January Effect Portfolio, Series 11
An important part of many investors' overall strategy is to minimize taxes. As the end of the
year approaches, investors with securities in taxable accounts typically review their portfolio for
potential tax losses. Historically, when tax-motivated selling pressures occur in December,
closed-end fund (CEF) discounts can widen further.
This unit investment trust seeks current
income, with total return as a secondary
objective. There is, however, no assurance that
the objectives will be achieved.
Portfolio Selection Criteria
The January Effect Portfolio is a unit investment trust which invests in CEFs that we believe
may benefit once tax-motivated selling pressures abate after the end of the year. The trust
invests in taxable CEFs which meet the following criteria:
- Price Decline – Price decline of 10% or greater from each CEF's 2022 high at the time the
portfolio is selected.
- Discount to NAV – We select 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.
- Liquidity – A fund's overall size must be considered, as well as its average trading volume. We
favor larger funds and funds with higher trading volume.
- Dividend Yield – We look for funds with higher dividend yields relative to comparable funds, as
well as those that have shown a relatively stable payment level over time.
- Diversification – In order to cover the broadest scope of the market, we diversify among fund
companies and categories. Diversification does not guarantee a profit or protect against loss.
| 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. Closedend
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 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 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 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 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 call options. An option’s 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.
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-
The United Kingdom’s official departure from the European Union (commonly referred to as “Brexit”) led to
volatility in global financial markets, in particular those of the United Kingdom and across Europe, and the
weakening in political, regulatory, consumer, corporate and financial confidence in the United Kingdom and
Europe. It is not currently possible to determine the extent of the impact that Brexit 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
The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty 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.
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.
For a discussion of additional risks of investing in the trust see the “Risk Factors” section of the prospectus.