Item 1. Report to
Stockholders.
Company at a Glance
Tortoise North American Energy
Corp. (NYSE: TYN) is a non-diversified closed-end investment company focused
primarily on investing in equity securities of companies in the energy sector
with their primary operations in North America, including oil and gas
exploitation, energy infrastructure and energy shipping companies. Our
investments are primarily in Master Limited Partnerships (MLPs) and their
affiliates, but may also include Canadian royalty and income trusts, common
stock, debt and other securities issued by energy companies that are not
MLPs.
Investment Goals: Yield, Growth
and Quality
TYN seeks a high level of total
return with an emphasis on current distributions paid to
stockholders.
In seeking to achieve
yield,
we target
distributions to our stockholders that are roughly equal to the underlying yield
on a direct investment in MLPs. In order to accomplish this, we maintain our
strategy of investing primarily in companies in the energy sector with
attractive current yields and growth potential.
We seek to achieve distribution
growth
as revenues of our underlying companies grow with the economy, with the
population and through rate increases. This revenue growth generally leads to
increased operating profits, and when combined with internal expansion projects
and acquisitions, is expected to provide attractive growth in distributions to
us.
TYN seeks to achieve
quality
by
investing in companies operating energy infrastructure assets that are critical
to the North American economy. Often these assets would be difficult to
replicate. We also back experienced management teams with successful track
records. By investing in TYN, our stockholders have access to a portfolio that
is diversified through geographic regions and across product lines,
including natural gas, natural gas liquids, crude oil and refined products.
About U.S. Energy Infrastructure
Master Limited Partnerships (MLPs)
MLPs are limited partnerships whose
units trade on public exchanges such as the New York Stock Exchange (NYSE), the
NYSE Alternext US and the NASDAQ. Buying MLP units makes an investor a limited
partner in the MLP. There are currently more than 80 MLPs in
the market, mostly in industries
related to energy and natural resources. We invest primarily in MLPs in the
energy infrastructure sector. Energy infrastructure MLPs are engaged
in the transportation, storage and processing of crude oil, natural gas and
refined products from production points to the end users.
TYN Investment
Features
We provide stockholders an
alternative to investing directly in MLPs and their affiliates. We offer
investors the opportunity to receive an attractive distribution return with a
historically low return correlation to returns on stocks and bonds.
Additional features
include:
-
One Form 1099 per stockholder at the end of
the year, multiple K-1s and multiple state filings for
individual partnership investments;
-
A professional management team, with more
than 130 years combined investment experience;
-
The ability to access investment grade credit
markets to enhance stockholder return; and
-
Access to direct placements and other
investments not available through the public market.
December 31, 2012
Dear Fellow
Stockholders,
Our fiscal year ended Nov. 30,
2012 was a positive one for midstream MLPs, which continued to demonstrate solid
growth and produced healthy cash flows. In fact, more than 80 percent of
midstream MLPs grew their distributions in 2012, supported by stable
fundamentals and visible growth profiles. The recent performance of these assets
in periods of volatility and uncertainty once again demonstrates how their
desirable operating characteristics can translate into an attractive,
diversifying, long-term investment.
Although the market struggled with
significant challenges during 2012, including sluggish global economic growth,
escalating geopolitical concerns, a contentious U.S. presidential election, and
commodity price volatility, excitement continues to grow about the
transformation underway in U.S. energy. These fundamental strengths,
technological advances and optimism about the future of energy in America have
not been overlooked by investors who have continued to recognize quality over
longer periods, an approach that ultimately drove positive performance of MLPs
during the year.
Master Limited Partnership sector
review and outlook
The Tortoise MLP Index
®
posted a
solid 14.6 percent total return for our fiscal year ending Nov. 30, 2012. After
a relatively flat first half of the year, MLPs rebounded for much of the second
half, until general uncertainty clouded the market following the election in
November. During the same period, the broad equity market, as represented by the
S&P 500 Index
®
, returned 16.1 percent, following a lethargic
2011.
Despite macro uncertainties,
increased energy production in the U.S. is an exciting and promising event,
providing a potential boost for the economy along with other benefits for
Americans, such as creating jobs, generating federal, state and local tax
revenues and improving national security. Today, North American crude oil
production stands at approximately 6.5 million barrels per day, up from 4.95
million barrels per day in 2008 and is a figure that is expected to grow
significantly in the next two decades. The positive implications of this
dramatic growth in U.S. crude oil production for the midstream portion of the
energy value chain and for pipeline MLPs are significant. The pace of
projects continues to be strong as pipeline infrastructure build out is critical
to support expanding production. Evidence of this exists in the disparate prices
of crude oil by location across the country. We continue to see a clear need for
increased pipeline takeaway capacity from this growing production. In just the
next three years, we estimate more than $40 billion in midstream MLP capital
investment.
Merger and acquisition (M&A)
activity also remains elevated compared to the long-term historical average. MLP
acquisitions in fiscal 2012 totaled $40.9 billion, a figure that excludes
several deals announced in December.
Fund performance review and
outlook
Our total assets increased from $208
million on Nov. 30, 2011 to $226 million on Nov. 30, 2012. This increase
resulted primarily from net realized and unrealized gains on investments as well
as approximately $3.5 million in new leverage proceeds. For fiscal year 2012,
our market-based total return was 10.9 percent and our NAV-based total return
was 9.6 percent (both including the reinvestment of distributions). The
difference between the market value total return as compared to the NAV total
return reflects the change in the markets premium or discount over the
period.
The growing volumes of U.S. and
Canadian-produced oil, natural gas and natural gas liquids fueled increased
demand for pipeline
(Unaudited)
2012 Annual
Report
1
infrastructure build-out. During the
year, our asset performance was boosted by exposure to refined products and
crude pipeline MLPs. Additionally, natural gas pipeline MLPs contributed
positively, although faced some headwinds due to a more modest near-term growth
outlook. Although natural gas MLPs underperformed liquids pipeline MLPs this
year, we continue to believe in their longer-term opportunity. Additionally, oil
and gas production MLPs underperformed as upstream energy companies were
impacted later in the year given domestic fiscal concerns and signs of slowing
economic growth. We were positively impacted with no holdings in coal MLPs.
We paid a distribution of $0.3925 per
common share ($1.57 annualized) to our stockholders on Nov. 30, 2012 an increase
of 0.6 percent quarter-over-quarter and an increase of 2.6 percent
year-over-year. This represented an annualized yield of 6.3 percent based on our
fiscal year closing price of $25.06. Our distribution coverage (distributable
cash flow divided by distributions) for the fourth fiscal quarter was 109.9
percent, reflective of our emphasis on sustainability. For tax purposes,
distributions to stockholders for 2012 were 100 percent qualified dividend
income.
We ended our fiscal year with
leverage (including bank debt, senior notes and preferred stock), at 15.4
percent of total assets, below our long-term target of 20 percent. This provides
us flexibility in managing the portfolio during market cycles and allows us to
add leverage when compelling opportunities arise. As of Nov. 30, 2012, our
leverage, which included the impact of interest rate swaps, had a weighted
average maturity of 4.3 years and a weighted average cost of leverage of 2.2
percent, with 71.8 percent at fixed rates.
Additional information about our
financial performance is available in the Key Financial Data and Managements
Discussion sections of this report.
Conclusion
We believe we are in the early stages
of a decades-long opportunity and that we are in the midst of a significant
transformation of North American energy. As this exciting scenario continues to
unfold, we look forward to serving you as your professional investment adviser
in navigating the course ahead, with a strategy anchored in quality midstream
and upstream MLPs.
Sincerely,
The Managing Directors
Tortoise
Capital Advisors, L.L.C.
The adviser to Tortoise North
American Energy Corp.
|
|
|
H. Kevin Birzer
|
Zachary A. Hamel
|
Kenneth P. Malvey
|
|
|
|
|
|
|
Terry Matlack
|
David J. Schulte
|
|
(Unaudited)
2
Tortoise North
American Energy Corp.
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 we believe is meaningful to
understanding our operating performance. The Distributable Cash Flow Ratios
include 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. This information is supplemental, is not
inclusive of required financial disclosures (e.g. Total Expense Ratio), and
should be read in conjunction with our full financial statements.
