Certifications
Each Fund’s Chief Executive Officer has submitted to the New York
Stock Exchange the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual.
Each Fund has filed with the SEC, as an exhibit to its most recently
filed Form N-CSR, the certification of its Chief Executive Officer and Principal Financial Officer required by Section 302 of
the Sarbanes-Oxley Act.
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2022 Annual Report | November 30, 2022 |
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Additional Information
(unaudited)
(continued) |
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Privacy Policy
In order to conduct its business, each Fund collects and maintains certain
nonpublic personal information about its stockholders of record with respect to their transactions in shares of each Fund’s
securities. This information includes the stockholder’s address, tax identification or Social Security number, share balances,
and distribution elections. We do not collect or maintain personal information about stockholders whose share balances of our
securities are held in “street name” by a financial institution such as a bank or broker.
We do not disclose any nonpublic personal information about you, the
Funds’ other stockholders or the Funds’ former stockholders to third parties unless necessary to process a transaction,
service an account, or as otherwise permitted by law.
To protect your personal information internally, we restrict access
to nonpublic personal information about the Funds’ stockholders to those employees who need to know that information to
provide services to our stockholders. We also maintain certain other safeguards to protect your nonpublic personal information.
Repurchase Disclosure
Notice is hereby given in accordance with Section 23(c) of the 1940
Act, that each Fund may from time to time purchase shares of its common stock in the open market.
Automatic Dividend Reinvestment
Each of TTP, NDP and TPZ have an Automatic Dividend Reinvestment Plan
(each, a “Plan”). Each Plan allows participating common stockholders to reinvest distributions, including dividends,
capital gains and return of capital in additional shares of the Fund’s common stock.
If a stockholder’s shares are registered directly with the Fund
or with a brokerage firm that participates in the Fund’s Plan, all distributions are automatically reinvested for stockholders
by the Agent in additional shares of common stock of the Fund (unless a stockholder is ineligible or elects otherwise). Stockholders
holding shares that participate in the Plan in a brokerage account may not be able to transfer the shares to another broker and
continue to participate in the Plan. Stockholders who elect not to participate in the Plan will receive all distributions payable
in cash paid by check mailed directly to the stockholder of record (or, if the shares are held in street or other nominee name,
then to such nominee) by Computershare, as dividend paying agent. Distributions subject to tax (if any) are taxable whether or
not shares are reinvested.
If on the distribution payment date the net asset value per share of
the common stock is equal to or less than the market price per share of common stock plus estimated brokerage commissions, the
Fund will issue additional shares of common stock to participants. The number of shares will be determined by the greater of the
net asset value per share or 95 percent of the market price. Otherwise, shares generally will be purchased on the open market
by the Agent as soon as possible following the payment date or purchase date, but in no event later than 30 days after such date
except as necessary to comply with applicable law. There are no brokerage charges with respect to shares issued directly by the
Fund as a result of distributions payable either in shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Agent’s open-market purchases in connection with the reinvestment of
distributions or optional cash investments. If a participant elects to have the Agent sell part or all of his or her common stock
and remit the proceeds, such participant will be charged a transaction fee of $15.00 plus his or her pro rata share of brokerage
commissions on the shares sold.
Participation is completely voluntary. Stockholders may elect not to
participate in the Plan, and participation may be terminated or resumed at any time without penalty, by giving notice in writing,
by telephone or Internet to Computershare, the Plan Agent, at the address set forth below. Such termination will be effective
with respect to a particular distribution if notice is received prior to such record date.
Additional information about the Plan may be obtained by writing
to Computershare Trust Company, N.A, P.O. Box 30170, College Station, TX 77842-3170. You may also contact Computershare by
phone at (800) 426-5523 or visit their Web site at www.computershare.com.
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Additional Information
(unaudited)
(continued) |
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Approval of the Investment Advisory Agreements for all Funds and
the Sub-Advisory Agreement for TEAF
In approving the renewal of the respective Investment Advisory Agreement
of each of TPZ, TTP, NDP and TEAF in November 2022, and the investment sub-advisory agreement between the Adviser and Ecofin Advisors
Limited (the “Sub-Adviser”) with respect to TEAF (the “TEAF Investment Sub-Advisory Agreement”), the Board
followed their established process. As part of this process, the directors who are not “interested persons” (as defined
in the Investment Company Act of 1940) of the fund (“Independent Directors”) requested and received extensive data
and information from the Adviser concerning the fund and the services provided to it by the Adviser under the Investment Advisory
Agreement, including information from independent, third-party sources, regarding the factors considered in their evaluation,
and with respect to TEAF, information concerning the services provided by the Sub-Adviser under the TEAF Investment Sub-Advisory
Agreement. Before the Independent Directors voted on approval of the Investment Advisory Agreement and the TEAF Investment Sub-Advisory
Agreement, the Independent Directors met with independent legal counsel during an executive session and discussed the agreements
and related information.
Factors Considered for Each Fund
The Board, including the Independent Directors, considered and evaluated
all the information provided by the Adviser. The Board, including the Independent Directors, did not identify any single factor
as being all-important or controlling, and individual directors may have attributed different levels of importance to different
factors. In deciding to renew the fund’s agreement, the decision of the Board, including the Independent Directors, was
based on the following factors.
Nature, Extent and Quality of Services Provided. The Board
considered information regarding the history, qualification and background of the Adviser, the Sub-Adviser, and the individuals
primarily responsible for the portfolio management of the fund. Additionally, the Board considered the quality and extent of the
resources devoted to research and analysis of the fund’s actual and potential investments, including the research and decision-making
processes utilized by the Adviser and Sub-Adviser, as well as risk oversight and the methods adopted to seek to achieve compliance
with the investment objectives, policies and restrictions of the fund, and meeting regulatory requirements. Further, the Board
considered the quality and depth of the Adviser and Sub-Adviser personnel (including the number and caliber of portfolio managers
and research analysts involved and the size and experience of the investment, accounting, trading, client service and compliance
teams dedicated to the fund), and other Adviser and Sub-Adviser resources, use of affiliates of the Adviser, and the particular
expertise with respect to energy companies, MLP markets and financing (including private financing). The Board also considered
the Adviser’s efforts to reduce the fund’s market price discount to net asset value, and to manage the use of leverage
in the fund.
In addition to advisory services, the Board considered the quality of
the administrative and other non-investment advisory services provided to the fund. The Adviser provides the fund with certain
services (in addition to any such services provided to the fund by third parties) and officers and other personnel as are necessary
for the operations of the fund. In particular, the Adviser provides the fund with the following administrative services including,
among others: (i) preparing disclosure documents, such as periodic stockholder reports and the prospectus and the statement of
additional information in connection with public offerings; (ii) communicating with analysts to support secondary market analysis
of the fund; (iii) oversight of daily accounting and pricing; (iv) preparing periodic filings with regulators and stock exchanges;
(v) overseeing and coordinating the activities of other service providers, including with respect to TEAF, the affiliated Sub-Adviser;
(vi) organizing Board meetings and preparing the materials for such Board meetings; (vii) providing compliance support; (viii)
furnishing analytical and other support to assist the Board in its consideration of strategic issues; (ix) the responsible handling
of the leverage target; and (x) performing other administrative services for the operation of the fund, such as press releases,
fact sheets, quarterly energy calls and podcasts, and educational materials, leverage financing, tax reporting, tax management,
fulfilling regulatory filing requirements and investor relations services.
The Board also reviewed information received from the Adviser and the
fund’s Chief Compliance Officer (the “CCO”) regarding the compliance policies and procedures established pursuant
to the 1940 Act and their applicability to the fund, including the fund’s Code of Ethics.
The Board, including the Independent Directors, concluded that the nature
of the fund and the specialized expertise of the Adviser in the energy market for each of TTP, NDP and TPZ, and essential asset
sectors with respect to TEAF, as well as the nature, extent and quality of services provided by the Adviser, and in addition with
respect to TEAF the Sub-Adviser, to the fund, made the Adviser qualified to serve as the adviser, and with respect to TEAF, the
Sub-Adviser qualified to serve as the sub-adviser. The Independent Directors recognized that the Adviser’s commitment to
a long-term investment horizon correlated well to the investment strategy of the fund.
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2022 Annual Report | November 30, 2022 |
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Additional Information
(unaudited)
(continued) |
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Investment Performance of the Fund and the Adviser, Costs of the
Services To Be Provided and Profits To Be Realized by the Adviser and its Affiliates from the Relationship, and Fee Comparisons.
The Board reviewed and evaluated information regarding the fund’s performance and the performance of other Adviser
accounts (including other investment companies), and information regarding the nature of the markets during the performance period,
with a particular focus on midstream equity for TTP, on the energy companies for NDP, on power and energy infrastructure for TPZ,
and on the essential asset sectors with respect to TEAF. The Board considered the fund’s investment performance against
peer funds for the following periods: one year, three year, five year, ten year and since inception for each of TTP, NDP and TPZ,
for one year, three year and since inception for TEAF, and for each of 2020, 2021 and fiscal year-to-date 2022 for each of TTP,
NDP, TPZ and TEAF, as well as against specialized sector (including a custom composite of sector indices (“custom composite”)
for TPZ) and more general market indices for the same periods for the fund. The Board also considered senior management’s
and portfolio managers’ analysis of the reasons for any over-performance or underperformance against its peers and/or sector
market indices, as applicable. The Board noted that for the relevant periods, based on NAV: TTP underperformed the median for
their peers in all periods. TTP underperformed the specialized sector market indices and the general market index in all periods
except the one year period and 2021, and with respect to the generalized market index in the fiscal year-to-date 2022 period where
they outperformed these indices, and TTP outperformed the specialized indices for the fiscal year-to-date 2022 period. NDP outperformed
its peer for the one year period, 2021 and fiscal year to date 2022 period and underperformed its peer for the three year, 5 year
and since inception periods and for 2020. NDP underperformed the specialized sector market indices and the general market index
except for the one year period and 2021, and for the general market index the fiscal year-to-date 2022 period, where it outperformed
those indices. TPZ performed in line with the median for its peers in 2021 and outperformed the median for its peers in the fiscal
year-to-date 2022 period, but underperformed in all other periods. TPZ underperformed the custom composite for all periods except
the one year period, 2021 and fiscal year-to-date 2022 period, where it outperformed the composite, and underperformed the general
market index in all periods except the one year and fiscal year-to date 2022 periods where it outperformed the index. TEAF performed
in line with the median for its peers in the one-year period, outperformed the median of its peers in 2020 and underperformed
the median in the three year, since inception, 2021 and fiscal year-to-date 2022 periods. TEAF underperformed the specialized
sector market index in all periods except for 2020 and 2021 where it outperformed and performed in line with the index, respectively,
and underperformed the general market index in all applicable periods except for the one year and fiscal year-to-date 2022 periods
where it outperformed the index. The Board noted that for the relevant periods, based on market price, TTP underperformed the
median for their peers, except for the one year period where they outperformed. NDP outperformed its peer for the one year, 2021
and fiscal year-to-date period and underperformed for the remaining periods. TPZ underperformed the median for its peers except
for the one year, 2021, and the fiscal year-to-date period, where it outperformed the median of its peers. TEAF underperformed
the median for its peers for the three year and since inception periods and for 2021, and outperformed the median for its peers
for the one year period, 2020 and the fiscal year to date period. For TPZ, the Board noted the lack of peers and sector market
indices with similar strategies to the fund and also took into account the custom composite to better reflect the strategy of
the fund. The Adviser believes that performance relative to the applicable custom composite for TPZ is an appropriate performance
metric for the fund. The Board also noted that the custom composite for TPZ and the sector market indices are pre-expenses, in
contrast to the fund and its peers. The Board also noted differences across the peer universe in distribution and leverage strategies,
including the fund’s focus on sustainable distributions and leverage strategy, and took into account that stockholders,
in pursuing their investment goals and objectives, may have purchased their shares based upon the reputation and the investment
style, long-term philosophy and strategy of the Adviser. The Board also considered discussions with the Adviser regarding a variety
of initiatives for the fund, including the Adviser’s plans to continue aftermarket support and investor communications regarding
recent market price performance. Based upon their review and also considering market conditions and volatility in 2022, the Board,
including the Independent Directors, concluded that the fund’s performance has been reasonable based on the fund’s
strategy and compared to other closed-end funds that focus on the applicable sectors discussed above.
The Adviser provided detailed information concerning its cost of providing
services to the fund, its profitability in managing the fund, its overall profitability, and its financial condition. The Board
reviewed the methodology used to prepare this financial information. This financial information regarding the Adviser is considered
in order to evaluate the Adviser’s financial condition, its ability to continue to provide services under the Investment
Advisory Agreement, and the reasonableness of the current management fee, and was, to the extent possible, evaluated in comparison
to other more specialized investment advisers.
The Board considered and evaluated information regarding fees charged
to, and services provided to, other investment companies advised by the Adviser (including the impact of any fee waiver or reimbursement
arrangements and any expense reimbursement arrangements), and fees charged to separate institutional accounts and other accounts
managed by the Adviser. The information provided to the Board discussed the significant differences in scope of services provided
to the fund and to the Adviser’s other non-closed-end fund clients.The Board considered the fee comparisons in light of
the different services provided in managing these other types of clients. The Board considered and evaluated the information comparing
the fund’s contractual annual management fee and overall expenses with a peer group of comparable closed-end funds with
similar investment objectives and strategies, including other MLP or energy investment companies, as
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Additional Information
(unaudited)
(continued) |
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applicable depending on the fund, and with respect to TEAF with a group
of comparable funds that are multi strategy including significant allocations to private investments as well as funds structured
as a term fund, in each case as determined by the Adviser. The Board also considered the management fee (based on total managed
assets) charged by the Adviser to other Tortoise funds compared to the management fee of TEAF. The Board noted that the management
fee paid by TEAF is higher than the management fees paid by the other Tortoise funds, but were advised by the Adviser that there
are additional portfolio management challenges in managing a multi-strategy defined term fund such as TEAF. The Board considered
the affiliated relationship of the Adviser to the Sub-Adviser for TEAF, and the in-depth knowledge of the Adviser of the Sub-Adviser’s
operations, and the oversight of the Sub-Adviser by the Adviser. The Board also considered that the sub-advisory fee to Sub-Adviser
is paid by the Adviser and TEAF incurs no additional expense for the Sub-Adviser’s services. Given the specialized universe
of managers and funds fitting within the criteria for the peer group as well as a lack of reliable, consistent third-party data,
the Adviser did not believe that it would be beneficial to engage the services of an independent third-party to prepare the peer
group analysis, and the Board, including the Independent Directors, concurred with this approach. The Adviser provided information
on the methodology used for determining the peer group.
The Board, including the Independent Directors, concluded that the fees
(including the management fee) and expenses that the fund is paying under the Investment Advisory Agreement, as well as the operating
expense ratios of the fund, are reasonable given the nature, extent and quality of services provided under the Investment Advisory
Agreement and that such fees and expenses are reasonable compared to the fees charged by advisers to comparable funds. The Board,
including the Independent Directors, concluded that the fees payable by the Adviser to the Sub-Adviser under the TEAF Sub-Advisory
Agreement are reasonable given the nature, extent and quality of services provided under the TEAF Sub-Advisory Agreement.
Economies of Scale. The Board considered information from
the Adviser concerning whether economies of scale would be realized as the fund grows, and whether fee levels reflect any economies
of scale for the benefit of the fund’s stockholders. The Board, including the Independent Directors, concluded that economies
of scale are difficult to measure and predict overall. Accordingly, the Board reviewed other information, such as year-over-year
profitability of the Adviser generally, the profitability of its management of the fund, and the fees of competitive funds not
managed by the Adviser over a range of asset sizes. The Board, including the Independent Directors, concluded the Adviser is appropriately
sharing any economies of scale through its fee structure and through reinvestment in its business resources to provide stockholders
additional content and services.
Collateral Benefits Derived by the Adviser. The Board
reviewed information from the Adviser concerning collateral benefits it receives as a result of its relationship with the fund.
The Board, including the Independent Directors, concluded that the Adviser generally does not directly use the fund’s or
stockholder information to generate profits in other lines of business, and therefore does not derive any significant collateral
benefits from them.
The Board did not, with respect to their deliberations concerning their
approval of the continuation of the Investment Advisory Agreement, consider the benefits the Adviser may derive from relationships
the Adviser may have with brokers through soft dollar arrangements because the Adviser does not employ any third party soft dollar
arrangements in rendering its advisory services to the fund. The Adviser receives unsolicited research from some of the brokers
with whom it places trades on behalf of clients, however, the Adviser has no arrangements or understandings with such brokers
regarding receipt of research in return for commissions. The Adviser does not consider this research when selecting brokers to
execute fund transactions and does not put a specific value on unsolicited research, nor attempt to estimate and allocate the
relative costs or benefits among clients.
Conclusions of the Directors
The Board, including the Independent Directors, concluded that no single
factor reviewed was determinative as the principal factor in whether to approve the Investment Advisory Agreement and, with respect
to TEAF, the TEAF Sub-Advisory Agreement. The process, as discussed above, describes only the most important factors, but not
all of the matters, considered by the Board. On the basis of such information as the Board considered necessary to the exercise
of its reasonable business judgment and its evaluation of all of the factors described above, and after discussion and as assisted
by the advice of legal counsel that is independent of the Adviser, the Independent Directors determined that each factor, in the
context of all of the other factors they considered, favored approval of the Investment Advisory Agreement and with respect to
TEAF, the TEAF Sub-Advisory Agreement. It was noted that it was the judgment of the Board, including the Independent Directors,
that approval of the Investment Advisory Agreement and, with respect to TEAF, the TEAF Sub-Advisory Agreement, was in the best
interests of the fund and its stockholders. The Board, and separately, all of the Independent Directors, therefore unanimously
concluded that the Investment Advisory Agreement between the fund and the Adviser and, with respect to TEAF, the TEAF Sub-Advisory
Agreement between the Adviser and Sub-Adviser, is fair and reasonable in light of the services provided and should be renewed.
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2022 Annual Report | November 30, 2022 |
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Additional Information
(unaudited)
(continued) |
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Changes to Portfolio Managers
As of the date of filing of this annual report, Maneesh Jhunjhunwala,
Gregory Murphy, Vince Cubbage, Ed Russell, Jerry Polacek, Matthew Ordway, Prashanth Prakash are no longer portfolio managers for
TEAF, and Eileen Fargis has been added as a member of the portfolio management team for TEAF. Ms. Fargis has served as a Managing
Director of the Adviser since October 2022. Previously she served as Managing Director, Head of Investments of InterEnergy Holdings
from November 2017 through October 2022; Co-Head, IFC African, Latin American and Caribbean Fund of IFC Asset Management Company
from January 2010 through October 2017.
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Additional Information (unaudited)
(continued) |
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Fund Investment Objectives,
Policies and Risks
Changes in the Last Fiscal
Year
During each Fund’s most
recent fiscal year, there were no material changes in the Fund’s investment objectives or policies that have not been approved
by shareholders or in the principal risk factors associated with investment in the Fund.
Investment Objectives and
Policies
Tortoise Power and Energy
Infrastructure Fund, Inc. (“TPZ”)
TPZ’s primary investment
objective is to provide a high level of current income, with a secondary objective of capital appreciation. TPZ invests primarily
in power and energy infrastructure companies. TPZ seeks to invest in fixed income and dividend-paying equity securities of power
and energy infrastructure companies that provide stable and defensive characteristics throughout economic cycles.
TPZ’s investment approach
emphasizes current income, low volatility and minimization of downside risk. Under normal circumstances, the fund invests at least
80% of its total assets (including assets obtained through leverage) in securities of power and energy infrastructure companies.
Power infrastructure companies use asset systems to provide electric power generation (including renewable energy), transmission
and distribution. Energy infrastructure companies use a network of pipeline assets to transport, store, gather and/or process
crude oil, refined petroleum products (including biodiesel and ethanol), natural gas or natural gas liquids.
Under normal circumstances,
the fund will invest a minimum of 51% of its total assets in fixed income securities.
The fund will not invest more
than 25% of its total assets in non-investment grade rated fixed income securities or more than 15% of its total assets in restricted
securities that are ineligible for resale under Rule 144A, all of which may be illiquid securities. The fund may invest up to
10% of its total assets in securities issued by non-U.S. issuers (including Canadian issuers). The fund will not engage in short
sales. These investment restrictions described above apply at the time of purchase, and the fund will not be required to reduce
a position due solely to market value fluctuations.
As used for the purpose of each
non-fundamental investment policy above, the term “total assets” includes any assets obtained through leverage. TPZ’s
Board of Directors may change its non-fundamental investment policies without stockholder approval and will provide notice to
stockholders of material changes in such policies (including notice through stockholder reports). Any change in the policy of
investing under normal circumstances at least 80% of TPZ’s total assets (including assets obtained through leverage) in
the securities of companies that derive more than 50% of their revenue from power or energy infrastructure operations requires
at least 60 days’ prior written notice to stockholders. Unless otherwise stated, the investment restrictions described above
apply at the time of purchase, and TPZ will not be required to reduce a position due solely to market value fluctuations.
In addition, to comply with
federal tax requirements for qualification as a RIC, TPZ’s investments will be limited so that at the close of each quarter
of each taxable year (i) at least 50% of the value of its total assets is represented by cash and cash items, U.S. Government
securities, the securities of other RICs and other securities, with such other securities limited for purposes of such calculation,
in respect of any one issuer, to an amount not greater than 5% of the value of its total assets and not more than 10% outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of TPZ’s total assets is invested in the securities
of any one issuer (other than U.S. Government securities or the securities of other RICs), the securities (other than the securities
of other RICs) of any two or more issuers that TPZ controls and that are determined to be engaged in the same business or similar
or related trades or businesses, or the securities of one or more qualified publicly traded partnerships (which includes MLPs).
These tax-related limitations may be changed by the Board of Directors to the extent appropriate in light of changes to applicable
tax requirements.
Although inconsistent with its
investment objectives, under adverse market or economic conditions or pending investment of offering or leverage proceeds, TPZ
may invest 100% of its total assets in cash, cash equivalents, securities issued or guaranteed by the U.S. government or its instrumentalities
or agencies, short-term money market instruments, short-term fixed income securities, certificates of deposit, bankers’
acceptances and other bank obligations, commercial paper or other liquid fixed income securities. The yield on these securities
may be lower than the returns on the securities in which TPZ will otherwise invest or yields on lower-rated, fixed income securities.
To the extent TPZ invests in these securities on a temporary basis or for defensive purposes, it may not achieve its investment
objectives.
Leverage. TPZ’s
policy is to utilize leverage in an amount that on average represents approximately 20% of its total assets. TPZ considers market
conditions at the time leverage is incurred and monitors for asset coverage ratios relative to 1940 Act requirements and financial
covenants on an ongoing basis. Leverage as a percent of total assets will vary depending on market conditions, but will normally
range between 15% - 25%.
TPZ may use interest rate transactions,
for hedging purposes only, in an attempt to reduce the interest rate risk arising from its leveraged capital structure. Interest
rate transactions that TPZ may use for hedging purposes may expose it to certain risks that differ from the risks associated with
its portfolio holdings.
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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Tortoise Pipeline & Energy
Fund, Inc. (“TTP”)
TTP has an investment objective
of providing stockholders a high level of total return with an emphasis on current distributions. TTP invests primarily in equity
securities of pipeline companies that transport natural gas, natural gas liquids (NGLs), crude oil and refined products and, to
a lesser extent, in other energy infrastructure companies.
TTP’s investment approach
emphasizes total return potential through current income and growth, low volatility and downside risk minimization. Under normal
circumstances, TTP invests at least 80% of its total assets (including assets obtained through leverage) in equity securities
of pipeline and other energy infrastructure companies. More than 75% of these companies will generally be structured as corporations
or limited liability companies domiciled in the U.S. or Canada.
As a regulated investment company,
TTP may invest up to 25% of its total assets in MLPs. TTP may invest up to 30% of its total assets in unregistered or otherwise
restricted securities, primarily through direct investments, and will not invest in private companies. TTP may invest up to 30%
of its total assets in non-U.S. issuers (including Canadian issuers). TTP may invest up to 20% of its total assets in debt securities,
including those rated below investment grade. TTP will not invest more than 10% of its total assets in any single issuer and will
not engage in short sales. These investment restrictions described above apply at the time of purchase, and TTP will not be required
to reduce a position due solely to market value fluctuations.
TTP may also write (sell) covered
call options to seek to enhance long-term return potential across economic environments, increase current income and mitigate
portfolio risk through option income. TTP’s covered call strategy focuses on other energy companies that the Adviser believes
are integral links in the value chain for pipeline companies. The fund typically aims to write call options that are approximately
5% - 15% out-of-the-money on approximately 20% of the portfolio, although it may adjust these targets depending on market volatility
and other market conditions.
