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Salient MLP Separately Managed Account Strategy

Overview

Philosophy

The Salient MLP SMA investment philosophy is based on a fundamental “bottom-up” research driven approach designed to construct a portfolio that seeks to maximize risk-adjusted returns while providing our investors exposure to a well-diversified range of midstream energy MLPs and companies.

Strategy1

The Salient MLP SMA invests primarily in publicly-traded midstream energy Master Limited Partnerships (MLPs) and seeks to identify other higher-quality energy related companies. The strategy is total return oriented and seeks to offer investors the potential for both current income and potential capital appreciation.

Process

The team starts with bottom-up research, focused on three critical factors:

  • Stability of the dividend or distribution
  • The 3-5 year estimated growth rate of the dividend or distribution
  • The current valuation relative to our proprietary assessment of the stock’s intrinsic value

Detailed models are built to understand an MLP’s:

  • Cash flow stability
  • Commodity price sensitivity
  • Growth profile
  • Distribution coverage
  • Cost of capital analysis
  • Balance sheet health (leverage profile)
  • Financing needs and other company specific factors

Five basic valuation approaches are used to better understand the security including:

  • Dividend discount models
  • An Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA ) multiple analysis
  • A distributable cash flow multiple analysis
  • Relative yield
  • In special situations, a sum-of-the-parts analysis

1From time to time the Advisor may modify the strategic targets for portfolio construction. Diversification cannot assure a profit or protect against loss in a declining market. The Portfolio is non-diversified, which means that it may invest in a limited number of issuers. No investment strategy can guarantee performance results.

Team

Gregory A. Reid

President, Salient MLP Complex
Houston

Ted Gardner, CFA

Managing Director
Houston

Matt Hibbetts

Chief Operating Officer — MLP Investments
Houston

Parag Sanghani, CFA

Director of Research, MLP Complex
Houston

Scott Fogleman

Senior Analyst — MLPs
Houston

Chance Pipitone

Senior Analyst — MLPs
Houston

Dan Hinds, CFA

Senior Analyst — MLPs
Houston

Eddie Rowe

Senior Analyst — MLPs
Houston


Ted Gardner and Parag Sanghani have earned the right to use the Chartered Financial Analyst designation. CFA Institute marks are trademarks owned by the CFA Institute.

Performance

Monthly Performance (%) as of 01/31/2018

  Jan'18 QTD YTD 1 YR 3 YR 5 YR 10 YR SINCE
INCEPTION
Composite NET 4.80 4.80 4.80 -4.82 -5.68 3.71 10.09 12.41
Alerian MLP Index 5.76 5.76 5.76 -5.75 -6.65 -1.31 6.70 8.57
S&P MLP Index 5.73 5.73 5.73 -3.69 -6.80 -0.40 7.26 8.76

Quarterly Performance (%) as of 12/31/2017

  Q4 YTD 1 YR 3 YR 5 YR 10 YR SINCE
INCEPTION
Composite NET -0.12 -5.72 -5.72 -8.05 4.98 9.23 12.06
Alerian MLP Index -0.95 -6.52 -6.52 -9.32 -0.06 6.04 8.13
S&P MLP Index -0.29 -5.58 -5.58 -9.23 0.87 6.60 8.32

For illustrative purposes only. Strategy returns compiled by Salient Capital Advisors, LLC, as of December 31, 2017. Returns are from the Salient MLP SMA Composite (“Composite”) and reflect the reinvestment of dividends, interest and other earnings. Individual results may vary in the Salient MLP SMA Strategy based upon the following factors: (i) individual account asset management fee and (ii) when the investor enters and exits investment in the Salient MLP SMA Strategy.

The performance metrics shown in the charts above are calculated using the inception date of the Salient MLP SMA Strategy (January 2006). The indices reflect the reinvestment of dividends and income and do not include deductions for fees, expenses or taxes. The indices are unmanaged and not available for direct investment.

