Company at a
Glance
Tortoise Power and Energy Infrastructure
Fund, Inc. (NYSE: TPZ) invests in a portfolio of fixed income and equity
securities issued by power and energy infrastructure companies. The Fund’s goal
is to provide stockholders a high level of current income, with a secondary
objective of capital appreciation. The Fund seeks to invest in a portfolio of
companies that provide stable and defensive characteristics throughout economic
cycles.
Target Portfolio
Allocation
Note: Allocation to MLP securities capped at 25% of total assets.
Note: Allocation to MLP securities capped at 25% of total assets.
Infrastructure Asset
Class
Increasingly,
institutions have allocated a portion of their investment portfolio to
infrastructure due to its desirable investment characteristics, which
include:
- Long-term stable asset class
with low historical volatility
- Attractive risk-adjusted
returns
- Investment diversification
through low historical correlation with other asset
classes
- A potential inflation hedge through equity investments
For Investors Seeking
- A fund which
invests in the historically stable and defensive power and energy infrastructure
sectors
- Monthly
distributions
- Fund invested in fixed income
securities with low volatility and more safety as well as MLPs for growth
- One Form 1099 per stockholder
at the end of the year, thus avoiding multiple K-1s and multiple state filings related to
individual MLP partnership investments
Power and Energy Infrastructure
Operations
At the heart of the
infrastructure asset class is power and energy infrastructure, illustrated in
the box below:
Power Infrastructure — The ownership and operation of asset
systems that provide electric power generation (including renewable energy),
transmission and distribution.
Energy Infrastructure — The ownership and operation of a network
of pipeline assets to transport, store, gather, and/or process crude oil,
refined petroleum products, natural gas or natural gas liquids (including
renewable energy).
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March 31,
2010
Dear Fellow
Stockholders,
Power and energy
infrastructure companies continued to perform well in the first quarter of 2010.
We believe the strong performance was a result of the improving U.S. economic
outlook, steady business fundamentals and healthy access to capital for MLP
companies. TPZ’s mix of portfolio companies is intended to minimize volatility
and exposure to commodity prices and we believe its investments are positioned
for continued strength in 2010.
Power and Energy Infrastructure Sector
Review and Outlook
For our quarter
ended Feb. 28, 2010, the TPZ Benchmark Index*, comprised of a blend of debt and
equity securities issued by companies in the power and energy infrastructure
sectors, achieved a total return of 4.56 percent resulting from favorable
underlying business fundamentals. While demand for power continues to be weak,
particularly in the industrial sector, an improving economy is expected to boost
demand. In energy, refined product demand stabilized as the improving economy
returned more consumers to the roadways. Natural gas transmission operations
were steady as a result of their fee-based contract structure.
During the quarter,
power companies maintained capital expenditure programs at current levels. MLPs
raised more than $2.5 billion in equity and more than $6 billion in debt
primarily to fund acquisitions and organic growth. We view this trend
positively, as the capital raised was at increasingly attractive levels. We
expect further issuances as MLPs are forecast to invest more than $15 billion
through 2012 on new pipeline and storage construction projects to connect new
areas of supply to demand centers.
Our 2010 sector
outlook remains positive. We believe electricity demand will improve along with
economic activity. We also expect the fee-based nature of cash flows, modest
leverage and adequate distribution coverage will continue to drive steady
returns within the MLP portion of the portfolio. While distribution growth
slowed in the past year due to uncertainty in the capital markets, we expect
distribution growth of three to five percent in 2010 from TPZ’s MLP portfolio
companies.
Company Performance Review and
Outlook
For the quarter
ended Feb. 28, 2010, our total return based on market value, including the
reinvestment of distributions, was 7.3 percent as compared to a total return of
-2.2 percent for the prior quarter ended Nov. 30, 2009. Since our inception on
July 29, 2009, through Feb. 28, 2010, the fund’s total return based on market
value, including the reinvestment of distributions, was 5.0 percent and the
total return based on NAV, including reinvestment of distributions, was 14.1
percent.
Beginning Sept. 30,
2009, we have paid monthly distributions equal to $0.125 per share or $1.50
annualized. These distributions reflect a 7.5 percent yield on the IPO price of
$20 per share, and represented an annualized yield of 7.4 percent based on the
closing price of $20.20 on Feb. 28, 2010. We expect to maintain monthly
distributions of $0.125 per share in 2010.
Leverage
Our leverage
position remains relatively steady with the prior quarter, including bank debt
and senior notes. As of Feb. 28, 2010, leverage consisted of a $20 million
floating rate note and a $11.1 million balance on the line of credit. Total
leverage represents 16.5 percent of total assets, below our long-term leverage
target of 20 percent. Currently, $27 million, or approximately 87 percent of
total debt has been effectively converted to fixed rates utilizing interest rate
swaps with maturities ranging from 2011 to 2014.
Conclusion
We invest in a
portfolio of fixed income and equity securities issued by power and energy
infrastructure companies that we expect will provide our stockholders a high
level of current income plus some capital appreciation. These companies should
provide stable and defensive characteristics throughout economic cycles.
Thank you for
investing in TPZ and please plan to join us for our annual stockholders’ meeting
on May 21, 2010, at 10 a.m. central time at our offices located at 11550 Ash
St., Suite 300, in Leawood, Kan. If you are unable to attend the meeting, you
can join us via our Web site at www.tortoiseadvisors.com.
Sincerely,
The Managing
Directors
Tortoise Capital Advisors, L.L.C.
The adviser to Tortoise Power and Energy Infrastructure Fund, Inc.
Tortoise Capital Advisors, L.L.C.
The adviser to Tortoise Power and Energy Infrastructure Fund, Inc.
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| H. Kevin Birzer | Zachary A. Hamel | Kenneth P. Malvey |
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| Terry Matlack | David J. Schulte |
* TPZ Benchmark Index includes Merrill
Lynch U.S. Corporates, Energy debt index “CIEN,” Merrill Lynch U.S. Corporates,
Electric Utility Power debt index “CUEL” and the Tortoise MLP Index™
“TMLP.”
| 2010 1st Quarter Report | 1 |
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Key Financial Data (Supplemental Unaudited Information) (dollar amounts in thousands unless otherwise indicated) |
The information presented below regarding
Distributable Cash Flow and Selected Operating Ratios is supplemental non-GAAP
financial information, which we believe is meaningful to understanding our
operating performance. The Selected Operating Ratios are the functional
equivalent of EBITDA for non-investment companies, and we believe they are an
important supplemental measure of performance and promote comparisons from
period-to-period. Supplemental non-GAAP measures should be read in conjunction
with our full financial statements.
| 2009 | 2010 | ||||||||||
| Q3(1) | Q4(2) | Q1(2) | |||||||||
| Total Income from Investments | |||||||||||
| Interest earned on corporate bonds | $ | 164 | $ | 1,633 | $ | 1,900 | |||||
| Distributions received from master limited partnerships | 152 | 894 | 901 | ||||||||
| Dividends paid in stock | 16 | 568 | 568 | ||||||||
| Interest and dividend income | 25 | 4 | — | ||||||||
| Total from investments | 357 | 3,099 | 3,369 | ||||||||
| Operating Expenses Before Leverage Costs | |||||||||||
| Advisory fees, net of expense reimbursement | 91 | 314 | 356 | ||||||||
| Other operating expenses | 51 | 162 | 123 | ||||||||
| 142 | 476 | 479 | |||||||||
| Distributable cash flow before leverage costs | 215 | 2,623 | 2,890 | ||||||||
| Leverage costs(3) | — | 187 | 317 | ||||||||
| Distributable Cash Flow(4) | $ | 215 | $ | 2,436 | $ | 2,573 | |||||
| Distributions paid on common stock | $ | — | $ | 2,577 | $ | 2,591 | |||||
| Distributions paid on common stock per share | — | 0.375 | 0.375 | ||||||||
| Payout percentage for period(5) | — | 105.8 | % | 100.7 | % | ||||||
| Net realized gain on investments | — | 104 | 1,325 | ||||||||
| Total assets, end of period | 135,519 | 173,997 | 188,170 | ||||||||
| Average total assets during period(6) | 133,251 | 158,766 | 181,412 | ||||||||
| Leverage (long-term debt obligations and short-term borrowings)(7) | — | 31,300 | 31,100 | ||||||||
| Leverage as a percent of total assets | — | 18.0 | % | 16.5 | % | ||||||
| Net unrealized appreciation (depreciation), end of period | (463 | ) | 11,641 | 21,387 | |||||||
| Net assets, end of period | 130,278 | 141,789 | 152,231 | ||||||||
| Average net assets during period(8) | 130,234 | 136,028 | 149,001 | ||||||||
| Net asset value per common share | 19.00 | 20.55 | 21.96 | ||||||||
| Market value per common share | 20.00 | 19.18 | 20.20 | ||||||||
| Shares outstanding | 6,856,073 | 6,898,481 | 6,931,555 | ||||||||
| Selected Operating Ratios(9) | |||||||||||
| As a Percent of Average Total Assets | |||||||||||
| Total distributions received from investments | N/M | 7.83 | % | 7.53 | % | ||||||
| Operating expenses before leverage costs | N/M | 1.20 | % | 1.07 | % | ||||||
| Distributable cash flow before leverage costs | N/M | 6.63 | % | 6.46 | % | ||||||
| As a Percent of Average Net Assets | |||||||||||
| Distributable cash flow(4) | N/M | 7.18 | % | 7.00 | % | ||||||
| (1) | Represents the period from July 31, 2009 (commencement of operations) through August 31, 2009. |
| (2) | Q4 is the period from September through November. Q1 is the period from December through February. |
| (3) | Leverage costs include interest expense, other leverage expenses and interest rate swap expenses. |
| (4) | “Net investment income” on the Statement of Operations is adjusted as follows to reconcile to Distributable Cash Flow (DCF): increased by the return of capital on MLP distributions, the value of paid-in-kind distributions, other non-recurring leverage expenses and amortization of debt issuance costs; and decreased by realized and unrealized gains (losses) on interest rate swap settlements. |
| (5) | Distributions paid as a percentage of Distributable Cash Flow. |
| (6) | Computed by averaging month-end values within each period. |
| (7) | The balance on the short-term credit facility was $11,100,000 as of February 28, 2010. |
| (8) | Computed by averaging daily values within each period. |
| (9) | Annualized for periods less than one full year. Operating ratios contained in our Financial Highlights are based on net assets. Ratios for Q3 are not meaningful due to partial reporting period. |
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Tortoise
Power and Energy Infrastructure Fund,
Inc.
