred Shares), Moody’s Guidelines (if Moody’s is then rating
Tortoise Auction Preferred Shares) and any Other Rating Agency Guidelines
(if
any Other Rating Agency is then rating Tortoise Auction Preferred
Shares),
whichever is applicable.
(www) “Redemption
Default” has the meaning set forth in Section 2(c)(ii) of this
Part I.
(xxx) “Redemption
Price” has the meaning set forth in Section 3(a)(i) of this
Part I.
(yyy) “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.
(zzz)
“Securities Act” means the Securities Act of 1933, as amended from time to
time.
(aaaa) “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 Auction Preferred Shares.
(bbbb) “Sell
Order” shall have the meaning specified in paragraph (a) of Section 1
of Part II of these terms of the Tortoise Auction Preferred
Shares.
(cccc) “Special
Auction Period” means an Auction Period that is not a Standard Auction
Period.
(dddd) “Special
Dividend Period” means a Dividend Period that is not a Standard Dividend
Period.
(eeee) “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.
(ffff) “Standard
Auction Period” means an Auction Period of ___ days.
(gggg) “Standard
Dividend Period” means a Dividend Period of ___ days.
(hhhh) “Submission
Deadline” means 1:00 P.M., New York City time, on any Auction Date or such
other time on such date as shall be specified by the Auction Agent
from time to
time pursuant to the Auction Agreement as the time by which the Broker-Dealers
are required to submit Orders to the Auction Agent. Notwithstanding
the foregoing, the Auction Agent will follow the Securities Industry
and
Financial Markets Association’s Early Market Close Recommendations for shortened
trading days for the bond markets (the “SIFMA Recommendation”) unless the
Auction Agent is instructed otherwise in writing by the Company. In
the event of a SIFMA Recommendation with respect to an Auction Date,
the
Submission Deadline will be 11:30 A.M., instead of 1:00 P.M., New York
City time.
(iiii)
“Submitted Bid” shall have the meaning specified in paragraph (a) of
Section 3 of Part II of these terms of the Tortoise Auction Preferred
Shares.
(jjjj)
“Submitted Hold Order” shall have the meaning specified
in paragraph (a) of Section 3 of Part II of these
terms of the Tortoise Auction Preferred Shares.
(kkkk) “Submitted
Order” shall have the meaning specified in
paragraph (a) of Section 3 of Part II of
these terms of the Tortoise Auction Preferred Shares.
(llll)
“Submitted Sell Order” shall have the meaning specified in paragraph (a) of
Section 3 of Part II of these terms of the Tortoise Auction Preferred
Shares.
(mmmm) “Sufficient
Clearing Bids” means for each series of Tortoise Auction Preferred Shares, an
Auction for which the number of outstanding Tortoise Auction Preferred
Shares
subject to Submitted Bids by Potential Beneficial Owners specifying
one or more
rates not higher than the Maximum Rate is not less than the number
of
outstanding Tortoise Auction Preferred Shares subject to Submitted
Sell Orders
and of Submitted Bids by Existing Holders specifying rates higher
than the
Maximum Rate.
(nnnn) “Tortoise
Notes” shall mean the $__________ in principal amount of the Company’s currently
outstanding Auction Rate Senior Notes Series A, B, C and D and any
additional
series of such notes which may be issued from time to time by the
Company.
(oooo) “Tortoise
Auction Preferred Shares” means Tortoise Auction Preferred Shares, liquidation
preference $25,000 per share.
(pppp) “Tortoise
Auction Preferred Shares Basic Maintenance Amount” as of any Valuation Date has
the meaning set forth in the Rating Agency Guidelines.
(qqqq) “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.
(rrrr)
“Valuation Date” has the meaning set forth in the Rating Agency
Guidelines.
(ssss) “Winning
Bid Rate” means for the Tortoise Auction Preferred Shares of a series, the
lowest rate specified in any Submitted Bid of the Tortoise Auction
Preferred
Shares, which if selected by the Auction Agent as the Applicable
Rate would
cause the number of Tortoise Auction Preferred Shares of such series
that are
the subject of Submitted Bids specifying a rate not greater than
such rate to be
not less than the number of Available Tortoise Auction Preferred
Shares.
18.
Interpretation. References
to sections, subsections, clauses, sub-clauses, paragraphs and subparagraphs
are
to such sections, subsections, clauses, sub-clauses, paragraphs and
subparagraphs contained in this Part I or Part II hereof, as the case
may be, unless specifically identified otherwise.
PART II: AUCTION
PROCEDURES
1.
Orders
by Existing
Holders and Potential Beneficial Owners. (a) Prior to the
Broker-Dealer Deadline for each series of Tortoise Auction Preferred
Shares on
each Auction Date:
(i)
each Existing Holder may submit to a Broker-Dealer, in writing or by
such other
method as shall be reasonably acceptable to such Broker-Dealer, one
or more
Orders as to:
(A)
the number of Tortoise Auction Preferred Shares, if any, of the series
held by
the Existing Holder which the Existing Holder commits to continue
to hold for
the next succeeding Auction Period without regard to the Applicable
Rate for
such Auction Period;
(B)
the number of Tortoise Auction Preferred Shares, if any, of the series
held by
the Existing Holder which the Existing Holder commits to continue
to hold for
the next succeeding Auction Period if the Applicable Rate for Tortoise
Auction
Preferred Shares for the next succeeding Auction Period is not less
than the
rate per annum specified in such Order (and if the Auction Rate is
less than
such specified rate, the effect of the Order shall be as set forth
in paragraph
(b)(i)(A) of this Section); and/or
(C)
the number of Tortoise Auction Preferred Shares, if any, of the series
held by
the Existing Holder which the Existing Holder offers to sell on the
first
Business Day of the next succeeding Auction Period without regard
to the
Applicable Rate for Tortoise Auction Preferred Shares for the next
succeeding
Auction Period; and
(ii)
each Potential Beneficial Owner may submit to a Broker-Dealer, in
writing or by
such other method as shall be reasonably acceptable to such Broker-Dealer,
an
Order
as
to the number of outstanding Tortoise Auction Preferred Shares of
a series which
each such Potential Beneficial Owner offers to purchase if the Applicable
Rate
for the Tortoise Auction Preferred Shares of a series for the next
succeeding
Dividend Period is not less than the rate per annum then specified
by such
Potential Beneficial Owner.
For
the
purposes of the Auction Procedures, an Order containing the information
referred
to in clause (i)(A) of this paragraph (a) is referred to as a “Hold
Order,” an Order containing the information referred to in clause (i)(B) or
(ii) of this paragraph (a) is referred to as a “Bid,” and an Order
containing the information referred to in clause (i)(C) of this
paragraph (a) is referred to as a “Sell Order.” No Auction Desk
of a Broker-Dealer shall accept as an Order a submission (whether
received from
an Existing Holder or a Potential Beneficial Owner or generated by
the
Broker-Dealer for its own account) which does not conform to the
requirements of
the Auction Procedures, including, but not limited to, submissions
which are not
in Authorized Denominations, specify a rate which contains more than
three
figures to the right of the decimal point or specify an amount greater
than the
number of outstanding Tortoise Auction Preferred Shares. No Auction
Desk of a Broker-Dealer shall accept a Bid or Sell Order which is
conditioned on
being filled in whole or a Bid which does not specify a specific
dividend
rate.
