Core Three Closed-End Allocation, Series 49
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 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 closed-end funds 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 cash flows.
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.
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 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. 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 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 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 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
bond market or investors’ perception thereof, possible downgrades and defaults of interest and/or principal.
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 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 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 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.
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.
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
The COVID-19 global pandemic has resulted in major disruptions to economies and markets around the world. Financial markets have experienced extreme volatility and severe losses, negatively impacting global economic
growth prospects. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty and may exacerbate other political, social and economic risks.
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
For a discussion of additional risks of
investing in the trust see the “Risk Factors”
section of the prospectus.