Center Coast MLP & Infrastructure Fund
November 30, 2015

 

Table of Contents

 

 

Center Coast MLP & Infrastructure Fund

 

Fund Overview (unaudited)

 

Center Coast MLP & Infrastructure Fund (“CEN”) is an actively managed fund that invests in a portfolio of master limited partnerships and energy infrastructure companies. The Fund is structured to provide investors with:

 

 

 

 

 

 

 

Investment Objective

 

The Fund’s investment objective is to provide a high level of total return with an emphasis on distributions to shareholders. The “total return” sought by the Fund includes appreciation in the net asset value of the Fund’s common shares and all distributions made by the Fund to its common shareholders, regardless of the tax characterization of such distributions, including distributions characterized as return of capital.

 

Subsector Composition (as of 11/30/15)		Investment Approach
		Core MLP Holdings Generally, the Fund anticipates making core investments in MLPs and energy infrastructure companies that have (1) traditional fee-based businesses (2) high barriers to entry, (3) low direct commodity price exposure and (4) low demand elasticity or the potential for demand destruction. Examples include interstate pipelines, intrastate pipelines with long-term contracts and diversified revenue streams, and crude and gas storage and terminal facilities.   Opportunistic Trades The Fund may invest a portion of its portfolio in shorter-term investments. These opportunistic transactions may be based on Center Coast’s view of factors including, but not limited to, market dislocations, projected trading demand imbalances, short-term market catalysts, commodity price volatility and interest rates and credit spreads along with other issuerspecific developments.   Private Investments The Fund intends to allocate up to 20% of its portfolio to private investment opportunities. The Fund anticipates making investments in a limited number of carefully selected private investments. The Fund’s private investments may include investments in entities formed to own and operate particular energy infrastructure assets, but will not include interests in private investment funds.

 

Center Coast MLP & Infrastructure Fund

 

Shareholder Letter (unaudited)

 

January 20, 2016

 

Dear Fellow Shareholders:

 

Below you will find the Annual Report for the Center Coast MLP & Infrastructure Fund (“the Fund” or “CEN”) for the period ending November 30th, 2015.

 

For the fiscal year ending November 30, 2015, the Fund provided a total return of -40.75% on a net asset value (“NAV”) basis, net of expenses and corporate taxes and including the reinvestment of dividends. The Fund provided a market-based total return of -37.97% for the same period. This can be compared to the total return, including dividends and capital gains reinvested, of +2.75% for the broader equity markets as represented by the Standard and Poor’s 500 Index (“S&P 500”) and the total return of -34.03% for the Alerian MLP Index (“AMZ”; a composite of fifty energy MLPs calculated using a float-adjusted, capitalization-weighted methodology).¹

 

The Fund declared distributions of $1.2504 per share during the fiscal year. As of November 30, 2015, the market price per share was $11.09 and the NAV per share was $10.93 (a premium of 1.46%). The current monthly distribution of $0.1042 per share represents an annualized distribution rate of 11.28% and 11.44% based on the market price and NAV per share, respectively, at the end of the fiscal year.²

 

As permitted under the Investment Company Act of 1940, the Fund utilizes leverage to provide additional capital. Although the use of this leverage increases the potential volatility of the Fund’s NAV, we use leverage with the objective of increasing the net income and distributions available to shareholders. As of November 30, 2015, leverage represented 27.3% of the Fund’s managed assets. All of the Fund’s leverage is variable-rate and its weighted-average interest rate for the fiscal year was 1.28%.

 

SUMMARY OBSERVATIONS

 

It’s been a long and difficult year for Master Limited Partnerships (MLPs). The Fund’s performance is a harsh reminder of how cautious investors have become regarding anything associated with energy. This caution primarily stems from the rapid decline in crude oil prices and its impact on newfound U.S. unconventional production. Crude oil prices began their fall in late November 2014 when OPEC decided to protect its long-term market share by maintaining current output targets amid rising global crude oil supply. Since that decision through November 30, 2015, crude oil prices¹ fell 43% and energy indices followed suit—the SIG Oil Exploration and Production Index (“EPX”) was down 41%; the PHLX Oil Service Sector Index (“OSX”) was down 24%; and the AMZ was down 42%—all over the same time frame.

 

The relative performance of the midstream and MLP business segment—down more than the EPX and almost as much as crude oil itself—has been particularly surprising given the more fee-based, historically stable cash flow profile of the asset class. The Fund’s constituents actually increased distributable cash flow (“DCF”)² per unit by over 15% year over year (on average) while the EPX constituents experienced cash flow per share³ degradation of more than 35%. Nevertheless, underlying fundamentals largely took a backseat this year as other, more transient factors took center stage. For example: (i) a Federal Reserve rate hike for the first time in nine years; (ii) weak institutional fund flows into MLP products; (iii) closed-end fund deleveraging in response to asset value declines; (iv) tax loss harvesting ahead of year end; (v) short-selling pressure that exacerbated the move down, and; (vi) concerns about rising costs of capital and weakened capital markets access.

 

Over the long term, commodity prices will not always go down. Sentiment will not always be so bearish. Despite some radical commentary, high-quality MLPs that operate critical oil & gas infrastructure are here for the long-haul. Although headwinds remain in select spots across the MLP universe, valuation and fundamentals have decoupled and are pricing in

 

 

Center Coast MLP & Infrastructure Fund

 

Shareholder Letter (unaudited)

 

a bearish scenario that we don’t think materializes even if crude oil prices remain low for the foreseeable future. Over the long term, once market noise normalizes, we believe the total return proposition of the Fund is squarely intact through an attractive combination of cash distributions and growth generated from high-quality assets and sustainable cash flows.

 

2015 YEAR IN REVIEW

 

We’ve spoken with a lot of investors and written a lot of commentary throughout 2015. Instead of rehashing each and every data point, below is summary of the key takeaways and the major events that occurred during each quarter of the Fund’s fiscal year:

 

1Q – December 2014 through February 2015 (-3.82% total return by the Fund): Crude oil prices take an initial leg down following the OPEC decision. The U.S. energy market begins the “repositioning and adjusting” process by high-grading production, cutting costs, and defending balance sheets. News flow is light as companies position themselves for a lower commodity price environment.

 

 

 

 

 

 

 

2Q – March 2015 through May 2015 (-4.88% total return by the Fund): Crude oil prices rebound in response to sharp declines in U.S. rig counts. The IRS proposes clarified rules on MLP “qualifying income.” The Williams Merger & Acquisition (M&A) saga begins.

 

 

 

 

 

 

 

 

Center Coast MLP & Infrastructure Fund

 

Shareholder Letter (unaudited)

 

 

 

 

 

3Q – June 2015 through August 2015 (-14.11% total return by the Fund): Crude prices reverse course and find new lows after Iran reaches a nuclear weapons agreement with the United Nations. The CEO of PAA spooks an already jittery MLP market with bearish commentary. Technical headwinds (e.g., negative fund flows, closed-end fund deleveraging, and short selling) combine with the aforementioned factors to produce the worst calendar quarter in MLP history (as measured by the AMZ). M&A activity heats up.

 

 

 

 

 

 

 

 

 

 

 

 

 

4Q – September 2015 through November 2015 (-24.59% total return by the Fund): Crude prices continue their slide as major producers dig in their heels and inventories build. Technical factors accelerate into September with tax loss harvest season beginning shortly thereafter. The Fed gets closer to its eventual rate hike decision. High yield energy credit markets come under pressure and access to sufficient capital becomes a key focal point for midstream and MLP investors.

 

 

 

 

Center Coast MLP & Infrastructure Fund

 

Shareholder Letter (unaudited)

 

 

 

 

 

 

 

 

 

 

 

OPPORTUNISTIC TRANSACTIONS AND PRIVATE INVESTMENTS

 

After generating relative outperformance to the Fund’s core holdings throughout the first half of the year, the Fund’s opportunistic activity slowed down during the third and fourth quarters. In addition to a weak new issue market (e.g., follow-on and initial public offerings), the indiscriminate selling seen throughout the second half of the year caused the valuation levels of the Fund’s core holdings to be as attractive (if not more attractive) than those of most non-core opportunistic investment opportunities, which tend to be higher risk. Further, given the volatility and associated asset value impairment, Fund leverage was managed and monitored in a way that limited the amount of cash flow available to invest opportunistically. Volatility also negatively impacted the Fund’s option writing strategy. After generating healthy income and a positive total return throughout the first half of the year, the Fund was put stock that had fallen below our internal downside price targets during the third quarter market selloff. Persistent market volatility also limited our willingness to take on added risk through option writing during the fourth quarter.

