First Trust Senior Floating Rate 2022 Target Term Fund (NYSE:FIV) 1 November 10, 2016 | 11:00 am Eastern Strictly Private and Confidential – For Underwriter’s Due Diligence Purposes Only Not for Use with Financial Advisors or the General Public Not for Redistribution; For the Use of the Intended Recipient Only Co-Manager Call Details Participant Dial-In Domestic: (844) 213-3048 Conference ID: 14481495 Replay Call Details Domestic: (855) 859-2056 Conference ID: 14481495 1. It is expected that the Fund’s common shares will be approved for listing on the New York Stock Exchange, subject to notice of issuance.
Transcript
First Trust Senior Floating Rate 2022
Target Term Fund (NYSE:FIV)1
November 10, 2016 | 11:00 am Eastern
Strictly Private and Confidential – For Underwriter’s Due Diligence Purposes Only
Not for Use with Financial Advisors or the General Public
Not for Redistribution; For the Use of the Intended Recipient Only
Co-Manager Call Details
Participant Dial-In
Domestic: (844) 213-3048
Conference ID: 14481495
Replay Call Details
Domestic: (855) 859-2056
Conference ID: 14481495
1. It is expected that the Fund’s common shares will be approved for listing on the New York Stock Exchange, subject to notice of issuance.
CONFIDENTIAL: FOR UNDERWRITER DISCUSSION PURPOSES ONLY
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2
Source and Footnotes Guideline
Notice to Recipient
We have prepared this document solely for informational purposes. You should not definitively rely upon it or use it to form the definitive basis for any decision,
contract, commitment or action whatsoever, with respect to any proposed transaction or otherwise. You and your directors, off icers, employees, agents and affiliates
must hold this document and any oral information provided in connection with this document in strict confidence and may not communicate, reproduce, distribute or
disclose it to any other person, or refer to it publicly, in whole or in part at any time except with our prior written consent. If you are not the intended recipient of this
document, please delete and destroy all copies immediately.
We have prepared this document and the analyses contained in it based, in part, on certain assumptions and information obtained by us from the Fund, its
investment adviser and their officers, employees, agents, affiliates and/or from other sources. Our use of such assumptions and information does not imply that we
have independently verified or necessarily agree with any of such assumptions or information, and we have assumed and relied upon the accuracy and
completeness of such assumptions and information for purposes of this document. Neither we nor any of our affiliates, or our or their respective directors, officers,
employees or agents, make any representation or warranty, express or implied, in relation to the accuracy or completeness of the information contained in this
document or any oral information provided in connection herewith, or any data it generates and accept no responsibility, obligation or liability (whether direct or
indirect, in contract, tort or otherwise) in relation to any of such information. We and our affiliates and our and their respective directors, officers, employees and
agents expressly disclaim any and all liability which may be based on this document and any errors therein or omissions therefrom. Neither we nor any of our
affiliates, or our or their respective directors, officers, employees or agents, make any representation or warranty, express or implied, that any transaction has been
or may be effected on the terms or in the manner stated in this document, or as to the achievement or reasonableness of future projections, targets, estimates,
prospects or returns, if any. Any views or terms contained herein are preliminary only, and are based on financial, economic, market and other conditions prevailing
as of the date of this document and are therefore subject to change. We undertake no obligation or responsibility to update any of the information contained in this
document. Past performance does not guarantee or predict future performance.
This document and the information contained herein do not constitute an offer to sell or the solicitation of an offer to buy any security, commodity or instrument or
related derivative, nor do they constitute an offer or commitment to lend, syndicate or arrange a financing, underwrite or purchase or act as an agent or advisor or in
any other capacity with respect to any transaction, or commit capital, or to participate in any trading strategies, and do not constitute legal, regulatory, accounting or
tax advice to the recipient. We recommend that the recipient seek independent third party legal, regulatory, accounting and tax advice regarding the contents of this
document. This document does not constitute and should not be considered as any form of financial opinion or recommendation by us or any of our affiliates. This
document is not a research report and was not prepared by the research department of Morgan Stanley or any of its affiliates.
CONFIDENTIAL: FOR UNDERWRITER DISCUSSION PURPOSES ONLY
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3
Source and Footnotes Guideline
Agenda
Summary of Terms
Offering Highlights
Market Opportunity
Portfolio Overview
First Trust Platform
Execution Reference Material
Supplementary Information
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Source and Footnotes Guideline
Bill Housey, CFA
Senior Portfolio Manager
Today’s Speakers
Years of Experience: 18
• Primarily responsible for overseeing the development of
the various product lines at First Trust
• Previously Business Manager and Director of
Stewardship at Wheaton Academy
Years of Experience: 20
• Senior Portfolio Manager for the Leveraged Finance
Investment Team
• Previously Executive Director and Co-Portfolio Manager
at Morgan Stanley Investment Management and its
wholly-owned subsidiary, Van Kampen Funds
Ken Hass
Senior Vice President and Co-Head of
New Product Development
Summary of Terms
CONFIDENTIAL: FOR UNDERWRITER DISCUSSION PURPOSES ONLY
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6
Source and Footnotes Guideline
Fund Name First Trust Senior Floating Rate 2022 Target Term Fund (NYSE: FIV)
Fund Objectives The Fund's investment objectives are to seek a high level of current income and return $9.85 per share (the original net asset
value (“NAV”) per common share before deducting offering costs of $0.02 per share) to the holders of common shares on or
about February 1, 2022 (the “Termination Date”)
Fund Investment Strategy Under normal market conditions, the Fund will seek to achieve its investment objectives by investing at least 80% of its Managed
Assets in Senior Loans. Senior Loans are made to U.S. and non-U.S. corporations, partnerships and other business entities
which operate in various industries and geographical regions (collectively, “Borrowers”).The portfolio will be selected using a
combination of fundamental credit selection process and a relative value analysis
Investment Advisor First Trust Advisors L.P. (“First Trust”), a registered investment advisor, will act as the investment advisor to the fund
Initial Offering Price and NAV Public Offering Price $10.00
Sales Load ($0.15)
Original NAV (before offering costs) $9.85
Estimated Offering Costs ($0.02)
Proceeds (after expenses to the Fund) $9.83
Leverage Initial anticipated leverage of 30%, expected to be in the form of a revolving credit facility with a bank or other financial institution
Estimated Net Yield 5.00% – 5.25% distribution yield
Distributions The Fund intends to make dividend distributions on a monthly basis. In addition, the Fund intends to distribute any net realized
long-term capital gains to shareholders on an annual basis
Limited Term The fund is a 5-year term trust that seeks to deliver original NAV upon liquidation. The Fund will seek to replicate the performance
of a held to maturity portfolio of Senior Loans and deliver income through the termination of the Fund by migrating to investments
with higher credit quality
Timing December 2016 (subject to a cap of $600 million in Common Proceeds)
Term Sheet
CONFIDENTIAL: FOR UNDERWRITER DISCUSSION PURPOSES ONLY
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7
Source and Footnotes Guideline
Sales Load and Other
Syndicate Compensation
1.75% (1.50% paid by Shareholders)
Selling Concession 1.25%
Management &
Underwriting
0.50% (0.25% of the 0.50% paid by First Trust, outside the deal)
Estimated Fund
Expenses (on Managed
Assets)(1)
Management Fee
Other Expenses
Total Annual Expenses
0.85%
0.15%
1.00%
Term Sheet (Cont’d)
1. Expenses do not include cost of leverage
Offering Highlights
CONFIDENTIAL: FOR UNDERWRITER DISCUSSION PURPOSES ONLY
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Source and Footnotes Guideline
• Favorable entry point to the senior loan market vis-à-vis spreads vs. high yield bonds
• Relatively low default rates and volatility in the senior secured loan space
• Senior Loans tend to perform better in rising rate environments
• Investment approach complementary to successful target term product
Why Invest in FIV?
