Corporate Investment Grade Laddered Portfolio, Series 5
Corporate Bond Basics
A corporate bond is a debt obligation issued by a corporation. Issuing bonds can be an alternative to offering
equity ownership by issuing stock. Payments to bondholders have priority over payments to stockholders.
Why Investment Grade
Within the bond market, there is a category of bonds considered "investment grade." Investment grade subject to annual operating expenses and organization costs.
bonds are rated BBB/Baa or higher by major credit rating agencies. The designation of a bond as
investment grade is based upon an evaluation by a credit rating agency of the corporation's credit
history and ability to repay obligations. This rating of investment grade generally signifies that a credit
rating agency considers the quality of a particular bond to be sufficient to provide reasonable assurance
of the issuer's ability to meet their obligations to bondholders. There is, however, no assurance that the
securities selected for the trust will continue to receive an investment grade rating in the future or that
such rating will ensure an issuer's ability to satisfy its obligations to bondholders.
Investment grade bonds generally are a high credit quality asset class with historically low default rates.
The chart to the right illustrates that the average default rates for investment grade bonds have been
significantly lower than for speculative grade bonds based on the most recent data available from
Moody's Investors Service. Current default rates may vary from that of their historical averages and there
can be no assurance that the default rate for investment grade bonds will not rise in the future.
What Is A Bond Ladder?
A bond ladder is a portfolio of fixed-income securities that mature at regular intervals across a chosen
maturity range. The purpose of a laddered portfolio is to generate a more predictable income stream
with the potential to minimize interest rate risk by holding both short-term and long-term securities.
The Corporate Investment Grade Laddered portfolio is comprised of five distinct groupings of corporate
bond securities with maturities beginning approximately two years after the initial date of deposit. The
portfolio is designed to return approximately 20% of your principal beginning approximately two years
after the initial date of deposit and thereafter approximately 20% of your principal every two years.
The objectives of this unit investment trust are to seek to distribute high current monthly
income and to preserve capital by investing in a laddered portfolio of investment grade
corporate bonds. There is, however, no assurance that the objectives will be achieved.
Our analysts use a multiple factor approach when assessing the credit strength of the corporate
bonds that are selected for inclusion in the trust. The analysis includes the issuer's credit rating
and financial outlook in conjunction with an evaluation of fundamental characteristics of the
issuer which may include leverage, liquidity and profitability as well as industry specific and
geographic risk. Factors considered at the security level include an analysis of the issuer's
capital structure, the subordination of the security, coupon type, liquidity and the amount of an
issue outstanding. These factors in combination with the duration, yield, price, call features
and maturity result in an overall determination of relative value.
- Potential for high current monthly income.
- Diversified portfolio of investment grade corporate bonds.
- Estimated weighted average maturity of approximately 6 to 8 years.
- 2.50% up-front maximum sales charge. In
addition to the sales charge, the trust is
subject to annual operating expenses and
|Not FDIC Insured Not Bank Guaranteed May Lose Value
You should carefully consider the portfolio's investment objectives,
risks, and charges and expenses 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 investment grade corporate bonds, including higher interest rates,
economic recession, deterioration of the bond market or investors' perception thereof, possible
downgrades and defaults of interest and/or principal.
You should be aware that the portfolio is concentrated in stocks
in the financials sector which involves additional risks,
including limited diversification. The companies engaged in the
financials sector are subject to the adverse effects of volatile
interest rates, economic recession, decreases in the availability
of capital, increased competition from new entrants in the
field, and potential increased regulation.
An investment in a portfolio containing small-cap and mid-cap
companies is subject to additional risks, as the share prices of
small-cap companies and certain mid-cap companies are often
more volatile than those of larger companies due to several
factors, including limited trading volumes, products, financial
resources, management inexperience and less publicly
An investment in a portfolio containing securities of foreign
issuers is subject to additional risks, including currency
fluctuations, political risks, withholding, the lack of adequate
financial information, and exchange control restrictions
impacting foreign issuers.
One of the securities in the trust is issued by a REIT. Companies
involved in the real estate industry are subject to changes in
the real estate market, vacancy rates and competition, volatile
interest rates and economic recession.
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.