As filed with the Securities and Exchange Commission on January 16, 2013
1933 Act Registration No. 333-182308
1940 Act Registration No. 811-22717
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 4 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 6 [X]
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FIRST TRUST EXCHANGE-TRADED FUND VI
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 621-1675
W. Scott Jardine, Esq., Secretary
First Trust Exchange-Traded Fund VI
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(Name and Address of Agent for Service)
Copy to:
Eric F. Fess, Esq.
Chapman and Cutler LLP
111 West Monroe Street
Chicago, Illinois 60603
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 3
This Registration Statement comprises the following papers and contents:
The Facing Sheet
Part A - Prospectus for First Trust Enhanced Low Beta Income ETF
Part B - Statement of Additional Information for First Trust Enhanced Low
Beta Income ETF
Part C - Other Information
Signatures
The Information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS DATED JANUARY 16, 2013
SUBJECT TO COMPLETION
FIRST TRUST EXCHANGE-TRADED FUND VI
PROSPECTUS
First Trust Enhanced Low Beta Income ETF
Ticker Symbol: ______
Exchange: ______
First Trust Enhanced Low Beta Income ETF (the "Fund") is an exchange-traded fund
organized as a separate series of First Trust Exchange-Traded Fund VI (the
"Trust"), a registered management investment company.
The Fund will list and principally trade its shares on ______ ("______"). Market
prices may differ to some degree from the net asset value of the shares. Unlike
mutual funds, the Fund issues and redeems shares, at net asset value, only in
large specified blocks each consisting of 50,000 shares (each such block of
shares, called a "Creation Unit," and collectively, the "Creation Units"). The
Fund's Creation Units are issued and redeemed principally in-kind for securities
in which the Fund invests and/or cash, only to and from broker-dealers and large
institutional investors that have entered into participation agreements.
THE FUND IS AN ACTIVELY MANAGED EXCHANGE-TRADED FUND AND EXCEPT WHEN AGGREGATED
IN CREATION UNITS, THE SHARES ARE NOT REDEEMABLE SECURITIES OF THE FUND.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
________________, 2013
TABLE OF CONTENTS
SUMMARY INFORMATION............................................................2
ADDITIONAL INFORMATION ON THE FUND'S INVESTMENT OBJECTIVE AND STRATEGIES.......7
FUND INVESTMENTS...............................................................7
ADDITIONAL RISKS OF INVESTING IN THE FUND......................................9
FUND ORGANIZATION.............................................................13
MANAGEMENT OF THE FUND........................................................14
HOW TO BUY AND SELL SHARES....................................................16
DIVIDENDS, DISTRIBUTIONS AND TAXES............................................18
FEDERAL TAX MATTERS...........................................................18
DISTRIBUTION PLAN.............................................................21
NET ASSET VALUE...............................................................22
FUND SERVICE PROVIDERS........................................................23
PREMIUM/DISCOUNT INFORMATION..................................................23
OTHER INFORMATION.............................................................24
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-i-
SUMMARY INFORMATION
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide current income.
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses you may pay if you buy and
hold shares of the Fund. Investors purchasing and selling shares may be subject
to costs (including customary brokerage commissions) charged by their broker.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage
of offering price) None
ANNUAL FUND OPERATING EXPENSES (Expenses that you pay each year as
a percentage of the value of your investment)
Management Fees 0.__%
Distribution and Service (12b-1) Fees (1) 0.00%
Other Expenses (2) 0.00%
-------
Total Annual Fund Operating Expenses 0.__%
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EXAMPLE
The example below is intended to help you compare the cost of investing in
the Fund with the cost of investing in other funds. This example does not
take into account customary brokerage commissions that you pay when
purchasing or selling shares of the Fund in the secondary market.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated. The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain at current
levels until _______, 201_ and thereafter at __% to represent the
imposition of the 12b-1 fee of 0.25% per annum of the Fund's average daily
net assets.(1) Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 YEARS
$__ $___
----------------------
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(1) Although the Fund has adopted a 12b-1 plan that permits it to pay up
to 0.25% per annum, it will not pay 12b-1 fees at any time before
______, 201_.
(2) Because the Fund has no operating history, "Other Expenses" are
based on estimated net assets of $100 million for the current fiscal
year.
