Investment Grade Select Closed-End and ETF Portfolio, Series 3
The Investment Grade Select Closed-End and ETF Portfolio seeks to provide investors with current
monthly income and diversification by investing across a broad range of closed-end funds (CEFs) and
exchange-traded funds (ETFs) which have an average credit rating that is investment grade.
When selecting funds for this portfolio, we generally look at several factors including:
- Premium or discount – we favor funds which are trading at a discount to net asset value.
- Consistent dividend – we favor funds which have a history of paying a consistent dividend.
- Expense ratio – we favor funds which have a lower than average expense ratio relative to their peers.
- Diversification – we limit exposure to individual fund companies/managers.
- Liquidity – we favor funds which have higher daily trading volume.
- Size – we favor funds which have a larger market capacity. Funds with a larger market capacity typically
are more liquid and may benefit investors in that we are able to buy and sell shares without materially
affecting the market price.
Why Investment Grade
Within the debt securities market, there is a category of securities considered "investment grade."
Investment grade securities are rated BBB/Baa or higher by major credit rating agencies. The investment
grade designation is based upon an evaluation by a credit rating agency of the debt issuer's credit
history and ability to repay obligations. This rating of investment grade generally signifies that a credit
rating agency considers the quality of a particular security to be sufficient to provide reasonable
assurance of the issuer's ability to meet their obligations to debt holders.
Investment grade securities are generally a high credit quality asset class with historically low default
rates. Current default rates may vary from that of their historical averages and there can be no assurance
that the default rate for investment grade securities will not rise in the future.
Investing in both CEFs and ETFs provides an efficient way to achieve diversification across investment
grade securities. The broad range of CEFs and ETFs in which the portfolio invests are further diversified
across hundreds of individual issues. It is important to note that diversification does not guarantee a
profit or protect against loss.
This unit investment trust seeks current monthly income, with capital appreciation as
a secondary objective; however, there is no assurance the objectives will be met.
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 associated with an
investment in a portfolio of CEFs and ETFs.
CEFs and ETFs 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 ETFs, CEFs 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, ETFs and CEFs frequently trade at a
discount from their net asset value in the secondary market.
Certain of the funds in which the portfolio invests may employ
the use of leverage, which increases the volatility of such funds.
All of the funds invest in investment grade securities.
Investment grade securities are subject to numerous risks
including higher interest rates, economic recession,
deterioration of the investment grade security market or
investors' perception thereof, possible downgrades and defaults
of interest and/or principal.
Certain of the funds invest in high-yield securities or "junk"
bonds. Investing in high-yield securities should be viewed as
speculative and you should review your ability to assume the
risks associated with investments which utilize such securities.
High-yield securities are subject to numerous risks, including
higher interest rates, economic recession, deterioration of the
junk bond market, possible downgrades and defaults of interest
and/or principal. High-yield security prices tend to fluctuate
more than higher rated securities and are affected by short-term
credit developments to a greater degree.
Certain of the 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. Risks associated with investing in foreign securities may
be more pronounced in emerging markets where the securities
markets are substantially smaller, less liquid, less regulated and
more volatile than the U.S. and developed foreign markets.
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.
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.
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
For a discussion of additional risks of investing in the trust see
the "Risk Factors" section of the prospectus.