Leverage. TTP’s
policy is to utilize leverage in an amount that on average represents approximately 25% of its total assets. TTP considers market
conditions at the time leverage is incurred and monitors for asset coverage ratios relative to 1940 Act requirements and financial
covenants on an ongoing basis. Leverage as a percent of total assets will vary depending on market conditions, but will normally
range between 20% - 30%.
Tortoise Energy Independence
Fund, Inc. (“NDP”)
NDP has an investment objective
of providing stockholders a high level of total return with an emphasis on current distributions. NDP invests primarily in equity
securities of upstream North American energy companies that engage in the exploration and production of crude oil, condensate,
natural gas and natural gas liquids that generally have a significant presence in North American oil and gas fields, including
shale reservoirs.
Under normal circumstances,
NDP will invest at least 80% of its total assets in equity securities of North American energy companies, including at least 50%
of its total assets in equity securities of upstream energy companies. “Total assets” are defined as the value of
securities, cash or other assets held, including securities or assets obtained through leverage, and interest accrued but not
yet received. NDP will invest in equity securities that are publicly traded on an exchange or in the over-the-counter (“OTC”)
market, primarily consisting of common stock, but also including, among others, master limited partnerships (“MLPs”)
and limited liability company (“LLC”) common units
NDP may invest up to 35% of its total assets in securities of non-U.S.
issuers (including Canadian issuers). An issuer of a security will generally be considered to be a non-U.S. issuer if it is organized
under the laws of, or maintains its principal place of business in, a country other than the United States.
NDP may invest up to 30% of
its total assets in restricted securities that are ineligible for resale under Rule 144A (“Rule 144A”) under the Securities
Act of 1933, as amended (the “1933 Act”), all of which may be illiquid securities, primarily through direct investments
in securities of listed companies, but will not invest in private companies. NDP will not invest more than 10% of its total assets
in a single issuer or engage in short sales. As a registered investment company (“RIC”), NDP may invest up to 25%
of its total assets in securities of MLPs.
NDP may also seek to provide
current income from gains earned through an option strategy. NDP may also write (sell) call options on selected equity securities
in its portfolio (“covered calls”). As a writer of such call options, in effect, during the term of the option, in
exchange for the premium NDP receives, it sells the potential appreciation above the exercise price in the value of the security
or securities covered by the options. Therefore, NDP may forego part of the potential appreciation for part of its equity portfolio
in exchange for the call premium received.
Leverage. NDP’s
policy is to utilize leverage in an amount that on average represents approximately 15% of its total assets. NDP considers market
conditions at the time leverage is incurred and monitors for asset coverage ratios relative to 1940 Act requirements and financial
covenants on an ongoing basis. Leverage as a percent of total assets will vary depending on market conditions, but will normally
range between 10% - 20%.
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Additional Information (unaudited)
(continued) |
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Ecofin Sustainable and Social
Impact Term Fund (TEAF)
The Fund’s investment
objective is to provide its common shareholders with a high level of total return with an emphasis on current distributions.
Under normal market conditions,
the Fund will invest at least 80% of its total assets (including assets obtained through leverage) in issuers operating in essential
asset sectors. The Fund considers essential assets to be assets and services that are indispensable to the economy and society.
Essential asset sectors include the education, housing, healthcare, social and human services, power, water, energy, infrastructure,
basic materials, industrial, transportation and telecommunications sectors. The Fund may invest across all levels of an issuer’s
capital structure and emphasize income-generating investments, particularly in social infrastructure, sustainable infrastructure
and energy infrastructure.
The Fund has adopted the following
additional non-fundamental investment policies:
● |
Under normal conditions, the
Fund may invest up to 40% of its total assets in directly originated loans; |
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|
● |
Under normal conditions, the Fund may invest
up to 25% of its total assets in direct placements in restricted equity securities in listed companies; |
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● |
Under normal conditions, the Fund may invest up to 25% of its total
assets in direct equity investments in unlisted companies; |
|
|
● |
Under normal conditions, the Fund may invest up to 30% of its total
assets in securities of non-U.S. issuers, including Canadian issuers. An issuer of a security generally will be considered
to be a non-U.S. issuer if it is organized under the laws of, or maintains its principal place of business in, a country other
than the United States; |
|
|
● |
As a RIC, the Fund may invest up to 25% of its total assets in
securities of entities treated as qualified publicly traded partnerships for federal income tax purposes, which generally
includes MLPs; |
|
|
● |
the Fund will not engage in short sales of securities; |
|
|
● |
Under normal conditions, the Fund may invest up to 10% of its total
assets in securities of emerging market issuers; and |
|
|
● |
Under normal conditions, the Fund may invest up to 10% of its total
assets in non-directly originated corporate debt securities that are, at the time of purchase, rated CCC+ or lower by S&P
and Fitch and Caa1 or lower by Moody’s. |
|
|
● |
Under adverse market or economic conditions, the Fund may invest
up to 100% of its total assets in money market mutual funds, cash, cash equivalents, securities issued or guaranteed by the
U.S. government or its instrumentalities or agencies, high quality, short-term money market instruments, short-term debt securities,
certificates of deposit, bankers’ acceptances and other bank obligations, commercial paper or other liquid debt securities. |
Leverage. Leverage as
a percent of total assets will vary depending on market conditions, but will normally range between 10% - 15%.
Principal Risk Factors
Each fund’s NAV, ability
to make distributions, ability to service debt securities and preferred stock, and ability to meet asset coverage requirements
depends on the performance of its investment portfolio. The performance of each fund’s investment portfolio is subject to
a number of risks. For each of TPZ, TTP and NDP, there is a cybersecurity risk as follows:
Cybersecurity Risk. Investment
advisers, including the Adviser, must rely in part on digital and network technologies (collectively “cyber networks”)
to conduct their businesses. Such cyber networks might in some circumstances be at risk of cyberattacks that could potentially
seek unauthorized access to digital systems for purposes such as misappropriating sensitive information, corrupting data, or causing
operational disruption. Cyberattacks might potentially be carried out by persons using techniques that could range from efforts
to electronically circumvent network security or overwhelm websites to intelligence gathering and social engineering functions
aimed at obtaining information necessary to gain access. Nevertheless, cyber incidents could potentially occur, and might in some
circumstances result in unauthorized access to sensitive information about the Adviser or its clients.
For each of the funds there
is an epidemic risk as follows:
Epidemic Risk. Widespread
disease, including pandemics and epidemics have been and can be highly disruptive to economies and markets, adversely impacting
individual companies, sectors, industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment,
and other factors affecting the value of the Fund’s investments. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or
foreign exchange rates in other countries, including the U.S. These disruptions could prevent the Fund from executing advantageous
investment decisions in a timely manner and negatively impact its ability to achieve its investment objectives. Any such event(s)
could have a significant adverse impact on the value and risk profile of the Fund.
The remaining risks are set
out separately for each fund below.
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
|
Tortoise Power and Energy
Infrastructure Fund, Inc.
General Business Risk. We
are a Maryland corporation registered as a non-diversified, closed-end management investment company under the 1940 Act. We are
subject to all of the business risks and uncertainties associated with any business, including the risk that we will not achieve
our investment objectives and that the value of an investment in our securities could decline substantially and cause you to lose
some or all of your investment.
General Securities Risk.
We invest in securities that may be subject to certain risks, including: (1) issuer risk, (2) credit risk, (3) interest rate
risk, (4) reinvestment risk, (5) call or prepayment risk, (6) valuation risk, and (7) duration and maturity risk.
Capital Markets Risk. Global
financial markets and economic conditions have been, and continue to be, volatile due to a variety of factors, including significant
write-offs in the financial services sector. The third and fourth quarters of 2009 and the first and second quarters of 2010 witnessed
more stabilized economic activity as expectations for an economic recovery increased. However, if the volatility continues, the
cost of raising capital in the fixed income and equity capital markets and the ability to raise capital may be impacted. In particular,
concerns about the general stability of financial markets and specifically the solvency of lending counterparties, may impact
the cost of raising capital from the credit markets through increased interest rates, tighter lending standards, difficulties
in refinancing debt on existing terms or at all and reduced, or in some cases ceasing to provide, funding to borrowers. In addition,
lending counterparties under existing revolving credit facilities and other fixed income instruments may be unwilling or unable
to meet their funding obligations. In addition, measures taken by the U.S. Government to stimulate the U.S. economy may not be
successful or may not have the intended effect. As a result of any of the foregoing, companies may be unable to obtain new fixed
income or equity financing on acceptable terms. If funding is not available when needed, or is available only on unfavorable terms,
companies may not be able to meet their obligations as they come due. Moreover, without adequate funding, companies may be unable
to execute their maintenance and growth strategies, complete future acquisitions, take advantage of other business opportunities
or respond to competitive pressures, any of which could have a material adverse effect on their revenues and results of operations.
Investment Grade Fixed Income
Securities Risk. We may invest a portion of our assets in fixed income securities rated “investment grade” by
nationally recognized statistical rating organizations (“NRSROs”) or judged by our Adviser to be of comparable credit
quality. Although we do not intend to do so, we may invest up to 100% in such securities. Investment grade fixed income securities
are rated Baa3 or higher by Moody’s Investors Service (“Moody’s”), BBB- or higher by Standard & Poor’s
Ratings Services (“S&P”), or BBB- or higher by Fitch, Inc. (“Fitch”). Investment grade fixed income
securities generally pay yields above those of otherwise-comparable U.S. government securities because they are subject to greater
risks than U.S. government securities, and yields that are below those of non-investment grade fixed income securities, commonly
referred to as “junk bonds,” because they are considered to be subject to fewer risks than non-investment grade fixed
income securities. Despite being considered to be subject to fewer risks than junk bonds, investment grade fixed income securities
are, in fact, subject to risks, including volatility, credit risk and risk of default, sensitivity to general economic or industry
conditions, potential lack of resale opportunities (illiquidity), and additional expenses to seek recovery from issuers who default.
MLP Risks. An investment
in MLP securities involves some risks that differ from the risks involved in an investment in the common stock of a corporation,
including governance risk, tax risk, and cash flow risk. Governance risk involves the risks associated with the ownership structure
of MLPs. MLPs are also subject to tax risk, which is the risk that MLPs might lose their partnership status for tax purposes.
Cash flow risk is the risk that MLPs will not make distributions to holders (including us) at anticipated levels or that such
distributions will not have the expected tax character. As a result, there could be a material reduction in our cash flow and
there could be a material decrease in the value of our common shares.
Restricted Securities Risk.
We will not invest more than 15% of our total assets in restricted securities that are ineligible for resale under Rule 144A,
all of which may be illiquid securities. Restricted securities (including Rule 144A securities) are less liquid than freely tradable
securities because of statutory and contractual restrictions on resale. Such securities are, therefore, unlike freely tradable
securities, which can be expected to be sold immediately if the market is adequate. This lack of liquidity creates special risks
for us.
Rule 144A Securities Risk.
The Fund may purchase Rule 144A securities. Rule 144A provides an exemption from the registration requirements of the 1933
Act for the resale of certain restricted securities to qualified institutional buyers, such as the Fund. Securities saleable among
qualified institutional buyers pursuant to Rule 144A will not be counted towards the 15% limitation on restricted securities.
An insufficient number of qualified
institutional buyers interested in purchasing Rule 144A-eligible securities held by us, however, could affect adversely the marketability
of certain Rule 144A securities, and we might be unable to dispose of such securities promptly or at reasonable prices. To the
extent that liquid Rule 144A securities that the Fund holds become illiquid, due to the lack of sufficient qualified institutional
buyers or market or other conditions, the percentage of the Fund’s assets invested in illiquid assets would increase and
the fair value of such investments may become not readily determinable. In addition, if for any reason we are required to liquidate
all or a portion of our portfolio quickly, we may realize significantly less than the fair value at which we previously recorded
these investments.
Tax Risk. We have elected
to be treated, and intend to qualify each year, as a “regulated investment company” (“RIC”) under the
Code. To maintain our qualification for federal income tax purposes as a RIC under the Code, we must meet certain source-of-income,
asset diversification and annual distribution requirements, as discussed in detail below under “Certain U.S. Federal Income
Tax Considerations.” If for any taxable year we fail to qualify for the special federal income tax treatment afforded to
RICs, all of our taxable income will be subject to federal income tax at regular corporate rates (without any deduction for distributions
to our stockholders) and our income available for distribution will be reduced.
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Additional Information (unaudited)
(continued) |
|
Equity Securities Risk. Equity
securities of entities that operate in the power and energy infrastructure sectors can be affected by macroeconomic and other
factors affecting the stock market in general, expectations about changes in interest rates, investor sentiment towards such entities,
changes in a particular issuer’s financial condition, or unfavorable or unanticipated poor performance of a particular issuer
(in the case of MLPs, generally measured in terms of distributions). Prices of equity securities of individual entities also can
be affected by fundamentals unique to the company or partnership, including earnings power and coverage ratios.
Non-investment Grade Fixed
Income Securities Risk. We will not invest more than 25% of our total assets in fixed income securities rated non-investment
grade by NRSROs or unrated securities of comparable quality. Non-investment grade securities are rated Ba1 or lower by Moody’s,
BB+ or lower by S&P or BB or lower by Fitch or, if unrated are determined by our Adviser to be of comparable credit quality.
Non-investment grade securities, also sometimes referred to as “junk bonds,” generally pay a premium above the yields
of U.S. government securities or fixed income securities of investment grade issuers because they are subject to greater risks
than these securities. These risks, which reflect their speculative character, include the following: greater volatility; greater
credit risk and risk of default; potentially greater sensitivity to general economic or industry conditions; potential lack of
attractive resale opportunities (illiquidity); and additional expenses to seek recovery from issuers who default.
Non-U.S. Securities Risk.
We may invest up to 10% of our total assets in securities issued by non-U.S. issuers (including Canadian issuers) and that
otherwise meet our investment objectives. This may include investments in the securities of non-U.S. issuers that involve risks
not ordinarily associated with investments in securities and instruments of U.S. issuers, including different accounting, auditing
and financial standards, less government supervision and regulation, additional tax withholding and taxes, difficulty enforcing
rights in foreign countries, less publicly available information, difficulty effecting transactions, higher expenses, and exchange
rate risk.
Valuation Risk. The fair
value of certain of our investments may not be readily determinable. The fair value of these securities will be determined pursuant
to methodologies established by our Board of Directors. While the fair value of securities we acquire through direct placements
generally will be based on a discount from quoted market prices, other factors may adversely affect our ability to determine the
fair value of such a security. Our determination of fair value may differ materially from the values that would have been used
if a ready market for these securities had existed.
Leverage Risk. Our use
of leverage through borrowings or the issuance of preferred stock or fixed income securities, and any other transactions involving
indebtedness (other than for temporary or emergency purposes) would be considered “senior securities” for purposes
of the 1940 Act. Under normal circumstances, we will not employ leverage above 20% of our total assets at time of incurrence.
Leverage is a speculative technique that may adversely affect common stockholders. If the return on securities acquired with borrowed
funds or other leverage proceeds does not exceed the cost of the leverage, the use of leverage could cause us to lose money. There
is no assurance that a leveraging strategy will be successful.
Hedging Strategy Risk. We
may use interest rate swap transactions, for hedging purposes only, in an attempt to reduce the interest rate risk arising from
our leveraged capital structure. Interest rate swap transactions that we may use for hedging purposes will expose us to certain
risks that differ from the risks associated with our portfolio holdings. The use of hedging transactions might result in reduced
overall performance, whether or not adjusted for risk, than if we had not engaged in such transactions.
Liquidity Risk. Certain
securities may trade less frequently than those of larger companies that have larger market capitalizations. Investments in securities
that are less actively traded or over time experience decreased trading volume may be difficult to dispose of when we believe
it is desirable to do so, may restrict our ability to take advantage of other opportunities, and may be more difficult to value.
Non-Diversification Risk.
We are registered as a non-diversified, closed-end management investment company under the 1940 Act. Accordingly, there are
no regulatory limits under the 1940 Act on the number or size of securities that we hold, and we may invest more assets in fewer
issuers compared to a diversified fund. However, in order to qualify as a RIC for federal income tax purposes, we must meet certain
requirements.
Competition Risk. There
are a number of alternatives to us as vehicles for investment in a portfolio of companies operating primarily in the power and
energy infrastructure sectors, including publicly traded investment companies, structured notes, private funds, open-end funds
and indexed products. In addition, recent tax law changes have increased the ability of RICs or other institutions to invest in
MLPs. These competitive conditions may adversely impact our ability to meet our investment objectives, which in turn could adversely
impact our ability to make interest or distribution payments on any securities we may issue.
Performance Risk. We
may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount
of these distributions from time to time. In addition, the 1940 Act and restrictions and provisions in credit facilities and fixed
income securities may limit our ability to make distributions. For federal income tax purposes, we are required to distribute
substantially all of our net investment income each year both to reduce our federal income tax liability and to avoid a potential
excise tax. If our ability to make distributions on our common shares is limited, such limitations could, under certain circumstances,
impair our ability to maintain our qualification for taxation as a RIC, which would have adverse consequences for our stockholders.
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
|
Legal and Regulatory Change
Risks. The regulatory environment for closed-end companies is evolving, and changes in the regulation of closed-end companies
may adversely affect the value of our investments, our ability to obtain the leverage that we might otherwise obtain, or to pursue
our trading strategy. In addition, the securities markets are subject to comprehensive statutes and regulations. The Securities
and Exchange Commission (“SEC”), other regulators and self-regulatory organizations and exchanges are authorized to
take extraordinary actions in the event of market emergencies. The effect of any future regulatory change on us could be substantial
and adverse.
Management Risk. Our
Adviser was formed in October 2002 to provide portfolio management services to institutional and high-net worth investors seeking
professional management of their MLP investments. Our Adviser has been managing our portfolio since we began operations in July
2009. As of December 31, 2020 the Adviser had client assets under management of approximately $6.3 billion. To the extent that
the Adviser’s assets under management grow, the Adviser may have to hire additional personnel and, to the extent it is unable
to hire qualified individuals, its operations may be adversely affected.
Concentration Risk. The
Fund’s strategy of concentrating in power and energy infrastructure investments means that the performance of the Fund will
be closely tied to the performance of these particular market sectors. The Fund’s concentrations in these investments may
present more risk than if it were broadly diversified over numerous industries and sectors of the economy. A downturn in these
investments would have a greater impact on the Fund than on a fund that does not concentrate in such investments. At times, the
performance of these investments may lag the performance of other industries or the market as a whole.
Risks Related to Investing
in the Power and Energy Infrastructure Sectors
Under normal circumstances,
we plan to invest at least 80% of our total assets (including assets we obtain through leverage) in the securities of companies
that derive more than 50% of their revenue from power or energy infrastructure operations. Our focus on the power and energy infrastructure
sectors may present more risks than if it were broadly diversified over numerous sectors of the economy. Therefore, a downturn
in the power and energy infrastructure sectors would have a larger impact on us than on an investment company that does not concentrate
in these sectors. Specific risks of investing in the power and energy infrastructure sectors include the following: (1) interest
rate risk, (2) credit rating downgrade risk, (3) terrorism and natural disasters risk, (4) climate change regulation risk, (5)
operating risk (6) power infrastructure company risk, and (7) energy infrastructure company risk.
Power Infrastructure Company
Risk. Companies operating in the power infrastructure sector also are subject to additional risks, including: (1) regulatory
risk, (2) Federal Energy Regulatory Commission risk, (3) environmental risk and (4) competition risk. To the extent that any of
these risks materialize for a company whose securities are in our portfolio, the value of these securities could decline and our
net asset value and share price could be adversely affected.
Energy Infrastructure Company
Risk. Companies operating in the energy infrastructure sector also are subject to additional risks, including: (1) pipeline
company risk, (2) gathering and processing company risk, (3) propane company risk, (4) supply and demand risk, (5) price volatility
risk, (6) competition risk, and (7) regulatory risk. To the extent that any of these risks materialize for a company whose securities
are in our portfolio, the value of these securities could decline and our net asset value and share price would be adversely affected.
Additional Risks to Common
Stockholders
Market Impact Risk. The
sale of our common stock (or the perception that such sales may occur) may have an adverse effect on prices in the secondary market
for our common stock by increasing the number of shares available, which may put downward pressure on the market price for our
common stock. Our ability to sell shares of common stock below NAV may increase this pressure. These sales also might make it
more difficult for us to sell additional equity securities in the future at a time and price we deem appropriate.
Dilution Risk. The voting
power of current stockholders will be diluted to the extent that such stockholders do not purchase shares in any future common
stock offerings or do not purchase sufficient shares to maintain their percentage interest. In addition, if we sell shares of
common stock below NAV, our NAV will fall immediately after such issuance.
If we are unable to invest the
proceeds of such offering as intended, our per share distribution may decrease and we may not participate in market advances
to the same extent as if such proceeds were fully invested as planned.
Market Discount Risk. Our
common stock has traded both at a premium and at a discount in relation to NAV. We cannot predict whether our shares will trade
in the future at a premium or discount to NAV.
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Additional Information (unaudited)
(continued) |
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Additional Risks to Senior
Security Holders
Additional risks of investing
in preferred stock or debt securities issued by us include the following:
Interest Rate Risk. Distributions
and interest payable on our senior securities are subject to interest rate risk. To the extent that distributions on such securities
are based on short-term rates, our leverage costs may rise so that the amount of distributions or interest due to holders of senior
securities would exceed the cash flow generated by our portfolio securities. To the extent that our leverage costs are fixed,
our leverage costs may increase when our senior securities mature. This might require that we sell portfolio securities at a time
when we would otherwise not do so, which may adversely affect our future ability to generate cash flow. In addition, rising market
interest rates could negatively impact the value of our investment portfolio, reducing the amount of assets serving as asset coverage
for senior securities.
Senior Leverage Risk. Our
preferred stock will be junior in liquidation and with respect to distribution rights to our debt securities and any other borrowings.
Senior securities representing indebtedness may constitute a substantial lien and burden on preferred stock by reason of their
prior claim against our income and against our net assets in liquidation. We may not be permitted to declare distributions with
respect to any series of our preferred stock unless at such time we meet applicable asset coverage requirements and the payment
of principal or interest is not in default with respect to senior debt securities or any other borrowings.
Our debt securities, upon issuance,
are expected to be unsecured obligations and, upon our liquidation, dissolution or winding up, will rank: (1) senior to all of
our outstanding common stock and any outstanding preferred stock; (2) on a parity with any of our unsecured creditors and any
unsecured senior securities representing our indebtedness; and (3) junior to any of our secured creditors. Secured creditors of
ours may include, without limitation, parties entering into interest rate swap, floor or cap transactions, or other similar transactions
with us that create liens, pledges, charges, security interests, security agreements or other encumbrances on our assets.
Ratings and Asset Coverage
Risk. To the extent that senior securities are rated, a rating does not eliminate or necessarily mitigate the risks of investing
in our senior securities, and a rating may not fully or accurately reflect all of the credit and market risks associated with
that senior security. A rating agency could downgrade the rating of our shares of preferred stock or debt securities, which may
make such securities less liquid in the secondary market, though probably with higher resulting interest rates. If a rating agency
downgrades, or indicates a potential downgrade to, the rating assigned to a senior security, we may alter our portfolio or redeem
a portion of our senior securities. We may voluntarily redeem a senior security under certain circumstances to the extent permitted
by its governing documents.
Inflation Risk. Inflation
is the reduction in the purchasing power of money resulting from an increase in the price of goods and services. Inflation risk
is the risk that the inflation adjusted or “real” value of an investment in preferred stock or debt securities or
the income from that investment will be worth less in the future. As inflation occurs, the real value of the preferred stock or
debt securities and the distributions or interest payable to holders of preferred stock or debt securities declines.
Decline in Net Asset Value
Risk. A material decline in our NAV may impair our ability to maintain required levels of asset coverage for our preferred
stock or debt securities.
Tortoise Pipeline & Energy
Fund, Inc.
The following are the general
risks of investing in our securities that affect our ability to achieve our investment objective. The risks below could lower
the returns and distributions on common stock and reduce the amount of cash and net assets available to make distribution payments
on preferred stock and interest payments on debt securities.
Capital Markets Volatility
Risk. Our capital structure and performance may be adversely impacted by weakness in the credit markets and stock market if
such weakness results in declines in the value of companies in which we invest. If the value of our investments decline or remain
volatile, there is a risk that we may be required to reduce outstanding leverage, which could adversely affect our stock price
and ability to pay distributions at historical levels. A sustained economic slowdown may adversely affect the ability of the companies
in which we invest to obtain new debt or equity financing on acceptable terms. If funding is not available when needed, or is
available only on unfavorable terms, we or the companies in which we invest may not be able to meet obligations as they come due.
Moreover, without adequate funding, energy infrastructure companies may be unable to execute their growth strategies, complete
future acquisitions, take advantage of other business opportunities or respond to competitive pressures, any of which could have
a material adverse effect on their revenues and results of operations.