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and
sells securities (or "turns over" its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in
higher taxes when Fund shares are held in a taxable account. These costs,
which are not reflected in annual fund operating expenses or in the
example, affect the Fund's performance.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests primarily in U.S.-listed equity
securities. The Fund also sells exchange-listed call options on the S&P 500
Index (the "Index") to seek additional cash flow (in the form of premiums on the
options) that may be distributed to shareholders on a monthly basis. A portion
of the call option proceeds are used to purchase exchange-listed Index puts in
an attempt to cushion the Fund's performance when the market experiences severe
declines.
The equity securities held by the Fund are selected using a mathematical
optimization process, which attempts to tilt the Fund's common stock portfolio
toward higher dividend paying stocks. The equity securities held by the Fund may
include non-U.S. securities that are listed on a U.S. securities exchange in the
form of American Depositary Receipts ("ADRs") and Global Depositary Receipts
("GDRs," and together with ADRs, "Depositary Receipts"). The equity securities
in the Fund's portfolio are periodically rebalanced.
The option portion of the portfolio generally consists of covered calls and long
puts on the Index. The portfolio may also contain put or call options on other
indexes as part of its hedging strategy. The call options sold by the Fund are
typically a laddered portfolio of one-week, one-month, two-month and three-month
call options sold at-the-money to slightly out-of-the-money. The Fund's hedging
positions typically average two to three months to expiration and consists of
out-of-the-money Index put options.
PRINCIPAL RISKS
You could lose money by investing in the Fund. An investment in the Fund is not
a deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency. There can be no
assurance that the Fund's investment objective will be achieved.
MARKET RISK. Market risk is the risk that a particular stock owned by the Fund,
shares of the Fund or stocks in general may fall in value. Shares are subject to
market fluctuations caused by such factors as economic, political, regulatory or
market developments, changes in interest rates and perceived trends in stock
prices. Overall stock values could decline generally or could underperform other
investments.
DERIVATIVES RISK. The use of options and other derivatives can lead to losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivatives.
These risks are heightened when the Fund's portfolio managers use derivatives to
3
enhance the Fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
Fund.
The option positions employed may present additional risk. When selling a call
option, the Fund will receive a premium; however, this premium may not be enough
to offset a loss incurred by the Fund if the Index level at the expiration of
the call option is above the strike price by an amount equal to or greater than
the premium. The value of an option may be adversely affected if the market for
the option becomes less liquid or smaller, and 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. Additionally,
the value of an option does not increase or decrease at the same rate as the
underlying stock(s).
NON-U.S. SECURITIES RISK. The Fund holds non-U.S. securities in the form of
Depositary Receipts. Non-U.S. securities are subject to higher volatility than
securities of domestic issuers due to possible adverse political, social or
economic developments; restrictions on foreign investment or exchange of
securities; lack of liquidity; currency exchange rates; excessive taxation;
government seizure of assets; different legal or accounting standards; and less
government supervision and regulation of exchanges in foreign countries.
DEPOSITARY RECEIPTS RISK. Depositary Receipts may be less liquid than the
underlying shares in their primary trading market. Any distributions paid to the
holders of Depositary Receipts are usually subject to a fee charged by the
depositary. Holders of Depositary Receipts may have limited voting rights, and
investment restrictions in certain countries may adversely impact the value of
Depositary Receipts because such restrictions may limit the ability to convert
equity shares into Depositary Receipts and vice versa. Such restrictions may
cause equity shares of the underlying issuer to trade at a discount or premium
to the market price of the Depositary Receipts.
NON-DIVERSIFICATION RISK. The Fund is classified as "non-diversified" under the
Investment Company Act of 1940, as amended. As a result, the Fund is only
limited as to the percentage of its assets that may be invested in the
securities of any one issuer by the diversification requirements imposed by the
Internal Revenue Code of 1986, as amended. The Fund may invest a relatively high
percentage of its assets in a limited number of issuers. As a result, the Fund
may be more susceptible to a single adverse economic or regulatory occurrence
affecting one or more of these issuers, experience increased volatility and be
highly concentrated in certain issuers.