 

Despite the substantial volatility throughout the year, we were able to execute on a number of short-term opportunistic trades that positively contributed to total return for the Fund when trading ranges and valuation levels were more predictable. For example, our opportunistic participation in the IPO of EQT GP Holdings, LP (NYSE: EQGP), the general partner of core constituent EQM, was the single-best trade made by the Fund during fiscal year 2015.

 

Moreover, the Fund was able to execute four private investments during the year. In May, the Fund participated in a private placement (“PIPE”) of unregistered units of SHLX to support SHLX’s drop-down acquisition of additional interests in Zydeco Pipeline and Colonial Pipeline. In September, the Fund participated in a PIPE of unregistered units of Antero Midstream Partners LP (NYSE: AM) to support AM’s drop-down acquisition of a water gathering business. The third and final PIPE that the Fund participated in was with Rice Midstream Partners LP (NYSE: RMP) in November. The unregistered units that the Fund acquired helped to finance the acquisition of a water services business from RMP’s upstream parent company, Rice Energy Inc. (NYSE: RICE). All three PIPEs were initially well-received by the market and the Fund’s invitations to participate in the transactions are a testament to the operating and banking relationships fostered by Center Coast management’s decades-long experience in the midstream space.

 

Center Coast MLP & Infrastructure Fund

 

Shareholder Letter (unaudited)

 

Finally, we are excited to provide an update on the Fund’s first private investment, a first quarter commitment of up to $40.0mm made to a joint venture with a leading midstream company and a financial sponsor to build out midstream infrastructure in support of a top-tier producer’s development of a natural gas-focused resource play in North America. We are pleased to report that: (i) the build-out is progressing ahead of schedule; (ii) we received our first two quarterly distributions from the investment before the end of the calendar year; and (iii) we believe that the long-term investment thesis of the joint venture is on track.

 

Looking ahead, we believe that this period of market dislocation will present the Fund with compelling opportunistic and private investment opportunities, particularly as creative financing structures become more commonplace. That being said, we will not let short-term market activity impact our investment discipline or long-term thesis—to invest at attractive valuation levels in stable, fee-based cash flows generated from critical infrastructure owned and operated by high-quality, capable management teams.

 

2015 Fund Core Contribution Analysis⁵

 

 

The Fund’s top 5 core contributors for the fiscal year 2015 fall in two different categories: (i) positions we exited in Q1 or Q2 and (ii) high-quality, sponsored drop-down growth names.

 

The first of these categories includes WMB, TEP, TRP, and SUN. We exited each of these positions over the summer for various reasons. With WMB, we exited the position in the days following its initial rejection of an acquisition offer made by ETE. Upon announcement of the offer and its rejection, WMB nonetheless traded to full deal value, and we effectively “sold at the top.” In TEP’s case, we exited shortly after the initial public offering (“IPO”) of its general partner, Tallgrass Energy GP, due to concerns about a rotation trade and relative valuation. TRP was a short-term valuation trade that we entered and exited within the span of a few months. And we exited SUN due to unexpected earnings results that produced higher-than-anticipated quarterly cash flow volatility. These four positions registered as “top contributors” largely because we exited them early in the year, and thus, they did not produce a negative contribution in the second half of the year when technical factors and further commodity price deterioration accelerated selling across the MLP space.

 

DM belongs in the second category. DM went public towards the end of 2014 and maintains strong sponsor support, a robust inventory of drop-down assets that can fuel distribution growth for years to come, and minimal direct commodity price or volumetric exposure. We added DM following the OPEC decision due to the defensive nature of its assets and the high degree of support and growth certainty provided by its strong parent sponsor.

 

The bottom 5 contributors are all large-cap diversified MLPs with large capital expenditure (“capex”) programs that were either equal-weight or over-weight positions throughout 2015. In a year where most MLPs experienced negative performance, weight within the Fund was one of the primary determinants of Fund contribution. Furthermore, although their cash flows have been fairly defensive and stable, as we would expect from diversified midstream companies, these large-cap MLPs suffered throughout the year when selling would accelerate as they were used for liquidity by open-end

 

 

Center Coast MLP & Infrastructure Fund

 

Shareholder Letter (unaudited)

 

funds, Exchange Traded Funds (ETFs), and closed-end funds. In addition, the financing burden associated with robust capex backlogs pressured both equity and debt valuations, further contributing to poor performance (particularly in the fourth quarter).

 

2016 OUTLOOK

 

2015 was a particularly difficult year for performance, and the first two weeks of December were no different after KMI cut its dividend by 75%. KMI’s dividend cut was not driven by poor cash flow performance and was not necessary, in our view. It was a management choice in the face of depressed equity values, a significant financing burden, and rating agency pressure following a small acquisition of a distressed pipeline asset. It was further enabled by KMI’s 2014 consolidation to a c-corp, which removed traditional parent support levers and significantly changed Kinder Morgan’s investor base mix. We believe the confluence of these factors was unique to KMI and, as such, do not think that the KMI dividend cut is the beginning of a trend across the entire midstream MLP sector.

 

Despite the 2015 performance and despite the shaky start to the new fiscal year, we believe there is plenty of good news that provides us comfort as we look ahead to the rest of 2016. First, and most importantly, the majority of the underlying core constituents performed well operationally in 2015. The “toll road,” fee-based business model performed as projected. As mentioned above, the DCF per unit of the Fund’s core constituents, on average, grew by over 15% year over year, even after the severe commodity price declines. Similarly, the Fund’s core constituents grew their distributions 14% year over year and 3% in this most recent quarter. Core constituents’ reported earnings also came in nicely, with the majority of announcements meeting or beating Wall Street consensus expectations: 79%, 76%, 78%, and 88% in the four sequential reporting periods since our report to shareholders last year.

 

Moreover, as we’ve highlighted multiple times this year, there are tangible characteristics of the Fund’s core constituents that strengthen our confidence in the stability of the underlying cash flows and distributions. Simply put, the Fund’s core holdings do not entirely rely on crude oil prices or new crude oil production to pay their distributions or grow their underlying cash flows. The cash flow performance of the Fund’s core constituents throughout 2015 demonstrates this very point. Meanwhile, downstream demand for cheap natural gas and Natural Gas Liquids (NGLs) continues to drive midstream infrastructure needs both domestically and abroad. Below are some stats we often point out regarding the composition of our portfolio:

 

 

 

 

 

 

 

Finally, the unpleasant 2015 volatility presents a compelling 2016 opportunity from a valuation perspective. As we have previously stated, valuations have decoupled from fundamentals to an extent that prices in a bearish scenario that we do not believe will materialize over the long term. As of November 30, 2015, and at the time of writing this letter, MLPs look cheap from a historical perspective across several valuation metrics. The median price/DCF multiple of the asset class was 8.5x at fiscal year-end, a level last seen during the financial crisis of 2008 and 2009. The spreads between the distribution rate of MLPs (represented by the AMZ) versus the yields of fixed income-oriented investments were also near all-time highs. For example, the AMZ yield as of 11/30/15 was 8.5%, a 6.1% spread to the 10-year Treasury yield compared to a 10-

 

Center Coast MLP & Infrastructure Fund

 

Shareholder Letter (unaudited)

 

year average spread of 3.1%. Finally, the Fund’s underlying distribution rate of 8.6% as of November 30, 2015 is in excess of what we would historically expect to see even in a “no-growth” scenario. We do not believe we are in a “no-growth” scenario, and we are internally forecasting distribution growth from the Fund’s constituents over the next three years.

 

CONCLUSION

 

Benjamin Graham famously noted that, “in the short run, the market is a voting machine but in the long run, it is a weighing machine.” There is little doubt that investors voted “no” on MLPs in 2015. But, we believe, investors indiscriminately sold the good with the bad as the unit prices of the high-quality MLPs central to Center Coast’s investment thesis suffered despite their underlying cash flow performance. So as we look into 2016, we will continue to do what we’ve done for years now—invest in high-quality assets that: (i) are critical to long-term U.S. oil and gas infrastructure needs; (ii) historically have generated stable, durable, and growing cash flows across various commodity cycles, and; (iii) are run by high-quality management teams. In the long run, we continue to expect the “weight” of these cash flows to overcome the short-term “vote” that characterized much of 2015.

 

We appreciate your investment with us.