Rising interest rates
could limit the capital appreciation of equity units of energy infrastructure companies as a result of the increased
availability of alternative investments at competitive yields. Rising interest rates may increase the cost of capital for
companies operating in this sector. A higher cost of capital or an inflationary period may lead to inadequate funding, which
could limit growth from acquisition or expansion projects, the ability of such entities to make or grow dividends or
distributions or meet debt obligations, the ability to respond to competitive pressures, all of which could adversely affect
the prices of their securities.
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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Concentration Risk. Our
strategy of concentrating in energy infrastructure investments means that our performance will be closely tied to the performance
of the energy infrastructure sector, which includes midstream, upstream and downstream energy industries. Our concentration in
these investments may present more risk than if we were broadly diversified over numerous industries and sectors of the economy.
A downturn in these investments would have a greater impact on us than on a fund that does not concentrate in such investments.
At times, the performance of these investments may lag the performance of other industries or the market as a whole. Risks inherent
in the business of energy infrastructure companies include:
● |
Supply and Demand Risk. A decrease in
the production of natural gas, NGLs, crude oil, coal, refined petroleum products or other energy commodities, or a decrease
in the volume of such commodities available for transporting, storing, gathering, processing, distributing, exploring, developing,
managing or producing may adversely impact the financial performance and profitability of energy infrastructure companies.
Production declines and volume decreases could be caused by various factors, including depletion of resources, declines in
estimates of proved reserves, labor difficulties, political events, OPEC actions, changes in commodity prices, declines in
production from existing facilities, environmental proceedings, increased regulations, equipment failures and unexpected maintenance
problems, failure to obtain necessary permits, unscheduled outages, unanticipated expenses, inability to successfully carry
out new construction or acquisitions, import supply disruption, increased competition from alternative energy sources or related
commodity prices and other events. Alternatively, a sustained decline in or varying demand for such commodities could also
adversely affect the financial performance of energy infrastructure companies. Factors that could lead to a decline in demand
include economic recession or other adverse economic conditions, higher fuel taxes or governmental regulations, increases
in fuel economy, consumer shifts to the use of alternative fuel sources, changes in commodity prices or weather. |
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● |
Operating Risk. energy infrastructure companies are subject
to many operating risks, including: equipment failure causing outages; structural, maintenance, impairment and safety problems;
transmission or transportation constraints, inoperability or inefficiencies; dependence on a specified fuel source, including
the transportation of fuel; changes in electricity and fuel usage; availability of competitively priced alternative energy
sources; changes in generation efficiency and market heat rates; lack of sufficient capital to maintain facilities; significant
capital expenditures to keep older assets operating efficiently; seasonality; changes in supply and demand for energy commodities;
catastrophic and/or weather- related events such as fires, explosions, floods, earthquakes, hurricanes and similar occurrences;
storage, handling, disposal and decommissioning costs; and environmental compliance. Breakdown or failure of a pipeline or
other energy infrastructure company’s assets may prevent the company from performing under applicable sales agreements,
which in certain situations, could result in termination of the agreement or incurring a liability for liquidated damages.
A company’s ability to successfully and timely complete capital improvements to existing or other capital projects is
contingent upon many variables. Should any such efforts be unsuccessful, a pipeline or other energy infrastructure company
could be subject to additional costs and / or the write-off of its investment in the project or improvement. As a result of
the above risks and other potential hazards associated with energy infrastructure companies, certain companies may become
exposed to significant liabilities for which they may not have adequate insurance coverage. Any of the aforementioned risks
or related regulatory and environmental risks could have a material adverse effect on the business, financial condition, results
of operations and cash flows of energy infrastructure companies. |
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● |
Regulatory Risk. Energy infrastructure issuers are subject
to regulation by various governmental authorities in various jurisdictions and may be adversely affected by the imposition
of special tariffs and changes in tax laws, regulatory policies and accounting standards. Regulation exists in multiple aspects
of their operations, including how facilities are constructed, maintained and operated, environmental and safety controls,
and the prices they may charge for the products and services they provide. Various governmental authorities have the power
to enforce compliance with these regulations and the permits issued under them, and violators are subject to administrative,
civil and criminal penalties, including fines, injunctions or both. Stricter laws, regulations or enforcement policies could
be enacted in the future which may increase compliance costs and may adversely affect the financial performance of energy
infrastructure companies. Pipeline companies engaged in interstate pipeline transportation of natural gas, refined petroleum
products and other products are subject to regulation by the Federal Energy Regulatory Commission (“FERC”) with
respect to tariff rates these companies may charge for pipeline transportation services. An adverse determination by the FERC
with respect to the tariff rates of a pipeline or other energy infrastructure company could have a material adverse effect
on its business, financial condition, results of operations and cash flows and its ability to make cash distributions to its
equity owners. Prices for certain electric power companies are regulated in the U.S. with the intention of protecting the
public while ensuring that the rate of return earned by such companies is sufficient to attract growth capital and to provide
appropriate services but do not provide any assurance as to achievement of earnings levels. We could become subject to the
FERC’s jurisdiction if we are deemed to be a holding company of a public utility company or of a holding company of
a public utility company, and we may be required to aggregate securities held by us or other funds and accounts managed by
the Adviser and its affiliates, or be prohibited from buying certain securities or be forced to divest certain securities. |
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Additional Information (unaudited)
(continued) |
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● | Environmental
Risk. Energy
infrastructure
company activities
are subject
to stringent
environmental
laws and regulation
by many federal,
state and local
authorities,
international
treaties and
foreign governmental
authorities.
Failure to comply
with such laws
and regulations
or to obtain
any necessary
environmental
permits pursuant
to such laws
and regulations
could result
in fines or
other sanctions.
Congress and
other domestic
and foreign
governmental
authorities
have either
considered or
implemented
various laws
and regulations
to restrict
or tax certain
emissions, particularly
those involving
air and water
emissions. Existing
environmental
regulations
could be revised
or reinterpreted,
new laws and
regulations
could be adopted
or become applicable,
and future changes
in environmental
laws and regulations
could occur,
which could
impose additional
costs on the
operation of
power plants.
Energy infrastructure
companies have
made and will
likely continue
to make significant
capital and
other expenditures
to comply with
these and other
environmental
laws and regulations.
Changes in,
or new, environmental
restrictions
may force energy
infrastructure
companies to
incur significant
expenses or
expenses that
may exceed their
estimates. There
can be no assurance
that such companies
would be able
to recover all
or any increased
environmental
costs from their
customers or
that their business,
financial condition
or results of
operations would
not be materially
and adversely
affected by
such expenditures
or any changes
in domestic
or foreign environmental
laws and regulations,
in which case
the value of
these companies’
securities in
our portfolio
could be adversely
affected. In
addition, a
pipeline or
other energy
infrastructure
company may
be responsible
for any on-site
liabilities
associated with
the environmental
condition of
facilities that
it has acquired,
leased or developed,
regardless of
when the liabilities
arose and whether
they are known
or unknown. |
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● | Price
Volatility Risk. The volatility of energy commodity prices can affect certain energy
infrastructure companies due to the impact of prices on the volume of commodities transported,
stored, gathered, processed, distributed, developed or produced. Most pipeline companies
are not subject to direct commodity price exposure because they do not own the underlying
energy commodity. Nonetheless, the price of a pipeline company security can be adversely
affected by the perception that the performance of all such entities is directly tied
to commodity prices. However, the operations, cash flows and financial performance of
other energy infrastructure companies in which we will invest may be more directly affected
by energy commodity prices, especially those energy companies owning the underlying energy
commodity. Commodity prices fluctuate for several reasons, including changes in global
and domestic market and economic conditions, the impact of weather on demand, levels
of domestic production and imported commodities, energy conservation, domestic and foreign
governmental regulation, political instability, conservation efforts, and taxation and
the availability of local, intrastate and interstate transportation systems. Volatility
of commodity prices may also make it more difficult for energy companies to raise capital
to the extent the market perceives that their performance may be directly or indirectly
tied to commodity prices. Historically, energy commodity prices have been cyclical and
exhibited significant volatility which may adversely impact other energy infrastructure
companies in which we invest. |
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● | Terrorism
Risk. Energy infrastructure companies, and the market for their securities, are subject
to disruption as a result of terrorist activities, such as the terrorist attacks on the
World Trade Center on September 11, 2001; war, such as the wars in Afghanistan and Iraq
and their aftermaths; and other geopolitical events, including upheaval in the Middle
East or other energy producing regions. The U.S. government has issued warnings that
energy assets, specifically those related to energy infrastructure, production facilities,
and transmission and distribution facilities, might be specific targets of terrorist
activity. Such events have led, and in the future may lead, to short-term market volatility
and may have long-term effects on companies in the energy infrastructure industry and
markets. Such events may also adversely affect our business and financial condition. |
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● | Natural
Disaster Risk. Natural risks, such as earthquakes, flood, lightning, hurricanes and
wind, are inherent risks in infrastructure company operations. For example, extreme weather
patterns, such as Hurricane Ivan in 2004 and Hurricanes Katrina and Rita in 2005, the
Tohuku earthquake and resulting tsunami in Japan in 2011, Hurricane Sandy in 2012 and
Hurricane Harvey in 2017, or the threat thereof, could result in substantial damage to
the facilities of certain companies located in the affected areas and significant volatility
in the supply of energy and could adversely impact the prices of the securities in which
we invest. This volatility may create fluctuations in commodity prices and earnings of
energy infrastructure companies. |
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● | Climate
Change Regulation Risk. Climate change regulation could result in increased operations
and capital costs for the companies in which we invest. Voluntary initiatives and mandatory
controls have been adopted or are being discussed both in the United States and worldwide
to reduce emissions of “greenhouse gases” such as carbon dioxide, a by-product
of burning fossil fuels, which some scientists and policymakers believe contribute to
global climate change. These measures and future measures could result in increased costs
to certain companies in which we invest to operate and maintain facilities and administer
and manage a greenhouse gas emissions program and may reduce demand for fuels that generate
greenhouse gases and that are managed or produced by companies in which we invest. |
Industry Specific Risk. Energy infrastructure
companies are subject to specific risks, including:
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● | Renewable
and power infrastructure companies are subject to many risks, including earnings variability
based upon weather patterns in the locations where the company operates, the change in
the demand for electricity, the cost to produce power, and the regulatory environment.
Further, share prices are partly based on the interest rate environment, the sustainability
and potential growth of the dividend, and the outcome of various rate cases undertaken
by the company or a regulatory body. |
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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● |
Pipeline companies are subject to varying demand
for crude oil, natural gas, NGLs or refined products in the markets served by the pipeline; changes in the availability of
products for transporting, gathering, processing or sale due to natural declines in reserves and production in the supply
areas serviced by the company’s facilities; sharp decreases in crude oil or natural gas prices that cause producers
to curtail production or reduce capital spending for exploration activities; and environmental regulation. Specifically, demand
for gasoline, which accounts for a substantial portion of refined product transportation, depends on price, prevailing economic
conditions in the markets served, and demographic and seasonal factors. |
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● |
Processing companies are subject to declines in production of natural
gas fields, which utilize the processing facilities as a way to market the gas, prolonged depression in the price of natural
gas, which curtails production due to lack of drilling activity and declines in the prices of NGL products and natural gas
prices, resulting in lower processing margins. |
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Integrated energy companies are impacted by declines in the demand
for and prices of natural gas, crude oil and refined petroleum products. Reductions in prices for natural gas and crude oil
can cause a given reservoir to become uneconomic for continued production earlier than it would if prices were higher. The
operating margins and cash flows of integrated energy companies may fluctuate widely in response to a variety of factors,
including global and domestic economic conditions, weather conditions, natural disasters, the supply and price of imported
energy commodities, change in the level and relationship in crude oil and refined petroleum product pricing, political instability,
conservation efforts and governmental regulation. The accuracy of any reserve estimate is a function of the quality of available
data, the accuracy of assumptions regarding future commodity prices and costs, and engineering and geological interpretations
and judgments. Due to natural declines in reserves and production, exploitation and production companies must economically
find or acquire and develop additional reserves in order to maintain and grow their revenues and distributions. Integrated
energy companies are also subject to risks related to operations (such as fires and explosions) as well as the potential environmental
and regulatory risks of such events, which may adversely impact their business and financial condition. |
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● |
Renewable and power infrastructure companies are subject to
many risks, including earnings variability based upon weather patterns in the locations where the company operates, the
change in the demand for electricity, the cost to produce power, and the regulatory environment. Furthermore, share prices
are partly based on the interest rate environment, the sustainability and potential growth of the dividend, and the outcome
of various rate cases undertaken by the company or a regulatory body. |
MLP Risks. An investment
in MLP securities involves some risks that differ from the risks involved in an investment in the common stock of a corporation.
Holders of MLP units have limited control and voting rights on matters affecting the partnership. Holders of units issued by an
MLP are exposed to a remote possibility of liability for all of the obligations of that MLP in the event that a court determines
that the rights of the holders of MLP units to vote to remove or replace the general partner of that MLP, to approve amendments
to that MLP’s partnership agreement, or to take other action under the partnership agreement of that MLP would constitute
“control” of the business of that MLP, or a court or governmental agency determines that the MLP is conducting business
in a state without complying with the partnership statute of that state.
Holders of MLP units are also
exposed to the risk that they will be required to repay amounts to the MLP that are wrongfully distributed to them. In addition,
the value of our investment in an MLP will depend largely on the MLP’s treatment as a partnership for U.S. federal income
tax purposes. If an MLP does not meet current legal requirements to maintain partnership status, or if it is unable to do so because
of tax law changes, it would be treated as a corporation for U.S. federal income tax purposes. In that case, the MLP would be
obligated to pay income tax at the entity level and distributions received by us generally would be taxed as dividend income.
As a result, there could be a material reduction in our cash flow and there could be a material decrease in the value of our common
shares.
Equity Securities Risk. Equity
securities can be affected by macroeconomic and other factors affecting the stock market in general, expectations about changes
in interest rates, investor sentiment toward such entities, changes in a particular issuer’s financial condition, or unfavorable
or unanticipated poor performance of a particular issuer. Prices of equity securities of individual entities also can be affected
by fundamentals unique to the company or partnership, including size, earnings power, coverage ratio and characteristics and features
of different classes of securities. Equity securities are susceptible to general stock market fluctuations and to volatile increases
and decreases in value. The equity securities we hold may experience sudden, unpredictable drops in value or long periods of decline
in value. In addition, by writing covered call options, capital appreciation potential will be limited on a portion of our investment
portfolio.
Foreign Securities Risk.
Investments in securities (including ADRs) of foreign issuers involve risks not ordinarily associated with investments in
securities and instruments of U.S. issuers. For example, foreign companies are not generally subject to uniform accounting, auditing
and financial standards and requirements comparable to those applicable to U.S. companies. Foreign securities exchanges, brokers
and companies may be subject to less government supervision and regulation than exists in the U.S. Dividend and interest income
may be subject to withholding and other foreign taxes, which may adversely affect the net return on such investments. The Fund
may not be able to pass through to its shareholders any foreign income tax credits as a result of any foreign income taxes it
pays. There may be difficulty in obtaining or enforcing a court judgment abroad. In addition, it may be difficult to effect repatriation
of capital invested in certain countries. With respect to certain countries, there are risks of expropriation, confiscatory taxation,
political or social instability or diplomatic developments that could affect the Fund’s assets held in foreign countries.
Furthermore, foreign companies operate and serve customers in many parts of the world,
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Additional Information (unaudited)
(continued) |
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and encounter a variety of political
and legal risks unique to those jurisdictions. Local economic conditions may vary and may have a meaningful influence on the outcome
of business activities. Some of these risks are impacted by regional inflation, economic cycles, currency volatility, sovereign
debt markets, local economic environments, and regional trade patterns. There may be less publicly available information about
a foreign company than there is regarding a U.S. company, and many foreign companies are not subject to accounting, auditing,
and financial reporting standards, regulatory framework and practices comparable to those in the U.S. Foreign securities markets
may have substantially less volume than U.S. securities markets and some foreign company securities are less liquid than securities
of otherwise comparable U.S. companies. Foreign markets also have different clearance and settlement procedures that could cause
the Fund to encounter difficulties in purchasing and selling securities on such markets and may result in the Fund missing attractive
investment opportunities or experiencing a loss. In addition, a portfolio that includes securities issued by foreign issuers can
expect to have a higher expense ratio because of the increased transaction costs in foreign markets and the increased costs of
maintaining the custody of such foreign securities. When investing in securities issued by foreign issuers, there is also the
risk that the value of such an investment or the Fund’s income, measured in U.S. dollars, will decrease because of unfavorable
changes in currency exchange rates.
Liquidity Risk. We may
invest in securities of any market capitalization and may be exposed to liquidity risk when trading volume, lack of a market maker,
or legal restrictions impair our ability to sell particular securities or close call option positions at an advantageous price
or a timely manner. We may invest in mid-cap and small-cap companies, which may not have the management experience, financial
resources, product diversification and competitive strengths of large-cap companies. Analysts and other investors may follow these
companies less actively and therefore information about these companies may not be as readily available as that for large-cap
companies. Therefore, their securities may be more volatile and less liquid than the securities of larger, more established companies.
In the event certain securities experience limited trading volumes, the prices of such securities may display abrupt or erratic
movements at times. In addition, it may be more difficult for us to buy and sell significant amounts of such securities without
an unfavorable impact on prevailing market prices. As a result, these securities may be difficult to sell at a favorable price
at the times when we believe it is desirable to do so. Investment of our capital in securities that are less actively traded (or
over time experience decreased trading volume) may restrict our ability to take advantage of other market opportunities or to
sell those securities. This also may affect adversely our ability to make required interest payments on our debt securities and
distributions on any of our preferred stock, to redeem such securities, or to meet asset coverage requirements.
Non-Diversification Risk.
We are classified as “non-diversified” under the 1940 Act. As a result, we can invest a greater portion of our
assets in obligations of a single issuer than a “diversified” fund. We may therefore be more susceptible than a diversified
fund to being adversely affected by any single corporate, economic, political or regulatory occurrence. We intend to maintain
our status as a RIC under Subchapter M of the Code, and thus we intend to satisfy the diversification requirements of Subchapter
M, including its less stringent diversification requirements that apply to the percentage of our total assets that are represented
by cash and cash items (including receivables), U.S. government securities, the securities of other regulated investment companies
and certain other securities.
Performance and Distribution
Risk. We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase
the amount of these distributions from time to time. We cannot assure you that you will receive distributions at a particular
level or at all. Dividends and distributions on equity securities are not fixed but are declared at the discretion of the issuer’s
board of directors. If stock market volatility declines, the level of premiums from writing covered call options will likely decrease
as well. Payments to close-out written call options will reduce amounts available for distribution from gains earned in respect
of call option expiration or close out. The equity securities in which we invest may not appreciate or may decline in value. Net
realized and unrealized gains on the securities investments will be determined primarily by the direction and movement of the
applicable securities markets and our holdings. Any gains that we do realize on the disposition of any securities may not be sufficient
to offset losses on other securities or option transactions. A significant decline in the value of the securities in which we
invest may negatively impact our ability to pay distributions or cause you to lose all or a part of your investment.
In addition, the 1940 Act may
limit our ability to make distributions in certain circumstances. Restrictions and provisions in any future credit facilities
and our debt securities may also limit our ability to make distributions. For federal income tax purposes, we are required to
distribute substantially all of our net investment income each year both to reduce our federal income tax liability and to avoid
a potential excise tax. If our ability to make distributions on our common shares is limited, such limitations could, under certain
circumstances, impair our ability to maintain our qualification for taxation as a RIC, which would have adverse consequences for
our stockholders.
Quarterly Results Risk. We
could experience fluctuations in our operating results due to a number of factors, including the return on our investments, the
level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses on our investments
and written call options, the level of call premium we receive by writing covered calls, the degree to which we encounter competition
in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon
as being indicative of performance in future periods.
Restricted Securities Risk.
We may invest up to 30% of our total assets in unregistered or otherwise restricted securities, primarily through direct investments
in securities of listed companies. Restricted securities (including Rule 144A securities) are less liquid than securities traded
in the open market because of statutory and contractual restrictions on resale. Such securities are, therefore, unlike securities
that are traded in the open market, which can be expected to be sold immediately if the market is adequate. This lack of liquidity
may create special risks for us. However, we could sell such securities in private transactions with a limited number of purchasers
or in public offerings under the 1933 Act.
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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Restricted securities are subject
to statutory and contractual restrictions on their public resale, which may make it more difficult to value them, may limit our
ability to dispose of them and may lower the amount we could realize upon their sale. To enable us to sell our holdings of a restricted
security not registered under the 1933 Act, we may have to cause those securities to be registered. The expenses of registering
restricted securities may be determined at the time we buy the securities. When we must arrange registration because we wish to
sell the security, a considerable period may elapse between the time the decision is made to sell the security and the time the
security is registered so that we could sell it. We would bear the risks of any downward price fluctuation during that period.
Portfolio Turnover Risk.
We may, but under normal market conditions do not intend to, engage in frequent and active trading of portfolio securities
to achieve our investment objective. However, annual portfolio turnover as a result of our purchases and sales of equity securities
and call options may exceed 100%, which is higher than many other investment companies and would involve greater trading costs
to us and may result in greater realization of taxable capital gains.
Hedging and Derivatives Risk.
In addition to writing call options as part of the investment strategy, we may invest in derivative instruments for hedging
or risk management purposes. Our use of derivatives could enhance or decrease the cash available to us for payment of distributions
or interest, as the case may be. Derivatives can be illiquid, may disproportionately increase losses and have a potentially large
negative impact on our performance. Derivative transactions, including options on securities and securities indices and other
transactions in which we may engage (such as forward currency transactions, futures contracts and options thereon, and total return
swaps), may subject us to increased risk of principal loss due to unexpected movements in stock prices, changes in stock volatility
levels, interest rates and foreign currency exchange rates and imperfect correlations between our securities holdings and indices
upon which derivative transactions are based. We also will be subject to credit risk with respect to the counterparties to any
over-the-counter derivatives contracts we purchased. If a counterparty becomes bankrupt or otherwise fails to perform its obligations
under a derivative contract, we may experience significant delays in obtaining any recovery under the derivative contract in a
bankruptcy or other reorganization proceeding. We may obtain only a limited recovery or may obtain no recovery in such circumstances.
In addition, if the counterparty to a derivative transaction defaults, we would not be able to use the anticipated net receipts
under the derivative to offset our cost of financial leverage.
Interest rate transactions will
expose us to certain risks that differ from the risks associated with our portfolio holdings. There are economic costs of hedging
reflected in the price of interest rate swaps, floors, caps and similar techniques, the costs of which can be significant, particularly
when long-term interest rates are substantially above short-term rates. In addition, our success in using hedging instruments
is subject to our Adviser’s ability to predict correctly changes in the relationships of such hedging instruments to our
leverage risk, and there can be no assurance that our Adviser’s judgment in this respect will be accurate. Consequently,
the use of hedging transactions might result in a poorer overall performance, whether or not adjusted for risk, than if we had
not engaged in such transactions. There is no assurance that the interest rate hedging transactions into which we enter will be
effective in reducing our exposure to interest rate risk. Hedging transactions are subject to correlation risk, which is the risk
that payment on our hedging transactions may not correlate exactly with our payment obligations on senior securities. To the extent
there is a decline in interest rates, the value of certain derivatives could decline, and result in a decline in our net assets.
Tax Risk. We intend to
elect to be treated, and to qualify each year, as a “regulated investment company” under the Code. To maintain our
qualification for federal income tax purposes as a RIC under the Code, we must meet certain source-of-income, asset diversification
and annual distribution requirements. If for any taxable year we fail to qualify for the special federal income tax treatment
afforded to regulated investment companies, all of our taxable income will be subject to federal income tax at regular corporate
rates (without any deduction for distributions to our stockholders) and our income available for distribution will be reduced.
Anti-Takeover Provisions
Risks. Maryland law and our Charter and Bylaws include provisions that could delay, defer or prevent other entities or persons
from acquiring control of us, causing us to engage in certain transactions or modifying our structure. These provisions may be
regarded as “anti-takeover” provisions. Such provisions could limit the ability of common stockholders to sell their
shares at a premium over the then-current market prices by discouraging a third party from seeking to obtain control of us.
Below Investment Grade Securities
Risk. Investing in below investment grade debt instruments (commonly referred to as “junk bonds”) involves additional
risks than investment grade securities. Adverse changes in economic conditions are more likely to lead to a weakened capacity
of a below investment grade issuer to make principal payments and interest payments than an investment grade issuer. An economic
downturn could adversely affect the ability of highly leveraged issuers to service their obligations or to repay their obligations
upon maturity. Similarly, downturns in profitability in the energy infrastructure industry could adversely affect the ability
of below investment grade issuers in that industry to meet their obligations. The market values of lower quality securities tend
to reflect individual developments of the issuer to a greater extent than do higher quality securities, which react primarily
to fluctuations in the general level of interest rates.
