Capital Strength Buy-Write, Series 37
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
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.
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
- 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.
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