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Management’s Discussion (Unaudited) |
The information contained in this section
should be read in conjunction with our Financial Statements and the Notes
thereto. In addition, this report contains certain forward-looking statements.
These statements include the plans and objectives of management for future
operations and financial objectives and can be identified by the use of
forward-looking terminology such as “may,” “will,” “expect,” “intend,”
“anticipate,” “estimate,” or “continue” or the negative thereof or other
variations thereon or comparable terminology. These forward-looking statements
are subject to the inherent uncertainties in predicting future results and
conditions. Certain factors that could cause actual results and conditions to
differ materially from those projected in these forward-looking statements are
set forth in the “Risk Factors” section of our public filings with the SEC.
Overview
Tortoise Power and
Energy Infrastructure Fund, Inc.’s (“TPZ”) primary investment objective is to
provide a high level of current income, with a secondary objective of capital
appreciation. We seek to provide our stockholders a vehicle to invest in a
portfolio consisting primarily of securities issued by power and energy
infrastructure companies. Power infrastructure operations use asset systems to
provide electric power generation (including renewable energy), transmission and
distribution. Energy infrastructure operations use a network of pipeline assets
to transport, store, gather and/or process crude oil, refined petroleum products
(including biodiesel and ethanol), natural gas or natural gas liquids. We
believe the power and energy infrastructure sector provides stable and defensive
characteristics throughout economic cycles. A majority of the investments are in
fixed income securities with equities providing growth potential.
TPZ is a registered
non-diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended (the “1940 Act”), and expects to qualify as a
regulated investment company (“RIC”) under the U.S. Internal Revenue Code of
1986, as amended (the “Code”). Tortoise Capital Advisors, L.L.C. (the “Adviser”)
serves as investment adviser.
Company Update
Market values of
our investments increased during 1st quarter 2010 from their levels at November
30, 2009. This contributed to an increase of approximately $10 million in
unrealized appreciation during the quarter but also increased asset-based
expenses. We executed a limited amount of portfolio trades during the quarter
including redeploying proceeds from two debt investments that were tendered at
premiums and several relative value transactions, enabling us to increase our
portfolio yield without increasing duration or credit risk. Additional
information on the results of our operations is discussed in more detail below.
Critical Accounting
Policies
The financial
statements are based on the selection and application of critical accounting
policies, which require management to make significant estimates and
assumptions. Critical accounting policies are those that are both important to
the presentation of our financial condition and results of operations and
require management’s most difficult, complex, or subjective judgments. Our
critical accounting policies are those applicable to the valuation of
investments and certain revenue recognition matters as discussed in Note 2 in
the Notes to Financial Statements.
Determining Distributions to
Stockholders
Unlike most RIC’s
which pay distributions based upon income, we pay monthly distributions based
upon our distributable cash flow (“DCF”). Our Board of Directors reviews the
distribution rate quarterly, and may adjust the monthly distributions throughout
the year. On an annual basis, we intend to distribute capital gains realized
during the fiscal year in the last fiscal quarter.
Determining DCF
DCF is simply
income from investments less expenses. Income from investments includes the
accrued interest from corporate bonds, cash distributions and paid-in-kind
distributions from MLPs and related companies and dividends earned from
short-term investments. The total expenses include current or anticipated
operating expenses and leverage costs. Each are summarized for you in the table
on page 2 and discussed in more detail below.
The Key Financial
Data table discloses the calculation of DCF. 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) GAAP recognizes
distribution income from MLPs and common stock on their ex-dates, whereas the
DCF calculation reflects distribution income on their pay dates; GAAP recognizes
that a significant portion of the cash distributions received from MLPs are
characterized as a return of capital and therefore excluded from investment
income, whereas the DCF calculation includes the return of capital; income from
investments in the DCF calculation includes the value of dividends paid-in-kind
(additional stock or units), whereas such amounts are not included as income for
GAAP purposes; and amortization of premium or discount is calculated using the
yield to worst methodology for GAAP purposes while yield to call is used 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 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.
Income from
Investments
We seek to achieve
our investment objectives by investing in income-producing fixed income and
equity securities of companies that we believe offer attractive distribution
rates. We evaluate each holding based upon its contribution to our investment
income and its risk relative to other potential investments.
Total income from
investments for the 1st quarter 2010 was approximately $3.4 million and equates
to a yield of 7.53 percent of average total assets for the quarter. This
reflects our first full quarter of income from our portfolio as full investment
of our IPO proceeds and leverage was completed mid-October 2009.
Expenses
We incur two types
of expenses: (1) operating expenses, consisting primarily of the advisory fee;
and (2) leverage costs. On a percentage basis, operating expenses before
leverage costs were an annualized 1.07 percent of average total assets for 1st
quarter 2010 as compared to 1.20 percent for the 4th quarter 2009. The operating
expense ratio decreased from 4th quarter 2009 as certain annual fixed costs that
were expensed in their entirety in the initial stub period are now expensed
evenly throughout the entire 2010 fiscal year.
While the
contractual advisory fee is 0.95 percent of average monthly managed assets, the
Adviser has agreed to waive an amount equal to 0.15 percent of average monthly
managed assets for the first year, 0.10 percent of average monthly managed
assets for the second year and 0.05 percent of average monthly managed assets
for the third year following the closing of the initial public
offering.
Leverage costs
consist of two major components: (1) the direct interest expense, which will
vary from period to period, as our senior notes and revolving credit facility
have variable rates of interest; and (2) the realized and unrealized gain or
loss on our interest rate swap settlements. Detailed information on our senior
notes and revolving credit facility is included in the Liquidity and Capital
Resources section below.
| 2010 1st Quarter Report | 3 |
|
Management’s Discussion (Unaudited) (Continued) |
As indicated in
Note 10 of our Notes to Financial Statements, we have entered into $27 million
notional amount of interest rate swap contracts with Wachovia Bank in an attempt
to reduce a portion of the interest rate risk arising from our leveraged capital
structure. TPZ has agreed to pay Wachovia Bank a fixed rate while receiving a
floating rate based upon the 1-month or 3-month U.S. Dollar London Interbank
Offered Rate (“LIBOR”). The spread between the fixed swap rate and LIBOR is
reflected in our Statement of Operations as a realized or unrealized gain when
LIBOR exceeds the fixed rate (Wachovia Bank pays TPZ the net difference) or a
realized or unrealized loss when the fixed rate exceeds LIBOR (TPZ pays Wachovia
Bank the net difference). The interest rate swap contracts have a weighted
average fixed rate of 2.13 percent and weighted average remaining maturity of
approximately 3.6 years at February 28, 2010. We realized a loss of
approximately $131,000 on interest rate swap settlements during the 1st quarter
2010.
Total leverage
costs for DCF purposes were approximately $317,000 for the 1st quarter 2010.
This includes interest expense on our senior notes and bank credit facility and
accrued swap settlement costs. The average annualized total cost of leverage
(total leverage costs divided by average outstanding leverage) was 4.11 percent
for 1st quarter 2010. This reflects a full quarter of expense on our leverage as
borrowings were outstanding throughout the quarter.
Distributable Cash Flow
For 1st quarter
2010, our DCF was approximately $2.6 million as compared to $2.4 million for 4th
quarter 2009. The increase from 4th quarter 2009 is the net result of the change
in income and expenses as outlined above.
On November 9,
2009, we declared monthly distributions for the 2010 1st fiscal quarter of
$0.125 per share. This is unchanged as compared to 4th quarter 2009.
Net investment
income on the Statement of Operations is adjusted as follows to reconcile to DCF
for 1st quarter 2010 (in thousands):
| Net Investment Income | $ | (1,297 | ) | |
| Adjustments to reconcile to DCF: | ||||
| Dividends paid in stock | 568 | |||
| Return of capital on distributions | 782 | |||
| Amortization of debt issuance costs | 9 | |||
| Interest rate swap expenses | (126 | ) | ||
| Change in amortization methodology | (43 | ) | ||
| DCF | $ | 2,573 | ||
Liquidity and Capital
Resources
We had total assets
of $188 million at quarter-end. Our total assets reflect the value of our
investments, which are itemized in the Schedule of Investments. It also reflects
cash, interest and receivables and any expenses that may have been prepaid.
