UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22409
Tortoise Midstream Energy Fund, Inc.
(Exact name of registrant as specified in charter)
11550 Ash Street, Suite 300, Leawood, KS 66211
(Address of principal executive offices) (Zip code)
P. Bradley Adams
Diane Bono
11550 Ash Street, Suite 300, Leawood, KS
66211
(Name and address of agent for service)
913-981-1020
Registrant's telephone number, including area code
Date of fiscal year end: November 30
Date of reporting period: November 30, 2018
Item 1. Report to Stockholders.
Annual Report | November 30, 2018
2018 Annual Report
Closed-End Funds
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*Fund name changed to Tortoise Midstream Energy Fund, Inc. (effective January 7, 2019) |
| Tortoise |
| 2018 Annual Report to Stockholders |
This combined report provides you with a comprehensive review of our funds that span the entire energy value chain.
| Table of contents | ||||||
| Letter to Stockholders | 2 | Financial Statements | 19 | |||
| TYG: | Fund Focus | 4 | Notes to Financial Statements | 52 | ||
| NTG: | Fund Focus | 7 | Report of Independent Registered | |||
| TTP: | Fund Focus | 10 | Public Accounting Firm | 69 | ||
| NDP: | Fund Focus | 13 | Company Officers and Directors | 70 | ||
| TPZ: | Fund Focus | 16 | Additional Information | 72 | ||
| TTP and TPZ distribution policies |
Tortoise Pipeline & Energy Fund, Inc. (“TTP”) and Tortoise Power and Energy Infrastructure Fund, Inc. (“TPZ”) are relying on exemptive relief permitting them to make long-term capital gain distributions throughout the year. Each of TTP and TPZ, with approval of its Board of Directors (the “Board”), has adopted a distribution policy (the “Policy”) with the purpose of distributing over the course of each year, through periodic distributions as nearly equal as practicable and any required special distributions, an amount closely approximating the total taxable income of TTP and TPZ during such year and, if so determined by the Board, all or a portion of the return of capital paid by portfolio companies to TTP and TPZ during such year. In accordance with its Policy, TTP distributes a fixed amount per common share, currently $0.4075, each quarter to its common shareholders and TPZ distributes a fixed amount per common share, currently $0.125, each month to its common shareholders. These amounts are subject to change from time to time at the discretion of the Board. Although the level of distributions is independent of TTP’s and TPZ’s performance, TTP and TPZ expect such distributions to correlate with its performance over time. Each quarterly and monthly distribution to shareholders is expected to be at the fixed amount established by the Board, except for extraordinary distributions in light of TTP’s and TPZ’s performance for the entire calendar year and to enable TTP and TPZ to comply with the distribution requirements imposed by the Internal Revenue Code. The Board may amend, suspend or terminate the Policy without prior notice to shareholders if it deems such action to be in the best interests of TTP, TPZ and their respective shareholders. For example, the Board might take such action if the Policy had the effect of shrinking TTP’s or TPZ’s assets to a level that was determined to be detrimental to TTP or TPZ shareholders. The suspension or termination of the Policy could have the effect of creating a trading discount (if TTP’s or TPZ’s stock is trading at or above net asset value), widening an existing trading discount, or decreasing an existing premium. You should not draw any conclusions about TTP’s or TPZ’s investment performance from the amount of the distribution or from the terms of TTP’s or TPZ’s distribution policy. Each of TTP and TPZ estimates that it has distributed more than its income and net realized capital gains; therefore, a portion of your distribution may be a return of capital. A return of capital may occur, for example, when some or all of the money that you invested in TTP or TPZ is paid back to you. A return of capital distribution does not necessarily reflect TTP’s or TPZ’s investment performance and should not be confused with “yield” or “income.” The amounts and sources of distributions reported are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon TTP’s and TPZ’s investment experience during the remainder of their fiscal year and may be subject to changes based on tax regulations. TTP and TPZ will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes.
Tortoise
| 2018 Annual Report | November 30, 2018 |
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Closed-end fund comparison | |||||||||||
| Primary | Total assets | Portfolio mix | Portfolio mix | ||||||||
| Name/Ticker | focus | Structure | ($ millions)1 | by asset type2 | by structure2 | ||||||
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Tortoise Energy NYSE: TYG |
Midstream MLPs |
|
C-corp |
|
$1,885.2 |
|
 |
 | ||
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Tortoise MLP NYSE: NTG |
Natural gas infrastructure MLPs |
C-corp |
$1,326.4 |
 |
 | ||||||
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Tortoise Pipeline NYSE: TTP |
North American pipeline companies |
Regulated investment company |
$201.4 |
 |
 | ||||||
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Tortoise Energy NYSE: NDP |
North American oil & gas producers |
Regulated investment company |
$143.9 |
 |
 | |||||
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Tortoise Power and NYSE: TPZ |
Power & energy infrastructure companies (Fixed income & equity) |
Regulated investment company |
$184.0 |
 |
 | |||||
| 1 |
As of 12/31/2018 |
| 2 |
As of 11/30/2018 |
| (unaudited) | |
| Tortoise | 1 |
| Tortoise |
| 2018 Annual Report to closed-end fund stockholders |
Dear stockholders,
The broader energy sector, as represented by the S&P Energy Select Sector® Index, retreated substantially during the last fiscal quarter ending Nov. 30, 2018, returning -10.6%, bringing the full fiscal year performance to -1.6%. Commodity prices were volatile with crude oil prices seeing both the peak and trough for the fiscal year in the last three months. Oversupply concerns including: continued U.S. production growth, increased production from the Organization of the Petroleum Exporting Countries (OPEC), specifically Saudi Arabia in anticipation of the Iranian sanctions, and uncertainty leading up to the OPEC meeting in Vienna on Dec. 5, all contributed to driving oil prices lower. The midstream segment pulled back along with broad energy, as well as from near-term uncertainty around simplification transactions and further evolution of the midstream segment. Closed-end funds focused on midstream energy were not immune to the pressure and the market responded driving market-based returns further into negative territory, resulting in discounted trading to net asset value for most funds.
Upstream
Upstream oil and gas producers experienced a stark reversal in performance during the final quarter with the Tortoise North American Oil and Gas Producers IndexSM returning -20.4%, bringing fiscal year-end performance to -10.4%. Crude oil prices, represented by West Texas Intermediate (WTI), ended the fiscal year at slightly more than $50 per barrel after approaching $80 per barrel in early Oct. Crude oil prices began the fiscal year on Dec. 1, 2017 at $58.36 and steadily increased over the first three fiscal quarters. The last fiscal quarter brought volatility as oil prices fell from a fiscal year high of $76.41 on Oct. 3 to a low of $50.22 on Nov. 23, 2018 and ended the fiscal year at $50.93.
U.S. crude oil production is expected to average 10.9 million barrels per day (MMbbl/d) in 2018 and to increase further to 12.1 MMbbl/d in 2019. This is significant growth from the 9.4 MMbbl/d produced in 2017.1 The U.S. Energy Information Administration (EIA) forecasts a global liquid fuels production increase of 1.4 MMbbl/d in 2019. Production growth in the U.S. will be offset by declining OPEC production as per the agreed upon cut of 800,000 barrels per day (b/d) at the OPEC meeting in early December as well as the 400,000 b/d cut from other countries including Russia. On the other side of the equation, the EIA expects global liquid fuels consumption to grow by 1.5 MMbbl/d, largely driven by increases in China, U.S. and India.
Natural gas prices increased during the fourth fiscal quarter as inventories were low at the end of injection season followed by cold weather in parts of the country. Weather played a factor in natural gas prices throughout the fiscal year. They opened at $2.84 per million British thermal units (MMBtu), quickly rose in January to peak at $6.24 and fell to a fiscal year low of $2.49 in February. The fiscal year ending Nov. 30, 2018 closed at a price of $4.61. Natural gas production is expected to average 80.7 billion cubic feet per day (bcf/d) in 2018 and 87.3 bcf/d in 20192. The U.S. continues to export significant amounts of natural gas by pipeline to Mexico and liquefied natural gas (LNG) to the rest of the world, which is benefiting natural gas producers.
Midstream
Performance in the midstream sector declined along with broad energy as represented by the Tortoise North American Pipeline IndexSM return of -6.8% and the Tortoise MLP Index® return of -9.4% for the fourth fiscal quarter eliminating all gains, resulting in essentially flat 2018 fiscal year performance for both indexes. Despite market turmoil, midstream companies showed their resilience with nearly 95% of midstream MLPs increasing or maintaining their third quarter distribution over the prior quarter.
As the midstream energy landscape continues to evolve, so does the MLP structure. We expect even higher coverage and lower leverage going forward. Many companies have shifted to self-funding the equity portion of their capex programs, reducing reliance on capital markets access. As a result, we expect dramatically less equity supply issuance in 2019 and beyond as companies focus on return of capital to shareholders in the form of strong yield, distribution growth and stock buybacks. Some companies are also selling non-core assets to arbitrage the valuation gap between private and public midstream assets.
We’ve deemed 2018 as the year of the transaction, with more than half of MLP companies participating in simplification transactions. These transactions have benefited the sector, leading to improved corporate governance and the removal of incentive distribution rights (IDRs). We expect this trend to continue and by the end of 2019 we anticipate more than 85% of MLPs will have eliminated IDRs.
With significant midstream investment needed to transport the record U.S. energy supply to areas of demand, including export facilities, several pipeline companies are planning to consolidate efforts to efficiently put capital to work. One example is a potential consolidation of two competing Permian Basin crude oil export lines. If combined, the project would be owned by six different midstream companies and would ease concerns of over investment in basin takeaway capacity. Our outlook for capital investments remains at approximately $139 billion for 2018 to 2020 in MLPs, pipelines and related organic projects.
Downstream
Cleaner energy solutions continue to change the energy landscape. The breakdown of electricity generation in the U.S. continues to evolve. The most notable transition is the continued displacement of coal by natural gas. Renewables are also expected to continue to gain market share, primarily through the use of solar energy as the average U.S. solar generation is expected to rise by more than 40% from 2017 to 2019.1 We anticipate that utilities will continue to find opportunities to include renewable infrastructure into their rate base, the value of the property on which the utility is permitted to earn a rate of return. Petrochemical companies, another downstream end-user of energy, will likely take advantage of higher natural gas liquids (NGL) supplies, increasing their margins.
| (unaudited) | |
| 2 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
There were two noteworthy issues on the mid-term ballots in November. First, Colorado’s Proposition 112 proposing a 2,500 foot drilling setback from occupied structures, was defeated. We believe that the Colorado energy industry and state legislature will likely work together towards a permanent resolution in the near future, removing any uncertainty regarding the issue. Second, in Nevada, voters approved Question 6, a ballot measure to increase the state’s renewable portfolio standard (RPS) to 50% by 2030. The measure will require re-approval in 2020 in order to go into effect. The state hopes to spur investment and advance its leadership in renewable energy.
Capital markets
Capital markets activity slowed further during the last fiscal quarter with MLPs and other pipeline companies raising approximately $9.5 billion in total capital, with nearly all of the issuance in debt. This brings the total capital raised for the fiscal year to approximately $43.5 billion, significantly lower than the previous fiscal year. Alternative options for capital and self-funding projects continue to trend higher and we expect the trend to continue in the future.
Merger and acquisition activity among MLPs and other pipeline companies picked up during the last fiscal quarter with more than $44 billion in announced transactions, bringing the fiscal year’s announced transactions to more than $150 billion. There were two large transactions announced in the fourth fiscal quarter with Western Gas’ simplification transaction and strategic deal between Western Gas Partners, LP, Western Gas Equity Partners, LP and Anadarko Petroleum Corporation, valued at approximately $11.5 billion being the largest. EnLink Midstream, LLC also announced a simplification transaction to acquire EnLink Midstream Partners, LP in a deal valued at approximately $10 billion.
Concluding thoughts
As we set course in 2019, we see a positive energy backdrop with crude oil supply and demand in balance and natural gas inventories low. With oil prices above the $40 per barrel break-even price in the U.S., we expect U.S. production growth for crude oil, natural gas and NGLs to meaningfully increase again and likely surpass the record 2018 production. Beyond strong fundamentals and compelling valuations, key catalysts unfolding in the midstream sector include: structure clarity as simplification transactions wind down, increased return of capital to shareholders and improved fund flows into the sector. Because of this favorable backdrop, we are excited about the sector’s prospects in 2019.
Sincerely,
The Tortoise Energy Team
The S&P Energy Select Sector® Index is a capitalization-weighted index of S&P 500® Index companies in the energy sector involved in the development or production of energy products. The Tortoise North American Oil and Gas Producers IndexSM is a float-adjusted, capitalization-weighted index of North American energy companies engaged primarily in the production of crude oil, condensate, natural gas or natural gas liquids (NGLs). The Tortoise North American Pipeline IndexSM is a float adjusted, capitalization-weighted index of energy pipeline companies domiciled in the United States and Canada. The Tortoise MLP Index® is a float-adjusted, capitalization-weighted index of energy master limited partnerships.
The Tortoise indices are the exclusive property of Tortoise Index Solutions, LLC, which has contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) to calculate and maintain the Tortoise MLP Index®, Tortoise North American Pipeline IndexSM and Tortoise North American Oil and Gas Producers IndexSM (the “Indices”). The Indices are not sponsored by S&P Dow Jones Indices or its affiliates or its third party licensors (collectively, “S&P Dow Jones Indices LLC”). S&P Dow Jones Indices will not be liable for any errors or omission in calculating the Indices. “Calculated by S&P Dow Jones Indices” and its related stylized mark(s) are service marks of S&P Dow Jones Indices and have been licensed for use by Tortoise Index Solutions, LLC and its affiliates. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“SPFS”), and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”).
It is not possible to invest directly in an index.
Performance data quoted represents past performance; past performance does not guarantee future results. Like any other stock, total return and market value will fluctuate so that an investment, when sold, may be worth more or less than its original cost.
1 Energy Information Administration, Short-Term Energy Outlook, December 2018
2 PIRA Natural Gas, December 2018
| (unaudited) | |
| Tortoise | 3 |
| Tortoise |
| Energy Infrastructure Corp. (TYG) |
Fund description
TYG seeks a high level of total return with an emphasis on current distributions paid to stockholders. TYG invests in midstream energy equities, primarily master limited partnerships (MLPs) and their affiliates that transport, gather, process or store natural gas, natural gas liquids (NGLs), crude oil and refined petroleum products.
Fund performance review
The midstream segment pulled back along with broad energy, as well as from near-term uncertainty around simplification transactions and further evolution of the midstream segment. We believe these transactions will benefit the sector with improved corporate governance and the removal of incentive distribution rights (IDRs). Average coverage ratios for the fund’s portfolio companies has increased from 1.25x in 3Q2017 to 1.38x in 3Q2018 while average leverage decreased from 3.94x in 3Q2017 to 3.86x in 3Q2018. The fund has paid out more than $33 per share in cumulative distributions to stockholders since its inception. In addition to the fund’s primary allocation to midstream energy entities, the fund’s small allocation to solar assets has aided in managing the fund’s taxes through the addition of solar investment tax credits, while also gaining exposure to renewable energy, a critical and growing part of the energy value chain. The fund’s market-based and NAV-based returns for the fiscal year ending Nov. 30, 2018 were -3.4% and 8.6%, respectively (including the reinvestment of distributions). Comparatively, the Tortoise MLP Index® was flat for the same period.
| Fiscal year-end highlights | ||
| Distributions paid per share (fiscal year 2018) | $2.62 | |
| Distributions paid per share (4th quarter 2018) | $0.6550 | |
| Distribution rate (as of 11/30/2018) | 11.6% | |
| Quarter-over-quarter distribution increase | 0.0% | |
| Year-over-year distribution increase |
|
0.0% |
| Cumulative distributions paid per share to stockholders since inception in February 2004 |
$33.0825 | |
| Market-based total return | (3.4)% | |
| NAV-based total return | 8.6% | |
| Premium (discount) to NAV (as of 11/30/2018) | (3.9)% |
Key asset performance drivers
| Top five contributors | Company type | Performance driver | ||
| Energy Transfer Partners, L.P. | Midstream natural gas/natural gas liquids pipeline MLP | Acquired by its general partner for 11% premium in simplification transaction | ||
| Williams Partners L.P. | Midstream gathering and processing MLP | Simplification transaction closed in August and was well received by the market | ||
| Plains All American Pipeline, L.P. | Midstream crude oil pipeline MLP | Expected crude oil production growth from Permian Basin | ||
| Enterprise Products Partners, L.P | Midstream natural gas/natural gas liquids pipeline MLP | Delivered steady cash flow and healthy project backlog | ||
| ONEOK, Inc | Midstream natural gas/natural gas liquids pipeline company | Natural gas liquid (NGL) volume growth benefitting integrated pipeline network | ||
| Bottom five contributors | Company type | Performance driver | ||
| Buckeye Partners, L.P | Midstream refined product pipeline MLP | Weaker than expected earnings tied to storage market fundamentals | ||
| Energy Transfer LP | Midstream natural gas/natural gas liquids pipeline company | Traded down due to ownership consolidation following closing of simplification transaction | ||
| EQM Midstream Partners, LP | Midstream natural gas/natural gas liquids pipeline company | Regulatory hurdles with Mountain Valley Pipeline build | ||
| The Williams Companies, Inc. | Midstream gathering and processing C-Corp | Acquisition of WPZ closed in August with WMB trading down following the closing of the transaction | ||
| Enbridge Energy Partners, L.P. | Midstream crude oil pipeline MLP | Strategic review with lower distribution viewed unfavorably by market |
Unlike the fund return, index return is pre-expenses and taxes.
Performance data quoted represents past performance; past performance does not guarantee future results. Like any other stock, total return and market value will fluctuate so that an investment, when sold, may be worth more or less than its original cost. Portfolio composition is subject to change due to ongoing management of the fund. References to specific securities or sectors should not be construed as a recommendation by the fund or its adviser. See Schedule of Investments for portfolio weighting at the end of the fiscal year.
| (unaudited) | |
| 4 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
Fund structure and distribution policy
The fund is structured as a corporation and is subject to federal and state income tax on its taxable income. The fund has adopted a distribution policy in which the Board of Directors considers many factors in determining distributions to stockholders. Over the long term, the fund expects to distribute substantially all of its Distributable cash flow (“DCF”) to holders of common stock. The fund’s Board of Directors reviews the distribution rate quarterly, and may adjust the quarterly distribution throughout the year. Although the level of distributions is independent of the funds’ performance in the short term, the fund expects such distributions to correlate with its performance over time.
Distributable cash flow and distributions
DCF is distributions received from investments less expenses. The total distributions received from investments include the amount received as cash distributions from investments, paid-in-kind distributions, and dividend and interest payments. Income also includes the premiums received from sales of covered call options, net of amounts paid to buy back out-of-the-money options. The total expenses include current or anticipated operating expenses, leverage costs and current income taxes. Current income taxes include taxes paid on net investment income, in addition to foreign taxes, if any. Taxes incurred from realized gains on the sale of investments, expected tax benefits and deferred taxes are not included in DCF.
Income from investments decreased approximately 3.2% as compared to 3rd quarter 2018 primarily due to the impact of trading and M&A activity within the fund’s portfolio. Operating expenses, consisting primarily of fund advisory fees, decreased approximately 1.8% during the quarter due to lower asset-based fees. Overall leverage costs decreased approximately 0.7% as compared to 3rd quarter 2018 due to lower leverage utilization during the quarter. As a result of the changes in income and expenses, DCF decreased approximately 4.0% as compared to 3rd quarter 2018. The fund paid a quarterly distribution of $0.655 per share, which was equal to the distribution paid in the prior quarter and 4th quarter 2017. The fund has paid cumulative distributions to stockholders of $33.0825 per share since its inception in Feb. 2004.
The Key Financial Data table discloses the calculation of DCF and should be read in conjunction with this discussion. The difference between distributions received from investments in the DCF calculation and total investment income as reported in the Statement of Operations, is reconciled as follows: the Statement of Operations, in conformity with U.S. generally accepted accounting principles (“GAAP”), recognizes distribution income from MLPs and other investments on their ex-dates, whereas the DCF calculation may reflect distribution income on their pay dates; GAAP recognizes that a significant portion of the cash distributions received from MLPs and other investments are characterized as a return of capital and therefore excluded from investment income, whereas the DCF calculation includes the return of capital; and distributions received from investments in the DCF calculation include the value of dividends paid-in-kind (additional stock or MLP units), whereas such amounts may not be included as income for GAAP purposes, and includes distributions related to direct investments when the purchase price is reduced in lieu of receiving cash distributions. Net premiums on options written (premiums received less amounts paid to buy back out-of-the-money options) with expiration dates during the fiscal quarter are included in the DCF calculation, whereas GAAP recognizes the net effect of options written as realized and unrealized gains (losses). Income for DCF purposes is reduced by amortizing the cost of certain investments that may not have a residual value after a known time period and by distributions received from investments deemed to be return of principal. The treatment of expenses in the DCF calculation also differs from what is reported in the Statement of Operations. In addition to the total operating expenses, including fee waiver, as disclosed in the Statement of Operations, the DCF calculation reflects interest expense, realized and unrealized gains (losses) on interest rate swap settlements, distributions to preferred stockholders, other recurring leverage expenses, as well as taxes paid on net investment income.
“Net Investment Income (Loss), before Income Taxes” on the Statement of Operations is adjusted as follows to reconcile to DCF for YTD and 4th quarter 2018 (in thousands):
| YTD 2018 | 4th Qtr 2018 | |||||||
| Net Investment Loss, | ||||||||
| before Income Taxes | $ | (50,419 | ) | $ | (8,817 | ) | ||
| Adjustments to reconcile to DCF: | ||||||||
| Distributions characterized as | ||||||||
| return of capital | 184,612 | 44,330 | ||||||
| Other | (1,602 | ) | (2,319 | ) | ||||
| DCF | $ | 132,591 | $ | 33,194 | ||||
Leverage
The fund’s leverage utilization decreased $43.7 million during 4th quarter 2018 and represented 30.5% of total assets at November 30, 2018. The fund has maintained compliance with its applicable coverage ratios. At year-end, including the impact of interest rate swaps, approximately 77% of the leverage cost was fixed, the weighted-average maturity was 4.1 years and the weighted-average annual rate on leverage was 3.76%. These rates will vary in the future as a result of changing floating rates, utilization of the fund’s credit facilities and as leverage and swaps mature or are redeemed. During the quarter, $10.0 million Senior Notes with a fixed interest rate of 3.15% matured. The fund utilized its credit facilities to facilitate the maturity of the Senior Notes.
Income taxes
During 4th quarter 2018, the fund’s deferred tax liability decreased by $65.7 million to $189.6 million, primarily as a result of the decrease in value of its investment portfolio. The fund had net realized losses of $45.2 million during the quarter. To the extent that the fund has taxable income, it will owe federal and state income taxes. Tax payments can be funded from investment earnings, fund assets, or borrowings.
Please see the Financial Statements and Notes to Financial Statements for additional detail regarding critical accounting policies, results of operations, leverage, taxes and other important fund information.
For further information regarding the calculation of distributable cash flow and distributions to stockholders, as well as a discussion of the tax impact on distributions and results and recent tax reform, please visit www.tortoiseadvisors.com.
| (unaudited) | |
| Tortoise | 5 |
| TYG Key Financial Data (supplemental unaudited information) |
| (dollar amounts in thousands unless otherwise indicated) |
The information presented below regarding Distributable Cash Flow and Selected Financial Information is supplemental non-GAAP financial information, which the fund believes is meaningful to understanding operating performance. The Distributable Cash Flow Ratios include the functional equivalent of EBITDA for non-investment companies, and the fund believes they are an important supplemental measure of performance and promote comparisons from period-to-period. This information is supplemental, is not inclusive of required financial disclosures (e.g. Total Expense Ratio), and should be read in conjunction with the full financial statements.
| Year Ended November 30, | 2017 | 2018 | |||||||||||||||||||||||||||||||||
| 2017 | 2018 | Q4(1) | Q1(1) | Q2(1) | Q3(1) | Q4(1) | |||||||||||||||||||||||||||||
| Total Income from Investments | |||||||||||||||||||||||||||||||||||
| Distributions and dividends | |||||||||||||||||||||||||||||||||||
| from investments | $ | 180,342 | $ | 177,860 | $ | 44,323 | $ | 43,107 | $ | 44,308 | $ | 46,231 | $ | 44,214 | |||||||||||||||||||||
| Dividends paid in kind | — | 2,752 | — | 910 | 850 | 879 | 113 | ||||||||||||||||||||||||||||
| Premiums on options written | 920 | 1,274 | 27 | 11 | — | 5 | 1,258 | ||||||||||||||||||||||||||||
| Total from investments | 181,262 | 181,886 | 44,350 | 44,028 | 45,158 | 47,115 | 45,585 | ||||||||||||||||||||||||||||
| Operating Expenses Before Leverage | |||||||||||||||||||||||||||||||||||
| Costs and Current Taxes | |||||||||||||||||||||||||||||||||||
| Advisory fees | 24,396 | 21,466 | 5,533 | 5,487 | 5,091 | 5,496 | 5,392 | ||||||||||||||||||||||||||||
| Other operating expenses | 1,764 | 1,741 | 443 | 430 | 431 | 442 | 438 | ||||||||||||||||||||||||||||
| 26,160 | 23,207 | 5,976 | 5,917 | 5,522 | 5,938 | 5,830 | |||||||||||||||||||||||||||||
| Distributable cash flow before leverage | |||||||||||||||||||||||||||||||||||
| costs and current taxes | 155,102 | 158,679 | 38,374 | 38,111 | 39,636 | 41,177 | 39,755 | ||||||||||||||||||||||||||||
| Leverage costs(2) | 25,332 | 26,088 | 6,365 | 6,389 | 6,532 | 6,606 | 6,561 | ||||||||||||||||||||||||||||
| Current income tax expense(3) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
| Distributable Cash Flow(4) | $ | 129,770 | $ | 132,591 | $ | 32,009 | $ | 31,722 | $ | 33,104 | $ | 34,571 | $ | 33,194 | |||||||||||||||||||||
| Net realized gain (loss), net of income | |||||||||||||||||||||||||||||||||||
| taxes, for the period | $ | 119,288 | $ | 42,565 | $ | 4,981 | $ | 7,427 | $ | 25,214 | $ | 55,082 | $ | (45,158 | ) | ||||||||||||||||||||
| As a percent of average total assets(5) | |||||||||||||||||||||||||||||||||||
| Total from investments | 6.95 | % | 7.75 | % | 7.53 | % | 7.78 | % | 8.11 | % | 7.83 | % | 7.91 | % | |||||||||||||||||||||
| Operating expenses before leverage | |||||||||||||||||||||||||||||||||||
| costs and current taxes | 1.01 | % | 1.01 | % | 1.01 | % | 1.04 | % | 0.99 | % | 0.99 | % | 1.01 | % | |||||||||||||||||||||
| Distributable cash flow before leverage | |||||||||||||||||||||||||||||||||||
| costs and current taxes | 5.94 | % | 6.74 | % | 6.52 | % | 6.74 | % | 7.12 | % | 6.84 | % | 6.90 | % | |||||||||||||||||||||
| As a percent of average net assets(5) | |||||||||||||||||||||||||||||||||||
| Total from investments | 12.82 | % | 12.81 | % | 14.12 | % | 12.90 | % | 13.80 | % | 12.84 | % | 12.90 | % | |||||||||||||||||||||
| Operating expenses before leverage | |||||||||||||||||||||||||||||||||||
| costs and current taxes | 1.86 | % | 1.67 | % | 1.90 | % | 1.73 | % | 1.69 | % | 1.62 | % | 1.65 | % | |||||||||||||||||||||
| Leverage costs and current taxes | 1.80 | % | 1.88 | % | 2.03 | % | 1.87 | % | 2.00 | % | 1.80 | % | 1.86 | % | |||||||||||||||||||||
| Distributable cash flow | 9.16 | % | 9.26 | % | 10.19 | % | 9.30 | % | 10.11 | % | 9.42 | % | 9.39 | % | |||||||||||||||||||||
| Selected Financial Information | |||||||||||||||||||||||||||||||||||
| Distributions paid on common stock | $ | 128,749 | $ | 138,298 | $ | 32,299 | $ | 33,604 | $ | 34,474 | $ | 35,089 | $ | 35,131 | |||||||||||||||||||||
| Distributions paid on common stock | |||||||||||||||||||||||||||||||||||
| per share | 2.6200 | 2.6200 | 0.6550 | 0.6550 | 0.6550 | 0.6550 | 0.6550 | ||||||||||||||||||||||||||||
| Total assets, end of period(6) | 2,235,315 | 2,136,339 | 2,235,315 | 2,212,708 | 2,328,573 | 2,461,343 | 2,136,339 | ||||||||||||||||||||||||||||
| Average total assets during period(6)(7) | 2,595,980 | 2,293,998 | 2,363,776 | 2,296,522 | 2,208,894 | 2,387,915 | 2,311,256 | ||||||||||||||||||||||||||||
| Leverage(8) | 690,200 | 652,100 | 690,200 | 667,300 | 686,800 | 695,800 | 652,100 | ||||||||||||||||||||||||||||
| Leverage as a percent of total assets | 30.9 | % | 30.5 | % | 30.9 | % | 30.2 | % | 29.5 | % | 28.3 | % | 30.5 | % | |||||||||||||||||||||
| Net unrealized depreciation, end of period | (418,421 | ) | (338,892 | ) | (418,421 | ) | (311,939 | ) | (239,363 | ) | (170,043 | ) | (338,892 | ) | |||||||||||||||||||||
| Net assets, end of period | 1,181,528 | 1,260,300 | 1,181,528 | 1,315,850 | 1,396,104 | 1,499,967 | 1,260,300 | ||||||||||||||||||||||||||||
| Average net assets during period(9) | 1,406,724 | 1,388,683 | 1,259,521 | 1,383,798 | 1,298,263 | 1,455,299 | 1,417,581 | ||||||||||||||||||||||||||||
| Net asset value per common share | 23.93 | 23.50 | 23.93 | 25.59 | 26.49 | 27.97 | 23.50 | ||||||||||||||||||||||||||||
| Market value per share | 25.86 | 22.59 | 25.86 | 27.70 | 28.67 | 28.12 | 22.59 | ||||||||||||||||||||||||||||
| Shares outstanding (000’s) | 49,379 | 53,635 | 49,379 | 51,416 | 52,698 | 53,635 | 53,635 | ||||||||||||||||||||||||||||
| (1) | Q1 is the period from December through February. Q2 is the period from March through May. Q3 is the period from June through August. Q4 is the period from September through November. |
| (2) | Leverage costs include interest expense, distributions to preferred stockholders, interest rate swap expenses and other recurring leverage expenses. |
| (3) | Includes taxes paid on net investment income and foreign taxes, if any. Taxes related to realized gains are excluded from the calculation of Distributable Cash Flow (“DCF”). |
| (4) | “Net investment income (loss), before income taxes” on the Statement of Operations is adjusted as follows to reconcile to DCF: increased by the return of capital on distributions, the dividends paid in stock and increased liquidation value, the premium on dividends paid in kind, the net premiums on options written and amortization of debt issuance costs; and decreased by realized and unrealized gains (losses) on interest rate swap settlements, distributions received that are excluded for DCF purposes and amortization on certain investments. |
| (5) | Annualized for periods less than one full year. |
| (6) | Includes deferred issuance and offering costs on senior notes and preferred stock. |
| (7) | Computed by averaging month-end values within each period. |
| (8) | Leverage consists of senior notes, preferred stock and outstanding borrowings under credit facilities. |
| (9) | Computed by averaging daily net assets within each period. |
| 6 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Tortoise |
| MLP Fund, Inc. (NTG) |
Fund description
NTG seeks to provide stockholders with a high level of total return with an emphasis on current distributions. NTG invests primarily in midstream energy equities that own and operate a network of pipeline and energy-related logistical infrastructure assets with an emphasis on those that transport, gather, process and store natural gas and natural gas liquids (NGLs). NTG targets midstream energy equities, including MLPs benefiting from U.S. natural gas production and consumption expansion, with minimal direct commodity exposure.
Fund performance review
The midstream segment pulled back along with broad energy, as well as from near-term uncertainty around simplification transactions and further evolution of the midstream segment. We believe these transactions will benefit the sector, with improved corporate governance and the removal of incentive distribution rights (IDRs). Average coverage ratios for the fund’s portfolio companies has increased from 1.25x in 3Q2017 to 1.37x in 3Q2018 while average leverage decreased from 3.96x in 3Q2017 to 3.91x in 3Q2018. The fund’s market-based and NAV-based returns for the fiscal year ending Nov. 30, 2018 were -4.1% and 0.8%, respectively (including the reinvestment of distributions). Comparatively, the Tortoise MLP Index® was flat for the same period.
| Fiscal year-end highlights | ||
| Distributions paid per share (fiscal year 2018) | $1.69 | |
| Distributions paid per share (4th quarter 2018) | $0.4225 | |
| Distribution rate (as of 11/30/2018) | 12.3% | |
| Quarter-over-quarter distribution increase | 0.0% | |
| Year-over-year distribution increase |
|
0.0% |
| Cumulative distributions paid per share to stockholders since inception in July 2010 |
$13.7700 | |
| Market-based total return | (4.1)% | |
| NAV-based total return | 0.8% | |
| Premium (discount) to NAV (as of 11/30/2018) | (5.2)% |
Unlike the fund return, index return is pre-expenses and taxes.
Performance data quoted represents past performance; past performance does not guarantee future results. Like any other stock, total return and market value will fluctuate so that an investment, when sold, may be worth more or less than its original cost. Portfolio composition is subject to change due to ongoing management of the fund. References to specific securities or sectors should not be construed as a recommendation by the fund or its adviser. See Schedule of Investments for portfolio weighting at the end of the fiscal year.
Key asset performance drivers
| Top five contributors | Company type | Performance driver | ||
| Energy Transfer Partners, L.P. | Midstream natural gas/natural gas liquids pipeline MLP | Acquired by its general partner for 11% premium in simplification transaction | ||
| Williams Partners L.P. | Midstream gathering and processing MLP | Simplification transaction closed in August and was well received by the market | ||
| Plains All American Pipeline, L.P. | Midstream crude oil pipeline MLP | Expected crude oil production growth from Permian Basin | ||
| Enterprise Products Partners L.P | Midstream natural gas/natural gas liquids pipeline MLP | Delivered steady cash flow and healthy project backlog | ||
| ONEOK, Inc. | Midstream natural gas/natural gas liquids pipeline company | Natural gas liquid (NGL) volume growth benefitting integrated pipeline network | ||
| Bottom five contributors | Company type | Performance driver | ||
| EQM Midstream Partners, LP | Midstream natural gas/natural gas liquids pipeline company | Regulatory hurdles with Mountain Valley Pipeline build | ||
| Buckeye Partners, L.P | Midstream refined product pipeline MLP | Weaker than expected earnings tied to storage market fundamentals | ||
| Energy Transfer LP | Midstream natural gas/natural gas liquids pipeline company | Traded down due to ownership consolidation following closing of simplification transaction | ||
| The Williams Companies, Inc. | Midstream gathering and processing C-Corp | Acquisition of WPZ closed in August with WMB trading down following the closing of the transaction | ||
| Dominion Energy Midstream Partners LP | Midstream natural gas/natural gas liquids pipeline MLP | Parent company activity and equity offering |
| (unaudited) | |
| Tortoise | 7 |
| Tortoise |
| MLP Fund, Inc. (NTG) (continued) |
Fund structure and distribution policy
The fund is structured as a corporation and is subject to federal and state income tax on its taxable income. The fund has adopted a distribution policy in which the Board of Directors considers many factors in determining distributions to stockholders. Over the long term, the fund expects to distribute substantially all of its Distributable cash flow (“DCF”) to holders of common stock. The fund’s Board of Directors reviews the distribution rate quarterly, and may adjust the quarterly distribution throughout the year. Although the level of distributions is independent of the funds’ performance in the short term, the fund expects such distributions to correlate with its performance over time.
Distributable cash flow and distributions
DCF is distributions received from investments less expenses. The total distributions received from investments include the amount received as cash distributions from MLPs, paid-in-kind distributions, and dividend and interest payments. Income also includes the premiums received from sales of covered call options, net of amounts paid to buy back out-of-the-money options. The total expenses include current or anticipated operating expenses, leverage costs and current income taxes. Current income taxes include taxes paid on net investment income in addition to foreign taxes, if any. Taxes incurred from realized gains on the sale of investments, expected tax benefits and deferred taxes are not included in DCF.
Income from investments increased approximately 3.6% as compared to 3rd quarter 2018 due primarily to increased premiums received on written covered call options. Operating expenses, consisting primarily of fund advisory fees, increased approximately 1.0% during the quarter due to higher asset-based fees. Leverage costs increased approximately 12.2% as compared to 3rd quarter 2018 due to increased leverage utilization as well as higher interest rates during the quarter. As a result of the changes in income and expenses, DCF increased approximately 2.4% as compared to 3rd quarter 2018. The fund paid a quarterly distribution of $0.4225 per share, which was equal to the distribution paid in the prior quarter and 4th quarter 2017. The fund has paid cumulative distributions to stockholders of $13.77 per share since its inception in July 2010.
The Key Financial Data table discloses the calculation of DCF and should be read in conjunction with this discussion. The difference between distributions received from investments in the DCF calculation and total investment income as reported in the Statement of Operations, is reconciled as follows: the Statement of Operations, in conformity with U.S. generally accepted accounting principles (“GAAP”), recognizes distribution income from MLPs, common stock and other investments on their ex-dates, whereas the DCF calculation may reflect distribution income on their pay dates; GAAP recognizes that a significant portion of the cash distributions received from MLPs, common stock and other investments are characterized as a return of capital and therefore excluded from investment income, whereas the DCF calculation includes the return of capital; and distributions received from investments in the DCF calculation include the value of dividends paid-in-kind (additional stock or MLP units), whereas such amounts may not be included as income for GAAP purposes, and includes distributions related to direct investments when the purchase price is reduced in lieu of receiving cash distributions. Net premiums on options written (premiums received less amounts paid to buy back out-of-the-money options) with expiration dates during the fiscal quarter are included in the DCF calculation, whereas GAAP recognizes the net effect of options written as realized and unrealized gains (losses). The treatment of expenses in the DCF calculation also differs from what is reported in the Statement of Operations. In addition to the total operating expenses, including fee waiver, as disclosed in the Statement of Operations, the DCF calculation reflects interest expense, distributions to preferred stockholders, other recurring leverage expenses, as well as taxes paid on net investment income.
“Net Investment Income (Loss), before Income Taxes” on the Statement of Operations is adjusted as follows to reconcile to DCF for YTD and 4th quarter 2018 (in thousands):
| YTD 2018 | 4th Qtr 2018 | |||||||
| Net Investment Loss, | ||||||||
| before Income Taxes | $ | (28,708 | ) | $ | (5,540 | ) | ||
| Adjustments to reconcile to DCF: | ||||||||
| Distributions characterized as | ||||||||
| return of capital | 113,947 | 28,991 | ||||||
| Net premiums on options written | 1,254 | 1,254 | ||||||
| Other | (1,106 | ) | 126 | |||||
| DCF | $ | 87,599 | $ | 24,831 | ||||
Leverage
The fund’s leverage utilization increased by $60.1 million during 4th quarter 2018 and represented 34.3% of total assets at November 30, 2018. The fund has maintained compliance with its applicable coverage ratios. At year-end, approximately 75% of the leverage cost was fixed, the weighted-average maturity was 3.7 years and the weighted-average annual rate on leverage was 3.88%. These rates will vary in the future as a result of changing floating rates, utilization of the fund’s credit facility and as leverage matures or is redeemed.
Income taxes
During 4th quarter 2018, the fund’s deferred tax liability decreased by $42.4 million to $68.2 million, primarily as a result of the decrease in value of its investment portfolio. The fund had net realized losses of $4.2 million during the quarter. As of November 30, 2018, the fund had net operating losses of $55 million for federal income tax purposes. To the extent that the fund has taxable income in the future that is not offset by net operating losses, it will owe federal and state income taxes. Tax payments can be funded from investment earnings, fund assets, or borrowings.
Please see the Financial Statements and Notes to Financial Statements for additional detail regarding critical accounting policies, results of operations, leverage, taxes and other important fund information.