• Bottom-up, fundamentally-driven credit process within a risk-controlled portfolio construction framework
• Successful track record across multiple fund structures
• Limit potential credit losses through continuous credit monitoring and active selection
• Attractive potential distribution yield range in a low rate environment
• Target a return of original NAV upon liquidation
Fir
st
Tru
st
Pla
tfo
rm
Favo
rab
le
Ma
rke
t
Att
rac
tive
Inve
stm
en
t
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Source and Footnotes Guideline
88%
12%
Target Portfolio Characteristics
Asset Allocation
Strategy
• Bottom-up approach that relies on fundamental credit
analysis and portfolio construction
• Asset selection involves an evaluation of macro and
credit-specific factors
• Focus on relative value within risk management
framework
Tactics
• The Fund will invest at least 80% of its Managed
Assets in Senior Loans
• Initial anticipated leverage of 30% at time of
implementation
• Initially, the Fund will have 75 – 100 holdings
• Estimated Portfolio Duration: <1 year
Portfolio Overview
As of 10/3/2016 The Fund will be actively managed and actual portfolio duration and allocations may differ from those shown above.
High Yield Bonds
Senior Loans
Duration Breakdown
88%
2 – 4 Years
4%
4 – 6 Years
4% >6 Years
4%
0 – 2 Years
Market Opportunity
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12
Source and Footnotes Guideline
The Street Is Bullish on the Senior Loan Asset Class
UBS – House View Playbook October 2016
We believe U.S. senior loans are an attractive alternative to more traditional fixed income segments. Loans provide
exposure to the most senior part of a company's capital structure and are often secured by the company's assets,
leading to higher recovery rates than for bonds.
At a Glance
In this environment, credit continues to offer better return prospects than government bonds, and we maintain an
overweight in U.S. investment grade bonds, offering a yield of 2.3%. Fixed income investors, who can tolerate some
illiquidity, should find the best value in a well-diversified portfolio of credit assets, including senior loans.
Bank of America Merrill Lynch – RIC Report 10/11/16 Harvesting Inflation
The SEC-imposed regulations on money markets take effect on October 14. Most individual investors own government
funds and will not be affected. But the changes applied to prime funds and municipal funds may open up opportunities
for investors willing to sacrifice some liquidity for better yields. We suggest CDs, VRDOs, prime and muni money funds
and senior loans.
The coming money market reforms
Senior loans are by no means a close substitute for money market funds, since they involve considerably greater credit
risk and less liquidity. But investors who are willing to accept those risks can take advantage of the rise in LIBOR to buy
funds that purchase senior loans.
Morgan Stanley – GIC Report October 2016
A Strong Year for Bonds, But What If Rates Go Up?
Leveraged loans – also known as bank loans, floating-rate loans or senior loans – offer the best breakeven ratios.
Because these securities tend to have floating rates, and therefore extremely low durations, they benefit from rising
short-term rates.
With global central banks remaining accommodative, we believe that any rise in Treasury yields should be fairly
contained even if the Fed decides to hike U.S. rates once or twice during the next 12 months. If so, these conditions
will likely still favor high yield bonds and leveraged loans. At this point, consider leverage-loan funds to improve the
quality and reduce the interest rate risk of a high yield portfolio.
CONFIDENTIAL: FOR UNDERWRITER DISCUSSION PURPOSES ONLY
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13
Source and Footnotes Guideline
Senior Loans Have a More Favorable Risk-Adjusted
Return Profile… Yield to Maturity
…And Yields Appear Relatively Attractive in Historical
Context
Senior Loans Attractive Relative to Other Fixed Income Assets
*Municipal Bonds are represented by the Bloomberg Barclays Municipal Bond Index and the YTM represents the Tax-Equivalent Yield (TEY) for the highest tax bracket of 39.6% The charts are for illustrative purposes only and not indicative of any fund. Investors cannot invest directly in an index. Past performance is no guarantee of future results.
0
2
4
6
8
0
2
4
6
8
Hig
h-Y
ield
Bond
s
Pre
ferr
eds
Senio
rLo
ans
Mu
nic
ipal
Bond
s*
Inve
stm
ent
Gra
de
Co
rpora
tes
Co
re B
onds
Govern
ment
Bond
s TIP
S
YTM Duration
0% 100%
0% 100%
0% 100%
0% 100%
0% 100%
0% 100%
0% 100%
0% 100%
0% 100%
0% 100%
0% 100%
0% 100%
41%
36%
36%
29%
14%
12%
11%
8%
7%
7%
3%
2%
US Loans B
Europe IG
US Loans
US HY CCC
US Loans BB
US Mortgage
US HY B
US IG
US HY
10Y UST
US HY BB
Europe HY
Sources: Barclays, S&P LCD, and Bloombergas of 9/30/2016
Sources:Morgan Stanley Research, Citigroup Index LLC, S&P LCD, Bloomberg, iBoxx as of 10/14/2016 Note: Shows percentile of current data point compared to monthly data since 2002
Duration Yield Ranges – Percentile Rank (Current vs. History)
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Source and Footnotes Guideline
0
1
2
3
4
5
6
7
(600)
(400)
(200)
0
200
400
600
800
2002 2004 2006 2008 2010 2012 2014 2016
BB HY - BB Loans Yld 10 Yr UST - RS 3M LIBOR - RS
A Flatter Treasury Curve Is Making Loan
Yields Look Better in Relative Terms(1)
BB Loan Yields Look Relatively More
Attractive vs. BB HY(1)
Favorable Entry Point for Senior Loan Yields Relative to HY Bonds
1. Bloomberg and Standard & Poor’s Leveraged Loan Commentary and Data October 2016. High-yield bonds are represented by the BofA Merrill US High-Yield Constrained Index (HUC0). Senior loans are represented by the S&P / LSTA U.S. Leveraged Loan Index (LLI). The average spread over LIBOR is discounted spread to three-year life. This chart is for illustrative purposes only and not indicative of any fund. Past performance is no guarantee of future results.
0
50
100
150
200
250
300
350
Jan-1
4
Ma
r-1
4
Ma
y-1
4
Jul-1
4
Sep-1
4
No
v-1
4
Jan-1
5
Ma
r-1
5
Ma
y-1
5
Jul-1
5
Sep-1
5
No
v-1
5
Jan-1
6
Ma
r-1
6
Ma
y-1
6
Jul-1
6
Sep-1
6
Sources: Morgan Stanley Research, Bloomberg, Citigroup Index LLC, S&P LCD as of 10/3/2016
Yield Differential (BB HY Less BB Loans) vs. 10Y UST and 3M LIBOR
(bp) (%)
Yield Differential (BB HY vs.BB Loans)
(bp)
Sources: Morgan Stanley Research, Bloomberg, Citigroup Index LLC, S&P LCD as of 10/3/2016
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15
Source and Footnotes Guideline
Senior Loans Have Lower Historical Risk Than HY Bonds
The above charts are for illustrative purposes only and not indicative of any fund. Past performance is no guarantee of future results.