Past performance is not indicative of future results. Percentages have been rounded to two decimal places for illustrative purposes. No investment strategy can guarantee performance results.

The Alerian Total Return MLP Index (AMZX) is the benchmark index for the Salient MLP SMA Strategy. The S&P MLP Index (SPMLP) is used in addition to the AMZX in order to provide further market sector performance comparisons to exchange-traded energy-related partnerships.

Alerian MLP Total Return Index (AMZX) is a composite of some of the most prominent energy MLPS that provide investors with a comprehensive benchmark for this maturing asset class.

S&P MLP Index (SPMLP) provides investors with exposure to the leading partnerships that trade on the NYSE and NASDAQ. The index includes both MLPs and publicly traded limited liability companies (LLCs), which have a similar legal structure to MLPs and share the same tax benefits.

GIPS Performance & Disclosure

Year Net-of-Fees Return (%) Alerian MLP Total Return (%) S&P MLP Total Return (%) Number of Portfolios Annual Composite Dispersion 3-Year Composite Dispersion 3-Year Alerian MLP Dispersion 3-Year S&P MLP Dispersion Total Composite Assets (USD mil) Total Firm Assets (USD mil)
2017-5.72%-6.52%-5.58%2110.44%22.20%19.06%20.33%$1,669.72$9,484.00
201628.20%18.31%21.95%2580.94%23.74%19.95%21.42%$1,752.17$10,320.00
2015-35.69%-32.59%-35.08%1030.54%20.80%18.50%19.19%$1,041.81$9,655.00
201418.42%4.80%7.67%1201.16%14.17%13.54%13.63%$220.68$17,113.00
201338.54%27.58%29.76%650.42%12.22%13.43%13.28%$101.31$15,317.00
201212.61%4.80%4.96%240.67%12.26%13.37%13.11%$34.74$14,342.00
201115.31%13.87%14.47%27NA17.09%17.19%17.35%$54.12$13,748.00
201038.78%35.84%35.18%191.10%25.98%23.36%23.91%$45.55NA
200997.48%76.42%78.78%7NANANANA$25.27NA
2008-46.70%-36.93%-37.47%5 or fewerNANANANA$1.02NA
200726.15%12.74%9.41%5 or fewerNANANANA$1.52NA
200628.57%26.07%25.90%5 or fewerNANANANA$1.20NA

Unannualized performance from 1/1/17 through 12/31/17.

Salient Partners, L.P. (“Salient” or the “Firm”) claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Salient has been independently verified for the periods 1/1/2011 – 3/31/2016. 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 Salient MLP SMA composite has been examined for the periods 1/1/2011 – 3/31/2016. The verification and performance examination reports are available upon request.

For the purposes of applying the GIPS Standards, the firm is defined as Salient Partners, L.P. (“Salient” or the “Firm”). Salient includes all assets of Salient Advisors, L.P., Endowment Advisers, L.P., Sustainable Woodlands Partners, LLC, GHE Advisers, L.P., and the non-trust and advisory assets of Salient Capital Advisors, LLC, which are managed by Salient’s Institutional Asset Management Group. Salient Advisors, L.P., Endowment Advisers, L.P., Sustainable Woodlands Partners, LLC, GHE Advisers, L.P., and Salient Capital Advisors, LLC are independent registered investment advisers wholly owned by Salient. The Firm first adopted the GIPS standards in 2015 for all periods of performance beginning January 1, 2011.  Effective June 10, 2015, Salient acquired Forward Management, LLC, a registered investment advisor, previously claiming GIPS compliance for all periods beginning June 30, 2002. To receive a list of composite descriptions, please contact a representative at 800-809-0525. The US dollar is used to calculate performance.