 

Best Regards,

 

 

 

 

Center Coast MLP & Infrastructure Fund

 

Shareholder Letter (unaudited)

 

 

Columbia Pipeline Partners LP (NYSE: CPPL)

 

Crestwood Midstream Partners LP (NYSE: CMLP)

 

Dominion Midstream Partners, LP (NYSE: DM); also referred to as “Dominion Midstream”

 

Energy Transfer Equity, L.P. (NYSE: ETE)

 

EnLink Midstream Partners, LP (NYSE: ENLK)

 

Enterprise Products Partners (NYSE: EPD)

 

EQT GP Holdings, LP (NYSE: EQGP)

 

EQT Midstream Partners, LP (NYSE: EQM)

 

Kinder Morgan, Inc. (NYSE: KMI); also referred to as “Kinder” and “Kinder Morgan”

 

Magellan Midstream Partners, L.P. (NYSE: MMP)

 

MPLX LP (NYSE: MPLX)

 

MarkWest Energy Partners, L.P. (NYSE: MWE); also referred to as “MarkWest”

 

Martin Midstream Partners L.P. (NYSE: MMLP)

 

NuStar Energy L.P. (NYSE: NS)

 

ONEOK Partners, L.P. (NYSE: OKS)

 

Phillips 66 Partners LP (NYSE: PSXP); “Phillips 66 Partners”

 

Plains All American, L.P. (NYSE: PAA); also referred to “Plains All American” and as a member of the “Plains” family

 

Plains GP Holdings, L.P. (NYSE: PAGP); also referred to as a member of the “Plains” family

 

SemGroup Corporation (NYSE: SEMG)

 

Shell Midstream Partners, L.P. (NYSE: SHLX); also referred to as “Shell” or “Shell Midstream”

 

Spectra Energy Partners, LP (NYSE: SEP)

 

Summit Midstream Partners, LP (NYSE: SMLP)

 

Sunoco LP (NYSE: SUN)

 

Sunoco Logistics Partners L.P. (NYSE: SXL)

 

Tallgrass Energy Partners, LP (NYSE: TEP)

 

Tallgrass Energy GP, LP (NYSE: TEGP)

 

Targa Resources Corp. (NYSE: TRGP)

 

Targa Resources Partners LP (NYSE: NGLS)

 

Tesoro Logistics LP (NYSE: TLLP)

 

TransCanada Corporation (NYSE: TRP)

 

Western Gas Partners, LP (NYSE: WES)

 

Center Coast MLP & Infrastructure Fund

 

Shareholder Letter (unaudited)

 

Western Gas Equity Partners, LP (NYSE: WGP)

 

Westlake Chemical Partners LP (NYSE: WLKP)

 

Williams Partners L.P. (NYSE: WPZ); also referred to as a member of the “Williams” family

 

The Williams Companies, Inc. (NYSE: WMB); also referred to as a member of the “Williams” family

 

CEN Quarter Report Notes & Disclosure

 

This letter does not constitute an offer of any securities or investment advisory services, or a recommendation with respect to any of the securities discussed herein.

 

The investment ideas summarized above represent Center Coast Capital’s current views and are subject to change depending on events with respect to particular companies and conditions and trends in the securities markets and the economy in general. The foregoing discussion includes and is based upon numerous assumptions and opinions of Center Coast concerning particular MLPs, companies, financial markets and other matters, the accuracy of which cannot be assured. There can be no assurance that the Fund’s investment strategy will achieve a profitable result.

 

Performance data reflects fees and expenses of the Fund, but does not reflect sales charges or fees that may be incurred. All performance data is unaudited and assumes reinvestment of all distributions. Current performance may be lower or higher than that shown based on market fluctuations from the end of the reported period. Before making an investment in the Fund, you should consider the investment objective, risks, charges and expenses of the fund which, together with and other important information are included in the fund’s most recent prospectus and other filings with the SEC. There can be no assurance that the Fund’s investment objectives will be attained. Shares of closed-end funds frequently trade at a market price that is below their net asset value. The Fund uses leverage with creates risks that may adversely affect return, including the likelihood of greater volatility of net asset value and the market price of common shares.

 

Distribution rate is calculated as distribution per share annualized and divided by the current share price. The total return sought by the Fund includes appreciation in the net asset value of the Fund’s common shares and all distributions made by the Fund to its common shareholders, regardless of the tax characterization of such distributions, including distributions characterized as return of capital.

 

Comparison to any market or MLP Index is for illustrative purposes only, and the volatility of these may be materially different from the volatility of the Fund due to a variety of factors.

 

The Fund’s investments are concentrated in the energy infrastructure industry with an emphasis on securities issued by MLPs, which may increase price fluctuation. The value of commodity-linked investments such as the MLPs and energy infrastructure companies (including Midstream MLPs and energy infrastructure companies) in which the Fund invests are subject to risks specific to the industry they serve, such as fluctuations in commodity prices, reduced volumes of available natural gas or other energy commodities, slowdowns in new construction and acquisitions, a sustained reduced demand for crude oil, natural gas and refined petroleum products, depletion of the natural gas reserves or other commodities, changes in the macroeconomic or regulatory environment, environmental hazards, rising interest rates and threats of attack by terrorists on energy assets, each of which could affect the Fund’s profitability.

 

MLPs are subject to significant regulation and may be adversely affected by changes in the regulatory environment including the risk that an MLP could lose its tax status as a partnership. If an MLP were to be obligated to pay federal income tax on its income at the corporate tax rate, the amount of cash available for distribution would be reduced and such distributions received by the Fund would be taxed under federal income tax laws applicable to corporate dividends received (as dividend income, return of capital, or capital gain).

 

In addition, investing in MLPs involves additional risks as compared to the risks of investing in common stock, including risks related to cash flow, dilution and voting rights. Such companies may trade less frequently than larger companies due to their smaller capitalizations which may result in erratic price movement or difficulty in buying or selling.

 

The information contained herein has been prepared by Center Coast Capital Advisors, LP and is current as of the date hereof. Such information is subject to change.

 

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. AN INVESTMENT IN THE FUND COULD SUFFER LOSS.

Center Coast MLP & Infrastructure Fund

 

Summary of Investments

As of November 30, 2015 (unaudited)

 

 

The accompanying notes are an integral part of these financial statements

Center Coast MLP & Infrastructure Fund

 

Schedule of Investments

November 30, 2015

 

 

The accompanying notes are an integral part of these financial statements

Center Coast MLP & Infrastructure Fund

 

Schedule of Investments - Continued

November 30, 2015

 

 

 

LP - Limited Partnership

 

144A Security is restricted in accordance with Rule 144A under the Securities Act of 1933, which allows for the resale of such securities only to certain qualified buyers. The Board of Trustees of the Fund considers the security to be liquid.

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements

Center Coast MLP & Infrastructure Fund

 

Statement of Assets and Liabilities

November 30, 2015

 

 

The accompanying notes are an integral part of these financial statements

Center Coast MLP & Infrastructure Fund

 

Statement of Operations

For the Year Ended November 30, 2015

 

 

The accompanying notes are an integral part of these financial statements

Center CoaSt MLP & Infrastructure Fund

 

Statements of Changes in Net Assets

 

 

The accompanying notes are an integral part of these financial statements

Center Coast MLP & Infrastructure Fund

 

Statement of Cash Flows

For the Year Ended November 30, 2015

 

 

Supplemental Disclosure of Cash Flow Information:

 

During the year ended November 30, 2015, net interest paid was $1,559,760.

 

Supplemental Disclosure of Non Cash Activity:

 

Non-cash financing activities not included consist of reinvestments or dividends and distibutions of $615,875.

 

Supplemental Disclosure of Tax Activity:

 

During the year ended November 30, 2015, total taxes paid was $4,898,505.

 

The accompanying notes are an integral part of these financial statements

Center Coast MLP & Infrastructure Fund

 

Financial Highlights

Per share operating performance. For a capital share outstanding throughout the period.

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements

Center Coast MLP & Infrastructure Fund

 

Notes to Financial Statements

November 30, 2015

 

Note 1 – Organization

 

Center Coast MLP & Infrastructure Fund (the ‘‘Fund’’) is a non-diversified, closed-end management investment company, registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund was organized as a statutory trust on May 3, 2013, pursuant to a Certificate of Trust, and is governed by the laws of the state of Delaware. The Fund’s investment objective is to provide a high level of total return with an emphasis on distributions to shareholders. The Fund seeks to achieve its investment objective by investing primarily in a portfolio of master limited partnerships (“MLPs”) and energy infrastructure companies.

 

The Fund commenced operations on September 26, 2013 and is managed by Center Coast Capital Advisors, LP (the “Advisor”), an investment adviser registered under the Investment Advisers Act of 1940. The Board of Trustees of the Fund (the “Board”) has overall responsibility for the management and supervision of the business operations of the Fund.