For further information regarding the calculation of distributable cash flow and distributions to stockholders, as well as a discussion of the tax impact on distributions and results and recent tax reform, please visit www.tortoiseadvisors.com.
| (unaudited) | |
| 8 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| NTG Key Financial Data (supplemental unaudited information) |
| (dollar amounts in thousands unless otherwise indicated) |
The information presented below regarding Distributable Cash Flow and Selected Financial Information is supplemental non-GAAP financial information, which the fund believes is meaningful to understanding operating performance. The Distributable Cash Flow Ratios include the functional equivalent of EBITDA for non-investment companies, and the fund believes they are an important supplemental measure of performance and promote comparisons from period-to-period. This information is supplemental, is not inclusive of required financial disclosures (e.g. Total Expense Ratio), and should be read in conjunction with the full financial statements.
| Year Ended November 30, | 2017 | 2018 | |||||||||||||||||||||||||||||||||
| 2017 | 2018 | Q4(1) | Q1(1) | Q2(1) | Q3(1) | Q4(1) | |||||||||||||||||||||||||||||
| Total Income from Investments | |||||||||||||||||||||||||||||||||||
| Distributions and dividends | |||||||||||||||||||||||||||||||||||
| from investments | $ | 108,230 | $ | 115,952 | $ | 26,506 | $ | 26,429 | $ | 26,236 | $ | 31,413 | $ | 31,874 | |||||||||||||||||||||
| Dividends paid in kind | — | 1,879 | — | 546 | 621 | 644 | 68 | ||||||||||||||||||||||||||||
| Premiums on options written | 571 | 1,254 | 32 | — | — | — | 1,254 | ||||||||||||||||||||||||||||
| Total from investments | 108,801 | 119,085 | 26,538 | 26,975 | 26,857 | 32,057 | 33,196 | ||||||||||||||||||||||||||||
| Operating Expenses Before Leverage | |||||||||||||||||||||||||||||||||||
| Costs and Current Taxes | |||||||||||||||||||||||||||||||||||
| Advisory fees, net of fees waived | 14,349 | 12,863 | 3,279 | 3,294 | 3,054 | 3,251 | 3,264 | ||||||||||||||||||||||||||||
| Other operating expenses | 1,292 | 1,319 | 312 | 316 | 321 | 330 | 352 | ||||||||||||||||||||||||||||
| 15,641 | 14,182 | 3,591 | 3,610 | 3,375 | 3,581 | 3,616 | |||||||||||||||||||||||||||||
| Distributable cash flow before leverage | |||||||||||||||||||||||||||||||||||
| costs and current taxes | 93,160 | 104,903 | 22,947 | 23,365 | 23,482 | 28,476 | 29,580 | ||||||||||||||||||||||||||||
| Leverage costs(2) | 16,468 | 17,304 | 4,147 | 4,127 | 4,197 | 4,231 | 4,749 | ||||||||||||||||||||||||||||
| Current income tax expense(3) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
| Distributable Cash Flow(4) | $ | 76,692 | $ | 87,599 | $ | 18,800 | $ | 19,238 | $ | 19,285 | $ | 24,245 | $ | 24,831 | |||||||||||||||||||||
| Net realized gain (loss), net of income | |||||||||||||||||||||||||||||||||||
| taxes, for the period | $ | 29,189 | $ | 46,530 | $ | (1,122 | ) | $ | (575 | ) | $ | 9,963 | $ | 41,385 | $ | (4,243 | ) | ||||||||||||||||||
| As a percent of average total assets(5) | |||||||||||||||||||||||||||||||||||
| Total from investments | 7.14 | % | 8.11 | % | 7.69 | % | 8.01 | % | 8.29 | % | 8.60 | % | 8.38 | % | |||||||||||||||||||||
| Operating expenses before leverage | |||||||||||||||||||||||||||||||||||
| costs and current taxes | 1.03 | % | 0.99 | % | 1.04 | % | 1.07 | % | 1.04 | % | 0.96 | % | 0.91 | % | |||||||||||||||||||||
| Distributable cash flow before leverage | |||||||||||||||||||||||||||||||||||
| costs and current taxes | 6.11 | % | 7.12 | % | 6.65 | % | 6.94 | % | 7.25 | % | 7.64 | % | 7.47 | % | |||||||||||||||||||||
| As a percent of average net assets(5) | |||||||||||||||||||||||||||||||||||
| Total from investments | 12.13 | % | 13.07 | % | 13.27 | % | 12.85 | % | 13.99 | % | 13.86 | % | 13.08 | % | |||||||||||||||||||||
| Operating expenses before leverage | |||||||||||||||||||||||||||||||||||
| costs and current taxes | 1.75 | % | 1.60 | % | 1.80 | % | 1.72 | % | 1.76 | % | 1.55 | % | 1.42 | % | |||||||||||||||||||||
| Leverage costs and current taxes | 1.85 | % | 1.95 | % | 2.07 | % | 1.97 | % | 2.19 | % | 1.83 | % | 1.87 | % | |||||||||||||||||||||
| Distributable cash flow | 8.53 | % | 9.52 | % | 9.40 | % | 9.16 | % | 10.04 | % | 10.48 | % | 9.79 | % | |||||||||||||||||||||
| Selected Financial Information | |||||||||||||||||||||||||||||||||||
| Distributions paid on common stock | $ | 79,670 | $ | 86,693 | $ | 19,962 | $ | 19,962 | $ | 19,997 | $ | 20,029 | $ | 26,705 | |||||||||||||||||||||
| Distributions paid on common stock | |||||||||||||||||||||||||||||||||||
| per share | 1.69000 | 1.6900 | 0.4225 | 0.4225 | 0.4225 | 0.4225 | 0.4225 | ||||||||||||||||||||||||||||
| Total assets, end of period(6) | 1,327,977 | 1,506,745 | 1,327,977 | 1,298,112 | 1,338,664 | 1,651,973 | 1,506,745 | ||||||||||||||||||||||||||||
| Average total assets during period(6)(7) | 1,515,484 | 1,429,518 | 1,384,718 | 1,365,793 | 1,284,852 | 1,479,365 | 1,588,197 | ||||||||||||||||||||||||||||
| Leverage(8) | 443,800 | 517,100 | 443,800 | 440,400 | 443,100 | 457,000 | 517,100 | ||||||||||||||||||||||||||||
| Leverage as a percent of total assets | 33.4 | % | 34.3 | % | 33.4 | % | 33.9 | % | 33.1 | % | 27.7 | % | 34.3 | % | |||||||||||||||||||||
| Net unrealized appreciation, end of period | 24,370 | 23,424 | 24,370 | 70,322 | 114,138 | 150,762 | 23,424 | ||||||||||||||||||||||||||||
| Net assets, end of period | 754,085 | 915,033 | 754,085 | 776,371 | 802,440 | 1,077,585 | 915,033 | ||||||||||||||||||||||||||||
| Average net assets during period(9) | 892,196 | 887,014 | 802,165 | 851,387 | 761,577 | 917,409 | 1,018,337 | ||||||||||||||||||||||||||||
| Net asset value per common share | 15.96 | 14.48 | 15.96 | 16.40 | 16.93 | 17.05 | 14.48 | ||||||||||||||||||||||||||||
| Market value per common share | 15.90 | 13.72 | 15.90 | 17.54 | 18.40 | 16.27 | 13.72 | ||||||||||||||||||||||||||||
| Shares outstanding (000’s) | 47,247 | 63,208 | 47,247 | 47,330 | 47,406 | 63,208 | 63,208 | ||||||||||||||||||||||||||||
| (1) | Q1 is the period from December through February. Q2 is the period from March through May. Q3 is the period from June through August. Q4 is the period from September through November. |
| (2) | Leverage costs include interest expense, distributions to preferred stockholders and other recurring leverage expenses. |
| (3) | Includes taxes paid on net investment income and foreign taxes, if any. Taxes related to realized gains are excluded from the calculation of Distributable Cash Flow (“DCF”). |
| (4) | “Net investment income (loss), before income taxes” on the Statement of Operations is adjusted as follows to reconcile to DCF: increased by the return of capital on distributions, the dividends paid in stock and increased liquidation value, the premium on dividends paid in kind and amortization of debt issuance costs. |
| (5) | Annualized for periods less than one full year. |
| (6) | Includes deferred issuance and offering costs on senior notes and preferred stock. |
| (7) | Computed by averaging month-end values within each period. |
| (8) | Leverage consists of senior notes, preferred stock and outstanding borrowings under the credit facility. |
| (9) | Computed by averaging daily net assets within each period. |
| Tortoise | 9 |
| Tortoise |
| Pipeline & Energy Fund, Inc. (TTP) |
Fund description
TTP seeks a high level of total return with an emphasis on current distributions paid to stockholders. TTP invests primarily in equity securities of North American pipeline companies that transport natural gas, natural gas liquids (NGLs), crude oil and refined products and, to a lesser extent, in other energy infrastructure companies.
Fund performance review
The midstream segment pulled back along with broad energy, as well as from near-term uncertainty around simplification transactions and further evolution of the midstream segment. The fund’s market-based and NAV-based returns for the fiscal year ending Nov. 30, 2018 were -7.0% and -4.5%, respectively (including the reinvestment of distributions). Comparatively, the Tortoise North American Pipeline IndexSM returned 0.7% for the same period.
|
Fiscal year-end highlights |
||
| Distributions paid per share (fiscal year 2018) | $1.63 | |
| Distributions paid per share (4th quarter 2018) | $0.4075 | |
| Distribution rate (as of 11/30/2018) | 11.4% | |
| Quarter-over-quarter distribution increase | 0.0% | |
| Year-over-year distribution increase | 0.0% | |
| Cumulative distributions paid per share to | ||
| stockholders since inception in October 2011 | $11.7275 | |
| Market-based total return | (7.0)% | |
| NAV-based total return | (4.5)% | |
| Premium (discount) to NAV (as of 11/30/2018) | (12.0)% |
Please refer to the inside front cover of the report for important information about the fund’s distribution policy.
The fund’s covered call strategy, which focuses on independent energy companies that are key pipeline transporters, enabled the fund to generate current income. The notional amount of the fund’s covered calls averaged approximately 7.5% of total assets, and their out-of-the-money percentage at the time written averaged approximately 5.4% during the fiscal quarter.
Key asset performance drivers
| Top five contributors | Company type | Performance driver | ||
| ONEOK, Inc. | Midstream natural gas/natural gas liquids pipeline company | Natural gas liquid (NGL) volume growth benefitting integrated pipeline network | ||
| Energy Transfer Partners, L.P | Midstream natural gas/natural gas liquids pipeline MLP | Acquired by its general partner for 11% premium in simplification transaction | ||
| Plains GP Holdings, L.P | Midstream crude oil pipeline company | Expected crude oil production growth from Permian Basin | ||
| Targa Resources Corp. | Midstream gathering and processing company | Permian Basin wet gas volume growth | ||
| Tallgrass Energy LP | Midstream natural gas/natural gas liquids pipeline company | Completion of simplification transaction | ||
| Bottom five contributors | Company type | Performance driver | ||
| Enlink Midstream, LLC | Midstream gathering and processing company | Increased uncertainty following strategic transaction with GIP | ||
| SemGroup Corporation | Midstream crude oil pipeline company | Concerns regarding high relative leverage | ||
| TransCanada Corporation | Midstream natural gas/natural gas liquids pipeline company | Higher leverage causing need for asset divestitures to fund capital projects | ||
| Inter Pipeline Ltd. | Midstream crude oil pipeline company | Concerns about ability to execute propane dehydrogenation (PDH) project | ||
| Energy Transfer LP | Midstream natural gas/natural gas liquids pipeline company | Traded down due to ownership consolidation following closing of simplification transaction |
Unlike the fund return, index return is pre-expenses.
Performance data quoted represents past performance; past performance does not guarantee future results. Like any other stock, total return and market value will fluctuate so that an investment, when sold, may be worth more or less than its original cost. Portfolio composition is subject to change due to ongoing management of the fund. References to specific securities or sectors should not be construed as a recommendation by the fund or its adviser. See Schedule of Investments for portfolio weighting at the end of the fiscal year.
| (unaudited) | |
| 10 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
Fund structure and distribution policy
The fund is structured to qualify as a Regulated Investment Company (“RIC”) allowing the fund to pass-through to shareholders the income and capital gains earned by the fund, thus avoiding double-taxation. To qualify as a RIC, the fund must meet specific income, diversification and distribution requirements. Regarding income, at least 90 percent of the fund’s gross income must be from dividends, interest and capital gains. The fund must meet quarterly diversification requirements including the requirement that at least 50 percent of the assets be in cash, cash equivalents or other securities with each single issuer of other securities not greater than 5 percent of total assets. No more than 25 percent of total assets can be invested in any one issuer other than government securities or other RIC’s. The fund must also distribute at least 90 percent of its investment company income. RIC’s are also subject to excise tax rules which require RIC’s to distribute approximately 98 percent of net income and net capital gains to avoid a 4 percent excise tax.
The fund has adopted a distribution policy which is included on the inside front cover of this report. To summarize, the fund intends to distribute an amount closely approximating the total taxable income for the year and, if so determined by the Board, distribute all or a portion of the return of capital paid by portfolio companies during the year. The fund may designate a portion of its distributions as capital gains and may also distribute additional capital gains in the last calendar quarter of the year to meet annual excise distribution requirements. The fund distributes a fixed amount per common share, currently $0.4075, each quarter to its common shareholders. This amount is subject to change from time to time at the discretion of the Board. Although the level of distributions is independent of the funds’ performance in the short term, the fund expects such distributions to correlate with its performance over time.
Distributable cash flow and distributions
Distributable cash flow (“DCF”) is income from investments less expenses. Income from investments includes the amount received as cash or paid-in-kind distributions from common stock, master limited partnerships (“MLPs”), affiliates of MLPs, and pipeline and other energy companies in which the fund invests, and dividend payments on short-term investments. Income also includes the premiums received from sales of covered call options, net of amounts paid to buy back out-of-the-money options. The total expenses include current or anticipated operating expenses and leverage costs.
Income from investments decreased approximately 4.1% as compared to 3rd quarter 2018, primarily due to trading and M&A activity within the fund’s portfolio as well as lower premiums on written covered call options during the quarter. Operating expenses, consisting primarily of fund advisory fees, decreased approximately 5.6% during the quarter, primarily due to lower asset-based fees. Leverage costs increased 1.5% as compared to 3rd quarter 2018 primarily as a result of increased interest rates during the quarter. As a result of the changes in income and expenses, DCF decreased approximately 4.7% as compared to 3rd quarter 2018. In addition, the fund had net realized losses on investments of $0.6 million during 4th quarter 2018. The fund paid a quarterly distribution of $0.4075 per share, which was unchanged over the prior quarter and 4th quarter 2017. The fund has paid cumulative distributions to stockholders of $11.7275 per share since its inception in October 2011.
The Key Financial Data table discloses the calculation of DCF and should be read in conjunction with this discussion. The difference between income from investments in the DCF calculation and total investment income as reported in the Statement of Operations, is reconciled as follows: (1) the Statement of Operations, in conformity with U.S. generally accepted accounting principles (“GAAP”), recognizes distributions and dividend income from MLPs, common stock and other investments on their ex-dates, whereas the DCF calculation may reflect distributions and dividend income on their pay dates; (2) GAAP recognizes that a significant portion of the cash distributions received from MLPs, common stock and other investments are characterized as a return of capital and therefore excluded from investment income, whereas the DCF calculation includes the return of capital; (3) income from investments in the DCF calculation includes the value of dividends paid-in-kind (additional stock or units), whereas such amounts may not be included as income for GAAP purposes; and (4) net premiums on options written (premiums received less amounts paid to buy back out-of-the-money options) with expiration dates during the fiscal quarter are included in the DCF calculation, whereas GAAP recognizes the net effect of options written as realized and unrealized gains (losses).
“Net Investment Income (Loss)” on the Statement of Operations is adjusted as follows to reconcile to DCF for YTD and 4th quarter 2018 (in thousands):
| YTD 2018 | 4th Qtr 2018 | |||||||
| Net Investment Loss | $ | (1,506 | ) | $ | (340 | ) | ||
| Adjustments to reconcile to DCF: | ||||||||
| Net premiums on options written | 4,808 | 1,154 | ||||||
| Distributions characterized | ||||||||
| as return of capital | 10,316 | 2,465 | ||||||
| Dividends paid in stock | 1,471 | 369 | ||||||
| Other | 221 | 66 | ||||||
| DCF | $ | 15,310 | $ | 3,714 | ||||
Leverage
The fund’s leverage utilization decreased by $1.0 million during 4th quarter 2018 and represented 29.7% of total assets at November 30, 2018. The fund has maintained compliance with its applicable coverage ratios. At year-end, approximately 63% of the leverage cost was fixed, the weighted-average maturity was 1.5 years and the weighted-average annual rate on leverage was 3.79%. These rates will vary in the future as a result of changing floating rates, utilization of the fund’s credit facility and as leverage matures or is redeemed.
Please see the Financial Statements and Notes to Financial Statements for additional detail regarding critical accounting policies, results of operations, leverage and other important fund information.
For further information regarding the calculation of distributable cash flow and distributions to stockholders, as well as a discussion of the tax impact on distributions, please visit www.tortoiseadvisors.com.
| (unaudited) | |
| Tortoise | 11 |
| TTP Key Financial Data (supplemental unaudited information) |
| (dollar amounts in thousands unless otherwise indicated) |
The information presented below regarding Distributable Cash Flow and Selected Financial Information is supplemental non-GAAP financial information, which the fund believes is meaningful to understanding operating performance. The Distributable Cash Flow Ratios include the functional equivalent of EBITDA for non-investment companies, and the fund believes they are an important supplemental measure of performance and promote comparisons from period-to-period. This information is supplemental, is not inclusive of required financial disclosures (e.g. Total Expense Ratio), and should be read in conjunction with the full financial statements.
| Year Ended November 30, | 2017 | 2018 | |||||||||||||||||||||||||||||||||
| 2017 | 2018 | Q4(1) | Q1(1) | Q2(1) | Q3(1) | Q4(1) | |||||||||||||||||||||||||||||
| Total Income from Investments | |||||||||||||||||||||||||||||||||||
| Dividends and distributions | |||||||||||||||||||||||||||||||||||
| from investments, net of | |||||||||||||||||||||||||||||||||||
| foreign taxes withheld | $ | 14,711 | $ | 14,738 | $ | 3,559 | $ | 3,498 | $ | 3,875 | $ | 3,716 | $ | 3,649 | |||||||||||||||||||||
| Dividends paid in kind | 1,194 | 1,796 | 329 | 397 | 480 | 497 | 422 | ||||||||||||||||||||||||||||
| Net premiums on options written | 4,503 | 4,808 | 967 | 1,125 | 1,294 | 1,235 | 1,154 | ||||||||||||||||||||||||||||
| Total from investments | 20,408 | 21,342 | 4,855 | 5,020 | 5,649 | 5,448 | 5,225 | ||||||||||||||||||||||||||||
| Operating Expenses Before | |||||||||||||||||||||||||||||||||||
| Leverage Costs | |||||||||||||||||||||||||||||||||||
| Advisory fees, net of fees waived | 3,131 | 2,845 | 729 | 732 | 683 | 734 | 696 | ||||||||||||||||||||||||||||
| Other operating expenses | 573 | 605 | 132 | 149 | 150 | 159 | 147 | ||||||||||||||||||||||||||||
| 3,704 | 3,450 | 861 | 881 | 833 | 893 | 843 | |||||||||||||||||||||||||||||
| Distributable cash flow before | |||||||||||||||||||||||||||||||||||
| leverage costs | 16,704 | 17,892 | 3,994 | 4,139 | 4,816 | 4,555 | 4,382 | ||||||||||||||||||||||||||||
| Leverage costs(2) | 2,271 | 2,582 | 579 | 620 | 636 | 658 | 668 | ||||||||||||||||||||||||||||
| Distributable Cash Flow(3) | $ | 14,433 | $ | 15,310 | $ | 3,415 | $ | 3,519 | $ | 4,180 | $ | 3,897 | $ | 3,714 | |||||||||||||||||||||
| Net realized gain (loss) on investments | |||||||||||||||||||||||||||||||||||
| and foreign currency translation, | |||||||||||||||||||||||||||||||||||
| for the period | $ | 2,605 | $ | (356 | ) | $ | 354 | $ | 532 | $ | (1,118 | ) | $ | 826 | $ | (596 | ) | ||||||||||||||||||
| As a percent of average total assets(4) | |||||||||||||||||||||||||||||||||||
| Total from investments | 7.09 | % | 8.29 | % | 7.28 | % | 7.70 | % | 9.03 | % | 8.16 | % | 8.29 | % | |||||||||||||||||||||
| Operating expenses before | |||||||||||||||||||||||||||||||||||
| leverage costs | 1.29 | % | 1.34 | % | 1.29 | % | 1.35 | % | 1.33 | % | 1.34 | % | 1.34 | % | |||||||||||||||||||||
| Distributable cash flow before | |||||||||||||||||||||||||||||||||||
| leverage costs | 5.80 | % | 6.95 | % | 5.99 | % | 6.35 | % | 7.70 | % | 6.82 | % | 6.95 | % | |||||||||||||||||||||
| As a percent of average net assets(4) | |||||||||||||||||||||||||||||||||||
| Total from investments | 9.30 | % | 11.32 | % | 9.79 | % | 10.24 | % | 12.65 | % | 11.09 | % | 11.43 | % | |||||||||||||||||||||
| Operating expenses before | |||||||||||||||||||||||||||||||||||
| leverage costs | 1.69 | % | 1.83 | % | 1.74 | % | 1.80 | % | 1.87 | % | 1.82 | % | 1.84 | % | |||||||||||||||||||||
| Leverage costs | 1.04 | % | 1.37 | % | 1.17 | % | 1.26 | % | 1.42 | % | 1.34 | % | 1.46 | % | |||||||||||||||||||||
| Distributable cash flow | 6.57 | % | 8.12 | % | 6.88 | % | 7.18 | % | 9.36 | % | 7.93 | % | 8.13 | % | |||||||||||||||||||||
| Selected Financial Information | |||||||||||||||||||||||||||||||||||
| Distributions paid on common stock | $ | 16,327 | $ | 16,327 | $ | 4,082 | $ | 4,082 | $ | 4,081 | $ | 4,082 | $ | 4,082 | |||||||||||||||||||||
| Distributions paid on common stock | |||||||||||||||||||||||||||||||||||
| per share | 1.6300 | 1.6300 | 0.4075 | 0.4075 | 0.4075 | 0.4075 | 0.4075 | ||||||||||||||||||||||||||||
| Total assets, end of period(5) | 259,175 | 235,259 | 259,175 | 245,155 | 258,764 | 268,532 | 235,259 | ||||||||||||||||||||||||||||
| Average total assets during period(5)(6) | 288,004 | 257,585 | 267,349 | 264,274 | 248,147 | 264,986 | 252,876 | ||||||||||||||||||||||||||||
| Leverage(7) | 69,300 | 69,800 | 69,300 | 69,800 | 70,100 | 70,800 | 69,800 | ||||||||||||||||||||||||||||
| Leverage as a percent of total assets | 26.7 | % | 29.7 | % | 26.7 | % | 28.5 | % | 27.1 | % | 26.4 | % | 29.7 | % | |||||||||||||||||||||
| Net unrealized depreciation, end of period | (27,789 | ) | (34,897 | ) | (27,789 | ) | (38,233 | ) | (17,798 | ) | (6,280 | ) | (34,897 | ) | |||||||||||||||||||||
| Net assets, end of period | 188,517 | 163,202 | 188,517 | 173,723 | 187,444 | 196,073 | 163,202 | ||||||||||||||||||||||||||||
| Average net assets during period(8) | 219,359 | 188,518 | 198,953 | 198,872 | 177,138 | 194,846 | 183,386 | ||||||||||||||||||||||||||||
| Net asset value per common share | 18.82 | 16.29 | 18.82 | 17.34 | 18.71 | 19.58 | 16.29 | ||||||||||||||||||||||||||||
| Market value per common share | 17.01 | 14.33 | 17.01 | 16.93 | 17.36 | 17.73 | 14.33 | ||||||||||||||||||||||||||||
| Shares outstanding (000’s) | 10,016 | 10,016 | 10,016 | 10,016 | 10,016 | 10,016 | 10,016 | ||||||||||||||||||||||||||||
| (1) | Q1 is the period from December through February. Q2 is the period from March through May. Q3 is the period from June through August. Q4 is the period from September through November. |
| (2) | Leverage costs include interest expense, distributions to preferred stockholders and other recurring leverage expenses. |
| (3) | “Net investment income (loss)” on the Statement of Operations is adjusted as follows to reconcile to Distributable Cash Flow (“DCF”): increased by net premiums on options written, the return of capital on distributions, the dividends paid in stock and increased liquidation value, the premium on dividends paid in kind and amortization of debt issuance costs. |
| (4) | Annualized for periods less than one full year. |
| (5) | Includes deferred issuance and offering costs on senior notes and preferred stock. |
| (6) | Computed by averaging month-end values within each period. |
| (7) | Leverage consists of senior notes, preferred stock and outstanding borrowings under the revolving credit facility. |
| (8) | Computed by averaging daily net assets within each period. |
| 12 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Tortoise |
| Energy Independence Fund, Inc. (NDP) |
Fund description
NDP seeks a high level of total return with an emphasis on current distributions paid to stockholders. NDP invests primarily in equity securities of upstream North American energy companies that engage in the exploration and production of crude oil, condensate, natural gas and natural gas liquids that generally have a significant presence in North American oil and gas fields, including shale reservoirs.
Fund performance review
Upstream oil and gas producers experienced a stark reversal in performance as the last fiscal quarter brought volatility with oil prices falling from a fiscal year high of $76.41 on Oct. 5 to a low of $50.22 on Nov. 23, 2018 and ending the fiscal year at $50.93. Weather played a factor in natural gas prices throughout the fiscal year as they opened at $2.84 per million British thermal units (MMBtu), quickly rose in January to peak at $6.24 and fell to a fiscal year low of $2.49 in February and at the fiscal year ending Nov. 30, 2018 the closing price was $4.61. Natural gas producers performed slightly better than oil producers during the fiscal year. The fund’s market-based and NAV-based returns for the fiscal year ending Nov. 30, 2018 were -15.1% and -18.1%, respectively (including the reinvestment of distributions). Comparatively, the Tortoise North American Oil and Gas Producers IndexSM returned -10.4% for the same period.
| Fiscal year-end highlights | ||
| Distributions paid per share (fiscal year 2018) | $1.75 | |
| Distributions paid per share (4th quarter 2018) | $0.4375 | |
| Distribution rate (as of 11/30/2018) | 19.4% | |
| Quarter-over-quarter distribution increase | 0.0% | |
| Year-over-year distribution increase | 0.0% | |
| Cumulative distributions paid per share to | ||
| stockholders since inception in July 2012 | $10.9375 | |
| Market-based total return | (15.1)% | |
| NAV-based total return | (18.1)% | |
| Premium (discount) to NAV (as of 11/30/2018) | (0.2)% |
The fund utilizes a covered call strategy, which seeks to generate income while reducing overall volatility. The premium income generated from this strategy helped to lower NAV volatility during the quarter. The notional amount of the fund’s covered calls averaged approximately 72.1% of total assets and their out-of-the-money percentage at the time written averaged approximately 9.4% during the fiscal quarter.
Key asset performance drivers
| Top five contributors | Company type | Performance driver | ||
| Energy Transfer Partners, L.P. | Midstream natural gas/natural gas liquids pipeline MLP | Acquired by its general partner for 11% premium in simplification transaction | ||
| Plains All American Pipeline, L.P. | Midstream crude oil pipeline MLP | Expected crude oil production growth from Permian Basin | ||
| DCP Midstream LP | Midstream gathering and processing MLP | Higher realized natural gas liquids prices and new project announcements | ||
| RSP Permian, Inc. | Upstream oil and gas producer | Acquired by Concho Resources Inc. at a premium to existing stock price | ||
| Royal Dutch Shell PLC | Upstream oil and gas producer | Diversified asset base, growth potential and increased liquefied natural gas (LNG) demand | ||
| Bottom five contributors | Company type | Performance driver | ||
| Pioneer Natural Resources Company | Upstream liquids producer | Wider Permian basis differentials reducing cash flow | ||
| Devon Energy Corporation | Upstream oil and gas producer | Weaker than expected SCOOP/STACK shale plays in central Oklahoma | ||
| Continental Resources Inc. | Upstream oil and gas producer | Significant exposure to oil prices that dropped sharply during the fourth quarter | ||
| Newfield Exploration Company | Upstream oil and gas producer | Weaker than expected SCOOP/STACK shale plays in central Oklahoma | ||
| EQT Corporation | Upstream oil and gas producer | Poor execution of drilling program resulting in overhaul of management |
Unlike the fund return, index return is pre-expenses.
Performance data quoted represents past performance: past performance does not guarantee future results. Like any other stock, total return and market value will fluctuate so that an investment, when sold, may be worth more or less than its original cost. Portfolio composition is subject to change due to ongoing management of the fund. References to specific securities or sectors should not be construed as a recommendation by the fund or its adviser. See Schedule of Investments for portfolio weighting at the end of the fiscal year.
| (unaudited) | |
| Tortoise | 13 |
| Tortoise |
| Energy Independence Fund, Inc. (NDP) (continued) |
Fund structure and distribution policy
The fund is structured to qualify as a Regulated Investment Company (“RIC”) allowing the fund to pass-through to shareholders the income and capital gains earned by the fund, thus avoiding double-taxation. To qualify as a RIC, the fund must meet specific income, diversification and distribution requirements. Regarding income, at least 90 percent of the fund’s gross income must be from dividends, interest and capital gains. The fund must meet quarterly diversification requirements including the requirement that at least 50 percent of the assets be in cash, cash equivalents or other securities with each single issuer of other securities not greater than 5 percent of total assets. No more than 25 percent of total assets can be invested in any one issuer other than government securities or other RIC’s. The fund must also distribute at least 90 percent of its investment company income. RIC’s are also subject to excise tax rules which require RIC’s to distribute approximately 98 percent of net income and net capital gains to avoid a 4 percent excise tax.
The fund has adopted a distribution policy which intends to distribute an amount closely approximating the total taxable income for the year and, if so determined by the Board, distribute all or a portion of the return of capital paid by portfolio companies during the year. The fund may designate a portion of its distributions as capital gains and may also distribute additional capital gains in the last calendar quarter of the year to meet annual excise distribution requirements. Distribution amounts are subject to change from time to time at the discretion of the Board. Although the level of distributions is independent of the funds’ performance in the short term, the fund expects such distributions to correlate with its performance over time.
Distributable cash flow and distributions
Distributable cash flow (“DCF”) is income from investments less expenses. Income from investments includes the amount received as cash or paid-in-kind distributions from investments and dividend payments on short-term investments. Income also includes the premiums received from sales of covered call options, net of amounts paid to buy back out-of-the-money options. The total expenses include current or anticipated operating expenses and leverage costs.
Income from investments decreased approximately 6.3% as compared to 3rd quarter 2018, primarily due to lower income on premiums from covered call options. Operating expenses, consisting primarily of fund advisory fees, decreased approximately 8.7% during the quarter due primarily to lower asset-based fees. Total leverage costs increased approximately 5.2% as compared to 3rd quarter 2018, primarily due to an increase in interest rates during the quarter. As a result of the changes in income and expenses, DCF decreased by approximately 6.8% as compared to 3rd quarter 2018. In addition, the fund had net realized losses on investments of $2.0 million during 4th quarter 2018.
The fund maintained its quarterly distribution of $0.4375 per share during 4th quarter 2018, which was equal to the distribution paid in the prior quarter and 4th quarter 2018. The fund has paid cumulative distributions to stockholders of $10.9375 per share since its inception in July 2012.
The Key Financial Data table discloses the calculation of DCF and should be read in conjunction with this discussion. The difference between income from investments in the DCF calculation and total investment income as reported in the Statement of Operations, is reconciled as follows: (1) the Statement of Operations, in conformity with U.S. generally accepted accounting principles (“GAAP”), recognizes distributions and dividend income from MLPs, common stock and other investments on their ex-dates, whereas the DCF calculation may reflect distributions and dividend income on their pay dates; (2) GAAP recognizes that a significant portion of the cash distributions received from MLPs, common stock and other investments are characterized as a return of capital and therefore excluded from investment income, whereas the DCF calculation includes the return of capital; (3) income from investments in the DCF calculation includes the value of dividends paid-in-kind (additional stock or units), whereas such amounts may not be included as income for GAAP purposes; and (4) net premiums on options written (premiums received less amounts paid to buy back out-of-the-money options) with expiration dates during fiscal quarter are included in the DCF calculation, whereas GAAP recognizes the net effect of options written as realized and unrealized gains (losses).
“Net Investment Income (Loss)” on the Statement of Operations is adjusted as follows to reconcile to DCF for YTD and 4th quarter 2018 (in thousands):
| YTD 2018 | 4th Qtr 2018 | |||||||
| Net Investment Loss | $ | (4,228 | ) | $ | (917 | ) | ||
| Adjustments to reconcile to DCF: | ||||||||
| Net premiums on options written | 24,820 | 6,400 | ||||||
| Distributions characterized | ||||||||
| as return of capital | 4,527 | 852 | ||||||
| Other | 655 | 151 | ||||||
| DCF | $ | 25,774 | $ | 6,486 | ||||
Leverage
The fund’s leverage utilization decreased $8.1 million as compared to 3rd quarter 2018. The fund utilizes all floating rate leverage that had an interest rate of 3.15% and represented 29.9% of total assets at year-end. The fund has maintained compliance with its applicable coverage ratios. The interest rate on the fund’s leverage will vary in the future along with changing floating rates.
Please see the Financial Statements and Notes to Financial Statements for additional detail regarding critical accounting policies, results of operations, leverage and other important fund information.
For further information regarding the calculation of distributable cash flow and distributions to stockholders, as well as a discussion of the tax impact on distributions, please visit www.tortoiseadvisors.com.
| (unaudited) | |
| 14 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| NDP Key Financial Data (supplemental unaudited information) |
| (dollar amounts in thousands unless otherwise indicated) |
The information presented below regarding Distributable Cash Flow and Selected Financial Information is supplemental non-GAAP financial information, which the fund believes is meaningful to understanding operating performance. The Distributable Cash Flow Ratios include the functional equivalent of EBITDA for non-investment companies, and the fund believes they are an important supplemental measure of performance and promote comparisons from period-to-period. This information is supplemental, is not inclusive of required financial disclosures (e.g. Total Expense Ratio), and should be read in conjunction with the full financial statements.
| Year Ended November 30, | 2017 | 2018 | |||||||||||||||||||||||||||
| 2017 | 2018 | Q4(1) | Q1(1) | Q2(1) | Q3(1) | Q4(1) | |||||||||||||||||||||||
| Total Income from Investments | |||||||||||||||||||||||||||||
| Distributions and dividends | |||||||||||||||||||||||||||||
| from investments, net of | |||||||||||||||||||||||||||||
| foreign taxes withheld | $ | 5,977 | $ | 5,122 | $ | 1,441 | $ | 1,453 | $ | 1,363 | $ | 1,139 | $ | 1,167 | |||||||||||||||
| Dividends paid in stock | 695 | 796 | 135 | 194 | 221 | 229 | 152 | ||||||||||||||||||||||
| Net premiums on options written | 22,648 | 24,820 | 5,720 | 5,627 | 5,923 | 6,870 | 6,400 | ||||||||||||||||||||||
| Total from investments | 29,320 | 30,738 | 7,296 | 7,274 | 7,507 | 8,238 | 7,719 | ||||||||||||||||||||||
| Operating Expenses Before | |||||||||||||||||||||||||||||
| Leverage Costs | |||||||||||||||||||||||||||||
| Advisory fees, net of fees waived | 2,978 | 2,639 | 681 | 693 | 662 | 671 | 613 | ||||||||||||||||||||||
| Other operating expenses | 544 | 566 | 125 | 141 | 144 | 147 | 134 | ||||||||||||||||||||||
| 3,522 | 3,205 | 806 | 834 | 806 | 818 | 747 | |||||||||||||||||||||||
| Distributable cash flow before | |||||||||||||||||||||||||||||
| leverage costs | 25,798 | 27,533 | 6,490 | 6,440 | 6,701 | 7,420 | 6,972 | ||||||||||||||||||||||
| Leverage costs(2) | 1,183 | 1,759 | 325 | 376 | 435 | 462 | 486 | ||||||||||||||||||||||
| Distributable Cash Flow(3) | $ | 24,615 | $ | 25,774 | $ | 6,165 | $ | 6,064 | $ | 6,266 | $ | 6,958 | $ | 6,486 | |||||||||||||||
| Net realized gain (loss) on investments | |||||||||||||||||||||||||||||
| and foreign currency translation, | |||||||||||||||||||||||||||||
| for the period | $ | (21,311 | ) | $ | (6,693 | ) | $ | (18,793 | ) | $ | 5,881 | $ | (16,976 | ) | $ | 6,433 | $ | (2,031 | ) | ||||||||||
| As a percent of average total assets(4) | |||||||||||||||||||||||||||||
| Total from investments | 10.52 | % | 12.72 | % | 11.60 | % | 11.56 | % | 12.33 | % | 13.23 | % | 13.91 | % | |||||||||||||||
| Operating expenses before | |||||||||||||||||||||||||||||
| leverage costs | 1.26 | % | 1.33 | % | 1.28 | % | 1.32 | % | 1.32 | % | 1.31 | % | 1.35 | % | |||||||||||||||
| Distributable cash flow before | |||||||||||||||||||||||||||||
| leverage costs | 9.26 | % | 11.39 | % | 10.32 | % | 10.24 | % | 11.01 | % | 11.92 | % | 12.56 | % | |||||||||||||||
| As a percent of average net assets(4) | |||||||||||||||||||||||||||||
| Total from investments | 13.97 | % | 17.42 | % | 15.77 | % | 15.42 | % | 17.01 | % | 18.25 | % | 19.29 | % | |||||||||||||||
| Operating expenses before | |||||||||||||||||||||||||||||
| leverage costs | 1.68 | % | 1.82 | % | 1.74 | % | 1.77 | % | 1.83 | % | 1.81 | % | 1.87 | % | |||||||||||||||
| Leverage costs | 0.56 | % | 1.00 | % | 0.70 | % | 0.80 | % | 0.99 | % | 1.02 | % | 1.21 | % | |||||||||||||||
| Distributable cash flow | 11.73 | % | 14.60 | % | 13.33 | % | 12.85 | % | 14.19 | % | 15.42 | % | 16.21 | % | |||||||||||||||
| Selected Financial Information | |||||||||||||||||||||||||||||
| Distributions paid on common stock | $ | 25,460 | $ | 25,587 | $ | 6,380 | $ | 6,380 | $ | 6,391 | $ | 6,402 | $ | 6,414 | |||||||||||||||
| Distributions paid on common stock | |||||||||||||||||||||||||||||
| per share | 1.7500 | 1.7500 | 0.4375 | 0.4375 | 0.4375 | 0.4375 | 0.4375 | ||||||||||||||||||||||
| Total assets, end of period | 255,302 | 191,285 | 255,302 | 236,174 | 245,593 | 242,150 | 191,285 | ||||||||||||||||||||||
| Average total assets during period(5) | 278,827 | 241,656 | 252,191 | 255,282 | 241,582 | 246,956 | 222,541 | ||||||||||||||||||||||
| Leverage(6) | 64,500 | 57,100 | 64,500 | 68,000 | 65,800 | 65,200 | 57,100 | ||||||||||||||||||||||
| Leverage as a percent of total assets | 25.3 | % | 29.9 | % | 25.3 | % | 28.8 | % | 26.8 | % | 26.9 | % | 29.9 | % | |||||||||||||||
| Net unrealized depreciation, end of period | (19,852 | ) | (50,328 | ) | (19,852 | ) | (41,518 | ) | (4,811 | ) | (15,314 | ) | (50,328 | ) | |||||||||||||||
| Net assets, end of period | 187,889 | 132,488 | 187,889 | 166,253 | 176,262 | 172,423 | 132,488 | ||||||||||||||||||||||
| Average net assets during period(7) | 209,940 | 176,481 | 185,583 | 191,359 | 175,128 | 179,054 | 160,534 | ||||||||||||||||||||||
| Net asset value per common share | 12.88 | 9.02 | 12.88 | 11.38 | 12.18 | 11.76 | 9.02 | ||||||||||||||||||||||
| Market value per common share | 12.39 | 9.00 | 12.39 | 11.80 | 12.47 | 12.69 | 9.00 | ||||||||||||||||||||||
| Shares outstanding (000’s) | 14,584 | 14,696 | 14,584 | 14,607 | 14,633 | 14,660 | 14,696 | ||||||||||||||||||||||
| (1) | Q1 is the period from December through February. Q2 is the period from March through May. Q3 is the period from June through August. Q4 is the period from September through November. |
| (2) | Leverage costs include interest expense and other recurring leverage expenses. |
| (3) | “Net investment income (loss)” on the Statement of Operations is adjusted as follows to reconcile to Distributable Cash Flow (“DCF”): increased by net premiums on options written, the return of capital on distributions the distributions paid in stock and the premium on dividends paid in kind. |
| (4) | Annualized for periods less than one full year. |
| (5) | Computed by averaging month-end values within each period. |
| (6) | Leverage consists of outstanding borrowings under the revolving credit facility. |
| (7) | Computed by averaging daily net assets within each period. |
| Tortoise | 15 |
| Tortoise |
| Power and Energy Infrastructure Fund, Inc. (TPZ) |
Fund description
TPZ seeks to provide a high level of current income to stockholders, with a secondary objective of capital appreciation. TPZ seeks to invest primarily in fixed income and dividend-paying equity securities of power and energy infrastructure companies that provide stable and defensive characteristics throughout economic cycles.
