Core Three Closed-End Allocation, Series 29
The Core Three Closed-End Allocation Portfolio is a professionally selected unit investment trust
which seeks to provide diversification among federally tax-exempt municipal bond closed-end
funds (CEFs), senior loan and limited duration CEFs, and domestic equity CEFs of which no
individual sector will represent more than approximately 30%. We believe that investing in
municipal CEFs has the potential to provide a good balance when combined with both creditsensitive
funds and equity funds. Because different areas of the market follow different cycles and
react differently to changes in global economies and interest rates, we believe spreading assets
across this spectrum of securities has the potential to reduce the overall risk of the portfolio.
Why Closed-End Funds?
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.
Because they are not subjected to cash inflows and outflows, which can dilute distributions over time, closed-end funds can generally provide a more stable income stream than other managed investment products. However, stable income cannot be assured.
Consider These Factors
- Because of their low correlation to many other fixed-income and equity assets, municipal bonds can also provide diversification benefits within an investor's portfolio.
- While senior loans are generally loans which have been made to companies whose debt is typically rated below investment grade, they are senior in the asset structure of a company and historical recovery rates in the event of a default tend to be much higher relative to junior highyield corporate debt.
- The interest paid on a senior loan resets every 30-90 days based on prevailing short-term interest rates. Therefore, should short-term rates move higher, investors in senior loans would receive a higher income stream due to the floating rate nature of the interest on the loans. Unlike securities with a fixed rate coupon, a senior loan's floating rate feature provides a natural hedge against rising interest rates.
- We believe there is potential for interest rates to move higher which makes limited duration closed-end funds attractive because they provide investors with high income but with less interest rate sensitivity. 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. Historically, these funds have tended to hold up better in rising interest rate environments than closed-end funds which invest in longer duration bonds.
- We believe the moderate growth in the U.S. economy continues to create a good backdrop for
domestic equity closed-end funds.
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 advisor
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 in which the portfolio invests 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 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 bonds. An investment in a portfolio which includes investment grade bonds should be made
with an understanding of the risks involved. Investment grade bonds 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 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 closed-end funds invest in municipal bonds. Municipal bonds are subject to numerous risks, including higher interest rates, economic recession, deterioration of the municipal bond market, possible downgrades and defaults of interest and/or principal. Certain distributions paid by certain funds may be subject to federal income taxes. In addition, a portion of the income may be subject to the alternative minimum tax.
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.
Certain of the closed-end funds invest in call 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.
An investment in a portfolio containing small-cap and mid-cap companies is
subject to additional risks, as the share prices of small-cap companies and certain
mid-cap companies are often more volatile than those of larger companies due to
several factors, including limited trading volumes, products, financial resources,
management inexperience and less publicly available information.
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 rates decline.
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 when due.
Certain of the closed-end funds invest in securities issued by foreign issuers. Such
securities are subject to certain risks including currency and interest rate
fluctuations, nationalization or other 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.
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.
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. The markets for credit instruments, including municipal securities, have experienced periods of extreme illiquidity and volatility.
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.