(b)
(i) A Bid by
an Existing Holder shall constitute an offer to sell on the first
Business Day
of the next succeeding Auction Period:
(A)
the number of outstanding Series __ Tortoise Auction Preferred Shares
specified
in the Bid if the Applicable Rate for the next succeeding Auction
Period shall
be less than the rate specified in such Bid; or
(B)
the number or a lesser number of outstanding Series __ Tortoise Auction
Preferred Shares to be determined as described in clause (v) of
paragraph (a) of Section 5 of this Part II if the Applicable Rate
for the next succeeding Auction Period shall be equal to such specified
rate;
or
(C)
a lesser number of outstanding Series __ Tortoise Auction Preferred
Shares to be
determined as described in clause (iv) of paragraph (b) of
Section 5 of this Part II if the rate specified therein shall be
higher than the Maximum Rate for shares of the series and Sufficient
Clearing
Bids for shares of the series do not exist.
(ii)
A Sell Order by an Existing Holder shall constitute an offer to
sell:
(A)
the number of outstanding Tortoise Auction Preferred Shares of the
series
specified in the Sell Order; or
(B)
the number or a lesser number of outstanding Tortoise Auction Preferred
Shares
of the series as set forth in clause (iv) of paragraph (b) of
Section 5 of this Part II if Sufficient Clearing Bids for Tortoise
Auction Preferred Shares of the series do not exist;
(iii)
A Bid by a Potential Holder of Tortoise Auction Preferred Shares
shall
constitute an offer to purchase:
(A)
the number of outstanding Tortoise Auction Preferred Shares of the
series
specified in the Bid if the Applicable Rate for the next succeeding
Auction
Period shall be higher than the rate specified therein; or
(B)
the number or a lesser number of outstanding Tortoise Auction Preferred
Shares
of the series as set forth in clause (vi) of paragraph (a) of
Section 5 of this Part II if the Applicable Rate for the Tortoise
Auction Preferred Shares determined on the Auction Date shall be
equal to the
rate specified therein.
(C)
Anything herein to the contrary notwithstanding:
(1)
if an Order or Orders covering all of the Tortoise Auction Preferred
Shares of a
particular series held by any Existing Holder is not submitted to
the
Broker-Dealer prior to the Broker-Dealer Deadline, such Broker-Dealer
shall deem
a Hold Order to have been submitted on behalf of the Existing Holder
covering
the number of outstanding Tortoise Auction Preferred Shares of the
series held
by the Existing Holder and not subject to Orders submitted to the
Auction Agent;
provided, however, that if there is a conversion from one Auction
Period to a
longer Auction Period and Orders have not been submitted to such
Broker-Dealer
prior to the Broker-Dealer Deadline covering the number of outstanding
Tortoise
Auction Preferred Shares of a particular series to be converted held
by such
Existing Holder, such Broker-Dealer shall deem a Sell Order to have
been
submitted on behalf of the Existing Holder covering the number of
Tortoise
Auction Preferred Shares to be converted held by the Existing Holder
and not
subject to Orders submitted to the Broker-Dealer;
(2)
for purposes of any Auction, any Order by an Existing Holder or Potential
Holder
shall be revocable until the Broker-Dealer Deadline, and after the
Broker-Dealer
Deadline all such Orders shall be irrevocable except as provided in
Section 2(e)(ii) and 2(f); and
(3)
for purposes of any Auction, any Tortoise Auction Preferred Shares
sold or
purchased pursuant to clauses (i), (ii) or (iii) of paragraph (b)
of this
Section 1 shall be sold or purchased at a price equal to 100% of the
liquidation preference thereof.
2.
Submission
of Orders
by Broker-Dealers to Auction Agent. (a) Each Broker-Dealer
shall submit to the Auction Agent in writing, or by such other electronic
means,
as shall be reasonably acceptable to the Auction Agent, prior to
the Submission
Deadline on each Auction Date for Tortoise Auction Preferred Shares
of a series,
all Orders with respect to Tortoise Auction Preferred shares of such
series
accepted by such Broker-Dealer in accordance with Section 1 above and
specifying with respect to each Order or aggregation of Orders pursuant
to
paragraph (b) of this Section 2:
(i)
the name of the Broker-Dealer;
(ii)
the number of Bidders placing Orders if requested by the Auction
Agent;
(iii)
the aggregate number of Tortoise Auction Preferred Shares of the
series, if any,
that are the subject of the Order;
(iv)
to the extent that the Bidder is an Existing Holder of Tortoise Auction
Preferred Shares of the series:
(A)
the number of Tortoise Auction Preferred Shares, if any, of the series
subject
to any Hold Order placed by the Existing Holder;
(B)
the number of Tortoise Auction Preferred Shares, if any, of the series
subject
to any Bid placed by the Existing Holder and the rate specified in
the Bid;
and
(C)
the number of Tortoise Auction Preferred Shares, if any, of the series
subject
to any Sell Order placed by the Existing Holder; and
(v)
to the extent the Bidder is a Potential Holder of Tortoise Auction Preferred
Shares of the series, the rate specified in such Bid.
(b)
If more than one Bid is submitted to a Broker-Dealer on behalf of
any single
Potential Beneficial Owner, the Broker-Dealer shall aggregate each
Bid submitted
on behalf of such Potential Beneficial Owner with the same rate and
consider
such Bids as a single Bid and shall consider each Bid submitted with
a different
rate a separate Bid with the rate and the number of Tortoise Auction
Preferred
Shares of the series specified therein.
A
Broker-Dealer may aggregate the Orders of different Potential Beneficial
Owners
with those of other Potential Beneficial Owners on whose behalf the
Broker-Dealer is submitting Orders and may aggregate the Orders of
different
Existing Holders with other Existing Holders on whose behalf the Broker-Dealer
is submitting Orders; provided, however, Bids may only be aggregated
if the
dividend rates on the Bids are the same.
(c)
None of the Company or the Auction Agent shall be responsible for the
failure of
any Broker-Dealer to submit an Order to the Auction Agent on behalf
of any
Beneficial Owner, Potential Beneficial Owner, Existing Holder or Potential
Holder.
(d)
Nothing contained herein shall preclude a Broker-Dealer from placing
an Order
for some or all of the Tortoise Auction Preferred Shares of a series
for its own
account.
(e)
Until the Submission Deadline, a Broker-Dealer may withdraw or modify
any Order
previously submitted to the Auction Agent (i) for any reason if the Order
was generated by the Auction Desk of the Broker-Dealer for the account
of the
Broker-Dealer or (ii) to correct a Clerical Error on the part of the
Broker-Dealer in the case of any other Order, including Orders from
the
Broker-Dealer which were not originated by the Auction Desk.
(f)
After the Submission Deadline, and prior to the Error Correction Deadline,
a
Broker-Dealer may:
(i)
submit to the Auction Agent an Order received from an Existing Holder,
Potential
Beneficial Owner or a Broker-Dealer which is not generated by the Auction
Desk,
in each case prior to the Broker-Dealer Deadline, or an Order generated
by the
Broker-Dealer’s Auction Desk for its own account prior to the Submission
Deadline (provided that in each case the Broker-Dealer has a record
of such
Order and the time when such Order was received or generated) and not
submitted
to the Auction Agent prior to the Submission Deadline as a result of
(A) an
event of force majeure or a technological failure which made delivery
prior to
the Submission Deadline impossible or, under the conditions then prevailing,
impracticable or (B) a clerical error on the part of the Broker-Dealer;
or
(ii)
modify or withdraw an Order received from an Existing Holder or a Potential
Beneficial Owner or generated by the Broker-Dealer (whether generated
by the
Broker-Dealer’s Auction Desk or elsewhere within the Broker-Dealer) for its own
account and submitted to the Auction Agent prior to the Submission
Deadline or
pursuant to clause (i) above, if the
Broker-Dealer
determines that such Order contained a Clerical Error on the part of
the
Broker-Dealer.
