Q2 2017 Energy Infrastructure & MLP Strategy 1360 East 9th Street, Suite 1100 Cleveland, Ohio 44114
MAI Capital Management Overview Heritage dating back to 1973 Privately held, independent SEC registered investment advisor Manages $4.2 billion in client assets* Headquartered in Cleveland, Ohio with offices in Florida, New Hampshire, and California Team of 90+ employees *AUM as of June 30, 2017 Page 2
Energy Infrastructure & MLP Universe MLPs are broadly categorized in three segments: Upstream, Midstream and Downstream The MAI Energy Infrastructure & MLP Strategy focuses primarily on the Midstream segment through publicly traded MLPs, GPs, & C-Corps The Energy Value Chain Upstream Exploration & Production Midstream Transportation, processing, and storage Downstream Refining and distribution to the end user Page 3
The Investment Opportunity: U.S. Energy Renaissance New technologies have enabled the economic production of previously untapped shale reserves and boosted the U.S. economy Significant investments are required to move domestic oil and gas from these new sources to end users 1 1 Source: In an April 2016 update to a widely recognized 2014 study commissioned by The Interstate Natural Gas Association of America (INGAA) Foundation, ICF International projected capital expenditures (CapEx) in midstream Infrastructure ranging from $471 billion to $621 billion over the next 20 years, with a midpoint expenditure of $546 billion. On an annual average basis, the expenditure was projected at $22.5 to $30.0 billion per year. Investment in pipelines (including both transmission and gathering lines and compression and pumping) was projected in a range from $183 billion to $282 billion, with a midpoint CapEx of $232 billion. Picture source: EIA, June 2016 Page 4
MAI s Investment Focus: Midstream Energy Companies Midstream Companies with hard assets with increasing replacement value Generally operate as toll-road businesses for the commodities they transport, process, store and gather which generates revenue on volume moving through their system Typically long-term, take or pay contracts with inflation escalators Involved in natural gas, LNG (Liquefied Natural Gas), and crude oil Securities that trade on major US exchanges 55 of the 141 (39%) publicly traded partnerships are Midstream* *Data Source: MLP Association (MLPA), as of July 10, 2017 Page 5
Why MAI Focuses on Midstream Energy Co s & MLPs In recent years, midstream MLPs have been challenged along with the broad energy landscape, but our long-term thesis remains intact: 1. The U.S. Energy Renaissance will continue as the U.S. has become a key incremental supplier to the world. 2. Midstream MLPs have attractive total return potential. 3. MLPs have low correlation with other asset classes. 4. Midstream MLPs often provide tax advantaged distributions. 5. Midstream MLPs often provide inflation protection. 6. MAI s nimble approach to active management can be advantageous in a rapidly evolving industry. Page 6
Why MLPs are attractive to MAI MLPs have a history of attractive total return 90% 70% Alerian MLP TR Index 7% Yield Index Growth 50% 7% 7% 30% 6% 69% 6% 6% 10% -10% 37% 8% -12% 38% 6% 10% 7% -1% 20% 6% 6% 12% 30% 6% 8% 7% -2% 22% 6% -1% 8% 7% 11% -30% -49% -41% -50% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Alerian; Annual yield and index growth. Data as of December 31, 2016. This chart does not show the performance of the MAI Energy Infrastructure and MLP Strategy it merely shows the historical total return of the Alerian MLP TR Index. Further, this performance is not a guarantee of future results. Current performance of the Index may be lower or higher than the performance data shown by this graph. The Alerian MLP Index is the leading gauge of large- and mid-cap energy MLPs. The float-adjusted, capitalization-weighted index, which includes 42 prominent companies and captures approximately 85% of available market capitalization as of 06/30/2017, is disseminated real-time on a price-return basis (AMZ) and on a total-return basis (AMZX). Investors cannot invest directly in an index. Page 7
Why MLPs are attractive to MAI MLPs have historically offered low correlations to traditional asset classes Correlation Energy MLPs (Alerian MLP AMZ ) To Equities 1 To Fixed Income 2 To REITs 3 0.52-0.06 0.34 Source: Zephyr StyleADVISOR; Correlation of returns. Data for the period January 2006 June 2017 1 The S&P 500 Index is widely regarded as the best single gauge of large cap U.S. equities. 2 The Barclays U.S. Aggregate Bond Index is a broad-based bond index comprised of government, corporate, mortgage and asset-backed issues, rated investment grade or higher, and having at least one year to maturity. 3 The S&P U.S. REIT Index defines and measures the investable universe of publicly traded real estate investment trusts domiciled in the United States. Please note an investor cannot invest directly in an index. Page 8