Sources: Morgan Stanley Research, Bloomberg, Citigroup Index LLC, S&P LCD Note: Volatility is calculated as the annualized standard deviation of monthly BB loan returns over the past two years. As of 10/3/2016.
Sources: Standard & Poor’s LCD and JP Morgan high-yield research. High-yield bonds are represented by J.P. Morgan’s high-yield bond universe. Senior loans are represented by the S&P/LSTA U.S. Leveraged Loan Index (LLI) and based on the last twelve months (LTM). As of 9/30/2016
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
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Source and Footnotes Guideline
Senior Loans Perform Well When Rates Rise
Source: Credit Suisse Asset Management. Credit Suisse Asset Management defines periods of rising rates as those in which the 10-Year US Treasury yield rose on a monthly basis for a period of six months or more. Indices used as proxies for asset classes are: US Equities (S&P 500 Index); Inflation-Linked (Barclays Capital US TIPS Index); Senior Loans (Credit Suisse Leveraged Loan Index); High Yield (Barclays US Corporate High Yield Index); US Core Bonds (Barclays US Aggregate Bond Index); and Emerging Markets Debt (Barclays Emerging Markets Sovereign Bond Index). The historical performance of the indices shown is for illustrative purposes only and it is not intended to imply or guarantee the future performance of any asset class or any fund. Past performance is no guarantee of future results.
Jan 94 – Nov 94 Jan 96 – Aug 96 Sep 98 – Jan 00 Jun 05 – Jun 06 Dec 08 – Jun 09
Senior Loans EM Debt U.S. Equities U.S. Equities High Yield
U.S. Equities Senior Loans EM Debt Senior Loans Senior Loans
High Yield U.S. Equities Senior Loans EM Debt EM Debt
U.S. Core Bonds High Yield High Yield High Yield Inflation-Linked
EM Debt U.S. Core Bonds Inflation-Linked U.S. Core Bonds U.S. Equities
Inflation-Linked Inflation-Linked U.S. Core Bonds Inflation-Linked U.S. Core Bonds
Higher
Returns
Lower
Returns
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Source and Footnotes Guideline
Recent Target Term CEFs Have Traded Well… …But Most Assets Dedicated to Bonds
Complementary Offering In Desirable Target Term Marketplace
1. 2015-2016 Vintage Target Term CEFs include JHB, EHT, JHY, JHD, and JHA 2. Morningstar US All Fixed Income CEF Index as of 11/3/2016 For illustrative purposes only and not indicative of any fund. Past performance is no guarantee of future results.
Sources: Morningstar and Bloomberg as of 11/3/2016
% Average Premium (Discount) to NAV % Total Assets
Sources: Company Filings, First Trust and Morgan Stanley Internal
Senior Loans High Yield Bonds
(1) (1)
(2)
>80% >80%
<20% <20%
FIV 2015-2016 Vintage TargetTerm CEFs
0%
20%
40%
60%
80%
100%
2.6
(5.6)
2015-2016 Vintage TargetTerm CEFs
Income CEFs
(8.00)
(6.00)
(4.00)
(2.00)
0.00
2.00
4.00
6.00
Portfolio Overview
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19
Source and Footnotes Guideline
Key Structural Assumptions
Estimated Distribution Yield Summary
Common Net Assets ($) $492
Leverage Proceeds ($) $211
Managed Assets ($) $702
Leverage Factor 1.43x
Underwriting Commission 1.50%
Offering Expenses 0.20%
Common Proceeds 98.3%
Cost of Leverage 1.50%
MANAGED ASSETS COMMON NET ASSETS
Portfolio Yield 5.11% 7.30%
Expenses:
Management Fee 0.85% 1.21%
Other Expenses 0.15% 0.21%
Total Expenses 1.00% 1.43%
Operating Yield 4.11% 5.87%
Cost of Leverage 0.45% 0.64%
Yield on Common – NAV 5.23%
Yield on Common – IPO Price 5.14%
Estimated Yield Range on IPO Price 5.00% – 5.25%
Source: First Trust as of October 2016 The above information is based on assumptions and there can be no assurance that such assumptions will be achieved.
For Due Diligence use only – Not for Further Distribution
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Source and Footnotes Guideline
Top Ten Holdings by Issuer Industry Breakdown (S&P GICS)
Model Portfolio and Overview
ISSUER FUND WEIGHT
Albertson’s LLC 3.36%
Numericable-SFR SA 3.36%
BJ’S Wholesale Club Inc 3.34%
Valeant Pharmaceuticals 3.34%
Ziggo Secured Finance BV 3.32%
Caesars Growth Propertie 3.31%
Texas Competitive Electric 3.30%
Community Health Systems 3.27%
Portillo’s Holdings LLC 3.07%
Asurion LLC 2.94%
Grand Total 32.61%
INDUSTRY FUND WEIGHT
Healthcare – Services 12.81%
Media 11.33%
Retail 11.13%
Software 7.99%
Food 7.37%
Lodging 5.44%
Pharmaceuticals 5.34%
Healthcare – Products 5.13%
Entertainment 4.28%
Insurance 4.15%
Commercial Services 3.76%
Electric 3.70%
Diversified Financial Services 2.14%
Packaging & Containers 2.00%
Advertising 1.95%
Biotechnology 1.79%
Beverages 1.35%
Computers 1.07%
Telecommunications 0.96%
Machinery – Diversified 0.78%
Semiconductors 0.67%
Household Products / Wares 0.67%
Real Estate 0.67%
Leisure Time 0.67%
REITS 0.40%
Building Materials 0.40%
Oil & Gas 0.28%
Chemicals 0.27%
Environmental Control 0.27%
Aerospace / Defense 0.27%
Agriculture 0.27%
Home Builders 0.14%
Pipelines 0.13%
Private Equity 0.13%
Auto Parts & Equipment 0.13%
Mining 0.13%
Grand Total 100.00%
Credit Quality Breakdown
RATING
FUND
WEIGHT INDEX WEIGHT % OVERWEIGHT / UNDERWEIGHT
BBB 0.00% 3.48%
BBB- 2.03% 6.51%
BB+ 1.21% 7.41%
BB 8.87% 13.17%
BB- 22.47% 18.01%
B+ 24.00% 18.42%
B 19.70% 22.18%
B- 10.28% 4.35%
CCC+ 6.76% 2.86%
CCC 1.14% 1.20%
CCC- 0.00% 0.69%
D 0.00% 0.05%
NR 3.57% 1.73%
(3.48%)
(4.48%)
(6.20%)
(4.30%)
4.46%
5.58%
(2.48%)
5.93%
3.90%
(0.06%)
(0.69%)
(0.05%)
1.84% Source: First Trust as of October 2016 The above information is based on assumptions and there can be no assurance that such assumptions will be achieved.
