Dividend & Income Select Closed-End Portfolio, Series 96
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 39% of the 10.46% average annual total return on the
S&P 500 Index from 1926 through 2021. 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 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, preferred 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 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 floatingrate
securities pay interest based on LIBOR. The United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, intends to cease making LIBOR available as a reference rate over a phase-out period that began in
early 2022. However, subsequent announcements by the FCA, the LIBOR administrators, and other regulators indicate that it is possible that the most widely used LIBOR rates may continue until mid-2023. 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 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.
Securities of non-U.S. issuers are subject to additional risks, including currency fluctuations, political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting non- U.S. issuers.
Approximately 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 uncertainty 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.
In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain investments as well as performance.
The COVID-19 global pandemic has caused and may continue to cause significant volatility and declines in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue
to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease.
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.
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.
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.
For a discussion of additional risks of
investing in the trust see the “Risk Factors”
section of the prospectus.