Defensive Equity Buy-Write, Series 3
Investors tend to gravitate toward less economically sensitive sectors when questions arise regarding sustained economic growth. Because of their unique combination of global exposure and historically
defensive market characteristics, we believe that the consumer staples, health care and utilities sectors may represent an attractive opportunity for investors during times of uncertain economic growth.
The Defensive Equity Buy-Write Portfolio invests in a fixed portfolio of common stocks of companies in the consumer staples, health care, and utilities sectors, 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. 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 financial objectives.
Consumer staples consist of food, beverages, household goods and personal products that most
consumers use on a daily basis. Purchases of these products tend to be a relatively small portion
of most consumers’ yearly income, which keeps demand stable. Because of this stability, sales
and earnings growth tend to remain fairly constant in up or down markets. We believe consumer
staples represents an attractive sector for investors due to its non-cyclical nature and significant
exposure to foreign demand.
The health care industry has been responsible for numerous discoveries that have led to new
drugs and products designed to better serve the masses, especially the aging population. These
discoveries have improved the quality of life and the life expectancy of millions. In the last decade,
biopharmaceutical companies have invested more than $1 trillion in research and development.1
From 2021-2030, it is projected that health care spending will grow at an average rate of 5.1%
annually. In addition, growth in health care spending is also anticipated to be 5.1% of GDP per
year over the same period; as a result, the health care share of GDP is expected to be 19.6% in
2030, nearly the same as the 19.7% in 2020.2
The utilities industry is regarded as a sector with the potential to provide investors with a
high degree of stability while generating an above-average level of current income relative to
other equities. Historically, utility stocks tend to hold up better than stocks from other sectors
in declining markets. Because of these characteristics, utility company stocks are sometimes
considered an alternative to traditional fixed-income investments. The global utilities market is
anticipated to grow from $6.0 trillion in 2022 to $6.4 trillion in 2023. By 2027, it is estimated to
reach $8.3 trillion.3
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 before the date
the option to purchase is exercised, 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 after the date the option to purchase is exercised 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. However, the premium income received from writing the LEAPS® lowers the breakeven
point on the common stocks by effectively reducing the common stocks’ original cost. In
addition, the portfolio will receive dividends from the common stocks, and interest from the U.S.
3 The Business Research Company
This unit investment trust seeks to provide income, with limited 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 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 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.
You should be aware that the portfolio is concentrated in stocks in both the consumer staples and health
care sectors which involves additional risks, including limited diversification. The companies engaged in the
consumer staples 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 health care sector are subject to fierce competition, high research
and development costs, governmental regulations, loss of patent protection, and changing consumer
spending trends. In addition, health crises, such as a pandemic outbreak, can severely impact the health
care industry in particular.
The portfolio also invests in utilities companies. The companies engaged in the utilities sector are subject to
certain risks, including price and supply fluctuations caused by international politics, energy conservation,
taxes, and other regulatory policies of various governments.
Securities of non-U.S. issuers are subject to additional risks, including currency fluctuations, political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting non-U.S. issuers.
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
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 and the ensuing policies enacted by governments and central banks have
caused and may continue to cause significant volatility and uncertainty in global financial markets. While
the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown
measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of
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.