Covered Call Select Closed-End Portfolio, Series 74
The Covered Call Select Closed-End Portfolio is a unit investment trust which
invests in closed-end funds whose investments are diversified among common stocks.
These closed-end funds, on an ongoing and consistent basis, will sell covered
call options to seek a more controlled risk/reward outcome.
This unit investment trust seeks income and, to a lesser extent, capital appreciation; however, there is no assurance the objectives will be met.
What is a Covered Call Option?
A call option is a contractual obligation which gives the buyer of the option the right to purchase a certain number of shares of common stock from the writer (seller) of the option at a predetermined price. If the predetermined price is reached, the buyer has the right, depending on the type of option, to exercise the option at the option's expiration date or at any time up until the option's expiration. Though call options can be used for many investment purposes, they are typically used as a tool to potentially enhance returns, offer a current yield to investors, and provide limited downside protection.
An option is considered "covered" when a closed-end fund owns the
equity securities against which the options are sold. You should be aware that
a product which includes closed-end funds utilizing covered call strategies
may not be suitable for all investors. It may not be appropriate for investors
seeking above-average capital appreciation. Before investing, you should make
sure you understand the risks of this type of product, and whether it suits
your current financial objectives.
Closed-End Fund Features
Since closed-end funds maintain a relatively fixed pool of investment capital,
portfolio managers are better able to 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
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 dividends over time. However, the portfolio
cannot guarantee consistent income.
|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 involved with an investment in a
portfolio of closed-end funds which invest in common stocks
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 to their net asset value in the secondary market.
Certain closed-end funds employ the use of leverage, which
increases the volatility of such funds.
Common stocks are subject to certain 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.
Options are subject to various risks including that their value
may be adversely affected if the market for the option becomes
less liquid or smaller. In addition, options will be affected by
changes in the value and dividend rates of the stock subject to
the option, an increase in interest rates, a change in the actual
and perceived volatility of the stock market and the common
stock and the remaining time to expiration.
An investment in a portfolio containing equity 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.
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
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.
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.
For a discussion of additional risks of investing in the trust see the "Risk Factors" section of the prospectus.