Balanced Income Equity
and ETF Portfolio, Series 40
The Balanced Income Equity and ETF Portfolio
is a unit investment trust which offers investors
a potentially lower-risk alternative to investing
solely in stocks. To accomplish this, the portfolio
invests approximately 50% in common stocks
of dividend-paying companies and
approximately 50% in exchange-traded funds
(ETFs) which invest primarily in fixed-income
securities. Because stocks and bonds may react
differently to changes in the economy and
interest rates, diversifying assets in this manner
has the potential to reduce the overall volatility
of the portfolio.
What is Asset Allocation?
Asset allocation is the process of developing a diversified investment portfolio by combining different
assets in varying proportions. The asset allocation decision may be one of the most important decisions
you can make as an investor. Effective diversification requires combining various types of securities that
may behave differently during changing economic or market conditions. Diversifying your portfolio
among stocks and bonds makes you less dependent on the performance of any single asset class.
The Importance of Dividends
- History shows that, over the long-term, dividends provide a key component of total return. As interest
rates remain low, investors are turning their attention to dividend paying stocks.
- Corporations are not obligated to share their earnings with stockholders, so dividends may be
viewed as a sign of a company’s profitability as well as management’s assessment of the future.
- We believe that companies that distribute dividends on a regular basis generally demonstrate
financial strength and positive performance relative to their peers.
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.
This unit investment trust seeks current monthly income and capital appreciation. There is, however,
no assurance that the objectives will be achieved. The portfolio terminates approximately two years
from the initial date of deposit.
| 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 involved with an investment in a portfolio of common stocks and ETFs.
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 ETFs may employ the use of leverage, which increases the volatility of such funds.
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.
All of the ETFs 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.
All of the ETFs 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.
An investment in a portfolio containing equity securities of foreign issuers is subject to additional
risks, including currency fluctuations, political risks, withholding, the lack of adequate financial
information, and exchange control restrictions impacting foreign issuers. Risks associated with
investing in foreign 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 foreign markets.
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
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.
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.
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
For a discussion of additional risks of investing in the trust see the "Risk
Factors" section of the prospectus.