Senior Loan and Dividend Growers Portfolio, Series 25
Investors who are looking for income while still retaining growth potential have limited alternatives. The
Senior Loan and Dividend Growers Portfolio seeks to address this challenge by investing in common
stocks of companies with a history of dividend growth and the capacity to increase their dividends over
time, as well as closed-end funds and exchange-traded funds (ETFs) which invest in senior loan floating
This unit investment trust seeks current monthly income and capital appreciation; however, there is no assurance the objectives will be met.
The Importance of Dividends
Due to the fact that corporations are not obligated to share their earnings with stockholders, dividends
may be viewed as a sign of a company’s profitability as well as management's assessment of the future,
in our opinion. In fact, dividends have historically been one of the few constants in the world of
investing, contributing nearly half of the stock market’s total returns. According to Ibbotson Associates,
dividends have provided approximately 42% of the 9.99% average annual total return on the S&P 500
Index, from 1926 through 2018. The S&P 500 Index is an unmanaged index of 500 stocks used to
measure large-cap U.S. stock market performance. The index cannot be purchased directly by investors.
Past performance is no guarantee of future results.
What Are Senior Loans?
Senior loans are secured debt extended to non-investment grade corporations. 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.
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 historical average, the U.S. is experiencing slow but positive economic growth, and there continues to be strong investor demand for the asset class.
|Not FDIC Insured Not Bank Guaranteed May Lose Value
You should consider the portfolio's investment objective, 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 involved with owning common
stocks, closed-end funds and exchange-traded funds that
invest in senior loan floating rate securities.
Closed-end funds 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,
closed-end 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, ETFs and
closed-end funds frequently trade at a discount from their net
asset value in the secondary market. Certain of the funds in
which the portfolio invests employ the use of leverage, which
increases the volatility of such funds.
The yield on closed-end funds 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 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. High-yield security prices tend to fluctuate more than
higher rated securities and are affected by short-term credit
developments to a greater degree.
Common stocks are subject to risks such as an economic
recession and the possible deterioration of either the financial
condition of the issuers of the equity securities or the general
condition of the stock market.
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. Certain 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.
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.
Certain of the 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.
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 available information.
For a discussion of additional risks of investing in the trust see
the “Risk Factors” section of the prospectus.
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.
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.
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 cybersecurity.
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