The secondary market for below
investment grade securities may not be as liquid as the secondary market for more highly rated securities. There are fewer dealers
in the market for below investment grade securities than investment grade obligations. The prices quoted by different dealers
may vary significantly, and the spread between the bid and asked price is generally much larger than for higher quality instruments.
Under adverse market or economic conditions, the secondary market for below investment grade securities could contract further,
independent of any specific adverse change in the condition of a particular issuer, and these instruments may become illiquid.
As a result, it may be more difficult to sell these securities or we may be able to sell the securities only at prices lower than
if such securities were widely traded. This may affect adversely our ability to make required distribution or interest payments
on our outstanding senior securities. Prices realized upon the sale of such lower-rated or unrated securities, under these circumstances,
may be less than the prices used in calculating our NAV.
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Additional Information (unaudited)
(continued) |
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Because investors generally
perceive that there are greater risks associated with lower quality securities of the type in which we may invest a portion of
our assets, the yields and prices of such securities may tend to fluctuate more than those for higher rated securities. In the
lower quality segments of the debt securities market, changes in perceptions of issuers’ creditworthiness tend to occur
more frequently and in a more pronounced manner than do changes in higher quality segments of the debt securities market, resulting
in greater yield and price volatility.
Factors having an adverse impact
on the market value of below investment grade securities may have an adverse effect on our NAV and the market value of our common
stock. In addition, we may incur additional expenses to the extent we are required to seek recovery upon a default in payment
of principal or interest on our portfolio holdings. In certain circumstances, we may be required to foreclose on an issuer’s
assets and take possession of its property or operations. In such circumstances, we would incur additional costs in disposing
of such assets and potential liabilities from operating any business acquired.
Counterparty Risk. We
may be subject to credit risk with respect to the counterparties to certain derivative agreements entered into by us. If a counterparty
becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, we may
experience significant delays in obtaining any recovery under the derivative contract in a bankruptcy or other reorganization
proceeding. We may obtain only a limited recovery or may obtain no recovery in such circumstances.
Management Risk. Our
Adviser was formed in 2002 to provide portfolio management to institutional and high-net worth investors seeking professional
management of their MLP investments. Our Adviser has been managing our portfolio since we began operations. As of December 31,
2020, our Adviser had client assets under management of approximately $6.3 billion. To the extent that the Adviser’s assets
under management grow, the Adviser may have to hire additional personnel and, to the extent it is unable to hire qualified individuals,
its operations may be adversely affected.
Additional Risks to Common
Stockholders
Leverage Risk. Our use
of leverage through the issuance of preferred stock (“Tortoise Preferred Shares”) and senior notes (“Tortoise
Notes”) along with the issuance of any additional preferred stock or debt securities, and any additional borrowings or other
transactions involving indebtedness (other than for temporary or emergency purposes) are or would be considered “senior
securities” for purposes of the 1940 Act and create risks. Leverage is a speculative technique that may adversely affect
common stockholders. If the return on securities acquired with borrowed funds or other leverage proceeds does not exceed the cost
of the leverage, the use of leverage could cause us to lose money. Successful use of leverage depends on the Adviser’s ability
to predict or hedge correctly interest rates and market movements, and there is no assurance that the use of a leveraging strategy
will be successful during any period in which it is used. Because the fee paid to the Adviser will be calculated on the basis
of Managed Assets, the fees will increase when leverage is utilized, giving the Adviser an incentive to utilize leverage.
Our issuance of senior securities
involves offering expenses and other costs, including interest payments, which are borne indirectly by our common stockholders.
Fluctuations in interest rates could increase interest or distribution payments on our senior securities, and could reduce cash
available for distributions on common stock. Increased operating costs, including the financing cost associated with any leverage,
may reduce our total return to common stockholders.
The 1940 Act and/or the rating
agency guidelines applicable to senior securities impose asset coverage requirements, distribution limitations, voting right requirements
(in the case of the senior equity securities), and restrictions on our portfolio composition and our use of certain investment
techniques and strategies. The terms of any senior securities or other borrowings may impose additional requirements, restrictions
and limitations that are more stringent than those currently required by the 1940 Act, and the guidelines of the rating agencies
that rate outstanding senior securities. These requirements may have an adverse effect on us and may affect our ability to pay
distributions on common stock and preferred stock. To the extent necessary, we intend to redeem our senior securities to maintain
the required asset coverage. Doing so may require that we liquidate portfolio securities at a time when it would not otherwise
be desirable to do so. Nevertheless, it is not anticipated that the 1940 Act requirements, the terms of any senior securities
or the rating agency guidelines will impede the Adviser in managing our portfolio in accordance with our investment objective
and policies.
Market Impact Risk. The
sale of our common stock (or the perception that such sales may occur) may have an adverse effect on prices in the secondary market
for our common stock. An increase in the number of common shares available may put downward pressure on the market price for our
common stock.
Dilution Risk. The voting
power of current stockholders will be diluted to the extent that current stockholders do not purchase shares in any future common
stock offerings or do not purchase sufficient shares to maintain their percentage interest.
If we are unable to invest the
proceeds of such offering as intended, our per share distribution may decrease and we may not participate in market advances to
the same extent as if such proceeds were fully invested as planned.
Market Discount Risk. Our
common stock has traded both at a premium and at a discount in relation to NAV. We cannot predict whether our shares will trade
in the future at a premium or discount to NAV. Shares of closed-end investment companies frequently trade at a discount from NAV,
but in some cases have traded above NAV. Continued development of alternatives as a vehicle for investment in MLP securities may
contribute to reducing or eliminating any premium or may result in our shares trading at a discount. The risk of the shares of
common stock trading at a discount is a risk separate from the risk of a decline in our NAV as a result of investment activities.
Our NAV will be reduced
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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immediately following an offering
of our common or preferred stock, due to the offering costs for such stock, which are borne entirely by us. Although we also bear
the offering costs of debt securities, such costs are amortized over time and therefore do not impact our NAV immediately following
an offering.
Whether stockholders will realize
a gain or loss for federal income tax purposes upon the sale of our common stock depends upon whether the market value of the
common shares at the time of sale is above or below the stockholder’s basis in such shares, taking into account transaction
costs, and is not directly dependent upon our NAV. Because the market value of our common stock will be determined by factors
such as the relative demand for and supply of the shares in the market, general market conditions and other factors beyond our
control, we cannot predict whether our common stock will trade at, below or above NAV, or at, below or above the public offering
price for common stock.
Additional Risks to Senior
Security Holders
Generally, an investment in
preferred stock or debt securities (collectively, “senior securities”) is subject to the following risks:
Interest Rate Risk. Distributions
and interest payable on our senior securities are subject to interest rate risk. To the extent that distributions or interest
on such securities are based on short-term rates, our leverage costs may rise so that the amount of distributions or interest
due to holders of senior securities would exceed the cash flow generated by our portfolio securities. To the extent that our leverage
costs are fixed, our leverage costs may increase when our senior securities mature. This might require that we sell portfolio
securities at a time when we would otherwise not do so, which may adversely affect our future ability to generate cash flow. In
addition, rising market interest rates could negatively impact the value of our investment portfolio, reducing the amount of assets
serving as asset coverage for senior securities.
Senior Leverage Risk. Preferred
stock will be junior in liquidation and with respect to distribution rights to debt securities and any other borrowings. Senior
securities representing indebtedness may constitute a substantial lien and burden on preferred stock by reason of their prior
claim against our income and against our net assets in liquidation. We may not be permitted to declare distributions or other
distributions with respect to any series of preferred stock unless at such time we meet applicable asset coverage requirements
and the payment of principal or interest is not in default with respect to the Tortoise Notes or any other borrowings.
Our debt securities, upon issuance,
are expected to be unsecured obligations and, upon our liquidation, dissolution or winding up, will rank: (1) senior to all of
our outstanding common stock and any outstanding preferred stock; (2) on a parity with any of our unsecured creditors and any
unsecured senior securities representing our indebtedness; and (3) junior to any of our secured creditors. Secured creditors of
ours may include, without limitation, parties entering into interest rate swap, floor or cap transactions, or other similar transactions
with us that create liens, pledges, charges, security interests, security agreements or other encumbrances on our assets.
Ratings and Asset Coverage
Risk. To the extent that senior securities are rated, a rating does not eliminate or necessarily mitigate the risks of investing
in our senior securities, and a rating may not fully or accurately reflect all of the credit and market risks associated with
a security. A rating agency could downgrade the rating of our shares of preferred stock or debt securities, which may make such
securities less liquid in the secondary market, though probably with higher resulting interest rates. If a rating agency downgrades,
or indicates a potential downgrade to, the rating assigned to a senior security, we may alter our portfolio or redeem some senior
securities. We may voluntarily redeem a senior security under certain circumstances to the extent permitted by its governing documents.
Inflation Risk. Inflation
is the reduction in the purchasing power of money resulting from an increase in the price of goods and services. Inflation risk
is the risk that the inflation adjusted or “real” value of an investment in preferred stock or debt securities or
the income from that investment will be worth less in the future. As inflation occurs, the real value of the preferred stock or
debt securities and the distributions or interest payable to holders of preferred stock or interest payable to holders of debt
securities declines.
Decline in Net Asset Value
Risk. A material decline in our NAV may impair our ability to maintain required levels of asset coverage for our preferred
stock or debt securities.
General Risks Associated
with an Investment in a Closed-End Fund
Market Discount Risk. As
with any shares, the price of the Fund’s shares will fluctuate with market conditions and other factors. If shares are sold,
the price received may be more or less than the original investment. Common shares are designed for long-term investors and should
not be treated as trading vehicles. Common shares of closed-end management investment companies frequently trade at a discount
from their NAV. Common shares of closed-end management investment companies like the Fund that invest primarily in equity securities
have during some periods traded at prices higher than their NAV and during other periods traded at prices lower than their NAV.
The Fund cannot assure you that its common shares will trade at a price higher than or equal to NAV. In addition to NAV, the market
price of the Fund’s common shares may be affected by such factors as distribution levels, which are in turn affected by
expenses, distribution stability, liquidity, the market for equity securities of MLPs, and market supply and demand the Fund’s
shares may trade at a price that is less than the offering price.
Investment Risk. An investment
in the Fund’s common shares is subject to investment risk, including the possible loss of the entire amount that you invest.
An investment in common shares represents an indirect investment in the securities owned by the Fund. The value of these securities,
like other market investments, may move up or down. The Fund common shares at any point in time may be worth less than their value
at closing of the Merger.
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Additional Information (unaudited)
(continued) |
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Tortoise Energy Independence
Fund, Inc.
General. We are designed
primarily as a long-term investment vehicle and not as a trading tool. An investment in our securities should not constitute a
complete investment program for any investor and involves a high degree of risk. Due to the uncertainty in all investments, there
can be no assurance that we will achieve our investment objective. The value of an investment in our common stock could decline
substantially and cause you to lose some or all of your investment.
Non-Diversified Risk. We
are classified as a “non-diversified” investment company under the 1940 Act. Therefore, we may invest a relatively
high percentage of our assets in a smaller number of issuers or may invest a larger proportion of our assets in a single company.
As a result, we may be more susceptible than a diversified fund to any single corporate, political, geographic or regulatory occurrence.
Concentration Risk. Our
strategy of concentrating in North American energy investments, particularly upstream energy companies, means that our performance
will be closely tied to the performance of the energy industry. Our concentration in these investments may present more risk than
if we were broadly diversified over numerous industries and sectors of the economy. A downturn in these investments would have
a greater impact on us than on a fund that does not concentrate in such investments. At times, the performance of these investments
may lag the performance of other industries or the market as a whole. Risks inherent in the business of energy companies include:
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Commodity Price Volatility Risk. The volatility of energy
commodity prices can significantly affect energy companies due to the impact of prices on the volume of commodities developed,
produced, gathered and processed. Historically, energy commodity prices have been cyclical and exhibited significant volatility
which may adversely impact the value, operations, cash flows and financial performance of energy companies in which we invest. |
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Commodity prices fluctuate for several reasons
and can be swift, including changes in global and domestic energy market, general economic conditions, consumer demand, price
and level of foreign imports, the impact of weather on demand, levels of domestic and worldwide supply, levels of production
and imports, domestic and foreign governmental regulation, political instability, acts of war and terrorism, the success and
costs of exploration projects, conservation and environmental protection efforts, alternative energy, taxation and the availability
of local, intrastate and interstate transportation systems. |
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Supply and Demand Risk. A decrease in the exploration, production
or development of natural gas, NGLs, crude oil, refined petroleum products, or a decrease in the volume of such commodities,
may adversely impact the financial performance and profitability of energy companies. Production declines and volume decreases
could be caused by various factors, including changes in commodity prices, oversupply, depletion of resources, declines in
estimates of proved reserves, catastrophic events affecting production, labor difficulties, political events, production variance
from expectations, Organization of the Petroleum Exporting Countries (“OPEC”) actions, environmental proceedings,
increased regulations, equipment failures and unexpected maintenance problems or outages, inability to obtain necessary permits
or carryout new construction or acquisitions, unanticipated expenses, import supply disruption, increased competition from
alternative energy sources, and other events. All of the above is particularly true for new or emerging areas of supply in
North America that may have limited or no production history. Reductions in or prolonged periods of low prices for natural
gas and crude oil can cause a given reservoir to become uneconomic for continued production earlier than it would if prices
were higher. |
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A sustained decline in or varying demand for such commodities,
could also adversely affect the financial performance of energy companies. Factors that could lead to a decline in demand
include economic recession or other adverse economic conditions, political and economic conditions in other natural resource
producing countries including embargoes, hostilities in the Middle East, military campaigns and terrorism, OPEC actions, higher
fuel taxes or governmental regulations, increases in fuel economy, consumer shifts to the use of alternative fuel sources,
exchange rates, and changes in commodity prices or weather. |
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Reserve & Depletion Risk. Energy companies’ estimates
of proved reserves and projected future net revenue are generally based on internal reserve reports, engineering data, and
reports of independent petroleum engineers. Estimated reserves are based on many assumptions that may prove inaccurate and
require subjective estimates of underground accumulations and assumptions concerning future prices, production levels, and
operating and development costs. As a result, estimated quantities of proved reserves, projections of future production rates,
and the timing of related expenditures may prove to be inaccurate. Any material negative inaccuracies in these reserve estimates
or underlying assumptions could materially lower the value of upstream energy companies. Future natural gas, NGL and oil production
is highly dependent upon the success in acquiring or finding additional reserves that are economically recoverable. This can
be particularly true for new areas of exploration and development, such as in North American oil and gas reservoirs, including
shale. A portion of any one upstream company’s assets may be dedicated to crude oil or natural gas reserves that naturally
deplete over time and a significant slowdown in the identification or availability of reasonably priced and accessible proved
reserves for these companies could adversely affect their business. |
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Operating Risk. Energy companies are subject to many operating
risks, including: equipment failure causing outages; structural, maintenance, impairment and safety problems; transmission
or transportation constraints, inoperability or inefficiencies; dependence on a specified fuel source; changes in electricity
and fuel usage; availability of competitively priced alternative energy sources; changes in generation efficiency and market
heat rates; lack of sufficient capital to maintain facilities; significant capital expenditures to keep older assets operating
efficiently; seasonality; changes in supply and demand for energy; catastrophic and/or weather-related events such as spills,
leaks, well blowouts, |
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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uncontrollable flows, ruptures,
fires, explosions, floods, earthquakes, hurricanes, discharges of toxic gases and similar occurrences; storage, handling, disposal
and decommissioning costs; and environmental compliance. Breakdown or failure of an energy company’s assets may prevent
it from performing under applicable sales agreements, which in certain situations, could result in termination of the agreement
or incurring a liability for liquidated damages. As a result of the above risks and other potential hazards associated with energy
companies, certain companies may become exposed to significant liabilities for which they may not have adequate insurance coverage.
Any of the aforementioned risks could have a material adverse effect on the business, financial condition, results of operations
and cash flows of energy companies.
The energy industry is cyclical
and from time to time may experience a shortage of drilling rigs, equipment, supplies, or qualified personnel, or due to significant
demand, such services may not be available on commercially reasonable terms. A company’s ability to successfully and timely
complete capital improvements to existing or other capital projects is contingent upon many variables. Should any such efforts
be unsuccessful, an energy company could be subject to additional costs and / or the write-off of its investment in the project
or improvement. The marketability of oil and gas production depends in large part on the availability, proximity and capacity
of pipeline systems owned by third parties. Oil and gas properties are subject to royalty interests, liens and other burdens,
encumbrances, easements or restrictions, all of which could impact the production of a particular energy company. Oil and gas
companies operate in a highly competitive and cyclical industry, with intense price competition. A significant portion of their
revenues may depend on a relatively small number of customers, including governmental entities and utilities.
Energy companies engaged in
interstate pipeline transportation of natural gas, refined petroleum products and other products are subject to regulation by
the Federal Energy Regulatory Commission (“FERC”) with respect to tariff rates these companies may charge for pipeline
transportation services. An adverse determination by the FERC with respect to the tariff rates of an energy company could have
a material adverse effect on its business, financial condition, results of operations and cash flows and its ability to make cash
distributions to its equity owners.
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Regulatory Risk. Energy companies are
subject to regulation by governmental authorities in various jurisdictions and may be adversely affected by the imposition
of special tariffs and changes in tax laws, regulatory policies and accounting standards. Regulation exists in multiple aspects
of their operations, including reports and permits concerning exploration, drilling, and production; how facilities are constructed,
maintained and operated; how wells are spaced; the unitization and pooling of properties; environmental and safety controls,
including emissions release, the reclamation and abandonment of wells and facility sites, remediation, protection of endangered
species, and the discharge and disposition of waste materials; offshore oil and gas operations; and the prices they may charge
for the oil and gas produced or transported under federal and state leases and other products and services. Various governmental
authorities have the power to enforce compliance with these regulations and the permits issued under them, and violators are
subject to administrative, civil and criminal penalties, including fines, injunctions or both. Stricter laws, regulations
or enforcement policies could be enacted in the future which may increase compliance costs and may adversely affect the financial
performance of energy companies. Additionally, legislation has been proposed that would, if enacted into law, make significant
changes to U.S. federal income tax laws, including the elimination of certain U.S. federal income tax benefits currently available
to oil and gas exploration and production companies. |
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The use of methods such as hydraulic fracturing may be subject
to new or different regulation in the future. Any new state or federal regulations that may be imposed on hydraulic fracturing
could result in additional permitting and disclosure requirements (including of substances used in the fracturing process)
and in additional operating restrictions. The imposition of various conditions and restrictions on drilling and completion
operations could lead to operational delays and increased costs and, moreover, could delay or effectively prevent the development
of oil and gas from formations that would not be economically viable without the use of hydraulic fracturing. |
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Environmental Risk. Energy company activities are subject
to stringent environmental laws and regulation by many federal, state and local authorities, international treaties and foreign
governmental authorities. Failure to comply with such laws and regulations or to obtain any necessary environmental permits
pursuant to such laws and regulations could result in fines or other sanctions. Congress and other domestic and foreign governmental
authorities have either considered or implemented various laws and regulations to restrict or tax certain emissions, particularly
those involving air and water emissions. Existing environmental regulations could be revised or reinterpreted, new laws and
regulations could be adopted or become applicable, and future changes in environmental laws and regulations could occur, which
could impose significant additional costs. Energy companies have made and will likely continue to make significant capital
and other expenditures to comply with these and other environmental laws and regulations. There can be no assurance that such
companies would be able to recover all or any increased environmental costs from their customers or that their business, financial
condition or results of operations would not be materially and adversely affected by such expenditures or any changes in domestic
or foreign environmental laws and regulations, in which case the value of these companies’ securities could be adversely
affected. In addition, energy companies may be responsible for environmentally-related liabilities, including any on-site
liabilities associated with the environmental condition of facilities that it has acquired, leased or developed, or liabilities
from associated activities, regardless of when the liabilities arose and whether they are known or unknown. |
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Additional Information (unaudited)
(continued) |
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Hydraulic fracturing is a common
practice used to stimulate production of natural gas and/or oil from dense subsurface rock formations such as shales that generally
exist several thousand feet below ground. The companies in which we will invest commonly apply hydraulic-fracturing techniques
in onshore oil and natural gas drilling and completion programs. The process involves the injection of water, sand, and additives
under pressure into a targeted subsurface formation. The water and pressure create fractures in the rock formations, which are
held open by the grains of sand, enabling the oil or natural gas to flow to the wellbore. The use of hydraulic fracturing may
produce certain wastes that may in the future be designated as hazardous wastes and may thus become subject to more rigorous and
costly compliance and disposal requirements. The EPA has commenced a study of potential environmental effects of hydraulic fracturing
on drinking water and groundwater, with initial results expected to be available by late 2012 and final results by 2014 and, more
recently in October 2011, the EPA announced that it is launching a study regarding wastewater resulting from hydraulic fracturing
activities and currently plans to propose standards by 2014 that such wastewater must meet before being transported to a treatment
plant. Also, the Department of Energy is conducting an investigation into practices the agency could recommend to better protect
the environment from drilling using hydraulic fracturing completion methods and the Department of the Interior has proposed disclosure,
well testing and monitoring requirements for hydraulic fracturing on federal lands. The White House Council on Environmental Quality
and a committee of the US House of Representatives are reviewing hydraulic-fracturing practices. At the same time, legislation
has been introduced before Congress to provide for federal regulation of hydraulic fracturing and to require disclosure of the
chemicals used in the fracturing process. In addition, some states have adopted, and other states are considering adopting, regulations
that could impose more stringent permitting, disclosure and well construction requirements on hydraulic fracturing operations.
Additional regulations could be imposed that could include, among other things, limiting injection of oil and gas well wastewater
into underground disposal wells, due to concerns about the possibility of minor earthquakes being linked to such injection, an
indirect activity to drilling utilized in certain geographic regions. If new laws or regulations that significantly restrict hydraulic
fracturing or associated activity are adopted, such laws could make it more difficult or costly for the companies in which we
invest to perform fracturing to stimulate production from tight formations, which could adversely impact their production levels,
operations, cash flow and the value of their securities.
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Climate Change Regulation Risk. Climate
change regulation could result in increased operations and capital costs for the companies in which we invest. Voluntary initiatives
and mandatory controls have been adopted or are being discussed both in the U.S. and worldwide to reduce emissions of “greenhouse
gases” such as carbon dioxide, a by-product of burning fossil fuels, which some scientists and policymakers believe
contribute to global climate change. These measures and future measures could result in increased costs to certain companies
in which the Fund invests to operate and maintain facilities and administer and manage a greenhouse gas emissions program
and may reduce demand for fuels that generate greenhouse gases and that are managed or produced by companies in which we invest.
These actions could result in increased costs of operations and impact the demand and prices for fossil fuels. |
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Terrorism Risk. Energy companies, and the market for their
securities, are subject to disruption as a result of terrorist activities, such as the terrorist attacks on the World Trade
Center on September 11, 2001; war, such as the wars in Afghanistan and Iraq and their aftermaths; and other geopolitical events,
including upheaval in the Middle East or other energy producing regions. Cyber hacking could also cause significant disruption
and harm to energy companies. The U.S. government has issued warnings that energy assets, specifically those related to energy,
including exploration and production facilities, pipelines and transmission and distribution facilities, might be specific
targets of terrorist activity. Such events have led, and in the future may lead, to short-term market volatility and may have
long-term effects on companies in the energy industry and markets. Such events may also adversely affect our business and
financial condition. |
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Natural Disaster Risk. Natural risks, such as earthquakes,
flood, lightning, hurricanes, tsunamis, tornadoes and wind, are inherent risks in energy company operations. For example,
extreme weather patterns, such as Hurricane Ivan in 2004 and Hurricanes Katrina and Rita in 2005, the Tohuku earthquake and
resulting tsunami in Japan in 2011, or the threat thereof, could result in substantial damage to the facilities of certain
companies located in the affected areas and significant volatility in the supply of energy and could adversely impact the
prices of the securities in which we invest. This volatility may create fluctuations in commodity prices and earnings of energy
companies. |
Equity Securities Risk. Equity
securities can be affected by macroeconomic and other factors affecting the stock market in general, expectations about changes
in interest rates, investor sentiment toward such entities, changes in a particular issuer’s financial condition, or unfavorable
or unanticipated poor performance of a particular issuer. Prices of equity securities of individual entities also can be affected
by fundamentals unique to the company or partnership, including size, earnings power, coverage ratio and characteristics and features
of different classes of securities. Equity securities are susceptible to general stock market fluctuations and to volatile increases
and decreases in value. The equity securities held by the Fund may experience sudden, unpredictable drops in value or long periods
of decline in value. In addition, by writing covered call options, capital appreciation potential will be limited on a portion
of our investment portfolio.
MLP Risks. An investment
in MLP securities involves some risks that differ from the risks involved in an investment in the common stock of a corporation.