During the 1st quarter 2010, total assets increased from $174 million to $188
million, an increase of $14 million. This change was primarily the result of net
realized and unrealized gain on investments of approximately $10 million during
the quarter (excluding the gain attributable to return of capital on
distributions during the quarter) and the unsettled purchase of approximately $4
million of securities.
Total leverage
outstanding at February 28, 2010 of $31.1 million is comprised of $20 million
floating rate senior notes and $11.1 million outstanding on our bank credit
facility. Through the utilization of our interest rate swaps, we have
essentially fixed the rate on approximately 87 percent of our leverage with the
remaining 13 percent floating based upon short-term LIBOR. Total leverage
represented 16.5 percent of total assets. We have established a long-term
leverage target ratio of up to 20 percent of total assets at time of incurrence.
We use leverage to
acquire investments consistent with our investment philosophy. The terms of our
leverage are governed by regulatory asset coverage requirements that arise from
the use of leverage. Under the 1940 Act, we may not pay distributions to our
common stockholders if we do not meet a 300 percent asset coverage ratio for
debt after payment of the distribution. Under the agreement with our bank
lenders, if portfolio values decline such that we no longer meet the required
acceptable asset base, we must repay a portion of our bank line until we meet
the requirement.
As disclosed in
Section 18 of the 1940 Act, the 300 percent asset coverage ratio for debt is
equal to total assets less all liabilities and indebtedness not represented by
debt divided by debt.
Taxation of our Distributions
We expect that
distributions paid on common shares will generally consist of: (i) investment
company taxable income (which includes, among other items, taxable interest and
the excess of any short-term capital gains over net long-term capital losses);
(ii) long-term capital gain (net gain from the sale of a capital asset held
longer than 12 months over net short-term capital losses) and (iii) return of
capital.
We intend to
distribute all capital gains, if any, at least annually. If, however, we elect
to retain any capital gains, we will be subject to U.S. capital gains taxes. The
payment of those taxes will flow-through to stockholders as a tax credit to
apply against their U.S. income tax payable on the deemed distribution of the
retained capital gain.
For tax purposes,
distributions paid to common stockholders for the calendar year ended December
31, 2009 were comprised of 57 percent ordinary income (none of which is
qualified dividend income) and 43 percent return of capital. This information is
reported to stockholders on Form 1099-DIV and is available on our web site at
www.tortoiseadvisors.com.
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Tortoise
Power and Energy Infrastructure Fund,
Inc.
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Schedule of Investments February 28, 2010 |
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(Unaudited)
|
| Principal | |||||||
| Amount/Shares | Fair Value | ||||||
| Corporate Bonds — 66.7%(1) | |||||||
| Crude/Refined Products Pipelines — 1.5%(1) | |||||||
| Canada — 1.5%(1) | |||||||
| Gibson Energy ULC/GEP Midstream Finance Corp., | |||||||
| 10.000%, 01/15/2018(2) | $ | 2,250,000 | $ | 2,193,750 | |||
| Natural Gas/Natural Gas Liquids Pipelines — 17.2%(1) | |||||||
| Canada — 3.7%(1) | |||||||
| TransCanada Pipelines Limited, | |||||||
| 6.350%, 05/15/2067 | 6,000,000 | 5,638,680 | |||||
| United States — 13.5%(1) | |||||||
| El Paso Corp., 12.000%, 12/12/2013 | 4,000,000 | 4,650,000 | |||||
| Midcontinent Express Pipeline LLC, | |||||||
| 6.700%, 09/15/2019(2) | 5,000,000 | 5,262,290 | |||||
| Southern Star Central Corp., | |||||||
| 6.750%, 03/01/2016 | 2,745,000 | 2,717,550 | |||||
| Southern Star Central Gas Pipeline, Inc., | |||||||
| 6.000%, 06/01/2016(2) | 2,000,000 | 2,050,000 | |||||
| Southern Union Co., 7.600%, 02/01/2024 | 3,500,000 | 3,972,070 | |||||
| The Williams Companies, Inc., | |||||||
| 8.750%, 03/15/2032 | 1,482,000 | 1,873,724 | |||||
| 26,164,314 | |||||||
| Natural Gas Gathering/Processing — 5.3%(1) | |||||||
| United States — 5.3%(1) | |||||||
| DCP Midstream LLC, 9.750%, 03/15/2019(2) | 4,000,000 | 5,068,588 | |||||
| Enogex LLC, 6.250%, 03/15/2020(2) | 3,000,000 | 3,034,884 | |||||
| 8,103,472 | |||||||
| Oil and Gas Exploration and Production — 4.5%(1) | |||||||
| United States — 4.5%(1) | |||||||
| Encore Acquisition Co., 9.500%, 05/01/2016 | 1,500,000 | 1,597,500 | |||||
| Newfield Exploration Co., 7.125%, 05/15/2018 | 1,000,000 | 1,000,000 | |||||
| Pioneer Natural Resources Co., | |||||||
| 6.875%, 05/01/2018 | 1,000,000 | 983,508 | |||||
| Plains Exploration & Production Co., | |||||||
| 10.000%, 03/01/2016 | 3,000,000 | 3,262,500 | |||||
| 6,843,508 | |||||||
| Oilfield Services — 2.2%(1) | |||||||
| United States — 2.2%(1) | |||||||
| Pride International, Inc., 8.500%, 06/15/2019 | 3,000,000 | 3,352,500 | |||||
| Power/Utility — 34.0%(1) | |||||||
| United States — 34.0%(1) | |||||||
| Ameren Corp., 8.875%, 05/15/2014 | 2,000,000 | 2,327,672 | |||||
| CenterPoint Energy, Inc., 6.500%, 05/01/2018 | 5,000,000 | 5,327,125 | |||||
| CMS Energy Corp., 6.250%, 02/01/2020 | 1,000,000 | 978,803 | |||||
| CMS Energy Corp., 8.750%, 06/15/2019 | 4,185,000 | 4,710,690 | |||||
| Dominion Resources, Inc., 8.375%, 06/15/2064 | 183,000 | 5,206,350 | |||||
| FPL Group Capital, Inc., 6.650%, 06/15/2067 | 1,029,000 | 956,970 | |||||
| Illinois Power Co., 9.750%, 11/15/2018 | 2,000,000 | 2,598,492 | |||||
| IPALCO Enterprises, Inc., 7.250%, 04/01/2016(2) | 2,000,000 | 2,020,000 | |||||
| NiSource Finance Corp., 10.750%, 03/15/2016 | 5,000,000 | 6,408,875 | |||||
| North American Energy Alliance LLC, | |||||||
| 10.875%, 06/01/2016(2) | 2,800,000 | 2,968,000 | |||||
| NRG Energy, Inc., 8.500%, 06/15/2019 | 6,000,000 | 5,992,500 | |||||
| PPL Capital Funding, Inc., 6.700%, 03/30/2067 | 6,000,000 | 5,190,000 | |||||
| Sierra Pacific Resources, 6.750%, 08/15/2017 | 3,000,000 | 3,030,741 | |||||
| Wisconsin Energy Corp., 6.250%, 05/15/2067 | 3,450,000 | 3,182,625 | |||||
| WPS Resources Corp., 6.110%, 12/01/2066 | 1,000,000 | 870,000 | |||||
| 51,768,843 | |||||||
| Refining — 2.0%(1) | |||||||
| United States — 2.0%(1) | |||||||
| Holly Corp., 9.875%, 06/15/2017(2) | 3,000,000 | 3,075,000 | |||||
| Total Corporate Bonds (Cost $97,234,385) | 101,501,387 | ||||||
| Master Limited Partnerships | |||||||
| and Related Companies — 52.3%(1) | |||||||
| Crude/Refined Products Pipelines — 25.4%(1) | |||||||
| United States — 25.4%(1) | |||||||
| Buckeye Partners, L.P. | 25,300 | 1,487,387 | |||||
| Enbridge Energy Management, L.L.C.(3) | 284,339 | 14,214,115 | |||||
| Holly Energy Partners, L.P. | 27,549 | 1,173,312 | |||||
| Kinder Morgan Management, LLC(3)(4) | 282,415 | 16,196,500 | |||||
| Magellan Midstream Partners, L.P. | 21,600 | 977,184 | |||||
| NuStar Energy L.P. | 32,600 | 1,870,914 | |||||
| Plains All American Pipeline, L.P. | 16,500 | 914,265 | |||||
| Sunoco Logistics Partners L.P. | 26,481 | 1,797,001 | |||||
| 38,630,678 | |||||||
| Natural Gas/Natural Gas Liquids Pipelines — 15.5%(1) | |||||||
| United States — 15.5%(1) | |||||||
| Boardwalk Pipeline Partners, LP | 120,000 | 3,592,800 | |||||
| Duncan Energy Partners L.P. | 243,900 | 6,217,011 | |||||
| El Paso Pipeline Partners, L.P. | 35,600 | 921,684 | |||||
| Energy Transfer Equity, L.P. | 37,600 | 1,215,232 | |||||
| Energy Transfer Partners, L.P. | 107,700 | 4,984,356 | |||||
| Enterprise Products Partners L.P. | 33,600 | 1,100,736 | |||||
| ONEOK Partners, L.P. | 66,600 | 4,039,290 | |||||
| Spectra Energy Partners, LP | 26,960 | 808,261 | |||||
| Williams Pipeline Partners L.P. | 23,645 | 690,197 | |||||
| 23,569,567 | |||||||
See accompanying Notes to Financial
Statements.