CONFIDENTIAL: FOR UNDERWRITER DISCUSSION PURPOSES ONLY
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21
Source and Footnotes Guideline
Only 7 of 178 Rolling 5-Year Monthly Periods
Of The Index Has Led to Negative Returns(1)
Average Annual Return of S&P Leveraged Loan Index
Five-Year Hold Period Historically Has Smoothed Out Returns
Source: S&P Global Market Intelligence data 1/31/1997-10/31/2011 1. The only 7 months of negative 5 year rolling total returns were November 2003 through May 2004. The average 5 year rolling total return based on monthly returns for the time period shown is 5.04%. 2. 5-year rolling returns are calculated by taking the average annual return over the following 5-year period on a monthly basis
(4%)
(2%)
0%
2%
4%
6%
8%
10%
12%
14%
16%
Jan-9
7Jul-9
7Jan-9
8Jul-9
8Jan-9
9Jul-9
9Jan-0
0Jul-0
0Jan-0
1Jul-0
1Jan-0
2Jul-0
2Jan-0
3Jul-0
3Jan-0
4Jul-0
4Jan-0
5Jul-0
5Jan-0
6Jul-0
6Jan-0
7Jul-0
7Jan-0
8Jul-0
8Jan-0
9Jul-0
9Jan-1
0Jul-1
0Jan-1
1Jul-1
1
Distribution of Rolling 5-Year Returns(2)
(%)
96%
Negative Return Years
4%
Positive Return Years
Since Index inception, the Senior Loan asset
class has only had two negative return years
(2008 & 2015)
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22
Source and Footnotes Guideline
Effective Yield vs. Maturity
Importance of Active Management
Source: S&P / LSTA as of 9/30/2016 The chart is for illustrative purposes only. Past performance is no guarantee of future results.
Our Goal
• Replicate the performance of a held to maturity
portfolio of Senior Loans
How We Will Accomplish This
• As Senior Loans refinance the Fund will have the
ability to purchase securities with maturities extending
beyond the termination of the Trust:
Position the portfolio defensively in higher quality
securities
Maintain an attractive level of income rather than
simply purchasing bonds with maturities that
coincide with the term of the trust
0%
2%
4%
6%
8%
10%
0%
6%
12%
18%
24%
30%
2017 2018 2019 2020 2021 2022 2023 2024
Full Market Value as a % (LHS) YTM (RHS)
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23
Source and Footnotes Guideline
Hypothetical Model Portfolio Over Time
BB rated Senior Loans have been nearly 30% and 60% less volatile than B and CCC rated
Senior Loans, respectively, over the past 10 years(2)
-
1.0
2.0
3.0
4.0
5.0
6.0
0%
20%
40%
60%
80%
100%
B Rated and Below (%) BB Rated and Above (%)
Cash/Bills/Money Market Securities (%) Weighted Average Maturity (Years)
Illustrative Asset Allocation Over Term of Fund(1)
% of the Portfolio Weighted Average Maturity (Years)
1. The chart represents a hypothetical example of the model portfolio and is for illustrative purposes only. Assumptions: senior loans within the portfolio have a weighted average maturity of 4.75 years and high-yield bonds have a weighted average maturity of 6.5 years. The portfolio would transition it’s asset allocation towards higher quality senior loans and cash (or similar securities) over the life of the fund.
2. The standard deviation of the change in the monthly bid price for BB, B and CCC rated senior loans are 7.01, 9.95 and 17.67, respectively (December 31, 2005 – December 31, 2015).
Leverage declines as portfolio liquidated
First Trust Platform
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25
Source and Footnotes Guideline
Assets Under Management / Supervision (1)
$102.305 Billion (as of 9/30/16)
First Trust Advisors L.P./First Trust Portfolios L.P.
• Established in 1991; privately owned
• Over 700 employees
• Offices in Wheaton, IL and Austin, TX
Broad Distribution Capabilities
• Over 250 First Trust wholesalers
• Institutional exposure through affiliated companies
• Experienced senior sales and national account managers
and staff
Innovative Financial Solutions
• Unit investment trusts (UITs)
• Variable annuities (VAs)
• Exchange-traded funds (ETFs)
• Closed-end funds (CEFs)
• Mutual funds
• Separately managed accounts (SMAs)
• Collective investment funds for 401(k) accounts
Affiliated Companies
• First Trust Global Portfolios Ltd.
• FT Portfolios Canada Co.
• BondWave LLC
• Stonebridge Advisors LLC
• Energy Income Partners LLC
First Trust Overview
1. Includes $53.824 billion for which First Trust Advisors L.P. serves as supervisor for unit investment trusts sponsored by First Trust Portfolios L.P. ETF figure includes Domestic, European and Canadian ETFs.
2. Includes SMAs, Mutual Funds, Variable Annuities, Canadian Funds, Collective Trust Funds, and UCITs
UITs $52.824Bn ETFs $40.339Bn
CEFs
$7.509Bn
Other (2)
$1.633Bn
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26
Source and Footnotes Guideline
First Trust Sales Support
WEST
01 Ryan Edwards
08 Rick Johnnson
09 Brock Ullrich
11 Daren Urvis
12 Daniel Afetto
13 Anthony Borsellin
14 Peter Oliphant
15 Jon DiGiovanni
38 William DelCotto
44 Thomas Hacker
53 David Pagano
54 Dan Murphy
58 Martin Mc Fadden
62 Daniel Affetto
SOUTH
03 Jeff Baker
04 Alex Husnik
21 Steve Ritter
22 Michael Leyden
23 Matt Graham
24 Mike Hannold
25 John Molinari
27 Aaron Feldman
35 Kevin Mayer
36 Paul Peterson
37 Brian Penney
39 Matt Stowell
55 Nathan Memmott
EAST
02 Brian Taylor
05 Mike Shannon
16 James Molinari
17 Brett Egner
18 Michael Cain
19 Luca Lavin
20 Peter Christou
26 Matthew Wesley
31 Wyatt Winslow
40 Joshua Gongaware
43 Michael Naples
49 Jeffrey Ambrose
53 Edward McFadden
CENTRAL
06 Joh Donley
07 James Rowlette
10 Stephen Paul
30 Greg Wearsch
32 Tom Kotcher
33 Dan Lavin
34 Keith Litvasky
42 William Braasch
46 Andrew Barnum
47 Ben Ferwerda
52 Daniel Blonq
57 Mac Deegan
62 Kirk McKenney
UIT Inside Wholesalers 800-621-9533
UIT Outside Wholesalers 800-621-1675
SMA Inside Wholesalers 800-848-9727
SMA Outside Wholesalers 800-222-6822
Structured Prod Specialists 877-387-8444
410 (K) 877-937-4015
UIT, Closed End Fund, Variable Annuity, Structured Product, 401(k) Wholesaler Territories (as of 9/30/2016)
38
12
36
11
05
27
55
07
07
33
33 11
11
01
11
11
53
09
14
09
38
57
10
42
47 18
63
30
46
07
40 24
37
04
55
23
06
07
33
52
37 23
16
DE
RI
38
01
01
11
39
03
04
25
22
35
46
06
61
58 62
26
43 62 02
49
54
44 13
08 15
52
38
32
17
20
36
21
31 57
07
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27
Source and Footnotes Guideline
First Trust Sales Support
WEST
Andew Agosta 08
Barton Housman 14
Daniel Affeto 12
Gregory Puja 01
Jared Marcus 09
Jason Peterson 11
John Lynch 58 61
John Montefalco 38
Mark Miller 54
Matt Whall 15