Fund performance review
The midstream segment pulled back along with broad energy, as well as from near-term uncertainty around simplification transactions and further evolution of the midstream segment. The fund’s market-based and NAV-based returns for the fiscal year ending Nov. 30, 2018 were -6.8% and 0.2%, respectively (including the reinvestment of distributions). Comparatively, the TPZ Benchmark Composite* returned -1.7% for the same period. The fund’s fixed income holdings underperformed its midstream energy equity holdings on a total return basis.
| Fiscal year-end highlights | ||
| Distributions paid per share (fiscal year 2018) | $1.50 | |
| Monthly distributions paid per share (4th quarter 2018) | $0.1250 | |
| Distribution rate (as of 11/30/2018) | 8.7% | |
| Quarter-over-quarter distribution increase | 0.0% | |
| Year-over-year distribution increase | 0.0% | |
| Cumulative distribution to stockholders | ||
| since inception in July 2009 | $15.2750 | |
| Market-based total return | (6.8)% | |
| NAV-based total return | 0.2% | |
| Premium (discount) to NAV (as of 11/30/2018) | (13.1)% |
* The TPZ Benchmark Composite includes the BofA Merrill Lynch U.S. Energy Index (CIEN), the BofA Merrill Lynch U.S. Electricity Index (CUEL) and the Tortoise MLP Index® (TMLP). It is comprised of a blend of 70% fixed income and 30% equity securities issued by companies in the power and energy infrastructure sectors.
Please refer to the inside front cover of the report for important information about the fund’s distribution policy.
Key asset performance drivers
| Top five contributors | Company type | Performance driver | ||
| Energy Transfer Partners, L.P. | Midstream natural gas/natural gas liquids pipeline MLP | Acquired by its general partner for 11% premium in simplification transaction | ||
| ONEOK, Inc. | Midstream natural gas/natural gas liquids pipeline company | Natural gas liquid (NGL) volume growth benefitting integrated pipeline network | ||
| Kinder Morgan Inc. | Midstream natural gas/natural gas liquids pipeline company | Reduced leverage to target levels | ||
| Enterprise Products Partners L.P. | Midstream natural gas/natural gas liquids pipeline MLP | Delivered steady cash flow and healthy project backlog | ||
| Targa Resources Corp | Midstream gathering and processing company | Permian Basin wet gas volume growth | ||
| Bottom five contributors | Company type | Performance driver | ||
| Energy Transfer LP | Midstream natural gas/natural gas liquids pipeline company | Traded down due to ownership consolidation following closing of simplification transaction | ||
| Enbridge Energy Management, LLC | Midstream crude oil pipeline company | Pending acquisition by Enbridge Inc. | ||
| Enbridge Inc. | Midstream crude oil pipeline company | Higher leverage leading to divestitures and regulation uncertainty on pipeline project | ||
| Shell Midstream Partners LP | Midstream crude oil pipeline MLP | Dropdown timing uncertainty | ||
| Buckeye Partners, L.P. | Midstream refined product pipeline MLP | Weaker than expected earnings tied to storage market fundamentals |
Unlike the fund return, index return is pre-expenses.
Performance data quoted represents past performance; past performance does not guarantee future results. Like any other stock, total return and market value will fluctuate so that an investment, when sold, may be worth more or less than its original cost. Portfolio composition is subject to change due to ongoing management of the fund. References to specific securities or sectors should not be construed as a recommendation by the fund or its adviser. See Schedule of Investments for portfolio weighting at the end of the fiscal year.
| (unaudited) | |
| 16 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
Fund structure and distribution policy
The fund is structured to qualify as a Regulated Investment Company (“RIC”) allowing the fund to pass-through to shareholders the income and capital gains earned by the fund, thus avoiding double-taxation. To qualify as a RIC, the fund must meet specific income, diversification and distribution requirements. Regarding income, at least 90 percent of the fund gross income must be from dividends, interest and capital gains. The fund must meet quarterly diversification requirements including the requirement that at least 50 percent of the assets be in cash, cash equivalents or other securities with each single issuer of other securities not greater than 5 percent of total assets. No more than 25 percent of total assets can be invested in any one issuer other than government securities or other RIC’s. The fund must also distribute at least 90 percent of its investment company income. RIC’s are also subject to excise tax rules which require RIC’s to distribute approximately 98 percent of net income and net capital gains to avoid a 4 percent excise tax.
The fund has adopted a distribution policy which is included on the inside front cover of this report. To summarize, the fund intends to distribute an amount closely approximating the total taxable income for the year and, if so determined by the Board, distribute all or a portion of the return of capital paid by portfolio companies during the year. The fund may designate a portion of its distributions as capital gains and may also distribute additional capital gains in the last calendar quarter of the year to meet annual excise distribution requirements. The fund distributes a fixed amount per common share, currently $0.125, each month to its common shareholders. This amount is subject to change from time to time at the discretion of the Board. Although the level of distributions is independent of the funds’ performance in the short term, the fund expects such distributions to correlate with its performance over time.
Distributable cash flow and distributions
Distributable cash flow (“DCF”) is income from investments less expenses. Income from investments includes the accrued interest from corporate bonds, cash distributions and paid-in-kind distributions from master limited partnerships (“MLPs”) and other equity investments and dividends earned from short-term investments. The total expenses include current or anticipated operating expenses and leverage costs.
Income from investments decreased approximately 2.8% as compared to 3rd quarter 2018. Operating expenses, consisting primarily of fund advisory fees, decreased approximately 2.1% during the quarter due primarily to lower asset-based fees. Total leverage costs increased approximately 4.2% as compared to 3rd quarter 2018, primarily due to an increase in interest rates during the quarter. As a result of the changes in income and expenses, DCF decreased approximately 4.0% as compared to 3rd quarter 2018. In addition, the fund had net realized gains on investments of $4.0 million during 4th quarter 2018.
The fund paid monthly distributions of $0.125 per share during 4th quarter 2018, which was unchanged over the prior quarter and 4th quarter 2017. The fund’s Board of Directors has declared monthly distributions of $0.125 per share to be paid during 1st quarter 2019. The fund has paid cumulative distributions to stockholders of $15.275 per share since its inception in July 2009.
The Key Financial Data table discloses the calculation of DCF and should be read in conjunction with this discussion. The difference between income from investments in the DCF calculation and total investment income as reported in the Statement of Operations, is reconciled as follows: (1) U.S. generally accepted accounting principles (“GAAP”), recognizes distribution income from MLPs, common stock and other investments on their ex-dates, whereas the DCF calculation may reflect distribution income on their pay dates; (2) GAAP recognizes that a significant portion of the cash distributions received from MLPs, common stock and other investments are characterized as a return of capital and therefore excluded from investment income, whereas the DCF calculation includes the return of capital; (3) income from investments in the DCF calculation includes the value of dividends paid-in-kind (additional stock or units), whereas such amounts may not be included as income for GAAP purposes; and (4) amortization of premium or discount for all securities is calculated using the yield to worst methodology for GAAP purposes while yield to call is used in calculating amortization for long-dated hybrid securities in the DCF calculation. The treatment of expenses in the DCF calculation also differs from what is reported in the Statement of Operations. In addition to the total operating expenses, including fee waiver, as disclosed in the Statement of Operations, the DCF calculation reflects interest expense and realized and unrealized gains (losses) on interest rate swap settlements as leverage costs.
“Net Investment Income (Loss)” on the Statement of Operations is adjusted as follows to reconcile to DCF for YTD and 4th quarter 2018 (in thousands):
| YTD 2018 | 4th Qtr 2018 | |||||
| Net Investment Income | $ | 1,684 | $ | 508 | ||
| Adjustments to reconcile to DCF: | ||||||
| Distributions characterized | ||||||
| as return of capital | 6,733 | 1,493 | ||||
| Dividends paid in stock | 986 | 246 | ||||
| Other | 179 | 77 | ||||
| DCF | $ | 9,582 | $ | 2,324 | ||
Leverage
The fund’s leverage utilization was substantially unchanged as compared to 3rd quarter 2018 and represented 27.8% of total assets at November 30, 2018. The fund has maintained compliance with its applicable coverage ratios. At year-end, including the impact of interest rate swaps, approximately 17% of the leverage cost was fixed, the weighted-average maturity was 0.6 years and the weighted-average annual rate on leverage was 2.85%. These rates will vary in the future as a result of changing floating rates and as swaps mature or are redeemed.
Please see the Financial Statements and Notes to Financial Statements for additional detail regarding critical accounting policies, results of operations, leverage and other important fund information.
For further information regarding the calculation of distributable cash flow and distributions to stockholders, as well as a discussion of the tax impact on distributions, please visit www.tortoiseadvisors.com.
| (unaudited) | |
| Tortoise | 17 |
| TPZ Key Financial Data (supplemental unaudited information) |
| (dollar amounts in thousands unless otherwise indicated) |
The information presented below regarding Distributable Cash Flow and Selected Financial Information is supplemental non-GAAP financial information, which the fund believes is meaningful to understanding operating performance. The Distributable Cash Flow Ratios include the functional equivalent of EBITDA for non-investment companies, and the fund believes they are an important supplemental measure of performance and promote comparisons from period-to-period. This information is supplemental, is not inclusive of required financial disclosures (e.g. Total Expense Ratio), and should be read in conjunction with the full financial statements.
| Year Ended November 30, | 2017 | 2018 | ||||||||||||||||||||||
| 2017 | 2018 | Q4(1) | Q1(1) | Q2(1) | Q3(1) | Q4(1) | ||||||||||||||||||
| Total Income from Investments | ||||||||||||||||||||||||
| Interest earned on corporate bonds | $ | 5,931 | $ | 5,440 | $ | 1,424 | $ | 1,384 | $ | 1,345 | $ | 1,342 | $ | 1,369 | ||||||||||
| Distributions and dividends | ||||||||||||||||||||||||
| from investments, net of | ||||||||||||||||||||||||
| foreign taxes withheld | 6,672 | 6,747 | 1,650 | 1,653 | 1,727 | 1,713 | 1,654 | |||||||||||||||||
| Dividends paid in kind | 810 | 1,233 | 218 | 268 | 333 | 348 | 284 | |||||||||||||||||
| Total from investments | 13,413 | 13,420 | 3,292 | 3,305 | 3,405 | 3,403 | 3,307 | |||||||||||||||||
| Operating Expenses Before | ||||||||||||||||||||||||
| Leverage Costs | ||||||||||||||||||||||||
| Advisory fees | 2,031 | 1,898 | 487 | 481 | 463 | 481 | 473 | |||||||||||||||||
| Other operating expenses | 508 | 546 | 115 | 130 | 137 | 142 | 137 | |||||||||||||||||
| 2,539 | 2,444 | 602 | 611 | 600 | 623 | 610 | ||||||||||||||||||
| Distributable cash flow before | ||||||||||||||||||||||||
| leverage costs | 10,874 | 10,976 | 2,690 | 2,694 | 2,805 | 2,780 | 2,697 | |||||||||||||||||
| Leverage costs(2) | 1,089 | 1,394 | 287 | 320 | 343 | 358 | 373 | |||||||||||||||||
| Distributable Cash Flow(3) | $ | 9,785 | $ | 9,582 | $ | 2,403 | $ | 2,374 | $ | 2,462 | $ | 2,422 | $ | 2,324 | ||||||||||
| Net realized gain (loss) on investments | ||||||||||||||||||||||||
| and foreign currency translation, | ||||||||||||||||||||||||
| for the period | $ | 4,325 | $ | 8,973 | $ | (4,503 | ) | $ | 1,733 | $ | 2,220 | $ | 1,024 | $ | 3,996 | |||||||||
| As a percent of average total assets(4) | ||||||||||||||||||||||||
| Total from investments | 6.25 | % | 6.72 | % | 6.42 | % | 6.62 | % | 6.95 | % | 6.68 | % | 6.55 | % | ||||||||||
| Operating expenses before | ||||||||||||||||||||||||
| leverage costs | 1.18 | % | 1.22 | % | 1.17 | % | 1.22 | % | 1.23 | % | 1.22 | % | 1.21 | % | ||||||||||
| Distributable cash flow before | ||||||||||||||||||||||||
| leverage costs | 5.07 | % | 5.50 | % | 5.25 | % | 5.40 | % | 5.72 | % | 5.46 | % | 5.34 | % | ||||||||||
| As a percent of average net assets(4) | ||||||||||||||||||||||||
| Total from investments | 8.24 | % | 9.09 | % | 8.60 | % | 8.78 | % | 9.51 | % | 9.06 | % | 8.93 | % | ||||||||||
| Operating expenses before | ||||||||||||||||||||||||
| leverage costs | 1.56 | % | 1.66 | % | 1.57 | % | 1.62 | % | 1.68 | % | 1.66 | % | 1.65 | % | ||||||||||
| Leverage costs | 0.67 | % | 0.94 | % | 0.75 | % | 0.85 | % | 0.96 | % | 0.95 | % | 1.01 | % | ||||||||||
| Distributable cash flow | 6.01 | % | 6.49 | % | 6.28 | % | 6.31 | % | 6.87 | % | 6.45 | % | 6.27 | % | ||||||||||
| Selected Financial Information | ||||||||||||||||||||||||
| Distributions paid on common stock | $ | 10,427 | $ | 10,427 | $ | 2,607 | $ | 2,607 | $ | 2,607 | $ | 2,606 | $ | 2,607 | ||||||||||
| Distributions paid on common stock | ||||||||||||||||||||||||
| per share | 1.5000 | 1.5000 | 0.3750 | 0.3750 | 0.3750 | 0.3750 | 0.3750 | |||||||||||||||||
| Total assets, end of period | 202,291 | 191,906 | 202,291 | 196,676 | 198,541 | 206,430 | 191,906 | |||||||||||||||||
| Average total assets during period(5) | 214,463 | 199,749 | 205,567 | 202,425 | 194,244 | 201,985 | 200,269 | |||||||||||||||||
| Leverage(6) | 53,400 | 53,400 | 53,400 | 49,200 | 51,200 | 53,200 | 53,400 | |||||||||||||||||
| Leverage as a percent of total assets | 26.4 | % | 27.8 | % | 26.4 | % | 25.0 | % | 25.8 | % | 25.8 | % | 27.8 | % | ||||||||||
| Net unrealized appreciation, end of period | 15,138 | 3,956 | 15,138 | 10,686 | 14,171 | 20,917 | 3,956 | |||||||||||||||||
| Net assets, end of period | 148,243 | 137,325 | 148,243 | 143,808 | 146,649 | 152,418 | 137,325 | |||||||||||||||||
| Average net assets during period(7) | 162,708 | 147,616 | 153,560 | 152,650 | 142,041 | 149,026 | 146,848 | |||||||||||||||||
| Net asset value per common share | 21.33 | 19.76 | 21.33 | 20.69 | 21.10 | 21.93 | 19.76 | |||||||||||||||||
| Market value per common share | 19.94 | 17.17 | 19.94 | 19.02 | 19.04 | 19.40 | 17.17 | |||||||||||||||||
| Shares outstanding (000’s) | 6,951 | 6,951 | 6,951 | 6,951 | 6,951 | 6,951 | 6,951 | |||||||||||||||||
| (1) | Q1 is the period from December through February. Q2 is the period from March through May. Q3 is the period from June through August. Q4 is the period from September through November. |
| (2) | Leverage costs include interest expense, interest rate swap expenses and other recurring leverage expenses. |
| (3) | “Net investment income (loss)” on the Statement of Operations is adjusted as follows to reconcile to Distributable Cash Flow (“DCF”): increased by the return of capital on distributions, the dividends paid in stock and increased liquidation value and the premium on dividends paid in kind; and decreased by realized and unrealized gains (losses) on interest rate swap settlements. |
| (4) | Annualized for periods less than one full year. |
| (5) | Computed by averaging month-end values within each period. |
| (6) | Leverage consists of outstanding borrowings under the revolving credit facility. |
| (7) | Computed by averaging daily net assets within each period. |
| 18 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| TYG Schedule of Investments |
| November 30, 2018 |
| Shares | Fair Value | ||||
| Master Limited Partnerships — 138.7%(1) | |||||
| Crude Oil Pipelines — 24.9%(1) | |||||
| United States — 24.9%(1) | |||||
| Andeavor Logistics LP | 3,435,751 | $ | 128,222,227 | ||
| BP Midstream Partners LP | 248,258 | 4,188,113 | |||
| Enbridge Energy Partners, L.P. | 3,901,220 | 42,406,261 | |||
| PBF Logistics LP | 546,987 | 10,983,499 | |||
| Plains All American Pipeline, L.P.(2) | 4,541,990 | 104,602,030 | |||
| Shell Midstream Partners, L.P. | 1,247,042 | 23,494,271 | |||
| 313,896,401 | |||||
| Natural Gas/Natural Gas Liquids Pipelines — 41.6%(1) | |||||
| United States — 41.6%(1) | |||||
| Dominion Energy Midstream | |||||
| Partners, LP(2) | 914,075 | 16,983,514 | |||
| Energy Transfer LP(2) | 14,901,910 | 217,120,825 | |||
| Enterprise Products Partners L.P. | 5,768,276 | 151,417,245 | |||
| EQM Midstream Partners, LP | 2,442,717 | 116,419,892 | |||
| Spectra Energy Partners, LP(2) | 612,975 | 22,220,344 | |||
| 524,161,820 | |||||
| Natural Gas Gathering/Processing — 27.9%(1) | |||||
| United States — 27.9%(1) | |||||
| Antero Midstream Partners LP | 3,245,530 | 89,771,360 | |||
| CNX Midstream Partners LP | 2,266,153 | 41,017,369 | |||
| DCP Midstream, LP(2) | 810,912 | 27,635,881 | |||
| EnLink Midstream Partners, LP(2) | 4,469,701 | 59,134,144 | |||
| Noble Midstream Partners LP | 272,732 | 9,035,611 | |||
| Western Gas Equity Partners, LP | 350,416 | 10,155,056 | |||
| Western Gas Partners, LP(2) | 2,586,431 | 114,940,994 | |||
| 351,690,415 | |||||
| Refined Product Pipelines — 44.3%(1) | |||||
| United States — 44.3%(1) | |||||
| Buckeye Partners, L.P. | 3,050,605 | 90,175,884 | |||
| Holly Energy Partners, L.P. | 3,011,130 | 84,703,087 | |||
| Magellan Midstream Partners, L.P. | 2,463,844 | 149,013,285 | |||
| MPLX LP(2) | 3,901,626 | 129,260,869 | |||
| NuStar Energy L.P. | 1,397,185 | 33,769,962 | |||
| Phillips 66 Partners LP | 1,530,570 | 71,783,733 | |||
| 558,706,820 | |||||
| Total Master Limited Partnerships | |||||
| (Cost $1,640,840,246) | 1,748,455,456 | ||||
| Common Stock — 18.9%(1) | |||||
| Marine Transportation — 1.4%(1) | |||||
| Monaco — 1.4%(1) | |||||
| GasLog Partners LP | 778,588 | 17,915,310 | |||
| Natural Gas Gathering/Processing — 6.0%(1) | |||||
| United States — 6.0%(1) | |||||
| Targa Resources Corp.(2) | 190,400 | 8,497,552 | |||
| The Williams Companies, Inc. | 2,624,695 | 66,457,277 | |||
| 74,954,829 | |||||
| Natural Gas/Natural Gas Liquids Pipelines — 11.5%(1) | |||||
| United States — 11.5%(1) | |||||
| ONEOK, Inc.(2) | 734,248 | 45,104,854 | |||
| Tallgrass Energy, LP | 4,655,166 | 99,434,346 | |||
| 144,539,200 | |||||
| Total Common Stock | |||||
| (Cost $243,511,622) | 237,409,339 | ||||
| See accompanying Notes to Financial Statements. | |
| Tortoise | 19 |
| TYG Schedule of Investments (continued) |
| November 30, 2018 |
| Shares | Fair Value | |||||
| Preferred Stock — 7.7%(1) | ||||||
| Crude Oil Pipelines — 0.5%(1) | ||||||
| United States — 0.5%(1) | ||||||
| SemGroup Corporation, 7.000%(3)(4)(5) | 6,277 | $ | 5,695,032 | |||
| Natural Gas/Natural Gas Liquids Pipelines — 5.3%(1) | ||||||
| United States — 5.3%(1) | ||||||
| Crestwood Equity Partners LP, 9.25% | 7,126,640 | 67,703,080 | ||||
| Natural Gas Gathering/Processing — 1.9%(1) | ||||||
| United States — 1.9%(1) | ||||||
| Targa Resources Corp., 9.500%(3)(4) | 21,758 | 23,731,399 | ||||
| Total Preferred Stock | ||||||
| (Cost $91,151,523) | 97,129,511 | |||||
| Private Investments — 2.9%(1) | ||||||
| Natural Gas/Natural Gas Liquids Pipelines — 1.4%(1) | ||||||
| United States — 1.4%(1) | ||||||
| MTP Energy KMAA LLC(3)(4) | N/A | 17,762,716 | ||||
| Renewables — 1.5%(1) | ||||||
| United States — 1.5%(1) | ||||||
| Tortoise HoldCo II, LLC(3)(4)(6) | N/A | 19,073,467 | ||||
| Total Private Investments | ||||||
| (Cost $69,025,995) | 36,836,183 | |||||
| Short-Term Investment — 0.0%(1) | ||||||
| United States Investment Company — 0.0%(1) | ||||||
| Invesco Government & Agency Portfolio — Institutional Class, | ||||||
| 2.11%(7) (Cost $232,244) | 232,244 | 232,244 | ||||
| Total Investments — 168.2%(1) | ||||||
| (Cost $2,044,761,630) | 2,120,062,733 | |||||
| Interest Rate Swap Contracts — 0.0%(1) | ||||||
| $10,000,000 notional — net unrealized appreciation(8) | 108,883 | |||||
| Total Value of Options Written | ||||||
| (Premiums received $493,575)(9) — (0.1)%(1) | (921,842 | ) | ||||
| Other Assets and Liabilities — (1.4)%(1) | (17,287,543 | ) | ||||
| Deferred Tax Liability — (15.0)%(1) | (189,562,527 | ) | ||||
| Credit Facility Borrowings — (8.5)%(1) | (107,100,000 | ) | ||||
| Senior Notes — (30.1)%(1) | (380,000,000 | ) | ||||
| Mandatory Redeemable Preferred Stock | ||||||
| at Liquidation Value — (13.1)%(1) | (165,000,000 | ) | ||||
| Total Net Assets Applicable to | ||||||
| Common Stockholders — 100.0%(1) | $ | 1,260,299,704 | ||||
| (1) | Calculated as a percentage of net assets applicable to common stockholders. |
| (2) | All or a portion of the security represents cover for outstanding call option contracts written. |
| (3) | Restricted securities have a total fair value of $66,262,614, which represents 5.3% of net assets. See Note 6 to the financial statements for further disclosure. |
| (4) | Securities have been valued by using significant unobservable inputs in accordance with fair value procedures and are categorized as level 3 investments, as more fully described in Note 2 to the financial statements. |
| (5) | Security distributions are paid-in-kind. Cash value of the 7.0% coupon is added to the liquidation preference of the preferred stock. |
| (6) | Deemed to be an affiliate of the fund. |
| (7) | Rate indicated is the current yield as of November 30, 2018. |
| (8) | See Schedule of Interest Rate Swap Contracts and Note 12 to the financial statements for further disclosure. |
| (9) | See Schedule of Options Written and Note 12 to the financial statements for further disclosure. |
| See accompanying Notes to Financial Statements. | |
| 20 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| NTG Schedule of Investments |
| November 30, 2018 |
| Shares | Fair Value | |||||
| Master Limited Partnerships — 135.5%(1) | ||||||
| Crude Oil Pipelines — 26.6%(1) | ||||||
| United States — 26.6%(1) | ||||||
| Andeavor Logistics LP | 2,148,431 | $ | 80,179,445 | |||
| BP Midstream Partners LP | 284,174 | 4,794,015 | ||||
| Delek Logistics Partners, LP | 254,562 | 7,759,050 | ||||
| Enbridge Energy Partners, L.P. | 4,405,772 | 47,890,742 | ||||
| PBF Logistics LP | 541,241 | 10,868,119 | ||||
| Plains All American Pipeline, L.P.(2) | 3,133,427 | 72,162,824 | ||||
| Shell Midstream Partners, L.P. | 1,042,335 | 19,637,591 | ||||
| 243,291,786 | ||||||
| Natural Gas/Natural Gas Liquids Pipelines — 45.4%(1) | ||||||
| United States — 45.4%(1) | ||||||
| Dominion Energy Midstream | ||||||
| Partners, LP(2) | 913,359 | 16,970,210 | ||||
| Energy Transfer LP(2) | 9,858,518 | 143,638,604 | ||||
| Enterprise Products Partners L.P. | 4,175,127 | 109,597,084 | ||||
| EQT Midstream Partners, LP | 2,101,827 | 100,173,075 | ||||
| Spectra Energy Partners, LP(2) | 1,255,770 | 45,521,662 | ||||
| 415,900,635 | ||||||
| Natural Gas Gathering/Processing — 27.4%(1) | ||||||
| United States — 27.4%(1) | ||||||
| Antero Midstream Partners LP | 1,817,081 | 50,260,460 | ||||
| CNX Midstream Partners, LP | 1,527,376 | 27,645,506 | ||||
| DCP Midstream, LP(2) | 921,907 | 31,418,591 | ||||
| EnLink Midstream Partners, LP(2) | 3,930,870 | 52,005,410 | ||||
| Noble Midstream Partners LP | 73,915 | 2,448,804 | ||||
| Western Gas Equity Partners, LP | 177,973 | 5,157,658 | ||||
| Western Gas Partners, LP(2) | 1,830,761 | 81,359,019 | ||||
| 250,295,448 | ||||||
| Refined Product Pipelines — 36.1%(1) | ||||||
| United States — 36.1%(1) | ||||||
| Buckeye Partners, L.P. | 1,864,308 | 55,108,944 | ||||
| Holly Energy Partners, L.P. | 2,094,748 | 58,925,261 | ||||
| Magellan Midstream Partners, L.P. | 968,285 | 58,561,877 | ||||
| MPLX LP(2) | 2,433,963 | 80,637,194 | ||||
| NuStar Energy L.P. | 1,550,921 | 37,485,761 | ||||
| Phillips 66 Partners LP | 848,518 | 39,795,494 | ||||
| 330,514,531 | ||||||
| Total Master Limited Partnerships | ||||||
| (Cost $1,260,672,688) | 1,240,002,400 | |||||
| Common Stock — 22.1%(1) | ||||||
| Marine Transportation — 1.3%(1) | ||||||
| Monaco — 1.3%(1) | ||||||
| Gaslog Partners, LP | 524,765 | 12,074,843 | ||||
| Natural Gas Gathering/Processing — 8.5%(1) | ||||||
| United States — 8.5%(1) | ||||||
| Targa Resources Corp.(2) | 306,503 | 13,679,229 | ||||
| The Williams Companies, Inc. | 2,520,370 | 63,815,768 | ||||
| 77,494,997 | ||||||
| Natural Gas/Natural Gas Liquids Pipelines — 12.3%(1) | ||||||
| United States — 12.3%(1) | ||||||
| ONEOK, Inc. | 692,991 | 42,570,437 | ||||
| Tallgrass Energy, LP | 3,265,236 | 69,745,441 | ||||
| 112,315,878 | ||||||
| Total Common Stock | ||||||
| (Cost $210,981,533) | 201,885,718 | |||||
| Preferred Stock — 6.9%(1) | ||||||
| Crude Oil Pipelines — 0.4%(1) | ||||||
| United States — 0.4%(1) | ||||||
| SemGroup Corporation, 7.000%(3)(4)(5) | 3,763 | 3,414,116 | ||||
| Natural Gas Gathering/Processing — 1.4%(1) | ||||||
| United States — 1.4%(1) | ||||||
| Targa Resources Corp., 9.500%(3)(4) | 12,252 | 13,363,227 | ||||
| Natural Gas/Natural Gas Liquids Pipelines — 5.1%(1) | ||||||
| United States — 5.1%(1) | ||||||
| Crestwood Equity Partners LP, 9.25% | 4,898,611 | 46,536,805 | ||||
| Total Preferred Stock | ||||||
| (Cost $60,657,823) | 63,314,148 | |||||
| Short-Term Investment — 0.0%(1) | ||||||
| United States Investment Company — 0.0%(1) | ||||||
| Invesco Government & Agency Portfolio — Institutional Class, | ||||||
| 2.11%(6) (Cost $301,054) | 301,054 | 301,054 | ||||
| Total Investments — 164.5%(1) | ||||||
| (Cost $1,532,613,098) | 1,505,503,320 | |||||
| Total Value of Options Written | ||||||
| (Premiums received $350,544)(7) — (0.1)%(1) | (653,462 | ) | ||||
| Other Assets and Liabilities — (0.5)%(1) | (4,541,451 | ) | ||||
| Deferred Tax Liability — (7.4)%(1) | (68,175,433 | ) | ||||
| Credit Facility Borrowings — (8.0)%(1) | (73,100,000 | ) | ||||
| Senior Notes — (34.1)%(1) | (312,000,000 | ) | ||||
| Mandatory Redeemable Preferred Stock | ||||||
| at Liquidation Value — (14.4)%(1) | (132,000,000 | ) | ||||
| Total Net Assets Applicable to | ||||||
| Common Stockholders — 100.0%(1) | $ | 915,032,974 | ||||
| (1) | Calculated as a percentage of net assets applicable to common stockholders. |
| (2) | All or a portion of the security represents cover for outstanding call option contracts written. |
| (3) | Restricted securities have a total fair value of $16,777,343, which represents 1.8% of net assets. See Note 6 to the financial statements for further disclosure. |
| (4) | Securities have been valued by using significant unobservable inputs in accordance with fair value procedures and are categorized as level 3 investments, as more fully described in Note 2 to the financial statements. |
| (5) | Security distributions are paid-in-kind. Cash value of the 7.0% coupon is added to the liquidation preference of the preferred stock. |
| (6) | Rate indicated is the current yield as of November 30, 2018. |
| (7) | See Schedule of Options Written and Note 12 of the financial statements for further disclosure. |
| See accompanying Notes to Financial Statements. | |
| Tortoise | 21 |
| TTP Schedule of Investments |
| November 30, 2018 |
| Shares | Fair Value | ||||
| Common Stock — 94.6%(1) | |||||
| Marine Transportation — 1.6%(1) | |||||
| Monaco — 1.6%(1) | |||||
| GasLog Partners LP | 111,052 | $ | 2,555,306 | ||
| Crude Oil Pipelines — 32.4%(1) | |||||
| Canada — 16.7%(1) | |||||
| Gibson Energy Inc | 188,122 | 3,022,922 | |||
| Enbridge Inc. | 331,690 | 10,856,214 | |||
| Inter Pipeline Ltd. | 434,018 | 6,977,477 | |||
| Pembina Pipeline Corporation | 187,888 | 6,335,290 | |||
| United States — 15.7%(1) | |||||
| Plains GP Holdings, L.P. | 878,270 | 19,436,115 | |||
| SemGroup Corporation | 382,241 | 6,203,771 | |||
| 52,831,789 | |||||
| Natural Gas Gathering/Processing — 17.9%(1) | |||||
| United States — 17.9%(1) | |||||
| EnLink Midstream, LLC | 530,288 | 6,061,192 | |||
| Targa Resources Corp. | 280,249 | 12,507,513 | |||
| The Williams Companies, Inc. | 423,967 | 10,734,844 | |||
| 29,303,549 | |||||
| Natural Gas/Natural Gas Liquids Pipelines — 32.7%(1) | |||||
| Canada — 9.1%(1) | |||||
| TransCanada Corporation | 365,598 | 14,960,270 | |||
| United States — 23.6%(1) | |||||
| Equitrans Midstream Corporation | 158,697 | 3,542,117 | |||
| ONEOK, Inc. | 335,791 | 20,627,641 | |||
| Tallgrass Energy LP | 670,935 | 14,331,172 | |||
| 53,461,200 | |||||
| Oil and Gas Production — 10.0%(1) | |||||
| United States — 10.0%(1) | |||||
| Anadarko Petroleum Corporation(2) | 18,200 | 962,780 | |||
| Antero Resources Corporation(2)(3) | 55,000 | 722,150 | |||
| Cabot Oil & Gas Corporation(2) | 39,900 | 1,003,884 | |||
| Carrizo Oil & Gas, Inc.(2)(3) | 21,200 | 362,732 | |||
| Cimarex Energy Co.(2) | 16,200 | 1,328,076 | |||
| Concho Resources Inc.(2)(3) | 18,100 | 2,359,154 | |||
| Continental Resources, Inc.(2)(3) | 20,000 | 914,400 | |||
| Diamondback Energy, Inc.(2) | 6,700 | 739,546 | |||
| EOG Resources, Inc.(2) | 19,300 | 1,993,883 | |||
| EQT Corporation(2) | 33,000 | 617,430 | |||
| Laredo Petroleum, Inc.(2)(3) | 70,700 | 308,959 | |||
| Newfield Exploration Company(2)(3) | 36,400 | 616,980 | |||
| Noble Energy, Inc.(2) | 32,200 | 764,428 | |||
| Parsley Energy, Inc.(2)(3) | 27,300 | 549,549 | |||
| PDC Energy, Inc.(2)(3) | 9,400 | 319,036 | |||
| Pioneer Natural Resources Company(2) | 6,500 | 960,375 | |||
| Range Resources Corporation(2) | 68,800 | 1,001,040 | |||
| WPX Energy, Inc.(2)(3) | 55,300 | 771,435 | |||
| 16,295,837 | |||||
| Total Common Stock | |||||
| (Cost $179,947,241) | 154,447,681 | ||||
| Master Limited Partnerships | |||||
| and Related Companies — 42.0%(1) | |||||
| Crude Oil Pipelines — 11.8%(1) | |||||
| United States — 11.8%(1) | |||||
| Andeavor Logistics LP | 58,053 | 2,166,538 | |||
| BP Midstream Partners LP | 33,891 | 571,741 | |||
| Enbridge Energy Management, L.L.C.(4) | 1,093,321 | 11,917,198 | |||
| Genesis Energy L.P. | 46,531 | 1,026,008 | |||
| PBF Logistics LP | 51,049 | 1,025,064 | |||
| Shell Midstream Partners, L.P. | 132,089 | 2,488,557 | |||
| 19,195,106 | |||||
| Natural Gas/Natural Gas Liquids Pipelines — 12.1%(1) | |||||
| United States — 12.1%(1) | |||||
| Energy Transfer LP | 958,092 | 13,959,406 | |||
| Enterprise Products Partners L.P. | 145,209 | 3,811,736 | |||
| EQM Midstream Partners, LP | 40,969 | 1,952,582 | |||
| 19,723,724 | |||||
| Natural Gas Gathering/Processing — 2.9%(1) | |||||
| United States — 2.9%(1) | |||||
| CNX Midstream Partners LP | 60,605 | 1,096,950 | |||
| DCP Midstream, LP | 6,327 | 215,624 | |||
| EnLink Midstream Partners, LP | 92,339 | 1,221,645 | |||
| Western Gas Partners, LP | 50,531 | 2,245,598 | |||
| 4,779,817 | |||||
| Refined Product Pipelines — 15.2%(1) | |||||
| United States — 15.2%(1) | |||||
| Buckeye Partners, L.P. | 130,111 | 3,846,081 | |||
| Holly Energy Partners, L.P. | 168,476 | 4,739,230 | |||
| Magellan Midstream Partners, L.P. | 35,211 | 2,129,561 | |||
| MPLX LP | 245,647 | 8,138,285 | |||
| NuStar Energy L.P. | 135,021 | 3,263,458 | |||
| Phillips 66 Partners LP | 56,933 | 2,670,158 | |||
| 24,786,773 | |||||
| Total Master Limited Partnerships | |||||
| and Related Companies (Cost $78,625,459) | 68,485,420 | ||||
| See accompanying Notes to Financial Statements. | |
| 22 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| TTP Schedule of Investments (continued) |
| November 30, 2018 |
| Shares | Fair Value | |||||
| Preferred Stock — 7.0%(1) | ||||||
| Crude Oil Pipelines — 1.6%(1) | ||||||
| United States — 1.6%(1) | ||||||
| SemGroup Corporation., 7.000%(5)(6)(7) | 2,877 | $ | 2,610,261 | |||
| Natural Gas Gathering/Processing — 1.4%(1) | ||||||
| United States — 1.4%(1) | ||||||
| Targa Resources Corp., 9.500%(5)(6) | 2,108 | 2,299,190 | ||||
| Oil and Gas Production — 2.2%(1) | ||||||
| United States — 2.2%(1) | ||||||
| Hess Corporation, | ||||||
| 8.000%, 02/01/2019 | 60,000 | 3,599,400 | ||||
| Power — 1.8%(1) | ||||||
| United States — 1.8%(1) | ||||||
| Sempra Energy, 6.000%, 01/15/2021 | 28,811 | 2,922,300 | ||||
| Total Preferred Stock | ||||||
| (Cost $11,000,689) | 11,431,151 | |||||
| Short-Term Investment — 0.1%(1) | ||||||
| United States Investment Company — 0.1%(1) | ||||||
| Invesco Government & Agency Portfolio — Institutional Class, | ||||||
| 2.11%(8) (Cost $217,864) | 217,864 | 217,864 | ||||
| Total Investments — 143.7%(1) | ||||||
| (Cost $269,791,253) | 234,582,116 | |||||
| Total Value of Options Written | ||||||
| (Premiums received $512,777)(9) — (0.1)%(1) | (199,782 | ) | ||||
| Other Assets and Liabilities — (0.9)%(1) | (1,380,643 | ) | ||||
| Credit Facility Borrowings — (12.1)%(1) | (19,800,000 | ) | ||||
| Senior Notes — (20.8)%(1) | (34,000,000 | ) | ||||
| Mandatory Redeemable Preferred Stock | ||||||
| at Liquidation Value — (9.8)%(1) | (16,000,000 | ) | ||||
| Total Net Assets Applicable to | ||||||
| Common Stockholders — 100.0%(1) | $ | 163,201,691 | ||||
| (1) | Calculated as a percentage of net assets applicable to common stockholders. |
| (2) | All or a portion of the security represents cover for outstanding call option contracts written. |
| (3) | Non-income producing security. |
| (4) | Security distributions are paid-in-kind. Rate determined by dividing the cash value of a distribution declared by Enbridge Energy Partners, L.P. by the average closing price of Enbridge Energy Management, L.L.C. shares for the ten consecutive trading days prior to the ex-dividend date. |
| (5) | Restricted securities have a total fair value of $4,909,451, which represents 3.0% of net assets. See Note 6 to the financial statements for further disclosure. |
| (6) | Securities have been valued by using significant unobservable inputs in accordance with fair value procedures and are categorized as level 3 investments, as more fully described in Note 2 to the financial statements. |
| (7) | Security distributions are paid-in-kind. Cash value of the 7.0% coupon is added to the liquidation preference of the preferred stock. |
| (8) | Rate indicated is the current yield as of November 30, 2018. |
| (9) | See Schedule of Options Written and Note 12 to financial statements for further disclosure. |
| See accompanying Notes to Financial Statements. | |
| Tortoise | 23 |
| NDP Schedule of Investments |
| November 30, 2018 |
| Shares | Fair Value | ||||
| Common Stock — 111.8%(1) | |||||
| Marine Transportation — 2.5%(1) | |||||
| Monaco — 2.5%(1) | |||||
| GasLog Partners LP | 145,561 | $ | 3,349,359 | ||
| Natural Gas Gathering/Processing — 0.9%(1) | |||||
| United States — 0.9%(1) | |||||
| Targa Resources Corp. | 26,507 | 1,183,007 | |||
| Natural Gas/Natural Gas Liquids Pipelines — 3.3%(1) | |||||
| United States — 3.3%(1) | |||||
| Equitrans Midstream Corporation | 155,760 | 3,476,563 | |||
| Tallgrass Energy LP | 40,280 | 860,381 | |||
| 4,336,944 | |||||
| Oil and Gas Production — 105.1%(1) | |||||
| United States — 105.1%(1) | |||||
| Anadarko Petroleum Corporation(2) | 126,800 | 6,707,720 | |||
| Antero Resources Corporation(2)(3) | 342,600 | 4,498,338 | |||
| Cabot Oil & Gas Corporation(2) | 664,200 | 16,711,272 | |||
| Carrizo Oil & Gas, Inc.(2)(3) | 251,800 | 4,308,298 | |||
| Centennial Resource Development, Inc.(3) | 117,239 | 1,819,549 | |||