Holders of MLP units have limited control and voting rights on matters affecting the partnership. Holders of units issued by an
MLP are exposed to a possibility of liability for all of the obligations of that MLP in the event that a court determines that
the rights of the holders of MLP units to vote to remove or replace the general partner of that MLP, to approve amendments to
that MLP’s partnership agreement, or to take other action under the partnership agreement of that MLP would constitute “control”
of the business of that MLP, or a court or governmental agency determines that the MLP is conducting business in a state without
complying with the partnership statute of that state.
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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Holders of MLP units are also
exposed to the risk that they will be required to repay amounts to the MLP that are wrongfully distributed to them. In addition,
the value of our investment in an MLP will depend largely on the MLP’s treatment as a partnership for U.S. federal income
tax purposes. If an MLP does not meet current legal requirements to maintain partnership status, or if it is unable to do so because
of tax law changes, it would be treated as a corporation for U.S. federal income tax purposes. In that case, the MLP would be
obligated to pay income tax at the entity level and distributions received by us generally would be taxed as dividend income.
As a result, there could be a material reduction in our cash flow and there could be a material decrease in the value of our common
stock.
Certain MLPs in which we may
invest depend upon their parent or sponsor entities for the majority of their revenues. Were their parent or sponsor entities
to fail to make such payments or satisfy their obligations, the revenues and cash flows of such MLPs and ability of such MLPs
to make distributions to unit holders, such as us, would be adversely affected.
Non-U.S. Securities Risk.
Investments in securities of non-U.S. issuers (including Canadian issuers) involve risks not ordinarily associated with investments
in securities and instruments of U.S. issuers. For example, non-U.S. companies are not generally subject to uniform accounting,
auditing and financial standards and requirements comparable to those applicable to U.S. companies. Non-U.S. securities exchanges,
brokers and companies may be subject to less government supervision and regulation than exists in the U.S. Dividend and interest
income may be subject to withholding and other non-U.S. taxes, which may adversely affect the net return on such investments.
Because we intend to limit our investments to no more than 35% of our Total Assets in securities issued by non-U.S. issuers (including
Canadian issuers), we not be able to pass through to our stockholders any foreign income tax credits as a result of any foreign
income taxes we pay. There may be difficulty in obtaining or enforcing a court judgment abroad. In addition, it may be difficult
to effect repatriation of capital invested in certain countries. With respect to certain countries, there are also risks of expropriation,
confiscatory taxation, political or social instability or diplomatic developments that could affect the Fund’s assets held
in non-U.S. countries. There may be less publicly available information about a non-U.S. company than there is regarding a U.S.
company. Non-U.S. securities markets may have substantially less volume than U.S. securities markets and some non-U.S. company
securities are less liquid than securities of otherwise comparable U.S. companies. Non-U.S. markets also have different clearance
and settlement procedures that could cause the Fund to encounter difficulties in purchasing and selling securities on such markets
and may result in the Fund missing attractive investment opportunities or experiencing a loss. In addition, a portfolio that includes
securities issued by non-U.S. issuers can expect to have a higher expense ratio because of the increased transaction costs in
non-U.S. markets and the increased costs of maintaining the custody of such non-U.S. securities. When investing in securities
issued by non-U.S. issuers, there is also the risk that the value of such an investment, measured in U.S. dollars, will decrease
because of unfavorable changes in currency exchange rates. We may, but do not currently intend to, hedge our exposure to non-U.S.
currencies.
Capital Markets Risk. Global
financial markets and economic conditions have been, and may continue to be, volatile due to a variety of factors, including significant
write-offs in the financial services sector. Despite more stabilized economic activity, if the volatility continues, the cost
of raising capital in the debt and equity capital markets, and the ability to raise capital, may be impacted. In particular, concerns
about the general stability of financial markets and specifically the solvency of lending counterparties, may impact the cost
of raising capital from the credit markets through increased interest rates, tighter lending standards, difficulties in refinancing
debt on existing terms or at all and reduced, or in some cases ceasing to provide, funding to borrowers. In addition, lending
counterparties under existing revolving credit facilities and other debt instruments may be unwilling or unable to meet their
funding obligations. As a result of any of the foregoing, we or the companies in which we invest may be unable to obtain new debt
or equity financing on acceptable terms. If funding is not available when needed, or is available only on unfavorable terms, we
or the companies in which we invest may not be able to meet obligations as they come due. Moreover, without adequate funding,
energy companies may be unable to execute their growth strategies, complete future acquisitions, take advantage of other business
opportunities or respond to competitive pressures, any of which could have a material adverse effect on their revenues and results
of operations.
Rising interest rates could
limit the capital appreciation of equity units of energy companies as a result of the increased availability of alternative investments
at competitive yields. Rising interest rates may increase the cost of capital for companies operating in this sector. A higher
cost of capital or an inflationary period may lead to inadequate funding, which could limit growth from acquisition or expansion
projects, the ability of such entities to make or grow dividends or distributions or meet debt obligations, the ability to respond
to competitive pressures, all of which could adversely affect the prices of their securities.
In 2010, several European Union
(“EU”) countries, including Greece, Ireland, Italy, Spain, and Portugal, began to face budget issues, some of which
may have negative long-term effects for the economies of those countries and other EU countries. There is continued concern about
national-level support for the euro and the accompanying coordination of fiscal and wage policy among European Economic and Monetary
Union member countries. A return to unfavorable economic conditions could impair our ability to achieve our investment objective.
In addition, the events surrounding the recent negotiations regarding the U.S. federal government debt ceiling and the resulting
agreement could adversely affect us. In 2011, S&P lowered its long-term sovereign credit rating on the U.S. federal government
debt to “AA+” from “AAA.” We cannot predict the effects of these or similar events in the future on the
U.S. economy and securities markets or on our portfolio.
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Additional Information (unaudited)
(continued) |
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Credit Risk. Credit risk
refers to the possibility that the issuer of a security or other instrument will be unable to make timely interest payments and/or
repay the principal on its debt. Because we may invest up to 20% of our Total Assets in debt securities, including those rated
below investment grade, commonly referred to as “junk bonds,” we may be subject to a greater degree of credit risk
than a fund investing only in investment grade securities. Generally, lower-grade securities provide a higher yield than higher-grade
securities of similar maturity but are subject to greater risks, such as greater credit risk, greater volatility and greater liquidity
concerns. Such securities are generally regarded as predominantly speculative and are more susceptible to non-payment of interest
and principal and default than higher-grade securities and are more sensitive to specific issuer developments or real or perceived
general adverse economic changes than higher-grade securities. The market for lower-grade securities may also have less information
available than the market for other securities, further complicating evaluations and valuations of such securities.
Covered Call Risks. We
cannot guarantee that our covered call option strategy will be effective. There are several risks associated with transactions
in options on securities, including:
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There are significant differences between the
securities and options markets that could result in an imperfect correlation between these markets, causing a given covered
call option transaction not to achieve its objectives. A decision as to whether, when and how to use covered calls (or other
options) involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful because of
market behavior or unexpected events. |
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The use of options may require us to sell portfolio securities
at inopportune times or for prices other than current market values, may limit the amount of appreciation we can realize on
an investment, or may cause us to hold a security we might otherwise sell. As the writer of a covered call option, we forego,
during the option’s life, the opportunity to profit from increases in the market value of the security covering the
call option above the exercise price of the call option, but retain the risk of loss should the price of the underlying security
decline. Although such loss would be offset in part by the option premium received, in a situation in which the price of a
particular stock on which we have written a covered call option declines rapidly and materially or in which prices in general
on all or a substantial portion of the stocks on which we have written covered call options decline rapidly and materially,
we could sustain material depreciation or loss to the extent we do not sell the underlying securities (which may require it
to terminate, offset or otherwise cover our option position as well). |
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There can be no assurance that a liquid market will exist when
we seek to close out an option position. If we were unable to close out a covered call option that we had written on a security,
we would not be able to sell the underlying security unless the option expired without exercise. Reasons for the absence of
a liquid secondary market for exchange-traded options may include, but are not limited to, the following: (i) there may be
insufficient trading interest; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions
or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series
of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the trading facilities
may not be adequate to handle current trading volume; or (vi) the relevant exchange could discontinue the trading of options.
In addition, our ability to terminate OTC options may be more limited than with exchange-traded options and may involve the
risk that counterparties participating in such transactions will not fulfill their obligations. |
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The principal factors affecting the market value of an option include
supply and demand, interest rates, the current market price of the underlying security in relation to the exercise price of
the option, the dividend or distribution yield of the underlying security, the actual or perceived volatility of the underlying
security and the time remaining until the expiration date. Any of the foregoing could impact or cause to vary over time the
amount of income we are able to generate through our covered call option strategy. |
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The number of covered call options we can write is limited by the
number of shares of the corresponding common stock we hold. Furthermore, our covered call option transactions may be subject
to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are
traded. |
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If we fail to maintain any required asset coverage ratios in connection
with any use by us of leverage, we may be required to redeem or prepay some or all of our leverage instruments. Such redemption
or prepayment would likely result in our seeking to terminate early all or a portion of any option transaction. Early termination
of an option could result in a termination payment by or to us. |
Legal and Regulatory Risk.
Legal, tax and regulatory changes could occur and may adversely affect us or our ability to pursue our investment strategy
and/or increase the costs of implementing such strategies. New (or revised) laws or regulations may be imposed by the Commodity
Futures Trading Commission (“CFTC”), the SEC, the U.S. Federal Reserve or other banking regulators, other governmental
regulatory authorities or self-regulatory organizations that supervise the financial markets that could adversely affect us. In
particular, these agencies are empowered to promulgate a variety of new rules pursuant to recently enacted financial reform legislation
in the United States. We also may be adversely affected by changes in the enforcement or interpretation of existing statutes and
rules by these governmental regulatory authorities or self-regulatory organizations.
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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The recent instability in the
financial markets has led the U.S. government and foreign governments to take a number of unprecedented actions designed to support
certain financial institutions and segments of the financial markets that have experienced extreme volatility, and in some cases
a lack of liquidity. U.S. federal and state governments and foreign governments, their regulatory agencies or self-regulatory
organizations may take additional actions that affect the regulation of the securities in which we invest, or the issuers of such
securities, in ways that are unforeseeable and on an “emergency” basis with little or no notice, with the consequence
that some market participants’ ability to continue to implement certain strategies or manage the risk of their outstanding
positions has been suddenly and/or substantially eliminated or otherwise negatively impacted. Given the complexities of the global
financial markets and the limited timeframe within which governments have been able to take action, these interventions have sometimes
been unclear in scope and application, resulting in confusion and uncertainty, which in itself has been materially detrimental
to the efficient functioning of such markets as well as previously successful investment strategies. Decisions made by government
policy makers could exacerbate the current economic difficulties in the U.S. and other countries.
In addition, the securities
and futures markets are subject to comprehensive statutes, regulations and margin requirements. The CFTC, the SEC, the Federal
Deposit Insurance Corporation, other regulators and self-regulatory organizations and exchanges are authorized under these statutes,
regulations and otherwise to take extraordinary actions in the event of market emergencies. We and our Adviser have historically
been eligible for exemptions from certain regulations. However, there is no assurance that we or our Adviser will continue to
be eligible for such exemptions. For example, we have filed with the CFTC and the National Futures Association a notice claiming
an exclusion from the definition of the term “commodity pool operator” under Regulation 4.5 under the Commodity Exchange
Act, as amended (the “CEA”), with respect to our operation. However, the CFTC has recently adopted amendments to CFTC
Regulation 4.5, which, when effective, may subject our Adviser to regulation by the CFTC, and require it to operate us subject
to applicable CFTC requirements, including registration, disclosure and operational requirements. Compliance with these additional
requirements may increase our expenses. Certain of the rules that would apply to us if we becomes subject to CFTC regulation have
not yet been adopted, and while it is unclear what the effect of those rules would be on us if they are adopted, these rules could
potentially limit or restrict our ability to pursue our investment objective and execute our investment strategy.
Congress recently enacted legislation
that provides for new regulation of the derivatives market, including clearing, margin, reporting, recordkeeping, and registration
requirements. Because the legislation leaves much to agency rule making, its ultimate impact remains unclear. New regulations
could, among other things, restrict our ability to engage in derivative transactions (for example, by making certain types of
derivative transactions no longer available to us) and/or increase the costs of such derivative transactions (for example, by
increasing margin or capital requirements), and we may be unable to execute our investment strategy as a result. It is unclear
how the regulatory changes will affect counterparty risk.
The CFTC and certain futures
exchanges have established limits, referred to as “position limits,” on the maximum net long or net short positions
which any person may hold or control in particular options and futures contracts; those position limits may also apply to certain
other derivatives positions we may wish to take. All positions owned or controlled by the same person or entity, even if in different
accounts, may be aggregated for purposes of determining whether the applicable position limits have been exceeded. Thus, even
if we do not intend to exceed applicable position limits, it is possible that different clients managed by our Adviser and its
affiliates may be aggregated for this purpose. Therefore it is possible that the trading decisions of our Adviser may have to
be modified and that positions we hold may have to be liquidated in order to avoid exceeding such limits. The modification of
investment decisions or the elimination of open positions, if it occurs, may adversely affect our performance.
Performance and Distribution
Risk. We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase
the amount of these distributions from time to time. We cannot assure you that you will receive distributions at a particular
level or at all. Dividends and distributions on equity securities are not fixed but are declared at the discretion of the issuer’s
board of directors. If stock market volatility declines, the level of premiums from writing covered call options will likely decrease
as well. Payments to close-out written call options will reduce amounts available for distribution from gains earned in respect
of call option expiration or close out. The equity securities in which we invest may not appreciate or may decline in value. Net
realized and unrealized gains on the securities investments will be determined primarily by the direction and movement of the
applicable securities markets and the Fund’s holdings. Any gains that we do realize on the disposition of any securities
may not be sufficient to offset losses on other securities or option transactions. A significant decline in the value of the securities
in which we invest may negatively impact our ability to pay distributions or cause you to lose all or a part of your investment.
In addition, the 1940 Act may
limit our ability to make distributions in certain circumstances. Restrictions and provisions in any future credit facilities
and our debt securities may also limit our ability to make distributions. For federal income tax purposes, we are required to
distribute substantially all of our net investment income each year both to reduce our federal income tax liability and to avoid
a potential excise tax. If our ability to make distributions on our common stock is limited, such limitations could, under certain
circumstances, impair our ability to maintain our qualification for taxation as a RIC, which would have adverse consequences for
our stockholders.
Operating Results Risk. We
could experience fluctuations in our operating results due to a number of factors, including the return on our investments, the
level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses on our investments
and written call options, the level of call premium we receive by writing covered calls, the degree to which we encounter competition
in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon
as being indicative of performance in future periods.
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Additional Information (unaudited)
(continued) |
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Portfolio Turnover Risk.
We may, but under normal market conditions do not intend to, engage in frequent and active trading of portfolio securities
to achieve our investment objective. However, annual portfolio turnover as a result of our purchases and sales of equity securities
and call options in connection with our covered call option strategy may exceed 100%, which is higher than many other investment
companies and would involve greater trading costs to us and may result in greater realization of taxable capital gains.
Leverage Risk. Our use
of leverage through the issuance of preferred stock or debt securities, and any borrowings or other transactions involving indebtedness
(other than for temporary or emergency purposes) would be considered “senior securities” for purposes of the 1940
Act and create risks. Leverage is a speculative technique that may adversely affect common stockholders. If the return on securities
acquired with borrowed funds or other leverage proceeds does not exceed the cost of the leverage, the use of leverage could cause
us to lose money. Successful use of leverage depends on our Adviser’s ability to predict or hedge correctly interest rates
and market movements, and there is no assurance that the use of a leveraging strategy will be successful during any period in
which it is used. Because the fee paid to our Adviser will be calculated on the basis of Managed Assets, the fees will increase
when leverage is utilized, giving our Adviser an incentive to utilize leverage.
Our issuance of senior securities
involves offering expenses and other costs, including interest payments, which are borne indirectly by our common stockholders.
Fluctuations in interest rates could increase interest or distribution payments on our senior securities, and could reduce cash
available for distributions on common stock. Increased operating costs, including the financing cost associated with any leverage,
may reduce our total return to common stockholders.
The 1940 Act and/or the rating
agency guidelines applicable to senior securities impose asset coverage requirements, distribution limitations, voting right requirements
(in the case of the senior equity securities), and restrictions on our portfolio composition and our use of certain investment
techniques and strategies. The terms of any senior securities or other borrowings may impose additional requirements, restrictions
and limitations that are more stringent than those currently required by the 1940 Act, and the guidelines of the rating agencies
that rate outstanding senior securities. These requirements may have an adverse effect on us and may affect our ability to pay
distributions on common stock and preferred stock. To the extent necessary, we currently intend to redeem any senior securities
to maintain the required asset coverage. Doing so may require that we liquidate portfolio securities at a time when it would not
otherwise be desirable to do so.
Hedging and Derivatives Risk.
In addition to writing call options as part of the investment strategy, we may invest in derivative instruments for hedging
or risk management purposes. Our use of derivatives could enhance or decrease the cash available to us for payment of distributions
or interest, as the case may be. Derivatives can be illiquid, may disproportionately increase losses and have a potentially large
negative impact on our performance. Derivative transactions, including options on securities and securities indices and other
transactions in which we may engage (such as forward currency transactions, futures contracts and options thereon, and total return
swaps), may subject us to increased risk of principal loss due to unexpected movements in stock prices, changes in stock volatility
levels, interest rates and foreign currency exchange rates and imperfect correlations between our securities holdings and indices
upon which derivative transactions are based. We also will be subject to credit risk with respect to the counterparties to any
OTC derivatives contracts we purchased. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under
a derivative contract, we may experience significant delays in obtaining any recovery under the derivative contract in a bankruptcy
or other reorganization proceeding. We may obtain only a limited recovery or may obtain no recovery in such circumstances. In
addition, if the counterparty to a derivative transaction defaults, we would not be able to use the anticipated net receipts under
the derivative to offset our cost of financial leverage.
Interest rate transactions will
expose us to certain risks that differ from the risks associated with our portfolio holdings. There are economic costs of hedging
reflected in the price of interest rate swaps, floors, caps and similar techniques, the costs of which can be significant, particularly
when long-term interest rates are substantially above short-term rates. In addition, our success in using hedging instruments
is subject to our Adviser’s ability to predict correctly changes in the relationships of such hedging instruments to our
leverage risk, and there can be no assurance that our Adviser’s judgment in this respect will be accurate. Consequently,
the use of hedging transactions might result in a poorer overall performance, whether or not adjusted for risk, than if we had
not engaged in such transactions. There is no assurance that the interest rate hedging transactions into which we enter will be
effective in reducing our exposure to interest rate risk. Hedging transactions are subject to correlation risk, which is the risk
that payment on our hedging transactions may not correlate exactly with our payment obligations on senior securities. To the extent
there is a decline in interest rates, the value of certain derivatives could decline, and result in a decline in our net assets
Tax Risk. We intend to elect to be treated, and to qualify each year, as a RIC under the Code. To maintain our qualification
for federal income tax purposes as a RIC under the Code, we must meet certain source-of-income, asset diversification and annual
distribution requirements. If for any taxable year we fail to qualify for the special federal income tax treatment afforded to
regulated investment companies, all of our taxable income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to our stockholders) and our income available for distribution will be reduced.
Liquidity Risk. We may
invest in securities of any market capitalization and may be exposed to liquidity risk when trading volume, lack of a market maker,
or legal restrictions impair our ability to sell particular securities or close call option positions at an advantageous price
or a timely manner. We may invest in mid-capitalization and small-capitalization companies, which may be more volatile and more
likely than large-capitalization companies to have narrower product lines, fewer financial resources, less management depth and
experience and less competitive strength. In the event certain securities experience limited trading volumes, the prices of such
securities may display abrupt or erratic movements at times. These securities may be difficult to sell at a favorable price at
the times when we believe it is desirable to do so.
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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Delay in Use of Proceeds Risk. Although we expect
to fully invest the net proceeds of this offering within three to six months after the closing of this offering, such investments may
be delayed if suitable investments are unavailable at the time, if market conditions and volumes of securities are not favorable at the
time or for other reasons. As a result, the proceeds may be invested in money market mutual funds, cash, cash equivalents, securities
issued or guaranteed by the U.S. Government or its instrumentalities or agencies, high quality, short-term money market instruments,
short-term debt securities, certificates of deposit, bankers’ acceptances and other bank obligations, commercial paper or other
liquid debt securities. The three to six month timeframe associated with the anticipated use of proceeds could lower returns and lower
our yield in the first year after the issuance of the common stock.
Restricted Securities Risk. We may invest up to 30%
of our Total Assets in restricted securities that are ineligible for resale under Rule 144A, all of which may be illiquid securities.
Restricted securities (including Rule 144A securities) are less liquid than securities traded in the open market because of statutory
and contractual restrictions on resale. Such securities are, therefore, unlike securities that are traded in the open market, which can
be expected to be sold immediately if the market is adequate. This lack of liquidity may create special risks for us. However, we could
sell such securities in private transactions with a limited number of purchasers or in public offerings under the 1933 Act.
Restricted securities are subject to statutory and contractual
restrictions on their public resale, which may make it more difficult to value them, may limit our ability to dispose of them and may
lower the amount we could realize upon their sale. To enable us to sell our holdings of a restricted security not registered under the
1933 Act, we may have to cause those securities to be registered. The expenses of registering restricted securities may be determined
at the time we buy the securities. When we must arrange registration because we wish to sell the security, a considerable period may
elapse between the time the decision is made to sell the security and the time the security is registered so that we could sell it. We
would bear the risks of any downward price fluctuation during that period.
Rule 144A Securities Risk. We may purchase Rule 144A
securities. Rule 144A provides an exemption from the registration requirements of the 1933 Act for the resale of certain restricted securities
to qualified institutional buyers, such as us. Securities saleable among qualified institutional buyers pursuant to Rule 144A will not
be counted towards the 30% limitation on restricted securities. An insufficient number of qualified institutional buyers interested in
purchasing Rule 144A-eligible securities held by us, however, could affect adversely the marketability of certain Rule 144A securities,
and we might be unable to dispose of such securities promptly or at reasonable prices.
Anti-Takeover Provisions Risks. Maryland law and
our Articles of Incorporation (“Charter”) and Bylaws include provisions that could delay, defer or prevent other entities
or persons from acquiring control of us, causing us to engage in certain transactions or modifying our structure. These provisions may
be regarded as “anti-takeover” provisions. Such provisions could limit the ability of common stockholders to sell their shares
at a premium over the then-current market prices by discouraging a third party from seeking to obtain control of us.
Management Risk. To the extent that our Adviser’s
assets under management grow, our Adviser may have to hire additional personnel and, to the extent they are unable to hire or retain
qualified individuals, our operations may be adversely affected. There can be no guarantee that the Adviser’s application of investment
techniques, call option strategy and risk analyses in making investment decisions for us will produce the desired results.
Market Discount Risk. Shares of closed-end investment
companies frequently trade at a discount from net asset value but in some cases have traded above net asset value. Continued development
of alternatives as a vehicle for investing in listed energy infrastructure securities may contribute to reducing or eliminating any premium
or may result in our shares trading at a discount. The risk of the shares of common stock trading at a discount is a risk separate from
the risk of a decline in our net asset value as a result of investment activities. Our net asset value will be reduced immediately following
an offering of our common or preferred stock due to the offering costs for such stock, which are borne entirely by us. Although we also
bear the offering costs of debt securities, such costs are amortized over time and therefore do not impact our net asset value immediately
following an offering.
Whether stockholders will realize a gain or loss for federal
income tax purposes upon the sale of our common stock depends upon whether the market value of the common stock at the time of sale is
above or below the stockholder’s basis in such shares, taking into account transaction costs, and it is not directly dependent
upon our net asset value. Because the market value of our common stock will be determined by factors such as the relative demand for
and supply of the shares in the market, general market conditions and other factors beyond our control, we cannot predict whether our
common stock will trade at, below or above net asset value, or at, below or above the public offering price for our common stock.
Ecofin Sustainable and Social Impact Term Fund
Management Risk. Our ability to achieve our investment
objective is directly related to our Adviser’s and our Subadviser’s investment strategies for the Fund. The value of your
investment in our common shares may vary with the effectiveness of the research and analysis conducted by our Adviser and our Subadviser
and their ability to identify and take advantage of attractive investment opportunities. If the investment strategies of our Adviser
and our Subadviser do not produce the expected results, the value of your investment could be diminished or even lost entirely, and we
could underperform the market or other funds with similar investment objectives.
Asset Allocation Risk. Our investment performance
depends, at least in part, on how the Investment Committee of our Adviser allocates and reallocates our assets among the various asset
classes and security types in which we may invest. Such allocation decisions could cause our investments to be allocated to asset classes
and security types that perform poorly or underperform other asset classes and security types or available investments.
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Additional Information (unaudited) (continued) |
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Non-Diversified Risk. We are classified as a “non-diversified”
investment company under the 1940 Act. Therefore, we may invest a relatively high percentage of our assets in a smaller number of issuers
or may invest a larger proportion of our assets in a single issuer than a diversified fund. As a result, we may be more susceptible than
a diversified fund to any single corporate, political, geographic or regulatory occurrence.