In
the
event a Broker-Dealer makes a submission, modification or withdrawal
pursuant to
this Section 2(f) and the Auction Agent has already run the Auction, the
Auction Agent shall rerun the Auction, taking into account such submission,
modification or withdrawal. Each submission, modification or
withdrawal of an Order submitted pursuant to this Section 2(f) by a
Broker-Dealer after the Submission Deadline and prior to the Error
Correction
Deadline shall constitute a representation by the Broker-Dealer that
(A) in
the case of a newly submitted Order or portion thereof or revised Order,
the
failure to submit such Order prior to the Submission Deadline resulted
from an
event described in clause (i) above and such Order was received from
an Existing
Holder or Potential Beneficial Owner or is an Order received from the
Broker-Dealer that was not originated by the Auction Desk, in each
case, prior
to the Broker-Dealer Deadline, or generated internally by such Broker-Dealer’s
Auction Desk for its own account prior to the Submission Deadline or
(B) in
the case of a modified or withdrawn Order, such Order was received
from an
Existing Holder, a Potential Beneficial Owner or the Broker-Dealer
which was not
originated by the Auction Desk prior to the Broker-Dealer Deadline,
or generated
internally by such Broker-Dealer’s Auction Desk for its own account prior to the
Submission Deadline and such Order as submitted to the Auction Agent
contained a
Clerical Error on the part of the Broker-Dealer and that such Order
has been
modified or withdrawn solely to effect a correction of such Clerical
Error, and
in the case of either (A) or (B), as applicable, the Broker-Dealer
has a record
of such Order and the time when such Order was received or
generated. The Auction Agent shall be entitled to rely conclusively
(and shall have no liability for relying) on such representation for
any and all
purposes of the Auction Procedures.
(g)
If after the Auction Agent announces the results of an Auction, a
Broker-Dealer
becomes aware that an error was made by the Auction Agent, the Broker-Dealer
shall communicate such awareness to the Auction Agent prior to 5:00 p.m.
New York City time on the Auction Date. If the Auction Agent
determines there has been such an error (as a result of either a
communication
from a Broker-Dealer or its own discovery) prior to 3:00 p.m., New York
City time on the first day of the Auction Period with respect to
which such
Auction was conducted, the Auction Agent shall correct the error
and notify each
Broker-Dealer that submitted Bids or held a position in the Tortoise
Auction
Preferred Shares subject to such Auction of the corrected
results.
(h)
Nothing contained herein shall preclude the Auction Agent from:
(i)
advising a Broker-Dealer prior to the Submission Deadline that it
has not
received Sufficient Clearing Bids for Tortoise Auction Preferred
Shares of the
series, provided, however, that if the Auction Agent so advises any
Broker-Dealer, it shall so advise all Broker-Dealers; or
(ii)
verifying the Orders of a Broker-Dealer prior to the Submission Deadline,
provided, however, that if the Auction Agent verifies the Orders of
any
Broker-Dealer, it shall verify the Orders of all Broker-Dealers requesting
such
verification.
3.
Treatment
of Orders by
the Auction Agent. Anything herein to the contrary
notwithstanding:
(a)
If the Auction Agent receives an Order which does not conform to the
requirements of the Auction Procedures, the Auction Agent may contact
the
Broker-Dealer submitting such Order until one hour after the Submission
Deadline
and inform such Broker-Dealer that it may resubmit such Order so that
it
conforms to the requirements of the Auction Procedures. Upon being
so informed,
such Broker-Dealer may correct and resubmit to the Auction Agent any
such Order
that, solely as a result of a Clerical Error on the part of such Broker-Dealer,
did not conform to the requirements of
the
Auction Procedures when previously submitted to the Auction
Agent. Any such resubmission by a Broker-Dealer shall constitute a
representation by such Broker-Dealer that the failure of such Order
to have so
conformed was solely as a result of a Clerical Error on the part of
such
Broker-Dealer. If the Auction Agent has not received a corrected
conforming Order within one hour and fifteen minutes of the Submission
Deadline,
the Auction Agent shall, if and to the extent applicable, adjust or
apply such
Order, as the case may be, in conformity with the provisions of
subsections (b), (c) or (d) of this Section 3 and, if the Auction
Agent is unable to so adjust or apply such Order, the Auction Agent
shall reject
such Order.
(b)
If any rate specified in any Bid contains more than three figures to
the right
of the decimal point, the Auction Agent shall round the rate up to
the next
highest one thousandth of one percent (0.001%).
(c)
If one or more Orders covering in the aggregate more than the number
of
outstanding Tortoise Auction Preferred Shares of a particular series
are
submitted by a Broker-Dealer to the Auction Agent, such Orders shall
be
considered valid in the following order of priority:
(i)
all Hold Orders for Tortoise Auction Preferred Shares of a series
shall be
considered Hold Orders, but only up to and including in the aggregate
the number
of outstanding Tortoise Auction Preferred Shares of the series for
which such
Broker-Dealer is the Broker-Dealer of record;
(ii)
(A) any Bid of
a Broker-Dealer shall be considered valid as a Bid of an Existing
Holder up to
and including the excess of the number of outstanding Tortoise Auction
Preferred
Shares of such series for which such Broker-Dealer is the Broker-Dealer
of
record over the number of Tortoise Auction Preferred Shares of such
series
subject to any Hold Orders referred to in clause (i)
above;
(B)
subject to subclause (A), all Bids of a Broker-Dealer with the same rate
shall be aggregated and considered a single Bid of an Existing Holder
up to and
including the excess of the number of outstanding Tortoise Auction
Preferred
Shares of the series for which such Broker-Dealer is the Broker Dealer
of record
over the number of Tortoise Auction Preferred Shares of such series
for which
the Broker-Dealer is the Broker-Dealer of record subject to any Hold
Orders
referred to in clause (i) above;
(C)
subject to subclause (A), if more than one Bid with different rates is
submitted by a Broker-Dealer, such Bids shall be considered Bids
of an Existing
Holder in the ascending order of their respective rates up to the
amount of
excess of the number of outstanding Tortoise Auction Preferred Shares
of the
series for which such Broker-Dealer is the Broker-Dealer of record
over the
number of Tortoise Auction Preferred Shares of such Series for which
such
Broker-Dealer is the Broker-Dealer of record subject to any Hold
Orders referred
to in clause (i) above;
(D)
the number, if any, of outstanding Tortoise Auction Preferred Shares
of the
series subject to Bids not considered to be Bids for which the Broker-Dealer
is
the Broker-Dealer of record under this clause (ii) shall be treated as the
subject of a Bid for Tortoise Auction Preferred Shares of the series
by a
Potential Beneficial Owner; and
(iii)
all Sell Orders shall be considered Sell Orders, but only up to and
including a
number of Tortoise Auction Preferred Shares of such series equal
to the excess
of the number of outstanding Tortoise Auction Preferred Shares of
such series
for which such Broker-Dealer is the Broker-Dealer of record over
the sum of the
number of Tortoise Auction Preferred Shares of such series subject
to Hold
Orders referred to in clause (i) above and the number of
Tortoise
Auction Preferred Shares of such series considered to be subject
to Bids for
which such Broker-Dealer is the Broker-Dealer of record pursuant
to
clause (ii) above.
