MLP Market Update August 2014
Important Information Past performance of the securities mentioned in this presentation is no assurance of future performance or market conditions. Investing in securities involves the risk of loss. This presentation is not a recommendation to purchase or sell any security or a solicitation of an offer to purchase any security. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: This presentation contains "forward-looking statements" as defined under the U.S. federal securities laws. Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to materially differ from the historical experience of or from the present expectations or projections indicated in any forward looking statement by Kayne Anderson Capital Advisors, L.P. and/or its subsidiaries (collectively, Kayne Anderson ) or of Kayne Anderson MLP Investment Company (NYSE: KYN), Kayne Anderson Energy Total Return Fund, Inc. (NYSE: KYE), Kayne Anderson Midstream/Energy Fund, Inc. (NYSE: KMF) and/or Kayne Anderson Energy Development Company (NYSE: KED)(collectively, Kayne Anderson s Closed-End Funds ). These risks include, but are not limited to, changes in economic and political conditions; regulatory and legal changes; energy industry risk; commodity pricing risk; leverage risk; valuation risk; nondiversification risk; interest rate risk; tax risk; and other risks discussed in filings with the SEC made by Kayne Anderson s Closed-End Funds. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. Kayne Anderson and Kayne Anderson s Closed-End Funds undertake no obligation to publicly update or revise any forward-looking statements made herein. There is no assurance that the investment objectives of Kayne Anderson s Closed-End Funds will be attained. Certain information contained in this presentation is derived from nonproprietary sources deemed by Kayne Anderson to be reliable and is not guaranteed as to accuracy. 2
This presentation is available online www.kaynefunds.com 3
Kayne Anderson Capital Advisors, L.P. Firm Background Los Angeles-based firm founded in 1984 $30 billion in AUM* ~260 employees, primarily in Los Angeles and Houston Leading Investor in Midstream / MLP Space $22 billion invested in MLPs and Midstream Companies* Money manager with the longest tenure in managing MLP-dedicated funds (since 2000) Strong reputation in energy sector Breadth of focus is a key differentiator: midstream and upstream; public and private MLP- Focused Closed End Funds * As of June 30, 2014. KYN: MLP equity securities ($7.9 billion in assets) KYE: Diversified energy income ($1.8 billion in assets) KMF: MLP and Midstream C-corp. ($1.4 billion in assets) KED: Public and private MLPs ($0.6 billion in assets) 4
MLPs focus on midstream energy infrastructure MLPs are publicly traded partnerships that pay quarterly cash distributions The midstream sector consists of energy infrastructure assets that transport and store crude oil, natural gas, natural gas liquids, refined products and other energy commodities Hard assets that are critical to national infrastructure High barriers to entry Fee-based assets that generate free cash flow 5
Overview of MLP asset class The MLP asset class has grown substantially over the past several years In 2004, there were only 33 MLPs with a market cap of $56 billion Currently there are 120 public MLPs with a total market cap of $597 billion No longer a retail only niche Increased ownership from "traditional" institutions as well as approximately $82 billion of managed products (CEFs, ETFs, ETNs and mutual funds) Asset class is now a comparable size to Utility ($531 billion) and REIT industries ($776 billion) Market Cap of MLPs ($ billion) Number of MLPs * As of July 31, 2014 6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 MLPs: A can t beat track record Track record of strong returns Annualized total returns of 20% since 12/31/99 (based on the Alerian MLP Index) Track record of strong distribution growth Distribution growth will continue to drive superior returns for MLPs versus REITs and utilities MLPs have increased distributions by an average of 8.5% per year since 2000 The development of unconventional resources will continue to drive distribution growth prospects for MLPs Total Returns MLPs vs S&P 500 MLP Distribution Growth (1) 16 14 12 10 8 6 4 2 0 11.7% 14.0% 9.3% 7.1% 7.5% 8.1% 11.9% 10.0% 11.8% 4.5% 3.1% 6.3% 7.3% 7.1% Note: As of July 31, 2014 (1) The Alerian MLP Index rebalances on a quarterly basis. The weighted annual distribution growth rates are calculated using the final rebalancing of the index for each calendar year. 7
Superior yields and historical returns MLPs trade at higher yields and have provided stronger total returns than other yield alternatives Yield Comparison (7/31/14) Annual Total Returns (as of 7/31/14) 8
Unconventional reserves: The Real Deal The Shale Revolution is a once in a lifetime event, with long-lasting implications for both the energy industry and the United States economy The United States is the largest producer of natural gas in the world The United States is the largest exporter of refined products in the world Projected to become the largest producer of crude oil before the end of this decade The development of unconventional reserves is an enduring growth engine for the domestic economy Bakken Shale Antrim Powder River Monterey Shale Pinedale Uinta Piceance Niobrara Woodford Utica Shale Marcellus Shale Avalon & Bone Springs Granite Wash Cline Wolfcamp Fayetteville Shale Barnett Shale Haynesville Shale Tuscaloosa Marine Shale Eagle Ford Shale 9
Production (MMBbls/d) Production (Bcf/d) The Shale Revolution is a reality After talking about the potential impact for many years, the shale revolution is upon us, and it is having a profound impact on both the domestic market as well as the international market Everyone knows about it The results are staggering: crude oil, NGL and natural gas production are growing at unprecedented levels U.S. Crude Oil Production (1) U.S. Natural Gas Production (1) 10.0 9.0 8.0 7.0 6.0 5.0 5.2 5.1 5.1 5.0 5.4 5.5 5.7 6.5 7.4 8.4 9.1 75 70 65 60 55 50 52 53 55 58 59 61 66 69 70 72 73 4.0 45 3.0 40 (1) Source: EIA. 10