| Cimarex Energy Co.(2) | 42,500 | 3,484,150 | |||
| Concho Resources Inc.(2)(3) | 78,700 | 10,257,758 | |||
| Continental Resources, Inc.(2)(3) | 225,200 | 10,296,144 | |||
| Devon Energy Corporation(2) | 278,400 | 7,525,152 | |||
| Diamondback Energy, Inc.(2) | 94,800 | 10,464,024 | |||
| EOG Resources, Inc.(2) | 141,800 | 14,649,358 | |||
| EQT Corporation(2) | 194,700 | 3,642,837 | |||
| Laredo Petroleum, Inc.(2)(3) | 261,500 | 1,142,755 | |||
| Newfield Exploration Company(2)(3) | 173,100 | 2,934,045 | |||
| Parsley Energy, Inc.(2)(3) | 219,800 | 4,424,574 | |||
| PDC Energy, Inc.(2)(3) | 49,100 | 1,666,454 | |||
| Pioneer Natural Resources Company(2) | 114,400 | 16,902,600 | |||
| Range Resources Corporation(2) | 400,000 | 5,820,000 | |||
| SM Energy Company(2) | 88,100 | 1,797,240 | |||
| Whiting Petroleum Corporation(2)(3) | 64,400 | 1,949,388 | |||
| WPX Energy, Inc.(2)(3) | 591,200 | 8,247,240 | |||
| 139,248,896 | |||||
| Total Common Stock | |||||
| (Cost $193,399,071) | 148,118,206 | ||||
| Master Limited Partnerships | |||||
| and Related Companies — 30.7%(1) | |||||
| Crude Oil Pipelines — 10.6%(1) | |||||
| United States — 10.6%(1) | |||||
| Andeavor Logistics LP | 57,607 | 2,149,893 | |||
| BP Midstream Partners LP | 70,583 | 1,190,735 | |||
| Enbridge Energy Management, L.L.C.(4) | 448,729 | 4,891,146 | |||
| PBF Logistics LP | 28,352 | 569,308 | |||
| Plains All American Pipeline, L.P. | 145,422 | 3,349,069 | |||
| Shell Midstream Partners, L.P. | 97,754 | 1,841,685 | |||
| 13,991,836 | |||||
| Natural Gas/Natural Gas Liquids Pipelines — 5.8%(1) | |||||
| United States — 5.8%(1) | |||||
| Energy Transfer LP | 403,316 | 5,876,314 | |||
| EQM Midstream Partners, LP | 37,698 | 1,796,687 | |||
| Spectra Energy Partners, LP | 134 | 4,857 | |||
| 7,677,858 | |||||
| Natural Gas Gathering/Processing — 5.1%(1) | |||||
| United States — 5.1%(1) | |||||
| Antero Midstream Partners LP | 75,072 | 2,076,492 | |||
| CNX Midstream Partners LP | 52,959 | 958,558 | |||
| EnLink Midstream Partners, LP | 86,700 | 1,147,041 | |||
| Noble Midstream Partners LP | 25,215 | 835,373 | |||
| Western Gas Equity Partners, LP | 32,918 | 953,964 | |||
| Western Gas Partners, LP | 17,480 | 776,811 | |||
| 6,748,239 | |||||
| Refined Product Pipelines — 9.2%(1) | |||||
| United States — 9.2%(1) | |||||
| Buckeye Partners, L.P. | 95,406 | 2,820,201 | |||
| Holly Energy Partners, L.P. | 138,681 | 3,901,097 | |||
| Magellan Midstream Partners, L.P. | 14,016 | 847,688 | |||
| NuStar Energy L.P. | 59,614 | 1,440,870 | |||
| Phillips 66 Partners LP | 68,143 | 3,195,907 | |||
| 12,205,763 | |||||
| Total Master Limited Partnerships | |||||
| and Related Companies (Cost $47,825,791) | 40,623,696 | ||||
| See accompanying Notes to Financial Statements. | |
| 24 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| NDP Schedule of Investments (continued) |
| November 30, 2018 |
| Shares | Fair Value | |||||
| Preferred Stock — 1.6%(1) | ||||||
| Natural Gas Gathering/Processing — 1.6%(1) | ||||||
| United States — 1.6%(1) | ||||||
| Targa Resources Corp., 9.500%(5)(6) | ||||||
| (Cost $1,595,361) | 1,997 | $ | 2,178,123 | |||
| Short-Term Investment — 0.2%(1) | ||||||
| United States Investment Company — 0.2%(1) | ||||||
| Invesco Government & Agency Portfolio — Institutional Class, | ||||||
| 2.11%(7) (Cost $311,985) | 311,985 | 311,985 | ||||
| Total Investments — 144.3%(1) | ||||||
| (Cost $243,132,208) | 191,232,010 | |||||
| Total Value of Options Written | ||||||
| (Premiums received $2,406,989)(8) — (0.6)%(1) | (835,007 | ) | ||||
| Other Assets and Liabilities — (0.6)%(1) | (808,769 | ) | ||||
| Credit Facility Borrowings — (43.1)%(1) | (57,100,000 | ) | ||||
| Total Net Assets Applicable to | ||||||
| Common Stockholders — 100.0%(1) | $ | 132,488,234 | ||||
| (1) | Calculated as a percentage of net assets applicable to common stockholders. |
| (2) | All or a portion of the security represents cover for outstanding call option contracts written. |
| (3) | Non-income producing security. |
| (4) | Security distributions are paid-in-kind. Rate determined by dividing the cash value of a distribution declared by Enbridge Energy Partners, L.P. by the average closing price of Enbridge Energy Management, L.L.C. shares for the ten consecutive trading days prior to the ex-dividend date. |
| (5) | Restricted securities have a total fair value of $2,178,123, which represents 1.6% of net assets. See Note 6 to the financial statements for further disclosure. |
| (6) | Securities have been valued by using significant unobservable inputs in accordance with fair value procedures and are categorized as level 3 investments, as more fully described in Note 2 to the financial statements. |
| (7) | Rate indicated is the current yield as of November 30, 2018. |
| (8) | See Schedule of Options Written and Note 12 to the financial statements for further disclosure. |
| See accompanying Notes to Financial Statements. | |
| Tortoise | 25 |
| TPZ Schedule of Investments |
| November 30, 2018 |
| Principal | ||||||
| Amount | Fair Value | |||||
| Corporate Bonds — 70.9%(1) | ||||||
| Crude Oil Pipelines — 10.8%(1) | ||||||
| Canada — 5.3%(1) | ||||||
| Enbridge Inc., | ||||||
| 5.500%, 07/15/2077 | $ | 8,500,000 | $ | 7,286,472 | ||
| United States — 5.5%(1) | ||||||
| SemGroup Corp., | ||||||
| 6.375%, 03/15/2025 | 6,000,000 | 5,670,000 | ||||
| SemGroup Corp., | ||||||
| 5.625%, 11/15/2023 | 2,000,000 | 1,860,000 | ||||
| 14,816,472 | ||||||
| Natural Gas/Natural Gas Liquids Pipelines — 30.0%(1) | ||||||
| Canada — 5.4%(1) | ||||||
| TransCanada Corporation, | ||||||
| 5.625%, 05/20/2075 | 7,000,000 | 6,513,500 | ||||
| TransCanada Corporation, | ||||||
| 5.300%, 03/15/2077 | 1,000,000 | 886,000 | ||||
| United States — 24.6%(1) | ||||||
| Cheniere Corp., | ||||||
| 7.000%, 06/30/2024 | 4,000,000 | 4,310,000 | ||||
| Cheniere Corp., | ||||||
| 5.875%, 03/31/2025 | 2,000,000 | 2,060,000 | ||||
| Columbia Pipeline Group, Inc., | ||||||
| 3.300%, 06/01/2020 | 2,000,000 | 1,990,504 | ||||
| Florida Gas Transmission Co., LLC, | ||||||
| 5.450%, 07/15/2020(2) | 1,500,000 | 1,537,620 | ||||
| Kinder Morgan, Inc., | ||||||
| 6.500%, 09/15/2020 | 4,000,000 | 4,173,076 | ||||
| Kinder Morgan, Inc., | ||||||
| 4.300%, 03/01/2028 | 3,000,000 | 2,884,290 | ||||
| Midcontinent Express Pipeline LLC, | ||||||
| 6.700%, 09/15/2019(2) | 2,000,000 | 2,018,518 | ||||
| NGPL PipeCo LLC, | ||||||
| 4.875%, 08/15/2027(2) | 2,000,000 | 1,910,000 | ||||
| ONEOK, Inc., | ||||||
| 4.250%, 02/01/2022 | 4,500,000 | 4,505,607 | ||||
| ONEOK, Inc., | ||||||
| 7.500%, 09/01/2023 | 2,000,000 | 2,255,896 | ||||
| Ruby Pipeline, LLC, | ||||||
| 6.000%, 04/01/2022(2) | 1,261,364 | 1,293,253 | ||||
| Southern Star Central Corp., | ||||||
| 5.125%, 07/15/2022(2) | 3,000,000 | 2,947,500 | ||||
| Tallgrass Energy LP, | ||||||
| 5.500%, 01/15/2028(2) | 2,000,000 | 1,965,000 | ||||
| 41,250,764 | ||||||
| Natural Gas Gathering/Processing — 13.3%(1) | ||||||
| United States — 13.3%(1) | ||||||
| Blue Racer Midstream, LLC, | ||||||
| 6.125%, 11/15/2022(2) | 2,000,000 | 1,980,000 | ||||
| Blue Racer Midstream, LLC, | ||||||
| 6.625%, 07/15/2026(2) | 3,900,000 | 3,841,500 | ||||
| Hess Corporation, | ||||||
| 5.625%, 02/15/2026(2) | 4,160,000 | 4,035,200 | ||||
| The Williams Companies, Inc., | ||||||
| 7.875%, 09/01/2021 | 5,000,000 | 5,473,190 | ||||
| The Williams Companies, Inc., | ||||||
| 4.550%, 06/24/2024 | 3,000,000 | 3,002,250 | ||||
| 18,332,140 | ||||||
| Oil and Gas Production — 3.9%(1) | ||||||
| United States — 3.9%(1) | ||||||
| Ascent Resources Utica Holdings, LLC, | ||||||
| 10.000%, 04/01/2022(2) | 1,302,000 | 1,376,865 | ||||
| Ascent Resources Utica Holdings, LLC, | ||||||
| 7.000%, 11/01/2026(2) | 2,000,000 | 1,875,000 | ||||
| EQT Corporation, | ||||||
| 8.125%, 06/01/2019 | 2,000,000 | 2,046,862 | ||||
| 5,298,727 | ||||||
| Power/Utility — 12.9%(1) | ||||||
| United States — 12.9%(1) | ||||||
| The AES Corporation, | ||||||
| 5.500%, 04/15/2025 | 4,000,000 | 4,030,000 | ||||
| Dominion Resources, Inc., | ||||||
| 5.750%, 10/01/2054 | 4,000,000 | 4,025,204 | ||||
| Duquesne Light Holdings, Inc., | ||||||
| 6.400%, 09/15/2020(2) | 3,000,000 | 3,133,218 | ||||
| Duquesne Light Holdings, Inc., | ||||||
| 5.900%, 12/01/2021(2) | 2,000,000 | 2,101,906 | ||||
| NRG Yield Operating LLC, | ||||||
| 5.375%, 08/15/2024 | 2,500,000 | 2,368,750 | ||||
| NV Energy Inc., | ||||||
| 6.250%, 11/15/2020 | 1,000,000 | 1,048,370 | ||||
| Pattern Energy Group Inc., | ||||||
| 5.875%, 02/01/2024(2) | 1,000,000 | 972,500 | ||||
| 17,679,948 | ||||||
| Total Corporate Bonds | ||||||
| (Cost $99,589,087) | 97,378,051 | |||||
| See accompanying Notes to Financial Statements. | |
| 26 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| TPZ Schedule of Investments (continued) |
| November 30, 2018 |
| Shares | Fair Value | ||||
| Master Limited Partnerships | |||||
| and Related Companies — 37.3%(1) | |||||
| Crude Oil Pipelines — 10.0%(1) | |||||
| United States — 10.0%(1) | |||||
| Andeavor Logistics LP | 68,526 | $ | 2,557,390 | ||
| BP Midstream Partners LP | 25,000 | 421,750 | |||
| Enbridge Energy Management, L.L.C.(3) | 726,524 | 7,919,111 | |||
| PBF Logistics LP | 54,940 | 1,103,195 | |||
| Shell Midstream Partners, L.P. | 89,044 | 1,677,589 | |||
| 13,679,035 | |||||
| Natural Gas/Natural Gas Liquids Pipelines — 10.4%(1) | |||||
| United States — 10.4%(1) | |||||
| Energy Transfer LP | 717,787 | 10,458,155 | |||
| Enterprise Products Partners L.P. | 98,682 | 2,590,402 | |||
| EQM Midstream Partners, LP | 26,074 | 1,242,687 | |||
| 14,291,244 | |||||
| Natural Gas Gathering/Processing — 3.8%(1) | |||||
| United States — 3.8%(1) | |||||
| CNX Midstream Partners, LP | 47,302 | 856,166 | |||
| EnLink Midstream Partners, LP | 128,687 | 1,702,529 | |||
| Western Gas Partners, LP | 59,565 | 2,647,069 | |||
| 5,205,764 | |||||
| Refined Product Pipelines — 13.1%(1) | |||||
| United States — 13.1%(1) | |||||
| Buckeye Partners, L.P. | 88,546 | 2,617,420 | |||
| Holly Energy Partners, L.P. | 147,585 | 4,151,566 | |||
| Magellan Midstream Partners, L.P. | 36,250 | 2,192,400 | |||
| MPLX LP | 140,992 | 4,671,065 | |||
| NuStar Energy L.P. | 102,338 | 2,473,509 | |||
| Phillips 66 Partners LP | 41,654 | 1,953,573 | |||
| 18,059,533 | |||||
| Total Master Limited Partnerships | |||||
| and Related Companies (Cost $47,962,695) | 51,235,576 | ||||
| Common Stock — 24.0%(1) | |||||
| Crude Oil Pipelines — 4.7%(1) | |||||
| United States — 4.7%(1) | |||||
| Plains GP Holdings, L.P. | 292,549 | 6,474,109 | |||
| Marine Transportation — 1.4%(1) | |||||
| Monaco — 1.4%(1) | |||||
| GasLog Partners LP | 86,675 | 1,994,392 | |||
| Natural Gas/Natural Gas Liquids Pipelines — 11.8%(1) | |||||
| United States — 11.8%(1) | |||||
| Equitrans Midstream Corporation | 55,724 | 1,243,760 | |||
| ONEOK, Inc. | 101,008 | 6,204,921 | |||
| Tallgrass Energy LP | 408,782 | 8,731,584 | |||
| 16,180,265 | |||||
| Natural Gas Gathering/Processing — 6.1%(1) | |||||
| United States — 6.1%(1) | |||||
| EnLink Midstream LLC | 125,234 | 1,431,425 | |||
| Targa Resources Corp. | 154,583 | 6,899,039 | |||
| 8,330,464 | |||||
| Total Common Stock | |||||
| (Cost $30,675,964) | 32,979,230 | ||||
| See accompanying Notes to Financial Statements. | |
| Tortoise | 27 |
| TPZ Schedule of Investments (continued) |
| November 30, 2018 |
| Shares | Fair Value | |||||
| Preferred Stock — 5.9%(1) | ||||||
| Crude Oil Pipelines — 1.4%(1) | ||||||
| United States — 1.4%(1) | ||||||
| SemGroup Corporation, | ||||||
| 7.000%(2)(4)(5) | 2,120 | $ | 1,923,446 | |||
| Natural Gas Gathering/Processing — 1.3%(1) | ||||||
| United States — 1.3%(1) | ||||||
| Targa Resources Corp., | ||||||
| 9.500%(2)(4) | 1,685 | 1,837,825 | ||||
| Power/Utility — 3.2%(1) | ||||||
| United States — 3.2%(1) | ||||||
| DTE Energy, | ||||||
| 6.500%, 10/01/2019 | 39,600 | 2,170,476 | ||||
| Sempra Energy, | ||||||
| 6.000%, 01/15/2021 | 21,189 | 2,149,200 | ||||
| 4,319,676 | ||||||
| Total Preferred Stock | ||||||
| (Cost $7,619,008) | 8,080,947 | |||||
| Short-Term Investment — 0.2%(1) | ||||||
| United States Investment Company — 0.2%(1) | ||||||
| Invesco Government & Agency Portfolio — Institutional Class, | ||||||
| 2.11%(6) (Cost $271,075) | 271,075 | 271,075 | ||||
| Total Investments — 138.3%(1) | ||||||
| (Cost $186,117,829) | 189,944,879 | |||||
| Interest Rate Swap Contracts — 0.1%(1) | ||||||
| $9,000,000 notional — net unrealized appreciation(7) | 128,630 | |||||
| Other Assets and Liabilities — 0.5%(1) | 650,919 | |||||
| Credit Facility Borrowings — (38.9)%(1) | (53,400,000 | ) | ||||
| Total Net Assets Applicable to | ||||||
| Common Stockholders — 100.0%(1) | $ | 137,324,428 | ||||
| (1) | Calculated as a percentage of net assets applicable to common stockholders. |
| (2) | Restricted securities have a total fair value of $34,749,351 which represents 25.3% of net assets. See Note 6 to the financial statements for further disclosure. |
| (3) | Security distributions are paid-in-kind. Rate determined by dividing the cash value of a distribution declared by Enbridge Energy Partners, L.P. by the average closing price of Enbridge Energy Management, L.L.C. shares for the ten consecutive trading days prior to the ex-dividend date. |
| (4) | Securities have been valued by using significant unobservable inputs in accordance with fair value procedures and are categorized as level 3 investments, as more fully described in Note 2 to the financial statements. |
| (5) | Security distributions are paid-in-kind. Cash value of the 7.0% coupon is added to the liquidation preference of the preferred stock. |
| (6) | Rate indicated is the current yield as of November 30, 2018. |
| (7) | See Schedule of Interest Rate Swap Contracts and Note 12 to the financial statements for further disclosure. |
| See accompanying Notes to Financial Statements. | |
| 28 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Schedule of Interest Rate Swap Contracts |
| November 30, 2018 |
| TYG | ||||||||||||
| Fixed Rate | Floating Rate | |||||||||||
| Maturity | Notional | Paid by | Received by | Unrealized | ||||||||
| Counterparty | Date | Amount | TYG | TYG | Appreciation | |||||||
| The Bank of Nova Scotia | 09/02/2021 | $ | 10,000,000 | 2.381% | 1-month U.S. Dollar LIBOR | $ | 108,883 | |||||
| TPZ | ||||||||||||
| Fixed Rate | Floating Rate | |||||||||||
| Maturity | Notional | Paid by | Received by | Unrealized | ||||||||
| Counterparty | Date | Amount | TPZ | TPZ | Appreciation | |||||||
| Wells Fargo Bank, N.A. | 11/29/2019 | $ | 6,000,000 | 1.330% | 3-month U.S. Dollar LIBOR | $ | 91,612 | |||||
| Wells Fargo Bank, N.A. | 08/06/2020 | 3,000,000 | 2.180% | 3-month U.S. Dollar LIBOR | 37,018 | |||||||
| $ | 9,000,000 | $ | 128,630 | |||||||||
| See accompanying Notes to Financial Statements. | |
| Tortoise | 29 |
| Schedule of Options Written |
| November 30, 2018 |
| TYG | ||||||||||||||
| Call Options Written | Expiration Date | Strike Price | Contracts | Notional Value | Fair Value | |||||||||
| DCP Midstream, LP | December 2018 | $ | 36.50 | 2,866 | $ | 10,460,900 | $ | (100,201 | ) | |||||
| Dominion Energy Midstream Partners, LP | December 2018 | 19.00 | 4,220 | 8,018,000 | (262,278 | ) | ||||||||
| Energy Transfer LP | December 2018 | 16.00 | 13,100 | 20,960,000 | (117,900 | ) | ||||||||
| EnLink Midstream Partners, LP | December 2018 | 14.75 | 7,077 | 10,438,575 | (81,440 | ) | ||||||||
| MPLX LP | December 2018 | 35.00 | 2,990 | 10,465,000 | (67,275 | ) | ||||||||
| Plains All American Pipeline, L.P. | December 2018 | 24.00 | 4,360 | 10,464,000 | (152,600 | ) | ||||||||
| Spectra Energy Partners, LP | December 2018 | 37.50 | 1,167 | 4,376,250 | (32,388 | ) | ||||||||
| Targa Resources Corp. | December 2018 | 50.00 | 1,904 | 9,520,000 | (28,560 | ) | ||||||||
| Western Gas Partners, LP | December 2018 | 47.00 | 2,200 | 10,340,000 | (79,200 | ) | ||||||||
| Total Value of Call Options Written (Premiums received $493,575) | $ | 95,042,725 | $ | (921,842 | ) | |||||||||
| NTG | ||||||||||||||
| Call Options Written | Expiration Date | Strike Price | Contracts | Notional Value | Fair Value | |||||||||
| DCP Midstream, LP | December 2018 | $ | 36.50 | 2,034 | $ | 7,424,100 | $ | (71,112 | ) | |||||
| Dominion Energy Midstream Partners, LP | December 2018 | 19.00 | 2,980 | 5,662,000 | (185,211 | ) | ||||||||
| Energy Transfer LP | December 2018 | 16.00 | 9,300 | 14,880,000 | (83,700 | ) | ||||||||
| Enlink Midstream Partners LP | December 2018 | 14.75 | 5,023 | 7,408,925 | (57,803 | ) | ||||||||
| MPLX LP | December 2018 | 35.00 | 2,121 | 7,423,500 | (47,723 | ) | ||||||||
| Plains All American Pipeline, L.P. | December 2018 | 24.00 | 3,080 | 7,392,000 | (107,800 | ) | ||||||||
| Spectra Energy Partners, LP | December 2018 | 37.50 | 833 | 3,123,750 | (23,118 | ) | ||||||||
| Targa Resources Corp | December 2018 | 50.00 | 1,353 | 6,765,000 | (20,295 | ) | ||||||||
| Western Gas Partners LP | December 2018 | 47.00 | 1,575 | 7,402,500 | (56,700 | ) | ||||||||
| Total Value of Call Options Written (Premiums received $350,544) | $ | 60,057,675 | $ | (653,462 | ) | |||||||||
| TTP | ||||||||||||||
| Call Options Written | Expiration Date | Strike Price | Contracts | Notional Value | Fair Value | |||||||||
| Anadarko Petroleum Corporation | December 2018 | $ | 59.50 | 182 | $ | 1,082,900 | $ | (5,642 | ) | |||||
| Antero Resources Corporation | December 2018 | 15.15 | 550 | 833,250 | (4,352 | ) | ||||||||
| Cabot Oil & Gas Corporation | December 2018 | 27.20 | 399 | 1,085,280 | (12,828 | ) | ||||||||
| Carrizo Oil & Gas, Inc. | December 2018 | 18.60 | 212 | 394,320 | (12,588 | ) | ||||||||
| Cimarex Energy Co. | December 2018 | 94.00 | 162 | 1,522,800 | (6,050 | ) | ||||||||
| Concho Resources Inc. | December 2018 | 146.10 | 181 | 2,644,410 | (13,576 | ) | ||||||||
| Continental Resources, Inc. | December 2018 | 50.50 | 200 | 1,010,000 | (20,000 | ) | ||||||||
| Diamondback Energy, Inc. | December 2018 | 120.00 | 67 | 804,000 | (10,385 | ) | ||||||||
| EOG Resources, Inc. | December 2018 | 110.00 | 193 | 2,123,000 | (25,090 | ) | ||||||||
| EQT Corporation | December 2018 | 18.55 | 330 | 612,150 | (34,756 | ) | ||||||||
| Laredo Petroleum, Inc. | December 2018 | 5.45 | 707 | 385,315 | (3,174 | ) | ||||||||
| Newfield Exploration Company | December 2018 | 20.55 | 364 | 748,020 | (5,871 | ) | ||||||||
| Noble Energy, Inc. | December 2018 | 26.65 | 322 | 858,130 | (6,823 | ) | ||||||||
| Parsley Energy, Inc. | December 2018 | 23.15 | 273 | 631,995 | (5,468 | ) | ||||||||
| PDC Energy, Inc. | December 2018 | 40.75 | 94 | 383,050 | (3,303 | ) | ||||||||
| Pioneer Natural Resources Company | December 2018 | 165.00 | 65 | 1,072,500 | (6,890 | ) | ||||||||
| Range Resources Corporation | December 2018 | 17.40 | 685 | 1,191,900 | (8,005 | ) | ||||||||
| WPX Energy, Inc. | December 2018 | 15.25 | 553 | 843,325 | (14,981 | ) | ||||||||
| Total Value of Call Options Written (Premiums received $512,777) | $ | 18,226,345 | $ | (199,782 | ) | |||||||||
| See accompanying Notes to Financial Statements. | |
| 30 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Schedule of Options Written (continued) |
| November 30, 2018 |
| NDP | ||||||||||||||
| Call Options Written | Expiration Date | Strike Price | Contracts | Notional Value | Fair Value | |||||||||
| Anadarko Petroleum Corporation | December 2018 | $ | 61.60 | 1,268 | $ | 7,810,880 | $ | (16,245 | ) | |||||
| Antero Resources Corporation | December 2018 | 16.00 | 3,426 | 5,481,600 | (11,146 | ) | ||||||||
| Cabot Oil & Gas Corporation | December 2018 | 29.00 | 4,020 | 11,658,000 | (60,300 | ) | ||||||||
| Carrizo Oil & Gas, Inc. | December 2018 | 19.25 | 1,648 | 3,172,400 | (68,804 | ) | ||||||||
| Carrizo Oil & Gas, Inc. | December 2018 | 20.00 | 870 | 1,740,000 | (26,100 | ) | ||||||||
| Cimarex Energy Co. | December 2018 | 100.00 | 422 | 4,220,000 | (23,210 | ) | ||||||||
| Concho Resources Inc. | December 2018 | 150.00 | 787 | 11,805,000 | (31,480 | ) | ||||||||
| Continental Resources, Inc. | December 2018 | 52.50 | 2,252 | 11,823,000 | (96,836 | ) | ||||||||
| Devon Energy Corporation | December 2018 | 33.25 | 2,784 | 9,256,800 | (13,782 | ) | ||||||||
| Diamondback Energy, Inc. | December 2018 | 126.00 | 948 | 11,944,800 | (74,993 | ) | ||||||||
| EOG Resources, Inc. | December 2018 | 115.00 | 1,418 | 16,307,000 | (60,974 | ) | ||||||||
| EQT Corporation | December 2018 | 40.00 | 1,947 | 7,788,000 | (92,482 | ) | ||||||||
| Laredo Petroleum, Inc. | December 2018 | 6.00 | 2,615 | 1,569,000 | (13,075 | ) | ||||||||
| Newfield Exploration Company | December 2018 | 22.00 | 1,731 | 3,808,200 | (17,310 | ) | ||||||||
| Parsley Energy, Inc. | December 2018 | 24.25 | 2,198 | 5,330,150 | (25,393 | ) | ||||||||
| PDC Energy, Inc. | December 2018 | 44.50 | 491 | 2,184,950 | (7,440 | ) | ||||||||
| Pioneer Natural Resources Company | December 2018 | 172.50 | 761 | 13,127,250 | (32,343 | ) | ||||||||
| Pioneer Natural Resources Company | December 2018 | 175.00 | 383 | 6,702,500 | (10,341 | ) | ||||||||
| Range Resources Corporation | December 2018 | 19.00 | 4,000 | 7,600,000 | (30,000 | ) | ||||||||
| SM Energy Company | December 2018 | 24.00 | 881 | 2,114,400 | (23,109 | ) | ||||||||
| Whiting Petroleum Corporation | December 2018 | 35.50 | 644 | 2,286,200 | (33,488 | ) | ||||||||
| WPX Energy, Inc. | December 2018 | 16.25 | 5,912 | 9,607,000 | (66,156 | ) | ||||||||
| Total Value of Call Options Written (Premiums received $2,406,989) | $ | 157,337,130 | $ | (835,007 | ) | |||||||||
| See accompanying Notes to Financial Statements. | |
| Tortoise | 31 |
| Statements of Assets & Liabilities |
| November 30, 2018 |
| Tortoise Energy | ||||||
| Infrastructure | Tortoise MLP | |||||
| Corp. | Fund, Inc. | |||||
| Assets | ||||||
| Investments in unaffiliated securities at fair value(1) | $ | 2,100,989,266 | $ | 1,505,503,320 | ||
| Investments in affiliated securities at fair value(2) | 19,073,467 | — | ||||
| Receivable for Adviser fee waiver | 83,181 | 354,243 | ||||
| Receivable for investments sold | — | — | ||||
| Receivable for premiums on options written | 22,133 | — | ||||
| Unrealized appreciation of interest rate swap contracts, net | 108,883 | — | ||||
| Dividends, distributions and interest receivable from investments | 431,137 | 245,428 | ||||
| Current tax asset | 14,879,579 | 467,685 | ||||
| Prepaid expenses and other assets | 751,169 | 174,260 | ||||
| Total assets | 2,136,338,815 | 1,506,744,936 | ||||
| Liabilities | ||||||
| Call options written, at fair value(3) | 921,842 | 653,462 | ||||
| Payable to Adviser | 3,612,869 | 2,504,684 | ||||
| Accrued directors’ fees and expenses | 10,000 | 10,500 | ||||
| Payable for investments purchased | 23,244,183 | — | ||||
| Accrued expenses and other liabilities | 8,303,193 | 4,179,324 | ||||
| Deferred tax liability | 189,562,527 | 68,175,433 | ||||
| Credit facility borrowings | 107,100,000 | 73,100,000 | ||||
| Senior notes, net(4) | 379,419,108 | 311,621,135 | ||||
| Mandatory redeemable preferred stock, net(5) | 163,865,389 | 131,467,424 | ||||
| Total liabilities | 876,039,111 | 591,711,962 | ||||
| Net assets applicable to common stockholders | $ | 1,260,299,704 | $ | 915,032,974 | ||
| Net Assets Applicable to Common Stockholders Consist of: | ||||||
| Capital stock, $0.001 par value per share | $ | 53,635 | $ | 63,208 | ||
| Additional paid-in capital | 835,712,017 | 701,715,239 | ||||
| Total distributable earnings (loss) | 424,534,052 | 213,254,527 | ||||
| Net assets applicable to common stockholders | $ | 1,260,299,704 | $ | 915,032,974 | ||
| Capital shares: | ||||||
| Authorized | 100,000,000 | 100,000,000 | ||||
| Outstanding | 53,635,054 | 63,208,377 | ||||
| Net Asset Value per common share outstanding (net assets applicable | ||||||
| to common stock, divided by common shares outstanding) | $ | 23.50 | $ | 14.48 | ||
| (1) Investments in unaffiliated securities at cost | $ | 1,994,023,225 | $ | 1,532,613,098 | ||
| (2) Investments in affiliated securities at cost | $ | 50,738,405 | $ | — | ||
| (3) Call options written, premiums received | $ | 493,575 | $ | 350,544 | ||
| (4) Deferred debt issuance and offering costs | $ | 580,892 | $ | 378,865 | ||
| (5) Deferred offering costs | $ | 1,134,611 | $ | 532,576 | ||
| See accompanying Notes to Financial Statements. | |
| 32 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Tortoise Power | ||||||||||
| Tortoise Pipeline | Tortoise Energy | and Energy | ||||||||
| & Energy | Independence | Infrastructure | ||||||||
| Fund, Inc. | Fund, Inc. | Fund, Inc. | ||||||||
| $ | 234,582,116 | $ | 191,232,010 | $ | 189,944,879 | |||||
| — | — | — | ||||||||
| — | — | — | ||||||||
| — | — | 196,612 | ||||||||
| — | — | — | ||||||||
| — | — | 128,630 | ||||||||
| 587,625 | 39,651 | 1,626,983 | ||||||||
| — | — | — | ||||||||
| 89,380 | 12,876 | 9,078 | ||||||||
| 235,259,121 | 191,284,537 | 191,906,182 | ||||||||
| 199,782 | 835,007 | — | ||||||||
| 456,420 | 399,195 | 313,260 | ||||||||
| 10,500 | 10,500 | 10,500 | ||||||||
| 937,674 | — | 447,278 | ||||||||
| 705,352 | 451,601 | 410,716 | ||||||||
| — | — | — | ||||||||
| 19,800,000 | 57,100,000 | 53,400,000 | ||||||||
| 33,948,978 | — | — | ||||||||
| 15,998,724 | — | — | ||||||||
| 72,057,430 | 58,796,303 | 54,581,754 | ||||||||
| $ | 163,201,691 | $ | 132,488,234 | $ | 137,324,428 | |||||
| $ | 10,016 | $ | 14,696 | $ | 6,951 | |||||
| 205,805,819 | 239,075,301 | 128,974,298 | ||||||||
| (42,614,144 | ) | (106,601,763 | ) | 8,343,179 | ||||||
| $ | 163,201,691 | $ | 132,488,234 | $ | 137,324,428 | |||||
| 100,000,000 | 100,000,000 | 100,000,000 | ||||||||
| 10,016,413 | 14,696,260 | 6,951,333 | ||||||||
| $ | 16.29 | $ | 9.02 | $ | 19.76 | |||||
| $ | 269,791,253 | $ | 243,132,208 | $ | 186,117,829 | |||||
| $ | — | $ | — | $ | — | |||||
| $ | 512,777 | $ | 2,406,989 | $ | — | |||||
| $ | 51,022 | $ | — | $ | — | |||||
| $ | 1,276 | $ | — | $ | — | |||||
| See accompanying Notes to Financial Statements. | |
| Tortoise | 33 |
| Statements of Operations |
| Year Ended November 30, 2018 |
| Tortoise Energy | ||||||||
| Infrastructure | Tortoise MLP | |||||||
| Corp. | Fund, Inc. | |||||||
| Investment Income | ||||||||
| Distributions from master limited partnerships | $ | 165,622,117 | $ | 105,955,632 | ||||
| Dividends and distributions from common stock | 8,767,508 | 7,475,853 | ||||||
| Dividends and distributions from preferred stock | 3,940,886 | 3,485,432 | ||||||
| Dividends and distributions from private investments | 4,965,290 | — | ||||||
| Less return of capital on distributions(1) | (184,611,970 | ) | (113,946,449 | ) | ||||
| Less foreign taxes withheld | — | — | ||||||
| Net dividends and distributions from investments | (1,316,169 | ) | 2,970,468 | |||||
| Interest from corporate bonds | — | — | ||||||
| Dividends from money market mutual funds | 9,148 | 38,016 | ||||||
| Total Investment Income (loss) | (1,307,021 | ) | 3,008,484 | |||||
| Operating Expenses | ||||||||
| Advisory fees | 21,994,642 | 13,626,793 | ||||||
| Administrator fees | 495,880 | 446,486 | ||||||
| Professional fees | 380,129 | 245,864 | ||||||
| Directors’ fees | 207,994 | 178,855 | ||||||
| Stockholder communication expenses | 210,021 | 145,538 | ||||||
| Custodian fees and expenses | 97,417 | 62,176 | ||||||
| Fund accounting fees | 90,952 | 78,163 | ||||||
| Registration fees | 51,238 | 46,984 | ||||||
| Stock transfer agent fees | 15,826 | 12,364 | ||||||
| Franchise fees | 3,865 | — | ||||||
| Other operating expenses | 188,589 | 102,615 | ||||||
| Total Operating Expenses | 23,736,553 | 14,945,838 | ||||||
| Leverage Expenses | ||||||||
| Interest expense | 18,279,169 | 12,663,355 | ||||||
| Distributions to mandatory redeemable preferred stockholders | 6,919,999 | 4,540,533 | ||||||
| Amortization of debt issuance costs | 428,864 | 231,333 | ||||||
| Other leverage expenses | 276,113 | 99,835 | ||||||
| Total Leverage Expenses | 25,904,145 | 17,535,056 | ||||||
| Total Expenses | 49,640,698 | 32,480,894 | ||||||
| Less fees waived by Adviser (Note 4) | (529,050 | ) | (764,730 | ) | ||||
| Net Expenses | 49,111,648 | 31,716,164 | ||||||
| Net Investment Income (Loss), before Income Taxes | (50,418,669 | ) | (28,707,680 | ) | ||||
| Deferred tax benefit | 24,679,544 | 5,964,172 | ||||||
| Net Investment Income (Loss) | (25,739,125 | ) | (22,743,508 | ) | ||||
| Realized and Unrealized Gain (Loss) on Investments and Interest Rate Swaps | ||||||||
| Net realized gain (loss) on investments in unaffiliated securities | 99,167,112 | 60,794,841 | ||||||
| Net realized gain (loss) on options | 1,210,761 | 1,080,438 | ||||||
| Net realized gain (loss) on interest rate swap settlements | (60,499 | ) | — | |||||
| Net realized loss on foreign currency and translation of | ||||||||
| other assets and liabilities denominated in foreign currency | — | — | ||||||
| Net realized gain (loss), before income taxes | 100,317,374 | 61,875,279 | ||||||
| Current tax (expense) benefit | 533,600 | (186,036 | ) | |||||
| Deferred tax expense | (58,286,262 | ) | (15,159,081 | ) | ||||
| Income tax expense | (57,752,662 | ) | (15,345,117 | ) | ||||
| Net realized gain (loss) | 42,564,712 | 46,530,162 | ||||||
| Net unrealized depreciation of investments in unaffiliated securities | (83,798,472 | ) | (64,036,157 | ) | ||||
| Net unrealized depreciation of investments in affiliated securities | (22,634,585 | ) | — | |||||
| Net unrealized appreciation (depreciation) of options | (428,267 | ) | (302,918 | ) | ||||
| Net unrealized appreciation of interest rate swap contracts | 266,585 | — | ||||||
| Net unrealized appreciation of other assets and liabilities due to foreign currency translation | — | — | ||||||
| Net unrealized depreciation, before income taxes | (106,594,739 | ) | (64,339,075 | ) | ||||
| Deferred tax benefit | 186,123,443 | 63,392,266 | ||||||
| Net unrealized appreciation (depreciation) | 79,528,704 | (946,809 | ) | |||||
| Net Realized and Unrealized Gain (Loss) | 122,093,416 | 45,583,353 | ||||||
| Net Increase (Decrease) in Net Assets Applicable to Common | ||||||||
| Stockholders Resulting from Operations | $ | 96,354,291 | $ | 22,839,845 | ||||
| (1) | Return of Capital may be in excess of current year distributions due to prior year adjustments. See Note 2 to the Financial Statements for further disclosure. |
| See accompanying Notes to Financial Statements. | |
| 34 | Tortoise |
|
2018 Annual Report | November 30, 2018 |
| Tortoise Power | |||||||||||
| Tortoise Pipeline | Tortoise Energy | and Energy | |||||||||
| & Energy | Independence | Infrastructure | |||||||||
| Fund, Inc. | Fund, Inc. | Fund, Inc. | |||||||||
| $ | 5,421,472 | $ | 4,015,190 | $ | 4,204,223 | ||||||
| 9,215,367 | 985,772 | 2,210,111 | |||||||||
| 682,083 | 258,903 | 457,955 | |||||||||
| — | — | — | |||||||||
| (10,315,607 | ) | (4,526,935 | ) | (6,733,321 | ) | ||||||
| (425,888 | ) | (16,087 | ) | (3,565 | ) | ||||||
| 4,577,427 | 716,843 | 135,403 | |||||||||
| — | — | 5,439,893 | |||||||||
| 5,081 | 18,632 | 4,231 | |||||||||
| 4,582,508 | 735,475 | 5,579,527 | |||||||||
| 2,844,494 | 2,638,486 | 1,898,410 | |||||||||
| 108,436 | 100,945 | 84,933 | |||||||||
| 156,879 | 148,408 | 151,621 | |||||||||
| 117,673 | 117,664 | 112,086 | |||||||||
| 71,445 | 52,404 | 91,526 | |||||||||
| 19,943 | 17,989 | 10,392 | |||||||||
| 48,843 | 47,333 | 28,552 | |||||||||
| 24,758 | 25,001 | 24,835 | |||||||||
| 12,350 | 11,997 | 13,605 | |||||||||
| — | — | — | |||||||||
| 44,834 | 44,580 | 28,109 | |||||||||
| 3,449,655 | 3,204,807 | 2,444,069 | |||||||||
| 1,876,808 | 1,758,968 | 1,451,464 | |||||||||
| 686,401 | — | — | |||||||||
| 57,013 | — | — | |||||||||
| 18,667 | — | — | |||||||||
| 2,638,889 | 1,758,968 | 1,451,464 | |||||||||
| 6,088,544 | 4,963,775 | 3,895,533 | |||||||||
| — | — | — | |||||||||
| 6,088,544 | 4,963,775 | 3,895,533 | |||||||||
| (1,506,036 | ) | (4,228,300 | ) | 1,683,994 | |||||||
| — | — | — | |||||||||
| (1,506,036 | ) | (4,228,300 | ) | 1,683,994 | |||||||
| (346,389 | ) | (6,692,831 | ) | 8,976,827 | |||||||
| (23,411 | ) | 10,350,058 | — | ||||||||
| — | — | 30,903 | |||||||||
| (4,510 | ) | — | (554 | ) | |||||||
| (374,310 | ) | 3,657,227 | 9,007,176 | ||||||||
| — | — | — | |||||||||
| — | — | — | |||||||||
| — | — | — | |||||||||
| (374,310 | ) | 3,657,227 | 9,007,176 | ||||||||
| (7,392,596 | ) | (31,965,739 | ) | (11,268,636 | ) | ||||||
| — | — | — | |||||||||
| 281,675 | 1,489,446 | — | |||||||||
| — | — | 85,846 | |||||||||
| 2,540 | — | 234 | |||||||||
| (7,108,381 | ) | (30,476,293 | ) | (11,182,556 | ) | ||||||
| — | — | — | |||||||||
| (7,108,381 | ) | (30,476,293 | ) | (11,182,556 | ) | ||||||
| (7,482,691 | ) | (26,819,066 | ) | (2,175,380 | ) | ||||||
| $ | (8,988,727 | ) | $ | (31,047,366 | ) | $ | (491,386 | ) | |||
| See accompanying Notes to Financial Statements. | |
| Tortoise | 35 |
| Statements of Changes in Net Assets |
| Tortoise Energy Infrastructure Corp. | Tortoise MLP Fund, Inc. | |||||||||||||||
| Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||
| November 30, | November 30, | November 30, | November 30, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Operations | ||||||||||||||||
| Net investment income (loss) | $ | (25,739,125 | ) | $ | (31,941,053 | ) | $ | (22,743,508 | ) | $ | (19,766,804 | ) | ||||
| Net realized gain (loss) | 42,564,712 | 119,288,455 | 46,530,162 | 29,188,785 | ||||||||||||
| Net unrealized appreciation (depreciation) | 79,528,704 | (200,775,043 | ) | (946,809 | ) | (83,536,956 | ) | |||||||||
| Net increase (decrease) in net assets applicable | ||||||||||||||||
| to common stockholders resulting | ||||||||||||||||
| from operations | 96,354,291 | (113,427,641 | ) | 22,839,845 | (74,114,975 | ) | ||||||||||
| Distributions to Common Stockholders | ||||||||||||||||
| From distributable earnings | — | — | — | — | ||||||||||||
| From tax return of capital | (138,297,758 | ) | (128,748,918 | ) | (86,693,300 | ) | (79,670,471 | ) | ||||||||
| Total distributions to common stockholders | (138,297,758 | ) | (128,748,918 | ) | (86,693,300 | ) | (79,670,471 | ) | ||||||||
| Capital Stock Transactions | ||||||||||||||||
| Proceeds from issuance of common shares | ||||||||||||||||
| through offerings | 114,529,368 | 4,639,779 | 230,973,008 | — | ||||||||||||
| Underwriting discounts and offering expenses | ||||||||||||||||
| associated with the issuance of common stock | (349,970 | ) | (91,276 | ) | (8,891,735 | ) | — | |||||||||
| Issuance of common shares from reinvestment | ||||||||||||||||
| of distributions to stockholders | 6,535,303 | 6,881,998 | 2,720,036 | 3,004,499 | ||||||||||||
| Other proceeds | — | 180 | — | — | ||||||||||||
| Net increase in net assets applicable to common | ||||||||||||||||
| stockholders from capital stock transactions | 120,714,701 | 11,430,681 | 224,801,309 | 3,004,499 | ||||||||||||
| Total increase (decrease) in net assets applicable | ||||||||||||||||
| to common stockholders | 78,771,234 | (230,745,878 | ) | 160,947,854 | (150,780,947 | ) | ||||||||||
| Net Assets | ||||||||||||||||
| Beginning of year | 1,181,528,470 | 1,412,274,348 | 754,085,120 | 904,866,067 | ||||||||||||
| End of year | $ | 1,260,299,704 | $ | 1,181,528,470 | * | $ | 915,032,974 | $ | 754,085,120 | * | ||||||
| Transactions in common shares | ||||||||||||||||
| Shares outstanding at beginning of year | 49,379,408 | 48,980,215 | 47,246,780 | 47,080,789 | ||||||||||||
| Shares issued through offerings | 4,013,693 | 155,743 | 15,802,094 | — | ||||||||||||
| Shares issued through reinvestment of distributions | 241,953 | 243,450 | 159,503 | 165,991 | ||||||||||||
| Shares outstanding at end of year | 53,635,054 | 49,379,408 | 63,208,377 | 47,246,780 | ||||||||||||