Demand growth for Natural Gas Electricity generation End users of energy are converting from coal-fired generation to natural gas In 2015, natural gas electricity generation surpassed coal for the first time Electricity generation by fuel in the reference case, 2000-2040 (trillion kilowatthours) Source: Annual Energy Outlook 2016 with projections to 2040. US Energy Information Administration. Full Release Date: Sept. 15, 2016 Page 9
LNG (Liquefied Natural Gas) Export Opportunity LNG export terminals are beginning to come online to ship cheaper U.S. gas to foreign markets U.S. LNG Export Terminals Approved & Under Construction U.S. - FERC Export Terminal Parent Target Begin Date 5. Sabine, LA: 0.7 Bcfd Cheniere Online/Expanding 6. Hackberry, LA: 2.1 Bcfd Sempra Cameron 2019 7. Freeport, TX: 2.14 Bcfd Freeport 2018 8. Cove Point, MD: 0.82 Bcfd Dominion Late 2017 9. Corpus Christi, TX: 2.14 Bcfd Cheniere 2018 10. Sabine Pass, LA: 1.4 Bcfd Sabine Pass Late 2018 11. Elba Island, GA: 0.35 Bcfd Southern 2018 As of May 1, 2017. A complete list of projects including those not under construction can be found at: https://www.ferc.gov/industries/gas/indus-act/lng.asp Page 10
Investment Opportunity Recap/Conclusion In conclusion, we believe: U.S. energy infrastructure spending has a long runway MLPs are a competitive total return story (yield and growth) MLPs have low correlation to traditional asset classes Active management may take advantage of market inefficiencies MLPs have built in inflation mitigation Past performance is no guarantee of future similar results. Page 11
Investment Process Midstream universe of MLPs, GPs, & C-Corps Greater than $500M market cap Yield Growth Projects Debt to EBITDA Projected 5-year distribution growth rate Strong general partner Distribution coverage ratio Enterprise value to EBITDA Management Transparency Price-to-cash flow/longterm growth Visibility of contracts Disciplined, Repeatable Process: Portfolio Construction Unattractive MLPs Attractive MLPs Watchlist Portfolio For illustrative purposes. Criteria can change at MAI s discretion Page 12
Portfolio Construction High conviction portfolio with meaningful positions (target 15 names) Maintain a watchlist of about 10 names MAI can change weightings to optimize portfolio Optimize for yield and/or growth Optimize to oil and/or gas companies Optimize to companies with staggered long-term contract maturities* Geographic dispersion (no regional bias) *MAI evaluates the underlying MLP(s) Page 13
MAI Risk Controls Regular portfolio monitoring Category MAI Control Quantitative # Holdings 12-20 Max position size Max 10% Cash position Max 10% Qualitative Projects Long-term contracts Re-rate Risk Visibility of contracts Balance Yield/Growth, Oil/Gas, Geography Page 14
MAI s Nimble, Active Management Liquidity to typically move in and out of positions in less than one day Strategy is not constrained by company format (GP, LP, C-Corp) Greater flexibility to invest in smaller cap Midstream MLPs Actual daily volume may vary by factors including market conditions and could impact our ability to move in and out of positions. Page 15
MAI Energy MLP Composite Performance MAI Energy Infrastructure & MLP Strategy Composite Performance Update: June 30, 2017 Annualized Returns Risk Metrics Q2 YTD 1 Year 3 Year 5 Year Since Inception 1 Volatility 1 Beta vs. Market 1 Sharpe Ratio 1 MAI MLP Composite 2-5.03% 2.48% 7.68% -9.28% 9.27% 12.75% 16.54% 0.92 0.76 Alerian MLP Index 3-6.35% -2.66% 0.40% -11.23% 1.77% 7.19% 16.58% 1.00 0.43 S & P 500 3 3.09% 9.37% 17.90% 9.61% 14.63% 13.27% 12.29% 0.44 1.07 Calendar Year Performance 2010 2011 2012 2013 2014 2015 2016 MAI MLP Composite 2 30.30% 21.68% 9.88% 42.85% 19.98% -28.08% 11.70% Alerian MLP Index 3 35.85% 13.88% 4.80% 27.58% 4.80% -32.59% 18.31% S & P500 15.06% 2.11% 16.00% 32.39% 13.69% 1.38% 11.96% Notes: 1 Calculated from market close on December 31, 2009. Volatility is measured as standard deviation of monthly returns. 2. Past performance is no guarantee of future similar results. Performance figures are preliminary, unaudited and net of fees and expenses and include dividends 3 Index data provided by Zephyr. The S&P 500 Index is presented for information only as a proxy for the U.S. equity market. Information on this page is supplemental to the full Annual Disclosure found at the end of this presentation. Page 16
Strategy Risk/Return MAI Energy Infrastructure & MLP standard deviation is 16.54% since inception MAI Energy Infrastructure & MLP annualized return is 12.75% since inception Past performance is no guarantee of future similar results. Performance is net of fees and expenses; returns include dividends reinvested. Performance for 2017 is preliminary. Calculated with monthly data since inception unless noted otherwise. Information on this page is supplemental to the full Annual Disclosure found at the end of this presentation. Page 17