|
|
Year Ended
November 30,
|
|
2011
|
|
2012
|
|
|
2011
|
|
2012
|
|
Q4
(1)
|
|
Q1
(1)
|
|
Q2
(1)
|
|
Q3
(1)
|
|
Q4
(1)
|
Total Income from Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received from master
limited partnerships
|
|
$
|
11,224
|
|
|
$
|
12,633
|
|
|
$
|
2,946
|
|
|
$
|
3,069
|
|
|
$
|
3,086
|
|
|
$
|
3,221
|
|
|
$
|
3,257
|
|
Dividends paid in stock
|
|
|
1,379
|
|
|
|
871
|
|
|
|
272
|
|
|
|
201
|
|
|
|
211
|
|
|
|
218
|
|
|
|
241
|
|
Dividends from common stock
|
|
|
740
|
|
|
|
467
|
|
|
|
137
|
|
|
|
150
|
|
|
|
151
|
|
|
|
87
|
|
|
|
79
|
|
Interest and dividend
income
|
|
|
94
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Other income
|
|
|
368
|
|
|
|
|
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
from investments
|
|
|
13,805
|
|
|
|
13,972
|
|
|
|
3,641
|
|
|
|
3,420
|
|
|
|
3,448
|
|
|
|
3,526
|
|
|
|
3,578
|
|
Operating Expenses Before Leverage Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Current
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory fees, net of fees
waived
|
|
|
1,912
|
|
|
|
2,178
|
|
|
|
472
|
|
|
|
535
|
|
|
|
549
|
|
|
|
535
|
|
|
|
559
|
|
Other operating expenses
|
|
|
497
|
|
|
|
493
|
|
|
|
114
|
|
|
|
134
|
|
|
|
129
|
|
|
|
119
|
|
|
|
111
|
|
|
|
|
2,409
|
|
|
|
2,671
|
|
|
|
586
|
|
|
|
669
|
|
|
|
678
|
|
|
|
654
|
|
|
|
670
|
|
Distributable cash flow before
leverage costs and current taxes
|
|
|
11,396
|
|
|
|
11,301
|
|
|
|
3,055
|
|
|
|
2,751
|
|
|
|
2,770
|
|
|
|
2,872
|
|
|
|
2,908
|
|
Leverage
costs
(2)
|
|
|
814
|
|
|
|
753
|
|
|
|
180
|
|
|
|
184
|
|
|
|
189
|
|
|
|
190
|
|
|
|
190
|
|
Current income tax
expense
(3)
|
|
|
30
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable
Cash Flow
(4)
|
|
$
|
10,552
|
|
|
$
|
10,548
|
|
|
$
|
2,866
|
|
|
$
|
2,567
|
|
|
$
|
2,581
|
|
|
$
|
2,682
|
|
|
$
|
2,718
|
|
|
As a percent of average total assets
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investments
|
|
|
6.72
|
%
|
|
|
6.32
|
%
|
|
|
7.19
|
%
|
|
|
6.26
|
%
|
|
|
6.22
|
%
|
|
|
6.51
|
%
|
|
|
6.33
|
%
|
Operating expenses before leverage
costs and current taxes
|
|
|
1.17
|
%
|
|
|
1.21
|
%
|
|
|
1.16
|
%
|
|
|
1.22
|
%
|
|
|
1.22
|
%
|
|
|
1.21
|
%
|
|
|
1.19
|
%
|
Distributable cash flow before
leverage costs and current taxes
|
|
|
5.55
|
%
|
|
|
5.11
|
%
|
|
|
6.03
|
%
|
|
|
5.04
|
%
|
|
|
5.00
|
%
|
|
|
5.30
|
%
|
|
|
5.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percent of average net assets
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investments
|
|
|
8.77
|
%
|
|
|
8.69
|
%
|
|
|
9.55
|
%
|
|
|
8.41
|
%
|
|
|
8.52
|
%
|
|
|
8.97
|
%
|
|
|
8.86
|
%
|
Operating expenses before leverage
costs and current taxes
|
|
|
1.53
|
%
|
|
|
1.66
|
%
|
|
|
1.54
|
%
|
|
|
1.65
|
%
|
|
|
1.68
|
%
|
|
|
1.66
|
%
|
|
|
1.66
|
%
|
Leverage costs and current
taxes
|
|
|
0.54
|
%
|
|
|
0.47
|
%
|
|
|
0.50
|
%
|
|
|
0.45
|
%
|
|
|
0.47
|
%
|
|
|
0.48
|
%
|
|
|
0.47
|
%
|
Distributable cash flow
|
|
|
6.70
|
%
|
|
|
6.56
|
%
|
|
|
7.51
|
%
|
|
|
6.31
|
%
|
|
|
6.37
|
%
|
|
|
6.83
|
%
|
|
|
6.73
|
%
|
|
Selected Financial
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid on common stock
|
|
$
|
9,506
|
|
|
$
|
9,792
|
|
|
$
|
2,408
|
|
|
$
|
2,424
|
|
|
$
|
2,440
|
|
|
$
|
2,455
|
|
|
$
|
2,473
|
|
Distributions paid on common stock per share
|
|
1.5100
|
|
|
1.5550
|
|
|
0.3825
|
|
|
0.3850
|
|
|
0.3875
|
|
|
0.3900
|
|
|
0.3925
|
|
Distribution coverage percentage for period
(6)
|
|
|
111.0
|
%
|
|
|
107.7
|
%
|
|
|
119.0
|
%
|
|
|
105.9
|
%
|
|
|
105.8
|
%
|
|
|
109.2
|
%
|
|
|
109.9
|
%
|
Net realized gain, net of income taxes, for the period
|
|
|
13,689
|
|
|
|
12,025
|
|
|
|
5,162
|
|
|
|
1,500
|
|
|
|
495
|
|
|
|
2,791
|
|
|
|
7,239
|
|
Total assets, end of period
|
|
208,041
|
|
|
225,988
|
|
|
208,041
|
|
|
229,941
|
|
|
202,720
|
|
|
224,011
|
|
|
225,988
|
|
Average total assets during period
(7)
|
|
205,491
|
|
|
221,188
|
|
|
203,054
|
|
|
219,892
|
|
|
220,486
|
|
|
215,393
|
|
|
227,259
|
|
Leverage
(8)
|
|
31,300
|
|
|
|
34,800
|
|
|
31,300
|
|
|
30,300
|
|
|
30,000
|
|
|
31,000
|
|
|
34,800
|
|
Leverage as a percent of total assets
|
|
|
15.0
|
%
|
|
|
15.4
|
%
|
|
|
15.0
|
%
|
|
|
13.2
|
%
|
|
|
14.8
|
%
|
|
|
13.8
|
%
|
|
|
15.4
|
%
|
Net unrealized appreciation, end of period
|
|
|
54,362
|
|
|
|
58,204
|
|
|
|
54,362
|
|
|
|
67,223
|
|
|
|
51,876
|
|
|
|
62,950
|
|
|
|
58,204
|
|
Net assets, end of period
|
|
155,942
|
|
|
160,717
|
|
|
155,942
|
|
|
167,697
|
|
|
149,643
|
|
|
160,792
|
|
|
160,717
|
|
Average net assets during period
(9)
|
|
157,410
|
|
|
160,825
|
|
|
152,909
|
|
|
163,463
|
|
|
160,994
|
|
|
156,379
|
|
|
162,512
|
|
Net asset value per common share
|
|
24.77
|
|
|
|
25.51
|
|
|
|
24.77
|
|
|
|
26.64
|
|
|
|
23.77
|
|
|
|
25.54
|
|
|
|
25.51
|
|
Market value per common share
|
|
|
24.05
|
|
|
|
25.06
|
|
|
|
24.05
|
|
|
|
25.94
|
|
|
|
24.09
|
|
|
|
25.69
|
|
|
|
25.06
|
|
Shares outstanding
|
|
6,295,750
|
|
|
6,301,191
|
|
|
6,295,750
|
|
|
6,295,750
|
|
|
6,295,750
|
|
|
6,295,750
|
|
|
6,301,191
|
|
(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)
|
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 MLP distributions, the value of paid-in-kind distributions,
distributions included in direct placement discounts, and amortization of
debt issuance costs; and decreased by current taxes paid on net investment
income and realized and unrealized gains (losses) on interest rate swap
settlements.
|
(5)
|
Annualized for
periods less than one full year.
|
(6)
|
Distributable Cash
Flow divided by distributions paid.
|
(7)
|
Computed by
averaging month-end values within each period.
|
(8)
|
Leverage consists of
short-term borrowings.
|
(9)
|
Computed by averaging daily net assets within each
period.
|
2012 Annual
Report
3
Managements Discussion
(Unaudited)
|
The information contained in this
section should be read in conjunction with our Financial Statements and the
Notes thereto. In addition, this report contains certain forward-looking
statements. These statements include the plans and objectives of management for
future operations and financial objectives and can be identified by the use of
forward-looking terminology such as may, will, expect, intend,
anticipate, estimate, or continue or the negative thereof or other
variations thereon or comparable terminology. These forward-looking statements
are subject to the inherent uncertainties in predicting future results and
conditions. Certain factors that could cause actual results and conditions to
differ materially from those projected in these forward-looking statements are
set forth in the Risk Factors section of our public filings with the SEC.
Overview
Tortoise North American Energy
Corp.s (TYN or the Company) investment objective is to seek a high level of
total return for our stockholders, with an emphasis on distribution income paid
to stockholders. Our investment strategy requires us to invest at least 80
percent of our total assets in equity securities of companies in the energy
sector with their primary operations in North America, including energy
infrastructure, oil and gas exploitation and energy shipping companies. The
equity securities of the energy companies purchased by TYN consist primarily of
interests in MLPs. MLPs are publicly traded partnerships whose equity interests
are traded in the form of units on public exchanges, such as the NYSE or NASDAQ.
We invest primarily in MLPs through public market and private purchases. While
we are a registered investment company under the Investment Company Act of 1940,
as amended (the 1940 Act), we are not a regulated investment company for
federal tax purposes. Our distributions do not typically generate unrelated
business taxable income (UBTI) and our stock may therefore be suitable for
holding by pension funds, IRAs and mutual funds, as well as taxable accounts.
Tortoise Capital Advisors, L.L.C. serves as our investment adviser.
Company Update
Total assets increased approximately
$2.0 million during the 4th quarter primarily as a result of increased market
values of our MLP investments. Average total assets for the quarter increased
5.5 percent as compared to 3rd quarter 2012, resulting in increased asset-based
expenses. Distribution increases from our MLP investments were in-line with our
expectations. Total leverage as a percent of total assets increased during the
quarter and we increased our quarterly distribution to $0.3925 per share.
Additional information on these events and results of our operations are
discussed in more detail below.
Critical Accounting
Policies
The financial statements are based on
the selection and application of critical accounting policies, which require
management to make significant estimates and assumptions. Critical accounting
policies are those that are both important to the presentation of our financial
condition and results of operations and require managements most difficult,
complex, or subjective judgments. Our critical accounting policies are those
applicable to the valuation of investments, tax matters and certain revenue
recognition matters as discussed in Note 2 in the Notes to Financial
Statements.
Determining Distributions to
Stockholders
Our portfolio generates cash flow
from which we pay distributions to stockholders. Our Board of Directors has
adopted a policy of declaring what it believes to be sustainable distributions.
In determining distributions, our Board of Directors considers a number of
current and anticipated factors, including, among others, distributable cash
flow (DCF), realized and unrealized gains, leverage amounts and rates, current
and deferred taxes payable, and potential volatility in returns from our
investments and the overall market. While the Board considers many factors in
determining distributions to stockholders, particular emphasis is given to DCF
and distribution coverage. Distribution coverage is DCF divided by distributions
paid to stockholders and is discussed in more detail below. Over the long term,
we expect to distribute substantially all of our DCF to holders of common stock.
Our Board of Directors reviews the distribution rate quarterly, and may adjust
the quarterly distribution throughout the year.
Determining DCF
DCF is distributions received from
investments, less expenses. The total distributions received from our
investments include the amount received by us as cash distributions from MLPs,
paid-in-kind distributions, and dividend and interest payments. The total
expenses include current or anticipated operating expenses, leverage costs and
current income taxes. Current income taxes include taxes paid on net investment
income of the Company, 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.
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 common stock 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 are characterized as a return of capital and therefore excluded from
investment income, whereas the DCF calculation includes the return of capital;
and distributions received from investments in the DCF calculation include the
value of dividends paid-in-kind (additional stock or MLP units), whereas such
amounts are not included as income for GAAP purposes, and includes distributions
related to direct investments when the purchase price is reduced in lieu of
receiving cash distributions. 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 expense reimbursement, as disclosed
in the Statement of Operations, the DCF calculation reflects interest expense,
realized and unrealized gains (losses) on interest rate swap settlements, other
leverage expenses, and taxes paid on net investment income. A reconciliation of
Net Investment Loss, before Income Taxes to DCF is included below.
4
Tortoise North American Energy Corp.
Managements Discussion
(Unaudited)
(Continued)
|
Distributions Received from
Investments
Our ability to generate cash is
dependent on the ability of our portfolio of investments to generate cash flow
from their operations. In order to maintain and grow distributions to our
stockholders, we evaluate each holding based upon its contribution to our
investment income, our anticipation of its growth rate, and its risk relative to
other potential investments.
We concentrate on investments we
believe can expect an increasing demand for services from economic and
population growth. We seek well-managed businesses with hard assets and stable
recurring revenue streams.
