Energy Buy-Write, Series 4
Energy is the vital force powering business, manufacturing, and the transportation of goods and services to serve the world’s economies. Energy supply and demand plays an increasingly vital role in
worldwide economic output. The challenge of developing clean fuel initiatives to make the most of traditional fossil fuels and investing in cutting edge research to identify new energy sources, like
hydrogen fuels and fusion technologies, becomes increasingly important.
The Energy Buy-Write Portfolio is a unit investment trust which invests in a fixed portfolio of common stocks of energy companies, 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.
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. The trust 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. Losses
from the decrease in value of the common stocks are limited by the premium income received
from the LEAPS, dividends received from the common stocks and interest received from the U.S.
Treasury Obligations.
1 U.S. Energy Information Administration, Annual Energy Outlook 2023
Portfolio Objectives
This unit investment trust seeks 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.
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 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 the energy sector which involves additional
risks, including limited diversification. The companies engaged in the energy sector are subject to certain
risks, including price and supply fluctuations caused by international politics, energy conservation, taxes,
price controls, and other regulatory policies of various governments. Falling oil and gas prices may negatively
impact the profitability and business prospects of certain energy companies.
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
cybersecurity.
Ongoing armed conflicts between Russia and Ukraine in Europe and among Israel, Hamas and other militant groups in the Middle East have caused and could continue to cause significant market disruptions and volatility
within the markets in Russia, Europe, the Middle East 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 ongoing effects of the COVID-19 global pandemic, or the potential impacts of any future public health crisis, may cause significant volatility and uncertainty in global financial markets. While vaccines have been developed, there is no guarantee that vaccines will be effective against future 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.