High-Yield Income Closed-End Portfolio, Series 103
One thing that has not changed over the years is the need for some investors to earn high current income. Investors willing to assume certain credit and market risks have the potential to earn a high level of current monthly income by investing in high-yield bonds. The High-Yield Income Closed-End Portfolio is comprised of a well-diversified pool of closed-end funds that invest in U.S. and foreign high-yield bonds.
Although subject to greater risks, high-yield bond investors have historically
received greater returns from their high-yield investments than investment grade
bond investors. Of course, there can be no assurance that high-yield securities
will outperform investment grade bonds in the future or that the default rate
on high-yield securities will not rise.
Closed-end funds are structured to generally provide a more stable income stream
than other managed fixed-income investment products because they are not subjected
to cash inflows and outflows, which can dilute dividends over time. However,
as a result of bond calls, redemptions and advanced refundings, which can dilute
a fund's income, the portfolio cannot guarantee consistent income. Although
one of the portfolio's objectives is to seek a high rate of current monthly
income, there is no assurance the objective will be met.
Since closed-end funds maintain a relatively fixed pool of investment capital,
portfolio managers are better able to 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 redemptions.
This unit investment trust seeks a high rate of 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 high-yield 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. Unlike open-end funds, which trade at prices based on a current determination of the fund’s net asset value, closed-end
funds frequently trade at a discount to their net asset value in the secondary market. Certain closed-end funds employ the use of leverage, which increases the volatility of such funds.
All 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. All of the floating-rate
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.
All 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
that utilize such bonds. 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 bonds and are affected by short-term credit developments to a greater degree.
All of the 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 bond 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 not rise during the life of the trust.
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-U.S. issuers.
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 as performance.
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.
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
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.
For a discussion of additional risks of investing in the trust see the “Risk Factors” section of the prospectus.