Michael Bean 53
Prob Biddinger 13
Tom Pearse 44
SOUTH
Craig Koproski 36
Darrin Hughes 55
Joseph Foley 39
Justin Glembin 37
Michael Darr 21 35
Michael Fink 24
Mike Norris 25
Morgan Palmer 03
Reed Nitto 04
Scott Dawson 27
Sean Moriarity 22
Stacey Espinoza 23
EAST
Ash Enshiwat 20
Christopher Sajdak 63
Eric H. Daley 05
Greg Keefer 40
Harry Fryckberg 02
John O’Sullivan 17 43
Kyler Baker 16
Marie McClughen 31
Matthew Strazza 49
Mike Austin 18
Sean Kelly 26
Steven Beatty 19
CENTRAL
Chris Fossum 10
Cory Bringle 07
Jordan Dunsmore 42
Joshua Crosley 30
Mark Dekome 47
Nate Carlson 57
Rich Jacquemart II 33
Ryan Thomas 46
Tim Trudo 06
Todd Marshall 34
Tom Kickerbocker 52
Zach Ullrich 62
UIT Inside Wholesalers 800-621-9533
UIT Outside Wholesalers 800-621-1675
SMA Inside Wholesalers 800-848-9727
SMA Outside Wholesalers 800-222-6822
Structured Prod Specialists 877-387-8444
410 (K) 877-937-4015
ETF, SMA, Closed End Fund, Mutual Fund Wholesaler Territories (as of 9/30/2016)
38
15
36
11
05
27
55
07
07
33
33 11
11
01
11
11
53
09
14
09
38
57
10
42
47 18
63
63
30
46
07
40 24
37
04
55
23
06
07
33
47
37 23
16
DE
16
RI
38
01
01
11
39
03
04
25
22
35
46
06
61
58 62
26
43 62
19
02
49
54
44 13
08 15
52
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28
Source and Footnotes Guideline
First Trust Advisors L.P. Leveraged Finance Investment Team
FIRST TRUST LEVERAGED FINANCE
INVESTMENT TEAM STRENGTHS
• Experienced management team
• Investment committee approach to
decision making/risk management
• Market access
• Consistent and disciplined investment
process focusing on:
– High level of portfolio diversification
across industries and issuers
– Relative value
– Asset liquidity
EXPERIENCED CREDIT TEAM
• Senior credit analysts with experience
through several credit cycles
• Bankruptcy and workout experience
MARKET ACCESS
• Long standing relationships with agent
banks were formed at one of the largest
leveraged finance asset managers
• Asset base allows team to be nimble in
right-sizing positions through time
INSTITUTIONAL APPROACH TO
PORTFOLIO CONSTRUCTION AND
RISK MANAGEMENT
• Portfolio construction emphasizes relative
value across investment universe
• Risk management focuses both on
absolute credit risk and relative
market risk
• A relatively conservative approach
emphasizing a quality bias and extensive
industry and issuer diversification levels
1. First Trust Short Duration High Income Fund is included under retail bank loan assets, although the fund holds some high yield assets as well. 2. UITs are not managed, but are supervised, by the First Trust Leveraged Finance Team.
First Trust Advisors Leveraged Finance
Assets Under Management or
Supervision: $2.5Bn (9/30/2016)
$1,121
$1,362
High-Yield
Bonds
Bank
Loans (1)
$1,702
$551
$195
ETFs
UITs (2), $35
Closed-End
Funds
Open-End
Funds
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29
Source and Footnotes Guideline
First Trust Advisors Leveraged Finance Timeline and Team AUM
FCT - First Trust Senior Floating Rate Income Fund II; FDHIX - First Trust Short Duration High Income Fund (I share); HYLS – First Trust Tactical High Yield ETF; FTSL – First Trust Senior Loan Fund; FSL.CN - First Trust Senior Loan ETF (CAD-Hedged); FHY.CN – First Trust Short Duration High Yield Bond ETF (CAD-Hedged); FTHIAUS – First Trust Tactical High Yield UCITS Fund (Dublin)..
$2.5Bn AUM
9/30/2016
1 2 3 4 5 6 7 8
Jun. 2010
Team
Formation
Oct. 2010
FCT Mgmt.
Change
Nov. 2012
FDHIX
Inception
Feb. 2013
HYLS
Inception
May 2013
FTSL
Inception
Aug. 2013
FSL.CN
Inception
Jun. 2014
FSD.CN
Inception
Dec. 2015
FTH UCITS
Inception
$0
$200,000,000
$400,000,000
$600,000,000
$800,000,000
$1,000,000,000
$1,200,000,000
$1,400,000,000
$1,600,000,000
$1,800,000,000
$2,000,000,000
$2,200,000,000
$2,400,000,000
$2,600,000,000
1
2 3 4 5
6
7
8
FCT Other FDHIX HYLS FTSL FSL.CN FSD.CN FTH UCITS
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Source and Footnotes Guideline
Funds Managed by First Trust Leveraged Finance Team (4)
1. Measures a bond's sensitivity to interest rate changes that reflects the change in a bond's price given a change in yield. The weighted average effective duration for HYLS is for both the long & short positions of the fund.
2. 30-Day SEC yield is calculated by dividing the net investment income per share earned during the most recent 30-day period by the maximum offering price per share on the last day of the period and includes the effects of fee waivers and expense reimbursements, if applicable. Past performance is no guarantee of future results. The unsubsidized 30-day SEC yield is calculated the same as the 30-day SEC yield, however it excludes contractual fee waivers and expense reimbursements.
3. HYLS was rated 4 stars/659 funds (3 years) in the High-Yield Bond category. FTSL was rated 4 stars/232 funds (3 years) in the Bank Loan category. The Morningstar Rating for FDHIX is for Class I shares only. FDHIX was rated 5 stars/232 funds (3 years) in the Bank Loan category.
4. Excludes Closed-End Funds, Canadian Funds, UCITS Funds and funds where the First Trust Advisors Leveraged Finance Investment Team manages only a portion of the portfolio. All information is as of 9/30/2016. Please refer to a fund’s current prospectus for a complete description of fees and expenses.
First Trust Tactical High Yield ETF
• Morningstar Rating (3): This fund was rated
4 stars among 659 funds in the High-Yield
Bond category
First Trust Senior Loan Fund
• Morningstar Rating (3): This fund was rated
4 stars among 232 funds in the Bank Loan
category
First Trust Short Duration High Income Fund
• Morningstar Rating (3): This fund was rated
5 stars among 232 funds in the Bank Loan
category
Ticker: HYLS
Intraday NAV Ticker: HYLSIV
Exchange: Nasdaq
Net Weighted Avg. Effective Duration
(Includes Short) (1):
2.36 years
30-Day SEC Yield (2): 4.61%
Ticker: FTSL
Intraday NAV Ticker: FTSLIV
Exchange: Nasdaq
Weighted Avg.
Effective Duration (1):
0.52 years
30-Day SEC Yield (2): 3.72%
FTSL Up / Down Capture
(6/1/2013 – 9/30/2016) (%)
HYLS Up / Down Capture
(3/1/2013 – 9/30/2016) (%)
Source: Morningstar as of 9/30/2016
81
(65)
(100)
0
100
Up Capture Down Capture
Index HYLS
87
(58)
(100)
0
100
Up Capture Down Capture
Index FTSL
EXCHANGE-TRADED FUNDS MUTUAL FUND
Ticker
30-Day
SEC
Yield
Unsubsidized
30-Day SEC
Yield2
FDHAX (Class A)
FDHCX (Class C)
FDHIX (Class I)
3.92%
3.32%
4.31%
3.97%
3.36%
4.36% Weighted Avg.
