U.S. Equity Closed-End Portfolio, 27
Portfolio Selection Process
When selecting closed-end 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. There
is, however, no guarantee that the issuers of the securities included in the portfolio will declare
dividends in the future.
- Expense ratio – we favor funds which have a lower than average expense ratio relative to
- Diversification – we provide a diversified exposure of funds from a variety of companies
Why Closed-End Funds?
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 redemptions.
Because they are not subjected to cash inflows and outflows, which can dilute distributions over time, closed-end funds can generally provide a more stable income stream than other managed investment products. However, stable income cannot be assured.
This unit investment trust seeks current income with total return as a secondary objective; however, there is no assurance that the objectives will be achieved.
| 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 closed-end funds which invest in common stocks.
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.
All of the closed-end funds invest in common stocks. 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.
Certain of the closed-end funds invest in master limited
partnerships (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 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.
All 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.
For a discussion of additional risks of investing in the trust see
the "Risk Factors" section of the prospectus.
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
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
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 cyber security.
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.