CASH TRANSACTION RISK. The Fund may, under certain circumstances, effect a
portion of creations and redemptions for cash, rather than in-kind securities,
particularly for the puts and call options in which the Fund invests. As a
result, an investment in the Fund may be less tax-efficient than an investment
in an exchange-traded fund that effects its creations and redemption for in-kind
securities. Because the Fund may effect a portion of redemptions for cash, it
may be required to sell portfolio securities in order to obtain the cash
4
needed to distribute redemption proceeds. A sale of shares may result in capital
gains or losses, and may also result in higher brokerage costs.
NEW FUND RISK. The Fund currently has fewer assets than larger funds, and like
other relatively new funds, large inflows and outflows may impact the Fund's
market exposure for limited periods of time. This impact may be positive or
negative, depending on the direction of market movement during the period
affected.
MANAGEMENT RISK. The Fund is subject to management risk because it is an
actively managed portfolio. In managing the Fund's investment portfolio, the
Advisor will apply investment techniques and risk analyses that may not have the
desired result. There can be no guarantee that the Fund will meet its investment
objective.
SECURITIES LENDING RISK. The Fund may engage in securities lending. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of a decline in the value
of the collateral provided for the loaned securities or a decline in the value
of any investments made with cash collateral. These events could also trigger
adverse tax consequences for the Fund.
PERFORMANCE
The Fund has not yet commenced operations and, therefore, does not have a
performance history. Once available, the Fund's performance information will be
available on the Fund's website at www.ftportfolios.com.
MANAGEMENT
INVESTMENT ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor")
PORTFOLIO MANAGERS
The following persons serve as the portfolio managers of the Fund.
o John Gambla, Senior Portfolio Manager; and
o Rob A. Guttschow, Senior Portfolio Manager.
Each portfolio manager has managed the Fund since inception.
PURCHASE AND SALE OF FUND SHARES
The Fund issues and redeems shares on a continuous basis, at net asset value,
only in Creation Units consisting of 50,000 shares. The Fund's Creation Units
are issued and redeemed principally in-kind, for securities in which the Fund
invests and/or cash, and only to and from broker-dealers and large institutional
investors that have entered into participation agreements. Individual shares may
5
only be purchased and sold on ______ through a broker-dealer. Shares of the Fund
will trade on ______ at market prices rather than net asset value, which may
cause the shares to trade at a price greater than net asset value (premium) or
less than net asset value (discount).
TAX INFORMATION
The Fund's distributions are taxable and will generally be taxed as ordinary
income or capital gains. Distributions on shares held in a tax deferred account,
while not immediately taxable, will be subject to tax when the shares are no
longer held in a tax deferred account.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), First Trust and First Trust Portfolios L.P., the
Fund's distributor, may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
6
ADDITIONAL INFORMATION ON THE FUND'S INVESTMENT OBJECTIVE AND
STRATEGIES
The Fund's investment objective is fundamental and may not be changed without
approval by the holders of a majority of the outstanding voting securities of
the Fund. Unless an investment policy is identified as being fundamental, all
investment policies included in this prospectus and the Fund's Statement of
Additional Information ("SAI") are non-fundamental and may be changed by the
Board of Trustees (the "Board") of the First Trust Exchange-Traded Fund VI (the
"Trust"), of which the Fund is a series, without shareholder approval.
The Fund, under normal market conditions, invests primarily in large cap
U.S.-listed equity securities. Such securities may include non-U.S. securities
that are listed on a U.S. securities exchange in the form of Depositary
Receipts. The Fund will also sell exchange-traded call options on the Index in
order to seek additional cash flow that may be distributed to shareholders on a
monthly basis. A portion of the call option proceeds are used to purchase Index
puts in an attempt to cushion the Fund's performance when the market experiences
severe declines.
The Fund pursues its objective by combining large cap U.S.-listed equity
securities with an index option strategy. The equity portfolio is constructed
using a mathematical optimization process which attempts to tilt the portfolio
toward higher dividend paying stocks. The Fund seeks to maintain a consistent
relationship between the expected gains and losses on the equity portfolio
versus the gains and losses on the call options sold by the Fund, while also
avoiding so-called "tax straddles."
