Interest Rate Hedge Portfolio, Series 135

Like stock returns, economic growth, and inflation, interest rates are one of those variables that you can’t control. As an investor, however, you can control how your investment dollars are allocated.

The Interest Rate Hedge Portfolio invests in common stocks of companies with a history of dividend growth, as well as closed-end funds (CEFs) which invest in convertible securities, Treasury Inflation Protected Securities (TIPS), master limited partnerships (MLPs), limited duration bonds and real estate investment trusts (REITs).

Portfolio Objective

This unit investment trust seeks above-average total return; however, there is no assurance the objective will be met.

• Dividends have historically been one of the few constants in the world of investing, contributing nearly half of the stock market’s total returns. According to Ibbotson Associates, dividends have provided approximately 40% of the 10.30% average annual total return on the S&P 500 Index, from 1926 through 2020. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The index cannot be purchased directly by investors.


• Convertible securities are bonds, preferred stocks, or other securities issued by a corporation which are convertible into common stock at a specified ratio. Because of this, convertible securities have some characteristics of both common stocks and bonds. Like stocks, convertible securities offer capital appreciation potential. Additionally, the hybrid nature of convertible securities makes them tend to be less sensitive to interest rate changes than bonds of comparable quality and maturity.


• MLPs are limited partnerships that are publicly traded on a U.S. securities exchange, which combine the tradeability of common stocks with the corporate structure of a limited partnership. MLPs are traditionally high cash flow businesses that pay out a majority of that cash to investors. Investing in MLPs through closed-end funds provides an efficient alternative to investing directly in MLPs. Unlike individual partnership investments, a closed-end fund provides one Form 1099 per shareholder at the end of the year, rather than multiple K-1s and potential state filings.


• TIPS are bonds issued by the U.S. government that are designed to provide inflation protection to investors. With TIPS, the coupon payments and principal value are adjusted according to inflation over the life of the bonds.


• REITs are currently required to distribute at least 90% of their income annually as dividends to shareholders. Historically, this has made REITs a significantly higher source of income versus other equities and competitive with traditional fixed income investments. It should be noted that dividends paid by REITs are generally not eligible for the reduced tax rates for qualified dividend income.


• Limited duration bonds provide investors with high income but with less interest rate sensitivity than longer duration bonds. The duration of a bond is a measure of its price sensitivity to interest rate movements based on the weighted average term to maturity of its interest and principal cash flows.



Past performance is no guarantee of future results.

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 involved with an investment in a portfolio of common stocks and closedend 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 the fund’s net asset value, closed-end funds frequently trade at a discount to their net asset value in the secondary market.

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 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 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 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 rise during the life of the trust.

Certain of the closed-end funds invest in MLPs. 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 REITs. Companies involved in the real estate industry are subject to changes in the real estate market, vacancy rates and competition, volatile interest rates and economic recession.

Certain of the closed-end funds invest in TIPS. TIPS are subject to numerous risks including changes in interest rates, economic recession and deterioration of the bond market or investors’ perception thereof.

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’ perceptions thereof.

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 COVID-19 global pandemic has resulted in major disruptions to economies and markets around the world. Financial markets have experienced extreme volatility and severe losses, negatively impacting global economic growth prospects. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty and may exacerbate other political, social and economic risks.

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.

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.