Municipal Income ETF Portfolio, Series 3
Americans deal with a number of different taxes in their everyday lives, perhaps none more
noticeable than individual income taxes. In fact, individual income taxes comprise the largest
component of Americans’ tax bill. By investing in federal tax-exempt municipal bonds, investors
have the potential for significant tax savings. For investors in higher tax brackets, municipals can
offer greater after-tax yields than taxable debt securities of similar maturities and credit quality,
including Treasuries and corporate bonds.
The Municipal Income ETF Portfolio is a unit investment trust which invests in a broad range of
exchange-traded funds (ETFs) that invest in a diversified pool of tax-exempt municipal bonds.
Portfolio Selection Process
- Liquidity – A fund’s overall size is considered, as well as its average trading volume. We
favor larger funds and funds with higher trading volume.
- Dividend Yield – We look for funds with higher dividend yields relative to comparable
funds, as well as those that have shown a relatively stable payment level over time. There
is, however, no guarantee that the issuers of the securities included in the portfolio will
declare dividends in the future.
- Diversification – In order to cover the broadest scope of the market, we diversify among
fund companies and categories.
- Current News/Events – As economic news continues to change at a rapid pace, we stay
up to date on news and or events that may affect the bond market and/or the market
- Credit Quality – Preferences as to credit quality selection may vary depending on current
condition in the economy.
- Expense Ratio – We seek to avoid funds with generally higher expenses then their
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.
The portfolio seeks monthly income that is exempt from federal income taxes; however, there is
no assurance that the objective will be achieved. It is important to note that certain distributions
paid by certain funds may be subject to federal income taxes and may be subject to the alternative
|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.
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.
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 that
utilize such bonds. 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 bonds and are affected by short-term credit developments to a greater degree.
Certain of the ETFs included in the portfolio are unrated at the time of deposit. Unrated means that the investment is not publicly rated by S&P, Moody’s or another nationally-recognized statistical rating organization.
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.
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.
In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain investments as well as performance.
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.
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.
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.