Total distributions received from our
investments for the 4th quarter 2012 was approximately $3.6 million. This
represents a 1.5 percent increase as compared to 3rd quarter 2012 and a decrease
of approximately 1.7 percent as compared to 4th quarter 2011. These changes
reflect increases in per share distribution rates on our MLP investments and the
distributions received from additional investments funded from leverage
proceeds. The decrease from 4th quarter 2011 is due to approximately $286,000 of
non-recurring other income that was collected during that quarter.
Expenses
We incur two types of expenses: (1)
operating expenses, consisting primarily of the advisory fee, and (2) leverage
costs. On a percentage basis, operating expenses before leverage costs and
current taxes were an annualized 1.19 percent of average total assets for the
4th quarter 2012 as compared to 1.16 percent for the 4th quarter 2011 and 1.21
percent for the 3rd quarter 2012. The change from 4th quarter 2011 is primarily
the result of a reduction in the fee waiver of 0.05 percent that occurred during
1st quarter 2012.
Advisory fees for the 4th quarter
2012 increased 4.5 percent from 3rd quarter 2012 as a result of increased
average managed assets for the quarter as discussed above. Other operating
expenses decreased approximately $8,000 as compared to 3rd quarter 2012,
primarily due to reduced professional fees.
Leverage costs consist of two major
components: (1) the direct interest expense, which will vary from period to
period as our margin borrowing facility has a variable interest rate, and (2)
the realized and unrealized gain or loss on our interest rate swap settlements.
Detailed information on our margin borrowing facility is included in the
Liquidity and Capital Resources section below.
Total leverage costs for DCF purposes
were approximately $190,000 for the 4th quarter 2012, unchanged as compared to
the 3rd quarter 2012. Our average annualized total cost of leverage, including
interest rate swaps, was 2.17 percent as of November 30, 2012.
As indicated in Note 9 of our Notes
to Financial Statements, we have entered into $25 million notional amount of
interest rate swap contracts with The Bank of Nova Scotia in an attempt to
reduce a portion of the interest rate risk arising from our leveraged capital
structure. TYN has agreed to pay The Bank of Nova Scotia a fixed rate while
receiving a floating rate based upon the 1-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 (The Bank of Nova Scotia pays TYN the net
difference) or a realized or unrealized loss when the fixed rate exceeds LIBOR
(TYN pays The Bank of Nova Scotia the net difference). The interest rate swap
contracts have a weighted average fixed rate of 1.70 percent and weighted
average remaining maturity of approximately 5.8 years at November 30, 2012. This
swap arrangement effectively fixes the cost of approximately 72 percent of our
outstanding leverage as of November 30, 2012 over the remaining swap
period.
Interest accrues on the margin
facility at a rate equal to 1-month LIBOR plus 0.85 percent and unused balances
are subject to a fee of 0.25 percent. The annual rate of leverage may vary in
future periods as a result of changes in LIBOR, the utilization of our margin
facility, and maturity of our interest rate swap contracts. Additional
information on our leverage is disclosed below in Liquidity and Capital
Resources and in our Notes to Financial Statements.
Distributable Cash Flow
For 4th quarter 2012, our DCF was
approximately $2.7 million, an increase of 5.3 percent as compared to 4th
quarter 2011 (excluding the impact of non-recurring income received during that
quarter) and an increase of 1.3 percent as compared to 3rd quarter 2012. The
change is the net result of changes to distributions and expenses as outlined
above. We declared a distribution of $2.5 million, or $0.3925 per share, during
the quarter. This represents an increase of $0.01 per share as compared to 4th
quarter 2011 and an increase of $0.0025 per share as compared to 3rd quarter
2012.
Our distribution coverage ratio was
109.9 percent for 4th quarter 2012. Our goal is to pay what we believe to be
sustainable distributions with any increases safely covered by earned DCF. A
distribution coverage ratio of greater than 100 percent provides flexibility for
on-going management of the portfolio, changes in leverage costs, the impact of
taxes from realized gains and other expenses. An on-going distribution coverage
ratio of less than 100 percent will, over time, erode the earning power of a
portfolio and may lead to lower distributions. In 2013, we expect to allocate a
portion of the projected growth in DCF to increase distributions to stockholders
while also continuing to build critical distribution coverage to help preserve
the sustainability of distributions to stockholders for the years ahead.
Net investment loss before income
taxes on the Statement of Operations is adjusted as follows to reconcile to DCF
for 2012 YTD and 4th quarter 2012 (in thousands):
|
|
2012 YTD
|
|
4th Qtr
2012
|
Net Investment
Loss, before Income Taxes
|
|
$
|
(2,292
|
)
|
|
$
|
(375
|
)
|
Adjustments to reconcile to
DCF:
|
|
|
|
|
|
|
|
|
Dividends paid in
stock
|
|
|
871
|
|
|
|
241
|
|
Distributions characterized as
return of capital
|
|
|
12,337
|
|
|
|
2,944
|
|
Interest rate swap
expenses
|
|
|
(368
|
)
|
|
|
(92
|
)
|
DCF
|
|
$
|
10,548
|
|
|
$
|
2,718
|
|
2012 Annual
Report
5
Managements Discussion
(Unaudited)
(Continued)
|
Liquidity and Capital
Resources
We had total assets of $226 million
at year-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 4th quarter
2012, total assets increased by approximately $2.0 million. This change was
primarily the result of a $1.1 million increase in the value of our investments
as reflected by the change in realized and unrealized gains on investments
(excluding return of capital on distributions), net purchases of $1.3 million
and a net decrease in receivables of approximately $0.5 million.
Total leverage outstanding at
November 30, 2012 was $34.8 million, an increase of $3.8 million as compared to
August 31, 2012. On an adjusted basis to reflect the payment of the 3rd quarter
2012 distribution at the beginning of the 4th quarter 2012, total leverage
increased by approximately $1.5 million. Total leverage represented 15.4 percent
of total assets at November 30, 2012, an increase from 13.8 percent of total
assets at August 31, 2012 and an increase from 15.0 percent of total assets at
November 30, 2011. Our leverage as a percent of total assets remains below our
long-term target level of 20 percent of total assets. This allows the
opportunity to add leverage when compelling investment opportunities arise.
Temporary increases to up to 25 percent of our total assets may be permitted,
provided that such leverage is consistent with the limits set forth in the 1940
Act, and that such leverage is expected to be reduced over time in an orderly
fashion to reach our long-term target. Our leverage ratio is impacted by
increases or decreases in MLP values, issuance of equity and/or the sale of
securities where proceeds are used to reduce leverage.
We have used leverage to acquire
securities consistent with our investment philosophy. The terms of our leverage
are governed by regulatory and contractual asset coverage requirements that
arise from the use of leverage. Additional information on our leverage and asset
coverage requirements is discussed in Note 8 in the Notes to Financial
Statements. Our coverage ratio is updated each week on our Web site at
www.tortoiseadvisors.com.
Taxation of our Distributions and
Income Taxes
We invest in partnerships that
generally have cash distributions in excess of their income for accounting and
tax purposes. Accordingly, the distributions include a return of capital
component for accounting and tax purposes. Distributions declared and paid by us
in a year generally differ from taxable income for that year, as such
distributions may include the distribution of current year taxable income or
return of capital.
The taxability of the distribution
you receive depends on whether we have annual earnings and profits (E&P).
E&P is primarily comprised of the taxable income from MLPs with certain
specified adjustments as reported on annual K-1s, fund operating expenses and
net realized gains. If we have E&P, it is first allocated to preferred
shares (if any) and then to the common shares.
In the event we have E&P
allocated to our common shares, all or a portion of our distribution will
currently be taxable at the 15 percent Qualified Dividend Income (QDI) rate,
assuming various holding requirements are met by the stockholder. The 15 percent
QDI rate is currently effective through 2012. As a result of legislative
changes, starting in 2013, the QDI rate is variable based on the taxpayers
taxable income. The portion of our distribution that is taxable may vary for
either of two reasons. First, the characterization of the distributions we
receive from MLPs could change annually based upon the K-1 allocations and
result in less return of capital and more in the form of income. Second, we
could sell an MLP investment and realize a gain or loss at any time. It is for
these reasons that we inform you of the tax treatment after the close of each
year as the ultimate characterization of our distributions is undeterminable
until the year is over.
E&P for 2012 exceeded total
distributions to stockholders. As a result, for tax purposes, distributions to
common stockholders for the year ended 2012 were 100 percent qualified dividend
income. This information is reported to stockholders on Form 1099-DIV and is
available on our Web site at www.tortoiseadvisors.com. For book purposes, the
source of distributions to common stockholders for the year ended 2012 was 100
percent return of capital.
As of November 30, 2012, we had
approximately $6 million in capital loss carryforwards and $13 million in net
operating losses. To the extent we have taxable income in the future that is not
offset by either capital loss carryforwards or net operating losses, we will owe
federal and state income taxes. Tax payments can be funded from investment
earnings, fund assets or borrowings. Details of our taxes are disclosed in Note
5 in our Notes to Financial Statements.
The unrealized gain or loss we have
in the portfolio is reflected in the Statement of Assets and Liabilities. At
November 30, 2012, our investments are valued at $225.9 million, with an
adjusted cost of $151.3 million. The $74.6 million difference reflects
unrealized gain that would be realized for financial statement purposes if those
investments were sold at those values. The Statement of Assets and Liabilities
also reflects either a net deferred tax liability or net deferred tax asset
depending primarily upon unrealized gains (losses) on investments, realized
gains (losses) on investments, capital loss carryforwards and net operating
losses. At November 30, 2012, the balance sheet reflects a net deferred tax
liability of approximately $28.4 million or $4.51 per share. Accordingly, our
net asset value per share represents the amount which would be available for
distribution to stockholders after payment of taxes.
6
Tortoise North American Energy Corp.
Schedule of Investments
November 30,
2012
|
|
|
Shares
|
|
Fair
Value
|
Master Limited Partnerships and
|
|
|
|
|
|
|
Related Companies
138.2%
(1)
|
|
|
|
|
|
|
|
|
Crude/Refined Products Pipelines
47.3%
(1)
|
|
|
|
|
United States 47.3%
(1)
|
|
|
|
|
|
|
Buckeye
Partners, L.P.
(2)
|
|
161,500
|
|
$
|
8,116,990
|
|
Enbridge Energy Partners,
L.P.
(2)
|
|
282,519
|
|
|
8,198,701
|
|
Holly Energy
Partners, L.P.
(2)
|
|
65,100
|
|
|
4,371,465
|
|
Kinder Morgan Management,
L.L.C.
(2)(3)
|
|
157,084
|
|
|
11,922,650
|
|
Magellan
Midstream Partners, L.P.
(2)
|
|
301,400
|
|
|
13,406,272
|
|
MPLX LP
|
|
69,272
|
|
|
1,999,190
|
|
NuStar Energy
L.P.
(2)
|
|
125,400
|
|
|
5,748,336
|
|
Oiltanking Partners,
L.P.
|
|
24,900
|
|
|
922,794
|
|
Plains All
American Pipeline, L.P.