 

Note 2 – Accounting Policies

 

The Fund is an investment company. Accordingly, these financial statements have applied the guidance set forth in Accounting Standards Codification (“ASC”) 946, Financial Services-Investment Companies. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates.

 

(a) Valuation of Investments

 

The Fund values equity securities at the last reported sale price on the principal exchange or in the principal over the counter (“OTC”) market in which such securities are traded, as of the close of regular trading on the New York Stock Exchange (“NYSE”) on the day the securities are being valued or, if there are no sales, at the mean of the most recent bid and asked prices. Equity securities that are traded on NASDAQ are valued at the NASDAQ Official Closing Price. Debt securities are valued at the mean between the last available bid and asked prices for such securities, or if such prices are not available, at fair value considering prices for securities of comparable maturity, quality and type. Short-term securities with remaining maturities of sixty days or less may be valued at amortized cost. The Fund values exchange-traded options at the mean of best bid and ask prices as of the close of such exchange.

 

The Fund’s assets are valued at their fair market value. If a market quotation is not readily available for a portfolio security, the security will be valued at fair value (the amount which the Fund might reasonably expect to receive for the security upon its current sale) as determined in good faith by the Fair Value Pricing Committee, pursuant to procedures adopted by the Board. The actions of the Fair Value Pricing Committee are subsequently reviewed by the Board at its next regularly scheduled board meeting. The Fair Value Pricing Committee meets as needed. The Fair Value Pricing Committee is comprised of Fund officers and a designee of the Fund’s administrator.

 

The Fair Value Pricing Committee assumes a reasonable period of time for liquidation of the investments and takes into consideration the financial condition and operating results the portfolio investment, the amounts willing buyers in orderly transactions between market participants can reasonably expect to realize upon the sale of the investments, general industry and market conditions, and any other factors deemed relevant by the Fair Value Pricing Committee. Due to the inherent uncertainty of valuations, the fair values may differ significantly from the values that would have been used had an active market for the securities existed, and the differences could be material.

 

(b) Investment Transactions, Investment Income and Expenses

 

Investment transactions are accounted for on the trade date. Realized gains and losses on investments are determined on the identified cost basis. Dividend income is recorded net of applicable withholding taxes on the ex-dividend date and interest income is recorded on an accrual basis. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates. Discounts or premiums on debt securities are accreted or amortized to interest income over the lives of the respective securities using the effective interest method. Brokerage

 

Center Coast MLP & Infrastructure Fund

 

Notes to Financial Statements

November 30, 2015 (continued)

 

commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statements of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total return at net asset value. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statements of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights.

 

(c) Return of Capital Estimates

 

Distributions received from the Fund’s investments in MLPs generally are comprised of income and return of capital. The Fund records investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are based on historical information available from each MLP and other industry sources. These estimates may subsequently be revised based on information received from MLPs after their tax reporting periods are concluded. For the year ended November 30, 2015, the Fund estimates that 100% of the ordinary MLP distributions received will be treated as return of capital.

 

(d) Options

 

The Fund is subject to equity price risk in the normal course of pursuing its investment objectives and may buy or write (sell) options to hedge against changes in the value of equities. Further, the Fund may seek to generate additional income, in the form of premiums received, from writing (selling) options on securities held in portfolio and may also opportunistically buy or write (sell) call or put options (“options”) on energy infrastructure securities not held by the Fund.

 

When the Fund writes an option, an amount equal to the premium received by the Fund is included in “Written option contracts, at value” on the Fund’s Statement of Assets and Liabilities. Options are marked-to-market daily and their value will be affected by changes in the value and dividend/distribution rates of the underlying equity securities, changes in interest rates, changes in the actual or perceived volatility of the securities markets and the underlying equity securities and the remaining time to the options’ expiration. The value of options may also be adversely affected if the market for the options becomes less liquid or trading volume diminishes. Options the Fund buys or writes will either be exercised, expire or be cancelled pursuant to a closing transaction.

 

If the price of the underlying security exceeds the option’s exercise price, it is likely that the option holder will exercise the option. The Fund realizes a gain on a purchased call option if, during the option period, the value of such securities exceeded the sum of the exercise price, the premium paid and transaction costs. The Fund may also purchase put option contracts. If a purchased put option is exercised, the premium paid increases the cost basis of the securities sold by the Fund.

 

The Fund may also write call or put options with the purpose of generating realized gains, increasing or reducing its ownership of certain securities. Writing put options tends to increase the Fund’s exposure to the underlying instrument. Writing call options tends to decrease the Fund’s potential for future profits on the underlying investment. If the Fund writes a call on a security, the Fund has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price. If the Fund writes a put on a security, the Fund has the obligation upon exercise of the option to purchase the underlying security at the exercise price. Generally, the Fund seeks to write call options on securities that the Fund holds in its portfolio (i.e., covered calls) although it has the flexibility and has written “naked” call options. When the Fund writes a call option or a put option, an amount equal to the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains from investments. If the Fund repurchases a written call option prior to its exercise, the difference between the premium received and the amount paid to repurchase the option is treated as a realized gain or loss. If a written call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has realized a gain or

 

Center Coast MLP & Infrastructure Fund

 

Notes to Financial Statements

November 30, 2015 (continued)

 

loss. If a written put option is exercised, the Fund has the obligation to buy the underlying security at the exercise price and the premium received is deducted from the price of the underlying securities purchased in determining whether the Fund has realized a gain or loss. The Fund as a writer of an option has no control over whether the underlying instrument may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the instrument underlying the written option, which may potentially be unlimited. There is also the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

 

Over-the-counter options have the risk of the potential inability of counterparties to meet the terms of their contracts. In addition, certain risks may arise upon entering into option contracts including the risk that an illiquid secondary market will limit the Fund’s ability to close out an option contract prior to the expiration date and that a change in the value of the option contract may not correlate exactly with changes in the value of the securities hedged.

 

Transactions in written options contracts for the year ended November 30, 2015 were as follows:

 

 

 

(e) Distributions to Shareholders

 

Distributions, if any, are declared and paid monthly. Distributions to shareholders are recorded on the ex-dividend date and are automatically reinvested in full and fractional shares of the Fund in accordance with the Fund’s Reinvestment Plan, unless the shareholder has elected to have them paid in cash. Distributions paid by the Fund are subject to recharacterization for tax purposes.

 

Note 3 – Investment Advisory and Other Agreements

 

The Advisor entered into an Investment Advisory Agreement (the “Agreement”) with the Fund. For services rendered by the Advisor on behalf of the Fund under the Agreement, the Fund pays the Advisor a fee, payable monthly, in an annual amount equal to 1.00% of the Fund’s average daily Managed Assets. “Managed Assets” means the total assets of the Fund, including the assets attributable to the proceeds from any form of borrowings, used for leverage, outstanding, minus liabilities, other than liabilities related to any borrowings outstanding.

Center Coast MLP & Infrastructure Fund

 

Notes to Financial Statements

November 30, 2015 (continued)

 

UMB Fund Services, Inc. (“UMBFS”) serves as the Fund’s fund accountant, tax preparer and administrator. UMB Bank, n.a., an affiliate of UMBFS, serves as the Fund’s custodian. American Stock Transfer & Trust Company, LLC serves as the Fund’s transfer agent.

 

HRC Portfolio Solutions serves as the shareholder servicing agent which the Fund pays a fee at an annual rate of up to 0.10% of average daily net assets of shares serviced for providing administrative and support services to their customers. For the year ended November 30, 2015, shareholder servicing fees incurred are disclosed on the Statement of Operations.

 

Certain trustees and officers of the Fund are employees of the Advisor. The Fund does not compensate trustees and officers affiliated with the Advisor. For year ended November 30, 2015, the Fund’s fees incurred to Directors who are not affiliated with the Advisor are reported on the Statement of Operations.

 

Note 4 – Federal Income Taxes

 

The Fund does not intend to qualify as a regulated investment company pursuant to Subchapter M of the Internal Revenue Code; therefore, it will rather be taxed as a corporation. As a corporation, the Fund is obligated to pay federal, state and local income tax on taxable income. Currently, the maximum marginal regular federal income tax rate for a corporation is 35%. The Fund may be subject to a 20% alternative minimum tax on its federal alternative minimum taxable income to the extent that its alternative minimum tax exceeds its regular federal income tax. The Fund is currently using an estimated 2.0% for state and local tax.