Investment Team John Zaller, CFA, Chief Investment Officer, Portfolio Manager John is the Chief Investment Officer at MAI. John is responsible for investment management, external manager due diligence, and research in fixed income and individual equities. John joined MAI in 2007 after earning a BA from the University of Dayton in Finance and Business Economics. John graduated summa cum laude, ranking first in his class in both degree programs. John holds the Chartered Financial Analyst designation and is a member of the CFA Society of Cleveland. Jason Putman, CFA, Managing Director, Portfolio Manager Jason is a Managing Director and Portfolio Manager in MAI s Investment Department. From 2004 to 2012 Jason was with Victory Capital Management where he was a Portfolio Manager on the Large Cap Value team and an Energy and Technology Sector Analyst on the equity research team. Jason earned his BA from Michigan State University. He also holds the Chartered Financial Analyst designation and is a member of the CFA Society of Cleveland Jerry Gray, CFA, Managing Director, Portfolio Manager Jerry coordinates and develops platforms from which MAI can serve its high net worth clients by constructing portfolios comprised of best in class subadvisors and individual securities tailored to their financial and tax situation. Jerry is the former Vice President and Head of Personal Trust and Equity Research Analyst at National City Bank. He holds the Chartered Financial Analyst designation and is a member of The CFA Society of Cleveland. Jerry earned his BS from State University of New York and an MBA from Georgia State University. Page 18
ANNUAL DISCLOSURE PRESENTATION Year Ending Dec. 31 (unless noted otherwise) MLP Composite Annual Performance Results MLP Composite Benchmark For Information only Annual Composite Dispersion % ($ wtd. standard deviation) Total Firm Alerian MLP Alerian MLP Assets Assets (USD millions) (USD millions) # of Accounts Gross Net Index Infrastructure Index 2016 3,895 18.8 22 12.81% 11.70% 18.31% 18.74% 0.58 2015 3,776 16.1 25-27.34% -28.08% -32.59% -31.74% 0.44 2014 3,814 48.5 46 21.17% 19.98% 4.80% 7.61% 0.50 2013 3,541 27.0 30 44.24% 42.85% 27.58% 29.48% 0.34 2012 2,960 33.3 40 10.98% 9.88% 4.80% 4.21% 0.42 2011 2,093 5.9 14 22.88% 21.68% 13.88% 16.99% 0.12 2010 1,995 6.6 12 31.58% 30.30% 35.85% 34.98% ------- Past performance is no guarantee of future similar results. Performance for MAI and the indices includes dividends reinvested. MAI Capital Management, LLC ( MAI ) claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. MAI has been independently verified for the periods 12/31/03-12/31/16. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The MAI Energy Infrastructure & MLP Strategy Composite ( MLP Composite ) has been examined for the periods 12/31/09-12/31/16. The verification and performance examination reports are available upon request. Standard deviation of gross monthly returns for the 3 year period ending 2016 2015 2014 2013 2012 December 31 MLP Composite 21.20% 20.19% 14.18% 12.43% 11.53% Alerian MLP Index (benchmark) 20.23% 18.76% 13.73% 13.62% 13.56% Alerian MLP Infrastructure Index 20.79% 18.74% 13.59% 13.34% 13.04% The MLP Composite includes separately managed, fully discretionary accounts under management in MAI s strategy to achieve performance through capital appreciation and distributions from investments in publicly traded partnerships particularly those that focus on energy transportation, and related corporations such as general partners. This is a concentrated energy sector portfolio that may have risks, including federal tax policy risks not present in a more diversified portfolio. In 2014 and 2015, the energy sector broadly sold off as a new oversupply of oil led the price per barrel of West Texas Intermediate crude to fall from $98.17 at 12/31/14 to $53.49 a year later and $37.13 by end of 2015. Each MLP issues an annual Schedule K-1 to characterize the distributions, e.g. how much is a return of capital that impacts the cost basis. Investments in MLPs may result in taxable Unrelated Business Taxable Income (UBTI) that can be problematic for certain tax deferred or tax exempt accounts; seek tax advice for your account type before investing in MLPs. The strategy inception was 12/31/09; the composite was created in December 2009. From inception to December 2013 the composite was named the Energy MLP 15 Strategy Composite. New accounts that have a value of at least $100,000 at the time of funding are included the first full month after they are fully invested; accounts are removed from the composite if they fall 20% or more below the minimum size at the end of a month. Accounts in programs that bundle or wrap trading costs into the custodian s fees are excluded and presented in a separate wrap composite. In 2010, <5 accounts were in the composite the full year so composite dispersion is not presented. Standard deviation of monthly returns is not shown prior to 2012 as that was the first 3-year period available. Page 19