(2)
|
|
273,400
|
|
|
12,734,972
|
|
Sunoco Logistics Partners
L.P.
(2)
|
|
141,600
|
|
|
7,196,112
|
|
Tesoro Logistics
L.P.
(2)
|
|
30,700
|
|
|
1,415,270
|
|
|
|
|
|
|
76,032,752
|
|
|
|
Natural Gas/Natural Gas Liquids Pipelines
53.4%
(1)
|
|
|
United States 53.4%
(1)
|
|
|
|
|
|
|
Boardwalk
Pipeline Partners, L.P.
(2)
|
|
151,612
|
|
|
3,910,074
|
|
El Paso Pipeline Partners,
L.P.
(2)
|
|
386,510
|
|
|
14,428,418
|
|
Energy Transfer
Equity, L.P.
(2)
|
|
131,959
|
|
|
6,000,176
|
|
Energy Transfer Partners,
L.P.
(2)
|
|
177,840
|
|
|
7,805,398
|
|
Enterprise
Products Partners L.P.
(2)(4)
|
|
300,100
|
|
|
15,554,183
|
|
EQT Midstream Partners,
L.P.
|
|
44,263
|
|
|
1,359,759
|
|
Inergy
Midstream, L.P.
|
|
125,900
|
|
|
2,961,168
|
|
ONEOK Partners,
L.P.
(2)
|
|
152,400
|
|
|
8,877,300
|
|
Regency Energy
Partners L.P.
(2)
|
|
392,400
|
|
|
8,777,988
|
|
Spectra Energy Partners,
L.P.
(2)
|
|
102,300
|
|
|
3,047,517
|
|
TC PipeLines,
L.P.
(2)
|
|
49,600
|
|
|
2,067,824
|
|
Williams Partners
L.P.
(2)
|
|
216,700
|
|
|
11,032,197
|
|
|
|
|
|
|
85,822,002
|
|
|
|
Natural Gas Gathering/Processing
18.5%
(1)
|
|
|
|
|
United States 18.5%
(1)
|
|
|
|
|
|
|
Access Midstream
Partners, L.P.
(2)
|
|
96,800
|
|
|
3,387,032
|
|
Copano Energy,
L.L.C.
(2)
|
|
152,916
|
|
|
4,821,442
|
|
Crestwood
Midstream Partners, L.P.
(3)
|
|
92,286
|
|
|
2,153,955
|
|
DCP Midstream Partners,
L.P.
(2)
|
|
107,759
|
|
|
4,512,947
|
|
MarkWest Energy
Partners, L.P.
(2)
|
|
82,600
|
|
|
4,268,768
|
|
Southcross Energy Partners,
L.P.
|
|
26,141
|
|
|
613,791
|
|
Summit Midstream
Partners, LP
|
|
45,300
|
|
|
895,128
|
|
Targa Resources Partners
L.P.
(2)
|
|
120,800
|
|
|
4,550,536
|
|
Western Gas
Partners L.P.
(2)
|
|
90,700
|
|
|
4,440,672
|
|
|
|
|
|
|
29,644,271
|
|
|
|
|
|
|
|
|
Oil and Gas Production
17.7%
(1)
|
|
|
|
|
|
|
United States 17.7%
(1)
|
|
|
|
|
|
|
BreitBurn Energy
Partners L.P.
(2)
|
|
181,288
|
|
|
3,350,202
|
|
EV Energy Partners,
L.P.
(2)
|
|
103,900
|
|
|
6,306,730
|
|
Legacy Reserves,
L.P.
(2)
|
|
126,600
|
|
|
3,114,360
|
|
Linn Energy,
L.L.C.
(2)
|
|
256,200
|
|
|
10,153,206
|
|
Pioneer
Southwest Energy Partners L.P.
(2)
|
|
150,900
|
|
|
3,428,448
|
|
Vanguard Natural Resources,
LLC
(2)
|
|
78,000
|
|
|
2,162,160
|
|
|
|
|
|
|
28,515,106
|
|
|
Marine Transportation
1.3%
(1)
|
|
|
|
|
|
|
Republic of the Marshall Islands
1.3%
(1)
|
|
|
|
|
|
|
Teekay LNG
Partners L.P.
(2)
|
|
53,500
|
|
|
2,024,440
|
|
Total Master Limited
Partnerships and
|
|
|
|
|
|
|
Related
Companies (Cost $148,029,224)
|
|
|
|
|
222,038,571
|
|
|
Common Stock 2.3%
(1)
|
|
|
|
|
|
|
|
Marine Transportation
0.9%
(1)
|
|
|
|
|
|
|
Republic of the Marshall Islands
0.9%
(1)
|
|
|
|
|
|
|
Teekay Offshore
Partners L.P.
(2)
|
|
52,700
|
|
|
1,403,401
|
|
|
Other 1.4%
(1)
|
|
|
|
|
|
|
Republic of the Marshall Islands
1.4%
(2)
|
|
|
|
|
|
|
Seadrill
Partners LLC
|
|
90,000
|
|
|
2,364,300
|
|
Total Common Stock (Cost
$3,239,530)
|
|
|
|
|
3,767,701
|
|
Short-Term Investment
0.0%
(1)
|
|
|
|
|
|
|
United States Investment Company
0.0%
(1)
|
|
|
|
|
|
|
Fidelity Institutional Money
Market Portfolio
|
|
|
|
|
|
|
Class I,
0.14%
(5)
(Cost $71,605)
|
|
71,605
|
|
|
71,605
|
|
Total Investments
140.5%
(1)
|
|
|
|
|
|
|
(Cost
$151,340,359)
|
|
|
|
|
225,877,877
|
|
Interest Rate Swap Contracts
(0.8%)
(1)
|
|
|
|
|
|
|
$25,000,000
notional Unrealized Depreciation
(6)
|
|
|
|
|
(1,362,313
|
)
|
Other Assets and Liabilities
(39.7%)
(1)
|
|
|
|
|
(63,799,025
|
)
|
Total Net Assets Applicable to
Common
|
|
|
|
|
|
|
Stockholders
100.0%
(1)
|
|
|
|
$
|
160,716,539
|
|
(1)
|
Calculated as a percentage of
net assets applicable to common stockholders.
|
(2)
|
All or a portion of the
security is segregated as collateral for the margin borrowing facility.
See Note 8 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 of $1,362,313.
|
(5)
|
Rate reported is the current
yield as of November 30, 2012.
|
(6)
|
See Note 9 to the financial
statements for further disclosure.
|
See accompanying Notes to
Financial Statements.
2012 Annual
Report
7
Statement of Assets & Liabilities
November 30, 2012
|
Assets
|
|
|
|
|
Investments at fair value (cost
$151,340,359)
|
|
$
|
225,877,877
|
|
Distributions receivable from master
limited partnerships
|
|
|
15,795
|
|
Prepaid expenses and other
assets
|
|
|
94,247
|
|
Total
assets
|
|
|
225,987,919
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Payable to Adviser
|
|
|
376,288
|
|
Distributions payable to common
stockholders
|
|
|
138,743
|
|
Accrued expenses and other
liabilities
|
|
|
154,125
|
|
Unrealized depreciation of interest
rate swap contracts
|
|
|
1,362,313
|
|
Deferred tax liability
|
|
|
28,439,911
|
|
Short-term borrowings
|
|
|
34,800,000
|
|
Total
liabilities
|
|
|
65,271,380
|
|
Net
assets applicable to common stockholders
|
|
$
|
160,716,539
|
|
Net Assets Applicable to Common Stockholders Consist
of:
|
|
|
Capital stock, $0.001 par value;
6,301,191 shares issued
|
|
|
|
|
and
outstanding (100,000,000 shares authorized)
|
|
$
|
6,301
|
|
Additional paid-in capital
|
|
|
97,108,865
|
|
Accumulated net investment loss, net
of income taxes
|
|
|
(2,018,969
|
)
|
Undistributed net realized gain, net
of income taxes
|
|
|
7,416,349
|
|
Net unrealized appreciation of
investments and
|
|
|
|
|
interest
rate swap contracts, net of income taxes
|
|
|
58,203,993
|
|
Net
assets applicable to common stockholders
|
|
$
|
160,716,539
|
|
|
Net Asset Value per common share
outstanding
|
|
|
|
|
(net
assets applicable to common stock,
|
|
|
|
|
divided
by common shares outstanding)
|
|
$
|
25.51
|
|
Statement
of Operations
Year Ended November 30, 2012
|
Investment Income
|
|
|
|
|
Distributions from
master limited partnerships
|
|
$
|
12,633,261
|
|
Less return of capital
on distributions
|
|
|
(12,337,421
|
)
|
Net distributions from
master limited partnerships
|
|
|
295,840
|
|
Dividend
income
|
|
|
466,951
|
|
Dividends from money
market mutual funds
|
|
|
308
|
|
Total
Investment Income
|
|
|
763,099
|
|
Operating Expenses
|
|
|
|
|
Advisory
fees
|
|
|
2,187,021
|
|
Professional
fees
|
|
|
160,739
|
|
Administrator
fees
|
|
|
87,481
|
|
Directors
fees
|
|
|
64,612
|
|
Stockholder
communication expenses
|
|
|
39,257
|
|
Fund accounting
fees
|
|
|
37,862
|
|
Registration
fees
|
|
|
24,696
|
|
Custodian fees and
expenses
|
|
|
12,612
|
|
Stock transfer agent
fees
|
|
|
11,845
|
|
Other operating
expenses
|
|
|
54,211
|
|
Total
Operating Expenses
|
|
|
2,680,336
|
|
Leverage Expenses
|
|
|
|
|
Interest
expense
|
|
|
383,603
|
|
Total
Expenses
|
|
|
3,063,939
|
|
Less fees waived by
Adviser
|
|
|
(8,924
|
)
|
Net
Expenses
|
|
|
3,055,015
|
|
Net Investment Loss, before Income
Taxes
|
|
|
(2,291,916
|
)
|
Deferred tax
benefit
|
|
|
852,380
|
|
Net Investment Loss
|
|
|
(1,439,536
|
)
|
Realized and Unrealized Gain on Investments
|
|
|
|
|
and Interest Rate
Swaps
|
|
|
|
|
Net
realized gain on investments
|
|
|
19,514,504
|
|
Net
realized loss on interest rate swap settlements
|
|
|
(368,512
|
)
|
Net
realized gain, before income taxes
|
|
|
19,145,992
|
|
Current
tax expense
|
|
|
(13,102
|
)
|
Deferred
tax expense
|
|
|
(7,107,432
|
)
|
Income
tax expense
|
|
|
(7,120,534
|
)
|
Net
realized gain on investments
|
|
|
|
|
and
interest rate swaps
|
|
|
12,025,458
|
|
Net
unrealized appreciation of investments
|
|
|
7,078,743
|
|
Net
unrealized depreciation of interest rate swap contracts
|
|
|
(961,747
|
)
|
Net
unrealized appreciation, before income taxes
|
|
|
6,116,996
|
|
Deferred
tax expense
|
|
|
(2,274,955
|
)
|
Net
unrealized appreciation of investments
|
|
|
|
|
and
interest rate swap contracts
|
|
|
3,842,041
|
|
Net Realized and Unrealized Gain on
Investments
|
|
|
|
|
and Interest Rate
Swaps
|
|
|
15,867,499
|
|
Net
Increase in Net Assets Applicable to Common Stockholders
|
|
|
|
|
Resulting from Operations
|
|
$
|
14,427,963
|
|
See accompanying Notes to
Financial Statements.