 

The Fund’s income tax provision consists of the following as of November 30, 2015:

 

 

The reconciliation between the federal statutory income tax rate of 35% and the effective tax rate on net investment income (loss) and realized and unrealized gain (loss) follows:

 

 

Center Coast MLP & Infrastructure Fund

 

Notes to Financial Statements

November 30, 2015 (continued)

 

The Fund intends to invest most of its assets primarily in MLPs, which generally are treated as partnerships for federal income tax purposes. As a limited partner in the MLPs, the Fund reports its allocable share of the MLP’s taxable income in computing its own taxable income. The Fund’s tax expense or benefit will be included in the Statement of Operations based on the component of income or gains (losses) to which such expense or benefit relates. Deferred income taxes reflect the net tax effects of temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Such temporary differences are principally: (i) taxes on unrealized gains/(losses), which are attributable to the temporary difference between fair market value and tax basis, (ii) the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes and (iii) the net tax benefit of accumulated net operating losses and capital loss carryforwards. Deferred tax assets and liabilities are measured using effective tax rates expected to apply to taxable income in the years such temporary differences are realized or otherwise settled. To the extent the Fund has a deferred tax asset, consideration is given to whether or not a valuation allowance is required. A valuation allowance is required if based on the evaluation criterion provided by ASC 740, Income Taxes (ASC 740) that it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized. Among the factors considered in assessing the Fund’s valuation allowance: the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of the statutory carryforward periods and the associated risks that operating and capital loss carryforwards may expire unused. The Fund has recorded a valuation allowance of $36,054,357 of the net deferred tax asset at November 30, 2015 as the Fund believes it is more-likely-than-not the asset will not be realized within the relevant carryforward periods. The Fund may be required to modify the estimates or assumptions it uses regarding the deferred tax asset or liability as new information becomes available. Since the Fund is subject to taxation of its taxable income, the NAV of the Fund’s shares is reduced by the accrual of any deferred tax liabilities. Because of the impact of deferred taxes, the Fund’s performance could differ from its underlying index. Components of the Fund’s deferred tax assets and liabilities as of November 30, 2015 are as follows:

 

 

Unexpected significant decreases in cash distributions from the Fund’s MLP investments or significant changes in the fair value of its investments may change the Fund’s assessment regarding the recoverability of its deferred tax assets and may result in a change in the Fund’s valuation allowance, which could have a material impact on the Fund’s net asset value and results of operations.

 

The Fund may rely, to some extent, on information provided by the MLPs, which may not necessarily be timely, to estimate taxable income allocable to MLP units held in their portfolios, and to estimate their associated deferred tax benefit/(liability). Such estimates are made in good faith. From time to time, as new information becomes available, the Fund will modify its estimates or assumptions regarding its tax benefit/(liability).

 

The Fund’s policy is to classify interest and penalties associated with underpayment of federal and state income taxes, if any, as other expenses on their Statements of Operations.

 

The fund incurred a penalty related to the prior year federal return in the amount of $83,116. This penalty was incurred due to the fund not making quarterly estimated tax payments of its tax due.

 

All information required to estimate whether any tax is due may not be readily available at the time quarterly payments are due to the IRS. Therefore, the estimates used to calculate any tax due may in fact be substantially different from the final calculation of tax liability that is made when preparing the fund’s tax return.

 

Center Coast MLP & Infrastructure Fund

 

Notes to Financial Statements

November 30, 2015 (continued)

 

The Fund files income tax returns in the U.S. federal jurisdiction and various states. All tax years since inception remain open and subject to examination by tax jurisdictions. The Fund has reviewed all major jurisdictions and concluded that there is no significant impact on the Fund’s net assets and no tax liability resulting from unrecognized tax benefits relating to uncertain tax positions expected to be taken on their tax returns. Furthermore, management of the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next year.

 

At November 30, 2015, the Fund had net operating loss carryforwards for federal income tax purposes, which may be carried forward for 20 years, as follows:

 

 

Although the fund has a valuation allowance as of November 30, 2015 which reduced the value of its deferred tax asset components, the fund does intend to utilize the full value of its net operating loss carryforwards by offsetting future income or gains generated (if any) against 100% of this carryforward amount, subject to certain IRS limitations and the 20 year carryforward period.

 

At November 30, 2015, gross unrealized appreciation and depreciation of investments, based on cost for federal income tax purposes were as follows:

 

 

The difference between cost amounts for financial statement and federal income tax purposes is due primarily to income/(loss) from MLP K-1s, which is treated as an increase/(decrease) in cost basis of the MLP shares held, and timing differences in recognizing certain gains and losses in security transactions.

 

Note 5 – Investment Transactions

 

For the year ended November 30, 2015, purchases and sales of investments, excluding short-term investments, were $384,734,821 and $368,065,931, respectively.

 

Note 6 – Capital Stock

 

The Fund is authorized to issue unlimited common shares of beneficial interest, par value of $0.01 per share. At November 30, 2015, the shares outstanding were 19,762,523.

 

On April 20, 2015, the Fund closed on a transferable rights offering (the “Offer”). The Offer commenced on March 20, 2015 and expired on April 17, 2015 (the “Expiration Date”). The Offer entitled rights holders to subscribe for up to an aggregate of 4,938,969 of the Fund’s common shares of beneficial interest, par value $0.01 per share (“Common Shares”). The Offer was over-subscribed and subscription price was $15.38 per Common Share determined based upon a formula equal to 90% of the average of the last reported sales price of a Common Share of the Fund on the New York Stock Exchange on the Expiration Date and each of the four (4) immediately preceding trading days. Common Shares will be issued promptly after completion and receipt of all shareholder payments and the pro-rata allocation of Common Shares in respect of the over-subscription privilege.

 

Center Coast MLP & Infrastructure Fund

 

Notes to Financial Statements

November 30, 2015 (continued)

 

Gross proceeds of the Rights Offering were approximately $76 million and the Fund received net proceeds of approximately $73 million after the payment of a sales load of $2.85 million and $100,000 to UBS Securities LLC, the Dealer Manager for the Rights Offering, to cover certain expenses relating to the offering. The net asset value for each of the Fund’s common shares was reduced by $1.11 per share for the Fund as a result of the Rights Offering.

 

Note 7 – Borrowings

 

The Fund entered into a revolving credit agreement (the “Credit Agreement”) with BNP Paribas Prime Brokerage, Inc. (“BNPP”) in which the Fund paid a monthly financing charge based on a LIBOR-based variable rate. Commencing on February 1, 2014, the Fund pays a commitment fee of 0.70% per annum on the unused portion of the maximum commitment amount. In addition, commencing on October 6, 2015, the Fund entered into an amended and restated Credit Agreement in which the credit line was decreased to $120,000,000. The Fund is required to pledge portfolio securities as collateral in an amount up to two times the loan balance outstanding (or more depending on the terms of the Credit Agreement) and has granted a security interest in the securities pledged to, and in favor of, BNPP as security for the loan balance outstanding. If the Fund fails to meet certain requirements, or maintain other financial covenants required under the Credit Agreement, the Fund may be required to repay immediately, in part or in full, the loan balance outstanding under the Credit Agreement, necessitating the sale of portfolio securities at potentially inopportune times. As of November 30, 2015, the fair value of the outstanding Credit Agreement was estimated to be $78,853,736, and would be categorized as Level 2 within the fair value hierarchy. The fair value was estimated based on discounting the cash flows owed using a discount rate of 1.28%.

 

As of November 30, 2015, the Fund had outstanding borrowings of $79,600,000. The Fund borrowed an average daily balance of approximately $121,099,455 at a weighted average borrowing cost of 1.28%.

 

The analysis below presents the sensitivity of the market value of the Fund’s financial instruments to selected changes in market rates. The range of changes chosen reflects its view of changes which are reasonably possible over a one-year period because the loan will likely be renewed yearly. For sensitivity purposes, if market rates of interest increase by 100 basis points the Fund’s interest expense would increase by approximately $796,000. If market rates of interest decrease by 100 basis points the Fund’s interest expense would decrease by approximately $796,000.

 

These amounts were determined solely by considering the impact of hypothetical interest rates on the Fund’s financial instruments. Due to the uncertainty of specific actions it may undertake to minimize possible effects of market interest rate increases, this analysis assumes no changes in the Fund’s financial structure.

 

Note 8 – Indemnifications

 

In the normal course of business, the Fund enters into contracts that contain a variety of representations which provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund expects the risk of loss to be remote.

 

Note 9 – Fair Value Measurements and Disclosure

 

Fair Value Measurements and Disclosures defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. It also provides guidance on determining when there has been a significant decrease in the volume and level of activity for an asset or liability, when a transaction is not orderly, and how that information must be incorporated into a fair value measurement.