(d)
If any Order is for other than an integral number of Tortoise Auction
Preferred
Shares, then the Auction Agent shall round the number down to the
nearest number
of whole Tortoise Auction Preferred Shares, and the Auction Agent
shall conduct
the Auction Procedures as if such Order had been submitted in such
number of
Tortoise Auction Preferred Shares.
(e)
If the Auction Agent has been notified by the Company that any portion
of an
Order by a Broker-Dealer relates to an Tortoise Auction Preferred
Share that has
been called for redemption on or prior to the Dividend Payment Date
next
succeeding such Auction, the Order shall be invalid with respect
to such portion
and the Auction Agent shall conduct the Auction Procedures as if
such portion of
such Order had not been submitted.
(f)
No Tortoise Auction Preferred Share which the Auction Agent has been
notified by
the Company has been called for redemption on or prior to the Dividend
Payment
Date next succeeding such Auction shall be included in the calculation
of
Available Tortoise Auction Preferred Shares for such Auction.
(g)
If an Order or Orders covering all of the Tortoise Auction Preferred
Shares of a
particular series is not submitted by a Broker-Dealer of record prior
to the
Submission Deadline, the Auction Agent shall deem a Hold Order to
have been
submitted on behalf of such Broker-Dealer covering the number of
Tortoise
Auction Preferred Shares for which such Broker-Dealer is the Broker-Dealer
of
record and not subject to Orders submitted to the Auction Agent;
provided,
however, that if there is a conversion from one Auction Period to
a longer
Auction Period and Orders have not been submitted by such Broker-Dealer
prior to
the Submission Deadline covering the number of Tortoise Auction Preferred
Shares
of a particular series to be converted for which such Broker-Dealer
is the
Broker-Dealer of record, the Auction Agent shall deem a Sell Order
to have been
submitted on behalf of such Broker-Dealer covering the number of
Tortoise
Auction Preferred Shares to be converted for which such Broker-Dealer
is the
Broker-Dealer of record not subject to Orders submitted by such
Broker-Dealer.
4.
Determination
of
Applicable Rate. (a) If requested by a Broker-Dealer, not
later than 10:30 a.m., New York City time (or such other time as may be
agreed to by the Auction Agent and all Broker-Dealers), on each Auction
Date for
each series of Tortoise Auction Preferred Shares, the Auction Agent
shall advise
such Broker-Dealer of the All Hold Rate. Such advice, and
confirmation, shall be made by telephone or other electronic means
acceptable to
the Auction Agent.
(b)
Promptly after the Submission Deadline for the Tortoise Auction Preferred
Shares
of a series on each Auction Date, the Auction Agent shall assemble
all Orders
submitted or deemed submitted to it by the Broker-Dealers (each such
Order as
submitted or deemed submitted by a Broker-Dealer being hereinafter
referred to
as a “Submitted Hold Order,” a “Submitted Bid” or a “Submitted Sell Order,” as
the case may be, and collectively as a “Submitted Order”) and shall determine
(i) the Available Tortoise Auction Preferred Shares, (ii) whether
there are Sufficient Clearing Bids, and (iii) the Applicable
Rate.
(c)
In the event the Auction Agent shall fail to calculate or, for any
reason, fails
to provide the Applicable Rate on the Auction Date, for any Auction
Period (i)
if the preceding Auction Period was a period of 35 days or less, (A)
a new
Auction Period shall be established for the same length of time as
the preceding
Auction Period, if the failure to make such calculation was because
there was
not at the time a duly appointed and acting Auction Agent or Broker-Dealer,
and
the Applicable Rate for the new Auction Period shall be the percentage
of the
Index set forth in Section 4(f) below if the Index is ascertainable
on such date
(by the Auction Agent, if there is at the time an Auction Agent, or
the
Company,
if at the time there is no Auction Agent) or, (B) if the failure to
make such
calculation was for any other reason or if the Index is not ascertainable
on
such date, the prior Auction Period shall be extended to the seventh
day
following the day that would have been the last day of the preceding
Auction
Period (or if such seventh day is not followed by a Business Day then
to the
next succeeding day that is followed by a Business Day) and the
Applicable Rate for the period as so extended shall be the same as
the
Applicable Rate for the Auction Period prior to the extension, and
(ii) if the
preceding Auction Period was a period of greater than 35 days, (A)
a new Auction
Period shall be established for a period that ends on the seventh day
following
the day that was the last day of the preceding Auction Period, (or
if such
seventh day is not followed by a Business Day then to the next succeeding
day
which is followed by a Business Day) if the failure to make such calculation
was
because there was not at the time a duly appointed and acting Auction
Agent or
Broker-Dealer, and the Applicable Rate for the new Auction Period shall
be the
percentage of the Index set forth in Section 4(f) below if the Index
is
ascertainable on such date (by the Auction Agent, if there is at the
time an
Auction Agent, or the Company, if at the time there is no Auction Agent)
or, (B)
if the failure to make such calculation was for any other reason or
if the Index
is not ascertainable on such date, the prior Auction Period shall be
extended to
the seventh day following the day that would have been the last day
of the
preceding Auction Period (or if such seventh day is not followed by
a Business
Day then to the next succeeding day that is followed by a Business
Day) and the Applicable Rate for the period as so extended shall be
the same as
the Applicable Rate for the Auction Period prior to the extension. In
the event a new Auction Period is established as set forth in clause
(ii) (A)
above, an Auction shall be held on the last Business Day of the new
Auction
Period to determine an Applicable Rate for an Auction Period beginning
on the
Business Day immediately following the last day of the new Auction
Period and
ending on the date on which the Auction Period otherwise would have
ended had
there been no new Auction Period or Auction Periods subsequent to the
last
Auction Period for which a Winning Bid Rate had been determined. In
the event an Auction Period is extended as set forth in clause (i)
(B) or (ii)
(B) above, an Auction shall be held on the last Business Day of the
Auction
Period as so extended to determine an Applicable Rate for an Auction
Period
beginning on the Business Day immediately following the last day of
the extended
Auction Period and ending on the date on which the Auction Period otherwise
would have ended had there been no extension of the prior Auction
Period.
Notwithstanding
the foregoing, neither new nor extended Auction Periods shall total
more than 35
days in the aggregate. If at the end of the 35 days the Auction Agent
fails to calculate or provide the Applicable Rate, or there is not
at the time a
duly appointed and acting Auction Agent or Broker-Dealer, the Applicable
Rate
shall be the Maximum Rate.
(d)
In the event of a failed conversion from an Auction Period to any other
period
or in the event of a failure to change the length of the current Auction
Period
due to the lack of Sufficient Clearing Bids at the Auction on the Auction
Date
for the first new Auction Period, the Applicable Rate for the next
Auction
Period shall be the Maximum Rate and the Auction Period shall be a
seven-day
Auction Period.
(e)
If the Tortoise Auction Preferred Shares are no longer maintained
in
book-entry-only form by the Securities Depository, then the Auctions
shall cease
and the Applicable Rate shall be the Maximum Rate.
(f)
The percentage of the Index in Section 4(c) is ___%.
(g)
Promptly after the Auction Agent has made such determination, it shall
advise
the Company of the Applicable Rate for the next succeeding Dividend
Period.
5.