ANNUAL DISCLOSURE PRESENTATION (CONTINUED) MAI is an independent investment advisor registered with the Securities and Exchange Commission. It was originally established as Investment Advisors International, Inc. (IAI) in 1973, and was an affiliate of International Management Group (IMG). In 2000, McCormack Advisors International, LLC (McCormack) was formed to succeed to IAI s business as a joint venture between IAI and a major integrated financial institution. In 2002, the joint venture was dissolved and the firm returned to its roots as a provider of independent financial advice. McCormack became fully independent of IMG in 2004. On 1/31/07, BC Investment Partners, LLC (BC), also independently owned, acquired McCormack and renamed the merged firm MAI. MAI retroactively applied the GIPS calculation and methodology so that it could meet the 5-year requirement to begin claiming compliance as of 12/31/08. On 10/6/14 the firm name changed to MAI Capital Management, LLC. For GIPS purposes MAI includes discretionary and non-discretionary accounts in Total Firm Assets; MAI includes assets subadvised by another firm as long as MAI has discretion over the selection of the subadvisor. A complete list and description of composites as well as policies for valuing portfolios, calculating performance and preparing compliant presentations are available upon request. Composite returns are presented net of the highest MAI advisory fee charged to any account in the composite, 1% annually. The composite contained one non-fee paying account in 2014-2016 comprising 7%, 25% and 24% of year end assets respectively. Composite returns are presented net of 1%, therefore the net of fees presentation is not affected by this account. MAI s fee schedule for separate accounts managed in the strategy is 1% annually. Actual investment advisory fees incurred by clients may vary depending on, among other things, the portfolio size and any difference in negotiated fees. The U.S. Dollar is the currency used to present performance. Additional information regarding policies for calculating and reporting returns is available upon request. Individual account performance varies from the composite return. Returns reflect the reinvestment of dividends and other distributions, and are net of commissions and transaction costs. Benchmark history: MAI s disclosure presentation for calendar year 2010 compared the Composite to the Citigroup MLP Index. Lack of transparency into the index constituents and construction methodology led MAI to seek a better benchmark. During 2010 the index provider Alerian eliminated a conflict of interest in by spinning off its asset management business to focus on index administration. In 2011 MAI selected Alerian s MLP Infrastructure Index as a new benchmark. Effective 6/30/15, MAI retroactively applied the parent Alerian MLP Index as the composite benchmark. The energy industry has been in rapid evolution as assets are being shifted via M&A, dropdowns from integrated firms to limited partnerships, structural changes by entities. Neither Alerian index includes companies structured as C-corps. However, we believe the broader Alerian MLP index, whose 43 constituents include approximately 85% of available MLP market capitalization, better captures the opportunity set in our universe and provides a more representative benchmark for our investment strategy. The Index is float-adjusted and capitalization-weighted. Detailed information about the Alerian Index methodology is available at www.alerian.com. Direct investment in an index is not possible. The MAI strategy is more concentrated than the index and may include securities outside of the index and master limited partnership structure. Page 20
Contact Information MAI Investment Management A division of MAI Capital Management, LLC 1360 East 9 th Street, Suite 1100 Cleveland, OH 44114 216.920.4800 www.maiinvest.com This strategy is for consideration by high net worth or institutional investors only after a financial advisor or MAI portfolio manager has reviewed the risk factors and suitability given the risk tolerance and investment objectives of the prospective investor. THIS IS NOT A RECOMMENDATION TO BUY OR SELL ANY SECURITY. This is a concentrated energy sector portfolio that may have risks, including federal tax policy risks not present in a more diversified portfolio. The information contained herein is derived from sources believed accurate but not guaranteed. Prices, yields and availability will change with market movement. There is no guarantee future yields will be similar. This is intended only for the use of the individual or entity to which it is addressed from MAI and contains information that is confidential. If the reader of this message is not the intended recipient, you are notified that any disclosure, distribution or copying is prohibited. Please notify us toll-free at 866.624.9584 and return the original document to MAI Capital Management, LLC 1360 E. 9 th St. Ste. 1100, Cleveland, OH 44114 Page 21