| * | Includes undistributed (accumulated) net investment income (loss), net of income taxes of $(239,156,803), $(137,388,906), $990,851, $(2,914,758) and $4,655,808 for the Tortoise Energy Infrastructure Corp., Tortoise MLP Fund, Inc., Tortoise Pipeline & Energy Fund, Inc., Tortoise Energy Independence Fund, Inc. and Tortoise Power and Energy Infrastructure Fund, Inc., respectively. |
| See accompanying Notes to Financial Statements. | |
| 36 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Tortoise Power and Energy | |||||||||||||||||||||||
| Tortoise Pipeline & Energy Fund, Inc. | Tortoise Energy Independence Fund, Inc. | Infrastructure Fund, Inc. | |||||||||||||||||||||
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||||
| November 30, | November 30, | November 30, | November 30, | November 30, | November 30, | ||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
| $ | (1,506,036 | ) | $ | (458,179 | ) | $ | (4,228,300 | ) | $ | (2,930,061 | ) | $ | 1,683,994 | $ | 4,089,792 | ||||||||
| (374,310 | ) | 4,603,749 | 3,657,227 | (9,166,863 | ) | 9,007,176 | 4,185,820 | ||||||||||||||||
| (7,108,381 | ) | (33,840,728 | ) | (30,476,293 | ) | (21,569,273 | ) | (11,182,556 | ) | (15,678,728 | ) | ||||||||||||
| (8,988,727 | ) | (29,695,158 | ) | (31,047,366 | ) | (33,666,197 | ) | (491,386 | ) | (7,403,116 | ) | ||||||||||||
| (428,639 | ) | (3,036,473 | ) | — | — | (10,427,000 | ) | (9,743,950 | ) | ||||||||||||||
| (15,898,114 | ) | (13,290,280 | ) | (25,586,654 | ) | (25,460,285 | ) | — | (683,050 | ) | |||||||||||||
| (16,326,753 | ) | (16,326,753 | ) | (25,586,654 | ) | (25,460,285 | ) | (10,427,000 | ) | (10,427,000 | ) | ||||||||||||
| — | — | — | — | — | — | ||||||||||||||||||
| — | — | — | — | — | — | ||||||||||||||||||
| — | — | 1,233,701 | 927,023 | — | — | ||||||||||||||||||
| — | — | — | — | — | — | ||||||||||||||||||
| — | — | 1,233,701 | 927,023 | — | — | ||||||||||||||||||
| (25,315,480 | ) | (46,021,911 | ) | (55,400,319 | ) | (58,199,459 | ) | (10,918,386 | ) | (17,830,116 | ) | ||||||||||||
| 188,517,171 | 234,539,082 | 187,888,553 | 246,088,012 | 148,242,814 | 166,072,930 | ||||||||||||||||||
| $ | 163,201,691 | $ | 188,517,171 | * | $ | 132,488,234 | $ | 187,888,553 | * | $ | 137,324,428 | $ | 148,242,814 | * | |||||||||
| 10,016,413 | 10,016,413 | 14,583,662 | 14,516,071 | 6,951,333 | 6,951,333 | ||||||||||||||||||
| — | — | — | — | — | — | ||||||||||||||||||
| — | — | 112,598 | 67,591 | — | — | ||||||||||||||||||
| 10,016,413 | 10,016,413 | 14,696,260 | 14,583,662 | 6,951,333 | 6,951,333 | ||||||||||||||||||
| See accompanying Notes to Financial Statements. | |
| Tortoise | 37 |
| Statements of Cash Flows |
| Year Ended November 30, 2018 |
| Tortoise Energy | ||||||||
| Infrastructure | Tortoise MLP | |||||||
| Corp. | Fund, Inc. | |||||||
| Cash Flows From Operating Activities | ||||||||
| Dividends, distributions and interest received from investments | $ | 183,592,531 | $ | 117,093,968 | ||||
| Purchases of long-term investments | (496,715,904 | ) | (495,831,848 | ) | ||||
| Proceeds from sales of long-term investments | 417,237,015 | 198,382,984 | ||||||
| Sales (purchases) of short-term investments, net | (24,116 | ) | (138,897 | ) | ||||
| Call options written, net | 1,682,203 | 1,430,983 | ||||||
| Payments on interest rate swap contracts, net | (60,499 | ) | — | |||||
| Interest received on securities sold, net | — | — | ||||||
| Interest expense paid | (18,241,605 | ) | (11,942,756 | ) | ||||
| Distributions to mandatory redeemable preferred stockholders | (6,920,000 | ) | (4,470,276 | ) | ||||
| Other leverage expenses paid | (219,375 | ) | (64,746 | ) | ||||
| Income taxes paid | (1,331,182 | ) | (119,000 | ) | ||||
| Operating expenses paid | (23,429,677 | ) | (14,262,633 | ) | ||||
| Net cash provided by (used in) operating activities | 55,569,391 | (209,922,221 | ) | |||||
| Cash Flows From Financing Activities | ||||||||
| Advances (payments) on credit facilities, net | (5,600,000 | ) | 23,300,000 | |||||
| Issuance of mandatory redeemable preferred stock | — | 87,000,000 | ||||||
| Redemption of mandatory redeemable preferred stock | — | (65,000,000 | ) | |||||
| Issuance of senior notes | — | 105,000,000 | ||||||
| Maturity of senior notes | (32,500,000 | ) | (77,000,000 | ) | ||||
| Debt issuance costs | (4,366 | ) | (301,270 | ) | ||||
| Issuance of common stock | 114,529,368 | 230,973,008 | ||||||
| Common stock issuance costs | (231,922 | ) | (8,620,911 | ) | ||||
| Distributions paid to common stockholders | (131,762,471 | ) | (85,428,606 | ) | ||||
| Net cash provided by (used in) financing activities | (55,569,391 | ) | 209,922,221 | |||||
| Net change in cash | — | — | ||||||
| Cash — beginning of year | — | — | ||||||
| Cash — end of year | $ | — | $ | — | ||||
| See accompanying Notes to Financial Statements. | |
| 38 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Tortoise Power | |||||||||||
| Tortoise Pipeline | Tortoise Energy | and Energy | |||||||||
| & Energy | Independence | Infrastructure | |||||||||
| Fund, Inc. | Fund, Inc. | Fund, Inc. | |||||||||
| $ | 14,833,259 | $ | 5,421,932 | $ | 12,971,081 | ||||||
| (35,612,984 | ) | (346,466,147 | ) | (61,547,824 | ) | ||||||
| 42,469,533 | 367,138,147 | 62,968,992 | |||||||||
| 70,190 | 945 | (144,960 | ) | ||||||||
| 135,843 | 10,861,101 | — | |||||||||
| — | — | 30,903 | |||||||||
| — | — | (40,853 | ) | ||||||||
| (1,814,628 | ) | (1,641,014 | ) | (1,350,210 | ) | ||||||
| (686,400 | ) | — | — | ||||||||
| (20,000 | ) | — | — | ||||||||
| (418 | ) | (350 | ) | — | |||||||
| (3,547,642 | ) | (3,274,084 | ) | (2,460,129 | ) | ||||||
| 15,826,753 | 32,040,530 | 10,427,000 | |||||||||
| 500,000 | (7,400,000 | ) | — | ||||||||
| — | — | — | |||||||||
| — | — | — | |||||||||
| — | — | — | |||||||||
| — | — | — | |||||||||
| — | — | — | |||||||||
| — | — | — | |||||||||
| — | — | — | |||||||||
| (16,326,753 | ) | (24,640,530 | ) | (10,427,000 | ) | ||||||
| (15,826,753 | ) | (32,040,530 | ) | (10,427,000 | ) | ||||||
| — | — | — | |||||||||
| — | — | — | |||||||||
| $ | — | $ | — | $ | — | ||||||
| See accompanying Notes to Financial Statements. | |
| Tortoise | 39 |
| Statements of Cash Flows (continued) |
| Year Ended November 30, 2018 |
| Tortoise Energy | ||||||||
| Infrastructure | Tortoise MLP | |||||||
| Corp. | Fund, Inc. | |||||||
| Reconciliation of net increase in net assets applicable to common stockholders | ||||||||
| resulting from operations to net cash provided by (used in) operating activities | ||||||||
| Net increase in net assets applicable to common stockholders resulting from operations | $ | 96,354,291 | $ | 22,839,845 | ||||
| Adjustments to reconcile net increase in net assets applicable to common stockholders | ||||||||
| resulting from operations to net cash provided by (used in) operating activities: | ||||||||
| Purchases of long-term investments | (508,462,886 | ) | (494,308,370 | ) | ||||
| Proceeds from sales of long-term investments | 408,626,699 | 194,635,931 | ||||||
| Sales (purchases) of short-term investments, net | (24,116 | ) | (138,897 | ) | ||||
| Call options written, net | 1,704,336 | 1,430,983 | ||||||
| Return of capital on distributions received | 184,611,970 | 113,946,449 | ||||||
| Deferred tax benefit | (152,516,725 | ) | (54,197,357 | ) | ||||
| Net unrealized appreciation | 106,594,739 | 64,339,075 | ||||||
| Amortization of market premium, net | — | — | ||||||
| Net realized (gain) loss | (100,377,873 | ) | (61,875,279 | ) | ||||
| Amortization of debt issuance costs | 428,864 | 231,333 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in dividends, distributions and interest receivable from investments | 287,582 | 139,035 | ||||||
| (Increase) decrease in current tax asset | (1,864,782 | ) | 67,036 | |||||
| (Increase) decrease in receivable for investments sold | 8,610,316 | 3,747,053 | ||||||
| Increase in receivable for premiums on options written | (22,133 | ) | — | |||||
| (Increase) decrease in prepaid expenses and other assets | 132,206 | 256,914 | ||||||
| Increase (decrease) in payable for investments purchased | 11,746,982 | (1,523,478 | ) | |||||
| Decrease in payable to Adviser, net of fees waived | (123,864 | ) | (18,991 | ) | ||||
| Increase (decrease) in accrued expenses and other liabilities | (136,215 | ) | 506,497 | |||||
| Total adjustments | (40,784,900 | ) | (232,762,066 | ) | ||||
| Net cash provided by (used in) operating activities | $ | 55,569,391 | $ | (209,922,221 | ) | |||
| Non-Cash Financing Activities | ||||||||
| Reinvestment of distributions by common stockholders in additional common shares | $ | 6,535,303 | $ | 2,720,036 | ||||
| See accompanying Notes to Financial Statements. | |
| 40 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Tortoise Power | |||||||||||
| Tortoise Pipeline | Tortoise Energy | and Energy | |||||||||
| & Energy | Independence | Infrastructure | |||||||||
| Fund, Inc. | Fund, Inc. | Fund, Inc. | |||||||||
| $ | (8,988,727 | ) | $ | (31,047,366 | ) | $ | (491,386 | ) | |||
| (36,550,658 | ) | (346,466,147 | ) | (61,995,102 | ) | ||||||
| 42,469,533 | 367,138,147 | 63,165,604 | |||||||||
| 70,190 | 945 | (144,960 | ) | ||||||||
| 135,843 | 10,861,101 | — | |||||||||
| 10,315,607 | 4,526,935 | 6,733,321 | |||||||||
| — | — | — | |||||||||
| 7,108,381 | 30,476,293 | 11,182,556 | |||||||||
| — | — | 438,556 | |||||||||
| 374,310 | (3,657,227 | ) | (8,976,273 | ) | |||||||
| 57,013 | — | — | |||||||||
| (64,856 | ) | 159,522 | 178,824 | ||||||||
| — | — | — | |||||||||
| — | — | (196,612 | ) | ||||||||
| — | — | — | |||||||||
| (65,188 | ) | (604 | ) | (674 | ) | ||||||
| 937,674 | — | 447,278 | |||||||||
| (28,609 | ) | (61,273 | ) | (12,141 | ) | ||||||
| 56,240 | 110,204 | 98,009 | |||||||||
| 24,815,480 | 63,087,896 | 10,918,386 | |||||||||
| $ | 15,826,753 | $ | 32,040,530 | $ | 10,427,000 | ||||||
| $ | — | $ | 1,233,701 | $ | — | ||||||
| See accompanying Notes to Financial Statements. | |
| Tortoise | 41 |
| TYG Financial Highlights |
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||||||
| November 30, | November 30, | November 30, | November 30, | November 30, | |||||||||||||||||||||
| 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||
| Per Common Share Data(1) | |||||||||||||||||||||||||
| Net Asset Value, beginning of year | $ | 23.93 | $ | 28.83 | $ | 29.28 | $ | 49.34 | $ | 43.36 | |||||||||||||||
| Income (Loss) from Investment Operations | |||||||||||||||||||||||||
| Net investment loss(2) | (0.49 | ) | (0.65 | ) | (0.78 | ) | (0.62 | ) | (0.66 | ) | |||||||||||||||
| Net realized and unrealized gain (loss) on | |||||||||||||||||||||||||
| investments and interest rate swap contracts(2) | 2.59 | (1.64 | ) | 2.94 | (16.85 | ) | 9.01 | ||||||||||||||||||
| Total income (loss) from investment operations | 2.10 | (2.29 | ) | 2.16 | (17.47 | ) | 8.35 | ||||||||||||||||||
| Distributions to Common Stockholders | |||||||||||||||||||||||||
| From return of capital | (2.62 | ) | (2.62 | ) | (2.62 | ) | (2.59 | ) | (2.38 | ) | |||||||||||||||
| Capital Stock Transactions | |||||||||||||||||||||||||
| Premiums less underwriting discounts and offering | |||||||||||||||||||||||||
| costs on issuance of common stock(3) | 0.09 | 0.01 | 0.01 | (0.00 | ) | 0.01 | |||||||||||||||||||
| Net Asset Value, end of year | $ | 23.50 | $ | 23.93 | $ | 28.83 | $ | 29.28 | $ | 49.34 | |||||||||||||||
| Per common share market value, end of year | $ | 22.59 | $ | 25.86 | $ | 30.63 | $ | 26.57 | $ | 46.10 | |||||||||||||||
| Total investment return based on market value(4) | (3.42 | ) | % | (7.49 | ) | % | 26.21 | % | (37.86 | ) | % | (2.54 | ) | % | |||||||||||
| Supplemental Data and Ratios | |||||||||||||||||||||||||
| Net assets applicable to common stockholders, | |||||||||||||||||||||||||
| end of year (000’s) | $ | 1,260,300 | $ | 1,181,528 | $ | 1,412,274 | $ | 1,405,733 | $ | 2,369,068 | |||||||||||||||
| Average net assets (000’s) | $ | 1,388,683 | $ | 1,406,724 | $ | 1,345,764 | $ | 1,974,038 | $ | 1,837,590 | |||||||||||||||
| Ratio of Expenses to Average Net Assets | |||||||||||||||||||||||||
| Advisory fees | 1.58 | % | 1.74 | % | 1.74 | % | 1.76 | % | 1.65 | % | |||||||||||||||
| Other operating expenses | 0.13 | 0.12 | 0.12 | 0.10 | 0.13 | ||||||||||||||||||||
| Total operating expenses, before fee waiver | 1.71 | 1.86 | 1.86 | 1.86 | 1.78 | ||||||||||||||||||||
| Fee waiver(5) | (0.04 | ) | (0.00 | ) | (0.01 | ) | — | (0.00 | ) | ||||||||||||||||
| Total operating expenses | 1.67 | 1.86 | 1.85 | 1.86 | 1.78 | ||||||||||||||||||||
| Leverage expenses | 1.87 | 1.78 | 2.29 | 1.75 | 1.38 | ||||||||||||||||||||
| Income tax expense (benefit)(6) | (11.02 | ) | (5.28 | ) | 4.64 | (24.50 | ) | 7.81 | |||||||||||||||||
| Total expenses | (7.48 | ) | % | (1.64 | ) | % | 8.78 | % | (20.89 | ) | % | 10.97 | % | ||||||||||||
| See accompanying Notes to Financial Statements. | |
| 42 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||||||
| November 30, | November 30, | November 30, | November 30, | November 30, | |||||||||||||||||||||
| 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||
| Ratio of net investment loss to average net assets | |||||||||||||||||||||||||
| before fee waiver | (1.89 | ) | % | (2.27 | ) | % | (2.83 | ) | % | (1.50 | ) | % | (1.33 | ) | % | ||||||||||
| Ratio of net investment loss to average net assets | |||||||||||||||||||||||||
| after fee waiver | (1.85 | ) | % | (2.27 | ) | % | (2.82 | ) | % | (1.50 | ) | % | (1.33 | ) | % | ||||||||||
| Portfolio turnover rate | 17.96 | % | 20.38 | % | 24.23 | % | 12.94 | % | 15.33 | % | |||||||||||||||
| Credit facility borrowings, end of year (000’s) | $ | 107,100 | $ | 112,700 | $ | 109,300 | $ | 66,000 | $ | 162,800 | |||||||||||||||
| Senior notes, end of year (000’s) | $ | 380,000 | $ | 412,500 | $ | 442,500 | $ | 545,000 | $ | 544,400 | |||||||||||||||
| Preferred stock, end of year (000’s) | $ | 165,000 | $ | 165,000 | $ | 165,000 | $ | 295,000 | $ | 224,000 | |||||||||||||||
| Per common share amount of senior notes | |||||||||||||||||||||||||
| outstanding, end of year | $ | 7.08 | $ | 8.35 | $ | 9.03 | $ | 11.35 | $ | 11.34 | |||||||||||||||
| Per common share amount of net assets, | |||||||||||||||||||||||||
| excluding senior notes, end of year | $ | 30.58 | $ | 32.28 | $ | 37.86 | $ | 40.63 | $ | 60.68 | |||||||||||||||
| Asset coverage, per $1,000 of principal amount | |||||||||||||||||||||||||
| of senior notes and credit facility borrowings(7) | $ | 3,926 | $ | 3,564 | $ | 3,858 | $ | 3,784 | $ | 4,667 | |||||||||||||||
| Asset coverage ratio of senior notes and | |||||||||||||||||||||||||
| credit facility borrowings(7) | 393 | % | 356 | % | 386 | % | 378 | % | 467 | % | |||||||||||||||
| Asset coverage, per $10 liquidation value per share | |||||||||||||||||||||||||
| of mandatory redeemable preferred stock(8) | $ | 29 | $ | 27 | $ | 30 | $ | 26 | $ | 35 | |||||||||||||||
| Asset coverage ratio of preferred stock(8) | 293 | % | 271 | % | 297 | % | 255 | % | 354 | % | |||||||||||||||
| (1) | Information presented relates to a share of common stock outstanding for the entire year. |
| (2) | The per common share data for the years ended November 30, 2017, 2016, 2015 and 2014 do not reflect the change in estimate of investment income and return of capital, for the respective year. See Note 2C to the financial statements for further disclosure. |
| (3) | Represents premium on shelf offerings of $0.10 per share, less the underwriting and offering costs of $0.01 per share, for the year ended November 30, 2018. Represents the premium on the shelf offerings of $0.01 per share, less the underwriting and offering costs of less than $0.01 per share for the year ended November 30, 2017. Represents the premium on the shelf offerings of $0.02 per share, less the underwriting and offering costs of less than $0.01 per share for the year ended November 30, 2016. Represents underwriting and offering costs of less than $0.01 per share for the year ended November 30, 2015. Represents the premium on the shelf offerings of $0.02 per share, less the underwriting and offering costs of $0.01 per share for the year ended November 30, 2014. |
| (4) | Total investment return is calculated assuming a purchase of common stock at the beginning of the year and a sale at the closing price on the last day of the period reported (excluding brokerage commissions). The calculation also assumes reinvestment of distributions at actual prices pursuant to TYG’s dividend reinvestment plan. |
| (5) | Less than 0.01% for the years ended November 30, 2017 and 2014. |
| (6) | For the year ended November 30, 2018, TYG accrued $152,516,725 for net deferred income tax benefit. Included in the current period accrual is a deferred tax benefit of $125,271,378 which is the impact from the federal tax rate reduction related to the Tax Cuts and Jobs Act. For the year ended November 30, 2017, TYG accrued $35,365,364 for current income tax expense and $109,662,030 for net deferred income tax benefit. For the year ended November 30, 2016, TYG accrued $57,075,786 for current income tax expense and $ 5,303,392 for net deferred income tax expense. For the year ended November 30, 2015, TYG accrued $66,785,732 for net current income tax expense and $550,449,662 for net deferred income tax benefit. For the year ended November 30, 2014, TYG accrued $52,981,532 for current income tax expense and $90,477,388 for net deferred income tax expense. |
| (7) | Represents value of total assets less all liabilities and indebtedness not represented by senior notes, credit facility borrowings and preferred stock at the end of the year divided by senior notes and credit facility borrowings outstanding at the end of the year. |
| (8) | Represents value of total assets less all liabilities and indebtedness not represented by senior notes, credit facility borrowings and preferred stock at the end of the year divided by senior notes, credit facility borrowings and preferred stock outstanding at the end of the year. |
| See accompanying Notes to Financial Statements. | |
| Tortoise | 43 |
| NTG Financial Highlights |
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
| November 30, | November 30, | November 30, | November 30, | November 30, | ||||||||||||||||
| 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
| Per Common Share Data(1) | ||||||||||||||||||||
| Net Asset Value, beginning of year | $ | 15.96 | $ | 19.22 | $ | 18.65 | $ | 29.83 | $ | 28.00 | ||||||||||
| Income (Loss) from Investment Operations | ||||||||||||||||||||
| Net investment loss(2) | (0.43 | ) | (0.42 | ) | (0.46 | ) | (0.32 | ) | (0.54 | ) | ||||||||||
| Net realized and unrealized gain (loss) | ||||||||||||||||||||
| on investments(2) | 1.36 | (1.15 | ) | 2.72 | (9.17 | ) | 4.06 | |||||||||||||
| Total income (loss) from investment operations | 0.93 | (1.57 | ) | 2.26 | (9.49 | ) | 3.52 | |||||||||||||
| Distributions to Common Stockholders | ||||||||||||||||||||
| From return of capital | (1.69 | ) | (1.69 | ) | (1.69 | ) | (1.69 | ) | (1.69 | ) | ||||||||||
| Capital stock transactions | ||||||||||||||||||||
| Premiums less underwriting discounts and offering | ||||||||||||||||||||
| costs on issuance of common stock(3) | (0.72 | ) | — | (0.00 | ) | (0.00 | ) | — | ||||||||||||
| Net Asset Value, end of year | $ | 14.48 | $ | 15.96 | $ | 19.22 | $ | 18.65 | $ | 29.83 | ||||||||||
| Per common share market value, end of year | $ | 13.72 | $ | 15.90 | $ | 18.90 | $ | 16.18 | $ | 27.97 | ||||||||||
| Total investment return based on market value(4) | (4.10 | )% | (7.67 | )% | 27.99 | % | (37.08 | )% | 9.08 | % | ||||||||||
| Supplemental Data and Ratios | ||||||||||||||||||||
| Net assets applicable to common stockholders, | ||||||||||||||||||||
| end of year (000’s) | $ | 915,033 | $ | 754,085 | $ | 904,866 | $ | 876,409 | $ | 1,401,926 | ||||||||||
| Average net assets (000’s) | $ | 887,014 | $ | 892,196 | $ | 862,527 | $ | 1,174,085 | $ | 1,404,751 | ||||||||||
| Ratio of Expenses to Average Net Assets | ||||||||||||||||||||
| Advisory fees | 1.54 | % | 1.61 | % | 1.56 | % | 1.56 | % | 1.48 | % | ||||||||||
| Other operating expenses | 0.15 | 0.14 | 0.16 | 0.12 | 0.10 | |||||||||||||||
| Total operating expenses, before fee waiver | 1.69 | 1.75 | 1.72 | 1.68 | 1.58 | |||||||||||||||
| Fee waiver | (0.09 | ) | — | (0.01 | ) | (0.09 | ) | (0.16 | ) | |||||||||||
| Total operating expenses | 1.60 | 1.75 | 1.71 | 1.59 | 1.42 | |||||||||||||||
| Leverage expenses | 1.98 | 1.89 | 1.95 | 1.42 | 1.09 | |||||||||||||||
| Income tax expense (benefit)(5) | (6.09 | ) | (4.33 | ) | 7.25 | (21.92 | ) | 7.04 | ||||||||||||
| Total expenses | (2.51 | )% | (0.69 | )% | 10.91 | % | (18.91 | )% | 9.55 | % | ||||||||||
| See accompanying Notes to Financial Statements. | |
| 44 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||
| November 30, | November 30, | November 30, | November 30, | November 30, | |||||||||||||||||
| 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||
| Ratio of net investment loss to average net assets | |||||||||||||||||||||
| before fee waiver | (2.65 | )% | (2.22 | )% | (2.53 | )% | (1.36 | ) | % | (1.97 | )% | ||||||||||
| Ratio of net investment loss to average net assets | |||||||||||||||||||||
| after fee waiver | (2.56 | )% | (2.22 | )% | (2.52 | )% | (1.27 | ) | % | (1.81 | )% | ||||||||||
| Portfolio turnover rate | 13.67 | % | 20.94 | % | 35.47 | % | 17.54 | % | 18.09 | % | |||||||||||
| Credit facility borrowings, end of year (000’s) | $ | 73,100 | $ | 49,800 | $ | 46,800 | $ | 62,800 | $ | 68,900 | |||||||||||
| Senior notes, end of year (000’s) | $ | 312,000 | $ | 284,000 | $ | 284,000 | $ | 348,000 | $ | 348,000 | |||||||||||
| Preferred stock, end of year (000’s) | $ | 132,000 | $ | 110,000 | $ | 110,000 | $ | 90,000 | $ | 90,000 | |||||||||||
| Per common share amount of senior notes | |||||||||||||||||||||
| outstanding, end of year | $ | 4.94 | $ | 6.01 | $ | 6.03 | $ | 7.40 | $ | 7.40 | |||||||||||
| Per common share amount of net assets, | |||||||||||||||||||||
| excluding senior notes, end of year | $ | 19.42 | $ | 21.97 | $ | 25.25 | $ | 26.05 | $ | 37.23 | |||||||||||
| Asset coverage, per $1,000 of principal amount | |||||||||||||||||||||
| of senior notes and credit facility borrowings(6) | $ | 3,719 | $ | 3,589 | $ | 4,068 | $ | 3,353 | $ | 4,579 | |||||||||||
| Asset coverage ratio of senior notes and | |||||||||||||||||||||
| credit facility borrowings(6) | 372 | % | 359 | % | 407 | % | 335 | % | 458 | % | |||||||||||
| Asset coverage, per $25 liquidation value per share | |||||||||||||||||||||
| of mandatory redeemable preferred stock(7) | $ | 69 | $ | 67 | $ | 76 | $ | 69 | $ | 94 | |||||||||||
| Asset coverage ratio of preferred stock(7) | 277 | % | 270 | % | 305 | % | 275 | % | 377 | % | |||||||||||
| (1) |
Information presented relates to a share of common stock outstanding for the entire year. |
| (2) |
The per common share data for the years ended November 30, 2017, 2016, 2015, and 2014 do not reflect the change in estimate of investment income and return of capital, for the respective year. See Note 2C to the financial statements for further disclosure. |
| (3) |
Represents the discounts on shares issued through rights offerings of $0.55, plus the underwriting and offering costs of $0.17 per share for the year ended November 30, 2018. Represents less than $0.01 per share for the years ended November 30, 2016 and 2015. |
| (4) | Total investment return is calculated assuming a purchase of common stock at the beginning of the year and a sale at the closing price on the last day of the year reported (excluding brokerage commissions). This calculation also assumes reinvestment of distributions at actual prices pursuant to NTG’s dividend reinvestment plan. |
| (5) |
For the year ended November 30, 2018, NTG accrued $54,197,357 for net deferred income tax benefit. Included in the current period accrual is a deferred tax benefit of $47,436,124 which is the impact from the federal tax rate reduction related to the Tax Cuts and Jobs Act. For the year ended November 30, 2017, NTG accrued $440,504 for current income tax expense and $39,035,257 for net deferred income tax benefit. For the year ended November 30, 2016, NTG accrued $1,891,670 for current income tax expense and $60,652,872 for net deferred income tax expense. For the year ended November 30, 2015, NTG accrued $200,550 for current income tax expense and $257,585,058 for net deferred income tax benefit. For the year ended November 30, 2014, NTG accrued $581,000 for current income tax expense and $98,329,597 for net deferred income tax expense. |
| (6) |
Represents value of total assets less all liabilities and indebtedness not represented by senior notes, credit facility borrowings and preferred stock at the end of the period divided by senior notes and credit facility borrowings outstanding at the end of the period. |
| (7) |
Represents value of total assets less all liabilities and indebtedness not represented by senior notes, credit facility borrowings and preferred stock at the end of the period divided by senior notes, credit facility borrowings and preferred stock outstanding at the end of the period. |
| See accompanying Notes to Financial Statements. | |
| Tortoise | 45 |
| TTP Financial Highlights |
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
| November 30, | November 30, | November 30, | November 30, | November 30, | ||||||||||||||||
| 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
| Per Common Share Data(1) | ||||||||||||||||||||
| Net Asset Value, beginning of year | $ | 18.82 | $ | 23.42 | $ | 19.71 | $ | 35.04 | $ | 30.33 | ||||||||||
| Income (Loss) from Investment Operations | ||||||||||||||||||||
| Net investment income (loss)(2) | (0.15 | ) | (0.05 | ) | 0.04 | 0.22 | 0.08 | |||||||||||||
| Net realized and unrealized gain (loss)(2) | (0.75 | ) | (2.92 | ) | 5.30 | (13.60 | ) | 6.26 | ||||||||||||
| Total income (loss) from investment operations | (0.90 | ) | (2.97 | ) | 5.34 | (13.38 | ) | 6.34 | ||||||||||||
| Distributions to Common Stockholders | ||||||||||||||||||||
| From net investment income | (0.04 | ) | (0.05 | ) | (0.38 | ) | (0.34 | ) | (0.02 | ) | ||||||||||
| From net realized gains from | ||||||||||||||||||||
| investment transactions | — | (0.25 | ) | (1.25 | ) | (1.61 | ) | (1.61 | ) | |||||||||||
| From return of capital | (1.59 | ) | (1.33 | ) | — | — | — | |||||||||||||
| Total distributions to common stockholders | (1.63 | ) | (1.63 | ) | (1.63 | ) | (1.95 | ) | (1.63 | ) | ||||||||||
| Net Asset Value, end of year | $ | 16.29 | $ | 18.82 | $ | 23.42 | $ | 19.71 | $ | 35.04 | ||||||||||
| Per common share market value, end of year | $ | 14.33 | $ | 17.01 | $ | 21.55 | $ | 17.47 | $ | 32.50 | ||||||||||
| Total investment return based on market value(3) | (7.03 | )% | (14.18 | )% | 34.89 | % | (41.19 | )% | 21.68 | % | ||||||||||
| Supplemental Data and Ratios | ||||||||||||||||||||
| Net assets applicable to common stockholders, | ||||||||||||||||||||
| end of year (000’s) | $ | 163,202 | $ | 188,517 | $ | 234,539 | $ | 197,443 | $ | 350,975 | ||||||||||
| Average net assets (000’s) | $ | 188,518 | $ | 219,359 | $ | 192,888 | $ | 292,473 | $ | 357,486 | ||||||||||
| Ratio of Expenses to Average Net Assets | ||||||||||||||||||||
| Advisory fees | 1.51 | % | 1.43 | % | 1.48 | % | 1.44 | % | 1.37 | % | ||||||||||
| Other operating expenses | 0.32 | 0.26 | 0.29 | 0.22 | 0.18 | |||||||||||||||
| Total operating expenses, before fee waiver | 1.83 | 1.69 | 1.77 | 1.66 | 1.55 | |||||||||||||||
| Fee waiver | — | (0.00 | ) | (0.07 | ) | (0.14 | ) | (0.19 | ) | |||||||||||
| Total operating expenses | 1.83 | 1.69 | 1.70 | 1.52 | 1.36 | |||||||||||||||
| Leverage expenses | 1.40 | 1.06 | 1.23 | 0.93 | 0.75 | |||||||||||||||
| Total expenses | 3.23 | % | 2.75 | % | 2.93 | % | 2.45 | % | 2.11 | % | ||||||||||
| See accompanying Notes to Financial Statements. | |
| 46 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
| November 30, | November 30, | November 30, | November 30, | November 30, | ||||||||||||||||
| 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
| Ratio of net investment income (loss) to average | ||||||||||||||||||||
| net assets before fee waiver | (0.80 | )% | (0.21 | )% | 0.12 | % | 0.60 | % | 0.02 | % | ||||||||||
| Ratio of net investment income (loss) to average | ||||||||||||||||||||
| net assets after fee waiver | (0.80 | )% | (0.21 | )% | 0.19 | % | 0.74 | % | 0.21 | % | ||||||||||
| Portfolio turnover rate | 14.27 | % | 24.23 | % | 90.22 | % | 18.84 | % | 18.45 | % | ||||||||||
| Credit facility borrowings, end of year (000’s) | $ | 19,800 | $ | 19,300 | $ | 16,600 | $ | 16,900 | $ | 26,000 | ||||||||||
| Senior notes, end of year (000’s) | $ | 34,000 | $ | 34,000 | $ | 34,000 | $ | 54,000 | $ | 49,000 | ||||||||||
| Preferred stock, end of year (000’s) | $ | 16,000 | $ | 16,000 | $ | 16,000 | $ | 16,000 | $ | 16,000 | ||||||||||
| Per common share amount of senior notes | ||||||||||||||||||||
| outstanding, end of year | $ | 3.39 | $ | 3.39 | $ | 3.39 | $ | 5.39 | $ | 4.89 | ||||||||||
| Per common share amount of net assets, | ||||||||||||||||||||
| excluding senior notes, end of year | $ | 19.68 | $ | 22.21 | $ | 26.81 | $ | 25.10 | $ | 39.93 | ||||||||||
| Asset coverage, per $1,000 of principal amount | ||||||||||||||||||||
| of senior notes and credit facility borrowings(4) | $ | 4,331 | $ | 4,837 | $ | 5,951 | $ | 4,010 | $ | 5,893 | ||||||||||
| Asset coverage ratio of senior notes and | ||||||||||||||||||||
| credit facility borrowings(4) | 433 | % | 484 | % | 595 | % | 401 | % | 589 | % | ||||||||||
| Asset coverage, per $25 liquidation value per share | ||||||||||||||||||||
| of mandatory redeemable preferred stock(5) | $ | 83 | $ | 93 | $ | 113 | $ | 82 | $ | 121 | ||||||||||
| Asset coverage ratio of preferred stock(5) | 334 | % | 372 | % | 452 | % | 327 | % | 486 | % | ||||||||||
| (1) |
Information presented relates to a share of common stock outstanding for the entire year. |
| (2) |
The per common share data for the years ended November 30, 2017, 2016, 2015, and 2014 do not reflect the change in estimate of investment income and return of capital, for the respective year. See Note 2C to the financial statements for further disclosure. |
| (3) |
Total investment return is calculated assuming a purchase of common stock at the beginning of the year and a sale at the closing price on the last day of the year reported (excluding brokerage commissions). The calculation also assumes reinvestment of distributions at actual prices pursuant to TTP’s dividend reinvestment plan. |
| (4) |
Represents value of total assets less all liabilities and indebtedness not represented by senior notes, credit facility borrowings and preferred stock at the end of the year divided by senior notes and credit facility borrowings outstanding at the end of the year. |
| (5) |
Represents value of total assets less all liabilities and indebtedness not represented by senior notes, credit facility borrowings and preferred stock at the end of the year divided by senior notes, credit facility borrowings and preferred stock outstanding at the end of the year. |
| See accompanying Notes to Financial Statements. | |
| Tortoise | 47 |
| NDP Financial Highlights |
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
| November 30, | November 30, | November 30, | November 30, | November 30, | ||||||||||||||||
| 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
| Per Common Share Data(1) | ||||||||||||||||||||
| Net Asset Value, beginning of year | $ | 12.88 | $ | 16.95 | $ | 15.53 | $ | 22.76 | $ | 26.49 | ||||||||||
| Income (Loss) from Investment Operations | ||||||||||||||||||||
| Net investment loss(2) | (0.29 | ) | (0.20 | ) | (0.12 | ) | (0.10 | ) | (0.12 | ) | ||||||||||
| Net realized and unrealized gain (loss)(2) | (1.82 | ) | (2.12 | ) | 3.29 | (5.38 | ) | (1.86 | ) | |||||||||||
| Total income (loss) from investment operations | (2.11 | ) | (2.32 | ) | 3.17 | (5.48 | ) | (1.98 | ) | |||||||||||
| Distributions to Common Stockholders | ||||||||||||||||||||
| From net investment income(3) | — | — | — | (0.00 | ) | (0.00 | ) | |||||||||||||
| From net realized gains from | ||||||||||||||||||||
| investment transactions | — | — | — | — | (1.66 | ) | ||||||||||||||
| From return of capital | (1.75 | ) | (1.75 | ) | (1.75 | ) | (1.75 | ) | (0.09 | ) | ||||||||||
| Total distributions to common stockholders | (1.75 | ) | (1.75 | ) | (1.75 | ) | (1.75 | ) | (1.75 | ) | ||||||||||
| Net Asset Value, end of year | $ | 9.02 | $ | 12.88 | $ | 16.95 | $ | 15.53 | $ | 22.76 | ||||||||||
| Per common share market value, end of year | $ | 9.00 | $ | 12.39 | $ | 15.85 | $ | 13.18 | $ | 21.29 | ||||||||||
| Total investment return based on market value(4) | (15.10 | )% | (11.04 | )% | 36.27 | % | (31.05 | )% | (5.16 | )% | ||||||||||
| Supplemental Data and Ratios | ||||||||||||||||||||
| Net assets applicable to common stockholders, | ||||||||||||||||||||
| end of year (000’s) | $ | 132,488 | $ | 187,889 | $ | 246,088 | $ | 225,410 | $ | 330,458 | ||||||||||
| Average net assets (000’s) | $ | 176,481 | $ | 209,940 | $ | 212,528 | $ | 288,672 | $ | 413,380 | ||||||||||
| Ratio of Expenses to Average Net Assets | ||||||||||||||||||||
| Advisory fees | 1.50 | % | 1.43 | % | 1.42 | % | 1.33 | % | 1.25 | % | ||||||||||
| Other operating expenses | 0.32 | 0.26 | 0.29 | 0.21 | 0.16 | |||||||||||||||
| Total operating expenses, before fee waiver | 1.82 | 1.69 | 1.71 | 1.54 | 1.41 | |||||||||||||||
| Fee waiver | — | (0.01 | ) | (0.13 | ) | (0.13 | ) | (0.17 | ) | |||||||||||
| Total operating expenses | 1.82 | 1.68 | 1.58 | 1.41 | 1.24 | |||||||||||||||
| Leverage expenses | 0.99 | 0.56 | 0.37 | 0.21 | 0.14 | |||||||||||||||
| Total expenses | 2.81 | % | 2.24 | % | 1.95 | % | 1.62 | % | 1.38 | % | ||||||||||
| See accompanying Notes to Financial Statements. | |
| 48 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Year Ended November 30, 2018 |
Year Ended November 30, 2017 |
Year Ended November 30, 2016 |
Year Ended November 30, 2015 |
Year Ended November 30, 2014 | ||||||||||||||||
|
Ratio of net investment loss to average net assets |
(2.40 | )% | (1.41 | )% | (0.98 | )% | (0.61 | )% | (0.61 | )% | ||||||||||
| Ratio of net investment loss to average net assets after fee waiver |
(2.40 | )% | (1.40 | )% | (0.85 | )% | (0.48 | )% | (0.44 | )% | ||||||||||
| Portfolio turnover rate | 143.77 | % | 64.88 | % | 47.03 | % | 15.63 | % | 43.21 | % | ||||||||||
| Credit facility borrowings, end of year (000’s) | $ | 57,100 | $ | 64,500 | $ | 63,800 | $ | 61,800 | $ | 56,200 | ||||||||||
| Asset coverage, per $1,000 of principal amount of credit facility borrowings(5) |
$ | 3,320 | $ | 3,913 | $ | 4,857 | $ | 4,647 | $ | 6,880 | ||||||||||
| Asset coverage ratio of credit facility borrowings(5) | 332 | % | 391 | % | 486 | % | 465 | % | 688 | % | ||||||||||
| (1) |
Information presented relates to a share of common stock outstanding for the entire year. |
| (2) |
The per common share data for the years ended November 30, 2017, 2016, 2015, 2014 and 2013 do not reflect the change in estimate of investment income and return of capital, for the respective year. See Note 2C to the financial statements for further disclosure. |
| (3) |
Less than $0.01 for the years ended November 30, 2015 and 2014. |
| (4) |
Total investment return is calculated assuming a purchase of common stock at the beginning of the year and a sale at the closing price on the last day of the year reported (excluding brokerage commissions). The calculation also assumes reinvestment of distributions at actual prices pursuant to NDP’s dividend reinvestment plan. |
| (5) |
Represents value of total assets less all liabilities and indebtedness not represented by credit facility borrowings at the end of the year divided by credit facility borrowings outstanding at the end of the year. |
See accompanying Notes to Financial Statements.
