MLP Closed-End Fund Portfolio, Series 16
Energy infrastructure provides the backbone of our economy and way of life. Energy infrastructure
includes an elaborate network of systems that transport, store, gather, process and deliver crude oil,
refined petroleum products, natural gas or electric power, including renewable energy. The performance
of companies in the energy infrastructure industry is not highly correlated with the price of oil and other
types of energy, but rather with the demand for energy. The demand for energy generally increases
steadily over time and is much less volatile than commodity energy prices, which often results in steady,
predictable cash flows for companies in these industries.1
The MLP Closed-End Portfolio is a professionally selected unit investment trust which invests in closedend
funds that invest in master limited partnerships (MLPs) from the energy infrastructure industry.
MLPs are limited partnerships that are publicly traded on a U.S. securities exchange, which combine the
tradeability of common stocks with the corporate structure of a limited partnership. MLPs are
traditionally high cash flow businesses that pay out a majority of that cash to investors. Investing in
MLPs through closed-end funds provides an efficient alternative to investing directly in MLPs. Unlike
individual partnership investments, a closed-end fund provides one Form 1099 per shareholder at the
end of the year, rather than multiple K-1s and potential state filings.
This unit investment trust seeks high current
monthly income, with capital appreciation as a
secondary objective; however, there is no
assurance that the objectives will be achieved.
Consider These Factors
- Many oil and gas shale formations are located outside traditional production basins • which require
infrastructure to transport the oil and gas to market. This has led to billions of dollars of investment and
a boom in financing infrastructure through MLPs2
- U.S. crude oil production averaged an estimated 8.9 million barrels per day (b/d) in 2016. The estimates
for 2017 and 2018 are 9.3 million b/d and nearly 10.0 million b/d, respectively.3
- Natural gas production is anticipated to account for nearly 40% of the U.S. energy production by 2040.44
Of course, there can be no guarantee that any of these projections will be realized, or that they will
benefit the securities in the closed-end funds.
1 Standard & Poor's
2 Oil & Gas Financial Journal
3,4 U.S. Energy Information Administration
|Not FDIC Insured Not Bank Guaranteed May Lose Value
You should consider the portfolio's investment objectives, risks, and
charges and expenses carefully before investing. Contact your financial advisor
or call First Trust Portfolios, L.P. at 1.800.621.1675 to request a prospectus,
which contains this and other information about the portfolio. Read it carefully
before you invest.
An investment in this unmanaged unit investment trust should
be made with an understanding of the risks involved with an
investment in a portfolio of closed-end funds. Closed-end funds
are subject to various risks, including management’s ability to
meet the fund’s investment objective, and to manage the fund’s
portfolio when the underlying securities are redeemed or sold,
during periods of market turmoil and as investors’ perceptions
regarding the funds or their underlying investments change.
Unlike open-end funds, which trade at prices based on a current
determination of the fund’s net asset value, closed-end funds
frequently trade at a discount to their net asset value in the
secondary market. Certain closed-end funds may employ the
use of leverage, which increases the volatility of such funds.
You should be aware that an investment in closed-end funds that
invest in stocks in the energy sector involves additional risks,
including limited diversification. The companies engaged in the
energy sector, which includes MLPs, are subject to certain risks,
including price and supply fluctuations caused by international
politics, energy conservation, taxes, price controls, and other
regulatory policies of various governments.
Common stocks are subject to risks such as an economic recession and the possible deterioration of either the financial condition of the issuers of the
equity securities or the general condition of the stock market.
An investment in a portfolio containing small-cap and mid-cap companies is subject to additional risks, as the share prices of small-cap companies and
certain mid-cap companies are often more volatile than those of larger companies due to several factors, including limited trading volumes, products,
financial resources, management inexperience and less publicly available information.
All of the closed-end funds invest in MLPs. Investments in
MLPs are subject to the risks generally applicable to companies
in the energy and natural resources sectors, including
commodity pricing risk, supply and demand risk, depletion risk
and exploration risk. U.S. taxing authorities could challenge the
trust 's treatment of the MLPs for federal income tax purposes.
These tax risks could have a negative impact on the after-tax
income available for distribution by the MLPs and/or the value
of the trust's investments.
Certain of the closed-end funds invest in call options. Options are subject to various risks including that their value may be adversely affected if the
market for the option becomes less liquid or smaller. In addition, options will be affected by changes in the value and dividend rates of the stock subject
to the option, an increase in interest rates, a change in the actual and perceived volatility of the stock market and the common stock and the remaining
time to expiration.
Certain of the closed-end funds invest in securities issued by
foreign issuers. Such securities are subject to certain risks,
including currency and interest rate fluctuations, nationalization
or other adverse political or economic developments, lack of
liquidity of certain foreign markets, withholding, the lack of
adequate financial information, and exchange control
restrictions impacting foreign issuers.
The value of the securities held by the trust may be subject to
steep declines or increased volatility due to changes in
performance or perception of the issuers.
This UIT is a buy and hold strategy and investors should consider their ability to hold the trust until maturity. There may be tax consequences unless units are purchased in an IRA or other qualified plan.
It is important to note that an investment can be made in the underlying funds directly rather than through the trust. These direct investments can be
made without paying the trust's sales charge, operating expenses and organizational costs.
For a discussion of additional risks of investing in the trust see the "Risk Factors" section of the prospectus.