Covered Call Select Closed-End Portfolio, Series 77
The Covered Call Select Closed-End Portfolio is a unit investment trust which
invests in closed-end funds whose investments are diversified among common stocks.
These closed-end funds, on an ongoing and consistent basis, will sell covered
call options to seek a more controlled risk/reward outcome.
This unit investment trust seeks income and, to a lesser extent, capital appreciation; however, there is no assurance the objectives will be met.
What is a Covered Call Option?
A call option is a contractual obligation which gives the buyer of the option the right to purchase a certain number of shares of common stock from the writer (seller) of the option at a predetermined price. If the predetermined price is reached, the buyer has the right, depending on the type of option, to exercise the option at the option's expiration date or at any time up until the option's expiration. Though call options can be used for many investment purposes, they are typically used as a tool to potentially enhance returns, offer a current yield to investors, and provide limited downside protection.
An option is considered "covered" when a closed-end fund owns the
equity securities against which the options are sold. You should be aware that
a product which includes closed-end funds utilizing covered call strategies
may not be suitable for all investors. It may not be appropriate for investors
seeking above-average capital appreciation. Before investing, you should make
sure you understand the risks of this type of product, and whether it suits
your current financial objectives.
Closed-End Fund Features
Since closed-end funds maintain a relatively fixed pool of investment capital,
portfolio managers are better able to adhere to their investment philosophies
through greater flexibility and control. In addition,
closed-end funds don't have to manage fund liquidity to meet potentially large
Closed-end funds are structured to generally provide a more stable income stream
than other managed investment products because they are not subjected to cash
inflows and outflows, which can dilute dividends over time. However, the portfolio
cannot guarantee consistent income.
|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 professional
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 which
invest in common stocks and options.
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 employ the use of leverage, which increases the volatility of such funds.
Common stocks are subject to certain 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
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.
An investment in a portfolio containing equity securities of foreign issuers is subject to additional risks,
including currency fluctuations, political risks, withholding, the lack of adequate financial information, and
exchange control restrictions impacting foreign issuers.
On January 31, 2020, the United Kingdom officially departed the European Union (commonly referred to as
“Brexit”). Brexit has led to volatility in global financial markets, in particular those of the United Kingdom
and across Europe, and may also lead to weakening in political, regulatory, consumer, corporate and financial
confidence in the United Kingdom and Europe.
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.
As the use of Internet technology has become more prevalent in
the course of business, the trust has become more susceptible to
potential operational risks through breaches in cybersecurity.
The recent outbreak of a respiratory disease designated as COVID-19 was first detected in China in December
2019. The global economic impact of the COVID-19 outbreak is impossible to predict but is expected to
disrupt manufacturing, supply chains and sales in affected areas and negatively impact global economic
growth prospects. The COVID-19 outbreak has also caused significant volatility and declines in global
financial markets, which have caused losses for investors. The impact of the COVID-19 outbreak may be short
term or may last for an extended period of time, and in either case could result in a substantial economic
downturn or recession.
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.