Effective Duration(1) 1.60 years
FDHIX Up/Down Capture
(12/1/2012 – 9/30/2016) (%)
80
(57)
(100)
0
100
Up Capture Down Capture
Index FTSL
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31
Source and Footnotes Guideline
First Trust Senior Loan Strategy Composite Returns(1)
As of 9/30/2016
9.09%
6.99%
5.62%
7.41%
8.21%
5.82%
4.38%
6.05%
7.72%
5.46%
3.39%
4.46%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
YTD 2016 1 Year 3 Year Oct 2010 – Present
Gross Composite Returns Net Composite Returns S&P LSTA Leveraged Loan Index Returns
First Trust Senior Loan Strategy Composite
• The First Trust Leveraged Finance
Investment Team began managing
the Senior Loan Strategy in
October 2010.
• The performance shown at the
right illustrates the track record of
the composite over select time
periods since the Leveraged
Finance Team took management
responsibilities for the composite
Source: First Trust Advisors LP.
1. Returns over 1 year are annualized 2. Ended 9/30/2016 Prior to October 2010, the day to day management was provided by an unaffiliated sub-advisor pursuant to an investment sub-advisory agreement with First Trust Advisors L.P. Past performance is no guarantee of future results.
(2)
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Source and Footnotes Guideline
First Trust Leveraged Finance Organizational Structure
First Trust Advisors – Leveraged Finance Investment Team
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Source and Footnotes Guideline
Net Asset Value (NAV) Discount / Premium
Indicative Yield (2)
FCT Performance
Source: Bloomberg as of 9/30/2016 1. The data shown represents performance before and after the management change for FCT. The Leveraged Finance Team has been managing FCT since October of 2010.
There are 25 Closed-End Funds in FCT’s Morningstar Peer Group excluding “Unlisted Funds”, however, only 16 of them, including FCT, are represented above because those are the only funds that have been in existence since 2008. Past performance is no guarantee of future results.
2. Indicative yield is the most recently announced gross dividend, annualized based on the dividend frequency, then divided by the respective year-end market price.
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Source and Footnotes Guideline
First Trust Senior Floating Rate Income Fund II (FCT): +44.25%
Returns (1): October 31, 2010 – September 30, 2016
FCT Performance Since Management Change
1. Returns are cumulative total returns based on NAV. The data shown begins with the first full month of performance after the management change of FCT. Actual inception of FCT was May 25, 2004. FCT Performance is shown at NAV which takes into account the fund's total annual expenses and does not reflect sales load. Past performance is no guarantee of future results. The benchmark is the S&P/LSTA Leveraged Loan Index (LLI). Indexes are unmanaged and an investor cannot invest directly in an index.
First Trust Senior Floating Rate Income Fund II (FCT) S&P/LSTA Leveraged Loan Index FCT S&P/LSTA LLI Index
S&P/LSTA Leveraged Loan Index: +29.44%
Outperformance: +14.81%
(2.0%)
(1.5%)
(1.0%)
(0.5%)
0.0%
Oct 10 – Aug 11
-136 bps
0.0%
10.0%
20.0%
30.0%
40.0%
Aug 11 – May 15
+1,334 bps
0.0%
4.0%
8.0%
10.0%
12.0%
Feb 16 – Sep 16
+197 bps
6.0%
4.0%
2.0%
0.0%
May 15 – Feb 16
+28 bps
Volatile Market Hot Market 6.0%
4.0%
2.0%
0.0%
May 15 – Feb 16
+28 bps
$0.96
$1.00
$1.04
$1.08
$1.12
$1.16
$1.20
$1.24
$1.28
$1.32
$1.36
$1.40
$1.44
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Source and Footnotes Guideline
First Trust Senior Loan Fund (FTSL): +10.76%
Returns (1): May 31, 2013 – September 30, 2016
FTSL Performance Since Inception
Performance data quoted represents past performance. Past performance is not a guarantee of future results and current performance may be higher or lower than performance quoted. Investment returns and principal value will fluctuate and shares when sold or redeemed, may be worth more or less than their original cost. You can obtain performance information which is current through the most recent month-end by visiting www.ftportfolios.com. 1. Returns are cumulative total returns based on NAV. The data shown begins with the first full month of fund performance. FTSL inception: 5/1/13. FTSL Benchmark: S&P/LSTA Leveraged Loan 100 Index.
S&P/LSTA Leveraged Loan 100 Index: +8.81%
Outperformance: +1.95%
First Trust Senior Loan Fund (FTSL) S&P/LSTA Leveraged Loan 100 Index FTSL S&P/LSTA LL 100
Volatile Market Hot Market
0.0%
1.0%
2.0%
3.0%
Dec 14 – May 15
+17 bps
(1.5%)
(1.0%)
(0.5%)
0.0%
June 14 – Dec 14
+121 bps
(6.0%)
(4.0%)
(2.0%)
0.0%
+316 bps
0.0%
2.0%
4.0%
6.0%
-296 bps
0.0%
2.0%
4.0%
6.0%
May 13 – June 14
-17 bps
May 15 – Feb 16 Feb 16 – Sep 16
$0.98
$1.00
$1.02
$1.04
$1.06
$1.08
$1.10
$1.12
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Source and Footnotes Guideline
Top 10 Holdings Based on Market Value as of September 30, 2016
BORROWER % of total
Univision Communications, Inc. 2.57%
Reynolds Group Holdings, Inc. 2.52%
BJ's Wholesale Club, Inc. 2.38%
Valeant Pharmaceuticals International, Inc. 2.30%
Dell, Inc. (Diamond 1 Finance Corp.) 2.22%
New HB Acquisition LLC 2.19%
Albertsons LLC 2.15%
PetSmart, Inc. 2.08%
TXU (Texas Competitive Electric Holdings Co. LLC) 2.02%
Numericable U.S. LLC (Altice France S.A.) 1.87%
First Trust Senior Loan Fund Credit Rating Distribution (1)
Based on Market Value as of September 30, 2016
Top 5 Industries Based on Market Value as of September 30, 2016
INDUSTRY % of total
Health Care Providers & Services 14.33%
Hotels, Restaurants & Leisure 12.35%
Pharmaceuticals 7.57%
Media 6.80%
Food & Staples Retailing 4.76%
First Trust Senior Loan Fund Asset Class Distribution
Based on Market Value as of September 30, 2016
Portfolio Characteristics: First Trust Senior Loan Fund (FTSL)
S&P / LSTA Leveraged Loan 100 Index
Credit Rating Distribution (1)
Based on Market Value as of September 30, 2016
As of 9/30/2016, FTSL had approximately $541.6 million in assets. Portfolio Holdings are subject to change. 1. The modifiers “+” or “-” are not included for purposes of the credit rating distribution. Source: First Trust Advisors L.P.
