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Senior Loan Closed-End and ETF Portfolio, Series 20

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.

Senior loans typically generate a higher level of income as short-term interest rates rise, providing a potential offset to traditional fixedrate bond holdings which typically come under pressure in periods of rising rates. In addition, we believe senior loans currently offer a compelling value given that the default rate in the senior loan market is well below its long-term average, the U.S. is experiencing slow but positive economic growth, and there continues to be strong investor demand for the asset class.

Portfolio Objectives

This unit investment trust seeks current monthly income and capital appreciation by investing in a fixed portfolio of closed-end funds (CEFs) and exchange-traded funds (ETFs) that invest in senior loans; however, there is no assurance the objectives will be met.

What Are Senior Loans?


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Senior loans are floating-rate secured debt extended to noninvestment grade corporations which are backed by collateral, such as property, and are senior in the capital structure of a company. The capital structure is how a company finances its overall operations and growth by using different sources of funds such as long-term debt, short-term debt, common equity and preferred equity. Investors may find comfort in the fact that senior loans have a senior secured position in the capital structure, thereby having a claim not only on the cash flow of a given company, but also its assets. This added security has historically offered investors less volatility in relation to the junior parts of a given capital structure.

Why Senior Loans?

  • 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 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.


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.

Risk Considerations:
An investment in this unmanaged unit investment trust should be made with an understanding of the risks involved with owning CEFs and ETFs that invest in senior loan floating-rate securities.

CEFs and 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, CEFs 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 and CEFs frequently trade at a discount from their net asset value in the secondary market. Certain of the funds in which the portfolio invests may employ the use of leverage, which increases the volatility of such funds.

The yield on CEFs and ETFs 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 sec urities. 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. High-yield security prices tend to fluctuate more than higher rated securities and are affec ted by short-term credit developments to a greater degree.

All of the 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.

All of the 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 funds invest in securities issued by foreign issuers which are subject to certain risks including currency and interest rate fluctuations, political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting foreign 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.

For a discussion of additional risks of investing in the trust see the "Risk Factors" section of the prospectus.

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 per formance or perception of the issuers.

 
The information in the prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
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The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA and the Internal Revenue Code. First Trust has no knowledge of and has not been provided any information regarding any investor. Financial advisors must determine whether particular investments are appropriate for their clients. First Trust believes the financial advisor is a fiduciary, is capable of evaluating investment risks independently and is responsible for exercising independent judgment with respect to its retirement plan clients.
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