Tax Exempt Municipal Income Trust, Series 301
Municipal Bond Basics
A municipal bond is a debt obligation of a state and/or local government entity which is used to
help build America's infrastructure by raising money to finance public projects such as new
hospitals, schools and improved roads. In return, investors in tax-exempt municipal bonds receive
earnings which are free from federal income taxes and, in some cases, state and local income
taxes. 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.
Municipal bonds have historically had a very low overall default rate as compared to corporate
bonds. According to data from Moody's, the historical default rate of Moody's-rated municipal
bonds is lower than that of corporate bonds in every rating category. In fact, despite the economic
struggles facing many states and municipalities, investment grade municipal bonds have
experienced significantly lower default rates than even the highest rated corporate bonds.
One reason for the historically lower default rates has been due to the relatively more stable
revenue streams of municipalities, which have the ability to levy taxes to offset declining
revenues. Corporate revenues, on the other hand, can be more volatile as they have fewer ways to
increase revenues during difficult economic periods. Of course, given the current economic
environment, there can be no assurance that the default rate for municipal bonds will not rise or
that volatility will not increase.
The objectives of this unit investment trust are
to distribute income that is exempt from
federal and, in certain instances, state and local
income taxes and to preserve capital by
investing in a portfolio of investment grade taxexempt
municipal bonds. There is, however, no
assurance that the objectives will be achieved.
- Federally tax-exempt monthly income.
- Investment grade bonds.
- Interest on the bonds is exempt from the alternative minimum tax
- Estimated weighted average maturity of 25 to 30 years.
- 3.50% up-front maximum sales charge. In
addition to the sales charge, the trust is
subject to annual operating expenses and
Tax-exempt municipal bonds provide investors with 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. Taxable-equivalent yields represent the
amount of pre-tax return an investor would need to earn in a taxable investment in order to equal that
of a tax-exempt investment. The chart to the right illustrates the taxable equivalent yield at five
different federal income tax levels using a tax-exempt municipal bond with a 4.00% yield as an
example. As you can see, if an investor is in the 22% federal tax bracket, the 4.00% yield has a taxable
equivalent yield of 5.13%. In other words, an investor would need to get a 5.13% yield from a taxable
bond to equal the 4.00% payout of the tax-free municipal bond.
| 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 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.
An investment in this unmanaged unit investment trust should be made with an
understanding of the risks associated with an investment in municipal bonds.
Municipal bonds are subject to numerous risks including rising interest rates,
economic recession, deterioration of the municipal bond market, possible downgrades,
increased volatility, reduced liquidity and defaults of interest and/or principal.
One of the securities in the trust is covered by an insurance policy obtained by the issuer or
underwriters of the bond from an insurance company. There can be no assurance that any
insurer will be able to satisfy its commitments in the event claims are made in the future.
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