Exports? What a difference 10 years makes! From 1950 through 2010, the United States was a net importer of refined products In 2011, the U.S. became a net exporter of refined products in 2011 and is now the largest exporter of refined products in the world Refined Products Net Exports / (Imports) 2013: 1.4 MMBbls/d Net Exports Net Exports Net Imports 2005: 2.5 MMBbls/d Net Imports We are also seeing a surge in exports of NGLs, construction of LNG liquefaction projects and increasing discussion about crude oil exports Source: EIA. 11
($ billions) What inning is it for midstream? The midstream industry has been very active over the last four years, but this trend has many more years to go INGAA recently updated a study on estimated capex for the midstream industry (1) Expects $641 billion in capex ($30 billion / year) over the next 20 years Up by nearly 3x over their 2011 estimate IHS recently published a study estimating $890 billion in capex over the next 12 years (2) Historical Midstream MLP Expansion Capital (3) $30 $28 $23 $20 $17 $12 $12 $12 $14 $10 $4 $6 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Kayne Anderson Research and UBS Global Energy. (1) The INGAA Foundation, Inc., North American Midstream Infrastructure through 2035: Capitalizing on Our Energy Abundance, March 18, 2014. (2) IHS Global Inc., Oil & Natural Gas Transportation & Storage Infrastructure: Status, Trends & Economic Benefits, December 2013. (3) Excludes joint ventures, acquisitions and non-midstream MLP capex. 12
Great opportunity / challenges for individual investors MLP space has become larger, broader and more complex 120 public MLPs today versus 20 in 2000 Full exposure to shale story extends beyond the MLP space Midstream C-Corps are equally important Requires broad understanding of the energy industry We believe there will be significant winners and losers in the space 2000 MLP Market Cap: $16 billion July 31, 2014 Combined Market Cap: $1,040 billion MLPs Source: Kayne Anderson 13
Importance of stock selection and professional mgmt A professionally managed portfolio is the prudent approach Stock selection is key Wide variations in performance Critical to have a team of professionals focused on the broader energy sector Total Return of AMZ Constituents Last Twelve Months (As of 7/31/14) PSXP 101.6% # MLPs % of AMZ Returns > 50% 7 14% Returns > 20% 22 44% Returns within ±5% of AMZ 9 18% Alerian MLP Index 17.8% BWP (37.0%) 14
Industry-leading team Kayne Anderson has allocated significant resources to its closed-end funds Effort is led by Kevin McCarthy and J.C. Frey 24 investment professionals (including traders) 13 accounting, IR and legal/compliance professionals Research team (11 analysts) led by David LaBonte, former MLP analyst at Citi Midstream MLPs and C-corps Gathering & Processing MLPs Other MLPs Canadian & U.S. Trusts and U.S. E&P MLPs Canadian Infrastructure Marine Transportation Energy Fixed Income Access to Kayne s upstream private equity resources Raised six energy-focused private equity funds ($3.8 billion in AUM); focus on upstream sector Group s technical and operational expertise is a valuable resource for midstream effort Six in-house petroleum engineers Access to operating teams at portfolio companies 15
Energy expertise of Kayne Anderson executives and directors Our reputation allows us to attract experienced CEOs to sit on the boards of our closed-end funds * Current and former directorships at publicly-traded energy companies. 16
Industry-leading returns Kayne Anderson funds have generated exceptional returns over the long term KMF was recognized by Bloomberg as the best performing energy fund in 2012 KYN was the best performer in 2013 by same measures Adjusted NAV Returns Since Beginning of Fiscal 2011 (11/30/10 7/31/14) (1) (1) Note: Adjusted NAV Return is defined as NAV plus reinvested dividends paid during the period, divided by NAV at the beginning of the period. Adjusted NAV Returns for all funds are estimated based on best available public data. (1) KED performance is from 11/30/10 to 6/30/14. KED will report its 7/31/14 NAV later in August. 17
Closed-end funds: the structure of choice Building on the popularity of closed-end funds, several new structures for investing in MLPs have been created in recent years In addition to outperforming the AMZ, KYN performed substantially better than its closed-end fund, ETF, ETN and open-end fund alternatives Adjusted NAV Returns (1) Last Three Years (7/31/11 7/31/14) ETN / ETF (1) Adjusted NAV Return is defined as NAV plus reinvested dividends paid during the period, divided by NAV at the beginning of the period. * The MLP closed-end funds (CEFs) peers used include: TYG, NTG, CEM, FMO, JMF and SRV. MLP Open-End Funds 18
Take-away points We are optimistic about the long-term outlook for MLPs Shale revolution is a once-in-a-lifetime event Complex story with winners and losers Kayne Anderson CEFs are ideal vehicle for retail investors No K-1s ; No UBTI Experienced professional team Proven track record 19
Appendix
KYN distribution growth KYN has increased distributions for 15 consecutive quarters Increased distribution from 48 cents per share to 64 cents per share over that time period KYN Distribution Growth (since 2010) KYN Peer Group (2) Yield (7/31/14) 6.6% 5.9% LTM distribution growth 10.3% 2.2% Increased distribution by 71% since IPO (1) Relative to its peers KYN s year-over-year distribution growth for the Last Twelve Months (LTM) is over 4 times greater than those of its peers Despite this, KYN s yield is higher than those of all its peers (2) As of July 31, 2014 (1) KYN s first distribution was a partial distribution of $0.25 per share for a two-month period, which is equivalent to $0.375 for a full quarter. KYN s distribution growth since then was 71% (= $0.64 / $0.375). (2) TYG, NTG, EMO, JMF, CEM, FMO, CTR and FEI 21
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