Allocation
of
Shares. (a) In the event of Sufficient Clearing Bids for the
Tortoise Auction Preferred Shares of a series subject to the further
provisions
of paragraphs (c) and (d) of this Section 5, Submitted Orders for
shares of the series shall be accepted or rejected as follows in
the following
order of priority:
(i)
the Submitted Hold Order of each Existing Holder shall be accepted,
thus
requiring each such Existing Holder to continue to hold the Tortoise
Auction
Preferred Shares that are the subject of such Submitted Hold
Order;
(ii)
the Submitted Sell Order of each Existing Holder shall be accepted
and the
Submitted Bids of each Existing Holder specifying any rate that is
higher than
the Winning Bid Rate shall be rejected, thus requiring each Existing
Holder to
sell the Tortoise Auction Preferred Shares that are the subject of
such
Submitted Sell Order or Submitted Bid;
(iii)
the Submitted Bid of each Existing Holder specifying any rate that
is lower than
the Winning Bid Rate shall be accepted, thus requiring each such
Existing Holder
to continue to hold the Tortoise Auction Preferred Shares that are
the subject
of the Submitted Bid;
(iv)
the Submitted Bid of each Potential Holder specifying any rate that
is lower
than the Winning Bid Rate for shares of the series shall be accepted,
thus
requiring each such Potential Holder to purchase the Tortoise Auction
Preferred
Shares that are the subject of the Submitted Bid;
(v)
the Submitted Bid of each Existing Holder specifying a rate that
is equal to the
Winning Bid Rate shall be accepted, thus requiring each such Existing
Holder to
continue to hold the Tortoise Auction Preferred Shares of the series
that are
the subject of the Submitted Bid, but only up to and including the
number of
Tortoise Auction Preferred Shares of such series obtained by multiplying
(A) the aggregate number of Outstanding Tortoise Auction Preferred Shares
which are not the subject of Submitted Hold Orders described in clause
(i) of
this paragraph (a) or of Submitted Bids described in clauses (iii)
and (iv) of
this paragraph (a) by (B) a fraction, the numerator of which shall be the
principal amount of Outstanding Tortoise Auction Preferred Shares
held by such
Existing Holder subject to such Submitted Bid and the denominator
of which shall
be the aggregate number of Tortoise Auction Preferred Shares subject
to such
Submitted Bids made by all such Existing Holders that specified a
rate equal to
the Winning Bid Rate, and the remainder, if any, of such Submitted
Bid shall be
rejected, thus requiring each such Existing Holder to sell any excess
amount of
Tortoise Auction Preferred Shares;
(vi)
the Submitted Bid of each Potential Holder specifying a rate that
is equal to
the Winning Bid Rate shall be accepted, thus requiring each such
Potential
Holder to purchase the Tortoise Auction Preferred Shares of the series
that are
the subject of such Submitted Bid, but only in an amount equal to
the number of
Tortoise Auction Preferred Shares of such series obtained by multiplying
(A) the aggregate number of Outstanding Tortoise Auction Preferred Shares
which are not the subject of Submitted Hold Orders described in clause
(i) of
this paragraph (a) or of Submitted Bids described in clauses (iii),
(iv) or (v)
of this paragraph (a) by (B) a fraction, the numerator of which shall be
the Outstanding Tortoise Auction Preferred Shares subject to such
Submitted Bid
and the denominator of which shall be the sum of the aggregate number
of
Tortoise Auction Preferred Shares subject to such Submitted Bids
made by all
such Potential Holders that specified a rate equal to the Winning
Bid Rate, and
the remainder of such Submitted Bid shall be rejected; and
(vii)
the Submitted Bid of each Potential Holder specifying any rate that
is higher
than the Winning Bid Rate shall be rejected.
(b)
In the event there are not Sufficient Clearing Bids for the Tortoise
Auction
Preferred Shares of a series, Submitted Orders for the Tortoise Auction
Preferred Shares of the series shall be accepted or rejected as follows
in the
following order of priority:
(i)
the Submitted Hold Order of each Existing Holder shall be accepted,
thus
requiring each such Existing Holder to continue to hold the Tortoise
Auction
Preferred Shares that are the subject of such Submitted Hold
Order;
(ii)
the Submitted Bid of each Existing Holder specifying any rate that
is not higher
than the Maximum Rate shall be accepted, thus requiring each such
Existing
Holder to continue to hold the Tortoise Auction Preferred Shares
that are the
subject of such Submitted Bid;
(iii)
the Submitted Bids specifying any rate that is not higher than the
Maximum Rate
for the Tortoise Auction Preferred Shares shall be accepted, thus
requiring each
such Potential Holder to purchase the Tortoise Auction Preferred
Shares that are
the subject of such Submitted Bid; and
(iv)
the Submitted Sell Orders of each Existing Holder shall be accepted
as Submitted
Sell Orders and the Submitted Bids of each Existing Holder specifying
any rate
that is higher than the Maximum Rate shall be deemed to be and shall
be accepted
as Submitted Sell Orders, in both cases only up to and including
the number of
Tortoise Auction Preferred Shares of such series obtained by multiplying
(A) the number of Tortoise Auction Preferred Shares subject to Submitted
Bids described in clause (iii) of this paragraph (b) by (B) a
fraction, the numerator of which shall be the Outstanding Tortoise
Auction
Preferred Shares held by such Existing Holder subject to such Submitted
Sell
Order or such Submitted Bid deemed to be a Submitted Sell Order and
the
denominator of which shall be the aggregate number of Outstanding
Tortoise
Auction Preferred Shares subject to all such Submitted Sell Orders
and such
Submitted Bids deemed to be Submitted Sell Orders, and the remainder
of each
such Submitted Sell Order or Submitted Bid shall be deemed to be
and shall be
accepted as a Hold Order and each such Existing Holder shall be required
to
continue to hold such excess amount of Tortoise Auction Preferred
Shares;
and
(v)
the Submitted Bid of each Potential Holder specifying any rate that
is higher
than the Maximum Rate shall be rejected.
(c)
If, as a result of the undertakings described in Section 5(a) or
(b) above, any
Existing Holder or Potential Holder would be required to purchase
or sell an
aggregate number of Tortoise Auction Preferred Shares that is not
an integral
multiple of $25,000 on any Auction Date, the Auction Agent shall
by lot, in such
manner as it shall determine in its sole discretion, round up or
down the number
of Tortoise Auction Preferred Shares to be purchased or sold by any
Existing
Holder or Potential Holder on such Auction Date so that the number
of Tortoise
Auction Preferred Shares purchased or sold by each Existing Holder
or Potential
Holder on such Auction Date shall be an integral multiple of $25,000,
even if
such allocation results in one or more of such Existing Holder or
Potential
Holder not purchasing or selling any Tortoise Auction Preferred Shares
on such
Auction Date.
(d)
If, as a result of the undertakings described in Section 5(a) above,
any
Potential Holder would be required to purchase less than $25,000
or an integral
multiple thereof of Tortoise Auction Preferred Shares on any Auction
Date, the
Auction Agent shall by lot, in such manner as it shall determine
in its sole
discretion, allocate the Tortoise Auction Preferred Shares for purchase
among
Potential Holders so that the number of Tortoise Auction Preferred
Shares
purchased on such Auction Date by any Potential Holder shall be an
integral
multiple of $25,000, even if such allocation results in
one
or
more of such Potential Holders not purchasing the Tortoise Auction
Preferred
Shares on such Auction Date.
6.