 

Under Fair Value Measurements and Disclosures, various inputs are used in determining the value of the Fund’s investments. These inputs are summarized into three broad Levels as described below:

 

 

Center Coast MLP & Infrastructure Fund

 

Notes to Financial Statements

November 30, 2015 (continued)

 

 

 

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

 

The inputs used to measure fair value may fall into different Levels of the fair value hierarchy. In such cases, for disclosure purposes, the Level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest Level input that is significant to the fair value measurement in its entirety.

 

In addition, the Fund has adopted Accounting Standards Update No. 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs which amends Fair Value Measurements and Disclosures to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards. Enhanced disclosure is required to detail any transfers in to and out of Level 1 and Level 2 measurements and Level 2 and Level 3 measurements and the reasons for the transfers.

 

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. The following is a summary of the fair valuation levels, as of November 30, 2015:

 

 

 

Transfers are recognized at the end of the reporting period. There were no transfers during the period.

 

The following table summarizes the change in value associated with Level 3 securities carried at fair value for the year ended November 30, 2015:

 

 

Center Coast MLP & Infrastructure Fund

 

Notes to Financial Statements

November 30, 2015 (continued)

 

The following is a summary of quantitative information about significant unobservable valuation inputs approved by the Adviser’s Valuation Committee for Level 3 Fair Value Measurements for investments held as of November 30, 2015:

 

 

Level 3 Unregistered/Restricted Securities valued by using the unobservable inputs included above are directly affected by a change in that factor.

 

The discounted cash flow analysis used to value the Fund’s private investment in KKR Eagle Co-Invest LP uses the projected cash flows of the portfolio company to estimate the enterprise value and equity value attributable to the Fund’s interest in the portfolio company. Such cash flows include a terminal value for the portfolio company, which is typically based on an EV/EBITDA multiple. A present value of these cash flows is determined by using estimated discount rates (a weighted average cost of capital or the expected return market participants would require of similar public securities).

 

As part of this valuation process, the Fund estimates operating results of the portfolio company (including EBITDA and unlevered cash flow). These estimates utilize unobservable inputs such as historical operating results, which may be unaudited, and projected operating results, which will be based on operating assumptions for such portfolio company. The Fund also consults with management of the portfolio company to develop these financial projections. These estimates will be sensitive to changes in assumptions specific to such portfolio company as well as general assumptions for the industry. Other unobservable inputs utilized in the valuation techniques outlined above include: discounts for lack of marketability (liquidity discount), selection of publicly-traded companies, selection of relevant M&A transactions, selected ranges for valuation multiples, and expected required rates of return (discount rates).

 

Note 10 – Disclosures about Derivative Instruments and Hedging Activities

 

The Fund is subject to Financial Accounting Standards Board’s (“FASB”) Disclosures about Derivative Instruments and Hedging Activities (the “Derivatives Statement”). The Derivatives Statement amends and expands disclosures about derivative instruments and hedging activities. The Derivatives Statement is intended to improve financial reporting about derivative instruments requiring enhanced disclosures to enable investors to better understand how and why the Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund’s financial position and results of operations.

 

For the year ended November 30, 2015, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:

 

 

The average notional value of written options contracts outstanding during the year ended November 30, 2015, which is indicative of the volume of this derivative type, was $7,174,788.

Center Coast MLP & Infrastructure Fund

 

Notes to Financial Statements

November 30, 2015 (continued)

 

Note 11 – Other Risks

 

The Fund’s risks include, but are not limited to, the following:

 

(a) Liquidity Risk

 

The Fund may make investments that are illiquid or that may become less liquid in response to market developments or adverse investor perceptions. Illiquid investments may be more difficult to value. Liquidity risk may also refer to the risk that the Fund will not be able to pay redemption proceeds within the allowable time period because of unusual market conditions, an unusually high volume of redemption requests, or other reasons. To meet redemption requests, the Fund may be forced to sell investments at an unfavorable time and/or under unfavorable conditions.

 

(b) Market and Credit Risks

 

In the normal course of business, the Fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk). Additionally, the Fund may also be exposed to credit risk in the event that an issuer fails to perform or that an institution or entity with which the Fund has unsettled or open transactions defaults.

 

(c) Master Limited Partnership Risk

 

Investments in securities of MLPs involve risks that differ from investments in common stock, including risks related to limited control and limited rights to vote on matters affecting the MLP, risks related to potential conflicts of interest between the MLP and the MLP’s general partner, cash flow risks, dilution risks, limited liquidity and risks related to the general partner’s right to require unit-holders to sell their common units at an undesirable time or price.

 

(d) Non-Diversification Risk

 

The Fund is non-diversified, meaning that it is permitted to invest a larger percentage of its assets in fewer issuers than diversified mutual funds. Thus, the Fund may be more susceptible to adverse developments affecting any single issuer held in its portfolio, and may be more susceptible to greater losses because of these developments.

 

(e) Private Investment Risk

 

The Fund may invest in unregistered or restricted securities, including private investment in public equities (“PIPE”). Unregistered or restricted securities may not be readily marketable and are often more difficult to value. Further, the Advisor may not have timely or accurate information about the business, financial condition and results of operations which may adversely affect the Advisor’s ability to value those investments. PIPE investors may purchase securities directly from a publicly traded company in a private placement transaction, typically at a discount to the market price of the company’s common stock. In a PIPE transaction, the Fund may bear the price risk from the time of pricing until the time of closing. In addition, the Fund may have to commit to purchase a specified number of shares at a fixed price, with the closing conditioned upon, among other things, the SEC’s preparedness to declare effective a resale registration statement covering the resale, from time to time, of the shares sold in the private financing. Because the sale of the securities is not registered under the 1933 Act, the securities are “restricted” and cannot be immediately resold by the investors into the public markets. Accordingly, PIPE securities may be deemed illiquid.

 

(f) Portfolio Concentration Risk

 

The Fund concentrates its investments in the energy sector, and will therefore be susceptible to adverse economic, environmental, business, regulatory or other occurrences affecting that sector. The energy sector has historically experienced substantial price volatility. MLPs and other companies operating in the energy sector are subject to specific risks, including, among others, fluctuations in commodity prices; reduced consumer demand for commodities such as oil, natural gas or petroleum products; reduced availability of natural gas or other commodities for transporting, processing, storing or delivering; slowdowns in new construction; extreme weather or other natural disasters; and threats of attack by terrorists on energy assets. Additionally, changes in the regulatory environment for energy companies may adversely impact their profitability. Over time, depletion of natural gas reserves and other energy reserves may also affect the profitability of energy companies.

 

Center Coast MLP & Infrastructure Fund

 

Notes to Financial Statements

November 30, 2015 (continued)

 

(g) Leverage Risk

 

The Fund’s use of leverage creates the possibility of higher volatility for the Fund’s per share NAV, market price, distributions and returns. When a Fund uses leverage, the Fund will experience a greater increase in its net asset value if the securities acquired through the use of leverage increase in value, but it will also experience a correspondingly larger decline in its net asset value if the bonds acquired through leverage decline in value, which will make the Fund’s net asset value more volatile, and its total return performance more variable over time. There is no assurance that a Fund’s leveraging strategy will be successful.

 

(h) Tax Risks

 

Tax risks associated with investments in the Fund include but are not limited to the following:

 

Fund Structure Risk. Unlike traditional mutual funds that are structured as regulated investment companies for U.S. federal income tax purposes, the Fund will be taxable as a regular corporation, or “C” corporation, for U.S. federal income tax purposes. This means the Fund generally will be subject to U.S. federal income tax on its taxable income at the rates applicable to corporations (currently a maximum rate of 35%), and will also be subject to state and local income taxes.

 

MLP Tax Risk. MLPs are generally treated as partnerships for U.S. federal income tax purposes. Partnerships do not pay U.S. federal income tax at the partnership level. Rather, each partner is allocated a share of the partnership’s income, gains, losses, deductions and expenses. A change in current tax law or a change in the underlying business mix of a given MLP could result in an MLP being treated as a corporation for U.S. federal income tax purposes, which would result in the MLP being required to pay U.S. federal income tax (as well as state and local income taxes) on its taxable income. This would have the effect of reducing the amount of cash available for distribution by the MLP and could result in a reduction in the value of the Fund’s investment in the MLP and lower income to the Fund. To the extent a distribution received by the Fund from an MLP is treated as a return of capital, the Fund’s adjusted tax basis in the interests of the MLP will be reduced, which may increase the Fund’s tax liability upon the sale of the interests in the MLP or upon subsequent distributions in respect of such interests.