Limited Term and Tender Offer Risks. We are scheduled
to dissolve as of the as of the close of business twelve years from the effective date of the initial registration statement of the Fund
(such date, including any extension, the “Termination Date”). Our investment policies are not designed to return to common
shareholders their original net asset value or purchase price. Our final distribution to common shareholders on the Termination Date
and the amount paid to participating common shareholders upon completion of an eligible tender offer will be based upon our net asset
value at such time. Our Declaration of Trust provides that an eligible tender offer (an “Eligible Tender Offer”) is a tender
offer by the Fund to purchase up to 100% of the then-outstanding common shares of beneficial interest (“common shares”) of
the Fund as of a date within the 12 months preceding the Termination Date. Depending on a variety of factors, including the performance
of our investment portfolio over the period of our operations, the amount distributed to common shareholders in connection with our termination
or paid to participating common shareholders upon completion of an Eligible Tender Offer may be less, and potentially significantly less,
than your original investment. Additionally, given the nature of certain of our investments, the amount actually distributed upon our
termination may be less than our net asset value per share on the Termination Date, and the amount actually paid upon completion of an
Eligible Tender Offer may be less than our net asset value per share on the expiration date of the Eligible Tender Offer.
Because our assets will be liquidated in connection with
our termination or to pay for common shares tendered in an Eligible Tender Offer, we may be required to sell portfolio securities when
we otherwise would not, including at times when market conditions are not favorable, which may cause us to lose money. Given the nature
of certain of our investments, particularly our direct investments, we may be unable to liquidate certain of our investments until well
after the Termination Date. In this case, we may make one or more additional distributions after the Termination Date of any cash received
from the ultimate liquidation of those investments. This would delay distribution payments, perhaps for an extended period of time, and
there can be no assurance that the total value of the cash distribution made on the Termination Date and such subsequent distributions,
if any, will equal our net asset value on the Termination Date, depending on the ultimate results of such post-Termination Date asset
liquidations. If, as a result of lack of market liquidity or other adverse market conditions, our Board of Directors determines it is
in the best interest of the Fund, we may transfer any portfolio investments that remain unsold on the Termination Date to a liquidating
trust and distribute interests in such liquidating trust to common shareholders as part of our final distribution. Interests in the liquidating
trust are expected to be nontransferable, except by operation of law. There can be no assurance as to the timing of or the value obtained
from the liquidation of any investments transferred to a liquidating trust.
The obligation to terminate on the Termination Date also
may impact adversely the implementation of our investment strategies. There can be no assurance that our Adviser and our Subadviser will
be successful in their efforts to minimize any detrimental effects on our investment performance caused by our obligation to liquidate
our investment portfolio and distribute all of our liquidated net assets to common shareholders of record on the Termination Date. In
particular, our Adviser and our Subadviser may face difficulties exiting our direct investments on or prior to the Termination Date at
favorable prices, if at all. In addition, as we approach the Termination Date, we may invest the proceeds of sold, matured or called
securities in money market mutual funds, cash, cash equivalents, securities issued or guaranteed by the U.S. government or its instrumentalities
or agencies, high quality, short-term money market instruments, short-term debt securities, certificates of deposit, bankers’ acceptances
and other bank obligations, commercial paper or other liquid debt securities, which may adversely affect our investment performance.
In the course of the liquidation, we must continue to satisfy the asset diversification requirements to qualify as a RIC for federal
income tax purposes, which may also have a negative effect on our investment performance. If we fail to comply with these requirements,
we may be liable for federal income tax in the year of the liquidation. Moreover, rather than reinvesting the proceeds of sold, matured
or called securities, we may distribute the proceeds in one or more liquidating distributions prior to the final liquidation, which may
cause fixed expenses to increase when expressed as a percentage of our total assets.
If we conduct an Eligible Tender Offer, we anticipate that
funds to pay the aggregate purchase price of common shares accepted for purchase pursuant to the tender offer will be first derived from
any cash on hand and then from the proceeds from the sale of portfolio investments. In addition, we may be required to dispose of portfolio
investments in connection with any reduction in our outstanding leverage necessary in order to maintain our desired leverage ratios following
an Eligible Tender Offer. The risks related to the disposition of portfolio investments in connection with our termination also would
be present in connection with the disposition of portfolio investments in connection with an Eligible Tender Offer. It is likely that
during the pendency of an Eligible Tender Offer, and possibly for a time thereafter, we will hold a greater than normal percentage of
our total assets in money market mutual funds, cash, cash equivalents, securities issued or guaranteed by the U.S. government or its
instrumentalities or agencies, high quality, short-term money market instruments, short-term debt securities, certificates of deposit,
bankers’ acceptances and other bank obligations, commercial paper or other liquid debt securities, which may adversely affect our
investment performance. If our tax basis for the portfolio investments sold is less than the sale proceeds, we will recognize capital
gains, which we will be required to distribute to common shareholders. In addition, our purchase of tendered common shares pursuant to
an Eligible Tender Offer will have tax consequences for tendering common shareholders and may have tax consequences for non-tendering
common shareholders. The purchase of common shares pursuant to an Eligible Tender Offer will have the effect of increasing the proportionate
interest in the Fund of non-tendering common shareholders. All shareholders remaining after an Eligible Tender Offer will be subject
to proportionately higher expenses due to the reduction in our total assets resulting from payment for the tendered common shares. Such
reduction in our total assets also may result in less investment flexibility, reduced diversification and greater volatility for the
Fund, and may have an adverse effect on our investment performance.
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2022 Annual Report | November 30, 2022
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Additional Information (unaudited) (continued) |
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We are not required to conduct an Eligible Tender Offer.
Our Declaration of Trust provides that, following an Eligible Tender Offer, the Fund must have at least $100 million of net assets to
ensure our continued viability (the “Termination Threshold”). If we conduct an Eligible Tender Offer, there can be no assurance
that the number of tendered common shares would not result in our net assets totaling less than the Termination Threshold, in which case
the Eligible Tender Offer will be terminated, no common shares will be repurchased pursuant to the Eligible Tender Offer and we will
terminate on the Termination Date subject to permitted extensions. Following the completion of an Eligible Tender Offer in which the
number of tendered common shares would result in our net assets totaling greater than the Termination Threshold, our Board of Directors
may eliminate the Termination Date upon the affirmative vote of a majority of our Board of Directors and without a vote of our shareholders.
Thereafter, we will have a perpetual existence. Our Adviser may have a conflict of interest in recommending to our Board of Directors
that the Termination Date be eliminated and we have a perpetual existence. We are not required to conduct additional tender offers following
an Eligible Tender Offer and conversion to perpetual existence. Therefore, remaining common shareholders may not have another opportunity
to participate in a tender offer. Shares of closed-end management investment companies frequently trade at a discount from their net
asset value, and as a result remaining common shareholders may only be able to sell their common shares at a discount to net asset value
Essential Asset-Based Investing Risks. Our focus on essential asset-based investments means that our performance will be closely
tied to the performance of issuers or projects in essential asset sectors such as the education, housing, healthcare, social and human
services, power, water, energy, infrastructure, basic materials, industrial, transportation and telecommunications sectors and the fiscal
and financial health of issuers of municipal securities funding essential asset projects. The concentration of our investments in these
sectors may present more risk than if we were broadly diversified over numerous industries and sectors of the economy. A downturn in
one or more of these sectors would have a greater impact on us than on a fund that does not focus on essential asset-based investments.
The performance of the securities of issuers in multiple essential asset sectors may react similarly to certain market, economic and
other factors. This correlation may be higher during periods of market stress, and there may be times when the performance of securities
of issuers in multiple essential asset sectors lags the performance of the market as a whole. There can be no assurance that the allocation
of our assets among securities of issuers across the range of essential asset sectors will provide our common shareholders with any of
the benefits typically associated with sector diversification.
In addition, our portfolio will be subject to sector specific
risks of the energy and energy infrastructure sector, sustainable infrastructure sector and social infrastructure sector. Accordingly,
we expect that the performance of our investment portfolio will be closely tied to the performance of these sectors. Risks inherent in
the businesses of such companies may include:
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Operating Risk. Energy and
infrastructure companies are subject to many operating risks, including equipment failure causing outages; structural, maintenance,
impairment and safety problems; transmission or transportation constraints, inoperability or inefficiencies; dependence on a specified
fuel source; changes in electricity and fuel usage; availability of competitively priced alternative energy sources; changes in generation
efficiency and market heat rates; lack of sufficient capital to maintain facilities; significant capital expenditures to keep older
assets operating efficiently; seasonality; changes in supply and demand for energy; catastrophic and/or weather-related events such
as spills, leaks, well blowouts, uncontrollable flows, ruptures, fires, explosions, floods, earthquakes, hurricanes, discharges of
toxic gases and similar occurrences; storage, handling, disposal and decommissioning costs; and environmental compliance. |
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The energy and infrastructure sectors are cyclical
and from time to time may experience a shortage of drilling rigs, equipment, supplies or qualified personnel. A company may not be
able to successfully and timely complete capital improvements to existing or other capital projects, which could subject the company
to additional costs and/or the write-off of its investment in the project or improvement. The marketability of oil and gas production
depends in large part on the availability, proximity and capacity of pipeline systems owned by third parties. Oil and gas properties
are subject to royalty interests, liens and other burdens, encumbrances, easements or restrictions, all of which could impact the
production of a particular energy company. Oil and gas companies operate in a highly competitive and cyclical industry, with intense
price competition. A significant portion of their revenues may depend on a relatively small number of customers, including governmental
entities and utilities. |
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Energy companies engaged in interstate pipeline transportation
of natural gas, refined petroleum products and other products are subject to federal regulation with respect to the tariff rates
these companies may charge for pipeline transportation services. An adverse determination with respect to the tariff rates of an
energy company could have a detrimental effect on its business. Clean energy-related investments are subject to many of the same
operating risks that apply to traditional energy companies, as described above. Such companies can also be negatively affected by
lower energy output resulting from variable inputs, mechanical breakdowns, faulty technology, competitive electricity markets or
changing laws that mandate the use of renewable energy sources by electric utilities. In addition, companies that engage in energy
efficiency projects may be unable to protect their intellectual property or face declines in the demand for their services due to
changing governmental policies or budgets, among other things. |
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Recently imposed tariffs on imports could affect a
number of energy sectors, including oil, gas, solar and wind sectors by increasing operating costs. |
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Construction Risk. To the
extent we invest in projects that involve significant construction, including but not limited to clean energy-related investments,
such projects are subject to construction risk. Construction delays may adversely affect companies that generate power from clean
sources. The ability of these projects to generate revenues will often depend upon their successful completion of the construction
and operation of generating assets. Capital equipment for renewable energy projects needs to be manufactured, shipped to project
sites, installed and tested on a timely basis. In addition, on-site roads, substations, interconnection facilities and other infrastructure
all need to be either |
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Additional Information (unaudited) (continued) |
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built or purchased and installed by the operating companies
of these projects. Construction phases may not be completed or may be substantially delayed, as a result of inclement weather, labor
disruptions, technical complications or other reasons, and material cost over-runs may be incurred, which may result in such projects
being unable to earn positive income, which could negatively impact the market values of our Direct Investments in clean energy-related
issuers. |
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Regulatory Risk. Energy and
infrastructure companies, including sustainable and social infrastructure companies, are subject to regulation by governmental authorities
in various jurisdictions and may be adversely affected by the imposition of special tariffs and changes in tax laws, regulatory policies
and accounting standards. Regulation exists in multiple aspects of their operations, including reports and permits concerning exploration,
drilling and production; how facilities are constructed, maintained and operated; how wells are spaced; the unitization and pooling
of properties; environmental and safety controls, including emissions release, the reclamation and abandonment of wells and facility
sites, remediation, protection of endangered species and the discharge and disposition of waste materials; offshore oil and gas operations;
and the prices they may charge for the oil and gas produced or transported under federal and state leases and other products and
services. Stricter laws, regulations or enforcement policies could be enacted in the future which may increase compliance costs and
may adversely affect the financial performance of such companies. Additionally, future legislation may make significant changes to
U.S. federal income tax laws, including the elimination of certain U.S. federal income tax benefits currently available to oil and
gas exploration and production companies. The use of methods such as hydraulic fracturing may be subject to new or different regulation
in the future. Any new state or federal regulations that may be imposed
on hydraulic fracturing could result in additional permitting and disclosure requirements (including of substances used in the fracturing
process) and in additional operating restrictions. The imposition of various conditions and restrictions on drilling and completion operations
could lead to operational delays and increased costs and, moreover, could delay or effectively prevent the development of oil and gas
from formations that would not be economically viable without the use of hydraulic fracturing. |
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The market for electricity generation projects is influenced
by U.S. federal, state and local government regulations and policies concerning the electric utility industry, as well as policies promulgated
by electric utilities. Customer purchases of, or further investment in the research and development of, clean energy technologies could
be deterred by these regulations and policies, which could result in a significant reduction in the potential demand for clean energy
project development and investments. For example, without certain major incentive programs and or the regulatory mandated exception for
clean energy systems, utility customers are often charged interconnection or stand by fees for putting distributed power generation on
the electric utility network. These fees could increase the cost to customers of using clean energy and make it less desirable. |
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Environmental Risk. Energy
and infrastructure company activities, including sustainable and social infrastructure company activities, are subject to stringent
environmental laws and regulation by many federal, state and local authorities, international treaties and foreign governmental authorities.
Failure to comply with such laws and regulations or to obtain any necessary environmental permits pursuant to such laws and regulations
could result in fines or other sanctions. Congress and other domestic and foreign governmental authorities have either considered
or implemented various laws and regulations to restrict or tax certain emissions, particularly those involving air and water emissions.
Existing environmental regulations could be revised or reinterpreted, new laws and regulations could be adopted or become applicable,
and future changes in environmental laws and regulations could occur, which could impose significant additional costs. Energy companies
have made and will likely continue to make significant capital and other expenditures to comply with these and other environmental
laws and regulations. There can be no assurance that such companies would be able to recover all or any increased environmental costs
from their customers. In addition, energy companies may be responsible for environmentally-related liabilities, including any on-site
liabilities associated with the environmental condition of facilities that it has acquired, leased or developed, or liabilities from
associated activities, regardless of when the liabilities arose and whether they are known or unknown. |
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Climate Change Regulation Risk. Climate change
regulation could result in increased operations and capital costs for the companies in which we invest. Voluntary initiatives and
mandatory controls have been adopted or are being discussed both in the United States and worldwide to reduce emissions of “greenhouse
gases” such as carbon dioxide, a by-product of burning fossil fuels, which some scientists and policymakers believe contribute
to global climate change. These measures and future measures could result in increased costs to certain companies in which we invest
and could impact the demand and prices for fossil fuels. |
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Government Incentives Risk. The reduction or
elimination of government economic incentives could impede growth of certain essential asset issuers including in particular clean
energy companies. Because a significant portion of the revenues to the clean energy-related issuers in which we expect to invest
are expected to involve the market for the international and domestic electricity grids, the reduction or elimination of government
and economic incentives may adversely affect the growth of this market or result in increased price competition. |
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Renewable Energy Risk. Renewable energy companies
are dependent upon factors such as available solar resource, wind conditions, weather conditions and power generating equipment performance
that may significantly impact the performance of such companies. Solar, wind and weather conditions generally have natural
variations from season to season and from year to year and may also change permanently because of climate change or other factors. Solar
and wind energy is highly dependent on weather conditions and, in particular, on available solar and wind conditions. Moreover, power
generating equipment used generally by renewable energy companies is accompanied by the attendant costs of maintaining such equipment
while in use and subject to risks of obsolescence associated with emerging and disruptive new technologies. |
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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Gas Risk. Gas transmission
companies and gas distribution companies are undergoing significant changes. Many companies have diversified into oil and gas exploration
and development, making returns more sensitive to energy prices. Gas utility companies have been adversely affected by disruptions
in the oil industry and have also been affected by increased concentration and competition. In certain jurisdictions, acquisitions
and dispositions in this industry might require regulatory approvals and be subject to significant regulatory requirements. Obtaining
any such approvals and complying with any such regulatory requirements may be costly and/or time-consuming to obtain. For example,
in the United States, interstate transmission companies are regulated by the Federal Energy Regulatory Commission (“FERC”),
so certain of the Fund’s acquisitions and dispositions may be subject to FERC approval under the U.S. Federal Power Act, as
amended. |
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Commodity Price Volatility Risk.
The volatility of energy commodity prices can significantly affect energy companies due to the impact of prices on the volume
of commodities developed, produced, gathered and processed. In addition, the performance of clean energy-related investments may
be affected by changes in the market price of electricity. |
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Historically, commodity prices have been cyclical and
exhibited significant volatility, which may adversely impact the market prices, operations, cash flows and financial performance
of our investments in the energy sector. Commodity prices fluctuate for several reasons, including changes in global and domestic
energy market, general economic conditions, consumer demand, price and level of foreign imports, the impact of weather on demand,
levels of domestic and worldwide supply, levels of production and imports, domestic and foreign governmental regulation, political
instability, acts of war and terrorism, the success and costs of resource development, conservation and environmental protection
efforts, competition from other sources, taxation and the availability of local, intrastate and interstate transportation systems. |
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Supply and Demand Risk. A
decrease in the exploration, production or development of natural gas, natural gas liquids, crude oil or refined petroleum products,
or a decrease in the volume of such commodities, may adversely impact the financial performance and profitability of energy companies.
Production declines and volume decreases could be caused by various factors, including changes in commodity prices, oversupply, depletion
of resources, declines in estimates of proved reserves, catastrophic events affecting production, labor difficulties, political events,
production variance from expectations, Organization of the Petroleum Exporting Countries (“OPEC”) actions, environmental
proceedings, increased regulations, equipment failures and unexpected maintenance problems or outages, inability to obtain necessary
permits or carry out new construction or acquisitions, unanticipated expenses, import supply disruption, increased competition from
alternative energy sources and other events. Reductions in or prolonged periods of low prices for natural gas and crude oil can cause
a given reservoir to become uneconomic for continued production earlier than it would if prices were higher. |
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A sustained decline in or varying demand for such commodities
could also adversely affect the financial performance of energy companies. Factors that could lead to a decline in demand include
economic recession or other adverse economic conditions, political and economic conditions in other natural resource producing countries
including embargoes, hostilities in the Middle East, military campaigns and terrorism, OPEC actions, higher fuel taxes or governmental
regulations, increases in fuel economy, consumer shifts to the use of alternative fuel sources, exchange rates and changes in commodity
prices or weather. |
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Water Risk. Water supply
utilities are companies that collect, purify, distribute and sell water. In the United States and around the world the industry is
highly fragmented because most of the supplies are owned by local authorities. Companies in this industry are generally mature and
are experiencing little or no per capita volume growth. Water supply utilities are subject to the risk of existing or future environmental
contamination, including, among others, soil and groundwater contamination as well as the delivery of contaminated water, as a result
of the spillage of hazardous materials or other pollutants. Water supply utilities are also subject to the risk of increased costs,
which may result from a number of factors, including fluctuations in water availability or costs associated with desalination. |
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Public Infrastructure Risks. We may invest in
public infrastructure projects that constitute significant strategic value to public or governmental bodies. Such assets may have
a national or regional profile and may have monopolistic or oligopolistic characteristics. The very nature of these assets could
create additional risks not common in other industry sectors. Given the national or regional profile and/or irreplaceable nature
of certain strategic assets, such assets may constitute a higher risk target for terrorist acts or political actions, such as expropriation,
which may negatively affect the operations, revenue, profitability or contractual relationships of investments. For example, in response
to public pressure and/or lobbying efforts by specific interest groups, government entities may put pressure on these investments
to reduce toll rates, limit or abandon planned rate increases and/or exempt certain classes of users from tolls. Given the essential
nature of the services provided by certain public infrastructure, there is also a higher probability that if an owner of such assets
fails to make such services available, users of such services may incur significant damage and may be unable to replace the supply
or mitigate any such damage, thereby heightening the risks of third-party claims. These assets are also impacted by the interests
of local communities and stakeholders, which may affect the operation of such assets. Certain of these communities may have or develop
interests or objectives which are different from, or even in conflict with, the owners of such assets. |
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Education Risks. Education facilities may be
impacted by risks beyond their operating and financial performance, including being adversely impacted by changes in the political
environment, public sentiment or regulation. This could cause a reduction or loss in funding from local, state and federal governments.
Additionally, certain education facilities (such as charter schools) are also operated pursuant to charters granted by various state
or other regulatory authorities and are dependent upon compliance with the terms of such charters in order to obtain funding from
local, state and federal governments and we can be adversely affected by a facility’s failure to comply with its charter, an
adverse audit or review, or non-renewal or revocation of a charter. |
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Additional Information (unaudited) (continued) |
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Equity Securities
Equity Securities Risk, Including Common Stock Risk.
Market prices of common stocks and other equity securities may be affected by macroeconomic and other factors affecting the stock market
in general, including changes in financial or political conditions that may affect particular industries or the economy in general and
changes in investor sentiment. Prices of equity securities of individual issuers also can be affected by fundamentals unique to the issuer,
including changes, or perceived changes, in the issuer’s business, financial condition or prospects, and may fall to zero in the
event of the issuer’s bankruptcy. Equity security prices have historically experienced periods of significant volatility, particularly
during recessions or other periods of financial stress, and can be expected to experience significant volatility in the future. The equity
securities we hold may undergo sudden, unpredictable drops in price or long periods of price decline. There can be no assurance that
the level of dividends paid with respect to the dividend paying equity securities in which we invest will be maintained. In addition,
by writing covered call options on a portion of the listed equity securities in our investment portfolio, the capital appreciation potential
of such securities will be limited.
The performance of certain of the equity securities in which
we invest, including certain common stocks and the preferred equities and MLPs in which we invest, may be sensitive to changes in market
interest rates and, accordingly, may be more highly correlated than the broader equity markets with the performance of debt securities,
including the debt securities in which we invest. Accordingly, there can be no assurance that the allocation of our assets among equity
and debt securities will provide our common shareholders with any of the benefits typically associated with asset class diversification.
Small- and Mid-Capitalization Company Risk. Investing
in equity securities of small-capitalization and mid-capitalization companies may involve greater risks than investing in equity securities
of larger, more established companies. Small-capitalization and mid-capitalization companies generally have limited product lines, markets
and financial resources. Their equity securities may trade less frequently and in more limited volumes than the equity securities of
larger, more established companies. Also, small-capitalization and mid-capitalization companies are typically subject to greater changes
in earnings and business prospects than larger companies. As a result, the market prices of their equity securities may experience greater
volatility and may decline more than those of large-capitalization companies in market downturns.
Preferred Equity Risk. The right of a holder of an
issuer’s preferred equity to distributions, dividends and liquidation proceeds is junior to the rights of the issuer’s creditors,
including holders of debt securities. Market prices of preferred equities may be subject to factors that affect debt and equity securities,
including changes in market interest rates and changes, or perceived changes, in the issuer’s creditworthiness. Holders of preferred
equity may suffer a loss of value if distribution or dividend rates are reduced or distributions or dividends are not paid. Under normal
conditions, holders of preferred equity usually do not have voting rights with respect to the issuer. The ability of holders of preferred
equity to participate in the issuer’s growth may be limited.
MLP Risks. An investment in MLPs involves some risks
that differ from the risks involved in an investment in the common stock of a corporation. Holders of MLP common units have limited control
and voting rights on matters affecting the MLP. Holders of MLP common units are exposed to a possibility of liability for all of the
obligations of that MLP in the event that a court determines that the rights of the holders of MLP common units to vote to remove or
replace the general partner of the MLP, to approve amendments to the MLP’s organizational documents or to take other action under
the MLP’s organizational documents would constitute “control” of the business of that MLP, or a court or governmental
agency determines that the MLP is conducting business in a state without complying with the limited partnership or LLC statute of that
state.
Holders of MLP common units are also exposed to the risk
that they will be required to repay amounts to the MLP that are wrongfully distributed to them. In addition, the market value of our
investment in an MLP will depend largely on the MLP’s treatment as a qualified publicly traded partnership for federal income tax
purposes. If an MLP does not meet current legal requirements to maintain status as a publicly traded partnership that is taxed as a partnership
for federal income tax purposes or if it is unable to do so because of changes in tax laws or regulations, it would be treated as a corporation
for federal income tax purposes. In that case, the MLP would be obligated to pay income tax at the entity level, and distributions received
by us generally would be taxed as dividend income. As a result, there could be a material reduction in our cash flow and there could
be a material decrease in the market price of our common shares.
Certain MLPs in which we may invest depend upon their parent
or sponsor entities for the majority of their revenues. If the parent or sponsor entity of such an MLP fails to make such payments or
satisfy its obligations, the revenues and cash flows of the MLP and the ability of the MLP to make distributions to common unit holders,
such as us, would be adversely affected.