2010 1st Quarter
Report 5
|
Schedule of Investments (Continued) February 28, 2010 |
|
(Unaudited)
|
| Shares | Fair Value | ||||
| Natural Gas Gathering/Processing — 6.7%(1) | |||||
| United States — 6.7%(1) | |||||
| Copano Energy, L.L.C. | 93,200 | $ | 2,218,160 | ||
| DCP Midstream Partners, LP | 85,200 | 2,625,864 | |||
| MarkWest Energy Partners, L.P. | 56,700 | 1,677,186 | |||
| Targa Resources Partners LP | 132,417 | 3,310,425 | |||
| Western Gas Partners LP | 15,300 | 327,114 | |||
| 10,158,749 | |||||
| Propane Distribution — 4.7%(1) | |||||
| United States — 4.7%(1) | |||||
| Inergy, L.P. | 200,900 | 7,256,508 | |||
| Total Master Limited Partnerships | |||||
| and Related Companies (Cost $62,198,811) | 79,615,502 | ||||
| Short-Term Investment — 0.0%(1) | |||||
| United States Investment Company — 0.0%(1) | |||||
| Fidelity Institutional Government Portfolio — Class I, | |||||
| 0.03%(5) (Cost $22,611) | 22,611 | 22,611 | |||
| Total Investments — 119.0%(1) | |||||
| (Cost $159,455,807) | 181,139,500 | ||||
| Long-Term Debt Obligations — (13.1%)(1) | (20,000,000 | ) | |||
| Interest Rate Swap Contracts — (0.2%)(1) | |||||
| $27,000,000 notional — Unrealized Depreciation(6) | (297,073 | ) | |||
| Other Assets and Liabilities — (5.7%)(1) | (8,611,351 | ) | |||
| Total Net Assets Applicable to | |||||
| Common Stockholders — 100.0%(1) | $ | 152,231,076 | |||
| (1) | Calculated as a percentage of net assets applicable to common stockholders. |
| (2) | Restricted securities have been fair valued in accordance with procedures approved by the Board of Directors and have a total fair value of $25,672,512, which represents 16.9% of net assets. See Note 7 to the financial statements for further disclosure. |
| (3) | Security distributions are paid-in-kind. |
| (4) | All or a portion of the security is segregated as collateral for the unrealized depreciation of interest rate swap contracts. |
| (5) | Rate indicated is the current yield as of February 28, 2010. |
| (6) | See Note 10 of the financial statements for further disclosure. |
See accompanying Notes to Financial
Statements.
6
Tortoise Power and
Energy Infrastructure Fund, Inc.
|
STATEMENT OF ASSETS & LIABILITIES February 28, 2010 |
|
(Unaudited)
|
| Assets | ||
| Investments at fair value (cost $159,455,807) | $ | 181,139,500 |
| Receivable for Adviser expense reimbursement | 44,171 | |
| Interest and dividend receivable | 2,260,660 | |
| Receivable for investments sold | 4,493,783 | |
| Prepaid expenses and other assets | 231,783 | |
| Total assets | 188,169,897 | |
| Liabilities | ||
| Payable to Adviser | 279,751 | |
| Payable for investments purchased | 4,046,114 | |
| Accrued expenses and other liabilities | 215,883 | |
| Unrealized depreciation of interest rate swap contracts | 297,073 | |
| Short-term borrowings | 11,100,000 | |
| Long-term debt obligations | 20,000,000 | |
| Total liabilities | 35,938,821 | |
| Net assets applicable to common stockholders | $ | 152,231,076 |
| Net Assets Applicable to Common Stockholders Consist of: | ||
| Capital stock, $0.001 par value; 6,931,555 shares issued | ||
| and outstanding (100,000,000 shares authorized) | $ | 6,932 |
| Additional paid-in capital | 130,664,711 | |
| Undistributed net investment income | — | |
| Undistributed net realized gain | 172,752 | |
| Net unrealized appreciation of investments and | ||
| interest rate swap contracts | 21,386,681 | |
| Net assets applicable to common stockholders | $ | 152,231,076 |
| Net Asset Value per common share outstanding | ||
| (net assets applicable to common stock, | ||
| divided by common shares outstanding) | $ | 21.96 |
| STATEMENT OF OPERATIONS Period from December 1, 2009 through February 28, 2010 |
|
(Unaudited)
|
| Investment Income | |||
| Distributions from master limited partnerships | $ | 901,271 | |
| Less return of capital on distributions | (782,459 | ) | |
| Net distributions from master limited partnerships | 118,812 | ||
| Interest from corporate bonds | 1,857,572 | ||
| Dividends from money market mutual funds | 32 | ||
| Total Investment Income | 1,976,416 | ||
| Operating Expenses | |||
| Advisory fees | 422,220 | ||
| Professional fees | 46,934 | ||
| Administrator fees | 18,074 | ||
| Directors’ fees | 17,500 | ||
| Reports to stockholders | 15,258 | ||
| Registration fees | 6,355 | ||
| Fund accounting fees | 5,918 | ||
| Franchise fees | 4,931 | ||
| Stock transfer agent fees | 3,008 | ||
| Custodian fees and expenses | 1,310 | ||
| Other operating expenses | 3,832 | ||
| Total Operating Expenses | 545,340 | ||
| Interest expense | 174,052 | ||
| Amortization of debt issuance costs | 9,354 | ||
| Other leverage expenses | 17,137 | ||
| Total Leverage Expenses | 200,543 | ||
| Total Expenses | 745,883 | ||
| Less expense reimbursement by Adviser | (66,666 | ) | |
| Net Expenses | 679,217 | ||
| Net Investment Income | 1,297,199 | ||
| Realized and Unrealized Gain (Loss) on | |||
| Investments and Interest Rate Swaps | |||
| Net realized gain on investments | 1,455,916 | ||
| Net realized loss on interest rate swap settlements | (131,063 | ) | |
| Net realized gain on investments and interest rate swaps | 1,324,853 | ||
| Net unrealized appreciation of investments | 9,644,252 | ||
| Net unrealized appreciation of interest rate swap contracts | 101,038 | ||
| Net unrealized appreciation of investments and | |||
| interest rate swap contracts | 9,745,290 | ||
| Net Realized and Unrealized Gain on Investments and | |||
| Interest Rate Swaps | 11,070,143 | ||
| Net Increase in Net Assets Applicable to Common | |||
| Stockholders Resulting from Operations | $ | 12,367,342 | |
See accompanying Notes to Financial
Statements.
2010 1st Quarter
Report 7
|
STATEMENT OF CHANGES IN NET ASSETS |
| Period from | Period from | |||||||||||
| December 1, 2009 | July 31, 2009(1) | |||||||||||
| through | through | |||||||||||
| February 28, 2010 | November 30, 2009 | |||||||||||
| (Unaudited) | ||||||||||||
| Operations | ||||||||||||
| Net investment income | $ | 1,297,199 | $ | 1,156,440 | ||||||||
| Net realized gain on investments and interest rate swaps | 1,324,853 | 103,903 | ||||||||||
| Net unrealized appreciation of investments and interest rate swap contracts | 9,745,290 | 11,641,391 | ||||||||||
| Net increase in net assets applicable to common stockholders resulting from operations | 12,367,342 | 12,901,734 | ||||||||||
| Distributions to Common Stockholders | ||||||||||||
| Net investment income | (1,439,063 | ) | (1,082,394 | ) | ||||||||
| Net realized gain | (1,152,101 | ) | — | |||||||||
| Return of capital | — | (1,494,360 | ) | |||||||||
| Total distributions to common stockholders | (2,591,164 | ) | (2,576,754 | ) | ||||||||
| Capital Stock Transactions | ||||||||||||
| Proceeds from initial public offering of 6,850,000 common shares | — | 137,000,000 | ||||||||||
| Underwriting discounts and offering expenses associated with the issuance of common stock | — | (6,439,000 | ) | |||||||||
| Issuance of 33,074 and 42,408 common shares from reinvestment of distributions to stockholders, respectively | 665,524 | 794,479 | ||||||||||
| Net increase in net assets, applicable to common stockholders, from capital stock transactions | 665,524 | 131,355,479 | ||||||||||
| Total increase in net assets applicable to common stockholders | 10,441,702 | 141,680,459 | ||||||||||
| Net Assets | ||||||||||||
| Beginning of period | 141,789,374 | 108,915 | ||||||||||
| End of period | $ | 152,231,076 | $ | 141,789,374 | ||||||||
| Undistributed net investment income, at the end of period | $ | — | $ | 141,864 | ||||||||
| (1) | Commencement of Operations. |
See accompanying Notes to Financial
Statements.