The option portion of the portfolio generally consists of covered calls and long
puts on the Index. The portfolio may also contain put or call options on other
indexes as part of the hedging strategy. The covered call positions are a
laddered portfolio of one week, one month, two month and three month call
options sold at-the-money to slightly out-of-the-money. The hedging positions
typically average two to three months to expiration and consists of
out-of-the-money Index put options.
HEDGING STRATEGIES
Consistent with an exemptive order from the Securities and Exchange Commission,
the Fund may use futures, options, puts, calls and other derivative instruments.
The Fund may utilize derivatives to enhance return, to hedge some of the risks
7
of its investments in securities, as a substitute for a position in the
underlying asset, to reduce transaction costs, to maintain full market exposure
(which means to adjust the characteristics of its investments to more closely
approximate those of the markets in which it invests), to manage cash flows, to
limit exposure to losses due to changes to non-U.S. currency exchange rates or
to preserve capital.
SECURITIES LENDING
Currently, the Fund expects to lend securities representing up to 20% of the
value of its total assets to broker-dealers, banks and other institutions to
generate additional income. When the Fund loans its portfolio securities, it
will receive, at the inception of each loan, cash collateral equal to at least
102% (for domestic securities) or 105% (for international securities) of the
market value of the loaned securities.
FUND INVESTMENTS
PRINCIPAL INVESTMENTS
EQUITY SECURITIES
The Fund invests in equity securities, which include common stocks; preferred
securities; warrants to purchase common stocks or preferred securities;
securities convertible into common stocks or preferred securities; and other
securities with equity characteristics.
DERIVATIVES
The Fund will sell exchange-traded call options on the Index in varying amounts.
The call options will be sold at-the-money to slightly out-of-the-money. When
selling a call option, the Fund will receive a premium; however, this premium
may not be enough to offset a loss incurred by the Fund if the Index level at
the expiration of the call option is above the strike price by an amount equal
to or greater than the premium.
NON-U.S. INVESTMENTS
The Fund may invest in securities issued by non-U.S. companies that are listed
on a U.S. securities exchange.
ADDITIONAL INVESTMENTS
CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
Normally, the Fund invests substantially all of its assets to meet its
investment objective. Under normal market conditions, the Fund may invest up to
10% of its net assets in cash equivalents, or it may hold cash. The percentage
of the Fund invested in such holdings varies and depends on several factors,
including market conditions. For temporary defensive purposes and during periods
8
of high cash inflows or outflows, the Fund may depart from its principal
investment strategies and invest part or all of its assets in these securities
or it may hold cash. During such periods, the Fund may not be able to achieve
its investment objective. The Fund may adopt a defensive strategy when the
Advisor believe securities in which the Fund normally invests have elevated
risks due to political or economic factors and in other extraordinary
circumstances. For more information on eligible short term investments, see the
Fund's SAI.
DISCLOSURE OF PORTFOLIO HOLDINGS
A description of the policies and procedures with respect to the disclosure of
the Fund's portfolio securities is included in the Fund's SAI and on the Fund's
website at www.ftportfolios.com.
ADDITIONAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. Investing in the Fund involves risk,
including the risk that you may lose all or part of your investment. There can
be no assurance that the Fund will meet its stated objective. Before you invest,
you should consider the following risks in addition to the Principal Risks set
forth above in this prospectus:
PRINCIPAL RISKS
CURRENT MARKET CONDITIONS RISK. Domestic and international markets have
experienced a period of decreased economic activity across all sectors of the
world economy, and unemployment remains at increased levels. These market
conditions began with problems in the financial sector, many of which were
caused by defaults on "subprime" mortgages and mortgage-backed securities. These
market conditions increase the risk that the value of the Fund's assets may be
subject to steep declines or increased volatility due to changes in performance
or perception of the issuers.
ISSUER SPECIFIC CHANGES RISK. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can perform
differently from the value of the market as a whole.
