Wachovia 100 Pager on MLPs

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WACHOVIA CAPITAL MARKETS, LLC

A publication of

Equity ResearchMLP Primer -- Third EditionEverything You Wanted To Know About MLPs, But Were Afraid To Ask Primer Third Edition A Framework For Investment. This report is an update to our second master limited partnership (MLP) primer. In this third edition, we have added new information based on questions and feedback received from investors over the past three years. Included in this edition are updated data about MLPs relative performance, the growth of MLPs as an asset class, and developments within the MLP sector (e.g., legislation, fund flow).

July 14, 2008

Master Limited Partnerships Michael Blum, Senior Analyst( 2 1 2 ) 2 1 4 - 5 0 3 7 / mi c h a e l . b l u m@ w a c h o v i a . c o m

Sharon Lui, CPA, Senior Analyst(212) 214-5035 / sharon.lui@wachovia.com

Eric Shiu, Associate Analyst(212) 214-5038 / eric.shiu@wachovia.com

Praneeth Satish, Associate Analyst(212) 214-8056 / praneeth.satish@wachovia.com

Ronald Londe, Senior Analyst(314) 955-3829 / ron.londe@wachovia.com

Jeffrey Morgan, CFA, Associate Analyst(314) 955-6558 / jeff.morgan@wachovia.com

Please see page 93 for rating definitions, important disclosures and required analyst certifications.WCM does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.

MLP071408-233712

MLP Primer -- Third Edition

WACHOVIA CAPITAL MARKETS, LLC EQUITY RESEARCH DEPARTMENT

Table Of ContentsI. II. Introduction -- A Framework For Investment........................................................................................................................ 5 Why Own MLPs? .................................................................................................................................................................. 5 A. Above-Average Performance And Good Portfolio Diversification......................................................................... 5 B. MLP Value Proposition -- Tax-Efficient Income Plus Growth ............................................................................... 8 C. MLPs Have Been Defensive During Economic Slowdowns................................................................................. 10 D. MLPs Are An Effective Hedge Against Inflation.................................................................................................. 11 E. Demographics........................................................................................................................................................ 11 F. MLPs Are An Emerging Asset Class .................................................................................................................... 12 Who Can Own MLPs? ......................................................................................................................................................... 16 A. Mutual Funds Can Own MLPs But Most Do Not ............................................................................................. 17 B. Challenges Remain For Mutual Fund Ownership Of MLPs.................................................................................. 17 C. Tax Exempt Vehicles Should Not Own MLPs ...................................................................................................... 17 How To Build An Effective MLP Portfolio......................................................................................................................... 18 Types Of Assets In Energy MLPs And Associated Commodity Exposure ......................................................................... 18 A. A Brief Review Of The Evolution Of The MLP Sector ........................................................................................ 18 B. Asset Overview ..................................................................................................................................................... 19 Midstream (e.g., Pipelines, Storage, And Gathering And Processing)............................................................. 20 Propane............................................................................................................................................................. 26 Shipping ........................................................................................................................................................... 27 Coal .................................................................................................................................................................. 29 Upstream .......................................................................................................................................................... 29 Refining............................................................................................................................................................ 30 Compression..................................................................................................................................................... 31 Liquefied Natural Gas (LNG) .......................................................................................................................... 31 General Partner Interest.................................................................................................................................... 31 The Basics............................................................................................................................................................................ 32 A. What Is An MLP?.................................................................................................................................................. 32 B. Why Create An MLP? ........................................................................................................................................... 33 C. What Qualifies As An MLP?................................................................................................................................. 33 D. What Are The Advantages Of The MLP Structure?.............................................................................................. 33 E. How Many MLPs Are There? ............................................................................................................................... 33 F. What Is The K-1 Statement?.................................................................................................................................. 34 G. What Is The Difference Between A LLC And MLP? ........................................................................................... 34 H. Are MLPs The Same As U.S. Royalty Trusts And Canadian Royalty Trusts? ..................................................... 34 I. What Are I-Shares? ............................................................................................................................................... 35 Drivers Of Performance....................................................................................................................................................... 37 A. Distribution Growth............................................................................................................................................... 37 B. Access To Capital.................................................................................................................................................. 37 C. Interest Rates ......................................................................................................................................................... 38 D. Commodity Prices ................................................................................................................................................. 39 Key Terms ........................................................................................................................................................................... 39 A. What Are Distributions.......................................................................................................................................... 39 B. What Are Incentive Distribution Rights (IDR)...................................................................................................... 39 C. Calculating Incentive Distribution Payments ........................................................................................................ 40 D. Available Cash Flow Versus Distributable Cash Flow.......................................................................................... 41 E. Are MLPs Required To Pay Out All Their Cash Flow? .................................................................................... 41 F. What Is The Distribution Coverage Ratio And Why Is It So Important? .............................................................. 41 G. What Is The Difference Between Maintenance Capex And Growth Capex? ........................................................ 42

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Master Limited Partnerships

WACHOVIA CAPITAL MARKETS, LLC EQUITY RESEARCH DEPARTMENT

IX.

Tax And Legislative Issues.................................................................................................................................................. 42 A. Who Pays Taxes?................................................................................................................................................... 42 B. What Are The Tax Advantages For The LP Unitholder (The Investor)? .......................