Income Allocation Closed-End Portfolio, 2nd Quarter 2021 Series
The Multi-Sector Approach
The Income Allocation Closed-End 2Q '21 (The Income Allocation Closed-End Portfolio) is a unit
investment trust designed to enable investors who are seeking a high rate of current monthly income to
reduce some of the volatility typically associated with high-income investments. To accomplish this, the
portfolio is diversified across a broad range of closed-end funds. Because different sectors follow
different cycles and react differently to changes in global economies and interest rates, spreading assets
across this spectrum of securities has the potential to reduce the overall risk of the portfolio.
Unlike open-end mutual funds, closed-end funds maintain a relatively
fixed pool of investment capital. This allows portfolio managers to better 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.
The portfolio offers investors diversification by investing in a broad range of
closed-end funds that are further diversified across hundreds of individual issues. Diversification does not
guarantee a profit or protect against loss.
Closed-end funds are structured to generally provide a more
stable income stream than other managed fixed-income investment products because they are not
subjected to cash inflows and outflows, which can dilute dividends over time. However, as a result of
bond calls, redemptions and advanced refundings, which can dilute a fund’s income, the portfolio cannot
guarantee consistent income.
This unit investment trust seeks high current monthly income, with capital
appreciation as a secondary objective. There is, however, no assurance that the
objectives 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 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.
Unlike open-end funds, which trade at prices based on a current
determination of the fund’s net asset value, closed-end funds
frequently trade at a discount to their net asset value in the secondary
market. Certain closed-end funds 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 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 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 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 investment grade
securities. Investment grade bonds 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.
All of the closed-end funds invest in securities issued by foreign issuers.
Such securities are subject to certain risks, including currency and
interest rate fluctuations, nationalization or other adverse political or
economic developments, lack of liquidity of certain foreign markets,
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.
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.
Certain of the closed-end 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.
About one year after the United Kingdom officially departed the European Union (commonly referred to as
“Brexit”), the United Kingdom and the European Union reached a trade agreement that became effective
on December 31, 2020. It is not currently possible to determine the extent of the impact the Brexit trade
agreement may have on the portfolio’s investments and this certainly could negatively impact current and
future economic conditions in the United Kingdom and other countries, which could negatively impact the
value of the portfolio’s investments.
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
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
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.
For a discussion of additional risks of investing
in the trust see the “Risk Factors” section of the