DERIVATIVES RISK. In addition to the risks described above in "Principal Risks
-- Derivatives Risk," the use of derivatives presents risks different from, and
possibly greater than, the risks associated with investing directly in
traditional securities. Among the risks presented are market risk, credit risk,
management risk and liquidity risk. The use of derivatives can lead to losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivatives. In
addition, when the Fund invests in certain derivative securities, including, but
not limited to, when-issued securities, forward commitments and futures
contracts, it is effectively leveraging its investments, which could result in
exaggerated changes in the net asset value of the Fund's shares and can result
in losses that exceed the amount originally invested. The success of the
Advisor's derivatives strategies will depend on its ability to assess and
predict the impact of market or economic developments on the underlying asset,
index or rate and the derivative itself, without the benefit of observing the
performance of the
9
derivative under all possible market conditions. Liquidity risk exists when a
security cannot be purchased or sold at the time desired, or cannot be purchased
or sold without adversely affecting the price.
NON-U.S. SECURITIES RISK. In addition to the risks described above in "Principal
Risks -- Non-U.S. Securities Risk," an investment in securities of non-U.S.
companies involves risk not associated with domestic issuers. Non-U.S. countries
may impose higher withholding taxes on dividends and interest than the United
States. Non-U.S. countries may also impose limitations on the use of or transfer
of portfolio assets. Enforcing legal rights may be more difficult, expensive and
time consuming in non-U.S. countries, and investors may force unique problems
enforcing claims against non-U.S. governments.
DEPOSITARY RECEIPTS RISK. In addition to the risks above in "Principal Risks --
Depositary Receipts Risk," an investment in Depositary Receipts involves further
risks due to certain features of Depositary Receipts. Depositary receipts are
usually in the form of ADRs or GDRs. ADRs are U.S. dollar-denominated receipts
representing shares of foreign-based corporations. ADRs are issued by U.S. banks
or trust companies, and entitle the holder to all dividends and capital gains
that are paid out on the underlying foreign shares. GDRs are similar to ADRs,
but are shares of foreign-based corporations generally issued by international
banks in one or more markets around the world. ADRs or GDRs may be less liquid
than the underlying shares in their primary trading market. Any distributions
paid to the holders of Depositary Receipts, whether ADRs or GDRs, are usually
subject to a fee charged by the depositary.
Holders of Depositary Receipts may have limited voting rights pursuant to a
deposit agreement between the underlying issuer and the depositary. In certain
cases, the depositary will vote the equity shares deposited with it as directed
by the underlying issuer's board of directors. Furthermore, investment
restrictions in certain countries may adversely impact the value of Depositary
Receipts because such restrictions may limit the ability to convert equity
shares into Depositary Receipts and vice versa. Such restrictions may cause
equity shares of the underlying issuer to trade at a discount or premium to the
market price of the Depositary Receipt. Moreover, if Depositary Receipts are
converted into equity shares, the laws in certain countries may limit the
ability of a non-resident to trade the equity shares and to reconvert the equity
shares to Depositary Receipts.
Depositary receipts may be "sponsored" or "unsponsored." Sponsored Depositary
Receipts are established jointly by a depositary and the underlying issuer,
whereas unsponsored Depositary Receipts may be established by a depositary
without participation by the underlying issuer. Holders of unsponsored
Depositary Receipts generally bear all the costs associated with establishing
the unsponsored Depositary Receipts. In addition, the issuers of the securities
underlying unsponsored Depositary Receipts are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the Depositary Receipts.
10
Depositary receipts may be unregistered and unlisted. The Fund's investments may
also include Depositary Receipts that are not purchased in the public markets
and are restricted securities that can be offered and sold only to "qualified
institutional buyers" under Rule 144A under the Securities Act. Moreover, if
adverse market conditions were to develop during the period between the Fund's
decision to sell these types of Depositary Receipts and the point at which the
Fund is permitted or able to sell such security, the Fund might obtain a price
less favorable than the price that prevailed when it decided to sell.
NEW FUND RISK. The Fund currently has less assets than larger funds, and like
other relatively new funds, large inflows and outflows may impact the Fund's
market exposure for limited periods of time, causing the Fund's performance to
vary from that of the Fund's model portfolio. This impact may be positive or
negative, depending on the direction of market movement during the period
affected.
