Energy Timeline
Energy transitions have historically been measured in generations. The transition from wood to coal as the primary energy source in America happened in the late 1800s, and it was more than 65 years before oil overtook coal in the 1950s. Natural gas appears poised to overtake oil, which is still the dominant energy source in the United States today.

Though there is great excitement about the possibilities of an all-renewable energy system and a growing sense of urgency due to concerns about climate change, operational limitations of renewable energy production and storage, as well as policy and economic realities of today's energy markets, make it unlikely in our view that renewables will short-circuit the transition of coal and oil to natural gas.

Globally, wind and solar supply just over 1% of total energy needs. While both have the potential for significant growth ahead, this will probably be a multi-decade transition. For context, it took oil 30 years to go from 1% to 10% of the energy mix. In the meantime, natural gas, recognized as the cleanest burning fossil fuel, is likely to define the energy landscape in the years ahead.

For investors with a bias toward investing in transformative change but also in established companies, we think natural gas provides fertile ground for investment opportunities, as it appears to be entering its golden age.

The United States is set to become the world's leading producer of natural gas and crude oil. Emerging technologies are allowing producers across the United States to unlock vast quantities of previously inaccessible oil and gas, potentially making way for decades of cheap, abundant energy for the domestic economy. What was old is new again. Pennsylvania, Michigan, North Dakota, West Virginia, and Ohio joined the traditional roster of western producing states, and waning fields in older mature areas became newly vibrant, as horizontal drilling released resources thousands of feet deep, below long-depleted wells.

The natural gas and oil industries have likewise shown signs of rejuvenation. Multi-billion-dollar liquified natural gas terminals, previously built to import gas, are now being retrofitted to export US gas around the world.

Historic Perspective

These transformational developments create opportunities for those companies directly engaged in the exploration, extraction, transportation, processing, and delivery of oil and gas resources and refined products. But the opportunities can extend far beyond the wellhead, particularly with natural gas. Regulated utilities can benefit as they move toward natural gas, a cleaner-burning bridge fuel between highly pollutive coal and a carbon-free, long-term future. Through increased gas consumption, energy-intensive industries may reduce their business expense and their environmental footprint. Petrochemical companies have committed billions of dollars on multi-year projects to build plants in Texas and Louisiana to take advantage of an improved competitive position. Engineering and construction companies can benefit by designing and building these projects.

US Energy Consumption 1776-2040

Energy Independence: Consumption vs. US Energy Production (1980-2040)

This transformation in energy may call for a new approach to investing in energy—one that seeks to capture the far-reaching impact of the United States once again becoming an energy powerhouse. We call this approach to energy investing Drill Bit to Burner Tip®, as it seeks to encompass the entire energy vertical, from the producer to the customer.

Perhaps the true value to investors of this approach is the added diversification through investments in both producers and consumers of energy, as well as companies that benefit from both higher and lower commodity prices. The plunge in oil prices that began in December 2014 with OPEC's aggressive strategy to temporarily collapse the price of oil and retain market share we feel underscored the advantages of our approach to investing in the North American energy vertical. Various industries along the broadly defined energy value chain recovered at different rates, and their correlation of returns began to generally decrease after initially falling in lockstep.

Upstream companies are highly sensitive to changes in commodity prices, and benefit from higher prices. Midstream transportation companies seem less sensitive to commodity prices and more often benefit from growth in volume. Downstream utilities and petrochemical companies, on the other hand, are heavy users of natural gas and benefit from low commodity prices. Taken together, the Drill Bit to Burner Tip® approach to investing seeks to cast a wider net for opportunities while seeking to reduce volatility by tactically positioning the portfolio as developments and valuations evolve across the value chain.
These transformational developments create opportunities for those companies directly engaged in the exploration, extraction, transportation, processing, and delivery of oil and gas resources and refined products. But the opportunities can extend far beyond the wellhead, particularly with natural gas. Regulated utilities can benefit as they move toward natural gas, a cleaner-burning bridge fuel between highly pollutive coal and a carbon-free, long-term future. Through increased gas consumption, energy-intensive industries may reduce their business expense and their environmental footprint. Petrochemical companies have committed billions of dollars on multi-year projects to build plants in Texas and Louisiana to take advantage of an improved competitive position. Engineering and construction companies can benefit by designing and building these projects.

1 Source: The Paleontological Research Institution.
2 Source: EIA, 2016.
3 Source: EIA, 2015, projected estimates of mixed fuel sources by 2040.

Before investing you should carefully consider the Fund's investment objectives, risks, charges and expenses. The prospectus contains this and additional information regarding the Fund. To obtain a prospectus, please download from this site or call 1-844-MHFUNDS. The prospectus should be read carefully before investing.

IMPORTANT DISCLOSURES AND RISKS

An investment in the Miller/Howard Drill Bit to Burner TipĀ® Fund is subject to risk, including the possible loss of principal. Fund risks include, but are not limited to, the following: The Fund's focus on the securities that are the beneficiaries of the North American energy value chain presents more risk than if it were more broadly diversified over additional industries and sectors of the economy.

Depositary receipts may be less liquid than the underlying shares in their primary trading market. Companies that issue dividend yielding equity securities are not required to continue to pay dividends on such stock. The Fund may be exposed to liquidity risk when trading volume, lack of a market maker, or legal restrictions impair the Fund's ability to sell particular securities or close call option positions at an advantageous price or in a timely manner. The Fund invests in small and medium size companies, which carry greater risk than is customarily associated with larger, more established companies.

The Fund may invest in energy companies and energy producers, including pipeline and gas distribution companies. General problems of energy companies include volatile fluctuations in price and supply of energy fuels, international politics, terrorist attacks, reserve and depletion risk and reduced demand.

The Fund may be subject to increased expenses and reduced performance as a result of its investments in other registered investment companies and MLPs. An investment in units of MLPs involves certain risks that differ from an investment in the securities of a corporation. MLP entities are typically focused in the energy, natural resources and real estate sectors of the economy. A downturn in the energy, natural resources or real estate sectors of the economy could have an adverse impact on the Fund. Changes to current tax law could affect the treatment of distributions, including (but limited to) ordinary income, capital gains or return of contribution. The Fund is new with no operating history and there can be no assurance that the Fund will grow to or maintain an economically viable size.

Distributed by Foreside Fund Services, LLC.

More information about the Fund can be obtained by calling a MHI Funds, LLC sales representative at 845-679-9166.

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