8
Tortoise Power and
Energy Infrastructure Fund, Inc.
|
STATEMENT OF CASH FLOWS Period from December 1, 2009 through February 28, 2010 |
|
(Unaudited)
|
| Cash Flows From Operating Activities | |||
| Distributions received from master limited partnerships | $ | 901,271 | |
| Interest and dividend income received | 1,519,819 | ||
| Purchases of long-term investments | (14,195,345 | ) | |
| Proceeds from sales of long-term investments | 14,714,627 | ||
| Proceeds from sales of short-term investments, net | 10,280 | ||
| Payments on interest rate swaps, net | (131,063 | ) | |
| Interest received on securities sold, net | 103 | ||
| Interest expense paid | (185,229 | ) | |
| Operating expenses paid | (460,870 | ) | |
| Net cash provided by operating activities | 2,173,593 | ||
| Cash Flows From Financing Activities | |||
| Advances from revolving line of credit | 10,000,000 | ||
| Repayments on revolving line of credit | (10,200,000 | ) | |
| Debt issuance costs | (47,943 | ) | |
| Distributions paid to common stockholders | (1,925,650 | ) | |
| Net cash used in financing activities | (2,173,593 | ) | |
| Net change in cash | — | ||
| Cash — beginning of period | — | ||
| Cash — end of period | $ | — | |
| Reconciliation of net increase in net assets applicable to | |||
| common stockholders resulting from operations to net cash | |||
| provided by operating activities | |||
| Net increase in net assets applicable to common | |||
| stockholders resulting from operations | $ | 12,367,342 | |
| Adjustments to reconcile net increase in net assets | |||
| applicable to common stockholders resulting from | |||
| operations to net cash provided by operating activities: | |||
| Purchases of long-term investments | (18,170,115 | ) | |
| Return of capital on distributions received | 782,459 | ||
| Proceeds from sales of long-term investments | 19,072,366 | ||
| Proceeds from sales of short-term investments, net | 10,280 | ||
| Net unrealized appreciation of investments and | |||
| interest rate swap contracts | (9,745,290 | ) | |
| Net realized gain on investments | (1,455,916 | ) | |
| Amortization of market premium, net | 91,051 | ||
| Amortization of debt issuance costs | 9,354 | ||
| Changes in operating assets and liabilities: | |||
| Increase in interest and dividend receivable | (364,033 | ) | |
| Increase in prepaid expenses and other assets | (5,762 | ) | |
| Increase in receivable for investments sold | (4,493,783 | ) | |
| Increase in payable for investments purchased | 4,046,114 | ||
| Increase in payable to Adviser, net of | |||
| expense reimbursement | 10,421 | ||
| Increase in accrued expenses and other liabilities | 19,105 | ||
| Total adjustments | (10,193,749 | ) | |
| Net cash provided by operating activities | $ | 2,173,593 | |
| Non-Cash Financing Activities | |||
| Reinvestment of distributions by common stockholders | |||
| in additional common shares | $ | 665,524 | |
See accompanying Notes to Financial
Statements.
2010 1st Quarter
Report 9
|
FINANCIAL HIGHLIGHTS |
| Period from | Period from | |||||||||||
| December 1, 2009 | July 31, 2009(1) | |||||||||||
| through | through | |||||||||||
| February 28, 2010 | November 30, 2009 | |||||||||||
| (Unaudited) | ||||||||||||
| Per Common Share Data(2) | ||||||||||||
| Net Asset Value, beginning of period | $ | 20.55 | $ | — | ||||||||
| Public offering price | — | 20.00 | ||||||||||
| Underwriting discounts and offering costs on issuance of common stock | — | (0.94 | ) | |||||||||
| Income from Investment Operations: | ||||||||||||
| Net investment income | 0.19 | 0.17 | ||||||||||
| Net realized and unrealized appreciation of investments and interest rate swap contracts | 1.60 | 1.70 | ||||||||||
| Total increase from investment operations | 1.79 | 1.87 | ||||||||||
| Less Distributions to Common Stockholders: | ||||||||||||
| Net investment income | (0.21 | ) | (0.16 | ) | ||||||||
| Net realized gain | (0.17 | ) | — | |||||||||
| Return of capital | — | (0.22 | ) | |||||||||
| Total distributions to common stockholders | (0.38 | ) | (0.38 | ) | ||||||||
| Net Asset Value, end of period | $ | 21.96 | $ | 20.55 | ||||||||
| Per common share market value, end of period | $ | 20.20 | $ | 19.18 | ||||||||
| Total Investment Return Based on Market Value(3) | 7.29 | % | (2.17 | )% | ||||||||
| Total Investment Return Based on Net Asset Value(4) | 8.87 | % | 4.82 | % | ||||||||
| Supplemental Data and Ratios | ||||||||||||
| Net assets applicable to common stockholders, end of period (000’s) | $ | 152,231 | $ | 141,789 | ||||||||
| Ratio of expenses to average net assets before waiver(5) | 2.03 | % | 1.96 | % | ||||||||
| Ratio of expenses to average net assets after waiver(5) | 1.85 | % | 1.79 | % | ||||||||
| Ratio of net investment income to average net assets before waiver(5) | 3.35 | % | 2.38 | % | ||||||||
| Ratio of net investment income to average net assets after waiver(5) | 3.53 | % | 2.55 | % | ||||||||
| Portfolio turnover rate(5) | 41.41 | % | 2.97 | % | ||||||||
| Short-term borrowings, end of period (000’s) | $ | 11,100 | $ | 11,300 | ||||||||
| Long-term debt obligations, end of period (000’s) | $ | 20,000 | $ | 20,000 | ||||||||
| Per common share amount of long-term debt obligations outstanding, at end of period | $ | 2.89 | $ | 2.90 | ||||||||
| Per common share amount of net assets, excluding long-term debt obligations, at end of period | $ | 24.85 | $ | 23.45 | ||||||||
| Asset coverage, per $1,000 of principal amount of long-term debt obligations and short-term borrowings(6) | $ | 5,895 | $ | 5,530 | ||||||||
| Asset coverage ratio of long-term debt obligations and short-term borrowings(6) | 590 | % | 553 | % | ||||||||
| (1) | Commencement of Operations. |
| (2) | Information presented relates to a share of common stock outstanding for the entire period. |
| (3) | Not annualized. Total investment return is calculated assuming a purchase of common stock at the beginning of period (or initial public offering price) and a sale at the closing price on the last day of the period reported (excluding brokerage commissions). The calculation also assumes reinvestment of distributions at actual prices pursuant to the Company’s dividend reinvestment plan. |
| (4) | Not annualized. Total investment return is calculated assuming a purchase of common stock at the beginning of period (or initial public offering price) and a sale at net asset value on the last day of the period. The calculation also assumes reinvestment of distributions at actual prices pursuant to the Company’s dividend reinvestment plan. |
| (5) | Annualized for periods less than one full year. |
| (6) | Represents value of total assets less all liabilities and indebtedness not represented by long-term debt obligations and short-term borrowings at the end of the period divided by long-term debt obligations and short-term borrowings outstanding at the end of the period. |
See accompanying Notes to Financial
Statements.
10
Tortoise Power and
Energy Infrastructure Fund, Inc.
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) February 28, 2010 |
1. Organization
Tortoise Power and
Energy Infrastructure Fund, Inc. (the “Company”) was organized as a Maryland
corporation on July 5, 2007, and is a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended (the
“1940 Act”). The Company’s primary investment objective is to provide a high
level of current income, with a secondary objective of capital appreciation. The
Company seeks to provide its stockholders with a vehicle to invest in a
portfolio consisting primarily of securities issued by power and energy
infrastructure companies. The Company commenced operations on July 31, 2009. The
Company’s stock is listed on the New York Stock Exchange under the symbol
“TPZ.”
2. Significant Accounting Policies
A. Use of Estimates
The preparation of
financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities, recognition of distribution income
and disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
B. Investment Valuation
The Company
primarily owns securities that are listed on a securities exchange or
over-the-counter market. The Company values those securities at their last sale
price on that exchange or over-the-counter market on the valuation date. If the
security is listed on more than one exchange, the Company uses the price from
the exchange that it considers to be the principal exchange on which the
security is traded. Securities listed on the NASDAQ will be valued at the NASDAQ
Official Closing Price, which may not necessarily represent the last sale price.
If there has been no sale on such exchange or over-the-counter market on such
day, the security will be valued at the mean between the last bid price and last
ask price on such day.
The Company may
invest up to 15 percent of its total assets in restricted securities. Restricted
securities are subject to statutory or contractual restrictions on their public
resale, which may make it more difficult to obtain a valuation and may limit the
Company’s ability to dispose of them. Investments in private placement
securities and other securities for which market quotations are not readily
available will be valued in good faith by using fair value procedures approved
by the Board of Directors. Such fair value procedures consider factors such as
discounts to publicly traded issues, time until conversion date, securities with
similar yields, quality, type of issue, coupon, duration and rating. If events
occur that affect the value of the Company’s portfolio securities before the net
asset value has been calculated (a “significant event”), the portfolio
securities so affected will generally be priced using fair value
procedures.
An equity security
of a publicly traded company acquired in a direct placement transaction may be
subject to restrictions on resale that can affect the security’s liquidity and
fair value. Such securities that are convertible into or otherwise will become
freely tradable will be valued based on the market value of the freely tradable
security less an applicable discount. Generally, the discount will initially be
equal to the discount at which the Company purchased the securities. To the
extent that such securities are convertible or otherwise become freely tradable
within a time frame that may be reasonably determined, an amortization schedule
may be used to determine the discount.