7.62%
37.29% 50.44%
4.29%
0.16% 0.20% NR
BBB BB
B CCC
CC/C/D NR
14.62%
42.02%
30.19%
5.75%
4.80% 2.62%
BBB BB
B CCC
CC/C/D NR
7.09%
92.90%
High Yield Bonds
Senior Loans
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Source and Footnotes Guideline
Potential Benefits of Investing Fund Details
Performance Summary (%) as of 9/30/16 Portfolio Managers
First Trust Senior Loan Fund (FTSL)
Source: First Trust Advisors L.P. 1. As of 9/30/16. 30-day SEC yield is calculated by dividing the net investment income per share earned during the most recent 30-day period by the maximum offering price per share on the last day of the
period and includes the effects of fee waivers and expense reimbursements, if applicable. 2. NAV returns are based on the fund’s net asset value which represents the fund’s net assets (assets less liabilities) divided by the fund’s outstanding shares. Market Price returns are based on the midpoint
of the bid/ask spread. Returns are average annualized total returns. Indexes do not charge management fees or brokerage expenses and no such fees were deducted from the performance shown. Indexes are unmanaged and an investor cannot invest directly in an index.
Performance data quoted represents past performance. Past performance is not a guarantee of future results and current performance may be higher or lower than performance quoted. Investment returns and principal value will fluctuate and shares when sold or redeemed, may be worth more or less than their original cost. You can obtain performance information which is current through the most recent month-end by visiting www.ftportfolios.com.
Senior Loans: Senior loans are generally secured by the assets of a
given company. Senior loans secured position within a capital
structure may mitigate losses in the event of a default.
Floating Rate: The fund may provide an element of protection against
rising interest rates because of the floating-rate feature of the senior
loans in which the fund invests.
Active Management: FTSL is an actively managed senior loan ETF,
providing credit risk management, enhanced liquidity and
transparency for senior loan investors.
.
Fund Ticker FTSL
Fund Inception 5/1/13
CUSIP 33738D309
Intraday NAV FTSLIV
Primary Listing Nasdaq
30-Day SEC Yield(1) 3.72%
Expense Ratio 0.85%
1 YEAR SINCE INCEPTION
Fund Performance (2)
NAV 4.21 2.85
Market Price 4.12 2.91
Index Performance (2)
S&P / LSTA Leveraged Loan 100 Index
6.05 2.53
Markit iBoxx USD Liquid Leveraged Loan Index
5.32 2.28
William Housey, CFA
Senior Vice President, Senior Portfolio Manager
20 years portfolio management/investment experience
Scott D. Fries, CFA
Senior Vice President, Portfolio Manager
22 years investment industry experience
CONFIDENTIAL: FOR UNDERWRITER DISCUSSION PURPOSES ONLY
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Source and Footnotes Guideline
First Trust Short Duration High Income Fund
(Class I Shares) (FDHIX) Performance Since Inception
Performance data quoted represents past performance. Past performance is not a guarantee of future results and current performance may be higher or lower than performance quoted. Investment returns and principal value will fluctuate and shares when sold or redeemed, may be worth more or less than their original cost. You can obtain performance information which is current through the most recent month-end by visiting www.ftportfolios.com. 1. Returns are cumulative total returns based on NAV. The data shown begins with the first full month of performance for FDHIX. FDHIX inception: 11/1/12 Blended Index: 50% BofA Merrill Lynch US High Yield Constrained Index (HUC0) / 50% S&P/LSTA Leveraged Loan Index (LLI).
0.0%
3.0%
6.0%
9.0%
12.0%
Feb 16 – Sep 16
-421 bps
(8.0%)
(6.0%)
(4.0%)
(2.0%)
0.0%
May 15 – Feb 16
+267 bps
0.0%
1.0%
2.0%
3.0%
4.0%
Dec 14 – May 15
-52 bps
(2.0%)
(1.5%)
(1.0%)
(0.5%)
0.0%
Jun 14 – Dec 14
+171 bps
0.0%
2.5%
5.0%
7.5%
10.0%
Jun 13 – Jun 14
-260 bps
(2.0%)
(1.5%)
(1.0%)
(0.5%)
0.0%
Apr 13 – Jun 13
+94 bps
0.0%
2.5%
5.0%
7.5%
Nov 12 – Apr 13
+136 bps Volatile Market
First Trust Short Duration High Income Fund (I-Shares) [FDHIX] Blended Index FDHIX Blended Index
First Trust Short Duration High Income Fund (FDHIX): +19.30%
Returns (1): November 30, 2012 – September 30, 2016
Blended Index: +19.21%
Outperformance: +0.09%
$0.98
$1.00
$1.02
$1.04
$1.06
$1.08
$1.10
$1.12
$1.14
$1.16
$1.18
$1.20
$1.22
$1.24
CONFIDENTIAL: FOR UNDERWRITER DISCUSSION PURPOSES ONLY
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Source and Footnotes Guideline
RATING FUND WEIGHT INDEX WEIGHT % OVERWEIGHT / UNDERWEIGHT
BBB 3.14% 5.24%
BB 32.82% 43.22%
B 53.04% 40.06%
CCC 10.02% 8.68%
CC/C/D 0.52% 1.43%
NR 0.47% 1.37%
(2.10)%
(10.40)%
12.98%
1.34%
(0.91)%
(0.90)%
Top 10 Holdings Based on Market Value as of 9/30/2016
Top 5 Industries Based on Market Value as of 9/30/2016
First Trust Short Duration High Income fund Asset Class Distribution Based on Market Value as of 9/30/2016
Portfolio Characteristics:
First Trust Short Duration High Income Fund (FDHIX)
Source: First Trust Advisors L.P. As of 9/30/2016, the First Trust Short Duration High Income Fund had approximately $186.1 million in net assets. Portfolio holdings are subject to change. Note: The modifiers “+” or “-” are not included for purposes of the credit rating distribution. Blended Index: 50% Bank of America Merrill Lynch US High-Yield Constrained Index / 50% S&P/LSTA Leverage Loan Index.