 

Tax Estimation/NAV Risk. In calculating the Fund’s net asset value (“NAV”), the Fund will, among other things, include its current taxes and deferred tax liability and/or asset balances and related valuation balances, if any. The Fund may accrue a deferred income tax liability balance, at the currently effective statutory U.S. federal income tax rate (currently 35%) plus an estimated state and local income tax rate, for its future tax liability associated with the capital appreciation of its investments and the distributions received by the Fund on interests of MLPs considered to be return of capital and for any net operating gains. Any deferred tax liability balance will reduce the Fund’s NAV. The Fund may also record a deferred tax asset balance, which reflects an estimate of the Fund’s future tax benefit associated with net operating losses and/or unrealized losses. Any deferred tax asset balance will increase the Fund’s NAV to the extent it exceeds any valuation allowance. The Fund will rely to some extent on information provided by MLPs, which may not be provided to the Fund on a timely basis, to estimate current taxes and deferred tax liability and/or asset balances for purposes of financial statement reporting and determining its NAV to the extent it exceeds any valuation allowance. The estimate of the Fund’s current taxes and deferred tax liability and/or asset balances used to calculate the Fund’s NAV could vary significantly from the Fund’s actual tax liability or benefit, and, as a result, the determination of the Fund’s actual tax liability or benefit may have a material impact on the Fund’s NAV. From time to time, the Fund may modify its estimates or assumptions regarding its current taxes and deferred tax liability and/or asset balances as new information becomes available, which modifications in estimates or assumptions may have a material impact on the Fund’s NAV.

 

Note 12 – Subsequent Events

 

Subsequent to November 30, 2015, a decline in the Fund’s net assets caused the occurrence of a facility termination event of the Fund’s Credit Agreement. The occurrence of a facility termination event provides BNPP the right to terminate the Credit Agreement, accelerate the maturity of any and all borrowings under the Credit Agreement, modify the method for calculating collateral requirements or modify the interest rate spread, fees or expenses associated with the Credit Agreement.

 

On January 27, 2016, the Fund and BNPP amended the Credit Agreement (the “Amendment”). The Amendment, among other things, modifies the calculation of the facility termination events related to changes in the Fund’s net assets and provides a waiver for the Fund’s failure to comply with the facility termination events prior to the amendment.

 

Center Coast MLP & Infrastructure Fund

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders of the Center Coast MLP & Infrastructure Fund:

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations, of changes in net assets and of cash flows and the financial highlights present fairly, in all material respects, the financial position of the Center Coast MLP & Infrastructure Fund (the “Fund”) at November 30, 2015, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the two years in the period then ended and for the period September 26, 2013 (commencement of operations) through November 30, 2013, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at November 30, 2015 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.

 

PricewaterhouseCoopers LLP

 

Houston, TX
January 29, 2016

 

Center Coast MLP & Infrastructure Fund

 

Other Information

November 30, 2015 (unaudited)

 

2015 PROXY RESULTS

 

A Special Meeting of the Members was held on May 8, 2015 to consider the proposals described below. Each proposal was approved. The results of the voting at the Special Meeting are as follows:

 

Approval of the election of two nominees to the Board of Trustees of the Fund.

 

 

Proxy Voting

 

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling the Fund at 1-713-759-1400, (ii) on our website at centercoastcap.com or (iii) on the SEC’s website at www.sec.gov. In addition, the Fund is required to file Form N-PX, with its complete proxy voting record for the twelve months ended June 30, no later than August 31. The Fund’s Form N-PX filing is available (i) without charge, upon request, by calling the Fund at 1-713-759-1400 or (ii) by visiting the SEC’s website at www.sec.gov.

 

Availability of Quarterly Portfolio Schedules

 

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Form N-Q is available, without charge and upon request, on the SEC’s website at http://www.sec.gov or may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the Public Reference Room may be obtained by calling 1-800-SEC-0330.

 

Federal Income Tax Information

 

In January 2016, shareholders will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by you in the calendar year 2015.

 

Notice to Shareholders

 

Notice is hereby given in accordance with Section 23(c) of the 1940 Act that the Fund may from time to time purchase its shares of common stock in the open market.

 

Automatic Dividend Reinvestment Plan

 

Under the Fund’s Automatic Dividend Reinvestment Plan (the “Plan”), a shareholder whose Common Shares are registered in his or her own name will have all distributions reinvested automatically by the agent under the Plan, American Stock Transfer & Trust Company, LLC (the “Plan Agent”), unless the shareholder elects to receive cash. Distributions with respect to Common Shares registered in the name of a broker-dealer or other nominee (that is, in “street name”) will be reinvested by the broker or nominee in additional Common Shares under the Plan, unless the service is not provided by the broker or nominee or the shareholder elects to receive distributions in cash. Investors who own Common Shares registered in street name should consult their broker-dealers for details regarding reinvestment. All distributions to investors who do not participate in the Plan will be paid by check mailed directly to the record holder by the Fund’s dividend disbursing agent. A participant in the Plan who wishes to opt out of the Plan and elect to receive distributions in cash should contact the Plan Agent in writing at the address specified below or by calling the telephone number specified below.

 

Under the Plan, whenever the market price of the Common Shares is equal to or exceeds net asset value at the time Common Shares are valued for purposes of determining the number of Common Shares equivalent to the cash dividend or capital gains distribution, participants in the Plan are issued new Common Shares from the Fund, valued at the greater of

 

Center Coast MLP & Infrastructure Fund

 

Other Information

November 30, 2015 (unaudited) (continued)

 

(i) the net asset value as most recently determined or (ii) 95% of the then-current market price of the Common Shares. The valuation date is the dividend or distribution payment date or, if that date is not a NYSE trading day, the next preceding trading day. If the net asset value of the Common Shares at the time of valuation exceeds the market price of the Common Shares, the Plan Agent will buy the Common Shares for the Plan in the open market, on the NYSE or elsewhere, for the participants’ accounts, except that the Plan Agent will endeavor to terminate purchases in the open market and cause the Fund to issue Common Shares at the greater of net asset value or 95% of market value if, following the commencement of such purchases, the market value of the Common Shares exceeds net asset value. If the Fund should declare a distribution or capital gains distribution payable only in cash, the Plan Agent will buy the Common Shares for the Plan in the open market, on the NYSE or elsewhere, for the participants’ accounts. There is no charge from the Fund for reinvestment of dividends or distributions in Common Shares pursuant to the Plan; however, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open-market purchases.

 

The Plan Agent maintains all shareholder accounts in the Plan and furnishes written confirmations of all transactions in the account, including information needed by shareholders for personal and tax records.

 

Common Shares in the account of each Plan participant will be held by the Plan Agent in noncertificated form in the name of the participant.

 

In the case of shareholders such as banks, brokers or nominees, which hold Common Shares for others who are the beneficial owners and participate in the Plan, the Plan Agent will administer the Plan on the basis of the number of Common Shares certified from time to time by the shareholder as representing the total amount registered in the shareholder’s name and held for the account of beneficial owners who participate in the Plan.

 

The automatic reinvestment of dividends and other distributions will not relieve participants of an income tax that may be payable or required to be withheld on such dividends or distributions.

 

Participants that direct a sale of Common Shares through the Plan Agent are subject to a sales fee of $15.00 plus $0.10 per share sold.

 

Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate its Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to written notice of the change sent to the members of such Plan at least 90 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by the Plan Agent on at least 90 days written notice to the participants in such Plan. All correspondence concerning the Plan should be directed to the Plan Agent, American Stock Transfer & Trust Company, LLC , Attn: Dividend Reinvestment Department, P.O. Box 922, New York, New York 10269-0560, e-mail: info@amstock, phone number: (866) 668-6549.

 

Board Consideration of Investment Advisory Agreement

 

At an in-person meeting held on July 24, 2015 the Board of the Fund, including the trustees who are not “interested persons” of the Trust (the “Independent Trustees”) as defined in the 1940 Act, reviewed and unanimously approved the renewal of the Agreement between the Trust and the Advisor for additional one-year terms. In approving renewal of the Fund Investment Advisory Agreement, the Board, including the Independent Trustees, determined that renewal of the Agreement was in the best interests of the Fund and its shareholders.

 

Background

 

The Board was informed of the purpose of the Meeting and noted the role of the Board, and the Independent Trustees in particular, in considering and approving the renewal of the Agreement between the Advisor and the Trust. The Board had previously been advised by counsel from Skadden, Arps, Slate, Meagher & Flom LLP of the statutory requirements, standard of liability and disclosure requirements with respect to approval of the investment advisory agreement. The Board was informed that it was the duty of a board to request and evaluate, and of an investment advisor to furnish, such information as may reasonably be necessary to evaluate the terms of an investment advisory agreement.