The Company
generally values debt securities at prices based on market quotations for such
securities, except those securities purchased with 60 days or less to maturity
are valued on the basis of amortized cost, which approximates market value.
The Company
generally values its interest rate swap contracts using industry-accepted models
which discount the estimated future cash flows based on the stated terms of the
interest rate swap agreement by using interest rates currently available in the
market, or based on dealer quotations, if available.
C. Security Transactions and Investment
Income
Security
transactions are accounted for on the date the securities are purchased or sold
(trade date). Realized gains and losses are reported on an identified cost
basis. Interest income is recognized on the accrual basis, including
amortization of premiums and accretion of discounts. Dividend and distribution
income is recorded on the ex-dividend date. Distributions received from the
Company’s investments in master limited partnerships (“MLPs”) generally are
comprised of ordinary income, capital gains and return of capital from the MLPs.
The Company allocates distributions between investment income and return of
capital based on estimates made at the time such distributions are received.
Such estimates are based on historical information available from each MLP and
other industry sources. These estimates may subsequently be revised based on
actual allocations received from MLPs after their tax reporting periods are
concluded, as the actual character of these distributions is not known until
after the fiscal year end of the Company.
For the period from
December 1, 2009 through February 28, 2010, the Company estimated the allocation
of investment income and return of capital for the distributions received from
MLPs within the Statement of Operations. For this period, the Company has
estimated the allocation of distributions to be approximately 13 percent
investment income and approximately 87 percent return of capital.
D. Distributions to Stockholders
Distributions to
common stockholders are recorded on the ex-dividend date. The Company intends to
make monthly cash distributions of its investment company income to common
stockholders. In addition, on an annual basis, the Company intends to distribute
capital gains realized during the fiscal year in the last fiscal quarter. The
amount of any distributions will be determined by the Board of Directors.
Distributions to stockholders are recorded on the ex-dividend date. The
character of distributions made during the year may differ from their ultimate
characterization for federal income tax purposes. Distributions paid to
stockholders in excess of investment company taxable income and net realized
gains will be treated as return of capital to stockholders. For the year ended
November 30, 2009, the Company’s distributions to common stockholders for tax
purposes were comprised of 58 percent return of capital and 42 percent ordinary
income. The tax character of distributions paid to common stockholders for the
current year will be determined subsequent to November 30, 2010.
E. Federal Income
Taxation
The Company intends
to qualify as a regulated investment company (“RIC”) under the U.S. Internal
Revenue Code of 1986, as amended (the “Code”). As a result, the Company
generally will not be subject to U.S. federal income tax on income and gains
that it distributes each taxable year to stockholders if it meets certain
minimum distribution requirements. The Company is required to distribute
substantially all of its income, in addition to other asset diversification
requirements. The Company is subject to a 4 percent non-deductible U.S. federal
excise tax on certain undistributed income unless the Company makes sufficient
distributions to satisfy the excise tax avoidance requirement. The Company
invests in MLPs, which generally are treated as partnerships for federal income
tax purposes. As a limited partner in the MLPs, the Company reports its
allocable share of the MLP’s taxable income in computing its own taxable
income.
2010 1st Quarter
Report 11
|
Notes to Financial Statements (Unaudited) (Continued) |
The Company has
adopted financial reporting rules regarding recognition and measurement of tax
positions taken or expected to be taken on a tax return. The Company has
reviewed all open tax years and major jurisdictions and concluded that there is
no impact on the Company’s net assets and no tax liability resulting from
unrecognized tax benefits relating to uncertain income tax positions taken or
expected to be taken on a tax return. As of November 30, 2009, open Federal tax
years include the years from November 30, 2007 to November 30,
2009.
F. Organization Expenses, Offering and
Debt Issuance Costs
The Company was
responsible for paying all organizational expenses, which were expensed as
incurred. 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 long-term debt obligations are capitalized and amortized over the period the
debt is outstanding.
G. Derivative Financial
Instruments
The Company uses
derivative financial instruments (principally interest rate swap contracts) to
manage interest rate risk. The Company has established policies and procedures
for risk assessment and the approval, reporting and monitoring of derivative
financial instrument activities. The Company does not hold or issue derivative
financial instruments for speculative purposes. All derivative financial
instruments are recorded at fair value with changes in fair value during the
reporting period, and amounts accrued under the agreements, included as
unrealized gains or losses in the Statement of Operations. Cash settlements
under the terms of the interest rate swap agreements and termination of such
agreements are recorded as realized gains or losses in the Statement of
Operations.
H. Indemnifications
Under the Company’s
organizational documents, its officers and directors are indemnified against
certain liabilities arising out of the performance of their duties to the
Company. In addition, in the normal course of business, the Company may enter
into contracts that provide general indemnification to other parties. The
Company’s maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Company that have not yet
occurred, and may not occur. However, the Company has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be
remote.
I. Recent Accounting Pronouncement
Standard on Fair Value Measurement
On January 21,
2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update No. 2010-06, Improving Disclosures about Fair Value
Measurements, which
amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and
Disclosures, and
requires additional disclosures regarding fair value measurements. Specifically,
the amendment requires reporting entities to disclose (i) the input and
valuation techniques used to measure fair value for both recurring and
nonrecurring fair value measurements, for Level 2 or Level 3 positions, (ii)
transfers between all levels (including Level 1 and Level 2) will be required to
be disclosed on a gross basis (i.e. transfers out must be disclosed separately
from transfers in) as well as the reason(s) for the transfer, and (iii)
purchases, sales, issuances, and settlements must be shown on a gross basis in
the Level 3 rollforward rather than as one net number. The effective date of the
amendment is for interim and annual periods beginning after December 15, 2009;
however, the requirement to provide the Level 3 activity for purchases, sales,
issuances, and settlements on a gross basis will be effective for interim and annual periods beginning
after December 15, 2010. At this time, the Company is evaluating the impact of
the amendment to the financial statements.
3. Concentration of Risk
Under normal
circumstances, the Company intends to invest at least 80 percent of total assets
(including assets obtained through potential leverage) in equity securities of
companies that derive more than 50 percent of their revenue from power or energy
operations. The Company will invest a minimum of 60 percent of our total assets
in fixed income securities, which may include up to 25 percent of its assets in
non-investment grade rated fixed income securities. In determining application
of these policies, the term “total assets” includes assets obtained through
leverage. Companies that primarily invest in a particular sector may experience
greater volatility than companies investing in a broad range of industry
sectors. The Company may, for defensive purposes, temporarily invest all or a
significant portion of its assets in investment grade securities, short-term
debt securities and cash or cash equivalents. To the extent the Company uses
this strategy, it may not achieve its investment objective.
4. Agreements
The Company has
entered into an Investment Advisory Agreement with Tortoise Capital Advisors,
L.L.C. (the “Adviser”). Under the terms of the agreement, the Company pays the
Adviser a fee equal to an annual rate of 0.95 percent of the Company’s average
monthly total assets (including any assets attributable to leverage) minus
accrued liabilities (other than 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. The Adviser
has agreed to a fee waiver of 0.15 percent of average monthly Managed Assets for
the period from July 31, 2009 through July 31, 2010, a fee waiver of 0.10
percent of average monthly Managed Assets for the period from August 1, 2010
through July 31, 2011, and a fee waiver of 0.05 percent of average monthly
Managed Assets for the period from August 1, 2011 through July 31,
2012.
The Company has
engaged U.S. Bancorp Fund Services, LLC to serve as the Company’s administrator.
The Company pays the administrator a monthly fee computed at an annual rate of
0.04 percent of the first $1,000,000,000 of the Company’s Managed Assets, 0.03
percent on the next $1,000,000,000 of Managed Assets and 0.02 percent on the
balance of the Company’s Managed Assets.
Computershare Trust
Company, N.A. serves as the Company’s transfer agent, dividend paying agent, and
agent for the automatic dividend reinvestment and cash purchase
plan.
U.S. Bank, N.A.
serves as the Company’s custodian. The Company pays the custodian a monthly fee
computed at an annual rate of 0.004 percent on the average daily market value of
the Company’s portfolio assets, subject to a minimum annual fee of $4,800, plus
portfolio transaction fees.
5. Income Taxes
It is the Company’s
intent to qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code 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 differences in the timing of recognition of gains or losses on
investments. Permanent book and tax basis differences, if any, may result in
reclassifications to undistributed net investment income (loss), accumulated net
realized gain (loss) and additional paid in capital.
12
Tortoise Power and Energy
Infrastructure Fund, Inc.
|
Notes to Financial Statements (Unaudited) (Continued) |
As of November 30,
2009, the components of accumulated earnings on a tax basis were as
follows:
| Unrealized appreciation | $ | 11,818,538 | |
| Other temporary differences | (35,283 | ) | |
| Accumulated earnings | $ | 11,783,255 |
As of February 28,
2010, the aggregate cost of securities for federal income tax purposes was
$159,194,681. The aggregate gross unrealized appreciation for all securities in
which there was an excess of value over tax cost was $21,944,819, the aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over value was $0 and the net unrealized appreciation was
$21,944,819.
