Capital Strength Buy-Write, Series 63
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
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 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
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 common stock shares. Profits are limited to the premium income received from writing the LEAPS,
plus dividends from the common 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
common 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 common stocks, and interest
from the U.S. Treasury Obligations.
This unit investment trust seeks income, with capital appreciation as a secondary
objective. There is, however, no assurance that the objectives 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 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 the understanding of the risks involved with common stocks, LEAPS, and U.S.
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 U.S. Treasury notes will be adversely affected by decreases in bond prices and
increases in interest rates.
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.
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.
You should be aware that the portfolio is concentrated in stocks in the information technology sector which
involves additional risks, including limited diversification. 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. Technology company stocks, especially those which are
Internet-related, may experience extreme price and volume fluctuations that are often unrelated to their
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.
In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain investments as well as performance.
The COVID-19 global pandemic has caused significant volatility and declines in global financial markets,
causing losses for investors. The development of vaccines has slowed the spread of the virus and allowed
for the resumption of “reasonably” normal business activity in the United States, although many countries
continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective
against emerging variants of the disease.
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.