8
Tortoise North American Energy Corp.
Statement of Changes in Net Assets
Year Ended November 30
|
|
|
2012
|
|
2011
|
Operations
|
|
|
|
|
|
|
|
|
Net investment loss
|
|
$
|
(1,439,536
|
)
|
|
$
|
(745,435
|
)
|
Net realized gain on
investments and interest rate swaps
|
|
|
12,025,458
|
|
|
|
13,688,777
|
|
Net unrealized appreciation
(depreciation) of investments and interest rate swap
contracts
|
|
|
3,842,041
|
|
|
|
(1,784,521
|
)
|
Net
increase in net assets applicable to common stockholders resulting from
operations
|
|
|
14,427,963
|
|
|
|
11,158,821
|
|
Distributions to Common Stockholders
|
|
|
|
|
|
|
|
|
Return of capital
|
|
|
(9,792,027
|
)
|
|
|
(9,506,583
|
)
|
Total
distributions to common stockholders
|
|
|
(9,792,027
|
)
|
|
|
(9,506,583
|
)
|
Capital Stock
Transactions
|
|
|
|
|
|
|
|
|
Issuance of 5,441 common shares
from reinvestment of distributions to
stockholders
|
|
|
138,963
|
|
|
|
|
|
Net
increase in net assets applicable to common stockholders from capital
stock transactions
|
|
|
138,963
|
|
|
|
|
|
Total increase in net assets
applicable to common stockholders
|
|
|
4,774,899
|
|
|
|
1,652,238
|
|
Net Assets
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
155,941,640
|
|
|
|
154,289,402
|
|
End of year
|
|
$
|
160,716,539
|
|
|
$
|
155,941,640
|
|
Accumulated net investment
loss, net of income taxes, end of year
|
|
$
|
(2,018,969
|
)
|
|
$
|
(579,433
|
)
|
See accompanying Notes to
Financial Statements.
2012 Annual
Report
9
Statement of Cash Flows
Year Ended November 30,
2012
|
Cash Flows from Operating
Activities
|
|
|
|
|
Distributions received
from master limited partnerships
|
|
$
|
12,617,466
|
|
Dividend income
received
|
|
|
467,281
|
|
Purchases of long-term
investments
|
|
|
(53,178,902
|
)
|
Proceeds from sales of
long-term investments
|
|
|
49,355,039
|
|
Proceeds from sales of
short-term investments, net
|
|
|
104,714
|
|
Payments on interest
rate swap contracts, net
|
|
|
(368,512
|
)
|
Interest expense
paid
|
|
|
(383,532
|
)
|
Income taxes
paid
|
|
|
(12,369
|
)
|
Operating expenses
paid
|
|
|
(2,616,236
|
)
|
Net
cash provided by operating activities
|
|
|
5,984,949
|
|
Cash Flows from Financing Activities
|
|
|
|
|
Advances from margin
loan facility
|
|
|
29,000,000
|
|
Repayments on margin
loan facility
|
|
|
(25,500,000
|
)
|
Distributions paid to
common stockholders
|
|
|
(9,514,321
|
)
|
Net
cash used in financing activities
|
|
|
(6,014,321
|
)
|
Net change in
cash
|
|
|
(29,372
|
)
|
Cash beginning of
year
|
|
|
29,372
|
|
Cash end of
year
|
|
$
|
|
|
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
|
|
$
|
14,427,963
|
|
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
|
|
|
(53,178,902
|
)
|
Proceeds
from sales of long-term investments
|
|
|
49,260,032
|
|
Proceeds
from sales of short-term investments, net
|
|
|
104,714
|
|
Payments
on interest rate swap contracts, net
|
|
|
(368,512
|
)
|
Return
of capital on distributions received
|
|
|
12,337,421
|
|
Deferred
tax expense
|
|
|
8,530,007
|
|
Net
unrealized appreciation of investments and
|
|
|
|
|
interest
rate swap contracts
|
|
|
(6,116,996
|
)
|
Net
realized gain on investments and
|
|
|
|
|
interest
rate swap contracts
|
|
|
(19,145,992
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Increase
in distributions receivable from
|
|
|
|
|
master
limited partnerships
|
|
|
(15,795
|
)
|
Decrease
in receivable for investments sold
|
|
|
95,007
|
|
Increase
in prepaid expenses and other assets
|
|
|
(1,931
|
)
|
Increase
in payable to Adviser, net of fee waiver
|
|
|
55,654
|
|
Increase
in accrued expenses and other liabilities
|
|
|
2,279
|
|
Total
adjustments
|
|
|
(8,443,014
|
)
|
Net
cash provided by operating activities
|
|
$
|
5,984,949
|
|
Non-Cash Financing
Activities
|
|
|
|
|
Reinvestment
of distributions by common stockholders
|
|
|
|
|
in
additional common shares
|
|
$
|
138,963
|
|
See accompanying Notes to
Financial Statements.
10
Tortoise North American Energy Corp.
Financial Highlights
Year Ended November
30
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Common Share
Data
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value,
beginning of year
|
|
$
|
24.77
|
|
|
$
|
24.51
|
|
|
$
|
20.22
|
|
|
$
|
10.78
|
|
|
$
|
27.25
|
|
Income (Loss) from
Investment Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income (loss)
(2)
|
|
|
(0.23
|
)
|
|
|
(0.12
|
)
|
|
|
(0.09
|
)
|
|
|
0.25
|
|
|
|
0.43
|
|
Net
realized and unrealized gain (loss)
on investments and interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contracts
(2)
|
|
|
2.53
|
|
|
|
1.89
|
|
|
|
5.86
|
|
|
|
10.67
|
|
|
|
(15.14
|
)
|
Total
income (loss) from investment
operations
|
|
|
2.30
|
|
|
|
1.77
|
|
|
|
5.77
|
|
|
|
10.92
|
|
|
|
(14.71
|
)
|
Distributions to
Preferred Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
of capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.17
|
)
|
Total
distributions to preferred stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.17
|
)
|
Distributions to
Common Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.10
|
)
|
Return
of capital
|
|
|
(1.56
|
)
|
|
|
(1.51
|
)
|
|
|
(1.48
|
)
|
|
|
(1.48
|
)
|
|
|
(1.49
|
)
|
Total
distributions to common stockholders
|
|
|
(1.56
|
)
|
|
|
(1.51
|
)
|
|
|
(1.48
|
)
|
|
|
(1.48
|
)
|
|
|
(1.59
|
)
|
Net Asset Value, end of
year
|
|
$
|
25.51
|
|
|
$
|
24.77
|
|
|
$
|
24.51
|
|
|
$
|
20.22
|
|
|
$
|
10.78
|
|
Per common share
market value, end of year
|
|
$
|
25.06
|
|
|
$
|
24.05
|
|
|
$
|
24.44
|
|
|
$
|
19.49
|
|
|
$
|
9.25
|
|
Total Investment Return Based on
Market
Value
(3)
|
|
|
10.87
|
%
|
|
|
4.77
|
%
|
|
|
33.62
|
%
|
|
|
131.66
|
%
|
|
|
(55.98
|
)%
|
|
Supplemental Data and
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets applicable
to common stockholders,
end of year (000s)
|
|
$
|
160,717
|
|
|
$
|
155,942
|
|
|
$
|
154,289
|
|
|
$
|
126,609
|
|
|
$
|
49,716
|
|
Average net assets
(000s)
|
|
$
|
160,825
|
|
|
$
|
157,410
|
|
|
$
|
141,986
|
|
|
$
|
80,041
|
|
|
$
|
113,045
|
|
Ratio of Expenses to
Average Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory
fees
|
|
|
1.36
|
%
|
|
|
1.28
|
%
|
|
|
1.19
|
%
|
|
|
1.13
|
%
|
|
|
1.50
|
%
|
Other
expenses
|
|
|
0.31
|
|
|
|
0.32
|
|
|
|
0.38
|
|
|
|
1.01
|
|
|
|
0.48
|
|
Fee
waiver
|
|
|
(0.01
|
)
|
|
|
(0.07
|
)
|
|
|
(0.12
|
)
|
|
|
(0.12
|
)
|
|
|
(0.23
|
)
|
Subtotal
|
|
|
1.66
|
|
|
|
1.53
|
|
|
|
1.45
|
|
|
|
2.02
|
|
|
|
1.75
|
|
Leverage
expenses
(4)
|
|
|
0.24
|
|
|
|
0.47
|
|
|
|
0.75
|
|
|
|
1.17
|
|
|
|
3.71
|
|
Income
tax expense (benefit)
(5)
|
|
|
5.31
|
|
|
|
4.30
|
|
|
|
13.10
|
|
|
|
(4.70
|
)
|
|
|
0.06
|
|
Total
expenses
|
|
|
7.21
|
%
|
|
|
6.30
|
%
|
|
|
15.30
|
%
|
|
|
(1.51
|
)%
|
|
|
5.52
|
%
|
See accompanying Notes to
Financial Statements.
