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High Income Model Portfolio, Series 2

The High Income Model Portfolio is designed to complement core fixed income and/or dividend paying equity portfolios by targeting a high level of income and a competitive total return. The portfolio consists of exchange-traded funds (ETFs) advised by First Trust Advisors L.P., an affiliate of the trust’s sponsor, and seeks income and total return from non-traditional income sources. Along with the potential for higher yields, non-traditional sources of income offer potential diversification benefits through lower correlations to traditional fixed income sources. The ETFs included in the portfolio have been selected by the First Trust Advisors Investment Committee through a dynamic approach.

The investment philosophy for the High Income Model Portfolio is based on the belief that a well informed macroeconomic framework, rigorous credit analysis and disciplined portfolio construction can lead to alpha generation within a portfolio. Our selection process evaluates relative strength, our investment outlook and relative valuation among asset classes to determine an asset allocation that seeks to capture market trends and near term opportunities.

Our core framework is designed around seeking yield with a secondary focus on total return. This investment philosophy is expressed through an investment process that combines a balance of rigorous bottom-up fundamental credit analysis and disciplined portfolio construction. Risk management is a critical component of the entire process and is embedded in both the fundamental credit analysis and portfolio construction. Key components of the investment process include:

Portfolio Construction

  • Relative value assessment
  • Portfolio diversification
  • Liquidity

Fundamental Credit Analysis

  • Consistency of cash flow generation
  • Management quality
  • Collateral assessment
  • Credit agreement/bond indenture document review

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.

TAXEFFICIENCY | The ETF structure allows for increased tax efficiency.

FULLYINVESTED | 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.

Portfolio Objective

This unit investment trust seeks monthly income by investing in a diversified portfolio of First Trust® ETFs; however, there is no assurance the objective will be met.


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 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.

Risk Considerations:
An investment in this unmanaged unit investment trust should be made with an understanding of the risks involved with owning ETFs 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 ETFs may employ the use of leverage, which increases the volatility of such funds.

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 market or investors’ perception thereof, possible downgrades and defaults of interest and/or principal.

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 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 shortterm credit developments to a greater degree.

Certain of the ETFs invest in floating-rate securities. 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 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 securities of foreign issuers which are subject to additional risks, including currency fluctuations, political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting foreign issuers.

Certain of the ETFs 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 ETFs invest in money market or similar securities as a defensive measure when the fund’s investment advisor anticipates unusual market or other conditions. If market conditions improve while a fund has invested in these securities, the potential gain from the market upswing may be reduced, limiting the fund’s opportunity to achieve its investment objective.

Certain of the ETFs 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.

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.

Although this portfolio terminates in approximately 15 months, the strategy is long-term. Investors should consider their ability to pursue investing in successive portfolios, if available. There may be tax consequences unless units are purchased in an IRA or other qualified plan.

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 cyber security.

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.

For a discussion of additional risks of investing in the trust see the “Risk Factors” section of the prospectus.

 
Fund Cusip Information
30310B701 (Cash)
30310B719 (Reinvest)
30310B727 (Cash-Fee)
30310B735 (Reinvest-Fee)
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The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA and the Internal Revenue Code. First Trust has no knowledge of and has not been provided any information regarding any investor. Financial advisors must determine whether particular investments are appropriate for their clients. First Trust believes the financial advisor is a fiduciary, is capable of evaluating investment risks independently and is responsible for exercising independent judgment with respect to its retirement plan clients.
First Trust Portfolios L.P.  Member SIPC and FINRA.
First Trust Advisors L.P.
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