RISK OF CASH TRANSACTIONS. In addition to the risks described above in
"Principal Risks--Cash Transactions Risk," an investment in the Fund involves
further risk due to cash transactions. Unlike most exchange-traded funds, the
Fund may effect a portion of creations and redemptions for cash, rather than
in-kind securities, particularly for the puts and call options in which the Fund
invests. As a result, an investment in the Fund may be less tax-efficient than
an investment in a more conventional exchange-traded fund. Because the Fund may
effect a portion of redemptions for cash, rather than in-kind distributions, it
may be required to sell portfolio securities in order to obtain the cash needed
to distribute redemption proceeds. Any recognized gain on these sales by the
Fund will generally cause the Fund to recognize gain it might not otherwise have
recognized, or to recognize such gain sooner than would otherwise be required if
it were to distribute portfolio securities in-kind. The Fund generally
distributes these gains to shareholders to avoid being taxed on this gain at the
fund level and otherwise comply with the special tax rules that apply to it.
This strategy may cause shareholders to be subject to tax on gains they would
not otherwise be subject to, or at an earlier date than if they had made an
investment in a different exchange-traded fund. Moreover, cash transactions may
have to be carried out over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and taxes. These brokerage
fees and taxes, which will be higher than if the Fund sold and redeemed its
shares principally in-kind, will be passed on to those purchasing and redeeming
Creation Units in the form of creation and redemption transaction fees. In
addition, these factors may result in wider spreads between the bid and the
offered prices of the Fund's shares than for more conventional exchange-traded
funds.
ADDITIONAL RISKS
INFLATION RISK. Inflation risk is the risk that the value of assets or income
from investments will be less in the future as inflation decreases the value of
money. As inflation increases, the value of the Fund's assets can decline as can
the value of the Fund's distributions. Common stock prices may be particularly
sensitive to rising interest rates, as the cost of capital rises and borrowing
costs increase.
11
MANAGEMENT RISK. The Fund is subject to management risk because it has an
actively managed portfolio. The Advisor will apply investment techniques and
risk analyses in making investment decisions for the Fund, but there can be no
guarantee that the Fund will achieve its investment objectives.
DEPENDENCE ON KEY PERSONNEL. The Advisor is dependent upon the experience and
expertise of Messrs. Gambla and Guttschow in providing advisory services with
respect to the Fund's investments. If the Advisor were to lose the services of
any of these individuals, its ability to service the Fund could be adversely
affected. There can be no assurance that a suitable replacement could be found
for any of Messrs. Gambla and Guttschow in the event of their death,
resignation, retirement or inability to act on behalf of the Advisor.
BORROWING AND LEVERAGE RISK. If the Fund borrows money, it must pay interest and
other fees, which will reduce the Fund's returns if such costs exceed the
returns on the portfolio securities purchased or retained with such borrowings.
Any such borrowings are intended to be temporary. However, under certain market
conditions, including periods of low demand or decreased liquidity, such
borrowings might be outstanding for longer periods of time. As prescribed by the
Investment Company Act of 1940 (the "1940 Act"), the Fund will be required to
maintain specified asset coverages of at least 300% with respect to any bank
borrowing immediately following such borrowing. The Fund may be required to
dispose of assets on unfavorable terms if market fluctuations or other factors
reduce the Fund's asset coverage to less than the prescribed amount.
SECURITIES LENDING RISK. The Fund may lend securities to broker-dealers, banks,
and other institutions to generate additional income. Under the Fund's
securities lending agreement, the securities lending agent will generally bear
the risk that a borrower may default on its obligation to return loaned
securities. The Fund, however, will be responsible for the risks associated with
the investment of cash collateral. The Fund may lose money on its investment of
cash collateral or may fail to earn sufficient income on its investment to meet
its obligations to the borrower.
When a dividend is paid on a security that is out on loan, the borrower receives
the dividend and in turn makes a payment of the same amount to the Fund.
Dividends, if they constitute "qualified dividends," are taxable at the same
rate as long-term capital gains. These payments made by borrowers, however, are
not qualified dividends, and are taxable at higher ordinary income rates. As a
result, some of the distributions received by shareholders who hold Fund shares
in taxable accounts may be subject to taxation at a higher rate than if the Fund
had not loaned its portfolio securities.
