First Trust Funds

First Trust Strategic High Income Funds: Important Developments

Investors who purchased shares of three closed-end mutual funds offered by First Trust Portfolios L.P. are learning that because of decisions made by the Funds' management their investments were exposed to high concentrations of risky mortgage-backed securities, including illiquid collateralized debt obligations (CDOs).

Collectively known as the “First Trust Funds,” the specific funds include the First Trust Strategic High Income Fund (FHI), the Strategic High Income Fund II (FHY), and the Strategic High Income Fund III (FHO). Many investors who bought into these funds did so under the assumption that they were conservative, long-term investments. Instead, investors have found their portfolios saddled with risky debt instruments.

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First Trust Strategic High Income Funds Suffer From Subprime Contagion

When First Trust Portfolios L.P. initially sold investors on the First Trust Strategic High Income Fund (FHI), the Strategic High Income Fund II (FHY), and the Strategic High Income Fund III (FHO), many thought they were buying into conservative, long-term investments. Instead, the closed-end mutual bond funds invested in high-risk securities, including the worst of the bunch: illiquid collateralized debt obligations (CDOs). Now investors say because First Trust Portfolios and its affiliates misrepresented the First Trust Funds’ portfolios, as well as their financial results, they must pay the price in the form of significant investment losses.

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