6. Fair Value of Financial
Instruments
Various inputs are
used in determining the value of the Company’s investments. These inputs are
summarized in the three broad levels listed below:
| Level 1 — | quoted prices in active markets for identical investments | |
| Level 2 — | other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.) | |
| Level 3 — | significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments) |
The inputs or
methodology used for valuing securities are not necessarily an indication of the
risk associated with investing in those securities.
The following table
provides the fair value measurements of applicable Company assets and
liabilities by level within the fair value hierarchy as of February 28, 2010.
These assets and liabilities are measured on a recurring basis.
| Fair Value Measurements at Reporting Date Using | ||||||||||||||
| Quoted Prices in | Significant | |||||||||||||
| Active Markets for | Significant Other | Unobservable | ||||||||||||
| Fair Value at | Identical Assets | Observable Inputs | Inputs | |||||||||||
| Description | February 28, 2010 | (Level 1) | (Level 2) | (Level 3) | ||||||||||
| Assets | ||||||||||||||
| Debt Securities: | ||||||||||||||
| Corporate Bonds(a) | $ | 101,501,387 | $ | 5,206,350 | $ | 96,295,037 | $ | — | ||||||
| Total Debt Securities | 101,501,387 | 5,206,350 | 96,295,037 | — | ||||||||||
| Equity Securities: | ||||||||||||||
| Master Limited Partnerships | ||||||||||||||
| and Related Companies(a) | 79,615,502 | 79,615,502 | — | — | ||||||||||
| Total Equity Securities | 79,615,502 | 79,615,502 | — | — | ||||||||||
| Other: | ||||||||||||||
| Short-Term Investment(b) | 22,611 | 22,611 | — | — | ||||||||||
| Total Other | 22,611 | 22,611 | — | — | ||||||||||
| Total Assets | $ | 181,139,500 | $ | 84,844,463 | $ | 96,295,037 | $ | — | ||||||
| Liabilities | ||||||||||||||
| Interest Rate Swap Contracts | $ | 297,073 | $ | — | $ | 297,073 | $ | — | ||||||
| Total | $ | 180,842,427 | $ | 84,844,463 | $ | 95,997,964 | $ | — | ||||||
| (a) | All other industry classifications are identified in the Schedule of Investments. | |
| (b) | Short-term investment is a sweep investment for cash balances in the Company at February 28, 2010. |
Valuation Techniques
In general, and
where applicable, the Company uses readily available market quotations based
upon the last updated sales price from the principal market to determine fair
value. This pricing methodology applies to the Company’s Level 1 investments.
Some debt
securities are fair valued using a market value obtained from an approved
pricing service which utilizes a pricing matrix based upon yield data for
securities with similar characteristics or from a direct written broker-dealer
quotation from a dealer who has made a market in the security. This pricing
methodology applies to the Company’s Level 2 investments.
Interest rate swap
contracts are valued by using industry-accepted models which discount the
estimated future cash flows based on a forward rate curve and the stated terms
of the interest rate swap agreement by using interest rates currently available
in the market, or based on dealer quotations, if available, which applies to the
Company’s Level 2 liabilities.
7. Restricted
Securities
Certain of the
Company’s investments are restricted and are valued as determined in accordance
with procedures established by the Board of Directors, as more fully described
in Note 2. The table below shows the principal amount, acquisition date(s),
acquisition cost, fair value and percent of net assets which the securities
comprise at February 28, 2010.
| Fair | ||||||||||||||
| Value as | ||||||||||||||
| Principal | Acquisition | Acquisition | Fair | Percent of | ||||||||||
| Company | Amount | Date(s) | Cost | Value | Net Assets | |||||||||
| DCP Midstream LLC, | 08/07/09- | |||||||||||||
| 9.750%, 03/15/2019 | $ | 4,000,000 | 08/27/09 | $ | 4,769,350 | $ | 5,068,588 | 3.3 | % | |||||
| Enogex LLC, | ||||||||||||||
| 6.250%, 03/15/2020 | 3,000,000 | 02/26/10 | 3,079,770 | 3,034,884 | 2.0 | |||||||||
| Gibson Energy ULC/GEP | ||||||||||||||
| Midstream Finance Corp., | 01/13/10- | |||||||||||||
| 10.000%, 01/15/2018 | 2,250,000 | 01/29/10 | 2,210,870 | 2,193,750 | 1.4 | |||||||||
| Holly Corp., 9.875%, | 10/21/09- | |||||||||||||
| 06/15/2017 | 3,000,000 | 01/07/10 | 3,120,000 | 3,075,000 | 2.0 | |||||||||
| IPALCO Enterprises, Inc., | ||||||||||||||
| 7.250%, 04/01/2016 | 2,000,000 | 11/03/2009 | 2,015,000 | 2,020,000 | 1.3 | |||||||||
| Midcontinent Express Pipelines, LLC, | ||||||||||||||
| 6.700%, 09/15/2019 | 5,000,000 | 09/09/2009 | 4,993,200 | 5,262,290 | 3.5 | |||||||||
| North American Energy Alliance, LLC, | 09/24/09- | |||||||||||||
| 10.875%, 06/01/2016 | 2,800,000 | 10/08/09 | 2,895,000 | 2,968,000 | 2.0 | |||||||||
| Southern Star Central Gas Pipeline, Inc., | ||||||||||||||
| 6.000%, 06/01/2016 | 2,000,000 | 08/24/2009 | 1,970,000 | 2,050,000 | 1.4 | |||||||||
| $ | 25,053,190 | $ | 25,672,512 | 16.9 | % | |||||||||
2010
1st Quarter Report
13
|
Notes to Financial Statements (Unaudited) (Continued) |
8. Investment
Transactions
For the period from
December 1, 2009 through February 28, 2010, the Company purchased (at cost) and
sold securities (proceeds received) in the amount of $18,170,115 and $19,072,366
(excluding short-term debt securities), respectively.
9. Long-Term Debt
Obligations
The Company has
$20,000,000 aggregate principal amount of Series A private senior notes (the
“Notes”) outstanding. The Series A Notes were issued on November 6, 2009 and
have a maturity date of November 6, 2014. Holders of the Notes are entitled to
receive quarterly cash interest payments at an annual rate that results each
quarter based on the 3-month LIBOR plus 1.87 percent. The Notes are not listed
on any exchange or automated quotation system.
The Notes are
unsecured obligations of the Company and, upon liquidation, dissolution or
winding up of the Company, will rank: (1) senior to all of the Company’s
outstanding preferred shares (if any); (2) senior to all of the Company’s
outstanding common shares; (3) on parity with any unsecured creditors of the
Company and any unsecured senior securities representing indebtedness of the
Company and (4) junior to any secured creditors of the Company.
The Notes are
redeemable in certain circumstances at the option of the Company. The Notes are
also subject to a mandatory redemption if the Company fails to meet asset
coverage ratios required under the 1940 Act or the rating agency guidelines if
such failure is not waived or cured. At February 28, 2010, the Company was in
compliance with asset coverage covenants and basic maintenance covenants for its
senior notes.
At February 28,
2010, fair value of the Series A Notes approximates the carrying amount because
the distribution rate fluctuates with changes in interest rates available in the
current market. The following table shows the maturity date, notional/carrying
amount, current rate as of February 28, 2010, and the weighted-average rate for
the period from December 1, 2009 through February 28, 2010.
| Weighted- | |||||||
| Maturity | Notional/ | Current | Average | ||||
| Series | Date | Carrying Amount | Rate | Rate | |||
| Series A | November 6, 2014 | $20,000,000 | 2.12% | 2.14% |
10. Interest Rate Swap
Contracts
The Company has
entered into interest rate swap contracts in an attempt to protect itself from
increasing interest expense on its leverage resulting from increasing short-term
interest rates. A decline in interest rates may result in a decline in the value
of the swap contracts, which may result in a decline in the net assets of the
Company. In addition, if the counterparty to the interest rate swap contracts
defaults, the Company would not be able to use the anticipated receipts under
the swap contracts to offset the interest payments on the Company’s leverage. At
the time the interest rate swap contracts reach their scheduled termination,
there is a risk that the Company would not be able to obtain a replacement
transaction, or that the terms of the replacement would not be as favorable as
on the expiring transaction. In addition, if the Company is required to
terminate any swap contract early due to the Company failing to maintain a
required 300 percent asset coverage of the liquidation value of the outstanding
senior notes or if the Company loses its credit rating on its senior notes, then
the Company could be required to make a termination payment, in addition to
redeeming all or some of the senior notes. Details of the interest rate swap
contracts outstanding as of February 28, 2010, are as follows:
| Fixed Rate | ||||||||||||||
| Paid by | Floating Rate | Asset | ||||||||||||
| Maturity | Notional | the | Received by | (Liability) | ||||||||||
| Counterparty | Date | Amount | Company | the Company | Derivatives | |||||||||
| Wachovia Bank, N.A. | 11/06/2011 | $ | 6,000,000 | 1.12 | % | 1 month U.S. Dollar LIBOR | $ | (37,787 | ) | |||||
| Wachovia Bank, N.A. | 11/06/2012 | 5,000,000 | 1.81 | % | 3 month U.S. Dollar LIBOR | (54,374 | ) | |||||||
| Wachovia Bank, N.A. | 11/06/2012 | 1,000,000 | 1.73 | % | 1 month U.S. Dollar LIBOR | (10,362 | ) | |||||||
| Wachovia Bank, N.A. | 11/06/2014 | 15,000,000 | 2.66 | % | 3 month U.S. Dollar LIBOR | (194,550 | ) | |||||||
| $ | 27,000,000 | $ | (297,073 | ) | ||||||||||
The Company is
exposed to credit risk on the interest rate swap contracts if the counterparty
should fail to perform under the terms of the interest rate swap contracts. The
amount of credit risk is limited to the net appreciation of the interest rate
swap contracts, if any, as no collateral is pledged by the
counterparty.
