High-Yield Income Closed-End Portfolio, Series 113
One thing that has not changed over the years is the need for some investors to earn high current income. Investors willing to assume certain credit and market risks have the potential to earn a high level of current monthly income by investing in high-yield bonds. The High-Yield Income Closed-End Portfolio is comprised of a well-diversified pool of closed-end funds that invest in U.S. and foreign high-yield bonds.
Although subject to greater risks, high-yield bond investors have historically
received greater returns from their high-yield investments than investment grade
bond investors. Of course, there can be no assurance that high-yield securities
will outperform investment grade bonds in the future or that the default rate
on high-yield securities will not rise.
Closed-End Features
Income Distributions
Closed-end funds are structured to generally provide a more stable income stream
than other managed fixed-income investment products because they are not subjected
to cash inflows and outflows, which can dilute dividends over time. However,
as a result of bond calls, redemptions and advanced refundings, which can dilute
a fund's income, the portfolio cannot guarantee consistent income. Although
one of the portfolio's objectives is to seek a high rate of current monthly
income, there is no assurance the objective will be met.
Portfolio Control
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.
Portfolio Objectives
This unit investment trust seeks a high rate of current monthly income, with capital appreciation as a secondary objective. There is, however, 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.
Risk Considerations
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 high-yield 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 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.
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.
Investing in high-yield securities should be viewed as speculative and you should review your ability to assume the risks associated with investments that utilize such bonds. 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
bonds and are affected by short-term credit developments to a greater degree.
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.
The yield on 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 when due.
Covenant-lite loans contain fewer or no maintenance covenants and may hinder the funds’ ability to reprice credit risk and mitigate potential loss especially during a downturn in the credit cycle.
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.
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.
Ongoing armed conflicts between Russia and Ukraine in Europe and among Israel, Hamas and other militant groups in the Middle East, have caused and could continue to cause significant market disruptions and volatility
within the markets in Russia, Europe, the Middle East 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 ongoing effects of the COVID-19 global pandemic, or the potential impacts of any future public health crisis, may cause significant volatility and uncertainty in global financial markets. While vaccines have been developed, there is no guarantee that vaccines will be effective against future 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.