Strategic Income Select Closed-End Portfolio, Series 37
The Multi-Sector Approach
The Strategic Income Select Closed-End Portfolio seeks a high rate of current monthly income and to reduce some of the volatility typically associated with high-income investments. To accomplish this, the portfolio is diversified across a broad range of closed-end funds, including general equity funds, high-yield bond funds, income and preferred stock funds, investment grade bond funds, loan participation funds, multi-sector bond funds, specialized equity funds, U.S. Government bond funds and world equity and income funds. Because different sectors follow different cycles and react differently to changes in global economies and interest rates, spreading assets across this spectrum of closed-end funds has the potential to reduce the overall risk of the portfolio.
When selecting closed-end funds for this portfolio, we look at several factors
- Discount - we favor funds which are trading at a discount to net asset value
and we favor those which are trading at a greater discount relative to their
- Consistent dividend - we favor funds which have a history of paying a consistent
- Expense ratio - we favor funds which have a lower than average expense ratio
relative to their peers.
- Diversification - we limit exposure to individual fund companies/managers.
- Liquidity - we favor larger funds and more liquid funds.
Unlike open-end mutual funds, closed-end funds maintain a relatively fixed pool
of investment capital. This allows portfolio managers to better 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
The portfolio offers investors diversification by investing in a broad range
of closed-end funds that are further diversified across hundreds of individual
securities. Diversification does not guarantee a profit or protect against loss.
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, stable
income cannot be assured.
This unit investment trust is comprised of a diversified pool of closed-end funds that invest in U.S. and foreign equity securities and taxable bonds.
The trust seeks a high rate of current monthly income, with capital appreciation as a secondary objective. There is, however, no assurance that the objectives of the portfolio will be achieved. The portfolio terminates approximately two years from the initial date of deposit.
| 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. 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 from their net asset value in the secondary market. Certain closed-end funds in which the portfolio invests may employ the use of leverage which increases the volatility of such funds.
Certain of the closed-end funds invest in common stocks. 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 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 closed-end funds invest in high-yield securities or "junk" bonds. Investing in high-yield securities should be viewed as speculative and you should review your ability to assume the risks associated with investments which utilize such securities. High-yield securities are subject to numerous risks, including higher interest rates, economic recession, deterioration of the junk bond market, possible downgrades and defaults of interest and/or principal. High-yield security prices tend to fluctuate more than higher rated securities and are affected by short-term credit developments to a greater degree.
Certain of the closed-end funds invest in investment grade bonds. Investment grade bonds are
subject to numerous risks including higher interest rates, economic recession, deterioration of the
investment grade bond market or investors' perception thereof, possible downgrades and defaults of
interest and/or principal.
Certain of the closed-end funds invest in limited duration
bonds. Limited duration bonds are subject to interest rate risk,
which is the risk that the value of a security will fall if interest
rates increase. While limited duration bonds are generally
subject to less interest rate sensitivity than longer duration
bonds, there can be no assurance that interest rates will not
rise during the life of the trust.
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 preferred securities. Preferred
securities are sensitive to changes in interest rates and the market price
generally falls with rising interest rates. Preferred securities are more likely
to be called for redemption in a declining interest rate environment.
Preferred securities are typically subordinated to bonds and other debt
instruments in a company's capital structure, in terms of priority to
corporate income, and therefore will be subject to greater credit risk than
those debt instruments.
Certain of the closed-end funds invest in senior loan securities. The yield on
closed end funds which invest in senior loans will generally decline in a
falling interest rate environment and increase in a rising interest rate
environment. Senior loans are generally below investment grade quality
("junk" bonds). An investment in senior loans involves the risk that the
borrowers may default on their obligations to pay principal or interest
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.
Risks associated with investing in foreign
securities may be more pronounced in
emerging markets where the securities
markets are substantially smaller, less liquid,
less regulated and more volatile than the U.S.
and developed foreign markets.
An investment in a portfolio containing small-cap
and mid-cap companies is subject to
additional risks, as the share prices of smallcap
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 available information.
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.
For a discussion of additional risks of investing in the Trust see the "Risk
Factors" section of the prospectus.
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.
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
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.