Notice
of Applicable
Rate. (a)
On
each Auction Date, the Auction Agent shall notify each Broker-Dealer
that
participated in the Auction held on such Auction Date by electronic
means
acceptable to the Auction Agent and the applicable Broker-Dealer
of the
following, with respect to the Tortoise Auction Preferred Shares
of a series for
which an Auction was held on such Auction Date:
(i)
the Applicable Rate determined on such Auction Date for the succeeding
Auction
Period;
(ii)
whether Sufficient Clearing Bids existed for the determination of the
Winning
Bid Rate;
(iii)
if such Broker-Dealer submitted a Bid or a Sell Order on behalf of
an Existing
Holder, whether such Bid or Sell Order was accepted or rejected and
the number
of Tortoise Auction Preferred Shares of a series, if any, to be sold
by such
Existing Holder;
(iv)
if such Broker-Dealer submitted a Bid on behalf of a Potential Holder,
whether
such Bid was accepted or rejected and the number of Tortoise Auction
Preferred
Shares of a series, if any, to be purchased by such Potential
Holder;
(v)
if the aggregate number of Tortoise Auction Preferred Shares of a
series to be
sold by all Existing Holders on whose behalf such Broker-Dealer submitted
Bids
or Sell Orders is different from the aggregate number of Tortoise
Auction
Preferred Shares of such series to be purchased by all Potential
Holders on
whose behalf such Broker-Dealer submitted a Bid, the name or names
of one or
more Broker-Dealers (and the Agent Member, if any, of each such other
Broker-Dealer) and the number of Tortoise Auction Preferred Shares
of such
series to be (A) purchased from one or more Existing Holders on whose
behalf such other Broker-Dealers submitted Bids or Sell Orders or
(B) sold
to one or more Potential Holders on whose behalf such Broker-Dealer
submitted
Bids;
(vi)
the amount of dividends payable per share on each Dividend Payment
Date with
respect to such Auction Period; and
(vii)
the immediately succeeding Auction Date.
(b)
On each Auction Date, with respect to each series of Tortoise Auction
Preferred
Shares for which an Auction was held on such Auction Date, each Broker-Dealer
that submitted an Order on behalf of any Existing Holder or Potential
Holder
shall: (i) if requested by an Existing Holder or Potential Holder advise
such Existing Holder or Potential Holder on whose behalf such Broker-Dealer
submitted an Order as to (A) the Applicable Rate determined on such Auction
Date, (B) whether any Bid or Sell Order submitted on behalf of each such
Owner was accepted or rejected and (C) the immediately succeeding Auction
Date; (ii) instruct each Potential Holder on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part,
to
instruct such Potential Holder’s Agent Member to pay to such Broker-Dealer (or
its Agent Member) through the Securities Depository the amount necessary
to
purchase the number of Tortoise Auction Preferred Shares of such
series to be
purchased pursuant to such Bid against receipt of such shares; and
(iii) instruct each Existing Holder on whose behalf such Broker-Dealer
submitted a Sell Order that was accepted or a Bid that was rejected
in whole or
in part, to instruct such Existing Holder’s Agent Member to deliver to such
Broker-Dealer (or its Agent Member) through the Securities Depository
the number
of Tortoise Auction Preferred Shares of the series to be sold pursuant
to such
Bid or Sell Order against payment therefor.
(c)
The Auction Agent shall give notice of the Auction Rate to the Company
by
mutually acceptable electronic means and the Company shall promptly
give notice
of such Auction Rate to the Securities Depository.
7.
Miscellaneous
Provisions Regarding Auctions.
(a)
If the Securities Depository notifies the Company that it is unwilling
or unable
to continue as registered owner of the Tortoise Auction Preferred
Shares or if
at any time the Securities Depository shall no longer be registered
or in good
standing under the Securities Exchange Act of 1934, as amended, or
other
applicable statute or regulation and a successor to the Securities
Depository is
not appointed by the Company within 90 days after the Company receives
notice or
becomes aware of such condition, as the case may be, the Auctions
shall cease
and the Company shall execute and the Transfer Agent shall authenticate
and
deliver certificates representing the Tortoise Auction Preferred
Shares. Such
Tortoise Auction Preferred Shares shall be registered in such names
and
Authorized Denominations as the Securities Depository, pursuant to
instructions
from the Agent Members or otherwise, shall instruct the Company and
the Transfer
Agent.
(b)
During an Auction Period, so long as the ownership of the Tortoise
Auction
Preferred Shares is maintained in book-entry form by the Securities
Depository,
an Existing Holder or a Beneficial Owner may sell, transfer or otherwise
dispose
of an Tortoise Auction Preferred Share only pursuant to a Bid or
Sell Order in
accordance with the Auction Procedures or to or through a Broker-Dealer,
provided that (i) in the case of all transfers other than pursuant to
Auctions, such Existing Holder or its Broker-Dealer or its Agent
Member advises
the Auction Agent of such transfer and (ii) a sale, transfer or other
disposition of Tortoise Auction Preferred Shares from a customer
of a
Broker-Dealer who is listed on the records of that Broker-Dealer
as the holder
of such Tortoise Auction Preferred 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 this paragraph if such Broker-Dealer
remains
the Existing Holder of the Tortoise Auction Preferred Shares so sold,
transferred or disposed of immediately after such sale, transfer
or
disposition.
8.
Changes
in Auction
Period or Auction Date.
(a)
Changes in Auction Period. (i) During
any Auction Period, the Company, may, from time to time on the Dividend
Payment
Date immediately following the end of any Auction Period, change
the length of
the Auction Period with respect to all of the Tortoise Auction Preferred
Shares
of a series in order to accommodate economic and financial factors
that may
affect or be relevant to the length of the Auction Period and the
rate of
Tortoise Auction Preferred Shares of such series. The Company shall
initiate the
change in the length of the Auction Period by giving written notice
to the
Auction Agent, the Broker-Dealers and the Securities Depository that
the Auction
Period shall change if the conditions described herein are satisfied
and the
proposed effective date of the change, at least 10 Business Days
prior to the
Auction Date for such Auction Period.
(ii)
Any such changed Auction Period shall be for a period of one day,
seven-days,
28-days, 35-days, three months, six months and shall be for all of
the shares of
a series of Tortoise Auction Preferred Shares in an Auction
Period.
(iii)
The change in length of the Auction Period shall take effect only
if Sufficient
Clearing Bids exist at the Auction on the Auction Date for such new
Auction
Period. For purposes of the Auction for such new Auction Period only,
except to
the extent any Existing Holder submits an Order with respect to such
Tortoise
Auction Preferred Shares of any series each Existing Holder shall
be deemed to
have submitted Sell Orders with respect to all of its Tortoise Auction
Preferred
Shares of such series if the change is to a longer Auction Period
and
a
Hold
Order if the change is to a shorter Auction Period. If there are not
Sufficient Clearing Bids for the first Auction Period, the Auction
Rate for the
new Auction Period shall be the Maximum Rate, and the Auction Period
shall be a
seven-day Auction Period.
(b)
Changes in Auction Date. During any
Auction Period, the Auction Agent, at the direction of the Company,
may specify
an earlier or later Auction Date (but in no event more than five
Business Days
earlier or later) than the Auction Date that would otherwise be determined
in
accordance with the definition of “Auction Date” in order to conform with then
current market practice with respect to similar securities or to
accommodate
economic and financial factors that may affect or be relevant to
the day of the
week constituting an Auction Date and the rate of the shares of the
series of
Tortoise Auction Preferred Shares. The Auction Agent shall provide
notice of the Company’s direction to specify an earlier Auction Date for an
Auction Period by means of a written notice delivered at least 45
days prior to
the proposed changed Auction Date to the Company and the Broker-Dealers
with a
copy to the Securities Depository. In the event the Auction Agent is
instructed to specify an earlier or later Auction Date, the days
of the week on
which an Auction Period begins and ends and the Dividend Payment
Dates shall be
adjusted accordingly.