TRADING ISSUES
Although the Fund lists and trades its shares on ______, there can be no
assurance that an active trading market for such shares will develop or be
maintained. Trading in shares on ______ may be halted due to market conditions
or for reasons that, in the view of ______, make trading in shares inadvisable.
In addition, trading in shares on ______ is subject to trading halts caused by
extraordinary market volatility pursuant to ______ "circuit breaker" rules.
12
There can be no assurance that the requirements of ______ necessary to maintain
the listing of the Fund will continue to be met or will remain unchanged. Due to
the initial small asset size of the Fund, it is may have difficulty maintaining
its listing on ______.
FLUCTUATION OF NET ASSET VALUE
The net asset value of shares of the Fund will generally fluctuate with changes
in the market value of the Fund's holdings. The market prices of shares will
generally fluctuate in accordance with changes in net asset value as well as the
relative supply of and demand for shares on ______. First Trust cannot predict
whether shares will trade below, at or above their net asset value. Price
differences may be due, in large part, to the fact that supply and demand forces
at work in the secondary trading market for shares will be closely related to,
but not identical to, the same forces influencing the prices of the holdings of
the Fund trading individually or in the aggregate at any point in time. However,
given that shares can only be purchased and redeemed in Creation Units (unlike
shares of closed-end funds, which frequently trade at appreciable discounts
from, and sometimes at premiums to, their net asset value), First Trust believes
that large discounts or premiums to the net asset value of shares should not be
sustained.
FUND ORGANIZATION
The Fund is a series of the Trust, an investment company registered under the
1940 Act. The Fund is treated as a separate fund with its own investment
objective and policies. The Trust is organized as a Massachusetts business
trust. Its Board is responsible for the overall management and direction of the
Trust. The Board elects the Trust's officers and approves all significant
agreements, including those with the investment advisor, custodian and fund
administrative and accounting agent.
MANAGEMENT OF THE FUND
First Trust Advisors L.P. ("First Trust" or the "Advisor"), 120 East Liberty
Drive, Wheaton, Illinois 60187, is the investment advisor to the Fund. In this
capacity, First Trust is responsible for the selection and ongoing monitoring of
the securities in the Fund's portfolio and certain other services necessary for
the management of the portfolio.
First Trust is a limited partnership with one limited partner, Grace Partners of
DuPage L.P., and one general partner, The Charger Corporation. Grace Partners of
DuPage L.P. is a limited partnership with one general partner, The Charger
Corporation, and a number of limited partners. The Charger Corporation is an
Illinois corporation controlled by James A. Bowen, the Chief Executive Officer
of First Trust. First Trust discharges its responsibilities subject to the
policies of the Board.
First Trust serves as advisor or sub-advisor for __ mutual fund portfolios, ____
exchange traded funds consisting of __ series and __ closed-end funds and is
also the portfolio supervisor of certain unit investment trusts sponsored by
First Trust Portfolios L.P. ("FTP"), 120 East Liberty Drive, Wheaton, Illinois
13
60187. FTP specializes in the underwriting, trading and distribution of unit
investment trusts and other securities. FTP is the principal underwriter of the
shares of the Fund.
To implement the investment strategy, the Advisor combines a rigorous
fundamental credit selection process that includes fundamental research and
relative value analysis when selecting investment opportunities. The Advisor
believes that an evolving investment environment offers varying degrees of
investment risk opportunities in the fixed income markets. In order to
capitalize on attractive investments and effectively manage potential risk, the
Advisor believes that the combination of thorough and continuous credit
analysis, market evaluation, diversification and the ability to reallocate
investments is critical to achieving higher risk-adjusted returns.