2012 Annual
Report
11
Financial Highlights
(Continued)
Year Ended
November 30
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Ratio of net
investment income (loss) to average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net assets before fee
waiver
(4)
|
|
|
(0.90
|
)%
|
|
|
(0.54
|
)%
|
|
|
(0.50
|
)%
|
|
|
1.82
|
%
|
|
|
1.51
|
%
|
Ratio of net investment income
(loss) to average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net assets after fee
waiver
(4)
|
|
|
(0.89
|
)%
|
|
|
(0.47
|
)%
|
|
|
(0.38
|
)%
|
|
|
1.94
|
%
|
|
|
1.74
|
%
|
Portfolio
turnover rate
|
|
|
22.37
|
%
|
|
|
27.34
|
%
|
|
|
27.89
|
%
|
|
|
41.90
|
%
|
|
|
36.69
|
%
|
Short-term borrowings, end of
year (000s)
|
|
$
|
34,800
|
|
|
$
|
31,300
|
|
|
$
|
10,400
|
|
|
$
|
5,900
|
|
|
|
|
|
Long-term debt
obligations, end of year (000s)
|
|
|
|
|
|
|
|
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
Preferred stock, end of year
(000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,000
|
|
Per common share
amount of long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations outstanding, end of year
|
|
|
|
|
|
|
|
|
|
$
|
2.38
|
|
|
$
|
2.40
|
|
|
$
|
3.25
|
|
Per common share amount of net
assets,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
excluding long-term debt obligations,
end of year
|
|
$
|
25.51
|
|
|
$
|
24.77
|
|
|
$
|
26.89
|
|
|
$
|
22.61
|
|
|
$
|
14.03
|
|
Asset coverage,
per $1,000 of principal amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of long-term debt obligations and short-term
borrowings
(6)
|
|
$
|
5,618
|
|
|
$
|
5,982
|
|
|
$
|
7,074
|
|
|
$
|
7,058
|
|
|
$
|
4,981
|
|
Asset coverage ratio of
long-term debt
obligations and short-term borrowings
(6)
|
|
|
562
|
%
|
|
|
598
|
%
|
|
|
707
|
%
|
|
|
706
|
%
|
|
|
498
|
%
|
Asset coverage,
per $25,000 liquidation value
per share of preferred
stock
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
74,716
|
|
Asset coverage ratio of
preferred stock
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299
|
%
|
(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, 2011, 2010, 2009, and 2008 do not reflect the change in estimate of
investment income and return of capital, for the respective year. See Note
2E 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 broker
commissions). The calculation also assumes reinvestment of distributions
at actual prices pursuant to the Companys dividend reinvestment
plan.
|
(4)
|
The expense ratios and net investment income (loss)
ratios do not reflect the effect of distributions to preferred
stockholders.
|
(5)
|
For the year ended November 30, 2012, the Company
accrued $13,102 for current income tax expense and $8,530,007 for net
deferred income tax expense. For the years ended November 30, 2011 and
2010, the Company accrued $6,732,194 and $18,559,864, respectively, for
net deferred income tax expense. For the year ended November 30, 2009, the
Company accrued $3,732,366 for net deferred income tax benefit, which
included $5,488,509 of deferred income tax benefit for the timing
differences at December 1, 2008 when the Company converted to a taxable
corporation. The Company accrued $44,786, $39,097, $(28,837) and $68,509
for the years ended November 30, 2011, 2010, 2009 and 2008, respectively,
for current and foreign tax (benefit) expense.
|
(6)
|
Represents value of total assets less all liabilities
and indebtedness not represented by long-term debt obligations, short-term
borrowings and preferred stock at the end of the year divided by long-term
debt obligations and short-term borrowings outstanding at the end of the
year.
|
(7)
|
Represents value of total assets less all liabilities
and indebtedness not represented by long-term debt obligations, short-term
borrowings and preferred stock at the end of the year divided by long-term
debt obligations, short-term borrowings and preferred stock outstanding at
the end of the year.
|
See accompanying Notes to
Financial Statements.
12
Tortoise North American Energy Corp.
Notes
to Financial Statements
November 30, 2012
|
1. Organization
Tortoise North American Energy
Corporation (the Company) was organized as a Maryland corporation on January
13, 2005, and is a non-diversified, closed-end management investment company
under the Investment Company Act of 1940, as amended (the 1940 Act). The
Companys investment objective is to seek a high level of total return with an
emphasis on distribution income paid to stockholders. The Company seeks to
provide its stockholders with a vehicle to invest in a portfolio consisting
primarily of publicly traded U.S. master limited partnerships (MLPs),
including oil and gas exploitation, energy infrastructure and energy shipping
companies. The Company commenced operations on October 31, 2005. The Companys
stock is listed on the New York Stock Exchange under the symbol
TYN.
2. Significant Accounting
Policies
A. Use of Estimates
The preparation of financial
statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities, recognition of distribution income and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
B. Investment
Valuation
The Company primarily owns securities
that are listed on a securities exchange or over-the-counter market. The Company
values those securities at their last sale price on that exchange or
over-the-counter market on the valuation date. If the security is listed on more
than one exchange, the Company uses the price from the exchange that it
considers to be the principal exchange on which the security is traded.
Securities listed on the NASDAQ will be valued at the NASDAQ Official Closing
Price, which may not necessarily represent the last sale price. If there has
been no sale on such exchange or over-the-counter market on such day, the
security will be valued at the mean between the last bid price and last ask
price on such day.
The Company may invest up to 50
percent of its total assets in restricted securities. Restricted securities are
subject to statutory and contractual restrictions on their public resale, which
may make it more difficult to obtain a valuation and may limit the Companys
ability to dispose of them. Investments in restricted securities and other
securities for which market quotations are not readily available will be valued
in good faith by using fair value procedures approved by the Board of Directors.
Such fair value procedures consider factors such as discounts to publicly traded
issues, time until conversion date, securities with similar yields, quality,
type of issue, coupon, duration and rating. If events occur that affect the
value of the Companys 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. The Company did not hold any
restricted securities at November 30, 2012.
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 securitys liquidity and fair value.
Such securities that are convertible or otherwise will become freely tradable
will be valued based on the market value of the freely tradable security less an
applicable discount. Generally, the discount will initially be equal to the
discount at which the Company purchased the securities. To the extent that such
securities are convertible or otherwise become freely tradable within a time
frame that may be reasonably determined, an amortization schedule may be used to
determine the discount.
The Company generally values debt
securities at prices based on market quotations for such securities, except
those securities purchased with 60 days or less to maturity are valued on the
basis of amortized cost, which approximates market value.
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. Foreign Currency
Translation
For foreign currency, investments in
foreign securities, and other assets and liabilities denominated in a foreign
currency, the Company translates these amounts into U.S. dollars on the
following basis:
|
(1)
|
market value of investment
securities, assets and liabilities at the current rate of exchange on the
valuation date and
|
|
|
|
(2)
|
purchases and sales of
investment securities, income and expenses at the relevant rates of
exchange on the respective dates of such
transactions.
|
The Company does not isolate that
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 equity
securities.
D. Foreign Withholding
Taxes
The Company may be subject to taxes
imposed by countries in which it invests with respect to its investment in
issuers existing or operating in such countries. Such taxes are generally based
on income earned. The Company accrues such taxes when the related income is
earned.
E. 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 Companys investments in MLPs
generally are comprised of ordinary income 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 information provided by 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.
During the year ended November 30,
2012, the Company reallocated the amount of 2011 investment income and return of
capital it recognized based on the 2011 tax reporting information received from
the individual MLPs. This reclassification amounted to a decrease in pre-tax net
investment income of approximately $920,000 or $0.146 per share ($577,000 or
$0.092 per share, net of deferred tax benefit), an increase in unrealized
appreciation of investments of approximately $806,000 or $0.128 per share
($505,000 or $0.080 per share, net of deferred tax expense), and an increase in
realized gains of approximately $114,000 or $0.018 per share ($72,000 or $0.012
per share, net of deferred tax expense) for the year ended November 30, 2012.
2012 Annual
Report
13
Notes
to Financial Statements
(Continued)
|
F. Distributions to
Stockholders
Distributions to common stockholders
are recorded on the ex-dividend date. The Company may not declare or pay
distributions to its common stockholders if it does not meet asset coverage
ratios required under the 1940 Act or the rating agency guidelines for its debt
and preferred stock (if any) following such distribution. The character of
distributions to stockholders made during the year may differ from their
ultimate characterization for federal income tax purposes. For tax purposes, the
Companys distributions to common stockholders for the year ended November 30,
2012 were 100 percent qualified dividend income. For book purposes, the source
of the Companys distributions to common stockholders for the year ended
November 30, 2012 was 100 percent return of capital.
G. Federal Income
Taxation
From the Companys inception through
November 30, 2008, the Company qualified as a regulated investment company
(RIC) under the U.S. Internal Revenue Code of 1986, as amended (the Code).
Effective December 1, 2008, the Company is treated as a taxable corporation for
federal and state income tax purposes. The Company, as a corporation, is
obligated to pay federal and state income tax on its taxable income. Currently,
the highest regular marginal federal income tax rate for a corporation is 35
percent; however, the Company anticipates a marginal effective rate of 34
percent due to expectations of the level of taxable income relative to the
federal graduated tax rates, including the tax rate anticipated when temporary
differences reverse. The Company may be subject to a 20 percent federal
alternative minimum tax (AMT) on its federal alternative minimum taxable
income to the extent that its AMT exceeds its regular federal income
tax.
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
MLPs taxable income in computing its own taxable income. The Companys tax
expense or benefit is included in the Statement of Operations based on the
component of income or gains (losses) to which such expense or benefit relates.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance is
recognized if, based on the weight of available evidence, it is more likely than
not that some portion or all of the deferred income tax asset will not be
realized.
H. Offering and Debt Issuance
Costs
Offering costs related to the
issuance of common and preferred stock are charged to additional paid-in capital
when the stock is issued. Debt issuance costs related to long-term debt
obligations are capitalized and amortized over the period the debt is
outstanding.
I. Derivative Financial
Instruments
The Company uses derivative financial
instruments (principally interest rate swap and forward foreign currency
contracts) to manage interest rate and currency risks. The Company has
established policies and procedures for risk assessment and the approval,
reporting and monitoring of derivative financial instrument activities. The
Company does not hold or issue derivative financial instruments for speculative
purposes. All derivative financial instruments are recorded at fair value with
changes in fair value during the reporting period, and amounts accrued under the
agreements, included as unrealized gains or losses in the accompanying Statement
of Operations. Cash settlements under the terms of the interest rate swap and
forward foreign currency contracts and termination of such contracts are
recorded as realized gains or losses in the accompanying Statement of
Operations.
J. Indemnifications
Under the Companys 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 Companys 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.
K. Recent Accounting
Pronouncements
In May 2011, the FASB issued ASU No.
2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in GAAP and the International Financial Reporting Standards
(IFRSs). ASU No. 2011-04 amends FASB ASC Topic 820, Fair Value Measurements
and Disclosures, to establish common requirements for measuring fair value and
for disclosing information about fair value measurements in accordance with GAAP
and IFRSs. ASU No. 2011-04 is effective for fiscal years beginning after
December 15, 2011 and for interim periods within those fiscal years. The Company
has adopted these amendments and they did not have a material impact on the
financial statements.
In December 2011, the FASB issued ASU
2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and
Liabilities. ASU 2011-11 requires new disclosures for recognized financial
instruments and derivative instruments that are either offset on the balance
sheet in accordance with the offsetting guidance in ASC 210-20-45 or ASC
815-10-45 or are subject to an enforceable master netting arrangement or similar
arrangement. ASU 2011-11 is effective for periods beginning on or after January
1, 2013 and must be applied retrospectively. Management is currently evaluating
the impact of these amendments on the financial statements.
3. Concentration of
Risk
Under normal conditions, the Company
will have at least 80 percent of its total assets in equity securities of
companies in the energy sector with their primary operations in North America
(Energy Companies). Energy Companies include companies that derive more than
50 percent of their revenues from transporting, processing, storing,
distributing or marketing natural gas, natural gas liquids, electricity, coal,
crude oil or refined petroleum products, or exploring, developing, managing or
producing such commodities. The Company may invest up to 50 percent of its total
assets in restricted 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 1.00 percent of the Companys 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, if any) (Managed
Assets), in exchange for the investment advisory services provided. The Adviser
waived fees in an amount equal to an annual rate of 0.05 percent of the
Companys average monthly Managed Assets from January 1, 2011 through December
31, 2011.
