Diversified High Income Closed-End Portfolio, Series 35
The Multi-Sector Approach
The Diversified High Income Closed-End Portfolio is designed to provide investors
with a high rate of current monthly income by investing across a broad range
of high income paying closed-end 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 peers.
- 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
- Diversification - we limit exposure to
individual fund companies/managers.
- Liquidity - we favor larger funds and more
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.
|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. Shares of closed-end funds frequently trade at a discount
to their net asset value in the secondary market and the net asset value of
closed-end fund shares may decrease. Certain closed-end funds in which the portfolio
invests may employ the use of leverage which increases the volatility of such
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 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 convertible securities.
Convertible securities are bonds, preferred stocks and other
securities that pay a fixed rate of interest (or dividends) and
will repay principal at a fixed date in the future. However,
these securities may be converted into a specific number of
common stocks at a specified time. As such, an investment in
convertible securities entails some of the risks associated with
both common stocks and bonds.
Certain of the closed-end funds invest in mortgage-backed
securities. Rising interest rates tend to extend the duration of
mortgage-backed securities, making them more sensitive to
changes in interest rates, and may reduce the market value of
the securities. In addition, mortgage-backed securities are
subject to prepayment risk, the risk that borrowers may pay off
their mortgages sooner than expected, particularly when
interest rates decline.
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.
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 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 investment grade
securities. Investment grade securities are subject to numerous
risks including higher interest rates, economic recession,
deterioration of the investment grade security market or
investors’ perception thereof, possible downgrades and
defaults of interest and/or principal.
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.
Certain of the closed-end funds invest in master limited partnerships (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 senior loans. 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 when due.
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
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.
For a discussion of additional risks of investing in the trust see the “Risk Factors” section of
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.