Dividend & Income Select Closed-End Portfolio, Series 78
When it comes to investing for income, investors have several choices. Even with all the options, there
are those investors who do not want to give up the growth potential offered by stocks in order to earn a
high rate of current income. The Dividend & Income Select Closed-End Portfolio has been developed to
address this need. The Dividend & Income Select Closed-End Portfolio is a unit investment trust that is
comprised of a pool of closed-end funds which invest in dividend-paying common stocks and preferred
securities. A portion of these closed-end funds invest in common stocks and, on an ongoing basis, will
sell covered call options. An option is considered “covered” when a closed-end fund owns the equity
securities against which the options are sold. 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.
The Importance of Dividends
Due to the fact that corporations are not obligated to share their earnings with stockholders, dividends
may be viewed as a sign of a company’s profitability as well as management's assessment of the future,
in our opinion.
Dividends have had a significant impact on stock performance. Consider the historical effect dividends
have had on companies in the S&P 500 Index. According to Ibbotson Associates, dividends have provided
approximately 42% of the 9.99% average annual total return on the S&P 500 Index from 1926 through
2018. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock
market performance. The index cannot be purchased directly by investors.
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 above-average total return through a combination of
capital appreciation and dividend income; however, there is no assurance the
objective will be met.
|Not FDIC Insured Not Bank Guaranteed May Lose Value
You should consider the portfolio's investment
objective, 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, preferred
stocks and options.
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.
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.
Certain 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 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 preferred stocks.
Preferred stocks are equity securities of the issuing company
which pay income in the form of dividends. Preferred stocks are
typically subordinated to bonds and other debt instruments in a
company’s capital structure, and therefore will be subject to
greater credit risk than those debt instruments.
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 equity securities of
foreign issuers. Foreign securities are subject to additional risks,
including currency fluctuations, political risks, withholding, the
lack of adequate financial information, and exchange control
restrictions impacting foreign issuers.
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 qualified plan.
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.
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.
For a discussion of additional risks of
investing in the trust see the “Risk Factors”
section of the prospectus.