The Salient MLP SMA Composite (“Composite”) invests in energy Master Limited Partnerships (MLPs). MLPs are publicly-traded partnerships that own and operate assets such as natural gas, crude oil, and refined products pipelines and storage facilities that are a vital part of the U.S. energy infrastructure. Beginning January 1, 2016, the minimum account size for the composite is $250,000. Prior to 2016, the minimum account size for the composite was $500,000. Beginning January 1, 2009, any account with an inflow or outflow greater than or equal to 25% will be excluded from the composite during that month. The account will be re-included into the composite once fully invested with no more than 20% cash. The composite was created in January 2006, and performance prior to January 2011 represents the performance record established by the portfolio manager while affiliated with prior firms.

The investment management fee schedule for the composite is 0.75% on the first $25 million, 0.70% on the next $25 million, 0.65% on the next $25 million, over $75 Million 0.65% flat on all assets, over $100 million 0.60% flat on all assets, and over $150 million 0.50% flat on all assets. Actual investment advisory fees incurred by clients may vary. Further information regarding investment advisory fees is described in Part 2A of Salient Capital Advisors, LLC’s Form ADV.

The indices reflect the reinvestment of dividends and income and do not reflect deductions for fees, expenses or taxes. The indices are unmanaged and are not available for direct investment. Past performance is not indicative of future results. The Alerian MLP Total Return Index (AMZX) is the benchmark index for the Fund. The S&P MLP Index (SPMLP) is used in addition to the AMZX in order to provide further market sector performance comparisons to exchange-traded energy related partnerships. Performance shown represents total returns that include income, realized and unrealized gains and losses. Net of fee performance was calculated using the highest applicable annual management fee of 1.00%, applied monthly. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. The annual composite dispersion presented is an asset-weighted standard deviation calculated using accounts in the composite the entire year. The 3-Year Standard Deviation represents the annualized standard deviation of actual composite and benchmark returns, using the rolling 36-months ended each year-end.

Returns are from the Salient MLP SMA Composite and reflect the reinvestment  of  dividends, interest, and other earnings. Individual results may vary in the Salient MLP SMA Strategy based upon the following factors, (i) individual account asset management fee, and (ii) when the investor enters and exits investment in the Salient MLP SMA Strategy.  It should not be assumed that investors in the Strategy will experience returns in the future, if any.

Portfolio

Top 10 Holdings (% of Net Assets) as of 01/31/2018

A Enterprise Products Partners, L.P. 9.77
B Energy Transfer Equity, L.P. 8.37
C Shell Midstream Partners, L.P. 5.84
D Magellan Midstream Partners, L.P. 5.79
E ONEOK, Inc. 5.34
F MLPX, L.P. 4.78
G Tallgrass Energy Partners, L.P. 4.77
H Energy Transfer Partners, L.P. 4.33
I Enlink Midstream Partners, L.P. 4.23
J Andeavor Logistics LP 4.13

These holdings may not reflect the current or future positions in the portfolio.

Sector Allocation (%) as of 01/31/2018

A Natural Gas Pipelines & Storage 44.24
B Liquids Transportation & Storage 28.79
C Gathering & Processing 20.18
D Refinded Products 5.79
E Cash 0.99

These allocations may not reflect the current or future positions in the portfolio. Percentages may not add to 100% due to rounding.

Asset Type Allocation (%) as of 01/31/2018

A MLP 84.11
B Midstream Company 8.28
C MLP Affiliate 3.95
D MLP General Partner* 2.67
E Cash and Other Assets 0.99

* Structured as corporations for US federal taxes
These allocations may not reflect the current or future positions in the portfolio. Percentages may not add to 100% due to rounding.

This information is supplemental to the disclosure presentation located in the performance section above.
Related Resources

Investment Advisory Services for the Salient MLP Separately Managed Account Strategy are offered through Salient Capital Advisors, LLC, a subsidiary of Salient Partners, L.P.

1Salient Partners, L.P., and affiliates do not provide tax or legal advice. Please contact your legal and or tax professional to determine how the information contained on this page may apply to your situation.