Discount Opportunity Closed-End Portfolio, Series 11
The Discount Opportunity Closed-End Portfolio is a professionally selected unit investment trust
which seeks to provide investors diversification among closed-end funds (CEFs). The portfolio will
invest in CEFs which, at the time of portoflio selection, are selling at a discount to their net asset
value (NAV). We believe that these current discounts to NAV may present a potential opportunity
Portfolio Selection Criteria
The portfolio invests in taxable CEFs which meet the following criteria:
- Discount to NAV – We select funds which are, at the time of portfolio selection, trading at a
discount to NAV 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. There is, however,
no guarantee that the issuers of the securities included in the portfolio will declare dividends in
- 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.
This unit investment trust seeks 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.
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 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 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 floating-rate securities pay interest based on LIBOR. Due to the uncertainty regarding the future
utilization of LIBOR and the nature of any replacement rate, the potential effect of a transition away from
LIBOR on a fund or the financial instruments in which the fund invests cannot yet be determined.
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/
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
Certain of the closed-end funds invest in preferred securities. Preferred securities are equity securities of the
issuing company which pay income in the form of dividends. Preferred securities 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.
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
Certain of the closed end funds invest in covenant-lite loans which contain fewer or no maintenance covenants
and may hinder the closed end funds’ ability to reprice credit risk and mitigate potential loss especially during
a downturn in the credit cycle.
Certain of the closed-end funds invest in U.S. Treasury obligations which are subject to numerous risks
including higher interest rates, economic recession and deterioration of the bond market or investors’
All of the closed-end funds invest in securities issued by foreign issuers. Such securities are subject to risks,
including currency and interest rate fluctuations, 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 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.
On January 31, 2020, the United Kingdom officially departed the European Union (commonly referred to as
“Brexit”). Brexit has led to volatility in global financial markets, in particular those of the United Kingdom
and across Europe, and may also lead to weakening in political, regulatory, consumer, corporate and financial
confidence in the United Kingdom and Europe.
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.
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.
The recent outbreak of a respiratory disease designated as COVID-19 was first detected in China in December
2019. The global economic impact of the COVID-19 outbreak is impossible to predict but is expected to
disrupt manufacturing, supply chains and sales in affected areas and negatively impact global economic
growth prospects. The COVID-19 outbreak has also caused significant volatility and declines in global
financial markets, which have caused losses for investors. The impact of the COVID-19 outbreak may be short
term or may last for an extended period of time, and in either case could result in a substantial economic
downturn or recession.
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 organizational costs.
For a discussion of additional risks of investing in the trust see the “Risk Factors” section of the prospectus.