| Tortoise | 49 |
| TPZ Financial Highlights |
| Year Ended November 30, 2018 |
Year Ended November 30, 2017 |
Year Ended November 30, 2016 |
Year Ended |
Year Ended November 30, 2014 | ||||||||||||||||
| Per Common Share Data(1) | ||||||||||||||||||||
| Net Asset Value, beginning of year | $ | 21.33 | $ | 23.89 | $ | 21.23 | $ | 31.08 | $ | 28.12 | ||||||||||
| Income (loss) from Investment Operations | ||||||||||||||||||||
| Net investment income(2) | 0.24 | 0.59 | 0.71 | 0.88 | 0.81 | |||||||||||||||
| Net realized and unrealized gain (loss)(2) | (0.31 | ) | (1.65 | ) | 3.49 | (7.87 | ) | 3.65 | ||||||||||||
| Total income (loss) from investment operations | (0.07 | ) | (1.06 | ) | 4.20 | (6.99 | ) | 4.46 | ||||||||||||
| Distributions to Common Stockholders | ||||||||||||||||||||
| From net investment income | (0.57 | ) | (1.04 | ) | (1.29 | ) | (0.91 | ) | (0.90 | ) | ||||||||||
| From net realized gains from | ||||||||||||||||||||
| investment transactions | (0.93 | ) | (0.36 | ) | (0.25 | ) | (1.95 | ) | (0.60 | ) | ||||||||||
| From return of capital | — | (0.10 | ) | — | — | — | ||||||||||||||
| Total distributions to common stockholders | (1.50 | ) | (1.50 | ) | (1.54 | ) | (2.86 | ) | (1.50 | ) | ||||||||||
| Net Asset Value, end of year | $ | 19.76 | $ | 21.33 | $ | 23.89 | $ | 21.23 | $ | 31.08 | ||||||||||
| Per common share market value, end of year | $ | 17.17 | $ | 19.94 | $ | 21.43 | $ | 18.53 | $ | 26.90 | ||||||||||
| Total investment return based on market value(3) | (6.82 | )% | (0.27 | )% | 25.57 | % | (22.54 | )% | 14.94 | % | ||||||||||
| Total investment return based on net asset value(4) | 0.24 | % | (4.31 | )% | 22.18 | % | (23.19 | )% | 16.84 | % | ||||||||||
| Supplemental Data and Ratios | ||||||||||||||||||||
| Net assets applicable to common stockholders, end of year (000’s) |
$ | 137,324 | $ | 148,243 | $ | 166,073 | $ | 147,563 | $ | 216,048 | ||||||||||
| Average net assets (000’s) | $ | 147,616 | $ | 162,708 | $ | 146,274 | $ | 187,752 | $ | 208,698 | ||||||||||
| Ratio of Expenses to Average Net Assets(6) | ||||||||||||||||||||
| Advisory fees | 1.29 | % | 1.25 | % | 1.27 | % | 1.20 | % | 1.12 | % | ||||||||||
| Other operating expenses | 0.37 | 0.31 | 0.39 | 0.31 | 0.26 | |||||||||||||||
| Total operating expenses, before fee waiver | 1.66 | 1.56 | 1.66 | 1.51 | 1.38 | |||||||||||||||
| Fee waiver | — | — | — | (0.01 | ) | (0.07 | ) | |||||||||||||
| Total operating expenses | 1.66 | 1.56 | 1.66 | 1.50 | 1.31 | |||||||||||||||
| Leverage expenses | 0.98 | 0.59 | 0.44 | 0.26 | 0.19 | |||||||||||||||
| Current foreign tax expense(7) | — | — | — | — | — | |||||||||||||||
| Total expenses | 2.64 | % | 2.15 | % | 2.10 | % | 1.76 | % | 1.50 | % | ||||||||||
See accompanying Notes to Financial Statements.
| 50 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Year Ended November 30, 2018 |
Year Ended November 30, 2017 |
Year Ended November 30, 2016 |
Year Ended November 30, 2015 |
Year Ended November 30, 2014 | ||||||||||||||||
| Ratio of net investment income to average net assets before fee waiver |
1.14 | % | 2.51 | % | 3.39 | % | 3.25 | % | 2.62 | % | ||||||||||
|
Ratio of net investment income to average |
1.14 | % | 2.51 | % | 3.39 | % | 3.26 | % | 2.69 | % | ||||||||||
| Portfolio turnover rate(3) | 31.41 | % | 30.86 | % | 40.61 | % | 30.99 | % | 18.39 | % | ||||||||||
| Credit facility borrowings, end of year (000’s) | $ | 53,400 | $ | 53,400 | $ | 50,600 | $ | 49,900 | $ | 42,400 | ||||||||||
| Asset coverage, per $1,000 of principal amount of senior notes and credit facility borrowings(5) |
$ | 3,572 | $ | 3,776 | $ | 4,282 | $ | 3,957 | $ | 6,095 | ||||||||||
|
Asset coverage ratio of senior notes and credit |
357 | % | 378 | % | 428 | % | 396 | % | 610 | % | ||||||||||
| (1) |
Information presented relates to a share of common stock outstanding for the entire year. |
| (2) |
The per common share data for the years ended November 30, 2017, 2016, 2015 and 2014 do not reflect the change in estimate of investment income and return of capital, for the respective year. See Note 2C to the financial statements for further disclosure. |
| (3) |
Total investment return is calculated assuming a purchase of common stock at the beginning of the year and a sale at the closing price on the last day of the period reported (excluding brokerage commissions). The calculation also assumes reinvestment of distributions at actual prices pursuant to TPZ’s dividend reinvestment plan. |
| (4) |
Total investment return is calculated assuming a purchase of common stock at the beginning of the year and a sale at net asset value on the last day of the year reported. The calculation also assumes reinvestment of distributions at actual prices pursuant to TPZ’s dividend reinvestment plan. |
| (5) |
Represents value of total assets less all liabilities and indebtedness not represented by credit facility borrowings at the end of the year divided by credit facility borrowings outstanding at the end of the year. |
See accompanying Notes to Financial Statements.
| Tortoise | 51 |
| Notes to Financial Statements |
| November 30, 2018 |
This report covers the following companies, each of which is listed on the New York Stock Exchange (“NYSE”): Tortoise Energy Infrastructure Corp. (“TYG”), Tortoise MLP Fund, Inc. (“NTG”), Tortoise Pipeline & Energy Fund, Inc. (“TTP”), Tortoise Energy Independence Fund, Inc. (“NDP”), and Tortoise Power and Energy Infrastructure Fund, Inc. (“TPZ”). These companies are individually referred to as a “Fund” or by their respective NYSE symbols, or collectively as the “Funds”, and each is a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). Each of TYG, NTG, TTP and NDP has a primary investment objective to seek a high level of total return with an emphasis on current distributions. TPZ has a primary investment objective to provide a high level of current income, with a secondary objective of capital appreciation.
2. Significant Accounting Policies
The Funds follow accounting and reporting guidance applicable to investment companies under U.S. generally accepted accounting principles (“GAAP”).
A. Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the amount of income and expenses during the period reported. Actual results could differ from those estimates.
B. Security Valuation
In general, and where applicable, the Funds use readily available market quotations based upon the last updated sales price from the principal market to determine fair value. The Funds primarily own securities that are listed on a securities exchange or are traded in the over-the-counter market. The Funds value those securities at their last sale price on that exchange or over-the-counter market on the valuation date. If the security is listed on more than one exchange, the Funds use the price from the exchange that it considers to be the principal exchange on which the security is traded. Securities listed on the NASDAQ are valued at the NASDAQ Official Closing Price, which may not necessarily represent the last sale price. These securities are categorized as Level 1 in the fair value hierarchy. If there has been no sale on such exchange or over-the-counter market on such day, the security is valued at the mean between the last bid price and last ask price on such day.
Restricted securities are subject to statutory or contractual restrictions on their public resale, which may make it more difficult to obtain a valuation and may limit a Fund’s ability to dispose of them. Investments in private placement securities and other securities for which market quotations are not readily available are valued in good faith by using fair value procedures. Such fair value procedures consider factors such as discounts to publicly traded issues, time until conversion date, securities with similar yields, quality, type of issue, coupon, duration and rating. If events occur that affect the value of a Fund’s portfolio securities before the net asset value has been calculated (a “significant event”), the portfolio securities so affected are generally priced using fair value procedures.
An equity security of a publicly traded company acquired in a private placement transaction without registration under the Securities Act of 1933, as amended (the “1933 Act”), is subject to restrictions on resale that can affect the security’s liquidity and fair value. If such a security is convertible into publicly traded common shares, the security generally will be valued at the common share market price adjusted by a percentage discount due to the restrictions and categorized as Level 2 in the fair value hierarchy. To the extent that such securities are convertible or otherwise become freely tradable within a time frame that may be reasonably determined, an amortization schedule may be used to determine the discount. If the security has characteristics that are dissimilar to the class of security that trades on the open market, the security will generally be valued and categorized as Level 3 in the fair value hierarchy.
Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity. Unobservable inputs reflect the Funds’ own beliefs about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances, which might include the Fund’s own data. The Fund’s own data are adjusted if information is reasonably available without undue cost and effort that indicates that market participants would use different assumptions. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.
Exchange-traded options are valued at the last reported sale price on any exchange on which they trade. If no sales are reported on any exchange on the measurement date, exchange-traded options are valued at the mean between the most recent high bid and most recent low ask prices obtained as of the closing of the exchanges on which the option is traded. The value of Flexible Exchange Options (FLEX Options) are determined (i) by an evaluated price as determined by a third-party valuation service; or (ii) by using a quotation provided by a broker-dealer.
The Funds generally value debt securities at evaluated bid prices obtained from an independent third-party valuation service that utilizes a pricing matrix based upon yield data for securities with similar characteristics, or based on a direct written broker-dealer quotation from a dealer who has made a market in the security. Debt securities with 60 days or less to maturity at time of purchase are valued on the basis of amortized cost, which approximates fair value. The securities are categorized as Level 2 in the fair value hierarchy.
| 52 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Notes to Financial Statements (continued) |
Various inputs are used in determining the fair value of the Funds’ investments and financial instruments. These inputs are summarized in the three broad levels listed below:
Level 1 — quoted prices in active markets for identical investments
Level 2 — other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)
Level 3 — significant unobservable inputs (including a Fund’s own assumptions in determining the fair value of investments)
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following tables provide the fair value measurements of applicable assets and liabilities by level within the fair value hierarchy as of November 30, 2018. These assets and liabilities are measured on a recurring basis.
| TYG: | ||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||
| Assets | ||||||||||||
| Investments: | ||||||||||||
| Master Limited Partnerships(a) | $ | 1,748,455,456 | $ | — | $ | — | $ | 1,748,455,456 | ||||
| Common Stock(a) | 237,409,339 | — | — | 237,409,339 | ||||||||
| Preferred Stock(a) | 67,703,080 | — | 29,426,431 | 97,129,511 | ||||||||
| Private Investments(a) | — | — | 36,836,183 | 36,836,183 | ||||||||
| Short-Term Investment(b) | 232,244 | — | — | 232,244 | ||||||||
| Total Investments | $ | 2,053,800,119 | $ | — | $ | 66,262,614 | $ | 2,120,062,733 | ||||
| Interest Rate Swap Contracts | — | 108,883 | — | 108,883 | ||||||||
| Total Assets | $ | 2,053,800,119 | $ | 108,883 | $ | 66,262,614 | $ | 2,120,171,616 | ||||
| Liabilities | ||||||||||||
| Written Call Options | $ | 445,535 | $ | 476,307 | $ | — | $ | 921,842 | ||||
| NTG: | ||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||
| Assets | ||||||||||||
| Investments: | ||||||||||||
| Master Limited Partnerships(a) | $ | 1,240,002,400 | $ | — | $ | — | $ | 1,240,002,400 | ||||
| Common Stock(a) | 201,885,718 | — | — | 201,885,718 | ||||||||
| Preferred Stock(a) | 46,536,805 | — | 16,777,343 | 63,314,148 | ||||||||
| Short-Term Investment(b) | 301,054 | — | — | 301,054 | ||||||||
| Total Assets | $ | 1,488,725,977 | $ | — | $ | 16,777,343 | $ | 1,505,503,320 | ||||
| Liabilities | ||||||||||||
| Written Call Options | $ | 410,448 | $ | 243,014 | $ | — | $ | 653,462 | ||||
| TTP: | ||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||
| Assets | ||||||||||||
| Investments: | ||||||||||||
| Common Stock(a) | $ | 154,447,681 | $ | — | $ | — | $ | 154,447,681 | ||||
| Master Limited Partnerships and Related Companies(a) | 68,485,420 | — | — | 68,485,420 | ||||||||
| Preferred Stock(a) | 6,521,700 | — | 4,909,451 | 11,431,151 | ||||||||
| Short-Term Investment(b) | 217,864 | — | — | 217,864 | ||||||||
| Total Assets | $ | 229,672,665 | $ | — | $ | 4,909,451 | $ | 234,582,116 | ||||
| Liabilities | ||||||||||||
| Written Call Options | $ | 68,007 | $ | 131,775 | $ | — | $ | 199,782 | ||||
| Tortoise | 53 |
| Notes to Financial Statements (continued) |
| NDP: | ||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||
| Assets | ||||||||||||
| Investments: | ||||||||||||
| Common Stock(a) | $ | 148,118,206 | $ | — | $ | — | $ | 148,118,206 | ||||
| Master Limited Partnerships and Related Companies(a) | 40,623,696 | — | — | 40,623,696 | ||||||||
| Preferred Stock(a) | — | — | 2,178,123 | 2,178,123 | ||||||||
| Short-Term Investment(b) | 311,985 | — | — | 311,985 | ||||||||
| Total Assets | $ | 189,053,887 | $ | — | $ | 2,178,123 | $ | 191,232,010 | ||||
| Liabilities | ||||||||||||
| Written Call Options | $ | 527,939 | $ | 307,068 | $ | — | $ | 835,007 | ||||
| TPZ: | ||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||
| Assets | ||||||||||||
| Investments: | ||||||||||||
| Corporate Bonds(a) | $ | — | $ | 97,378,051 | $ | — | $ | 97,378,051 | ||||
| Master Limited Partnerships and Related Companies(a) | 51,235,576 | — | — | 51,235,576 | ||||||||
| Common Stock(a) | 32,979,230 | — | — | 32,979,230 | ||||||||
| Preferred Stock(a) | 4,319,676 | — | 3,761,271 | 8,080,947 | ||||||||
| Short-Term Investment(b) | 271,075 | — | — | 271,075 | ||||||||
| Total Investments | 88,805,557 | 97,378,051 | 3,761,271 | 189,944,879 | ||||||||
| Interest Rate Swap Contracts | — | 128,630 | — | 128,630 | ||||||||
| Total Assets | $ | 88,805,557 | $ | 97,506,681 | $ | 3,761,271 | $ | 190,073,509 | ||||
| (a) | All other industry classifications are identified in the Schedule of Investments. |
| (b) | Short-term investment is a sweep investment for cash balances. |
The Funds utilize the beginning of reporting period method for determining transfers between levels. During the year ended November 30, 2018, Phillips 66 Partners LP common units held by TYG, NTG, TTP, NDP, and TPZ in the amount of $27,160,073, $25,020,763, $1,728,636, $1,507,572, and $1,333,876, respectively, were transferred from Level 2 to Level 1 when they converted into registered and unrestricted common units of Phillips 66 Partners LP. There were no other transfers between levels for the Funds during the year ended November 30, 2018.
The following tables present each Fund’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended November 30, 2018:
| Preferred Stock | TYG | NTG | TTP | NDP | TPZ | |||||||||||||||
| Balance — beginning of year | $ | 23,396,034 | $ | 13,174,382 | $ | 2,266,699 | $ | 2,147,342 | $ | 1,811,854 | ||||||||||
| Purchases | 6,277,000 | 3,763,000 | 2,877,000 | — | 2,120,000 | |||||||||||||||
| Return of capital | (1,883,391 | ) | (1,060,543 | ) | (182,470 | ) | (172,862 | ) | (145,855 | ) | ||||||||||
| Sales | — | — | — | — | — | |||||||||||||||
| Total realized gain/loss | — | — | — | — | — | |||||||||||||||
| Change in unrealized gain/loss | 1,636,788 | 900,504 | (51,778 | ) | 203,643 | (24,728 | ) | |||||||||||||
| Balance — end of year | $ | 29,426,431 | $ | 16,777,343 | $ | 4,909,451 | $ | 2,178,123 | $ | 3,761,271 | ||||||||||
| Private Investments | TYG | NTG | TTP | NDP | TPZ | |||||||||||||||
| Balance — beginning of year | $ | 25,886,172 | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Purchases | 38,877,659 | — | — | — | — | |||||||||||||||
| Return of capital | (4,768,190 | ) | — | — | — | — | ||||||||||||||
| Sales | — | — | — | — | — | |||||||||||||||
| Total realized gain/loss | — | — | — | — | — | |||||||||||||||
| Change in unrealized gain/loss | (23,159,458 | ) | — | — | — | — | ||||||||||||||
| Balance — end of year | $ | 36,836,183 | $ | — | $ | — | $ | — | $ | — | ||||||||||
| TYG | NTG | TTP | NDP | TPZ | ||||||||||||||||
| Change in unrealized gain/loss on | ||||||||||||||||||||
| investments still held at November 30, 2018 | $ | (21,522,670 | ) | $ | 900,504 | $ | (51,778 | ) | $ | 203,643 | $ | (24,728 | ) | |||||||
| 54 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Notes to Financial Statements (continued) |
TYG, NTG, TTP, and TPZ own units of preferred stock of SemGroup Corporation (“SEMG Pfd”) that were issued in a private placement transaction that closed on January 19, 2018. The preferred stock provides the purchaser an option to convert into common stock after 18 months at a price of $33.00 per share. In addition, the issuer can force conversion to common stock after 3 years at a price of $47.85 per share.
A lattice model is being utilized to determine fair value of the level 3 preferred stock. The Funds estimate future volatility of the underlying common stock price and the discount rate to apply to expected future cash flows. Unobservable inputs used to determine the discount rate include an illiquidity spread due to the shares being issued in the private market and a seniority spread due to the purchased private preferred units being lower in the capital structure than the issuer’s public preferred stock. An increase (decrease) in the illiquidity spread or seniority spread would lead to a corresponding decrease (increase) in fair value of the preferred stock. An increase (decrease) in estimated future volatility would lead to a corresponding increase (decrease) in fair value of the preferred stock.
TYG is a minority owner of a private investment, MTP Energy KMAA, LLC, which represents an indirect interest in Tallgrass Energy, LP. An illiquidity discount is being applied to publicly traded Tallgrass Energy, LP units to determine the fair value of the private investment.
TYG owns units of Tortoise HoldCo II, LLC, a wholly-owned investment of TYG, which acquired an approximately 40 megawatt commercial and industrial solar portfolio between August 2017 and November 2018. As of November 30, 2018, TYG has committed a total of $50,738,405 of equity funding to Tortoise HoldCo II, LLC. Fair value of Tortoise HoldCo II, LLC is net of tax benefits.
The following tables summarize the fair value and significant unobservable inputs that each Fund used to value its portfolio investments categorized as Level 3 as of November 30, 2018:
| Assets at Fair Value | TYG | NTG | TTP | NDP | TPZ | ||||||||||
| Preferred Stock | $ | 29,426,431 | $ | 16,777,343 | $ | 4,909,451 | $ | 2,178,123 | $ | 3,761,271 | |||||
| Private Investments | $ | 36,836,183 | $ | — | $ | — | $ | — | $ | — | |||||
| Assets at Fair Value | Valuation Technique | Unobservable Inputs | Input | ||||||||||||
| Preferred Stock (TRGP Pfd) | Lattice model | Illiquidity spread | 1.25% | ||||||||||||
| Preferred Stock (TRGP Pfd) | Lattice model | Seniority spread | 0.25% | ||||||||||||
| Preferred Stock (SEMG Pfd) | Lattice model | Illiquidity spread | 0.90% | ||||||||||||
| Preferred Stock (SEMG Pfd) | Lattice model | Seniority spread | 0.25% | ||||||||||||
| Private Investment (MTP Energy) | Discount to publicly traded units | Illiquidity discount | 8.00% | ||||||||||||
| Private Investment (HoldCo II, LLC) | Discounted cash flows model | Contracted weighted average | |||||||||||||
| cost of capital | 6.50% | ||||||||||||||
|
Post-contracted weighted average |
|||||||||||||||
| cost of capital | 8.50% | ||||||||||||||
| Recent transaction | Purchase price | $ | 8,390,637 | ||||||||||||
C. Securities Transactions and Investment Income
Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses are reported on an identified cost basis. Interest income is recognized on the accrual basis, including amortization of premiums and accretion of discounts. Dividend income and distributions are recorded on the ex-dividend date. Distributions received from investments generally are comprised of ordinary income and return of capital. The Funds estimate the allocation of distributions between investment income and return of capital at the time such distributions are received based on historical information or regulatory filings. These estimates may subsequently be revised based on actual allocations received from the portfolio companies after their tax reporting periods are concluded, as the actual character of these distributions is not known until after the fiscal year-end of the Funds.
| Tortoise | 55 |
| Notes to Financial Statements (continued) |
| Decrease in Net | Increase in | Increase (Decrease) | ||||||||||||||||||||
| Investment Income | Unrealized Appreciation | in Realized Gains | ||||||||||||||||||||
| Amount | Per Share | Amount | Per Share | Amount | Per Share | |||||||||||||||||
| TYG | ||||||||||||||||||||||
| Pre-tax | $ | (11,725,829 | ) | $ | (0.207 | ) | $ | 11,124,478 | $ | 0.196 | $ | 601,351 | $ | 0.011 | ||||||||
| After-tax | $ | (8,980,813 | ) | $ | (0.159 | ) | $ | 8,520,238 | $ | 0.150 | $ | 460,575 | $ | 0.009 | ||||||||
| NTG | ||||||||||||||||||||||
| Pre-tax | $ | (2,579,159 | ) | $ | (0.041 | ) | $ | 2,622,975 | $ | 0.041 | $ | (43,816 | ) | $ | (0.000 | ) | ||||||
| After-tax | $ | (1,984,405 | ) | $ | (0.031 | ) | $ | 2,018,117 | $ | 0.032 | $ | (33,712 | ) | $ | (0.001 | ) | ||||||
| TTP | $ | (223,121 | ) | $ | (0.022 | ) | $ | 385,455 | $ | 0.038 | $ | (162,334 | ) | $ | (0.016 | ) | ||||||
| NDP | $ | (456,680 | ) | $ | (0.031 | ) | $ | 462,183 | $ | 0.031 | $ | (5,503 | ) | $ | (0.000 | ) | ||||||
| TPZ | $ | (623,363 | ) | $ | (0.090 | ) | $ | 625,653 | $ | 0.090 | $ | (2,290 | ) | $ | (0.000 | ) | ||||||
In addition, the Funds may be subject to withholding taxes on foreign-sourced income. The Funds accrue such taxes when the related income is earned.
D. Foreign Currency Translation
For foreign currency, investments in foreign securities, and other assets and liabilities denominated in a foreign currency, the Funds translate these amounts into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the current rate of exchange on the valuation date, and (ii) purchases and sales of investment securities, income and expenses at the relevant rates of exchange on the respective dates of such transactions. The Funds do not isolate the portion of gains and losses on investments that is due to changes in the foreign exchange rates from that which is due to changes in market prices of securities.
E. Federal and State Income Taxation
Each of TYG and NTG, as corporations, are obligated to pay federal and state income tax on its taxable income. For fiscal year ending November 30, 2018, TYG and NTG are required to use a blended Federal rate of approximately 22%. For subsequent years, TYG and NTG will use the marginal corporate federal income tax rate of 21%.
TTP, NDP and TPZ each qualify as a regulated investment company (“RIC”) under the Internal Revenue Code (“IRC”). As a result, TTP, NDP and TPZ generally will not be subject to U.S. federal income tax on income and gains that they distribute each taxable year to stockholders if they meet certain minimum distribution requirements. RICs are required to distribute substantially all of their income, in addition to meeting certain asset diversification requirements, and are subject to a 4% non-deductible U.S. federal excise tax on certain undistributed income unless the fund makes sufficient distributions to satisfy the excise tax avoidance requirement.
The Funds invest in master limited partnerships (“MLPs”), which generally are treated as partnerships for federal income tax purposes. As a limited partner in the MLPs, each Fund reports its allocable share of the MLP’s taxable income in computing its own taxable income. The Funds’ tax expense or benefit, if applicable, is included in the Statements of Operations based on the component of income or gains (losses) to which such expense or benefit relates. For TYG and NTG, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.
The Funds recognize the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. The Funds’ policy is to record interest and penalties on uncertain tax positions as part of tax expense. As of November 30, 2018, the Funds had no uncertain tax positions and no penalties or interest was accrued. The Funds do not expect any change in their unrecognized tax positions in the next twelve months. The tax years ended on the following dates remain open to examination by federal and state tax authorities:
F. Distributions to Stockholders
Distributions to common stockholders are recorded on the ex-dividend date. The Funds may not declare or pay distributions to its common stockholders if it does not meet asset coverage ratios required under the 1940 Act or the rating agency guidelines for its debt and preferred stock following such distribution. The amount of any distributions will be determined by the Board of Directors. The character of distributions to common stockholders made during the year may differ from their ultimate characterization for federal income tax purposes.
As RICs, TTP, NDP and TPZ each intend to make cash distributions of its investment company taxable income and capital gains to common stockholders. In addition, on an annual basis, TTP, NDP and TPZ each may distribute additional capital gains in the last calendar quarter if necessary to meet minimum distribution requirements and thus avoid being subject to excise taxes. Distributions paid to stockholders in excess of investment company taxable income and net realized gains will be treated as return of capital to stockholders.
| 56 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Notes to Financial Statements (continued) |
For tax purposes, distributions to stockholders for the year ended November 30, 2018 were characterized as follows:
| TYG | NTG | TTP | NDP | TPZ* | ||||||||||||||||||||
| Common | Preferred | Common | Preferred | Common | Preferred | Common | Common | |||||||||||||||||
| Qualified dividend income | 84 | % | 100 | % | 47 | % | 100 | % | 3 | % | 100 | % | — | 5 | % | |||||||||
| Ordinary dividend income | — | — | — | — | — | — | — | 39 | % | |||||||||||||||
| Return of capital | 16 | % | — | 53 | % | — | 97 | % | — | 100 | % | — | ||||||||||||
| Long-term capital gain | — | — | — | — | — | — | — | 56 | % | |||||||||||||||
| * | For Federal income tax purposes, distributions of short-term capital gains are included in qualified dividend income. |
G. Offering and Debt Issuance Costs
Offering costs related to the issuance of common stock are charged to additional paid-in capital when the stock is issued. Debt issuance costs related to senior notes and MRP Stock are deferred and amortized over the period the debt or MRP Stock is outstanding.
TYG:
Offering costs (excluding underwriter discounts and commissions) of $349,970 related to the issuance of common stock were recorded to additional paid-in capital during the year ended November 30, 2018. Deferred costs (excluding underwriter commissions) were reflected during the year ended November 30, 2018 for Series PP Notes ($4,366) that were issued in September 2017.
NTG:
Offering costs (excluding underwriter discounts and commissions) of $1,039,977 related to the issuance of common stock were recorded to additional paid-in capital during the year ended November 30, 2018. Deferred costs (excluding underwriter commissions) were reflected during the year ended November 30, 2018 for Series N Notes ($56,187) and Series O Notes ($43,896) that were issued in December 2017 and for Series P Notes ($43,934), Series Q Notes ($32,950) and Series R Notes ($28,557) issued in October 2018 and for MRP E Shares ($67,925) and MRP F Shares ($42,453) that were issued in December 2017 and for MRP G Shares ($66,955) that were issued in October 2018.
There were no offering or debt issuance costs recorded during the year ended November 30, 2018, for TTP, NDP or TPZ.
H. Derivative Financial Instruments
The Funds have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Funds do not hold or issue derivative financial instruments for speculative purposes. All derivative financial instruments are recorded at fair value with changes in fair value during the reporting period, and amounts accrued under the agreements, included as unrealized gains or losses in the accompanying Statements of Operations. Derivative instruments that are subject to an enforceable master netting arrangement allow a Fund and the counterparty to the instrument to offset any exposure to the other party with amounts owed to the other party. The fair value of derivative financial instruments in a loss position are offset against the fair value of derivative financial instruments in a gain position, with the net fair value appropriately reflected as an asset or liability within the accompanying Statements of Assets & Liabilities.
TYG and TPZ use interest rate swap contracts in an attempt to manage interest rate risk. Cash settlements under the terms of the interest rate swap contracts and the termination of such contracts are recorded as realized gains or losses in the accompanying Statements of Operations.
TYG, NTG, TTP and NDP seek to provide current income from gains earned through an option strategy that normally consists of writing (selling) call options on selected equity securities held in the portfolio (“covered calls”). The premium received on a written call option is initially recorded as a liability and subsequently adjusted to the then current fair value of the option written. Premiums received from writing call options that expire unexercised are recorded as a realized gain on the expiration date. Premiums received from writing call options that are exercised are added to the proceeds from the sale of the underlying security to calculate the realized gain (loss). If a written call option is repurchased prior to its exercise, the realized gain (loss) is the difference between the premium received and the amount paid to repurchase the option.
I. Indemnifications
Under each of the Funds’ organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds may enter into contracts that provide general indemnification to other parties. A Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred, and may not occur. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.
J. Cash and Cash Equivalents
Cash and cash equivalents include short-term, liquid investments with an original maturity of three months or less and money market fund accounts.
| Tortoise | 57 |
| Notes to Financial Statements (continued) |
On December 22, 2017 The Tax Cuts and Jobs Act was signed into law thus reducing the U.S. corporate tax rate from 35% to 21%. For the fiscal year ending November 30, 2018, TYG and NTG will use an effective tax rate of 24.54% and 24.20% respectively, to calculate the current tax liability (if any). Additionally, an effective rate of 23.41% and 23.06% will be used to calculate the deferred tax liability.
In August 2018, the Securities and Exchange Commission (“SEC”) adopted SEC Final Rule Release No. 33-10532, which eliminates or modifies certain disclosure requirements that have become duplicative, overlapping or outdated in light of other SEC disclosure requirements, GAAP or “changes in the information environment.” The amendments are effective for all filings submitted on or after November 8, 2018. The Fund has adopted the amendments, which have not had a material impact on the financial statements.
In August 2018, the FASB issued ASU No. 2018-13 (“ASU 2018-13”), Fair Value Measurement (Topic 820): Disclosure Framework which modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, early adoption is permitted. Management is currently evaluating this guidance to determine the impact on the financial statements.
3. Concentration Risk
Each of the Funds concentrates its investments in the energy sector. Funds that primarily invest in a particular sector may experience greater volatility than companies investing in a broad range of industry sectors. A Fund may, for defensive purposes, temporarily invest all or a significant portion of its assets in investment grade securities, short-term debt securities and cash or cash equivalents. To the extent a Fund uses this strategy, it may not achieve its investment objective.
4. Agreements
The Funds have each entered into an Investment Advisory Agreement with Tortoise Capital Advisors, L.L.C. (the “Adviser”). The Funds each pay the Adviser a fee based on the Fund’s average monthly total assets (including any assets attributable to leverage and excluding any net deferred tax asset) minus accrued liabilities (other than net deferred tax liability, debt entered into for purposes of leverage and the aggregate liquidation preference of outstanding preferred stock) (“Managed Assets”), in exchange for the investment advisory services provided. Average monthly Managed Assets is the sum of the daily Managed Assets for the month divided by the number of days in the month. Accrued liabilities are expenses incurred in the normal course of each Fund’s operations. Waived fees are not subject to recapture by the Adviser. The annual fee rates paid to the Adviser as of November 30, 2018 are as follows:
In addition, the Adviser has contractually agreed to waive all fees due under the Investment Advisory Agreements for TYG and NTG related to the net proceeds received from the issuance of additional common stock under at-the-market equity programs for a six-month period following the date of issuance, as well as agreed to similarly waive fees related to the proceeds received from the issuance of common stock from private placement transactions in TYG and from a rights offering in NTG that occurred during the year.
U.S. Bancorp Fund Services, LLC serves as each Fund’s administrator. Each Fund pays the administrator a monthly fee computed at an annual rate of 0.04% of the first $1,000,000,000 of the Fund’s Managed Assets, 0.01% on the next $500,000,000 of Managed Assets and 0.005% on the balance of the Fund’s Managed Assets.
U.S. Bank, N.A. serves as the Funds’ custodian. Each Fund pays the custodian a monthly fee computed at an annual rate of 0.004% of the Fund’s U.S. Dollar-denominated assets and 0.015% of the Fund’s Canadian Dollar-denominated assets, plus portfolio transaction fees.
| 58 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Notes to Financial Statements (continued) |
TYG and NTG:
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of TYG’s and NTG’s deferred tax assets and liabilities as of November 30, 2018 are as follows:
| TYG | NTG | |||||
| Deferred tax assets: | ||||||
| Net operating loss carryforwards | $ | 226,193 | $ | 12,982,069 | ||
| AMT credit | — | 2,826,344 | ||||
| Investment tax credit | 4,691,703 | — | ||||
| Net unrealized loss on investment securities | — | 6,321,368 | ||||
| 4,917,896 | 22,129,781 | |||||
| Deferred tax liabilities: | ||||||
| Basis reduction of investments | 176,927,062 | 90,305,214 | ||||
| Net unrealized gains on investment securities | 17,553,361 | — | ||||
| 194,480,423 | 90,305,214 | |||||
| Total net deferred tax liability | $ | 189,562,527 | $ | 68,175,433 | ||
At November 30, 2018, a valuation allowance on deferred tax assets was not deemed necessary because each of TYG and NTG believe it is more likely than not that there is an ability to realize its deferred tax assets through future taxable income. Any adjustments to TYG’s or NTG’s estimates of future taxable income will be made in the period such determination is made.
During the year ending November 30, 2018, TYG received $13,901,688 in Investment Tax Credits through its investment in Tortoise Holdco II, LLC. The fund expects to use a portion of the tax credits in the current year against its federal tax liability. All unused credits will be carried forward and available to use against a future tax liability.