 

Center COast MLP & Infrastructure Fund

 

Other Information

November 30, 2015 (unaudited) (continued)

 

The Board noted that the following items had been distributed to the Trustees in the Meeting Materials:

 

 

 

 

 

 

 

 

The Board discussed the contents of the memorandum from Center Coast regarding the reasonableness of the proposed investment advisory fee. The Board received information from Center Coast and were informed that a contractual advisory fee of 1.00% of Managed Assets had become the most common investment advisory fee for closed-end funds investing primarily in MLPs, noting that well over half of the funds in the peer group paid an advisory fee at that level and that only two paid an advisory fee below that amount at 0.95%, and therefore they concluded that Center Coast believed the proposed investment advisory fee was reasonable. The Board discussed the fee comparisons. The Board then reviewed and discussed the terms of the Agreement including the proposed management fees. The Trustees noted that based on the memorandum from Center Coast, the Trust’s contractual advisory fee equaled the mean and median contractual advisory fee of funds in the peer group and was tied for 2nd lowest among funds in the peer group.

 

The Trustees reviewed the disclosure requirements pursuant to which the Trust will disclose in its shareholder report the considerations and conclusions of the Board with respect to the approval of the continuance of the Agreement.

 

Based upon its review, the Board concluded that it was in the best interests of the Trust to approve the Agreement. In reaching this conclusion for the Trust, no single factor was determinative in the Board’s conclusion, but rather the Board considered a variety of factors and concluded the following:

 

Prior to its consideration of the Agreement, the Board received and reviewed information provided by the Advisor, including, among other things, comparative information about the proposed fees and expenses of the Trust relative to the fees and expenses of certain other MLP closed-end funds.

 

Consideration of Nature, Extent and Quality of the Services

 

The Board received and considered information regarding the nature, extent and quality of services to be provided to the Trust under the Agreement in light of the investment objective, policies and strategies of the Trust. The Board reviewed certain background materials supplied by the Advisor in its presentation, including the Advisor’s Form ADV.

 

The Board reviewed and considered the Advisor’s investment advisory personnel, its history as an asset manager, performance of other accounts managed by the Advisor and the amount of its current assets under management. The Board also reviewed the research and decision-making processes utilized by the Advisor, including the methods adopted to seek to achieve compliance with the investment objectives, polices and restrictions of the Trust.

 

The Board considered the background and experience of the Advisor’s management in connection with the Trust, including reviewing the qualifications, backgrounds and responsibilities of the management team primarily responsible for the day-to-day portfolio management of the Trust and the extent of the resources devoted to research and analysis of the Trust’s actual and potential investments. The Board concluded that it was satisfied with the nature, extent and quality of the services to be provided by Center Coast to the Trust.

 

Center Coast MLP & Infrastructure Fund

 

Other Information

November 30, 2015 (unaudited) (continued)

 

Consideration of Advisory Fees and the Cost of the Services

 

The Board considered the information they received comparing the Trust’s contractual annual advisory fee and anticipated overall expenses with (a) a peer group of competitor closed-end funds identified by the Advisor and (b) other products managed by the Advisor. Given the small universe of managers fitting within the criteria for the peer group, the Advisor did not believe that it would be beneficial to engage the services of an independent third-party to prepare the peer group analysis, and the Independent Trustees concurred with this approach.

 

Based on such information, the Board determined that the proposed contractual annual advisory fee of 1.00% was equal to the median contractual advisory fee rate of funds within the peer group. Furthermore, the proposed fee structure was competitive with fee structures applicable to other similar products managed by the Advisor. The Board concluded that the investment advisory fees to be received by the Advisor with respect to the Trust were comparable to the fees charged to other investment vehicles within the Trust’s peer group and by the Advisor to its other clients in broadly comparable investment products.

 

Consideration of Investment Performance

 

The Board considered the information they received regarding the investment performance of CEN and compared that performance to similar MLP closed-end funds along with the Alerian MLP index.

 

Other Considerations

 

The Board considered the anticipated profits, if any, to be realized by the Advisor in connection with the operation of the Trust and concluded that the profit, if any, anticipated to be realized by the Advisor in connection with the operation of the Trust is not unreasonable.

 

The Board considered whether economies of scale in the provision of services to the Trust will be passed along to the shareholders under the proposed agreements. The Board concluded there were currently no or de minimis material economics of scale or other incidental benefits accruing to the Advisor in connection with its relationship with the Trust.

 

Conclusion

 

In renewing the Agreement and the fees charged under the Agreement, the Board concluded that no single factor reviewed by the Board was identified by the Board to be determinative as the principal factor in whether to approve the Agreement. The summary set forth above describes the most important factors, but not all of the matters, considered by the Board in coming to its decision regarding the Agreement. On the basis of such information as the Board considered necessary to the exercise of its reasonable business judgment and its evaluation of all of the factors described above, and after discussion, the Board concluded that each factor they considered, in the context of all of the other factors they considered, favored approval of the Agreement. It was noted that it was the judgment of the Board of Trustees that approval of the Agreement was in the best interests of the Trust and its shareholders, and a majority of the Trustees and, voting separately, a majority of the Independent Trustees, approved the Agreement.

 

 

Center Coast MLP & Infrastructure Fund

 

Other Information

November 30, 2015 (unaudited) (continued)

 

CENTER COAST MLP & INFRASTRUCTURE FUND

 

PRIVACY NOTICE

 

Privacy Principles of the Fund

 

The Fund is committed to maintaining the privacy of its shareholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information the Fund collects, how the Fund protects that information and why, in certain cases, the Fund may share information with select other parties.

 

Generally, the Fund does not receive any non-public personal information relating to its shareholders, although certain non-public personal information of its shareholders may become available to the Fund. The Fund does not disclose any non-public personal information about its shareholders or former shareholders to anyone, except as permitted by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third party administrator).

 

The Fund restricts access to non-public personal information about its shareholders to employees of the Advisor and its delegates and affiliates with a legitimate business need for the information. The Fund maintains physical, electronic and procedural safeguards designed to protect the non-public personal information of its shareholders.

 

Center Coast MLP & Infrastructure Fund

 

Fund Management

November 30, 2015 (unaudited)

 

Additional information about the trustees is included in the Funds’ Statement of Additional Information which is available, without charge, upon request by calling 1-713-759-1400. The identity of Trustees of the Board and their brief biographical information as of November 30, 2015 is set forth below. The business address of each Trustee is 1600 Smith St., Suite 3800, Houston, TX 77002.

 

 

 

Center Coast MLP & Infrastructure Fund

 

Fund Management

November 30, 2015 (unaudited) (continued)

 

Set forth below is the name, year of birth, position with the Fund and the principal occupation for the last five years, as of November 30, 2015, of each of the persons currently serving as Executive Officers of the Fund. The business address of each Officer is 1600 Smith St., Suite 3800, Houston, TX 77002.

 

 

Name of Portfolio Management Team Member	Title	Length of Time of Service to the Fund	Business Experience During the Past 5 Years
Dan C. Tutcher	President	Since Inception	Founder, Principal and Portfolio Manager of Center Coast Capital Advisors, L.P. (2007-present). Formerly, President of Enbridge Energy Company, Inc.; President and Director of Enbridge Energy Management L.L.C.; and group Vice President of Transportation South for Enbridge Inc. (2001-2007).
Robert T. Chisholm	Principal & Senior Portfolio Manager	Since Inception	Senior Portfolio Manager and Principal, Center Coast Capital Advisors, L.P. (2007-Present); Morgan Keegan’s Energy Investment Banking Division (2006-2007); Senior Project Advisor, Enbridge Energy Partners, L.P. (2002-2006).

	Number of Accounts and Total Value of Assets for Which Advisory Fee is Performance-Based:			Number of Other Accounts Managed and Total Value of Assets by Account Type for Which There is No Performance-Based Fee:
	Registered investment companies	Other pooled investment vehicles	Other accounts	Registered investment companies	Other pooled investment vehicles	Other accounts
Dan C. Tutcher	0	1-$64mm	0	2-$2.3B	0	1,078-$698mm
Robert T. Chisholm	0	1-$64mm	0	2-$2.3B	0	1,078-$698mm

Portfolio Management Team Member	Dollar Range of Units Beneficially Owned by Portfolio Management Team Member
Dan C. Tutcher	$100,001 - $500,000
Robert T. Chisholm	$10,001 - $50,000