BORROWER % of TOTAL
Tenet Healthcare Corp. 2.50%
Valeant Pharmaceuticals
International, Inc. 2.29%
Reynolds Group Holdings, Inc. 2.14%
BJ’s Wholesale Club, Inc. 2.10%
Portillo's Holdings LLC 2.00%
Univision Communications, Inc. 1.97%
New HB Acquisition LLC 1.90%
Endo Pharmaceuticals Holdings, Inc. 1.87%
Caesars Growth Partners LLC 1.85%
Amaya Holdings B.V. 1.70%
Health Care Providers & Services 13.33%
Hotels, Restaurants & Leisure 11.68%
Media 10.56%
Pharmaceuticals 9.94%
Software 5.35%
35.17%
64.83%
Bonds Senior Loans
CONFIDENTIAL: FOR UNDERWRITER DISCUSSION PURPOSES ONLY
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47
Source and Footnotes Guideline
Average Annual Total Returns (%)
Performance data shown is before tax
Per 2.00
First Trust Short Duration High Income Fund
Fund Summary – Share Classes (as of 9/30/2016)
POTENTIAL BENEFITS OF INVESTING
• Tactical – Seek the best relative value opportunities across a universe of
below investment-grade high-yield bonds and bank loans. Portfolio may
capitalize on capital structure opportunities and seek attractive
risk-adjusted returns across a broad below investment-grade universe
• Short duration – the combination of floating rate loans and high-yield
bonds is expected to provide a short duration portfolio
• Management expertise – Rigorous credit process tends to result in a
higher credit quality portfolio than the benchmark (Lower exposure to
CCC and below rated assets)
(%) INCEPTION
DATE 3
MONTHS YTD 1 YEAR 3 YEAR SINCE
INCEPTION
NET EXPENSE
RATIO*
NAV
Class A 11/01/12 3.00 8.08 6.10 3.48 4.31 1.25
Class C 11/01/12 2.81 7.54 5.37 2.72 3.53 2.00
Class I 11/01/12 3.06 8.28 6.37 3.72 4.56 1.00
Bank of America Merrill
Lynch U.S. High Yield
Constrained Index
5.49 15.32 12.82 5.28 5.61 N/A
S&P / LSTA Leveraged
Loan Index 3.07 7.72 5.46 3.39 3.79 N/A
Blended Index (3) 4.28 11.47 9.12 4.36 4.72 N/A
Maximum Offering Price
Class A 11/01/12 (0.60) 4.27 2.37 2.27 3.36 1.25
Class C 11/01/12 1.81 6.54 4.37 2.72 3.53 2.00
(AS OF 9/30/2016) FDHAX FDHCX FDHIX
30-Day SEC Yield 1 3.92% 3.32% 4.31%
Unsubsidized 30-Day SEC Yield 2 3.97% 3.36% 4.36%
1. 30-day SEC yield is calculated by dividing the net investment income per share earned during the most recent 30-day period by the maximum offering price per share on the last day of the period and includes the effects of fee waivers and expense reimbursements, if applicable.
2. The unsubsidized 30-day SEC yield is calculated the same as the 30-day SEC yield, however it excludes contractual fee waivers and expense reimbursements. Performance quoted is past performance and cannot guarantee comparable future results; current performance may be lower or higher. Visit www.ftportfolios.com for the most recent month-end performance. Performance figures reflect reinvested distributions and changes in net asset value (NAV). Maximum offering price figures reflect 3.5% up-front sales charge for Class A Shares and 1% contingent deferred sales charge for Class C Shares. Investment return and principal value will vary so that you may have a gain or a loss when you sell shares. Returns less than one year are cumulative; all other performance figures are annualized. See the prospectus for details. Pursuant to contract, First Trust has agreed to waive fees and/or pay fund expenses to prevent the net expense ratio of any class of shares of the fund from exceeding 1.00% per year, excluding 12b-1 distribution and service fees, at least until 2/28/2017 and not to exceed 1.35% per year from 3/1/17 through 2/28/26. Net expense ratio shown above includes 12b-1 distribution and service fees. The total annual operating expenses before any contractual fee waivers and/or expense reimbursements by the advisor would have been: Class A: 1.26%, Class C: 2.01% and Class I: 1.01%. Currently, the net expense ratio is the amount applied to each share’s NAV. 3. Blended Index: 50% Bank of America Merrill Lynch U.S. High Yield Constrained Index / 50% S&P / LSTA Leveraged Loan Index. Performance information for both of these indexes is for illustrative
purposes only. The Indexes do not charge management fees or brokerage expenses and no such fees or expenses were deducted from the performance shown. Indexes are unmanaged and an investor cannot invest directly in an index. All index returns assume that dividends are reinvested when they are received.
CONFIDENTIAL: FOR UNDERWRITER DISCUSSION PURPOSES ONLY
Annualized 5 years returns: Net Composite = 7.15%, Benchmark = 5.25%
Annualized since inception (10/1/03) returns: Net Composite = 4.12%, Benchmark = 4.87%
First Trust Advisors L.P. (FTA) claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS® standards. FTA has been independently verified for the
periods August 1, 1999 through September 30, 2014. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS® standards on a firm-
wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS® standards. Verification does not ensure the accuracy of any specific composite presentation.
Notes:
1. FTA was founded in 1991 and is a registered investment advisor with the Securities and Exchange Commission. FTA provides investment advisory services using equity, fixed-income and balanced strategies for individuals, organizations
and institutions. The firm consists of all portfolios managed by FTA. Since 2011, the Total Firm Assets are presented net and have been reduced for the effects of leverage. Prior to 2011, the Total Firm Assets are presented gross and have not
been reduced for the effects of leverage.
2. The Composite is comprised of senior loan portfolios (Closed-End Funds and Exchange Traded Funds) in excess of $50 million and that utilize leverage of less than 33% debt to total assets or which do not utilize leverage. The composite
creation date was January 2013. A complete list of composites and descriptions is available upon request.
3. The composite includes all portfolios for which FTA has full discretionary investment authority and are fee-paying portfolios. A portfolio is included in the composite in the first full month under management. Portfolios that change investment
strategies are transferred between composites in the first full monthly reporting period in which the portfolio is managed under the new style. Terminated portfolios are included in the composite through the completion of their last full month
under management. The Composite Market Values shown in the table above are presented net and have been reduced for the effects of leverage.
4. Net returns is based on Net Asset Value (NAV) and includes all distributions. NAV returns include investment management fees, administrative fees and trading costs. Gross returns were calculated by adding 1/12th of the annual expense
ratio to the monthly NAV returns. Portfolios are valued on a daily basis and composite returns are calculated monthly. Quarterly and annual composite returns are calculated by linking monthly returns. If cash flows exceed 20% of the
composite's value, the composite is revalued on the day prior to the cash flow and the return is calculated for the interim period.
5. Valuations and returns are computed and stated in U.S. Dollars. The valuation of investments can rely on subjective unobservable inputs. Typically, the portion of the portfolio that relies on subjective unobservable inputs is under 10% of the
total value of the composite. Additional information regarding policies for valuing portfolios, calculating performance and preparing compliant presentations is available upon request.
6. The three-year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. The standard deviation is not presented prior to 2011 because it was not required.
7. Composite dispersion is measured by standard deviation, which is an asset-weighted calculation that measures the consistency of composite performance with respect to the individual portfolio returns within the composite. Dispersion of
portfolios in the composite is not applicable if the period presented is less than a full year or if there were fewer than five portfolios in the composite for the entire year.
8. The benchmark is the S&P/LSTA Leveraged Loan Index - a market value weighted index covering syndicated loans and index components are the institutional tranches of loans syndicated in the U.S.
9. The securities comprising the benchmark are not identical to those in any portfolio in the composite, but FTA believes they may be useful in evaluating performance. Unlike the composite, the benchmark is not actively managed and does not
reflect the deduction of advisory fees. Differences in composite performance versus benchmark performance may also result due to high concentrations of individual securities holdings in certain portfolios, timing of security transactions and tax
considerations. Such factors may contribute to higher standard deviation of portfolio returns within the composite. The benchmark is rebalanced daily. Benchmark returns have not been examined by the verifier.
10. The FTA management fee ranges from an annual fee of 0.75% to 0.85%. FTA, at its discretion, may negotiate a management fee which is different from the standard fee schedule listed here.
11. Past performance is not indicative of future results. Other methods may produce different results and the results for individual portfolios and for different periods may vary depending on market conditions and the composition of the portfolio.
Care should be used when comparing these results to those published by other investment advisers, other investment vehicles and unmanaged indices due to possible differences in calculation methods.
Requests for further information may be made by calling (800) 222-6822, or emailing [email protected].
