Strategic Income Closed-End Portfolio, Series 74
The Multi-Sector Approach
The Strategic Income Closed-End Portfolio seeks to provide investors a high rate of current monthly income and diversification across various fixed income securities. To accomplish this, the portfolio is diversified across a broad range of closed-end funds that invest in U.S. and foreign taxable bonds. Because different sectors within the taxable debt market follow different cycles and react differently to changes in global economies and interest rates, spreading assets across this spectrum of securities has the potential to reduce the overall risk of the portfolio.
Unlike open-end mutual funds, closed-end funds maintain a relatively fixed pool
of investment capital. This allows portfolio managers to better adhere to their
investment philosophies through greater flexibility and control. In addition,
closed-end funds don't have to manage fund liquidity to meet potentially large
The portfolio offers investors diversification by investing in a broad range
of taxable debt closed-end funds that are further diversified across hundreds
of individual issues. Diversification does not guarantee a profit or protect
Closed-end funds are structured to generally provide a more stable income stream than other
managed investment products because they are not subjected to cash inflows and outflows,
which can dilute distributions over time. However, stable income cannot be assured.
This unit investment trust seeks a high rate of current monthly income, with capital
appreciation as a secondary objective. There is, however, no assurance that the
objectives of the portfolio will be achieved.
| 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.
An investment in this
unmanaged unit investment trust should be made with an
understanding of the risks associated with an investment in a
portfolio of closed-end funds. Closed-end funds 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 the
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, closed-end funds frequently trade at
a discount from their net asset value in the secondary market.
Certain closed-end funds in which the portfolio invests employ
the use of leverage, which increases the volatility of such funds.
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.
All of the closed-end funds invest in high-yield securities or “junk” bonds. Investing in high-yield
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 junk bond
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.
Certain of the closed-end 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.
Certain of the closed-end 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
Certain of the closed-end funds invest in senior loan securities.
The yield on closed-end funds 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 (“junk” bonds). An
investment in senior loans involves the risk that the borrowers
may default on their obligations to pay principal or interest
Certain of the closed-end funds invest in
covenant-lite loans which contain fewer or no maintenance covenants and may hinder the
closed-end fund's ability to reprice credit risk and mitigate potential loss especially during a
downturn in the credit cycle.
All of the closed-end funds invest in securities
issued by foreign issuers. Such securities are subject to certain risks, including currency and
interest rate fluctuations, nationalization or other adverse political or economic developments,
lack of liquidity of certain foreign markets, withholding, the lack of adequate financial
information, and exchange control restrictions impacting foreign issuers. Risks associated with
investing in foreign securities may be more pronounced in emerging markets where the
securities markets are substantially smaller, less liquid, less regulated and more volatile than the
U.S. and developed foreign markets.
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
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.
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
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. The markets for
credit instruments, including municipal
securities, have experienced periods of
extreme illiquidity and volatility.
For a discussion of additional risks of
investing in the trust see the “Risk Factors”
section of the prospectus.