Health Care Select Buy-Write, Series 2
The health care industry has been responsible for several 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. More recent research, relating to areas such as genomics, is providing avenues of growth never before imagined. Debilitating diseases,
previously untreatable, are now often manageable or even curable. 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 2020.1
The Health Care Select Buy-Write Portfolio is a unit investment trust which invests in a fixed portfolio of common stocks of health care 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. 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.
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.
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.
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 an investment that is concentrated in stocks of commodities companies in both the
energy and materials sectors 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. The companies engaged in the materials sector, including companies within the
precious metals industry, are subject to price and supply fluctuations, excess capacity, economic recession,
domestic and international politics, government regulations, volatile interest rates, consumer spending
trends and overall capital spending levels. Commodity prices are subject to several factors, including price and
supply fluctuations, excess capacity, economic recession, domestic and international politics, government
regulations, volatile interest rates, consumer spending trends and overall capital spending levels.
The trust also invests in agriculture companies which are subject to numerous risks, including cyclicality of
revenues and earnings, currency fluctuations, international politics, changing consumer tastes, extensive
competition, severe weather and climate change.
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
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 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.