Total income tax expense (benefit) for each of TYG and NTG differs from the amount computed by applying the federal statutory income tax rate of 22.17% to net investment loss and net realized and unrealized gains (losses) on investments for the year ended November 30, 2018, as follows:
| TYG | NTG | |||||||
| Application of statutory income tax rate | $ | (12,569,511 | ) | $ | (6,910,716 | ) | ||
| State income taxes, net of federal tax effect | (1,343,696 | ) | (632,781 | ) | ||||
| Permanent differences | 785,627 | 494,345 | ||||||
| Change in deferred tax liability due to change in overall tax rate | (125,271,378 | ) | (47,436,124 | ) | ||||
| Investment Tax Credit | (13,901,688 | ) | — | |||||
| Other | (749,679 | ) | 473,955 | |||||
| Total income tax (benefit) | $ | (153,050,325 | ) | $ | (54,011,321 | ) | ||
Total income taxes are being calculated by applying the federal rate plus a blended state income tax rate. Pursuant to the passing of the Tax Cuts and Jobs Act, TYG and NTG revalued their deferred tax assets and liabilities. As such, TYG and NTG recorded a deferred tax benefit as a result of the reduction in the federal rate from 35% to 21%. For the period from December 1, 2017 through November 30, 2018, TYG and NTG decreased its current rate from 37.00% to 24.54% and from 36.76% to 24.20%, respectively. TYG and NTG also decreased its deferred rate from 37.00% to 23.41% and from 36.76% to 23.06%, respectively.
For the year ended November 30, 2018, the components of income tax expense for TYG and NTG include the following:
| TYG | NTG | |||||||
| Current tax expense (benefit) | ||||||||
| Federal | $ | (1,678,397 | ) | $ | — | |||
| State | 1,144,797 | 141,889 | ||||||
| AMT | — | 44,147 | ||||||
| Total current tax expense (benefit) | (533,600 | ) | 186,036 | |||||
| Deferred tax benefit | ||||||||
| Federal | (136,815,516 | ) | (49,355,790 | ) | ||||
| State (net of federal tax effect) | (15,701,209 | ) | (4,841,567 | ) | ||||
| Total deferred tax (benefit) | (152,516,725 | ) | (54,197,357 | ) | ||||
| Total income tax (benefit), net | $ | (153,050,325 | ) | $ | (54,011,321 | ) | ||
| Tortoise | 59 |
| Notes to Financial Statements (continued) |
As of November 30, 2018, NTG had $2,826,344 of AMT credits available, which may be utilized against future tax liabilities. AMT credit carryovers may be eligible for a partial refund in 2018, 2019, or 2020 and any remaining unused credit will be fully refundable in 2021.
TTP, NDP and TPZ:
It is the intention of TTP, NDP and TPZ to each continue to qualify as a RIC under Subchapter M of the IRC and distribute all of its taxable income. Accordingly, no provision for federal income taxes is required in the financial statements.
The amount and character of income and capital gain distributions to be paid, if any, are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. These differences are primarily due to return of capital distributions from underlying investments, wash sales, straddles, swaps, differences in the timing of recognition of gains or losses on investments and distributions in excess of current earnings. These reclassifications have no impact on net assets or results of operations. Permanent book and tax basis differences resulted in the following reclassifications:
| TTP(1) | NDP(1) | TPZ(1) | ||||||||||
| Distributable earnings (loss) | $ | (52,535 | ) | $ | 1,947,265 | $ | (174,878 | ) | ||||
| Additional paid-in capital | 52,535 | (1,947,265 | ) | 174,878 | ||||||||
| (1) | Primarily related to character differences of realized gains (losses) on investments. |
The tax character of distributions paid to stockholders for the years ending November 30, 2018 and November 30, 2017 was as follows:
| Year Ended November 30, 2018 | ||||||||||||
| TTP | NDP | TPZ | ||||||||||
| Common | Preferred | Common | Common | |||||||||
| Ordinary income(1) | $ | 428,639 | $ | 686,401 | $ | — | $ | 4,643,278 | ||||
| Long-term capital gain | — | — | — | 5,783,722 | ||||||||
| Return of capital | 15,898,114 | — | 25,568,654 | — | ||||||||
| Total distributions | $ | 16,326,753 | $ | 686,401 | $ | 25,568,654 | $ | 10,427,000 | ||||
| Year Ended November 30, 2017 | ||||||||||||
| TTP | NDP | TPZ | ||||||||||
| Common | Preferred | Common | Common | |||||||||
| Ordinary income(1) | $ | 2,702,194 | $ | 610,837 | $ | — | $ | 7,224,707 | ||||
| Long-term capital gain | 334,279 | 75,564 | — | 2,519,243 | ||||||||
| Return of capital | 13,290,280 | — | — | 683,050 | ||||||||
| Total distributions | $ | 16,326,753 | $ | 686,401 | $ | 25,460,285 | $ | 10,427,000 | ||||
| (1) | For Federal income tax purposes, distributions of short-term capital gains are treated as ordinary income distributions. |
As of November 30, 2018, the components of accumulated earnings (deficit) on a tax basis were as follows:
| TTP | NDP | TPZ | ||||||||||
| Unrealized appreciation (depreciation) | $ | (37,410,381 | ) | $ | (80,367,382 | ) | $ | 8,280,508 | ||||
| Capital loss carryforwards | (4,899,906 | ) | (26,234,383 | ) | — | |||||||
| Undistributed ordinary income | — | — | 76,300 | |||||||||
| Other temporary differences | (303,857 | ) | (1) | 2 | (13,629 | ) | ||||||
| Accumulated earnings (deficit) | $ | (42,614,144 | ) | $ | (106,601,763 | ) | $ | 8,343,179 | ||||
| (1) | Primarily related to losses deferred under straddle regulations per IRC Sec. 1092 and dividends payable. |
| 60 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Notes to Financial Statements (continued) |
As of November 30, 2018, the aggregate cost of investments, aggregate gross unrealized appreciation and aggregate gross unrealized depreciation on a federal income tax basis were as follows:
| TYG | NTG | TTP | NDP | TPZ | ||||||||||||||||
| Cost of investments | $ | 1,300,787,361 | $ | 1,141,003,337 | $ | 263,377,420 | $ | 265,204,064 | $ | 176,708,406 | ||||||||||
| Gross unrealized appreciation of investments | $ | 863,899,455 | $ | 415,344,819 | $ | 16,759,705 | $ | 9,600,961 | $ | 20,019,367 | ||||||||||
| Gross unrealized depreciation of investments | (44,943,467 | ) | (51,147,754 | ) | (45,242,014 | ) | (82,001,033 | ) | (6,654,264 | ) | ||||||||||
| Net unrealized appreciation (depreciation) | ||||||||||||||||||||
| of investments | $ | 818,955,988 | $ | 364,197,065 | $ | (28,482,309 | ) | $ | (72,400,072 | ) | $ | 13,365,103 | ||||||||
6. Restricted Securities
Certain of the Funds’ investments are restricted and are valued as determined in accordance with fair value procedures, as more fully described in Note 2. The following table shows the principal amount or shares, acquisition date(s), acquisition cost, fair value and the percent of net assets which the securities comprise at November 30, 2018.
| TYG: | |||||||||||||||||
| Fair Value | |||||||||||||||||
| as Percent | |||||||||||||||||
| Investment Security | Investment Type | Shares | Acquisition Date(s) | Acquisition Cost | Fair Value | of Net Assets | |||||||||||
| SemGroup Corporation, | |||||||||||||||||
| 7.000% | Preferred Stock | 6,277 | 01/19/18 | $ | 6,277,000 | $ | 5,695,032 | 0.5 | % | ||||||||
| Targa Resources Corp., | |||||||||||||||||
| 9.500% | Preferred Stock | 21,758 | 03/16/16 | 19,265,393 | 23,731,399 | 1.9 | |||||||||||
| MTP Energy KMAA LLC | Private Investment | N/A | 06/29/18 | 18,287,590 | 17,762,716 | 1.4 | |||||||||||
| Tortoise HoldCo II, LLC | Private Investment | N/A | 08/18/17-11/30/18 | 50,738,405 | 19,073,467 | 1.5 | |||||||||||
| $ | 94,568,388 | $ | 66,262,614 | 5.3 | % | ||||||||||||
| NTG: | |||||||||||||||||
| Fair Value | |||||||||||||||||
| as Percent | |||||||||||||||||
| Investment Security | Investment Type | Shares | Acquisition Date | Acquisition Cost | Fair Value | of Net Assets | |||||||||||
| SemGroup Corporation, | |||||||||||||||||
| 7.000% | Preferred Stock | 3,763 | 01/19/18 | $ | 3,763,000 | $ | 3,414,116 | 0.4 | % | ||||||||
| Targa Resources Corp., | |||||||||||||||||
| 9.500% | Preferred Stock | 12,252 | 03/16/16 | 10,848,405 | 13,363,227 | 1.4 | |||||||||||
| $ | 14,611,405 | $ | 16,777,343 | 1.8 | % | ||||||||||||
| TTP: | |||||||||||||||||
| Fair Value | |||||||||||||||||
| as Percent | |||||||||||||||||
| Investment Security | Investment Type | Shares | Acquisition Date | Acquisition Cost | Fair Value | of Net Assets | |||||||||||
| SemGroup Corporation, | |||||||||||||||||
| 7.000% | Preferred Stock | 2,877 | 01/19/18 | $ | 2,877,000 | $ | 2,610,261 | 1.6 | % | ||||||||
| Targa Resources Corp., | |||||||||||||||||
| 9.500% | Preferred Stock | 2,108 | 03/16/16 | 1,866,506 | 2,299,190 | 1.4 | |||||||||||
| $ | 4,743,506 | $ | 4,909,451 | 3.0 | % | ||||||||||||
| NDP: | |||||||||||||||||
| Fair Value | |||||||||||||||||
| as Percent | |||||||||||||||||
| Investment Security | Investment Type | Shares | Acquisition Date | Acquisition Cost | Fair Value | of Net Assets | |||||||||||
| Targa Resources Corp., | Preferred Stock | 1,997 | 03/16/16 | $ | 1,768,223 | $ | 2,178,123 | 1.6 | % | ||||||||
| 9.500% | |||||||||||||||||
| Tortoise | 61 |
| Notes to Financial Statements (continued) |
| TPZ: | ||||||||||||||||||
| Fair Value | ||||||||||||||||||
| Principal | as Percent | |||||||||||||||||
| Investment Security | Investment Type | Amount/Shares | Acquisition Date(s) | Acquisition Cost | Fair Value | of Net Assets | ||||||||||||
| Ascent Resources Utica | ||||||||||||||||||
| Holdings, LLC, | ||||||||||||||||||
| 10.000%, 04/01/2022* | Corporate Bond | $ | 1,302,000 | 08/27/18 | $ | 1,445,220 | $ | 1,376,865 | 1.0 | % | ||||||||
| Ascent Resources Utica | ||||||||||||||||||
| Holdings, LLC, | ||||||||||||||||||
| 7.000%, 11/01/2026* | Corporate Bond | $ | 2,000,000 | 09/27/18 | 2,000,278 | 1,875,000 | 1.4 | |||||||||||
| Blue Racer Midstream, LLC, | ||||||||||||||||||
| 6.125%, 11/15/2022* | Corporate Bond | $ | 2,000,000 | 06/23/16-07/29/16 | 1,900,000 | 1,980,000 | 1.5 | |||||||||||
| Blue Racer Midstream, LLC, | ||||||||||||||||||
| 6.625%, 07/15/2026* | Corporate Bond | $ | 3,900,000 | 06/18/18-11/02/18 | 3,946,250 | 3,841,500 | 2.8 | |||||||||||
| Duquesne Light Holdings, Inc., | ||||||||||||||||||
| 6.400%, 09/15/2020* | Corporate Bond | $ | 3,000,000 | 11/30/11 | 3,180,330 | 3,133,218 | 2.3 | |||||||||||
| Duquesne Light Holdings, Inc., | ||||||||||||||||||
| 5.900%, 12/01/2021* | Corporate Bond | $ | 2,000,000 | 11/18/11-12/05/11 | 2,074,420 | 2,101,906 | 1.5 | |||||||||||
| Florida Gas Transmission Co., LLC, | ||||||||||||||||||
| 5.450%, 07/15/2020* | Corporate Bond | $ | 1,500,000 | 07/08/10-01/04/11 | 1,551,220 | 1,537,620 | 1.1 | |||||||||||
| Hess Corporation, | ||||||||||||||||||
| 5.625%, 02/15/2026* | Corporate Bond | $ | 4,160,000 | 07/19/18-08/06/18 | 4,196,600 | 4,035,200 | 2.9 | |||||||||||
| Midcontinent Express | ||||||||||||||||||
| Pipeline, LLC, | ||||||||||||||||||
| 6.700%, 09/15/2019* | Corporate Bond | $ | 2,000,000 | 09/09/09-03/02/10 | 2,061,010 | 2,018,518 | 1.5 | |||||||||||
| NGPL PipeCo LLC, | ||||||||||||||||||
| 4.875%, 08/15/2027* | Corporate Bond | $ | 2,000,000 | 07/30/18 | 2,030,000 | 1,910,000 | 1.4 | |||||||||||
| Pattern Energy Group Inc., | ||||||||||||||||||
| 5.875%, 02/01/2024* | Corporate Bond | $ | 1,000,000 | 01/20/17-01/23/17 | 1,011,875 | 972,500 | 0.7 | |||||||||||
| Ruby Pipeline, LLC, | ||||||||||||||||||
| 6.000%, 04/01/2022* | Corporate Bond | $ | 1,261,364 | 09/17/12 | 1,444,830 | 1,293,253 | 1.0 | |||||||||||
| Southern Star Central Corp., | ||||||||||||||||||
| 5.125%, 07/15/2022* | Corporate Bond | $ | 3,000,000 | 06/17/14 | 3,041,250 | 2,947,500 | 2.1 | |||||||||||
| Tallgrass Energy LP, | ||||||||||||||||||
| 5.500%, 01/15/2028* | Corporate Bond | $ | 2,000,000 | 09/24/18 | 2,030,000 | 1,965,000 | 1.4 | |||||||||||
| SemGroup Corporation, | ||||||||||||||||||
| 7.000% | Preferred Stock | 2,120 | 01/19/18 | 2,120,000 | 1,923,446 | 1.4 | ||||||||||||
| Targa Resources Corp., | ||||||||||||||||||
| 9.500% | Preferred Stock | 1,685 | 03/16/16 | 1,491,965 | 1,837,825 | 1.3 | ||||||||||||
| $ | 35,525,248 | $ | 34,749,351 | 25.3 | % | |||||||||||||
| * | Security is eligible for resale under Rule 144A under the 1933 Act. |
7. Affiliated Company Transactions
A summary of the transactions in affiliated companies during the year ended November 30, 2018 is as follows:
| TYG: | |||||||||||||||||
| 11/30/18 | Net Change | ||||||||||||||||
| 11/30/17 | Gross | Gross | Realized | Distributions | Share | 11/30/18 | in Unrealized | ||||||||||
| Investment Security | Share Balance | Additions | Reductions | Gain/(Loss) | Received | Balance | Value | Depreciation | |||||||||
| Tortoise HoldCo II, LLC | N/A | $ | 16,321,880 | $ — | — | $500,000 | N/A | $19,073,467 | $22,634,585 | ||||||||
8. Investment Transactions
For the year ended November 30, 2018, the amount of security transactions (other than U.S. government securities and short-term investments), is as follows:
| TYG | NTG | TTP | NDP | TPZ | |||||||||||
| Purchases | $ | 508,462,886 | $ | 494,308,370 | $ | 36,550,658 | $ | 346,466,147 | $ | 61,995,102 | |||||
| Sales | $ | 408,626,699 | $ | 194,635,931 | $ | 42,469,533 | $ | 367,138,147 | $ | 63,165,604 | |||||
| 62 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Notes to Financial Statements (continued) |
TYG, NTG and TTP each have issued private senior notes (collectively, the “Notes”), which are unsecured obligations and, upon liquidation, dissolution or winding up of a Fund, will rank: (1) senior to all of the Fund’s outstanding preferred shares, if any; (2) senior to all of the Fund’s outstanding common shares; (3) on parity with any unsecured creditors of the Fund and any unsecured senior securities representing indebtedness of the Fund and (4) junior to any secured creditors of the Fund. Holders of the Notes are entitled to receive periodic cash interest payments until maturity. The Notes are not listed on any exchange or automated quotation system.
The Notes are redeemable in certain circumstances at the option of a Fund, subject to payment of any applicable make-whole amounts or early redemption premiums. The Notes for a Fund are also subject to a mandatory redemption if the Fund fails to meet asset coverage ratios required under the 1940 Act or the rating agency guidelines if such failure is not waived or cured. At November 30, 2018, each of TYG, NTG and TTP were in compliance with asset coverage covenants and basic maintenance covenants for its senior notes.
Details of each Fund’s outstanding Notes, including estimated fair value, as of November 30, 2018 are included below. The estimated fair value of each series of fixed-rate Notes was calculated, for disclosure purposes, by discounting future cash flows by a rate equal to the current U.S. Treasury rate with an equivalent maturity date, plus either 1) the spread between the interest rate on recently issued debt and the U.S. Treasury rate with a similar maturity date or 2) if there has not been a recent debt issuance, the spread between the AAA corporate finance debt rate and the U.S. Treasury rate with an equivalent maturity date plus the spread between the fixed rates of the Notes and the AAA corporate finance debt rate. The estimated fair value of floating rate Notes approximates the carrying amount because the interest rate fluctuates with changes in interest rates available in the current market. The estimated fair values in the following tables are Level 2 valuations within the fair value hierarchy.
| TYG: | |||||||||||||
| Notional | Estimated | ||||||||||||
| Series | Maturity Date | Interest Rate | Payment Frequency | Amount | Fair Value | ||||||||
| Series CC | September 27, 2019 | 3.48 | % | Semi-Annual | $ | 15,000,000 | $ | 15,094,944 | |||||
| Series J | December 19, 2019 | 3.30 | % | Semi-Annual | 15,000,000 | 15,190,726 | |||||||
| Series Y | June 14, 2020 | 2.77 | % | Semi-Annual | 12,500,000 | 12,515,249 | |||||||
| Series LL | June 14, 2020 | 3.53 | %(1) | Quarterly | 20,000,000 | 20,000,000 | |||||||
| Series O | September 27, 2020 | 3.78 | % | Semi-Annual | 15,000,000 | 15,152,471 | |||||||
| Series Z | June 14, 2021 | 2.98 | % | Semi-Annual | 12,500,000 | 12,484,709 | |||||||
| Series R | January 22, 2022 | 3.77 | % | Semi-Annual | 25,000,000 | 25,450,891 | |||||||
| Series DD | September 27, 2022 | 4.21 | % | Semi-Annual | 13,000,000 | 13,370,579 | |||||||
| Series II | December 18, 2022 | 3.22 | % | Semi-Annual | 10,000,000 | 9,998,229 | |||||||
| Series K | December 19, 2022 | 3.87 | % | Semi-Annual | 10,000,000 | 10,268,659 | |||||||
| Series S | January 22, 2023 | 3.99 | % | Semi-Annual | 10,000,000 | 10,283,910 | |||||||
| Series P | September 27, 2023 | 4.39 | % | Semi-Annual | 12,000,000 | 12,498,406 | |||||||
| Series FF | November 20, 2023 | 4.16 | % | Semi-Annual | 10,000,000 | 10,254,468 | |||||||
| Series JJ | December 18, 2023 | 3.34 | % | Semi-Annual | 20,000,000 | 20,042,291 | |||||||
| Series T | January 22, 2024 | 4.16 | % | Semi-Annual | 25,000,000 | 25,988,841 | |||||||
| Series L | December 19, 2024 | 3.99 | % | Semi-Annual | 20,000,000 | 20,711,163 | |||||||
| Series AA | June 14, 2025 | 3.48 | % | Semi-Annual | 10,000,000 | 10,044,962 | |||||||
| Series MM | June 14, 2025 | 3.59 | %(2) | Quarterly | 30,000,000 | 30,000,000 | |||||||
| Series NN | June 14, 2025 | 3.20 | % | Semi-Annual | 30,000,000 | 29,614,876 | |||||||
| Series KK | December 18, 2025 | 3.53 | % | Semi-Annual | 10,000,000 | 10,054,561 | |||||||
| Series OO | April 9, 2026 | 3.27 | % | Semi-Annual | 30,000,000 | 29,294,749 | |||||||
| Series PP | September 25, 2027 | 3.33 | % | Semi-Annual | 25,000,000 | 24,366,480 | |||||||
| $ | 380,000,000 | $ | 382,681,164 | ||||||||||
| (1) | Floating rate resets each quarter based on 3-month LIBOR plus 1.20%. The current rate is effective for the period from September 14, 2018 through December 13, 2018. The weighted-average interest rate for the year ended November 30, 2018 was 3.25%. |
| (2) | Floating rate resets each quarter based on 3-month LIBOR plus 1.25%. The current rate is effective for the period from September 14, 2018 through December 13, 2018. The weighted-average interest rate for the year ended November 30, 2018 was 3.30%. |
TYG’s Series I Notes with a notional amount of $10,000,000 and a fixed interest rate of 4.35% were paid in full upon maturity on May 12, 2018. TYG’s Series X Notes with a notional amount of $12,500,000 and a fixed interest rate of 4.55% were paid in full upon maturity on June 15, 2018. TYG’s Series N Notes with a notional amount of $10,000,000 and a fixed interest rate of 3.15% were paid in full upon maturity on September 27, 2018.
| Tortoise | 63 |
| Notes to Financial Statements (continued) |
| NTG: | |||||||||||||||||
| Notional | Estimated | ||||||||||||||||
| Series | Maturity Date | Interest Rate | Payment Frequency | Amount | Fair Value | ||||||||||||
| Series K | September 9, 2019 | 3.63 | %(1) | Quarterly | $ | 35,000,000 | $ | 35,000,000 | |||||||||
| Series D | December 15, 2020 | 4.29 | % | Quarterly | 112,000,000 | 114,530,651 | |||||||||||
| Series J | April 17, 2021 | 3.72 | % | Semi-Annual | 30,000,000 | 30,217,474 | |||||||||||
| Series L | April 17, 2021 | 3.90 | %(2) | Quarterly | 20,000,000 | 20,000,000 | |||||||||||
| Series M | April 17, 2021 | 3.06 | % | Semi-Annual | 10,000,000 | 9,914,932 | |||||||||||
| Series N | December 13, 2024 | 3.18 | % | Semi-Annual | 32,000,000 | 31,648,926 | |||||||||||
| Series O | December 13, 2027 | 3.47 | % | Semi-Annual | 25,000,000 | 24,865,158 | |||||||||||
| Series P | October 16, 2023 | 3.79 | % | Semi-Annual | 20,000,000 | 20,241,857 | |||||||||||
| Series Q | October 16, 2025 | 3.97 | % | Semi-Annual | 15,000,000 | 15,321,938 | |||||||||||
| Series R | October 16, 2026 | 4.02 | % | Semi-Annual | 13,000,000 | 13,325,238 | |||||||||||
| $ | 312,000,000 | $ | 315,066,174 | ||||||||||||||
| (1) |
Floating rate resets each quarter based on 3-month LIBOR plus 1.30%. The current rate is effective for the period from September 10, 2018 through December 9, 2018. The weighted-average rate for the year ended November 30, 2018 was 3.34%. |
| (2) |
Floating rate resets each quarter based on 3-month LIBOR plus 1.45%. The current rate is effective for the period from October 17, 2018 through January 16, 2018. The weighted-average rate for the year ended November 30, 2018 was 3.53%. |
On December 13, 2017, NTG issued $32,000,000 Series N Senior Notes which carry a fixed interest rate of 3.18% and mature on December 13, 2024 and $25,000,000 Series O Senior Notes which carry a fixed interest rate of 3.47% and mature on December 13, 2027.
On October 16, 2018, NTG issued $20,000,000 Series P Senior Notes which carry a fixed interest rate of 3.79% and mature on October 16, 2023, $15,000,000 Series Q Senior Notes which carry a fixed interest rate of 3.97% and mature on October 16, 2025 and $13,000,000 Series R Senior Notes which carry a fixed interest rate of 4.02% and mature on October 16, 2026.
NTG’s Series C Notes, with a notional amount of $57,000,000 and a fixed interest rate of 3.73%, were paid in full upon maturity on December 15, 2017. NTG’s Series I Notes with a notional amount of $10,000,000 and a fixed interest rate of 2.77% were paid in full upon maturity on April 17, 2018. NTG’s Series G Notes with a notional amount of $10,000,000 and a fixed interest rate of 4.35% were paid in full upon maturity on May 12, 2018.
| TTP: | |||||||||||||||||
| Notional | Estimated | ||||||||||||||||
| Series | Maturity Date | Interest Rate | Payment Frequency | Amount | Fair Value | ||||||||||||
| Series C | December 15, 2018 | 3.49 | % | Quarterly | $ | 6,000,000 | $ | 6,044,530 | |||||||||
| Series F | December 12, 2020 | 3.01 | % | Semi-Annual | 6,000,000 | 6,017,029 | |||||||||||
| Series D | December 15, 2021 | 4.08 | % | Quarterly | 16,000,000 | 16,352,771 | |||||||||||
| Series G | December 12, 2022 | 3.38 | %(1) | Quarterly | 6,000,000 | 6,000,000 | |||||||||||
| $ | 34,000,000 | $ | 34,414,330 | ||||||||||||||
| (1) |
Floating rate resets each quarter based on 3-month LIBOR plus 1.05%. The current rate is effective for the period from September 12, 2018 to December 11, 2018. The weighted-average interest rate for the year ended November 30, 2018 was 3.09%. |
10. Mandatory Redeemable Preferred Stock
TYG, NTG and TTP each have issued and outstanding MRP Stock at November 30, 2018. The MRP Stock has rights determined by the Board of Directors. Except as otherwise indicated in the Funds’ Charter or Bylaws, or as otherwise required by law, the holders of MRP Stock have voting rights equal to the holders of common stock (one vote per MRP share) and will vote together with the holders of shares of common stock as a single class except on matters affecting only the holders of preferred stock or the holders of common stock. The 1940 Act requires that the holders of any preferred stock (including MRP Stock), voting separately as a single class, have the right to elect at least two directors at all times.
Under the Investment Company Act of 1940, a fund may not declare dividends or make other distributions on shares of common stock or purchases of such shares if, at the time of the declaration, distribution or purchase, asset coverage with respect to the outstanding MRP Stock would be less than 200%. The MRP Stock is also subject to a mandatory redemption if a Fund fails to meet an asset coverage ratio of at least 225% as determined in accordance with the 1940 Act or a rating agency basic maintenance amount if such failure is not waived or cured. At November 30, 2018, each of TYG, NTG and TTP were in compliance with asset coverage covenants and basic maintenance covenants for its MRP Stock.
| 64 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Notes to Financial Statements (continued) |
TYG:
TYG has 65,000,000 shares of preferred stock authorized and 16,500,000 shares of MRP Stock outstanding at November 30, 2018. TYG’s MRP Stock has a
liquidation value of $10.00 per share plus any accumulated but unpaid distributions, whether or not declared. Holders of the MRP D Stock and MRP E Stock are entitled to receive cash interest payments semi-annually at a fixed rate until maturity. The TYG
MRP Stock is not listed on any exchange or automated quotation system.
| Aggregate Liquidation | Estimated Fair | ||||||||||||||||||
| Series | Mandatory Redemption Date | Fixed Rate | Shares Outstanding | Preference | Value | ||||||||||||||
| Series D | December 17, 2021 | 4.01 | % | 8,500,000 | $ | 85,000,000 | $ | 86,037,939 | |||||||||||
| Series E | December 17, 2024 | 4.34 | % | 8,000,000 | 80,000,000 | 82,184,383 | |||||||||||||
| 16,500,000 | $ | 165,000,000 | $ | 168,222,322 | |||||||||||||||
TYG’s MRP Stock is redeemable in certain circumstances at the option of TYG, subject to payment of any applicable make-whole amounts.
NTG:
NTG has 10,000,000 shares of preferred stock authorized and 5,280,000 shares of MRP Stock outstanding at November 30, 2018. On December 13, 2017, NTG issued
1,600,000 shares of MRP E Stock (aggregate liquidation preference $40,000,000) and 1,000,000 shares of MRP F Stock (aggregate liquidation preference $25,000,000). On October 16, 2018, NTG issued 880,000 Series G Mandatory Redeemable Preferred Shares
(aggregate liquidation preference $22,000,000). On December 15, 2017, NTG redeemed 2,600,000 shares (aggregate liquidation preference $65,000,000) of MRP B Stock. NTG’s MRP Stock has a liquidation value of $25.00 per share plus any accumulated but
unpaid distributions, whether or not declared. Holders of NTG MRP Stock are entitled to receive cash interest payments each quarter at a fixed rate until maturity. The NTG MRP Stock is not listed on any exchange or automated quotation system.
| Aggregate Liquidation | Estimated Fair | ||||||||||||||||||
| Series | Mandatory Redemption Date | Fixed Rate | Shares Outstanding | Preference | Value | ||||||||||||||
| Series C | December 8, 2020 | 3.73 | % | 200,000 | $ | 5,000,000 | $ | 4,983,339 | |||||||||||
| Series D | December 8, 2022 | 4.19 | % | 1,600,000 | 40,000,000 | 40,229,902 | |||||||||||||
| Series G | October 16, 2023 | 4.39 | % | 880,000 | 22,000,000 | 22,239,259 | |||||||||||||
| Series E | December 13, 2024 | 3.78 | % | 1,600,000 | 40,000,000 | 39,213,159 | |||||||||||||
| Series F | December 13, 2027 | 4.07 | % | 1,000,000 | 25,000,000 | 24,634,424 | |||||||||||||
| 5,280,000 | $ | 132,000,000 | $ | 131,300,083 | |||||||||||||||
NTG’s MRP Stock is redeemable in certain circumstances at the option of NTG, subject to payment of any applicable make-whole amounts.
TTP:
TTP has 10,000,000 shares of preferred stock authorized and 640,000 shares of MRP Stock outstanding at November 30, 2018. TTP’s MRP Stock has a
liquidation value of $25.00 per share plus any accumulated but unpaid distributions, whether or not declared. Holders of TTP MRP Stock are entitled to receive cash interest payments each quarter at a fixed rate until maturity. The TTP MRP Stock is not
listed on any exchange or automated quotation system.
| Aggregate Liquidation | Estimated Fair | ||||||||||
| Series | Mandatory Redemption Date | Fixed Rate | Shares Outstanding | Preference | Value | ||||||
| Series A | December 15, 2018 | 4.29% | 640,000 | $ 16,000,000 |
$ |
16,146,702 | |||||
TTP’s MRP Stock is redeemable in certain circumstances at the option of TTP, subject to payment of any applicable make-whole amounts.
| Tortoise | 65 |
| Notes to Financial Statements (continued) |
The following table shows key terms, average borrowing activity and interest rates for the period during which the facility was utilized during the year ended November 30, 2018, as well as the principal balance and interest rate in effect at November 30, 2018 for each of the Funds’ credit facilities:
| TYG | TYG | NTG | TTP | NDP | TPZ | |||||||
| The Bank | Bank of America, | The Bank | The Bank | The Bank | ||||||||
| Lending syndicate agent | U.S. Bank, N.A. | of Nova Scotia | N.A. | of Nova Scotia | of Nova Scotia | of Nova Scotia | ||||||
| Unsecured, | Unsecured, | Unsecured, | Unsecured, | Secured, | Secured, | |||||||
| revolving credit | revolving credit | revolving credit | revolving credit | revolving credit | revolving credit | |||||||
| Type of facility | facility | facility | facility | facility | facility | facility | ||||||
| Borrowing capacity | $130,000,000 | $90,000,000 | $120,000,000 | $35,000,000 | $80,000,000 | $60,000,000 | ||||||
| 364-day rolling | 179-day rolling | 179-day rolling | ||||||||||
| Maturity date | June 12, 2019 | June 22, 2020 | June 12, 2019 | evergreen | evergreen | evergreen | ||||||
| 1-month LIBOR | 1-month LIBOR | 1-month LIBOR | 1-month LIBOR | 1-month LIBOR | 1-month LIBOR | |||||||
| Interest rate | plus 1.20% | plus 1.20% | plus 1.20% | plus 1.125% | plus 0.80% | plus 0.80% | ||||||
| Non-usage fee | 0.15%-0.25%(1) | 0.15%(2) | 0.15%-0.25%(3) | 0.15% | 0.20%(4) | 0.20%(5) | ||||||
| For the year ended November 30, 2018: | ||||||||||||
| Average principal balance | $59,200,000 | $62,600,000 | $63,700,000 | $20,100,000 | $63,300,000 | $52,200,000 | ||||||
| Average interest rate | 3.15% | 3.14% | 3.14% | 3.07% | 2.74% | 2.74% | ||||||
| As of November 30, 2018: | ||||||||||||
| Principal balance outstanding | $44,100,000 | $63,000,000 | $73,100,000 | $19,800,000 | $57,100,000 | $53,400,000 | ||||||
| Interest rate | 3.55% | 3.55% | 3.55% | 3.47% | 3.15% | 3.15% | ||||||
| (1) |
Non-use fees are equal to a rate of 0.25% when the outstanding balance is below $65,000,000 and 0.15% when the outstanding balance is at least $65,000,000, but below $91,000,000. The outstanding balance will not be subject to the non-use fee when the amount outstanding is at least $91,000,000. |
| (2) |
Non-usage fee is waived if the outstanding balance on the facility is at least $63,000,000. |
| (3) |
Non-use fees are equal to a rate of 0.25% when the outstanding balance is below $48,500,000 and 0.15% when the outstanding balance is at least $48,500,000, but below $67,900,000. The outstanding balance will not be subject to the non-use fee when the amount outstanding is at least $67,900,000. |
| (4) |
Non-usage fee is waived if the outstanding balance on the facility is at least $56,000,000. |
| (5) |
Non-usage fee is waived if the outstanding balance on the facility is at least $42,000,000. |
On June 22, 2018, TYG entered into an amendment to its credit facility with The Bank of Nova Scotia that extends the credit facility through June 22, 2020. The terms of the amendment provide for an unsecured revolving credit facility of $90,000,000. During the extension, outstanding balances generally will accrue interest at a variable annual rate equal to one-month LIBOR plus 1.20 percent and unused portions of the credit facility will accrue a non-usage fee equal to an annual rate of 0.15 percent. The non-usage fee is waived if the outstanding balance on the facility is at least $63,000,000.
On September 4, 2018, NTG entered into an amendment to its credit facility with Bank of America, N.A. that increased the capacity of the credit facility. The terms of the amendment provide for an unsecured revolving credit facility of $120,000,000, an increase of the previous capacity of $97,000,000. Other terms of the agreement were unchanged.
Under the terms of the credit facilities, the Funds must maintain asset coverage required under the 1940 Act. If a Fund fails to maintain the required coverage, it may be required to repay a portion of an outstanding balance until the coverage requirement has been met. At November 30, 2018, each Fund was in compliance with credit facility terms.
| 66 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Notes to Financial Statements (continued) |
The Funds have adopted the disclosure provisions of FASB Accounting Standard Codification 815, Derivatives and Hedging (“ASC 815”). ASC 815 requires enhanced disclosures about the Funds’ use of and accounting for derivative instruments and the effect of derivative instruments on the Funds’ results of operations and financial position. Tabular disclosure regarding derivative fair value and gain/loss by contract type (e.g., interest rate contracts, foreign exchange contracts, credit contracts, etc.) is required and derivatives accounted for as hedging instruments under ASC 815 must be disclosed separately from those that do not qualify for hedge accounting. Even though the Funds may use derivatives in an attempt to achieve an economic hedge, the Funds’ derivatives are not accounted for as hedging instruments under ASC 815 because investment companies account for their derivatives at fair value and record any changes in fair value in current period earnings.
Interest Rate Swap Contracts
TYG and TPZ have each entered into interest rate swap contracts in an attempt to protect it from increasing interest expense
on its leverage resulting from increasing interest rates. A decline in interest rates may result in a decline in the value of the swap contracts, which may result in a decline in the net assets of TYG and TPZ. At the time the interest rate swap contracts
reach their scheduled termination, there is a risk that TYG and TPZ will not be able to obtain a replacement transaction, or that the terms of the replacement would not be as favorable as on the expiring transaction. In addition, if TYG or TPZ is
required to terminate any swap contract early due to a decline in net assets below a threshold amount ($450,000,000 for TYG and $60,000,000 for TPZ) or failing to maintain a required 300% asset coverage of the liquidation value of the outstanding debt,
then TYG or TPZ could be required to make a payment to the extent of any net unrealized depreciation of the terminated swaps, in addition to redeeming all or some of its outstanding debt. TYG and TPZ each segregate a portion of its assets as collateral
for the amount of any net liability of its interest rate swap contracts.
TYG and TPZ are exposed to credit risk on the interest rate swap contracts if the counterparty should fail to perform under the terms of the interest rate swap contracts. The amount of credit risk is limited to the net appreciation of the interest rate swap contracts, if any, as no collateral is pledged by the counterparty. In addition, if the counterparty to the interest rate swap contracts defaults, the Fund would incur a loss in the amount of the receivable and would not receive amounts due from the counterparty to offset the interest payments on the Fund’s leverage.
The average notional amount of all open swap agreements for TYG and TPZ for the year ended November 30, 2018 was $13,800,000 and $13,100,000, respectively.
The following table presents TYG’s and TPZ’s interest rate swap contracts, each of which is subject to a netting agreement, on a gross and a net basis at November 30, 2018:
| Gross Amounts Not Offset in the | ||||||||||||||||||||||||
| Statement of Assets & Liabilities | ||||||||||||||||||||||||
| Net Amounts of | ||||||||||||||||||||||||
| Gross Amounts | Assets Presented in | |||||||||||||||||||||||
| Gross Amounts | Offset in the | the Statements | ||||||||||||||||||||||
| of Recognized | Statements of | of Assets & | Financial | Cash Collateral | ||||||||||||||||||||
| Description | Assets | Assets & Liabilities | Liabilities | Instruments | Received | Net Amount | ||||||||||||||||||
| TYG: Interest Rate Swap Contracts | $ | 108,883 | $ | — | $ | 108,883 | $ | — | $ | — | $ | 108,883 | ||||||||||||
| TPZ: Interest Rate Swap Contracts | $ | 128,630 | $ | — | $ | 128,630 | $ | — | $ | — | $ | 128,630 | ||||||||||||
Written Call Options
Transactions in written option contracts for TYG, NTG, TTP and NDP for the year ended November 30, 2018, are as follows:
| TYG | NTG | |||||||||||||
| Number of | Number of | |||||||||||||
| Contracts | Premium | Contracts | Premium | |||||||||||
| Options outstanding at November 30, 2017 | — | $ | — | — | $ | — | ||||||||
| Options written | 98,376 | 1,772,441 | 89,769 | 1,608,940 | ||||||||||
| Options closed* | (2,274 | ) | (30,894 | ) | (2,274 | ) | (30,894 | ) | ||||||
| Options exercised | (1,898 | ) | (63,479 | ) | (7,160 | ) | (173,332 | ) | ||||||
| Options expired | (54,320 | ) | (1,184,493 | ) | (52,036 | ) | (1,054,170 | ) | ||||||
| Options outstanding at November 30, 2018 | 39,884 | $ | 493,575 | 28,299 | $ | 350,544 | ||||||||
| TTP | NDP | |||||||||||||
| Number of | Number of | |||||||||||||
| Contracts | Premium | Contracts | Premium | |||||||||||
| Options outstanding at November 30, 2017 | 7,113 | $ | 353,524 | 50,578 | $ | 1,895,945 | ||||||||
| Options written | 73,197 | 5,094,141 | 562,625 | 26,521,492 | ||||||||||
| Options closed* | (72,024 | ) | (4,728,447 | ) | (453,398 | ) | (21,506,054 | ) | ||||||
| Options exercised | (2,408 | ) | (174,517 | ) | (82,109 | ) | (3,249,181 | ) | ||||||
| Options expired | (339 | ) | (31,924 | ) | (36,290 | ) | (1,255,213 | ) | ||||||
| Options outstanding at November 30, 2018 | 5,539 | $ | 512,777 | 41,406 | $ | 2,406,989 | ||||||||
| * |
The aggregate cost of closing written option contracts was $4,626 for TYG, $4,626 for NTG, $4,783,187 for TTP and $12,411,209 for NDP, resulting in net realized gain (loss) of $26,267, $26,267, $(54,740) and $9,094,845 for TYG, NTG, TTP and NDP, respectively. |
| Tortoise | 67 |
| Notes to Financial Statements (continued) |
The following table presents the types and fair value of derivatives by location as presented on the Statements of Assets & Liabilities at November 30, 2018:
| Assets/(Liabilities) | ||||||
| Derivatives not accounted for as | ||||||
| hedging instruments under ASC 815 | Location | Fair Value | ||||
| TYG: Interest rate swap contracts | Interest rate swap contracts | $ | 108,883 | |||
| TYG: Written equity call options | Options written, at fair value | $ | (921,842 | ) | ||
| NTG: Written equity call options | Options written, at fair value | $ | (653,462 | ) | ||
| TTP: Written equity call options | Options written, at fair value | $ | (199,782 | ) | ||
| NDP: Written equity call options | Options written, at fair value | $ | (835,007 | ) | ||
| TPZ: Interest rate swap contracts | Interest rate swap contracts | $ | 128,630 | |||
The following table presents the effect of derivatives on the Statements of Operations for the year ended November 30, 2018:
| Net Unrealized | ||||||||||
| Net Realized | Appreciation | |||||||||
| Derivatives not accounted for as | Location of Gains (Losses) | Gain (Loss) on | (Depreciation) | |||||||
| hedging instruments under ASC 815 | on Derivatives | Derivatives | of Derivatives | |||||||
| TYG: Interest rate swap contracts | Interest rate swaps | $ | (60,499 | ) | $ | 266,585 | ||||
| TYG: Written equity call options | Options | $ | 1,210,761 | $ | (428,267 | ) | ||||
| NTG: Written equity call options | Options | $ | 1,080,438 | $ | (302,918 | ) | ||||
| TTP: Written equity call options | Options | $ | (23,411 | ) | $ | 281,675 | ||||
| NDP: Written equity call options | Options | $ | 10,350,058 | $ | 1,489,446 | |||||
| TPZ: Interest rate swap contracts | Interest rate swaps | $ | 30,903 | $ | 85,846 | |||||
13. Subsequent Events
TYG:
TYG has performed an evaluation of subsequent events through the date the financial statements were issued and has determined that no items require
recognition or disclosure.
