Core Three Income Allocation Portfolio, Series 1
The Core Three Income Allocation Portfolio is a professionally selected unit investment trust which seeks to provide diversification among federally tax-exempt municipal bond exchange-traded funds
(ETFs), senior loan and limited duration ETFs, and domestic equity ETFs of which no individual sector will represent more than approximately 30%. We believe that investing in municipal ETFs has the
potential to provide a good balance when combined with both credit-sensitive 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.
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
high-yield corporate debt.
- We believe that senior loans can be used as an effective means to aid portfolio diversification
because of their low correlation to other fixed-income asset classes. Correlation is a statistical
measure that provides a way to evaluate the potential diversification benefits of combining
different assets. The historical correlation between senior loans and other asset classes,
including investment-grade corporate bonds and equities, is low. Because senior loans are not
highly correlated with other asset classes, they can potentially decrease portfolio volatility,
enhance overall return and provide meaningful diversification to an asset allocation strategy.
It is important to note that diversification does not guarantee a profit or protect against loss.
- Limited duration ETFs provide investors with the potential for 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
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, 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. 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 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 ETFs 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 floating-rate securities
pay interest based on LIBOR. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, will cease making LIBOR available as a reference rate over a phase-out period that will begin immediately after December
31, 2021. 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 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.
Certain 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 bond market or
investors’ perception thereof, possible downgrades and defaults of interest and/or principal.
Certain of the ETFs 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 ETFs 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 ETFs invest in senior loans. The yield on ETFs 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 ETFs invest in covenant-lite loans which contain fewer or no maintenance covenants and may
hinder the exchange-traded funds’ ability to reprice credit risk and mitigate potential loss especially during
a downturn in the credit cycle.
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.
The COVID-19 global pandemic has caused significant volatility and declines in global financial markets,
causing losses for investors. The development of vaccines has slowed the spread of the virus and allowed
for the resumption of “reasonably” normal business activity in the United States, although 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. 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.
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.
For a discussion of additional risks of investing in the trust see the “Risk Factors” section of the prospectus.