14
Tortoise North American Energy Corp.
Notes
to Financial Statements
(Continued)
|
U.S. Bancorp Fund Services, LLC
serves as the Companys 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 Companys Managed Assets, 0.01 percent on the next
$500,000,000 of Managed Assets and 0.005 percent on the balance of the Companys
Managed Assets.
Computershare Trust Company, N.A.
serves as the Companys transfer agent and registrar and Computershare Inc.
serves as the Companys dividend paying agent and agent for the automatic
dividend reinvestment plan.
U.S. Bank, N.A. serves as custodian
of the Companys cash and investment securities. The Company pays the custodian
a monthly fee computed at an annual rate of 0.004 percent of the Companys
portfolio assets, plus portfolio transaction fees.
5. Income Taxes
Deferred income taxes reflect the net
tax effect of temporary differences between the carrying amount of assets and
liabilities for financial reporting and tax purposes. Components of the
Companys deferred tax assets and liabilities as of November 30, 2012, are as
follows:
Deferred tax assets:
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
4,848,829
|
Capital loss
carryforwards
|
|
|
2,186,790
|
AMT
credit
|
|
|
33,959
|
Organization costs
|
|
|
41,747
|
State of
Kansas credit
|
|
|
4,055
|
|
|
|
7,115,380
|
Deferred tax
liabilities:
|
|
|
|
Basis reduction of investment
in MLPs
|
|
|
8,286,381
|
Net unrealized gains on
investment securities
|
|
|
27,268,910
|
|
|
|
35,555,291
|
Total net deferred tax
liability
|
|
$
|
28,439,911
|
At November 30, 2012, a valuation
allowance on deferred tax assets was not deemed necessary because the Company
believes it is more likely than not that there is an ability to realize its
deferred tax assets through future taxable income of the appropriate character.
Any adjustments to the Companys estimates of future taxable income will be made
in the period such determination is made. The Company recognizes 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 Companys policy is to record interest
and penalties on uncertain tax positions as part of tax expense. As of November
30, 2012, the Company had no uncertain tax positions and no penalties and
interest were accrued. The Company does not expect any changes to its
unrecognized tax positions in the twelve months subsequent to November 30, 2012.
Tax years subsequent to the year ending November 30, 2008 remain open to
examination by federal and state tax authorities.
Total income tax expense differs from
the amount computed by applying the federal statutory income tax rate of 34
percent to net investment loss and net realized and unrealized gains on
investments for the year ended November 30, 2012, as follows:
Application of
statutory income tax rate
|
|
$
|
7,810,164
|
|
State income taxes, net of
federal tax benefit
|
|
|
746,561
|
|
Change in
deferred tax liability due to change in overall tax rate
|
|
|
28,379
|
|
Dividends received
deduction
|
|
|
(41,995
|
)
|
Total income tax
expense
|
|
$
|
8,543,109
|
|
Total income taxes are computed by
applying the federal statutory rate plus a blended state income tax rate. During
the year, the Company re-evaluated its blended state income tax rate, increasing
the overall rate from 37.19 percent to 37.25 percent due to anticipated state
apportionment of income and gains.
For the year ended November 30, 2012,
the components of income tax expense include the following:
Current tax expense
|
|
|
|
State
|
|
$
|
9,143
|
AMT
|
|
|
3,959
|
Total current tax expense
|
|
|
13,102
|
Deferred tax expense
|
|
|
|
Federal
|
|
|
7,785,778
|
State (net of federal tax
benefit)
|
|
|
744,229
|
Total deferred tax expense
|
|
|
8,530,007
|
Total income tax
expense
|
|
$
|
8,543,109
|
The Company acquired all of the net
assets of Tortoise Gas and Oil Corporation (TGO) on September 14, 2009 in a
tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue Code.
As of November 30, 2012, the Company had a net operating loss for federal income
tax purposes of approximately $13,426,000. This includes a net operating loss of
approximately $7,935,000 from TGO. The net operating loss may be carried forward
for 20 years. If not utilized, this net operating loss will expire as follows:
$2,677,000, $5,258,000, $463,000, $2,247,000, $5,000 and $2,776,000 in the years
ending November 30, 2027, 2028, 2029, 2030, 2031 and 2032, respectively.
Utilization of the net operating loss from TGO is further subject to Section 382
limitations of the Internal Revenue Code, which limit tax attributes subsequent
to ownership changes.
As of November 30, 2012, the Company
had a capital loss carryforward of approximately $5,900,000, which may be
carried forward for 5 years. This amount includes a capital loss of
approximately $1,400,000 from TGO. If not utilized, the capital loss will expire
as follows: $1,400,000 and $4,500,000 in the years ending November 30, 2013 and
2014, respectively. The capital gains for the year ended November 30, 2012 have
been estimated based on information currently available. Such estimate is
subject to revision upon receipt of the 2012 tax reporting information from the
individual MLPs. For corporations, capital losses can only be used to offset
capital gains and cannot be used to offset ordinary income. As of November 30,
2012, an AMT credit of $33,959 was available, which may be credited in the
future against regular income tax. This credit may be carried forward
indefinitely.
As of November 30, 2012, the aggregate cost of securities for
federal income tax purposes was $129,095,042. The aggregate gross unrealized
appreciation for all securities in which there was an excess of fair value over
tax cost was $96,800,494, the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over fair value was $17,659
and the net unrealized appreciation was $96,782,835.
2012 Annual
Report
15
Notes
to Financial Statements
(Continued)
|
6. Fair Value of Financial
Instruments
Various inputs are used in
determining the value of the Companys 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 Companys own
assumptions in determining the fair value of
investments)
|
The inputs or methodology used for
valuing securities are not necessarily an indication of the risk associated with
investing in those securities.
The following table provides the fair
value measurements of applicable Company assets by level within the fair value
hierarchy as of November 30, 2012. These assets are measured on a recurring
basis.
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
Description
|
|
November 30,
2012
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
(a)
|
|
|
$
|
3,767,701
|
|
|
$
|
3,767,701
|
|
$
|
|
|
$
|
|
Master Limited
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Related Companies
(a)
|
|
|
|
222,038,571
|
|
|
|
222,038,571
|
|
|
|
|
|
|
Total Equity Securities
|
|
|
|
225,806,272
|
|
|
|
225,806,272
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term
Investment
(b)
|
|
|
|
71,605
|
|
|
|
71,605
|
|
|
|
|
|
|
Total Assets
|
|
|
$
|
225,877,877
|
|
|
$
|
225,877,877
|
|
$
|
|
|
$
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
Swap Contracts
|
|
|
$
|
1,362,313
|
|
|
$
|
|
|
$
|
1,362,313
|
|
$
|
|
(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 November 30,
2012.
|
The Company did not hold any Level 3
securities during the year ended November 30, 2012.
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 Companys Level 1 investments.
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 securitys 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. 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.
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 Companys
Level 2 liabilities.
The Company utilizes the beginning of
reporting period method for determining transfers between levels. For the year
ended November 30, 2012, Teekay Offshore Partners, L.P. common units in the
amount of $1,371,505 were transferred from Level 2 to Level 1 when they
converted into registered units and quoted prices in active markets were
available. There were no other transfers between levels.
7. Investment
Transactions
For the year ended November 30, 2012,
the Company purchased (at cost) and sold securities (proceeds received) in the
amount of $53,178,902 and $49,260,032 (excluding short-term debt securities),
respectively.
8. Credit Facility
On June 15, 2011, the Company entered
into a 270-day rolling evergreen margin loan facility with Bank of America, N.A.
The terms of the agreement provide for a $40,000,000 facility that is secured by
certain of the Companys assets. Outstanding balances generally will accrue
interest at a variable rate equal to one-month LIBOR plus 0.85 percent and
unused portions of the facility will accrue a fee equal to an annual rate of
0.25 percent.
The average principal balance and
interest rate for the period during which the margin loan facility was utilized
during the year ended November 30, 2012, was approximately $32,900,000 and 1.09
percent, respectively. At November 30, 2012, the principal balance outstanding
was $34,800,000 at an interest rate of 1.06 percent.
Under the terms of the margin loan
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 November 30, 2012, the Company was in compliance with the terms of
the margin loan facility.
16
Tortoise North American Energy Corp.
Notes
to Financial Statements
(Continued)
|
9. 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. 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 net assets of the Company falling
below $48,000,000 or the Company failing to maintain a required 300 percent
asset coverage of the liquidation value of the outstanding debt, then the
Company could be required to make a termination payment to the extent of the
Companys net liability position, in addition to redeeming all or some of the
debt. The Company has segregated a portion of its assets as collateral for the
amount of the net liability of its interest rate swap contracts. Details of the
interest rate swap contracts outstanding as of November 30, 2012, are as
follows:
|
|
|
|
|
|
|
Fixed Rate
|
|
Floating Rate
|
|
|
|
|
|
|
|
Maturity
|
|
Notional
|
|
Paid by the
|
|
Received by
|
|
Unrealized
|
Counterparty
|
|
Date
|
|
Amount
|
|
Company
|
|
the Company
|
|
Depreciation
|
The Bank of Nova Scotia
|
|
09/02/2014
|
|
$
|
5,000,000
|
|
0.654%
|
|
1-month U.S. Dollar LIBOR
|
|
$
|
(36,519
|
)
|
|
The Bank of Nova
Scotia
|
|
09/02/2016
|
|
|
5,000,000
|
|
1.258%
|
|
1-month U.S. Dollar LIBOR
|
|
|
(158,305
|
)
|
|
The Bank of Nova Scotia
|
|
09/02/2018
|
|
|
5,000,000
|
|
1.815%
|
|
1-month U.S. Dollar LIBOR
|
|
|
(293,791
|
)
|
|
The Bank of Nova
Scotia
|
|
09/02/2021
|
|
|
10,000,000
|
|
2.381%
|
|
1-month U.S. Dollar LIBOR
|
|
|
(873,698
|
)
|
|
|
|
|
|
$
|
25,000,000
|
|
|
|
|
|
$
|
(1,362,313
|
)
|
|
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. In addition, if the
counterparty to the interest rate swap contracts defaults, the Company 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 Companys
leverage.
The unrealized depreciation of
interest rate swap contracts in the amount of $961,747 for the year ended
November 30, 2012 is included in the Statement of Operations. Cash settlement
payments under the terms of the interest rate swap contracts in the amount of
$368,512 are recorded as realized losses for the year ended November 30, 2012.
The total notional amount of all open swap agreements at November 30, 2012 is
indicative of the volume of this derivative type for the year ended November 30,
2012.
