U.S. Equity Closed-End Portfolio, Series 38
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 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 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 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 floating-rate securities. A floating-rate security is an instrument in which the interest rate payable on the obligation fluctuates on a periodic basis based upon changes in an interest rate
benchmark. As a result, the yield on such a security will generally decline in a falling interest rate environment, causing the trust to experience a reduction in the income it receives from such securities. Certain of the floating-rate
securities pay interest based on LIBOR. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, will cease making LIBOR available as a reference rate over a phase-out period that will begin immediately after
December 31, 2021. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain portfolio investments. Any potential effects of the transition away from LIBOR can be difficult to ascertain, and
they may vary depending on a variety of factors and they could result in losses to the portfolio.
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 real estate investment trusts (REITs). Companies involved in the real estate industry are subject to changes in the real estate market, vacancy rates and competition, volatile interest
rates and economic recession.
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.
About one year after the United Kingdom officially departed the European Union (commonly referred to as
“Brexit”), the United Kingdom and the European Union reached a trade agreement that became effective
on December 31, 2020. It is not currently possible to determine the extent of the impact the Brexit trade
agreement may have on the portfolio’s investments and this certainly could negatively impact current and
future economic conditions in the United Kingdom and other countries, which could negatively impact the
value of the portfolio’s investments.
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 COVID-19 global pandemic has resulted in major disruptions to economies and markets around the world. Financial markets have experienced extreme volatility and severe losses, negatively impacting global economic
growth prospects. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty and may exacerbate other political, social and economic risks.
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.