Senior Loan and Dividend Growers Portfolio, Series 31
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 40% of the
10.30% average annual total return on the S&P 500 Index, from 1926 through 2020. 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.
|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 professional 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 exchangetraded
funds that invest in senior loan floating rate securities.
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.
All of the closed-end funds and ETFs invest in covenant-lite loans which contain fewer or no maintenance
covenants and may hinder the closed-end fund’s and ETF’s ability to reprice credit risk and mitigate potential
loss especially during a downturn in the credit cycle.
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.
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.
All of the closed-end funds and ETFs 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 floatingrate
securities pay interest based on LIBOR. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, will cease making LIBOR available as a reference rate over a phase-out period that will begin immediately
after December 31, 2021. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain portfolio investments. Any potential effects of the transition away from LIBOR can be difficult to ascertain,
and they may vary depending on a variety of factors and they could result in losses to the portfolio.
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.
The COVID-19 global pandemic has resulted in major disruptions to economies and markets around the world. Financial markets have experienced extreme volatility and severe losses, negatively impacting global economic
growth prospects. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty and may exacerbate other political, social and economic risks.
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.
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
For a discussion of additional risks of investing in the trust see
the “Risk Factors” section of the prospectus.