10. Common Stock
The Company has 100,000,000 shares of
capital stock authorized and 6,301,191 shares outstanding at November 30, 2012.
Transactions in common stock for the year ended November 30, 2012, were as
follows:
Shares at
November 30, 2011
|
|
6,295,750
|
Shares issued through
reinvestment of distributions
|
|
5,441
|
Shares at
November 30, 2012
|
|
6,301,191
|
11. Subsequent
Events
The Company 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.
2012 Annual
Report
17
Report of Independent Registered Public Accounting
Firm
|
The Board of Directors and
Stockholders
Tortoise North American Energy Corporation
We have audited the accompanying
statement of assets and liabilities of Tortoise North American Energy
Corporation (the Company), including the schedule of investments, as of November
30, 2012, 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. These financial statements and financial highlights
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of November 30, 2012, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial
statements and financial highlights referred to above present fairly, in all
material respects, the financial position of Tortoise North American Energy
Corporation at November 30, 2012, the results of its operations and its cash
flows for the year then ended, the changes in its 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, in conformity with U.S. generally accepted
accounting principles.
Kansas City, Missouri
January 22,
2013
18
Tortoise North American Energy Corp.
Company Officers and Directors
(Unaudited)
November 30,
2012
|
|
|
Position(s) Held with
|
|
|
|
Number of
|
|
Other Public
|
|
|
Company, Term of
|
|
|
|
Portfolios in Fund
|
|
Company
|
|
|
Office and Length of
|
|
|
|
Complex Overseen
|
|
Directorships
|
Name and Age*
|
|
Time Served
|
|
Principal Occupation During Past Five
Years
|
|
by Director
(1)
|
|
Held
|
Independent
Directors
|
Conrad S.
Ciccotello
(Born 1960)
|
|
Director since
2005
|
|
Associate Professor of
Risk Management and Insurance, Robinson College of Business, Georgia State
University (faculty member since 1999); 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.
|
|
7
|
|
CorEnergy
Infrastructure
Trust,
Inc.
(formerly
Tortoise
Capital
Resources
Corporation)
|
|
|
|
|
|
|
|
|
|
John R.
Graham
(Born 1945)
|
|
Director since 2005
|
|
Executive-in-Residence and Professor of Finance (Part-time),
College of Business Administration, Kansas State University (has served as
a professor or adjunct professor since 1970); Chairman of the Board,
President and CEO, Graham Capital Management, Inc. (primarily a real
estate development, investment and venture capital company) and Owner of
Graham Ventures (a business services and venture capital firm); Part-time
Vice President Investments, FB Capital Management, Inc. (a registered
investment adviser), since 2007. Formerly, CEO, Kansas Farm Bureau
Financial Services, including seven affiliated insurance or financial
service companies (1979-2000).
|
|
7
|
|
CorEnergy
Infrastructure
Trust,
Inc.
(formerly
Tortoise
Capital
Resources
Corporation)
|
|
|
|
|
|
|
|
|
|
Charles E.
Heath
(Born 1942)
|
|
Director since
2005
|
|
Retired in 1999.
Formerly, Chief Investment Officer, GE Capitals Employers Reinsurance
Corporation (1989-1999). Chartered Financial Analyst (CFA) designation
since 1974.
|
|
7
|
|
CorEnergy
Infrastructure
Trust,
Inc.
(formerly
Tortoise
Capital
Resources
Corporation)
|
|
|
|
|
|
|
|
|
|
(1)
|
This number includes Tortoise Energy
Infrastructure Corporation (TYG), Tortoise Energy Capital Corporation
(TYY), Tortoise Power and Energy Infrastructure Fund, Inc. (TPZ),
Tortoise MLP Fund, Inc. (NTG), Tortoise Pipeline & Energy Fund, Inc.
(TTP), Tortoise Energy Independence Fund, Inc. (NDP) and the Company.
Our Adviser also serves as the investment adviser to TYG, TYY, TPZ, NTG,
TTP
and NDP.
|
*
|
The address of each director and officer
is 11550 Ash Street, Suite 300, Leawood, Kansas
66211.
|
2012 Annual
Report
19
Company Officers and Directors
(Unaudited) (Continued)
November 30, 2012
|
|
|
Position(s) Held
with
|
|
|
|
Number of
|
|
Other
Public
|
|
|
Company, Term
of
|
|
|
|
Portfolios in
Fund
|
|
Company
|
|
|
Office and Length
of
|
|
|
|
Complex
Overseen
|
|
Directorships
|
Name and
Age*
|
|
Time
Served
|
|
Principal
Occupation During Past Five Years
|
|
by
Director
(1)
|
|
Held
|
Interested Directors and
Officers
(2)
|
H. Kevin
Birzer
(Born 1959)
|
|
Director
and
Chairman of the
Board since 2005
|
|
Managing Director of
our Adviser since 2002; Member, Fountain Capital Management, LLC
(Fountain Capital) (1990-May 2009); Director and Chairman of the Board
of each of TYG, TYY, TPZ, NTG, TTP and NDP since its inception; Director
and Chairman of the Board of Tortoise Capital Resources Corporation
(TTO) from its inception through November 30, 2011. CFA designation
since 1988.
|
|
7
|
|
None
|
|
|
|
|
|
|
|
|
|
Terry Matlack
(Born
1956)
|
|
Chief Executive Officer
since May
2011;
Director since
November 12, 2012
|
|
Managing Director of
our Adviser since 2002; Director of each of the Company, TYY, TYG, TPZ,
and TTO from its inception to September 15, 2009; Director of each of TYG,
TYY, TPZ, NTG, TTP and NDP since November 12, 2012; Chief Executive
Officer of NTG since 2010, of each of TYG, TYY, and TPZ since May 2011,
and of each of TTP and NDP since its inception; Chief Financial Officer of
each of TYY, TYG, TPZ, and the Company from its inception to May 2011 and
of TTO from its inception to June 2012. CFA designation since
1985.
|
|
7
|
|
None
|
|
|
|
|
|
|
|
|
|
P. Bradley Adams
(Born
1960)
|
|
Chief Financial Officer
since May
2011
|
|
Director of Financial Operations of
the Adviser since 2005; Chief Financial Officer of NTG since 2010, of each
of TYG, TYY and TPZ since May 2011, and of each of TTP and NDP since its
inception; Assistant Treasurer of each of the Company, TYG and TYY 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
|
|
|
|
|
|
|
|
|
|
Zachary A.
Hamel
(Born 1965)
|
|
Senior Vice
President
since April 2007
|
|
Managing Director of
our Adviser since 2002; Joined Fountain Capital in 1997 and was a Partner
there from 2001 through September 2012; President of NTG since 2010, of
each of TYG, TYY and TPZ since May 2011, and of each of TTP and NDP since
its inception; Senior Vice President of each of TYY and TPZ from its
inception to May 2011, of TYG from 2007 to May 2011 and of TTO from 2005
through November 2011. CFA designation since 1998.
|
|
N/A
|
|
None
|
|
|
|
|
|
|
|
|
|
Kenneth P. Malvey
(Born
1965)
|
|
Senior Vice President
since April
2007;
Treasurer since
November 2005
|
|
Managing Director of our Adviser since
2002; Joined Fountain Capital in 2002 and was a Partner there from 2004
through September 2012; Treasurer of each of TYG and TYY since 2005, of
each of TPZ, NTG, TTP and NDP since its inception and of TTO from 2005
through November 2011; Senior Vice President of each of TYY, TPZ, NTG, TTP
and NDP since its inception, of TYG since 2007, and of TTO from inception
through November 2011. CFA designation since 1996.
|
|
N/A
|
|
None
|
|
|
|
|
|
|
|
|
|
Robert Thummel
(Born
1972)
|
|
President
since
September 2008
|
|
Senior Investment
Analyst and Director of the Adviser; Joined the Adviser in 2004 as an
Investment Analyst; Previously, Director of Finance at KLT Inc., a
subsidiary of Great Plains Energy (1998-2004); Senior Auditor at Ernst
& Young LLP (1995-1998).
|
|
N/A
|
|
None
|
|
|
|
|
|
|
|
|
|
David J. Schulte
(Born
1961)
|
|
Senior Vice President
since May
2011
|
|
Managing Director of our Adviser since
2002; Managing Director of Corridor InfraTrust Management, LLC, an
affiliate of the Adviser; President and Chief Executive Officer of each of
TYG, TYY and TPZ from its inception to May 2011; Chief Executive Officer
of the Company from 2005 to May 2011; President of the Company from 2005
to September 2008; Chief Executive Officer of TTO since 2005 and President
of TTO from 2005 to April 2007 and since June 2012; Senior Vice President
of NTG since 2010, of each of TYG, TYY and TPZ since May 2011, and of each
of TTP and NDP since its inception. CFA designation since 1992.
|
|
N/A
|
|
CorEnergy
Infrastructure
Trust,
Inc.
(formerly
Tortoise
Capital
Resources
Corporation)
|
|
|
|
|
|
|
|
|
|
(1)
|
This number includes TYG, TYY, TPZ, NTG,
TTP, NDP and the Company. Our Adviser also serves as the investment
adviser to TYG, TYY, TPZ, NTG, TTP and NDP.
|
(2)
|
As a result of their respective
positions held with our Adviser or its affiliates, these individuals are
considered interested persons within the meaning of the 1940
Act.
|
*
|
The address of each director and officer
is 11550 Ash Street, Suite 300, Leawood, Kansas
66211.
|
20
Tortoise North American Energy Corp.
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 year ended November 30, 2012, the
aggregate compensation paid by the Company to the independent directors was
$63,000. 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 Companys actual results are the performance of the
portfolio of stocks held by it, the conditions in the U.S. and international
financial, petroleum and other markets, the price at which shares of the Company
will trade in the public markets and other factors discussed in filings with the
SEC.
Proxy Voting
Policies
A description of the policies and
procedures that the Company uses to determine how to vote proxies relating to
portfolio securities owned by the Company and information regarding how the
Company voted proxies relating to the portfolio of securities during the
12-month period ended June 30, 2012 is available to stockholders (i) without
charge, upon request by calling the Company at (913) 981-1020 or toll-free at
(866) 362-9331 and on the Companys Web site at www.tortoiseadvisors.com; and
(ii) on the SECs Web site at www.sec.gov.
Form N-Q
The Company files its complete
schedule of portfolio holdings for the first and third quarters of each fiscal
year with the SEC on Form N-Q. The Companys Form N-Q is available without
charge upon request by calling the Company at (866) 362-9331 or by visiting the
SECs Web site at www.sec.gov. In addition, you may review and copy the
Companys Form N-Q at the SECs 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 Companys Form N-Qs are also
available on the Companys Web site at www.tortoiseadvisors.com.
Statement of Additional
Information
The Statement of Additional
Information (SAI) includes additional information about the Companys
directors and is available upon request without charge by calling the Company at
(866) 362-9331 or by visiting the SECs Web site at www.sec.gov.