FT 60/40 Target Income Portfolio, Series 1
The FT 60/40 Target Income Portfolio is a unit investment trust (UIT) that invests in exchange-traded funds (ETFs) which are diversified among multiple asset classes. The portfolio consists of approximately
60% in U.S. equity ETFs that employ an options overwrite strategy as well as approximately 40% in fixed income ETFs that are diversified among U.S. and foreign fixed income securities. The ETFs are
advised by First Trust Advisors L.P., an affiliate of the trust’s sponsor.
What Is An ETF?
ETFs offer investors the opportunity to buy and sell an entire basket of securities with a single
transaction throughout the trading day. ETFs combine the characteristics of a mutual fund with
the convenience and trading flexibility of stocks. Below is a list of other ETF features.
Diversification – ETFs hold a basket of securities which helps to mitigate single security risk. It is
important to note that diversification does not guarantee a profit or protect against loss.
Transparency – ETF holdings are available daily so investors know what they own.
Tax Efficiency – The ETF structure allows for increased tax efficiency.
Fully Invested – Unlike a traditional mutual fund, ETFs do not need to hold cash in order to
satisfy investor redemptions which allows them to better adhere to their investment objective.
What Is An Options Overwrite Strategy?
This strategy consists of ETFs writing (selling) call options that correspond to a common stock
or equity index holding. A call option is a contractual obligation which gives the buyer of the
option the right to purchase a certain number of shares of common stock from the writer
(seller) of the option at a predetermined price (referred to as the “strike price” or the “exercise
price”). If the strike price is reached, the buyer has the right to exercise the option at the option’s
expiration date or at any time up until the option’s expiration.
You should be aware that a product which includes writing call options may not be suitable for
all investors. It may not be appropriate for investors seeking above-average capital appreciation.
Before investing, you should make sure you understand the risks of this type of product and
whether it suits your current financial objectives.
Fixed Income ETF Characteristics
The fixed income ETFs invest in several asset classes including, but not limited to, convertible
securities, government bonds, high-yield bonds, investment grade corporate bonds, mortgagebacked
securities, preferred securities, senior loans, and ultra-short maturity bonds. The fixed
income ETFs selected for the portfolio are based on the following factors:
- A minimum market capitalization of $50,000,000
- At least six months of trading history
- Current valuations
- Underlying fund holdings’ credit ratings
- Fund exposure to different fixed income asset types
This UIT seeks current monthly income, with capital appreciation as a secondary objective. 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 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 ETFs which invest in
common stocks and fixed income securities.
ETFs 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 ETFs 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, ETFs
frequently trade at a discount from their net asset value in the secondary market.
Certain of the 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 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 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 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 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 funds held by the trust invest in derivatives such as swap agreements to gain inverse exposure
to its target index. As such, the funds will be subject to credit risk with respect to the amount it expects
to receive from counterparties to derivatives and repurchase agreements entered into by the funds. If a
counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the
value of the trust’s investment in the funds may decline.
Certain of the 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 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 funds invest in preferred securities. Preferred securities are sensitive to changes in interest rates
and the market price generally falls with rising interest rates. Preferred securities are more likely to be called
for redemption in a declining interest rate environment. Preferred securities are typically subordinated to
bonds and other debt instruments in a company’s capital structure, in terms of priority to corporate income,
and therefore will be subject to greater credit risk than those debt instruments.
Certain of the funds invest in senior loans. The yield on 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 funds invest in covenant-lite loans which contain fewer or no maintenance covenants and
may hinder the funds’ ability to reprice credit risk and mitigate potential loss especially during a downturn
in the credit cycle.
Certain of the 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.
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-
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
The ongoing effects of the COVID-19 global pandemic, or the potential impacts of any future public health
crisis, may cause significant volatility and uncertainty in global financial markets. While vaccines have been
developed, there is no guarantee that vaccines will be effective against future 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 organization 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.
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.