(c)
Changes Resulting from Unscheduled
Holidays. If, in the opinion of the Auction Agent and the Broker-Dealers,
there is insufficient notice of an unscheduled holiday to allow the
efficient
implementation of the Auction Procedures set forth herein, the Auction
Agent and
the Broker-Dealers may, as they deem appropriate, and after providing
notice to
the Company, set a different Auction Date and adjust any Interest Payment
Dates
and Auction Periods affected by such unscheduled holiday. In the event
there is
not agreement among the Broker-Dealers, the Auction Agent shall set
the
different Auction Date and make such adjustments as directed by a majority
of
the Broker-Dealers (based on the number of shares for which a Broker-Dealer
is
listed as the Broker-Dealer in the Existing Holder registry maintained
by the
Auction Agent pursuant to Section 2.2 of the Auction Agreement), and,
if there
is not a majority so directing, the Auction Date shall be moved to
the next
succeeding Business Day following the scheduled Auction Date, and the
Dividend
Payment Date and the Auction Period shall be adjusted accordingly.
9.
Index.
(a)
If for any reason on any Auction Date the Index shall not be determined
as
provided in Part II of these terms of the Tortoise Auction Preferred
Shares, the
Index shall be the Index for the prior Business Day.
(b)
The determination of the Index as provided in the Articles Supplementary
and
Part II of these terms of the Tortoise Auction Preferred Shares shall
be
conclusive and binding upon the Company, the Broker-Dealers, the
Auction Agent
and the holders of the Tortoise Auction Preferred Shares.
SECOND: The
Series ____ Tortoise Auction Preferred Shares have been classified and
designated by the Board of Directors under the authority contained
in the
charter.
THIRD: These
Articles Supplementary have been approved by the Board of Directors
in the
manner and by the vote required by law.
FOURTH: The
undersigned President of the Company acknowledges these Articles Supplementary
to be the corporate act of the Company and, as to all matters or facts
required
to be verified under oath, the undersigned President acknowledges that,
to the
best of his knowledge, information and belief, these matters and facts
are true
in all material respects and that this statement is made under the
penalties for
perjury.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Company has caused these Articles Supplementary
to be
signed in its name and on its behalf by its President and attested
to by its
Secretary on this ___ day of __________, 200_.
|
ATTEST:
___________________________________________________
Name: Connie
J. Savage
Title: Secretary
|
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
________________________________________________
Name: David J.
Schulte
Title: 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 event 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
_____________________________________________________
___________,
2008
PART
C – OTHER INFORMATION
Item
25. Financial Statements and Exhibits
1. Financial
Statements:
The
Registrant’s audited financial statements dated November 30, 2007, notes to
such financial statements and report of independent registered
public accounting
firm thereon, once available and filed with the SEC, are expected
to be
incorporated by reference into Part B: Statement of Additional
Information in a subsequent pre-effective amendment.
2. Exhibits:
|
a.1.
|
Articles
of Incorporation.1
|
|
|
a.2.
|
Articles
of Amendment and Restatement.2
|
|
|
a.3.
|
Articles
Supplementary relating to Series I MMP
Shares.5
|
|
|
a.4.
|
Articles
Supplementary relating to Series II MMP
Shares.9
|
|
|
a.5.
|
Articles
Supplementary relating to Series III Tortoise Auction
Preferred
Shares.10
|
|
|
a.6.
|
Articles
Supplementary relating to Series IV Tortoise Auction
Preferred
Shares.12
|
|
|
a.7.
|
Form
of Articles Supplementary relating to Preferred Stock,
included in
Part B: Statement of Additional Information.*
|
|
|
a.8.
|
Articles
of Amendment.7
|
|
|
a.9
|
Articles
of Amendment.*
|
|
|
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 Stock Certificate.*
|
|
|
d.3.
|
Form
of Note.**
|
|
|
d.4.
|
Indenture
of Trust.9
|
|
|
d.5.
|
Form
of Supplemental Indenture of Trust.**
|
|
|
d.6.
|
Statement
of Eligibility of Trustee on Form T-1.3
|
|
|
d.7.
|
Form
of Fitch Rating Guidelines and Moody’s Rating
Guidelines.*
|
|
|
e.
|
Terms
and Conditions of the Amended Dividend Reinvestment
and Cash Purchase
Plan.11
|
|
|
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.**
|
|
|
h.4.
|
Form
of Purchase Agreement for Private Placement of Common
Stock.*
|
|
|
h.5.
|
Form
of Placement Agency Agreement for Private Placement
of Common
Stock.*
|
|
|
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
|
|
|
k.9.
|
Credit
Agreement.8
|
|
|
l.
|
Opinion
of Venable LLP.***
|
|
|
m.
|
Not
applicable.
|
C-1
|
n.
|
Consent
of Ernst & Young LLP.***
|
|
|
o.
|
Not
applicable.
|
|
|
p.
|
Subscription
Agreement.3
|
|
|
q.
|
None.
|
|
|
r.1.
|
Code
of Ethics for the Registrant.**
|
|
|
r.2.
|
Code
of Ethics for the Adviser.**
|
|
|
s.
|
Powers
of Attorney.**
|
_____________
|
(*)
|
Filed
herewith.
|
|
(**)
|
Previously
filed.
|
|
(***)
|
To
be filed by amendment.
|
|
(1)
|
Incorporated
by reference to Registrant’s Registration Statement on Form N-2, filed on
October 31, 2003 (File Nos. 333-110143 and
811-21462).
|
|
(2)
|
Incorporated
by reference to Pre-Effective Amendment No. 1 to Registrant’s
Registration Statement on Form N-2, filed on January 30, 2004 (File
Nos. 333-110143 and 811-21462).
|
|
(3)
|
Incorporated
by reference to Pre-Effective Amendment No. 1 to Registrant’s
Registration Statement on Form N-2, filed on June 28, 2004 (File Nos.
333-114545 and 811-21462).
|
|
(4)
|
Incorporated
by reference to Pre-Effective Amendment No. 3 to Registrant’s
Registration Statement on Form N-2, filed on February 20, 2004 (File
Nos. 333-110143 and 811-21462).
|
|
(5)
|
Incorporated
by reference to Registrant's Registration Statement
on Form N-2, filed on
October 15, 2004 (File Nos. 333-119784 and
811-21462).
|
|
(6)
|
Incorporated
by reference to Pre-Effective Amendment No. 1 to Registrant’s
Registration Statement on Form N-2, filed on 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).
|
|
(8)
|
Incorporated
by reference to Post-Effective Amendment No. 1 to Registrant’s
Registration Statement on Form N-2, filed on August 10, 2006
(File Nos. 333-131204 and
811-21462).
|
|
(9)
|
Incorporated
by reference to Registrant’s Registration Statement on Form N-2, filed on
January 20, 2006 (File Nos. 333-131204 and
811-21462).
|
|
(10)
|
Incorporated
by reference to Post-Effective Amendment No. 3 to Registrant’s
Registration Statement on Form N-2, filed on April 4, 2007 (File
Nos. 333-140457 and 811-21462).
|
|
(11)
|
Incorporated
by reference to Pre-Effective Amendment No. 1 to Registrant’s Registration
Statement on Form N-2, filed on March 6, 2007 (File
Nos. 333-140457 and
811-21462).
|
|
(12)
|
Incorporated
by reference to Post-Effective Amendment No. 5 to Registrant’s
Registration Statement on Form N-2, filed on August 17, 2007 (File
Nos. 333-140457 and
811-21462).
|
Item
26. Marketing Arrangements
The
information contained under the heading “Plan of Distribution” in the prospectus
is incorporated herein by reference, and information concerning
any underwriters
will be contained in an accompanying prospectus
supplement.
