Senior Loan & Limited Duration Closed-End, Series 99
As interest rates remain low, these are challenging times to invest for income. In this environment, many investors are seeking alternative sources of income, including those which tend to be less rate-sensitive
than other segments of the bond market, such as senior loans and limited duration bonds.
This unit investment trust seeks high current income by investing in a diversified
portfolio of closed-end funds which invest in senior loan and limited duration fixed-income
securities; however, there is no assurance the objective will be met.
Consider These Factors
- 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.
- Limited duration closed-end funds are typically diversified across several different segments of the fixed
income market. This multi-sector income approach primarily helps to reduce volatility and also has the
potential to enhance your returns because different sectors within the debt market often react
differently to economic and market changes.
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.
Closed-end funds are structured to generally provide a more
stable income stream than other managed 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
| 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 senior loan and limited duration
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 of the closed-end funds employ the use of leverage, which increases the volatility of such funds.
All 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. All of the floating-rate
securities pay interest based on LIBOR. Due to the uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate, the potential effect of a transition away from LIBOR on a fund or the financial
instruments in which the fund invests cannot yet be determined.
All 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 security
market or investors’ perception thereof, possible downgrades and defaults of interest and/or principal.
Certain of the closed-end funds 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 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
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.
Certain 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.
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.
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.
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.
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