NTG:
On January 7, 2019, NTG changed the name of the fund from Tortoise MLP Fund, Inc. to Tortoise Midstream Energy Fund, Inc. No changes were made to the fund
ticker symbol or CUSIP.
NTG has performed an evaluation of subsequent events through the date the financial statements were issued and has determined that no additional items require recognition or disclosure.
TTP:
On December 13, 2018, TTP issued $6,000,000 Series H Senior Notes which carry a fixed interest rate of 3.97% and mature on December 13, 2024.
On December 13, 2018, TTP issued 640,000 Series B Mandatory Redeemable Preferred Shares (aggregate liquidation preference $16,000,000) which carry a fixed interest rate of 4.57% and a mandatory redemption date of December 13, 2024.
TTP has performed an evaluation of subsequent events through the date the financial statements were issued and has determined that no additional items require recognition or disclosure.
NDP:
NDP has performed an evaluation of subsequent events through the date the financial statements were issued and has determined that no items require
recognition or disclosure.
TPZ:
On December 31, 2018, TPZ paid a distribution in the amount of $0.125 per common share, for a total of $868,917. Of this total, the dividend reinvestment
amounted to $12,453.
TPZ has performed an evaluation of subsequent events through the date the financial statements were issued and has determined that no additional items require recognition or disclosure.
| 68 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Report of Independent Registered Public Accounting Firm |
Tortoise Energy Infrastructure Corporation
Tortoise MLP Fund, Inc.
Tortoise Pipeline & Energy Fund, Inc.
Tortoise Energy Independence Fund, Inc.
Tortoise Power and Energy Infrastructure Fund, Inc.
Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities of Tortoise Energy Infrastructure Corporation, Tortoise MLP Fund, Inc., Tortoise Pipeline & Energy Fund, Inc., Tortoise Energy Independence Fund, Inc., and Tortoise Power and Energy Infrastructure Fund, Inc., (the “Funds”), including the schedules of investments, as of November 30, 2018, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended and related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Funds at November 30, 2018, the results of their operations and their cash flows for the year then ended, the changes in their net assets for each of the two years in the period then ended and their financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform an audit of the Funds’ internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of November 30, 2018, by correspondence with the custodians and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
January 24, 2019
We have served as the auditor of one or more Tortoise investment companies since 2004.
| Tortoise | 69 |
| Company Officers and Directors (unaudited) |
| November 30, 2018 |
| Number of | ||||||||
|
Position(s) Held |
Portfolios in |
Other Public | ||||||
| With Company, Term |
Fund Complex |
Company | ||||||
|
of Office and Length |
Overseen |
Directorships | ||||||
| Name and Age(1) |
of Time Served(2) |
Principal Occupation During Past Five Years |
by Director(3) |
Held | ||||
|
Independent Directors |
||||||||
|
Conrad S. Ciccotello |
Class I Director of TYG since 2003 and of NTG since 2010; Class II Director of NDP since 2012 and of TPZ since 2007; Class III Director of TTP since 2011. |
Professor and Director, Reiman School of Finance, University of Denver (faculty member since 2017); Professor and Chairman of the Department of Risk Management and Insurance, Robinson College of Business, Georgia State University (1999-2017); Director of Personal Financial Planning Program; Investment Consultant to the University System of Georgia for its defined contribution retirement plan; Formerly Faculty Member, Pennsylvania State University (1997-1999); Published a number of academic and professional journal articles on investment company performance and structure, with a focus on MLPs. |
6 |
CorEnergy Infrastructure Trust, Inc.; Peachtree Alternative Strategies Fund; Tortoise Tax-Advantaged Social Infrastructure Fund, Inc. | ||||
|
Rand C. Berney |
Class I Director of TTP since January 1, 2014; Class II Director of each of TYG and NTG since January 1, 2014; Class III Director of each of NDP and TPZ since January 1, 2014. |
Executive-in-Residence and Professor for Professional Financial Planning Course and Professional Ethics Course, College of Business Administration, Kansas State University since 2012; Formerly Senior Vice President of Corporate Shared Services of ConocoPhillips from 2009 to 2012, Vice President and Controller of ConocoPhillips from 2002 to 2009, and Vice President and Controller of Phillips Petroleum Company from 1997 to 2002; Member of the Oklahoma Society of CPAs, the Financial Executive Institute, American Institute of Certified Public Accountants, the Institute of Internal Auditors and the Institute of Management Accountants. |
5 |
None | ||||
|
Jennifer Paquette |
Class I Director of TTP since March 18, 2018; Class II Director of each of TYG and NTG since March 18, 2018; Class III Director of each of NDP and TPZ since March 18, 2018. |
Retired in 2017; Previously Chief Investment Officer of the Public Employees’ Retirement Association of Colorado (“Colorado PERA”) from 2003 to 2017; Held various positions within Colorado PERA from 1999 to 2003 and 1995 to 1996; Formerly Vice-President Institutional Account Executive at Merrill Lynch, Pierce, Fenner & Smith from 1991 to 1994; Vice-President, Portfolio Manager and Analyst at Alliance Capital Management from 1987 to 1991; Portfolio Assistant and Assistant at Mitchell Hutchins Asset Management from 1985 to 1987. Chartered Financial Analyst (“CFA”) charterholder. |
5 |
None | ||||
|
Alexandra Herger |
Class I Director of each of NDP and TPZ since January 1, 2015; Class II Director of TTP since January 1, 2015; Class III Director of each of TYG and NTG since January 1, 2015. |
Retired in 2014; Previously interim vice president of exploration for Marathon Oil in 2014 prior to her retirement; Director of international exploration and new ventures for Marathon Oil from 2008 to 2014; Held various positions with Shell Exploration and Production Co. between 2002 and 2008; Member of the Society of Exploration Geophysicists, the American Association of Petroleum Geologists, the Houston Geological Society and the Southeast Asia Petroleum Exploration Society; Member of the 2010 Leadership Texas/Foundation for Women’s Resources since 2010; Director of Panoro Energy ASA, an international independent oil and gas company listed on the Oslo Stock Exchange. |
5 | None | ||||
|
Interested Directors (4) |
||||||||
|
H. Kevin Birzer |
Class I Director and Chairman of the Board of NDP since 2012 and of TPZ since 2007; Class II Director and Chairman of the Board of TTP since 2011; Class III Director and Chairman of the Board of TYG since 2003 and of NTG since 2010. |
Chief Executive Officer of the Adviser; Managing Director of the Adviser and member of the Investment Committee of the Adviser since 2002; Director and Chairman of the Board of each of Tortoise Energy Capital Corporation (“TYY”) and Tortoise North American Energy Corporation (“TYN”) from its inception until its merger into TYG effective June 23, 2014; Director and Chairman of the Board of Tortoise Capital Resources Corporation (“TTO”), which changed its name to CorEnergy Infrastructure Trust, Inc. on December 3, 2012 (“CORR”), from its inception through November 30, 2011. CFA designation since 1988. |
5 |
None |
| (1) |
The address of each director and officer is 11550 Ash Street, Suite 300, Leawood, Kansas 66211. |
| (2) |
Ending year of Director terms by Class are as follows: |
| TYG | NTG | TTP | NDP | TPZ | |||||||
| Class I | 2020 | 2020 | 2021 | 2019 | 2019 | ||||||
| Class II | 2021 | 2021 | 2019 | 2020 | 2020 | ||||||
| Class III | 2019 | 2019 | 2020 | 2021 | 2021 |
| (3) |
This number includes TYG, NTG, TTP, NDP and TPZ. The Adviser serves as the investment adviser to TYG, NTG, TTP, NDP and TPZ. For Mr. Ciccotello, this number also includes the Tortoise Tax-Advantage Social Infrastructure Fund, Inc., whose investment adviser is an affiliate of the Adviser. |
| (4) |
As a result of their respective positions held with the Adviser or its affiliates, these individuals are considered “interested persons” within the meaning of the 1940 Act. |
| 70 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Company Officers and Directors (unaudited) (continued) |
| November 30, 2018 |
| Number of | ||||||||
|
Position(s) Held |
Portfolios in |
Other Public | ||||||
| With Company, Term |
Fund Complex |
Company | ||||||
|
of Office and Length |
Overseen |
Directorships | ||||||
| Name and Age(1) |
of Time Served(2) |
Principal Occupation During Past Five Years |
by Director |
Held | ||||
|
Interested Officers(3) |
||||||||
|
P. Bradley Adams |
Chief Executive Officer of each of TYG, NTG, TTP, NDP and TPZ since June 30, 2015. Principal Financial Officer and Treasurer of each of TYG, NTG, TTP, NDP and TPZ since May 18, 2017. |
Managing Director of the Adviser since January 2013; Director of Financial Operations of the Adviser from 2005 to January 2013; Chief Financial Officer of NTG from 2010 to June 30, 2015, of each of TYG and TPZ from May 2011 to June 30, 2015, of each of TTP and NDP from its inception to June 30, 2015, and of each of TYY and TYN from May 2011 to June 23, 2014; Assistant Treasurer of each of the TYG, TYY and TYN from November 2005 to May 2011, of TPZ from its inception to May 2011, and of TTO from its inception to June 2012. |
N/A |
None | ||||
|
Matthew G.P. Sallee |
President of TYG and NTG since June 30, 2015. |
Managing Director of the Adviser since January 2014 and member of the Investment Committee of the Adviser since June 30, 2015; Portfolio Manager of the Adviser since July 2013; Senior Investment Analyst of the Adviser from June 2012 to July 2013; Investment Analyst of the Adviser from 2009 to June 2012; Research Analyst of the Adviser from 2005 to 2009. CFA designation since 2009. |
N/A |
None | ||||
|
Brian A. Kessens |
President of TTP and TPZ since June 30, 2015. |
Managing Director of the Adviser since January 2015 and a member of the Investment Committee of the Adviser since June 30, 2015; Portfolio Manager of the Adviser since July 2013; Senior Investment Analyst of the Adviser from June 2012 to July 2013; Investment Analyst of the Adviser from 2008 to June 2012. CFA designation since 2006. |
N/A |
None | ||||
|
Robert J. Thummel |
President of NDP since June 30, 2015. |
Managing Director of the Adviser since January 2014 and a member of the Investment Committee of the Adviser since June 30, 2015; Portfolio Manager of the Adviser since July 2013; Senior Investment Analyst of the Adviser from June 2012 to July 2013; Investment Analyst of the Adviser from 2004 to June 2012. Previously, the President of TYN from 2008 until its merger into TYG in June 2014. |
N/A |
None | ||||
|
Nicholas S. Holmes |
Vice President of each of TYG and NTG since June 30, 2015. |
Director and Portfolio Manager of the Adviser since January 2019; Investment Analyst of the Adviser from January 2015 to December 2018; Research Analyst of the Adviser from January 2012 through December 2014 and Assistant Research Analyst from January 2010 through December 2011. CFA designation since 2013. |
N/A |
None | ||||
|
Stephen Pang |
Vice President of TTP since May 18, 2017. |
Director of the Adviser since January 2017; Investment Analyst of the Adviser from January 2015 to January 2017; CFA designation since 2016. |
N/A |
None | ||||
|
Adam Peltzer |
Vice President of TPZ since May 18, 2017. |
Director and Investment Analyst of the Adviser since March 2015. CFA designation since 2009. |
N/A |
None | ||||
|
Brett Jergens |
Vice President of NDP since June 30, 2015. |
Investment Analyst of the Adviser since December 2010; Research Analyst of the Adviser from June 2007 to December 2010. CFA designation since 2011. |
N/A |
None | ||||
|
Shobana Gopal |
Vice President of each of TYG, NTG, TTP, NDP and TPZ since June 30, 2015. |
Director, Tax of the Adviser since January 2013; Tax Analyst of the Adviser from September 2006 through December 2012. |
N/A |
None | ||||
|
Diane Bono |
Secretary of each of TYG, NTG, TTP, NDP and TPZ since May 2013. |
Chief Compliance Officer of the Adviser since June 2006; Chief Compliance Officer of TYG since June 2006 and of each of NTG, TTP, NDP and TPZ since its inception, and of each of TYY and TYN from June 2006 to June 23, 2014; Secretary of each of TYY and TYN from May 2013 to June 23, 2014. |
N/A |
None |
| (1) |
The address of each director and officer is 11550 Ash Street, Suite 300, Leawood, Kansas 66211. |
| (2) | Officers are elected annually. |
| (3) |
As a result of their respective positions held with the Adviser or its affiliates, these individuals are considered “interested persons” within the meaning of the 1940 Act. |
| Tortoise | 71 |
| Additional Information (unaudited) |
For stockholders that do not have a November 30, 2018 tax year end, this notice is for information purposes only. For stockholders with a November 30, 2018 tax year end, please consult your tax advisor as to the pertinence of this notice. For the fiscal year ended November 30, 2018, each Fund is designating the following items with regard to distributions paid during the year.
| Common Distributions | ||||||||||||||||||||||||||||||
| Return | Qualifying For | |||||||||||||||||||||||||||||
| of Capital | Long-Term | Ordinary Income | Total | Qualifying | Corporate Dividends | |||||||||||||||||||||||||
| Distributions | Capital Gain Distributions(1) | Distributions | Distributions | Dividends(2) | Rec. Deduction(3) | |||||||||||||||||||||||||
| TTP | 97.37 | % | 0.00 | % | 2.63 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||
| NDP | 100.00 | % | 0.00 | % | 0.00 | % | 100.00 | % | 0.00 | % | 0.00 | % | ||||||||||||||||||
| TPZ | 0.00 | % | 55.47 | % | 44.53 | % | 100.00 | % | 11.71 | % | 11.20 | % | ||||||||||||||||||
| Common Distributions | ||||||||||||||||||||||||||||||
| Return | Qualifying For | |||||||||||||||||||||||||||||
| of Capital | Long-Term | Ordinary Income | Total | Qualifying | Corporate Dividends | |||||||||||||||||||||||||
| Distributions | Capital Gain Distributions(1) | Distributions | Distributions | Dividends(2) | Rec. Deduction(3) | |||||||||||||||||||||||||
| TTP | 0.00 | % | 0.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||
|
(1) |
The Fund designates long-term capital gain distributions per IRC Code Sec. 852(b)(3)(C). The long-term capital gain tax rate is variable based on the taxpayer’s taxable income. |
|
(2) |
Represents the portion of Ordinary Income Distributions taxable at the capital gain tax rates if the stockholder meets holding period requirements. |
|
(3) |
Represents the portion of Ordinary Income Distributions which qualify for the “Corporate Dividends Received Deduction.” |
Director and Officer Compensation
The Funds do not compensate any of its directors who are “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, nor any of its officers. For the period from December 1, 2017 through November 30, 2018, the aggregate compensation paid by the Funds to the independent directors was as follows:
| TYG | NTG | TTP | NDP | TPZ | ||||
| $ 186,400 | $ 165,000 | $ 115,000 | $ 115,000 | $ 110,000 |
The Funds did not pay any special compensation to any of its directors or officers.
Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. By their nature, all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several factors that could materially affect each Fund’s actual results are the performance of the portfolio of investments held by it, the conditions in the U.S. and international financial, petroleum and other markets, the price at which shares of each Fund will trade in the public markets and other factors discussed in filings with the SEC.
Proxy Voting Policies
A description of the policies and procedures that each Fund uses to determine how to vote proxies relating to portfolio securities owned by the Fund and information regarding how each Fund voted proxies relating to the portfolio of securities during the 12-month period ended June 30, 2018 are available to stockholders (i) without charge, upon request by calling the Adviser at (913) 981-1020 or toll-free at (866) 362-9331 and on or through the Adviser’s Web site at www.tortoiseadvisors.com; and (ii) on the SEC’s Web site at www.sec.gov.
Form N-Q
Each Fund files its complete schedule of portfolio holdings for the first and third quarters of each fiscal year with the SEC on Form N-Q. Each Fund’s Form N-Q is available without charge upon request by calling the Adviser at (866) 362-9331 or by visiting the SEC’s Web site at
www.sec.gov.
Each Fund’s Form N-Qs are also available through the Adviser’s Web site at www.tortoiseadvisors.com.
Statement of Additional Information
The Statement of Additional Information (“SAI”) includes additional information about each Fund’s directors and is available upon request without charge by calling the Adviser at (866) 362-9331 or by visiting the SEC’s Web site at www.sec.gov.
Certifications
Each Fund’s Chief Executive Officer has submitted to the New York Stock Exchange the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual.
Each Fund has filed with the SEC, as an exhibit to its most recently filed Form N-CSR, the certification of its Chief Executive Officer and Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act.
| 72 | Tortoise |
| 2018 Annual Report | November 30, 2018 |
| Additional Information (unaudited) (continued) |
In order to conduct its business, each Fund collects and maintains certain nonpublic personal information about its stockholders of record with respect to their transactions in shares of each Fund’s securities. This information includes the stockholder’s address, tax identification or Social Security number, share balances, and distribution elections. We do not collect or maintain personal information about stockholders whose share balances of our securities are held in “street name” by a financial institution such as a bank or broker.
We do not disclose any nonpublic personal information about you, the Funds’ other stockholders or the Funds’ former stockholders to third parties unless necessary to process a transaction, service an account, or as otherwise permitted by law.
To protect your personal information internally, we restrict access to nonpublic personal information about the Funds’ stockholders to those employees who need to know that information to provide services to our stockholders. We also maintain certain other safeguards to protect your nonpublic personal information.
Repurchase Disclosure
Notice is hereby given in accordance with Section 23(c) of the 1940 Act, that each Fund may from time to time purchase shares of its common stock in the open market.
Automatic Dividend Reinvestment
Each of NTG, TTP, NDP and TPZ have an Automatic Dividend Reinvestment Plan and TYG has an Automatic Dividend Reinvestment and Cash Purchase Plan (each, a “Plan”). Each Plan allows participating common stockholders to reinvest distributions, including dividends, capital gains and return of capital in additional shares of the Fund’s common stock and TYG’s Plan also allows registered holders of the TYG’s common stock to make optional cash investments, in accordance with TYG’s Plan, on a monthly basis.
If a stockholder’s shares are registered directly with the Fund or with a brokerage firm that participates in the Fund’s Plan, all distributions are automatically reinvested for stockholders by the Agent in additional shares of common stock of the Fund (unless a stockholder is ineligible or elects otherwise). Stockholders holding shares that participate in the Plan in a brokerage account may not be able to transfer the shares to another broker and continue to participate in the Plan. Stockholders who elect not to participate in the Plan will receive all distributions payable in cash paid by check mailed directly to the stockholder of record (or, if the shares are held in street or other nominee name, then to such nominee) by Computershare, as dividend paying agent. Distributions subject to tax (if any) are taxable whether or not shares are reinvested.
Any single investment pursuant to the cash purchase option under TYG’s Plan must be in an amount of at least $100 and may not exceed $5,000 per month unless a request for waiver has been granted. A request for waiver should be directed to TYG at 1-866-362-9331 and TYG has the sole discretion to grant any requested waiver. Optional cash investments may be delivered to the Agent by personal check, by automatic or electronic bank account transfer or by online access at www.computershare.com. TYG reserves the right to reject any purchase order. Stockholders who hold shares in street or other nominee name who want to participate in optional cash investments should contact their broker, bank or other nominee and follow their instructions. There is no obligation to make an optional cash investment at any time, and the amount of such investments may vary from time to time. Optional cash investments must be received by the Agent 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 under TYG’s Plan. Scheduled optional cash purchases may be cancelled or refunded upon a participant’s written request received by the Agent at least two business days prior to the purchase date. Participants will not be able to instruct the Agent to purchase common shares at a specific time or at a specific price.
If on the distribution payment date or, for TYG, the purchase date for optional cash investments, the net asset value per share of the common stock is equal to or less than the market price per share of common stock plus estimated brokerage commissions, the Fund will issue additional shares of common stock to participants. The number of shares will be determined by the greater of the net asset value per share or 95 percent of the market price. Otherwise, shares generally will be purchased on the open market by the Agent as soon as possible following the payment date or purchase date, but in no event later than 30 days after such date except as necessary to comply with applicable law. There are no brokerage charges with respect to shares issued directly by the Fund as a result of distributions payable either in shares or in cash or, for TYG, as a result of optional cash investments. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Agent’s open-market purchases in connection with the reinvestment of distributions or optional cash investments. If a participant elects to have the Agent sell part or all of his or her common stock and remit the proceeds, such participant will be charged a transaction fee of $15.00 plus his or her pro rata share of brokerage commissions on the shares sold.
Participation is completely voluntary. Stockholders may elect not to participate in the Plan, and participation may be terminated or resumed at any time without penalty, by giving notice in writing, by telephone or Internet to Computershare, the Plan Agent, at the address set forth below. Such termination will be effective with respect to a particular distribution if notice is received prior to such record date.
Additional information about the Plan may be obtained by writing to Computershare Trust Company, N.A, P.O. Box 30170, College Station, TX 77842-3170. You may also contact Computershare by phone at (800) 426-5523 or visit their Web site at www.computershare.com.
Investment Advisory Agreement Update
A new investment advisory agreement (the “Advisory Agreement”) between the Company and the Adviser was unanimously approved by the Board of Directors, including the Independent Directors, on October 16, 2017, and was subsequently approved by stockholders at a special meeting on December 21, 2017. This new agreement became effective upon the closing of the change in ownership of the parent company of the Adviser on January 31, 2018 and has a term ending on December 31, 2019. The Advisory Agreement will be submitted to the Board of Directors for renewal each year after the initial term. A discussion regarding the basis of the Board of Directors’ decision to approve the new Advisory Agreement is available in our Annual Report to stockholders for the fiscal year ended November 30, 2017.
| Tortoise | 73 |
|
Office of the Company Board of Directors of H. Kevin Birzer, Chairman Rand C. Berney Conrad S. Ciccotello Alexandra Herger Jennifer Paquette |
Administrator Custodian Transfer, Dividend Disbursing Legal Counsel Investor Relations Stock Symbols This report is for stockholder information. This is not a prospectus intended for use in the purchase or sale of fund shares. Past performance is no guarantee of future results and your investment may be worth more or less at the time you sell. |
 |
11550 Ash Street, Suite 300 |
Item 2. Code of Ethics.
The Registrant has adopted a code of ethics that applies to the Registrant’s Principal Executive Officer and its Principal Financial Officer. The Registrant has not made any amendments to this code of ethics during the period covered by this report. The Registrant has not granted any waivers from any provisions of this code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The Registrant’s Board of Directors has determined that there is at least one “audit committee financial expert” serving on its audit committee. Mr. Conrad Ciccotello is the “audit committee financial expert” and is considered to be “independent” as each term is defined in Item 3 of Form N-CSR. In addition to his experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements, Mr. Ciccotello has a Ph.D. in Finance.
Item 4. Principal Accountant Fees and Services.
The Registrant has engaged its principal accountant to perform audit services, audit-related services and tax services during the past two fiscal years. “Audit services” refer to performing an audit of the Registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. “Audit-related services” refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. “Tax services” refer to professional services rendered by the principal accountant for tax compliance (including preparation of tax returns), tax advice, and tax planning. The following table details the approximate amounts of aggregate fees billed to the Registrant for the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant.
| FYE 11/30/2018 | FYE 11/30/2017 | |||||
| Audit Fees | $ | 171,000 | $ | 144,000 | ||
| Audit-Related Fees | — | — | ||||
| Tax Fees | $ | 64,000 | $ | 55,000 | ||
| All Other Fees | — | — | ||||
| Aggregate Non-Audit Fees | $ | 64,000 | $ | 55,000 | ||
The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre-approve (i) the selection of the Registrant’s independent registered public accounting firm, (ii) the engagement of the independent registered public accounting firm to provide any non-audit services to the Registrant, (iii) the engagement of the independent registered public accounting firm to provide any non-audit services to the Adviser or any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the Registrant, if the engagement relates directly to the operations and financial reporting of the Registrant, and (iv) the fees and other compensation to be paid to the independent registered public accounting firm. The Chairman of the audit committee may grant the pre-approval of any engagement of the independent registered public accounting firm for non-audit services of less than $10,000, and such delegated pre-approvals will be presented to the full audit committee at its next meeting. Under certain limited circumstances, pre-approvals are not required under securities law regulations for certain non-audit services below certain de minimus thresholds. Since the adoption of these policies and procedures, the audit committee has pre-approved all audit and non-audit services provided to the Registrant by the principal accountant. None of these services provided by the principal accountant were approved by the audit committee pursuant to the de minimus exception under Rule 2.01(c)(7)(i)(C) or Rule 2.01(c)(7)(ii) of Regulation S-X. All of the principal accountant’s hours spent on auditing the Registrant’s financial statements were attributed to work performed by full-time permanent employees of the principal accountant.
In the Registrant’s fiscal years ended November 30, 2018 and 2017, the Adviser was billed approximately $136,500 and $457,900 in fees, respectively, for tax and other non-audit services provided to the Adviser. These non-audit services were not required to be preapproved by the Registrant’s audit committee. No entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the Registrant, has paid to, or been billed for fees by, the principal accountant for non-audit services rendered to the Adviser or such entity during the Registrant’s last two fiscal years. The audit committee has considered whether the principal accountant’s provision of services (other than audit services) to the Registrant, the Adviser or any entity controlling, controlled by, or under common control with the Adviser that provides services to the Registrant is compatible with maintaining the principal accountant’s independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
The Registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, and is comprised of Mr. Conrad S. Ciccotello, Mr. Rand C. Berney, Ms. Jennifer Paquette and Ms. Alexandra A. Herger.
Item 6. Investments.
(a) Schedule of Investments is included as
part of the report to shareholders filed under Item 1.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Copies of the proxy voting policies and procedures of the Registrant and the Adviser are attached hereto as Exhibit 99.VOTEREG and Exhibit 99.VOTEADV, respectively.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Unless otherwise indicated, information is presented as of November 30, 2018.
Portfolio Managers
As of the date of this filing, primary responsibility for the day-to-day management of the Registrant’s portfolio is the joint responsibility of a team of portfolio managers consisting of Brian A. Kessens, James R. Mick, Matthew G.P. Sallee, Robert J. Thummel, Jr., Stephen Pang, Brett Jergens and Nicholas S. Holmes. The investment committee of the Adviser, comprised of certain of these portfolio managers and other employees of the Adviser, provides investment strategy oversight to the portfolio management team who implements the strategy. Biographical information about each portfolio manager named above as of the date of this filing is set forth below.
| Position(s) Held with | ||||
| Company and Length | ||||
| Name and Age* | of Time Served | Principal Occupation During Past Five Years | ||
|
Brian A. Kessens |
N/A |
Investment Analyst of the Adviser from 2008 to June 2012; Senior Investment Analyst of the Adviser from June 2012 to July 2013; Portfolio Manager of the Adviser since July 2013; Managing Director of the Adviser since January 2015; Member of the Investment Committee of the Adviser and President of each of TTP and TPZ since June 30, 2015. CFA designation since 2006. | ||
|
James R. Mick |
N/A |
Research Analyst of the Adviser from 2006 to 2011; Investment Analyst of the Adviser from 2011 to June 2012; Senior Investment Analyst of the Adviser from June 2012 to July 2013; Portfolio Manager of the Adviser since July 2013; Managing Director of the Adviser since January 2014; Member of the Investment Committee of the Adviser since June 30, 2015. CFA designation since 2010. | ||
|
Matthew G.P. Sallee |
President since |
Research Analyst of the Adviser from 2005 to 2009; Investment Analyst of the Adviser from 2009 to June 2012; Senior Investment Analyst of the Adviser from June 2012 to July 2013; Portfolio Manager of the Adviser since July 2013; Managing Director of the Adviser since January 2014; Member of the Investment Committee of the Adviser and President of TYG since June 30, 2015. CFA designation since 2009. | ||
|
Robert J. Thummel,
Jr. |
N/A |
Investment Analyst of the Adviser from 2004 to June 2012; Senior Investment Analyst of the Adviser from June 2012 to July 2013; Portfolio Manager of the Adviser since July 2013; Managing Director of the Adviser since January 2014; President of TYN from 2008 until its merger into TYG effective June 23, 2014; Member of the Investment Committee of the Adviser and President of NDP since June 30, 2015. | ||
|
Stephen Pang |
N/A |
Investment Analyst of the Adviser from January 2015 to January 2017; Director of the Adviser since January 2017; Portfolio Manager of the Adviser since January 2018; Vice President of TTP since May 2017. CFA designation since 2016. | ||
|
Brett Jergens |
N/A |
Research Analyst of the Adviser from June 2007 to December 2010; Investment Analyst of the Adviser from December 2010 to January 2018. Portfolio Manager of the Adviser since January 2018. CFA designation since 2011. | ||
Nicholas S. Holmes |
Vice President since June 30, 2015 |
Assistant Research Analyst from January 2010 through December 2011; Research Analyst of the Adviser from January 2012 through December 2014; Investment Analyst of the Adviser from January 2015 to December 2018; Director and Portfolio Manager of the Adviser since January 2019; Vice President of each of the Company and TYG since June 30, 2015. CFA designation since 2013. |
*The address of each portfolio manager is 11550 Ash Street, Suite 300, Leawood, Kansas 66211.
The Adviser also serves as the investment adviser to TYG, TPZ, TTP and NDP.
The following table provides information about the other accounts managed on a day-to-day basis by each of the portfolio managers as of November 30, 2018:
| Number of | |||||||||||
| Accounts | Total Assets of | ||||||||||
| Paying a | Accounts Paying | ||||||||||
| Number of | Total Assets of | Performance | a Performance | ||||||||
| Name of Manager | Accounts | Accounts | Fee | Fee | |||||||
| Brian A. Kessens | |||||||||||
| Registered investment companies | 9 | $ | 7,132,551,037 | 0 | — | ||||||
| Other pooled investment vehicles | 15 | $ | 856,630,585 | 2 | $113,079,761 | ||||||
| Other accounts | 951 | $ | 6,992,554,006 | 0 | — | ||||||
| James R. Mick | |||||||||||
| Registered investment companies | 9 | $ | 7,132,551,037 | 0 | — | ||||||
| Other pooled investment vehicles | 15 | $ | 856,630,585 | 2 | $113,079,761 | ||||||
| Other accounts | 951 | $ | 6,992,554,006 | 0 | — | ||||||
| Matthew G.P. Sallee | |||||||||||
| Registered investment companies | 9 | $ | 7,132,551,037 | 0 | — | ||||||
| Other pooled investment vehicles | 15 | $ | 856,630,585 | 2 | $113,079,761 | ||||||
| Other accounts | 951 | $ | 6,992,554,006 | 0 | — | ||||||
| Robert J. Thummel, Jr. | |||||||||||
| Registered investment companies | 9 | $ | 7,132,551,037 | 0 | — | ||||||
| Other pooled investment vehicles | 15 | $ | 856,630,585 | 2 | $113,079,761 | ||||||
| Other accounts | 951 | $ | 6,992,554,006 | 0 | — | ||||||
| Stephen Pang | |||||||||||
| Registered investment companies | 9 | $ | 7,132,551,037 | 0 | — | ||||||
| Other pooled investment vehicles | 15 | $ | 856,630,585 | 2 | $113,079,761 | ||||||
| Other accounts | 951 | $ | 6,992,554,006 | 0 | — | ||||||
| Brett Jergens | |||||||||||
| Registered investment companies | 9 | $ | 7,132,551,037 | 0 | — | ||||||
| Other pooled investment vehicles | 15 | $ | 856,630,585 | 2 | $113,079,761 | ||||||
| Other accounts | 951 | $ | 6,992,554,006 | 0 | — | ||||||
| Nicholas S. Holmes | |||||||||||
| Registered investment companies | 9 | $ | 7,132,551,037 | 0 | — | ||||||
| Other pooled investment vehicles | 15 | $ | 856,630,585 | 2 | $113,079,761 | ||||||
| Other accounts | 951 | $ | 6,992,554,006 | 0 | — | ||||||
Material 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 the Registrant has no interest, some of which may have investment strategies similar to the Registrant. In addition, conflicts of interest may arise from the fact that a related person of the Adviser has an interest in a limited liability company client, similar to a general partner interest in a partnership, for which the Adviser also serves as manager. The Adviser or its affiliates may have financial incentives to favor certain of these accounts over the Registrant. For example, the Adviser may have an incentive to allocate potentially more favorable investment opportunities to other funds and clients that pay the 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. The 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 or client, which in turn, may result in an incentive fee being paid to the Adviser by that other fund or client. Any of the Adviser’s or its affiliates’ proprietary accounts or other customer accounts may compete with the Registrant 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, the Registrant, even though their investment objectives may be the same as, or similar to, the Registrant’s objectives. The 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 equitable basis by the Adviser in its discretion and in accordance with the clients’ various investment objectives and the Adviser’s procedures. In some cases, this system may adversely affect the price or size of the position the Registrant may obtain or sell. In other cases, the Registrant’s ability to participate in volume transactions may produce better execution for it. When possible, the 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, the 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. The 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.
The Adviser also serves as investment adviser for four other publicly traded management investment companies, all of which invest in the energy sector.
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 the Registrant and relevant accounts under management in the context of any particular investment opportunity, the Registrant’s investment activities, on the one hand, and other managed accounts, on the other hand, may differ considerably from time to time. In addition, the Registrant’s fees and expenses will differ from those of the other managed accounts. Accordingly, stockholders should be aware that the Registrant’s future performance and the future performance of the other accounts of the Adviser may vary.
Situations may occur when the Registrant 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 the Registrant or the other accounts, thereby limiting the size of the Registrant’s position; (2) the difficulty of liquidating an investment for the Registrant 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 Investment Company Act of 1940.
From time to time, the Adviser may seed proprietary accounts for the purpose of evaluating a new investment strategy that eventually may be available to clients through one or more product structures. Such accounts also may serve the purpose of establishing a performance record for the strategy. The Adviser’s management of accounts with proprietary interests and nonproprietary client accounts may create an incentive to favor the proprietary accounts in the allocation of investment opportunities, and the timing and aggregation of investments. The Adviser’s proprietary seed accounts may include long-short strategies, and certain client strategies may permit short sales. A conflict of interest arises if a security is sold short at the same time as a long position, and continuously short selling in a security may adversely affect the stock price of the same security held long in client accounts. The Adviser has adopted various policies to mitigate these conflicts, including policies that require the Adviser to avoid favoring any account, and that prohibit client and proprietary accounts from engaging in short sales with respect to individual stocks held long in client accounts. The Adviser’s policies also require transactions in proprietary accounts to be placed after client transactions.
The 1940 Act limits our ability to co-invest in negotiated private placements of securities with our affiliates, including other funds managed by the Adviser. We and our Adviser have received exemptive relief from the SEC that permits certain co-investment transactions. In this regard, our Adviser has the ability to allocate investment opportunities of certain negotiated transactions between us, other funds registered under the 1940 Act and other accounts managed by our Adviser pro rata based on available capital, up to the amount proposed to be invested by each. All accounts generally are required to participate on the same terms. Pursuant to the exemptive order, our Adviser will be required to provide the board of directors of each participating registered fund with certain information concerning the relevant investment. A majority (as defined in section 57(o) of the 1940 Act) of the directors eligible to consider the co-investment transaction of each participating registered fund must approve such registered fund’s participation in the co-investment transaction.
To the extent that the Adviser sources and structures private investments in master limited partnerships (“MLPs”), certain employees of the Adviser may become aware of actions planned by MLPs, such as acquisitions, which may not be announced to the public. It is possible that the Registrant 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 or to confirm prior to receipt of any material non-public information that the information will shortly be made public. The Registrant’s 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 the Registrant’s 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 the Registrant. Further, the Adviser may at some time in the future, manage additional investment funds with the same investment objective as the Registrant’s.
Compensation
None of Messrs. Kessens, Mick, Sallee, Thummel, Pang, Jergens or Holmes receives any direct compensation from the Registrant or any other of the managed accounts reflected in the table above. All such accounts are managed by the Adviser. Each of Messrs. Kessens, Mick, Sallee, Thummel, Pang, Jergens and Holmes has a services agreement with the Adviser and receives a base guaranteed payment from the Adviser for the services he provides. They are also eligible for an annual cash bonus based on the Adviser’s earnings and the satisfaction of certain other conditions. Additional benefits received by Messrs. Kessens, Mick, Sallee, Thummel, Pang, Jergens and Holmes are normal and customary employee benefits generally available to all salaried employees. Each of Messrs. Kessens, Mick, Sallee, Thummel, Pang, Jergens and Holmes owns an equity interest in Tortoise Investments, LLC that is a minority owner of the Adviser, and each thus benefits from increases in the net income of the Adviser.
Securities Owned in the Registrant by Portfolio Managers
The following table provides information about the dollar range of equity securities in the Registrant beneficially owned by each of the portfolio managers as of November 30, 2018:
| Aggregate Dollar Range of | ||||
| Portfolio Manager | Holdings in the Registrant | |||
| Brian A. Kessens | $10,001 - $50,000 | |||
| James R. Mick | $1-$10,000 | |||
| Matthew G.P. Sallee | $100,001 - $500,000 | |||
| Robert J. Thummel, Jr. | $10,001-$50,000 | |||
| Stephen Pang | None | |||
| Brett Jergens | None | |||
| Nicholas S. Holmes | $10,001 - $50,000 |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
| Period | (a) Total Number of Shares (or Units) Purchased |
(b) Average Price Paid per Share (or Unit) |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
| Month #1 | 0 | 0 | 0 | 0 |
| 6/1/18-6/30/18 | ||||
| Month #2 | 0 | 0 | 0 | 0 |
| 7/1/18-7/31/18 | ||||
| Month #3 | 0 | 0 | 0 | 0 |
| 8/1/18-8/31/18 | ||||
| Month #4 | 0 | 0 | 0 | 0 |
| 9/1/18-9/30/18 | ||||
| Month #5 | 0 | 0 | 0 | 0 |
| 10/1/18-10/31/18 | ||||
| Month #6 | 0 | 0 | 0 | 0 |
| 11/1/18-11/30/18 | ||||
| Total | 0 | 0 | 0 | 0 |
Item 10. Submission of Matters to a Vote of Security Holders.
None.
Item 11. Controls and Procedures.
(a) The Registrant’s Chief Executive Officer, Principal Financial Officer and Treasurer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended.
(b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities For Closed-End Management Investment Companies.
The Registrant does not participate in securities lending activities.
Item 13. Exhibits.
(a)(1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the Registrant intends to satisfy Item 2 requirements through filing of an exhibit. Filed herewith.
(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the Registrant to 10 or more persons. None.
(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) | Tortoise Midstream Energy Fund, Inc. |
| By (Signature and Title) | /s/ P. Bradley Adams |
| P. Bradley Adams, Chief Executive Officer, Principal Financial Officer and Treasurer | |
Date January 30, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| By (Signature and Title) | /s/ P. Bradley Adams |
| P. Bradley Adams, Chief Executive Officer, Principal Financial Officer |
Date January 30, 2019