Item
27. Other Expenses and Distribution
The
following table sets forth the estimated expenses to be incurred
in connection
with all potential offerings described in this Registration
Statement:
|
Securities
and Exchange Commission Fees
|
$
|
|
|
Directors’
Fees and Expenses
|
||
|
Printing
(other than certificates)
|
||
|
Accounting
fees and expenses
|
||
|
Legal
fees and expenses
|
||
|
NASD
fee
|
||
|
Rating
Agency Fees
|
||
|
Miscellaneous
|
||
|
Total
|
$
|
*
|
_____________
|
(*)
|
These
expenses will be borne by the Company unless otherwise
specified in a
prospectus supplement.
|
C-2
Item
28. Persons Controlled by or Under Common
Control
None.
Item
29. Number of Holders of Securities
As
of
November 30, 2007, the number of record holders of each class of securities
of the Registrant was:
|
Title
of Class
|
Number
of Record Holders
|
|
Common
Shares ($0.001 par value)
|
91
|
|
Preferred
Stock (Liquidation Preference $25,000 per share)
|
1
|
|
Long-term
Debt ($235,000,000 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
C-3
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,
1555 North Rivercenter Drive, Suite, 302, Milwaukee, Wisconsin
53212, at the
offices of the transfer agent, Computershare Trust Company N.A.,
P.O. Box 43078,
Providence, Rhode Island 02940-3078, at the offices of the administrator,
U.S.
Bancorp Fund Services, LLC, 615 East Michigan Street, Milwaukee,
WI 53202, at
the offices of the Auction Agent and Paying Agent, The Bank of
New York, 101
Barclay Street, 7W, New York, NY 10280 or at the offices of the
Trustee, The
Bank of New York Trust Company, N.A., 2 N. LaSalle Street, Chicago,
IL
60602.
Item
33. Management Services
Not
applicable.
C-4
Item
34. Undertakings
1. The
Registrant undertakes to suspend the offering of common stock
until the
prospectus is amended if (1) subsequent to the effective date of this
registration statement, the net asset value declines more than
ten percent from
its net asset value as of the effective date of this registration
statement or
(2) the net asset value increases to an amount greater than its net
proceeds as stated in the prospectus.
2. Not
applicable.
3. Not
applicable.
4. The
securities being registered will be offered on a delayed or continuous
basis in
reliance on Rule 415 under the 1933 Act. Accordingly, the
Registrant undertakes:
(a) to
file, during any period in which offers or sales are being made,
a
post-effective amendment to this registration statement:
(1) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
(2) to
reflect in the prospectus any facts or events arising after
the effective date
of the registration statement (or the most recent post-effective
amendment
thereof) which, individually or in the aggregate, represent
a fundamental change
in the information set forth in the registration statement;
and
(3) to
include any material information with respect to the plan of
distribution not
previously disclosed in the registration statement or any material
change to
such information in the registration statement.
(b) that,
for the purpose of determining any liability under the Securities
Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration
statement relating to the securities offered therein, and the
offering of those
securities at that time shall be deemed to be the initial bona
fide offering
thereof; and
(c) to
remove from registration by means of a post-effective amendment
any of the
securities being registered which remain unsold at the termination
of the
offering;
(d) that,
for the purpose of determining liability under the 1933 Act to
any purchaser, if
the Registrant is subject to Rule 430C: each prospectus filed
pursuant to Rule 497(b), (c), (d) or (e) under the 1933 Act as
part of this
registration statement relating to an offering, other than prospectuses
filed in
reliance on Rule 430A under the 1933 Act, shall be deemed to
be part of and
included in this registration statement as of the date it is
first used after
effectiveness. Provided, however, that no statement
made in this registration statement or prospectus that is part
of this
registration statement or made in a document incorporated or
deemed incorporated
by reference into this registration or prospectus that is part
of this
registration statement will, as to a purchaser with a time of
contract of sale
prior to such first use, supersede or modify any statement that
was made in this
registration statement or prospectus that was part of this registration
statement or made in any such document immediately prior to such
date of first
use.
(e) that
for the purpose of determining liability of the Registrant under
the 1933 Act to
any purchaser in the initial distribution of securities:
C-5
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. (a) That
for the purpose of determining any liability under the 1933 Act,
the information
omitted from the form of prospectus filed as part of this registration
statement
in reliance upon Rule 430A and contained in a form of prospectus
filed by the
Registrant under Rule 497(h) under the 1933 Act [17 CFR 230.497(h)]
shall be
deemed to be part of this registration statement as of the time
it was declared
effective; and
(b) for
the purpose of determining any liability under the 1933 Act,
each post-effective
amendment that contains a form of prospectus shall be deemed
to be a new
registration statement relating to the securities offered therein,
and the
offering of the securities at that time shall be deemed to be
the initial bona
fide offering thereof.
6. The
Registrant undertakes to send by first class mail or other means
designed to
ensure equally prominent delivery within two business days of
receipt of a
written or oral request the Registrant’s statement of additional
information.
7. Upon
each issuance of securities pursuant to this Registration Statement,
the
Registrant undertakes to file a form of prospectus and/or form
of prospectus
supplement pursuant to Rule 497 and a post-effective amendment
to the extent
required by the 1933 Act and the rules and regulations thereunder,
including,
but not limited to a post-effective amendment pursuant to Rule
462(c) or Rule
462(d) under the 1933 Act.
C-6
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933 and the Investment
Company Act
of 1940, the Registrant has duly caused this registration statement
to be signed
on its behalf by the undersigned, thereunto duly authorized,
in this City of
Overland Park and State of Kansas, on the 25th day of January,
2008.
|
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)
|
January
25, 2008
|
|
/s/
Conrad S.
Ciccotello*
Conrad
S. Ciccotello
|
Director
|
January
25, 2008
|
|
/s/
John R.
Graham*
John
R. Graham
|
Director
|
January
25, 2008
|
|
/s/
Charles E.
Heath*
Charles
E. Heath
|
Director
|
January
25, 2008
|
|
/s/
H. Kevin
Birzer*
H.
Kevin Birzer
|
Director
|
January
25, 2008
|
|
/s/
David J.
Schulte
David J.
Schulte
|
President
and Chief Executive Officer (Principal Executive Officer)
|
January
25, 2008
|
_____________
|
*
|
By
David J. Schulte pursuant to power of attorney, filed
with the initial
registration statement on September 14,
2007.
|
|
|
By: /s/
David J. Schulte
|
|
|
Attorney-in-Fact
|
C-7
EXHIBIT INDEX
|
a.9
|
Articles
of Amendment
|
|
|
d.2
|
Form
of Preferred Stock Certificate.
|
|
|
d.7
|
Form
of Fitch Rating Guidelines and Moody’s Rating
Guidelines.
|
|
|
h.4.
|
Form
of Purchase Agreement for Private Placement of Common
Stock.
|
|
|
h.5.
|
Form
of Placement Agency Agreement for Private Placement
of Common
Stock.
|
|
|
k.4
|
Form
of Auction Agency Agreement relating to Preferred
Stock.
|
|
|
k.6
|
Form
of Broker-Dealer Agreement relating to Preferred
Stock.
|
C-8