Debt Securities
Debt Securities Risks. Investments in debt securities
are generally subject to credit risk, extension risk, interest rate risk, prepayment risk and spread risk:
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Credit Risk. Credit risk
is the risk that the market value of debt securities may decline if the issuer or the borrower, or a guarantor, defaults or otherwise
becomes unable or unwilling, or is perceived to be unable or unwilling, to honor its financial obligations, such as making timely
payments of principal or interest. We could lose money if the issuer of or borrower under, or a guarantor of, a debt security defaults
or is unable or unwilling to make timely principal or interest payments. The lower quality or unrated securities in which we invest
may present increased credit risk as compared to higher rated securities, including the possibility of default or bankruptcy. |
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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Extension Risk. During periods
of rising market interest rates, it becomes more expensive for a borrower to refinance its existing debt obligations. During such
periods, repayments of debt securities may occur more slowly than anticipated by the market because the issuer or borrower will prefer
to pay interest at a lower rate. This may cause the market prices of such debt securities to decline. |
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Interest Rate Risk. The market prices of debt
securities typically decline in the event of increases in market interest rates, which are currently near historically low levels.
Changes in government policy may cause market interest rates to rise, which may result in periods of market volatility or harm our
performance and net asset value. Declines in market interest rates also may increase prepayments of debt securities, which, in turn,
would increase prepayment risk. Debt securities with longer maturities tend to be more sensitive to changes in market interest rates,
typically making their prices more volatile than securities with shorter maturities. The Federal Reserve recently raised the federal
funds rate several times, and has indicated that it may continue to do so. Therefore, there is a risk that interest rates will rise,
which will likely drive down bond prices. |
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Prepayment, Call or Reinvestment Risk. Many
issuers and borrowers have a right to prepay their debt securities prior to the stated maturity date. If market interest rates fall,
an issuer or borrower may exercise this right in order to refinance its debt obligations at a lower rate. In that event, a holder
of the issuer’s or borrower’s debt securities will not benefit from the rise in market price that normally accompanies
a decline in market interest rates. Reinvestment risk is the risk that, upon the sale or repayment (at maturity or otherwise) of
debt securities we hold, we will be required to reinvest the proceeds in debt securities paying lower interest rates than the debt
securities that were sold or repaid. In this event, our distribution rate may decline. A decline in the income we receive from our
investments is likely to have a negative effect on our market price, net asset value and/or overall return. |
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Spread Risk. Wider credit
spreads and decreasing market values typically represent a deterioration of a debt security’s credit soundness and a perceived
greater likelihood or risk of default by the issuer. High Yield Securities Risks. High yield debt securities, commonly referred to
as “junk” bonds, are debt securities rated below investment grade (i.e., BB+/Ba1 or lower) or unrated securities that
our Adviser or Subadviser deems to be of comparable quality. These securities may be subject to greater levels of credit and liquidity
risk than debt securities rated investment grade. In addition, high yield debt securities generally have greater price fluctuations,
are less liquid and are more likely to experience a default than higher rated debt securities. High yield debt securities are considered
predominately speculative with respect to the issuer’s continuing ability to make principal and interest payments. High yield
debt securities are especially subject to adverse changes in general economic conditions and in the industries in which the issuers
are engaged, to changes in the financial condition of the issuers and to price fluctuations in response to changes in interest rates. |
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During recessions, other periods of financial stress
or periods of rising interest rates, highly leveraged issuers may experience financial stress that could adversely affect their ability
to make payments of interest and principal and increase the possibility of default. The market prices of high yield debt securities
have historically been subject to significant, rapid declines, reflecting an expectation that many issuers of such securities might
experience financial difficulties. In these events, the yields on high yield debt securities rise dramatically, reflecting the risk
that holders of such securities could lose a substantial portion of the value of their investment as a result of the issuers’
financial restructuring or default. It can be expected that similar market price declines will occur in the future. The market for
high yield debt securities generally is thinner and less active than that for higher rated securities, which may limit our ability
to sell such securities at fair value in response to changes in the economy or financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, also may decrease the market prices and liquidity of high yield debt securities,
especially in a thinly traded market. Changes by NRSROs in their rating of a debt security may affect the market price of such security.
Analysis of the creditworthiness of issuers of high yield debt securities may be more complex than for issuers of higher-quality
debt securities, and our ability to achieve our investment objective may, to the extent we invest in high yield debt securities,
be more dependent upon our Adviser’s credit analysis than would be the case if we were investing in higher-quality debt securities. |
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The corporate debt securities in which we invest generally
will be high yield debt securities. Because the performance of high yield corporate debt securities, especially during periods of
market stress, may be affected by changes, or perceived changes, in the issuer’s business, financial condition or prospects,
the performance of our investments in high yield corporate debt securities may be correlated with the performance of equity securities,
including the equity securities in which we invest. Accordingly, there can be no assurance that the allocation of our assets among
equity and debt securities will provide our common shareholders with any of the benefits typically associated with asset class diversification. |
Defaulted Securities Risks. Defaulted securities
are speculative and involve substantial risks in addition to the risks of investing in high yield securities or unrated securities of
comparable quality that have not defaulted. We generally will not receive interest payments on the defaulted securities and there is
a substantial risk that principal will not be repaid. We may incur additional expenses to the extent we are required to seek recovery
upon a default in the payment of principal of or interest on our portfolio holdings. In any reorganization or liquidation proceeding
relating to a defaulted security, we may lose the value of our entire investment or may be required to accept cash or securities with
a value less than our original investment. Defaulted securities and any securities received in exchange for defaulted securities may
be subject to restrictions on resale.
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Additional Information (unaudited) (continued) |
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Bank Loan and Loan Participation Risks. Investing
in bank loans involves risks that are additional to and different from those relating to investing in other types of debt securities.
Any specific collateral used to secure a bank loan may decline in value or become illiquid, which would adversely affect the loan’s
value. In the event of a borrower’s bankruptcy or other default, we could experience delays or limitations with respect to our
ability to realize the benefits of the collateral securing a bank loan, and there can be no assurance regarding the value that may be
obtained upon the sale of collateral. No active trading market may exist for certain bank loans or loan participations, which may impair
our ability to realize full value in the event we need to sell a loan or loan participation and make it difficult for us to value the
bank loans and loan participations in which we invest. Adverse market conditions may impair the liquidity of some actively traded bank
loans and loan participations. To the extent that a secondary market does exist for certain bank loans and loan participations, the market
may be subject to irregular trading activity and wide bid/ask spreads, which may result in limited liquidity and pricing transparency.
In addition, bank loans and loan participations may be subject to restrictions on sales or assignment and generally are subject to extended
settlement periods that may be longer than seven days.
Subordinated loans are lower in priority of payment than
senior loans. Accordingly, they are typically lower rated and subject to greater risk that the cash flow of the borrower and the collateral
securing the loan, if any, may be insufficient to meet scheduled payments after giving effect to the borrower’s senior debt obligations.
Subordinated loans generally have greater price volatility than senior loans and may be less liquid. We may not be able to unilaterally
enforce all rights and remedies under a bank loan and with regard to any associated collateral. If we purchase a loan participation,
we generally will have no direct right to enforce compliance by the borrower with the terms of the loan agreement, and we may not directly
benefit from the collateral securing the underlying debt obligation. As a result, we would be exposed to the credit risk of both the
borrower under the bank loan and the lender selling the participation.
There is typically less available information about most
bank loans than is the case for many other types of debt instruments. Bank loans may not be deemed to be “securities” for
purposes of the federal securities laws, and bank loan investors may not have the protections of the anti-fraud provisions of the federal
securities laws and must rely instead on contractual provisions in loan agreements and applicable common-law fraud protections.
Municipal-Related Securities Risks. The yields on,
and market prices of, municipal-related securities are dependent on a variety of factors, including general conditions of the municipal
securities market, the size of a particular offering, the maturity of the obligation and the rating of the particular issue. The ability
of issuers of municipal-related securities to make timely payments of interest and repayments of principal may be diminished during general
economic downturns including in respect of potential reallocations of cost burdens among federal, state and local governments or among
parties involved with operating and managing our issuers. In addition, laws enacted in the future by Congress or state legislatures or
referenda could extend the time for payment of principal and/or interest, or impose other constraints on enforcement of such obligations
or on the ability of municipalities to levy taxes.
Issuers of municipal-related securities might seek protection
under the bankruptcy laws. In the event of bankruptcy of such an issuer, we could experience delays in collecting principal and interest
and we may not be able to collect all principal and interest to which we are entitled.
The availability of information in the municipal-related
securities market is less than in other markets, increasing the difficulty of evaluating and valuing securities. As a result, our investment
performance may be more dependent on the analytical abilities of our Adviser. The municipal-related securities we hold may be secured
by payments to be made by private entities, and changes in market conditions affecting such securities, including the downgrade of a
private entity obligated to make such payments, could have a negative impact on the value of our investments, the municipal-related securities
market generally or our performance. We may invest in municipal-related securities that are unsecured. While such unsecured investments
may benefit from the same or similar financial and other covenants available to indebtedness ranking ahead of the investments and may
benefit from cross-default provisions and security over an issuer’s assets, some or all of such terms may not be part of particular
investments. Moreover, our ability to influence an issuer’s affairs, especially during periods of financial distress or following
an insolvency, is likely to be substantially less than that of senior creditors. For example, under typical subordination terms, senior
creditors are able to block the acceleration of the debt or the exercise by debt holders of other rights they may have as creditors.
Accordingly, we may not be able to take steps to protect our investments in a timely manner or at all and there can be no assurance that
our rate of return objectives overall or any particular investment will be achieved. The municipal-related securities market is a highly
fragmented market that is very technically driven and it is expected that there will be regional variations in economic conditions or
supply-demand fundamentals. Because the Fund expects to invest less than 50% of its total assets in tax-exempt municipal-related securities,
the Fund does not expect to be eligible to pay “exempt interest dividends” to shareholders and interest on municipal-related
securities will be taxable to shareholders of the Fund when received as a distribution from the Fund.
In addition, our investments may be more sensitive to adverse
economic, business and/or political developments if our investment portfolio includes a substantial portion of its assets in the securities
of similar or related projects and/or types municipal-related securities (for example only, revenue bonds, general obligation bonds or
private activity bonds) as such events may adversely affect a specific industry or local political and economic conditions, leading to
declines in the creditworthiness and value of our investments. The secondary market for certain municipal-related securities, particularly
below investment grade municipal-related securities, tends to be less well-developed or liquid than many other securities markets, which
may adversely affect our ability to sell our investments at attractive prices.
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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Municipal leases and certificates of participation involve
special risks not normally associated with general obligation or revenue bonds. Leases and installment purchase or conditional sale contracts
(which typically provide for title to the leased asset to pass eventually to the governmental issuer) are typically utilized as a means
for governmental issuers to acquire property and equipment without meeting constitutional and statutory requirements for the issuance
of debt. The debt issuance limitations are deemed to be inapplicable because of the inclusion in many leases or contracts of “non-appropriation”
clauses that relieve the governmental issuer of any obligation to make future payments under the lease or contract unless money is appropriated
for such purpose by the appropriate legislative body on a yearly or other periodic basis. In addition, such leases or contracts may be
subject to the temporary abatement of payments in the event the governmental issuer is prevented from maintaining occupancy of the leased
premises or utilizing the leased equipment. Although the obligations may be secured by the leased equipment or facilities, the disposition
of the property in the event of non-appropriation or foreclosure might prove difficult, time consuming and costly, and may result in
a delay in recovering or the failure to fully recover our original investment. In the event of non-appropriation, an issuer would be
in default, and taking ownership of the assets may be a remedy available to us, although we do not anticipate that such a remedy would
normally be pursued. Certificates of participation, which represent interests in unmanaged pools of municipal leases or installment contracts,
involve the same risks as the underlying municipal leases. In addition, we may be dependent upon the municipal authority issuing the
certificates of participation to exercise remedies with respect to the underlying securities. Certificates of participation also entail
a risk of default or bankruptcy, both of the issuer of the municipal lease and also the municipal agency issuing the certificate of participation.
The municipal-related securities in which we invest generally
will be directly originated municipal securities. Directly originated securities represent obligations structured directly by a single
purchaser, or a limited number of institutional purchasers, and the issuer, and are typically not rated by credit rating agencies. We
expect that the directly originated municipal-related securities in which we invest generally will be deemed by our Adviser to be of
comparable quality to securities rated below investment grade and that such securities will belong to relatively small issues. We expect
that the directly originated municipal-related securities in which we invest will have limited trading markets and therefore will tend
to be less liquid than municipal securities rated investment grade or issued by traditional municipal issuers. This may make it difficult
for us to value the municipal-related securities in which we invest. In addition, we will likely be able to sell such municipal-related
securities only in private transactions with another investor or group of investors, and there can be no assurance that we will be able
to successfully arrange such transactions if and when we desire to sell any of our municipal related securities or, if successfully arranged,
that we will be able to obtain favorable values upon the sale of our municipal-related securities in such transactions.
Additional risks for investing in municipal securities depending
on the types of each securities include:
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Municipal Note Risks. Municipal
notes are shorter term municipal debt obligations that typically provide interim financing in anticipation of tax collection, bond
sales or revenue receipts. To the extent there is a shortfall in the anticipated proceeds, the notes may not be fully repaid by an
issuer and our returns would be adversely affected. |
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Private Activity Bond Risks. Private activity
bonds are, in most cases, tax-exempt securities issued by states, municipalities or public authorities to provide funds, typically
through a loan or lease arrangement, to a private entity for the purpose of financing construction or improvement of a facility to
be used by the entity. Such bonds are secured typically by revenues derived from loan repayments or lease payments due from the entity,
which may or may not be guaranteed by a parent entity or otherwise secured. Private activity securities generally are not secured
by a pledge of the taxing power of the issuer of such bonds. Repayment of such securities generally depends on the revenues of a
private entity and may be subject to additional risk of non-payment. |
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General Obligation Bond Risks. General obligation
bonds are secured by the issuer’s pledge of its full faith, credit and taxing power for the payment of principal and interest.
Timely payments by the issuer and the repayment of principal when due depend on its credit quality, ability to raise tax revenues
and ability to maintain an adequate tax base. The taxing power of any governmental entity may be limited, however, by provisions
of its state constitution or laws, and an entity’s creditworthiness will depend on many factors, including, for example only,
potential erosion of its tax base due to population declines, natural disasters, declines in the state’s industrial base or
inability to attract new industries, economic limits on the ability to tax without eroding the tax base, state legislative proposals
or voter initiatives to limit ad valorem real property taxes and the extent to which the entity relies on federal or state aid, access
to capital markets or other factors beyond the state’s or entity’s control. |
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Revenue Bond Risks. Revenue bonds are payable
only from the revenues derived from a particular facility or class of facilities or, in certain cases, from the proceeds of a special
excise tax or other specific revenue source (for example, payments from the user of the facility being financed) and accordingly,
the timely payment of interest and the repayment of principal in accordance with the terms of the revenue or special obligation bond
depends on the economic viability of such facility or such revenue source. |
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Moral Obligation Bond Risks. Moral obligation
bonds are typically issued by special purpose public authorities. If an issuer of moral obligation bonds is unable to meet its obligations,
the repayment of such bonds becomes a moral commitment but not a legal obligation of the state or municipality that created the special
purpose public authority that issued the bonds. |
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Municipal Commercial Paper Risks. Municipal
commercial paper is typically unsecured and issued to meet short-term financing needs. The lack of security presents some risk of
loss to us since, in the event of an issuer’s bankruptcy, unsecured creditors are repaid only after the secured creditors out
of the assets, if any, that remain. |
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Additional Information (unaudited) (continued) |
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Municipal Lease Obligation Risks.
Certificates of participation issued by government authorities or entities to finance the acquisition or construction of equipment,
land and/or facilities represent participations in a lease, an installment purchase contract or a conditional sales contract relating
to such equipment, land or facilities and as with debt obligations, are subject to the risk of non-payment. |
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Zero-Coupon Securities Risks. Interest on zero-coupon
bonds is not paid on a current basis and accordingly, the values of such securities are subject to greater fluctuations than are
the value of securities that distribute income regularly and may be more speculative than such bonds. Further, the values of zero
coupon bonds may be highly volatile during periods when interest rates rise or fall. |
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Tender Option Bond Risks. Investments
in tender option bond transactions expose us to counterparty risk and leverage risk, as well as the risk of loss of principal. |
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Variable Rate Demand Obligation Risks. If the
bank or financial institution that is the counterparty on a VRDO is unable to pay, upon demand or at maturity, we may lose money. |
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Financial Futures Risks. Trading in financial
futures contracts may tend to be less liquid than trading in other futures contracts. The trading of futures contracts also is subject
to certain market risks, such as inadequate trading activity, which could at times make it difficult or impossible to liquidate existing
positions. |
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Insured Municipal Bond Risks. Although municipal
bond insurance is expected to protect us against losses caused by a bond issuer’s failure to make interest or principal payments,
such insurance does not protect us or our investors against losses caused by declines in a bond’s market value. Further, we
cannot be certain that any insurance company will make these payments. In addition, if we purchase the insurance, we will bear any
related premiums and other related costs, which will reduce our returns. |
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Participation Note Risks. Because a participation
note is an obligation of the issuer, rather than a direct investment in shares of the underlying security or basket of securities,
we may suffer losses potentially equal to the full value of the participation note if the issuer fails to perform its obligations. |
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Pay-in-Kind Note Risks. An issuer’s ability
to repay the principal of an investment in pay-in-kind notes may be dependent upon a liquidity event or the long-term success of
such issuer, the occurrence of which is uncertain. |
Operating and Financial Risks of Issuers and Impact of
Other Issuers. One of the fundamental risks associated with our investments is credit risk, which is the risk that an issuer will
be unable to make principal and interest payments on its outstanding debt obligations when due and the related risk that the value of
a debt security may decline because of concerns about the issuer’s ability or willingness to make such payments. Because we may
invest our assets in high yield securities or unrated securities of comparable quality, our credit risks are greater than those of funds
that buy only investment grade securities. Investments in inverse floaters will increase our credit risk. Our return would be adversely
impacted if an issuer of debt securities in which we invest becomes unable to make such payments when due. Issuers in which we invest
could deteriorate as a result of, among other factors, adverse developments in their businesses, changes in the competitive environment
or an economic downturn. As a result, issuers that we expect to be stable may operate, or expect to operate, at a loss or have significant
variations in operating results, may require substantial additional capital to support their operations or to maintain their competitive
position or may otherwise have a weak financial condition or be experiencing financial distress. In addition, we and other investment
funds sponsored by our Adviser have made (and/or will in the future make) investments in issuers that have operations and assets in many
jurisdictions. It is possible that the activities of one issuer may have adverse consequences on one or more other issuers (including
our issuers), even in cases where the issuers are held by different Tortoise investment funds and have no other connection to each other.
Risks of Investments in Less Established Issuers. Although
from time to time we will seek to make investments in respect of established issuers, we have not established any minimum size for the
issuers in which we may invest and are expected to make investments in smaller, less established issuers. For example, such issuers may
have shorter operating histories on which to judge future performance and, if operating, may have negative cash flow. In the case of
start-up enterprises, such issuers may not have significant or any operating revenues. Less established issuers tend to have smaller
capitalizations and fewer resources (including cash) and, therefore, often are more vulnerable to funding shortfalls and financial failure.
In addition, less mature issuers could be deemed to be more susceptible to irregular accounting or other fraudulent practices. In the
event of fraud by any issuer in which we invest, we may suffer a partial or total loss of capital invested in that issuer. There can
be no assurance that any such losses will be offset by gains (if any) realized on the Fund’s other investments.
U.S. Government Obligation Risks. While U.S. Treasury
obligations are backed by the “full faith and credit” of the U.S. government, such securities are nonetheless subject to
credit risk (i.e., the risk that the U.S. government may be, or be perceived to be, unable or unwilling to honor its financial obligations,
such as making payments). Securities issued or guaranteed by federal agencies or authorities and U.S. government-sponsored instrumentalities
or enterprises may or may not be backed by the full faith and credit of the U.S. government. Other Investment Risks
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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Liquidity Risk. Our Direct Investments will be highly
illiquid, and we will likely be able to sell such securities only in private transactions with another investor or group of investors,
and there can be no assurance that we will be able to successfully arrange such transactions if and when we desire to sell any of our
Direct Investments or, if successfully arranged, that we will be able to obtain favorable values upon the sale of our Direct Investments
in such transactions. In addition, our investments in debt securities may expose us to liquidity risk. The corporate debt securities
in which we invest generally will be high yield debt securities, and these securities have historically been less liquid than securities
rated investment grade, especially during periods of market stress. We expect that the directly originated municipal securities in which
we invest will have limited trading markets and therefore will tend to be less liquid than municipal securities rated investment grade
or issued by traditional municipal issuers.
With respect to our investments in listed equity securities,
we may invest in securities of any market capitalization, including small- and mid-capitalization companies, and may be exposed to liquidity
risk when trading volume, lack of a market maker, or legal restrictions impair our ability to sell particular securities or close call
option positions at an advantageous price or a timely manner. We may invest in mid-capitalization and small-capitalization companies,
which may be more volatile and more likely than large-capitalization companies to have narrower product lines, fewer financial resources,
less management depth and experience and less competitive strength. In the event certain securities experience limited trading volumes,
the prices of such securities may display abrupt or erratic movements at times. These securities may be difficult to sell at a favorable
price at the times when we believe it is desirable to do so.
Private Company Securities Risk. Our investments
in private companies may be subject to higher risk than investments in securities of public companies. Little public information may
exist about many of the issuers of these securities, and we will be required to rely on the ability of our Adviser and Subadviser to
obtain adequate information to evaluate the potential risks and returns involved in investing in these issuers. If our Adviser or Subadviser
is unable to obtain all material information about the issuers of these securities, it may be difficult to make a fully informed investment
decision, and we may lose some or all of our investment in these securities. These factors could subject us to greater risk than investments
in securities of public companies and negatively affect our investment returns, which could negatively impact the dividends paid to you
and the value of your investment. In addition, we will likely be able to sell our investments in private companies only in private transactions
with another investor or group of investors, and there can be no assurance that we will be able to successfully arrange such transactions
if and when we desire to sell any of our investments in private companies or, if successfully arranged, that we will be able to obtain
favorable values upon the sale of our investments in private companies in such transactions.
Restricted Securities Risk, including Rule 144A Securities
Risk. Restricted securities are less liquid than securities traded in the open market because of statutory and contractual restrictions
on resale. Such securities are, therefore, unlike securities that are traded in the open market, which can be expected to be sold immediately
if the market is adequate. This lack of liquidity may create special risks for us.
Restricted securities are subject to statutory and contractual
restrictions on their public resale, which may make it more difficult to value them, may limit our ability to dispose of them and may
lower the amount we could realize upon their sale. To enable us to sell our holdings of a restricted security not registered under the
Securities Act, we may have to cause those securities to be registered. The expenses of registering restricted securities may be determined
at the time we buy the securities. When we must arrange registration because we wish to sell the security, a considerable period may
elapse between the time the decision is made to sell the security and the time the security is registered so that we could sell it. We
would bear the risks of any downward price fluctuation during that period.
Rule 144A provides an exemption from the registration requirements
of the Securities Act for the resale of certain restricted securities to qualified institutional buyers, such as us. However, an insufficient
number of qualified institutional buyers interested in purchasing the Rule 144A-eligible securities that we hold could affect adversely
the marketability of certain Rule 144A securities, and we might be unable to dispose of such securities promptly or at reasonable prices.
Non-U.S. Securities Risks. Investments in securities
of non-U.S. issuers (including Canadian issuers) involve risks not ordinarily associated with investments in securities and instruments
of U.S. issuers. For example, non-U.S. companies are not generally subject to uniform accounting, auditing and financial standards and
requirements comparable to those applicable to U.S. companies. Non-U.S. securities exchanges, brokers and companies may be subject to
less government supervision and regulation than exists in the U.S. Dividend and interest income may be subject to withholding and other
non-U.S. taxes, which may adversely affect the net return on such investments. Because we intend to limit our investments in securities
issued by non-U.S. issuers (including Canadian issuers) to no more than 30% of our total assets, we will not be able to pass through
to our shareholders any foreign income tax credits as a result of any foreign income taxes we pay. There may be difficulty in obtaining
or enforcing a court judgment abroad. In addition, it may be difficult to effect repatriation of capital invested in certain countries.
With respect to certain countries, there are also risks of expropriation, confiscatory taxation, political or social instability or diplomatic
developments that could affect the Fund’s assets held in non-U.S. countries. There may be less publicly available information about
a non-U.S. company than there is regarding a U.S. company. Non-U.S. securities markets may have substantially less volume than U.S. securities
markets and some non-U.S. company securities are less liquid than securities of otherwise comparable U.S. companies. Non-U.S. markets
also have different clearance and settlement procedures that could cause the Fund to encounter difficulties in purchasing and selling
securities on such markets and may result in the Fund missing attractive investment opportunities or experiencing a loss. In addition,
a portfolio that includes
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Additional Information (unaudited) (continued) |
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securities issued by non-U.S. issuers can expect to have
a higher expense ratio because of the increased transaction costs in non-U.S. markets and the increased costs of maintaining the custody
of such non-U.S. securities. When investing in securities issued by non-U.S. issuers, there is also the risk that the market price of
such an investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates. We do not currently
intend to hedge our exposure to non-U.S. currencies.