The unrealized
appreciation of interest rate swap contracts in the amount of $101,038 is
included in the Statement of Operations for the period ended February 28, 2010.
Cash settlements under the terms of the interest rate swap contracts in the
amount of $131,063 are recorded as realized losses for the period ended February
28, 2010. The total notional amount of all open swap agreements at February 28,
2010 is indicative of the volume of this derivative type.
11. Credit Facility
The Company has a
revolving loan commitment amount of $18,000,000 that matures on September 14,
2010. U.S. Bank, N.A. serves as a lender and the lending syndicate agent on
behalf of other lenders participating in the credit facility. Outstanding
balances on the credit facility accrue interest at a variable annual interest
rate equal to one-month LIBOR plus 2.00 percent and unused portions of the
credit facility accrue a non-usage fee equal to an annual rate of 0.25
percent.
The average
principal balance and interest rate for the period during which the credit
facility was utilized during the period ended February 28, 2010 was
approximately $11,300,000 and 2.23 percent, respectively. At February 28, 2010,
the principal balance outstanding was $11,100,000 at an interest rate of 2.23
percent.
Under the terms of
the credit facility, the Company must maintain asset coverage required under the
1940 Act. If the Company fails to maintain the required coverage, it may be
required to repay a portion of an outstanding balance until the coverage
requirement has been met. At February 28, 2010, the Company was in compliance
with the terms of the credit facility.
12. Common Stock
The Company has
100,000,000 shares of capital stock authorized and 6,931,555 shares outstanding
at February 28, 2010. Transactions in common stock for the period ended February
28, 2010, were as follows:
| Shares at November 30, 2009 | 6,898,481 |
| Shares issued through reinvestment of distributions | 33,074 |
| Shares at February 28, 2010 | 6,931,555 |
13. Subsequent Events
The Company has
performed an evaluation of subsequent events through April 15, 2010, which is
the date the financial statements were issued, and found that there are no
material events to disclose.
14
Tortoise Power and
Energy Infrastructure Fund, Inc.
|
Additional Information (Unaudited) |
Director and Officer
Compensation
The Company does
not compensate any of its directors who are “interested persons,” as defined in
Section 2(a)(19) of the 1940 Act, nor any of its officers. For the period ended
February 28, 2010, the aggregate compensation paid by the Company to the
independent directors was $18,250. The Company did not pay any special
compensation to any of its directors or officers.
Forward-Looking
Statements
This report
contains “forward-looking statements” within the meaning of the Securities Act
of 1933 and the Securities Exchange Act of 1934. By their nature, all
forward-looking statements involve risks and uncertainties, and actual results
could differ materially from those contemplated by the forward-looking
statements. Several factors that could materially affect the Company’s actual
results are the performance of the portfolio of investments held by it, the
conditions in the U.S. and international financial, petroleum and other markets,
the price at which shares of the Company will trade in the public markets and
other factors discussed in filings with the SEC.
Proxy Voting Policies
A description of
the policies and procedures that the Company uses to determine how to vote
proxies relating to portfolio securities owned by the Company is available to
stockholders (i) without charge, upon request by calling the Company at (913)
981-1020 or toll-free at (866) 362-9331.
The Company has not
yet been required to file a Form N-PX disclosing its proxy voting record. Once
the Company has made that initial filing (for the period ending June 30, 2010),
it will be required to make such filings on an annual basis and information
regarding how the Company voted proxies will be available without charge by
calling us at (913) 981-1020 or toll-free at (866) 362-9331. You will also be
able to access this information on the SEC’s Web site at
http://www.sec.gov.
Form N-Q
The Company files
its complete schedule of portfolio holdings for the first and third quarters of
each fiscal year with the SEC on Form N-Q. The Company’s Form N-Q is available
without charge upon request by calling the Company at (866) 362-9331 or by
visiting the SEC’s Web site at www.sec.gov. In addition, you may review and copy
the Company’s Form N-Q at the SEC’s Public Reference Room in Washington D.C. You
may obtain information on the operation of the Public Reference Room by calling
(800) SEC-0330.
The Company’s Form
N-Qs are also available on the Company’s Web site at
www.tortoiseadvisors.com.
Statement of Additional
Information
The Statement of
Additional Information (“SAI”) includes additional information about the
Company’s directors and is available upon request without charge by calling the
Company at (866) 362-9331 or by visiting the SEC’s Web site at
www.sec.gov.
Certification
Disclosure
The Company’s Chief
Executive Officer has submitted to the New York Stock Exchange an initial CEO
certification in connection with its initial public offering and will submit the
first annual certification in 2010 as required by Section 303A.12(a) of the NYSE
Listed Company Manual.
The Company will
file with the SEC the certification of its Chief Executive Officer and Chief
Financial Officer required by Section 302 of the Sarbanes-Oxley
Act.
Privacy Policy
In order to conduct
its business, the Company collects and maintains certain nonpublic personal
information about its stockholders of record with respect to their transactions
in shares of the Company’s securities. This information includes the
stockholder’s address, tax identification or Social Security number, share
balances, and distribution elections. We do not collect or maintain personal
information about stockholders whose share balances of our securities are held
in “street name” by a financial institution such as a bank or
broker.
We do not disclose
any nonpublic personal information about you, the Company’s other stockholders
or the Company’s former stockholders to third parties unless necessary to
process a transaction, service an account, or as otherwise permitted by
law.
To protect your
personal information internally, we restrict access to nonpublic personal
information about the Company’s stockholders to those employees who need to know
that information to provide services to our stockholders. We also maintain
certain other safeguards to protect your nonpublic personal
information.
2010 1st Quarter
Report
15
|
|
|
Office of the Company
and of the Investment Adviser Tortoise Capital Advisors, L.L.C. 11550 Ash Street, Suite 300 Leawood, Kan. 66211 (913) 981-1020 (913) 981-1021 (fax) www.tortoiseadvisors.com Managing Directors
of
Tortoise Capital Advisors, L.L.C. H. Kevin Birzer Zachary A. Hamel Kenneth P. Malvey Terry Matlack David J. Schulte Board of Directors of Tortoise
Power
and Energy Infrastructure Fund, Inc. H. Kevin Birzer,
Chairman
Tortoise Capital Advisors Conrad S.
Ciccotello
Independent John R.
Graham
Independent Charles E.
Heath
Independent |
ADMINISTRATOR
U.S. Bancorp Fund Services, LLC 615 East Michigan St. Milwaukee, Wis. 53202 Custodian
U.S. Bank, N.A. 1555 North Rivercenter Drive, Suite 302 Milwaukee, Wis. 53212 TRANSFER, DIVIDEND
DISBURSING
AND DIVIDEND REINVESTMENT PLAN AGENT Computershare Trust Company, N.A. / Computershare, Inc. P.O. Box 43078 Providence, R.I. 02940-3078 (888) 728-8784 (312) 588-4990 www.computershare.com Legal
Counsel
Husch Blackwell Sanders LLP 4801 Main St. Kansas City, Mo. 64112 Investor
Relations
(866) 362-9331 info@tortoiseadvisors.com STOCK SYMBOL
Listed NYSE Symbol: TPZ This report
is for stockholder information. This is not a prospectus intended for use
in the purchase of fund shares. Past performance is no
guarantee of future results and your investment may be worth more or less
at the time you sell.
|
| Tortoise Capital Advisors’ Public Investment Companies | ||||
| Total Assets | ||||
| Ticker/ | Primary Target | Investor | as of 3/31/10 | |
| Name | Inception Date | Investments | Suitability | ($ in millions) |
| Tortoise Power and Energy | TPZ | U.S. Power and Energy Investment | Retirement Accounts | $187 |
| Infrastructure Fund, Inc. | July 2009 | Grade Debt and Dividend-Paying | Pension Plans | |
| Equity Securities | Taxable Accounts | |||
| Tortoise Energy Infrastructure Corp. | TYG | U.S. Energy Infrastructure | Retirement Accounts | $1,244 |
| Feb. 2004 | Pension Plans | |||
| Taxable Accounts | ||||
| Tortoise Energy Capital Corp. | TYY | U.S. Energy Infrastructure | Retirement Accounts | $658 |
| May 2005 | Pension Plans | |||
| Taxable Accounts | ||||
| Tortoise North American Energy Corp. | TYN | U.S. Energy Infrastructure | Retirement Accounts | $166 |
| Oct. 2005 | Pension Plans | |||
| Taxable Accounts | ||||
| Tortoise Capital Resources Corp. | TTO | U.S. Energy Infrastructure | Retirement Accounts | $89 |
| Dec. 2005 | Private and Micro Cap | Pension Plans | (as of 2/28/10) | |
| (Feb. 2007 – IPO) | Public Companies | Taxable Accounts | ||
