Home   Logon   Mobile Site   Research and Commentary   About Us   Call 1.800.621.1675 or Email Us       Follow Us: 

Search by Ticker, Keyword or CUSIP       
 
 


 

Capital Strength Buy-Write, Series 34

The Capital Strength Buy-Write Portfolio invests in a fixed portfolio of common stocks of well-capitalized companies with strong market positions, and simultaneously, the portfolio sells a Long-Term Equity AnticiPation Securities (LEAPS®) call option against each position. The writing (selling) of a call option generates income in the form of a premium paid by the option buyer. The portfolio invests this income in U.S. Treasury notes and the interest received from the notes is paid to unit holders periodically.

One important advantage that well-capitalized companies enjoy over others is that they have the potential to provide their stockholders with a greater degree of stability and performance over time.

Through our selection process, we seek to find companies with the following qualities:

  • Well-capitalized with strong balance sheets;
  • Skilled management;
  • High liquidity;
  • Ability to generate earnings growth; and
  • Record of financial strength and profit growth.

You should be aware that a product which includes writing call options may not be suitable for all investors. It may not be appropriate for investors seeking aboveaverage 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.

Portfolio Objectives

This unit investment trust seeks income with capital appreciation as a secondary objective. There is, however, no assurance that the objectives will be achieved.

Why Cash Matters

Companies with sizeable cash positions tend to be mature companies that dominate their industries. A company with a significant amount of cash on its balance sheet is attractive for many reasons. Cash enables companies to bypass the credit markets and provides the means to:

  • Make strategic cash-financed mergers and acquisitions;
  • Begin to pay dividends or increase dividend payments to boost returns;
  • Repurchase undervalued shares;
  • Reinvest cash to grow their business;
  • Improve their debt rating, thus reducing their cost of capital; and
  • Fund research and development projects, even in a down market.

Illustrative Market Scenarios

Stock prices increase above the LEAPS' exercise price: The LEAPS are exercised and the underlying stock shares are sold at the strike price. Profits are limited to the premium income received from writing the LEAPS, dividends received from the common stocks prior to their sale from the portfolio, interest received from the U.S. Treasury Obligations, plus the difference between each common stock's initial price and their strike price. Investors will forgo any dividends paid on the common stocks subsequent to their sale from the portfolio and any gain in the underlying stock price after the stock is sold. It is important to note that writing covered calls limits the appreciation potential of the underlying common stocks.

Stock prices remain stable: The LEAPS expire worthless and the portfolio still owns the stock shares. Profits are limited to the premium income received from writing the LEAPS, plus dividends from the stocks, as well as interest received from the U.S. Treasury Obligations.

Stock prices decrease: The LEAPS expire worthless and the portfolio still owns the stock shares. The break even on the stocks is lowered by the premium income received from writing the LEAPS. In addition, the portfolio will receive dividends from the stocks, and interest from the U.S. Treasury Obligations.


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.

Risk Considerations:
An investment in this unmanaged unit investment trust should be made with the understanding of the risks involved with common stocks, LEAPS, and U.S. Treasury notes. Common stocks are subject to 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.

The value of the LEAPS is deducted from the value of the portfolio assets when determining the value of a unit. As the value of the LEAPS increases, it has a more negative impact on the value of the units. The value of the LEAPS will also be affected by changes in the value and dividend rates of the underlying stocks, an increase in interest rates, a change in the actual and perceived volatility of the stock market and the stocks and the remaining time to expiration. Additionally, the value of the LEAPS does not increase or decrease at the same rate as the underlying stock. However, as the LEAPS approach their expiration date, their value increasingly moves with the price of the stock. The notional value of each LEAPS call option equals the value of the corresponding common stock.

The value of U.S. Treasury notes will be adversely affected by decreases in bond prices and increases in interest rates.

You should be aware that the portfolio is concentrated in stocks in the consumer products and information technology sectors which involves additional risks, including limited diversification.The companies engaged in the consumer products industry are subject to global competition, changing government regulations and trade policies, currency fluctuations, and the financial and political risks inherent in producing products for foreign markets. The companies engaged in the information technology sector are subject to fierce competition, high research and development costs, and their products and services may be subject to rapid obsolescence.

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.

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 qualified plan.

 
Printer Friendly Page Printer Friendly Page
 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA and the Internal Revenue Code. First Trust has no knowledge of and has not been provided any information regarding any investor. Financial advisors must determine whether particular investments are appropriate for their clients. First Trust believes the financial advisor is a fiduciary, is capable of evaluating investment risks independently and is responsible for exercising independent judgment with respect to its retirement plan clients.
First Trust Portfolios L.P.  Member SIPC and FINRA.
First Trust Advisors L.P.
Home |  Important Legal Information |  Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2017 All rights reserved.