Investments in companies domiciled in the United Kingdom
(“UK”), or that otherwise have significant ties to the UK, are subject to Brexit risk. Brexit risk is the risk that the exit
of the UK from the European Union occurs in a disruptive manner. Potential effects of a disruptive Brexit include, but are not limited
to, adverse effects on supply chains and labor markets, the potential for new taxes to be imposed on goods crossing borders, declining
real estate markets and a weakening of the pound sterling. Emerging Market Securities Risks. Investments in securities of non-U.S. issuers
located in emerging markets involve all of the risks generally applicable to investments in securities of non-U.S. issuers. These risks
are heightened with respect to investments in emerging market securities. In addition, investments in emerging market securities are
subject to a number of risks, including risks related to economic structures that are less diverse and mature than those of developed
countries; less stable political systems and less developed legal systems; national policies that may restrict foreign investment; wide
fluctuations in the value of investments, possibly as a result of significant currency exchange rate fluctuations; smaller securities
markets making investments less liquid; and special custody arrangements.
Terrorism and Cybersecurity Risks. Essential asset
issuers are subject to disruption as a result of terrorist activities and other geopolitical events, including upheaval in the Middle
East or other energy-producing regions. Cyber hacking could also cause significant disruption and harm to essential asset issuers. The
U.S. government has issued warnings that certain essential assets, specifically those related to energy infrastructure, including exploration
and production facilities, pipelines and transmission and distribution facilities, might be specific targets of terrorist activity. Additionally,
digital and network technologies (collectively, “cyber networks”) might be at risk of cyberattacks that could potentially
seek unauthorized access to digital systems for purposes such as misappropriating sensitive information, corrupting data or causing operational
disruption. Cyberattacks might potentially be carried out by persons using techniques that could range from efforts to electronically
circumvent network security or overwhelm websites to intelligence gathering and social engineering functions aimed at obtaining information
necessary to gain access.
Covered Call Risks. We cannot guarantee that our
covered call option overlay strategy will be effective. There are several risks associated with transactions in options on securities,
including:
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There are significant differences between the securities
and options markets that could result in an imperfect correlation between these markets, causing a given covered call option transaction
not to achieve its objectives. A decision as to whether, when and how to use covered calls (or other options) involves the exercise
of skill and judgment, and even a well-conceived transaction may be unsuccessful because of market behavior or unexpected events. |
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The use of options may require us
to sell portfolio securities at inopportune times or for prices other than current market values, may limit the amount of appreciation
we can realize on an investment or may cause us to hold a security we might otherwise sell. As the writer of a covered call option,
we forego, during the option’s life, the opportunity to profit from increases in the market value of the security covering
the call option above the exercise price of the call option, but retain the risk of loss should the price of the underlying security
decline. Although such loss would be offset in part by the option premium received, in a situation in which the price of a particular
stock on which we have written a covered call option declines rapidly and materially or in which prices in general on all or a substantial
portion of the stocks on which we have written covered call options decline rapidly and materially, we could sustain material depreciation
or loss to the extent we do not sell the underlying securities (which may require us to terminate, offset or otherwise cover our
option position as well). |
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There can be no assurance that a
liquid market will exist when we seek to close out an option position. If we were unable to close out a covered call option that
we had written on a security, we would not be able to sell the underlying security unless the option expired without exercise. Reasons
for the absence of a liquid secondary market for exchange-traded options may include, but are not limited to, the following: (1)
there may be insufficient trading interest; (2) restrictions may be imposed by an exchange on opening transactions or closing transactions
or both; (3) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options;
(4) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (5) the trading facilities may not be adequate
to handle current trading volume; or (6) the relevant exchange could discontinue the trading of options. In addition, our ability
to terminate OTC options may be more limited than with exchange-traded options and may involve the risk that counterparties participating
in such transactions will not fulfill their obligations. |
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The principal factors affecting the market value of
an option include supply and demand, interest rates, the current market price of the underlying security in relation to the exercise
price of the option, the dividend or distribution yield of the underlying security, the actual or perceived volatility of the underlying
security and the time remaining until the expiration date. Any of the foregoing could impact or cause to vary over time the amount
of income we are able to generate through our covered call option overlay strategy. |
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The number of covered call options we can write is
limited by the number of shares of the corresponding common stock we hold. Furthermore, our covered call option transactions may
be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options
are traded. |
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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If we fail to maintain any required
asset coverage ratios in connection with any use by us of leverage, we may be required to redeem or prepay some or all of our leverage
instruments. Such redemption or prepayment would likely result in our seeking to terminate early all or a portion of any option transaction.
Early termination of an option could result in a termination payment by or to us. Hedging and Derivatives Risks. In addition to writing
call options as part of our investment strategy, we may invest in derivative instruments for hedging or risk management purposes,
and for short-term purposes such as maintaining market exposure pending investment of the proceeds of this offering or transitioning
our portfolio between different asset classes. Our use of derivatives could enhance or decrease the cash available to us for payment
of distributions or interest, as the case may be. Derivatives can be illiquid, may disproportionately increase losses and have a
potentially large negative impact on our performance. Derivative transactions, including options on securities and securities indices
and other transactions in which we may engage (such as forward currency transactions, futures contracts and options thereon and total
return swaps), may subject us to increased risk of principal loss due to unexpected movements in stock prices, changes in stock volatility
levels, interest rates and foreign currency exchange rates and imperfect correlations between our securities holdings and indices
upon which derivative transactions are based. We also will be subject to credit risk with respect to the counterparties to any OTC
derivatives contracts we enter into. |
Interest rate transactions will expose us to certain risks
that differ from the risks associated with our portfolio holdings. There are economic costs of hedging reflected in the price of interest
rate swaps, floors, caps and similar techniques, the costs of which can be significant, particularly when long-term interest rates are
substantially above short-term rates. In addition, our success in using hedging instruments is subject to our Adviser’s ability
to predict correctly changes in the relationships of such hedging instruments to our leverage risk, and there can be no assurance that
our Adviser’s judgment in this respect will be accurate. Consequently, the use of hedging transactions might result in a poorer
overall performance, whether or not adjusted for risk, than if we had not engaged in such transactions. There is no assurance that the
interest rate hedging transactions into which we enter will be effective in reducing our exposure to interest rate risk. Hedging transactions
are subject to correlation risk, which is the risk that payment on our hedging transactions may not correlate exactly with our payment
obligations on senior securities. To the extent there is a decline in interest rates, the market value of certain derivatives could decline
and result in a decline in our net assets.
Counterparty Risk. The risk exists that a counterparty
to a derivatives contract or other transaction in a financial instrument held by us or by a special purpose or structured vehicle in
which we invest may become insolvent or otherwise fail to perform its obligations, including making payments to us, due to financial
difficulties. We may obtain no or limited recovery in a bankruptcy or other reorganizational proceedings, and any recovery may be significantly
delayed. Transactions that we enter into may involve counterparties in the financial services sector and, as a result, events affecting
the financial services sector may cause our share value to fluctuate.
In the event of a counterparty’s (or its affiliate’s)
insolvency, our ability to exercise remedies, such as the termination of transactions, netting of obligations and realization on collateral,
could be stayed or eliminated under new special resolution regimes adopted in the United States, the European Union and various other
jurisdictions. Such regimes generally provide government authorities with broad authority to intervene when a financial institution is
experiencing financial difficulty. In particular, the regulatory authorities could reduce, eliminate or convert to equity the liabilities
us of a counterparty subject to such proceedings in the European Union (sometimes referred to as a “bail in”).
Operational Risks
Distribution Risks. We may not be able to achieve
operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from
time to time. We cannot assure you that you will receive distributions at a particular level or at all. Dividends and distributions on
equity securities are not fixed but are declared at the discretion of the issuer’s board of directors. If stock market volatility
declines, the level of premiums from writing covered call options will likely decrease as well. Payments to close-out written call options
will reduce amounts available for distribution from gains earned in respect of call option expiration or close out. A significant decline
in the value of the securities in which we invest may negatively impact our ability to pay distributions or cause you to lose all or
a part of your investment.
In addition, the 1940 Act may limit our ability to make
distributions in certain circumstances. Restrictions and provisions in any future credit facilities and our debt securities also may
limit our ability to make distributions. For federal income tax purposes, we are required to distribute substantially all of our net
investment income each year to maintain our status as a RIC, to reduce our federal income tax liability and to avoid a potential excise
tax. If our ability to make distributions on our common shares is limited, such limitations could, under certain circumstances, impair
our ability to maintain our qualification for taxation as a RIC or result in our having an income or excise tax liability, which would
have adverse consequences for our shareholders.
Operating Results Risk. We could experience fluctuations
in our operating results due to a number of factors, including the return on our investments, the level of our expenses, variations in
and the timing of the recognition of realized and unrealized gains or losses on our investments and written call options, the level of
call premium we receive by writing covered calls, the degree to which we encounter competition in our markets and general economic conditions.
As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
Market Discount Risk. Shares of closed-end investment
companies frequently trade at a discount from net asset value. Continued development of alternative vehicles for investing in essential
asset companies may contribute to reducing or eliminating any premium or may result in our common shares trading at a discount. The risk
that our common shares may trade at a discount is separate from the risk of a decline in our net asset value as a result of investment
activities.
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Additional Information (unaudited) (continued) |
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Whether shareholders will realize a gain or loss for federal
income tax purposes upon the sale of their common shares depends upon whether the market value of the common shares at the time of sale
is above or below the shareholder’s basis in such common shares, taking into account transaction costs, and it is not directly
dependent upon our net asset value. Because the market price of our common shares will be determined by factors such as the relative
demand for and supply of the shares in the market, general market conditions and other factors beyond our control, we cannot predict
whether our common shares will trade at, below or above net asset value, or at, below or above the public offering price for our common
shares.
Portfolio Turnover Risk. At times, particularly during
our initial twelve months of operation, our portfolio turnover may be higher. High portfolio turnover involves greater transaction costs
to us and may result in greater realization of capital gains, including short-term capital gains.
Valuation Risks. Our Direct Investments will typically
consist of securities for which a liquid trading market does not exist. The fair value of these securities may not be readily determinable.
We will value these securities in accordance with valuation procedures adopted by our Board of Directors. Our Board of Directors may
use the services of an independent valuation firm to review the fair value of certain securities prepared by our Adviser. The types of
factors that may be considered in fair value pricing of our investments include, as applicable, the nature and realizable value of any
collateral, the issuer’s ability to make payments, the markets in which the issuer does business, comparison to publicly traded
companies, discounted cash flow and other relevant factors. Because such valuations, and particularly valuations of non-traded securities
and private companies, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. The determination
of fair value by our Board of Directors may differ materially from the values that would have been used if a liquid trading market for
these securities existed. Our net asset value could be adversely affected if the determinations regarding the fair value of our investments
were materially higher than the values that we ultimately realize upon the disposition of such securities.
Tax Risks. We intend to elect to be treated, and
to qualify each year, as a RIC under the Code. To maintain our qualification for federal income tax purposes as a RIC under the Code,
we must meet certain source-of-income, asset diversification and annual distribution requirements. If for any taxable year we fail to
qualify for the special federal income tax treatment afforded RICs, all of our taxable income will be subject to federal income tax at
regular corporate rates (without any deduction for distributions to our shareholders) and our income available for distribution will
be reduced.
Leverage Risks. Our use of leverage through the issuance
of preferred shares or debt securities, and any borrowings or other transactions involving indebtedness (other than for temporary or
emergency purposes), would be considered “senior securities” for purposes of the 1940 Act and create risks. Leverage is a
speculative technique that may adversely affect common shareholders. If the return on investments acquired with borrowed funds or other
leverage proceeds does not exceed the cost of the leverage, the use of leverage could cause us to lose money. Successful use of leverage
depends on our Adviser’s ability to predict or hedge correctly interest rates and market movements, and there is no assurance that
the use of a leveraging strategy will be successful during any period in which it is used. Because the fee paid to our Adviser and Subadviser
will be calculated on the basis of Managed Assets, the fees will increase when leverage is utilized, giving our Adviser an incentive
to utilize leverage.
Our issuance of senior securities involves offering expenses
and other costs, including interest payments, that are borne indirectly by our common shareholders. Fluctuations in interest rates could
increase interest or distribution payments on our senior securities and could reduce cash available for distributions on common shares.
Increased operating costs, including the financing cost associated with any leverage, may reduce our total return to common shareholders.
The 1940 Act and/or the rating agency guidelines applicable
to senior securities impose asset coverage requirements, distribution limitations, voting right requirements (in the case of the senior
equity securities) and restrictions on our portfolio composition and our use of certain investment techniques and strategies. The terms
of any senior securities or other borrowings may impose additional requirements, restrictions and limitations that are more stringent
than those currently required by the 1940 Act, and the guidelines of the rating agencies that rate outstanding senior securities. These
requirements may have an adverse effect on us and may affect our ability to pay distributions on common shares and preferred shares.
To the extent necessary, we currently intend to redeem any senior securities to maintain the required asset coverage. Doing so may require
that we liquidate portfolio securities at a time when it would not otherwise be desirable to do so.
Capital Markets Risks. In the event of an economic
downturn or increased financial stress, the cost of raising capital in the debt and equity capital markets may increase, and the ability
to raise capital may be limited. In particular, concerns about the general stability of financial markets and specifically the solvency
of lending counterparties may impact the cost of raising capital from the credit markets through increased interest rates, tighter lending
standards, difficulties in refinancing debt on existing terms or at all and reduced, or in some cases ceasing to provide, funding to
borrowers. In addition, lending counterparties under existing revolving credit facilities and other debt instruments may be unwilling
or unable to meet their funding obligations. As a result of any of the foregoing, we or the companies in which we invest may be unable
to obtain new debt or equity financing on acceptable terms. If funding is not available when needed, or is available only on unfavorable
terms, we or the companies in which we invest may not be able to meet obligations as they come due. Moreover, without adequate funding,
essential asset companies may be unable to execute their growth strategies, complete future acquisitions, take advantage of other business
opportunities or respond to competitive pressures, any of which could have a material adverse effect on their revenues and results of
operations.
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2022 Annual Report | November 30, 2022 |
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Additional Information (unaudited) (continued) |
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Legal, Regulatory and Policy Risks. Legal and regulatory
changes could occur that may adversely affect us, our investments and our ability to pursue our investment strategies and/or increase
the costs of implementing such strategies. Certain changes have already been proposed and additional changes are expected. New or revised
laws or regulations may be imposed by the SEC, the U.S. Commodity Futures Trading Commission (the “CFTC”), the Internal Revenue
Service, the U.S. Federal Reserve or other governmental regulatory authorities or self-regulatory organizations that could adversely
affect us. We also may be adversely affected by changes in the enforcement or interpretation of existing statutes and rules by governmental
regulatory authorities or self-regulatory organizations.
Instability in financial markets during and following the
2007–2009 global financial crisis led the U.S. government and foreign governments to take a number of unprecedented actions designed
to support certain financial institutions and segments of the financial markets that experienced extreme volatility, and in some cases
a lack of liquidity. While economic and financial conditions in the United States and elsewhere have been recovering for several years,
volatility remains and a perception that conditions remain fragile persists to some extent. Withdrawal of government support or investor
perception that such efforts are not succeeding could adversely affect the market value and liquidity of certain securities.
In the event of future instability in financial markets,
U.S. federal and state governments and foreign governments, their regulatory agencies or self-regulatory organizations may take additional
actions that affect the regulation of the securities in which we invest, or the issuers of such securities, in ways that are unforeseeable
and on an “emergency” basis with little or no notice, with the consequence that some market participants’ ability to
continue to implement certain strategies or manage the risk of their outstanding positions may be suddenly and/or substantially eliminated
or otherwise negatively impacted. Given the complexities of the global financial markets and the limited timeframe within which governments
may be required to take action, these interventions may result in confusion and uncertainty, which in itself may be materially detrimental
to the efficient functioning of such markets as well as previously successful investment strategies.
In addition, the securities and futures markets are subject
to comprehensive statutes, regulations and margin requirements. The CFTC, the SEC, the Federal Deposit Insurance Corporation, other regulators
and self-regulatory organizations and exchanges are authorized under these statutes and regulations and otherwise to take extraordinary
actions in the event of market emergencies. We, our Adviser and our Subadviser historically have been eligible for exemptions from certain
regulations. However, there is no assurance that we, our Adviser or our Subadviser will continue to be eligible for such exemptions.
The Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (the “Dodd-Frank Act”) and related regulatory developments have imposed comprehensive new regulatory requirements
on swaps and swap market participants. The new regulatory framework includes: (1) registration and regulation of swap dealers and major
swap participants; (2) requiring central clearing and execution of standardized swaps; (3) imposing margin requirements on swap transactions;
(4) regulating and monitoring swap transactions through position limits and large trader reporting requirements; and (5) imposing record
keeping and centralized and public reporting requirements, on an anonymous basis, for most swaps. The CFTC is responsible for the regulation
of most swaps and has completed most of its rules implementing the Dodd-Frank Act swap regulations. The SEC has jurisdiction over a small
segment of the market referred to as “security-based swaps,” which includes swaps on single securities or credits, or narrow-based
indices of securities or credits, but has not yet completed its rulemaking. The implementation of the provisions of the Dodd-Frank Act
by the SEC and the CFTC could adversely affect our ability to pursue our investment objective. The Dodd-Frank Act and the rules promulgated
thereunder could, among other things, adversely affect the value of our investments, restrict our ability to engage in derivative transactions
and/or increase the costs of such derivative transactions.
The CFTC and certain futures exchanges have established
limits, referred to as “position limits,” on the maximum net long or net short positions which any person may hold or control
in particular options and futures contracts; those position limits also may apply to certain other derivatives positions we may wish
to take. All positions owned or controlled by the same person or entity, even if in different accounts, may be aggregated for purposes
of determining whether the applicable position limits have been exceeded. Thus, even if we do not intend to exceed applicable position
limits, it is possible that different clients managed by our Adviser, our Subadviser and their affiliates may be aggregated for this
purpose. Therefore it is possible that the trading decisions of our Adviser or our Subadviser may have to be modified and that positions
we hold may have to be liquidated in order to avoid exceeding such limits. The modification of investment decisions or the elimination
of open positions, if it occurs, may adversely affect our performance.
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Additional Information (unaudited) (continued) |
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Changes in U.S. social, political, regulatory and economic
conditions or in laws and policies governing foreign trade, manufacturing, development, investment and support for clean energy initiatives,
and any negative sentiments towards the United States as a result of such changes, could adversely affect the business of the essential
asset companies in which we expect to invest. In addition, reduced immigration into the United States of educated professionals from
overseas or negative sentiments towards the United States among non-U.S. employees or prospective employees could adversely affect the
ability of the companies in which we expect to invest to hire and retain highly skilled employees. Any of these developments could have
an adverse effect on the value of our investments.
The impact of continued trade tensions with China, or an
escalation to a trade war, may adversely effect currencies, commodities and individual companies in which we invest. U.S. companies that
source material and goods from China, and those that make large amounts of sales in China would be particularly vulnerable to an escalation
of trade tensions. Uncertainty regarding the outcome of the trade tensions and the potential for a trade war could cause the dollar to
decline against safe haven currencies, such as the Japanese yen and the euro.
Subsidiary Risks. By investing in any Subsidiary,
we will be indirectly exposed to the risks associated with such Subsidiary’s investments. The instruments that will be held by
any Subsidiary will generally be similar to those that are permitted to be held by the Fund and will be subject to the same risks that
apply to similar investments if held directly by the Fund. The Subsidiaries will not be registered under the 1940 Act, and, unless otherwise
noted, will not be subject to all of the investor protections of the 1940 Act. However, we will wholly own and control any Subsidiary,
and we and any Subsidiary will each be managed by our Adviser or our Subadviser and will share the same portfolio management teams. Our
Board of Directors will have oversight responsibility for the investment activities of the Fund, including its investment in the Subsidiaries,
and our role as sole shareholder of any Subsidiary. Changes in the laws of the United States and/or any jurisdiction in which a Subsidiary
is formed could result in our inability or the inability of the Subsidiaries to operate as expected and could adversely affect the Fund.
For example, changes in U.S. tax laws could affect the U.S. tax treatment of, or consequences of owning, the Fund or the Subsidiaries,
including under the RIC rules.
Segregation and Coverage Risks. Certain portfolio
management techniques, such as, among other things, entering into swap agreements, using reverse repurchase agreements, futures contracts
or other derivative transactions, may be considered senior securities under the 1940 Act unless steps are taken to segregate our assets
or otherwise cover our obligations. To avoid having these instruments considered senior securities, we segregate liquid assets with a
value equal (on a mark-to-market basis) to our obligations under these types of transactions, enter into offsetting transactions or otherwise
cover such transactions. In cases where we do not follow such procedures, such instruments may be considered senior securities and our
use of such transactions will be required to comply with the restrictions on senior securities under the 1940 Act. We may be unable to
use segregated assets for certain other purposes, which could result in us earning a lower return on our portfolio than we might otherwise
earn if we did not have to segregate those assets in respect of or otherwise cover such portfolio positions. To the extent our assets
are segregated or committed as cover, it could limit our investment flexibility. Segregating assets and covering positions will not limit
or offset losses on related positions. Limitations on Transactions with Affiliates Risk. The 1940 Act limits our ability to enter into
certain transactions with certain of our affiliates. As a result of these restrictions, we may be prohibited from buying or selling any
security directly from or to any portfolio company that is considered our affiliate under the 1940 Act. However, we may under certain
circumstances purchase any such portfolio company’s securities in the secondary market, which could create a conflict for our Adviser
or Subadviser between our interests and the interests of the portfolio company, in that the ability of our Adviser or Subadviser, as
applicable, to recommend actions in our best interests might be impaired.
The 1940 Act also prohibits certain “joint”
transactions with certain of our affiliates, including Other Tortoise Accounts, which could include investments in the same issuer (whether
at the same or different times). To the extent there is a joint transaction among us and Other Tortoise Accounts requiring exemptive
relief, we may rely on an exemptive order from the SEC obtained by the Adviser and certain Other Tortoise Accounts that permits us, among
other things, to co-invest with certain other persons, including certain Other Tortoise Accounts, subject to certain terms and conditions.
Such relief may not cover all circumstances and we may be precluded from participating in certain transactions due to regulatory restrictions
on transactions with affiliates. Anti-Takeover Provisions Risks. Our Declaration of Trust and Bylaws include provisions that could delay,
defer or prevent other entities or persons from acquiring control of us, causing us to engage in certain transactions or modify our structure.
These provisions may be regarded as “anti-takeover” provisions. Such provisions could limit the ability of common shareholders
to sell their shares at a premium over the then-current market prices by discouraging a third party from seeking to obtain control of
us.
Office
of the Company
and of the Investment Adviser
Tortoise
Capital Advisors, L.L.C.
6363 College Boulevard, Suite 100A
Overland Park, KS 66211
(913) 981-1020
(913) 981-1021 (fax) www.tortoiseecofin.com
Board
of Directors of
Tortoise Pipeline & Energy Fund, Inc.
Tortoise Energy Independence Fund, Inc.
Tortoise Power and Energy Infrastructure Fund, Inc.
Ecofin Sustainable and Social Impact Term Fund
H.
Kevin Birzer, Chairman
Tortoise Capital Advisors, L.L.C.
Rand
C. Berney
Independent
Conrad
S. Ciccotello
Independent
Alexandra
Herger
Independent
Jennifer
Paquette
Independent |
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Administrator
U.S.
Bancorp Fund Services, LLC
615 East Michigan St.
Milwaukee, Wis. 53202
Custodian
U.S.
Bank, N.A.
1555 North Rivercenter Drive, Suite 302
Milwaukee, Wis. 53212
Transfer,
Dividend Disbursing
and Reinvestment Agent
Computershare
Trust Company, N.A. /
Computershare Inc.
P.O. Box 30170
College Station, Tex. 77842-3170
(800) 426-5523
www.computershare.com
Legal
Counsel
Husch
Blackwell LLP
4801 Main St.
Kansas City, Mo. 64112
Investor
Relations
(866)
362-9331
info@tortoiseecofin.com
Stock
Symbols
Listed
NYSE Symbols: TTP, NDP, TPZ, TEAF
This report is for stockholder information. This is not a prospectus intended for use in the purchase or sale of fund shares. Past
performance is no guarantee of future results and your investment may be worth more or less at the time you sell. |
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6363 College Boulevard, Suite 100A
Overland Park, KS 66211
www.tortoiseecofin.com