Senior Loan & Limited Duration Opportunities Closed-End, Series 62
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 have historically
reacted favorably during periods of rising interest rates, 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.
- The interest paid on a senior loan resets every 30-90 days based on prevailing short-term interest rates.
Therefore, should short-term rates move higher, investors in senior loans would receive a higher income
stream due to the floating-rate nature of the interest on the loans. Unlike securities with a fixed-rate
coupon, a senior loan’s floating-rate feature provides a natural hedge against rising interest rates.
- We believe there is potential for interest rates to move higher which makes limited duration closed-end
funds attractive because they provide investors with 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. Historically these funds have
tended to hold up better in rising interest rate environments than closed-end funds which invest in
longer duration bonds.
- 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 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
senior loan and limited duration 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.
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 (“high-yield”
securities or “junk” bonds). Investing in such 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 high-yield securities market, possible
downgrades and defaults of interest and/or principal. Highyield
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 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.
For a discussion of additional risks of investing in the trust see
the “Risk Factors” section of the prospectus.
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.
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.
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.