Diversified High Income Closed-End Portfolio, Series 51
The Multi-Sector Approach
The Diversified High Income Closed-End Portfolio seeks to provide investors with a high rate of current
monthly income by investing across a broad range of high income paying closed-end funds. Because
different sectors follow different cycles and react differently to changes in global economies and interest
rates, spreading assets across this spectrum of closed-end funds has the potential to reduce the overall risk
of the portfolio.
When selecting closed-end funds for this portfolio, we look at several factors
Discount | We favor 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.
Consistent Dividend | We favor funds which have a history of paying a consistent dividend.
Expense Ratio | We favor funds which have a lower than average expense ratio relative to
Diversification | We limit exposure to individual fund companies/managers
Liquidity | We favor larger funds and more liquid funds.
Portfolio Control | Unlike open-end mutual funds, closed-end funds maintain a relatively fixed
pool of investment capital. This allows portfolio managers to better 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.
Diversification | The portfolio offers investors diversification by investing in a broad range
of closed-end funds that are further diversified across hundreds of individual securities.
Diversification does not guarantee a profit or protect against loss
Income Distributions | Closed-end funds are structured to generally provide a more stable
income stream than other managed investment products because they are not subjected to cash
inflows and outflows, which can dilute dividends over time. However, stable income cannot
This unit investment trust seeks a high rate of current monthly income, with capital
appreciation as a secondary objective by investing in a diversified pool of closed-end
funds. There is, however, no assurance that the objectives of the portfolio will be achieved.
|Not FDIC Insured Not Bank Guaranteed May Lose Value
You should consider the portfolio's investment objective, 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. 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 in which
the portfolio invests 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 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 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 options. Options are subject to various risks including that their 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 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 when due.
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.
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. Risks associated with investing in non-U.S. securities may be more pronounced in emerging
markets where the securities markets are substantially smaller, less developed, less liquid, less regulated,
and more volatile than the U.S. and developed non-U.S. markets.
Approximately one year after the United Kingdom officially departed the European Union (commonly
referred to as “Brexit”), the United Kingdom and the European Union reached a trade agreement that became
effective on December 31, 2020. It is not currently possible to determine the extent of the impact the Brexit
trade agreement may have on the portfolio’s investments and this certainly 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 has caused and may continue to cause significant volatility and declines 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.
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.
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
For a discussion of additional risks of investing in the trust see the “Risk Factors” section of