John Gambla and Rob A. Guttschow are the Fund's portfolio managers and share
responsibilities for the day-to-day management of the Fund's investment
portfolio.
o JOHN GAMBLA, CFA is a Senior Portfolio Manager for the Alternative and
Equity Investment Team at First Trust. Mr. Gambla has 20 years of
investment experience, most recently as co-Chief Investment Officer at the
Nuveen HydePark Group LLC, a wholly-owned subsidiary of Nuveen
Investments. While at HydePark, John co-directed HydePark's investment
activities including research, product development, trading, portfolio
management, and performance attribution. Mr. Gambla also lead the research
systems and infrastructure development for HydePark and is recognized as
the creator of the Benjamin Graham Intelligent Value Indices. Previously,
Mr. Gambla was a Senior Trader and Quantitative specialist at Nuveen Asset
Management. While there, he was responsible for trading all derivatives
for the 120+ municipal mutual funds with Nuveen Asset Management. Mr.
Gambla, has served in a variety of roles throughout his career including:
portfolio management, research, business development and strategy
development. Mr Gambla graduated Phi Beta Kappa with a Bachelor of Science
in genetics and developmental biology (Cum Laude) and a Bachelor of Arts
in finance (departmental distinction) from the University of Illinois at
Urbana/Champaign, and earned an MBA from the University of Chicago's
Graduate School of Business. He is a CFA Charterholder and holds FRM and
PRM designations.
o ROB A. GUTTSCHOW, CFA is a Senior Portfolio Manager for the Alternative
and Equity Investment Team at First Trust. Mr. Guttschow has nearly 20
years of investment experience, most recently as co-Chief Investment
Officer at the Nuveen HydePark Group LLC, a wholly-owned subsidiary of
Nuveen Investments. While at HydePark, Mr. Guttschow co-directed
HydePark's investment activities including research, product development,
trading, portfolio management, and performance attribution. Prior to
joining the firm, Mr. Guttschow was an Overlay Manager and Senior
Portfolio Manager at Nuveen Asset Management, a wholly-owned subsidiary of
Nuveen Investments. While there, he developed Nuveen's buy-side derivative
desk for fixed income and equity portfolio hedging. Previously, Mr.
Guttschow was a Partner, Managing Director and Senior Portfolio Manager at
Lotsoff Capital Management. While at Lotsoff, he was responsible for
14
managing a variety of fixed income and equity based enhanced index
products for the firm's institutional clients. Mr. Guttschow earned a
Bachelor of Science degree in engineering and an MBA from the University
of Illinois at Urbana/Champaign. He is a CFA Charter holder and a member
of the CFA Society of Chicago.
For additional information concerning First Trust, including a description of
the services provided to the Fund, See the SAI. Additional information about the
portfolio managers' compensation, other accounts managed by the portfolio
managers and the portfolio managers' ownership of securities in the Fund is
provided in the SAI.
MANAGEMENT FEE
Pursuant to the Investment Management Agreement, First Trust will manage the
investment of the Fund's assets and will be responsible for the Fund's expenses,
including the cost of transfer agency, custody, fund administration, legal,
audit and other services, but excluding fee payments under the Investment
Management Agreement, interest, taxes, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service
fees pursuant to a 12b-1 plan, if any, and extraordinary expenses. The Fund has
agreed to pay First Trust an annual management fee equal to 0.85% of its average
daily net assets. As of the date of this prospectus, the Fund has neither
commenced operations nor paid management fees.
A discussion regarding the Board's approval of the Investment Management
Agreement will be available in the Fund's Annual Report to Shareholders for the
period ended ________, 20__.
HOW TO BUY AND SELL SHARES
Most investors will buy and sell shares of the Fund in secondary market
transactions through brokers. Shares of the Fund are expected to be listed for
trading on the secondary market on ______. Shares can be bought and sold
throughout the trading day like other publicly traded shares. There is no
minimum investment when buying shares on ______. Although shares are generally
purchased and sold in "round lots" of 100 shares, brokerage firms typically
permit investors to purchase or sell shares in smaller "odd lots," at no
per-share price differential. When buying or selling shares through a broker,
investors should expect to incur customary brokerage commissions, investors may
receive less than the net asset value of the shares because shares are brought
and sold at market prices rather than net asset value, and investors may pay
some or all of the spread between the bid and the offer price in the secondary
market on each leg of a round trip (purchase and sale) transaction. Share prices
are reported in dollars and cents per share.
For purposes of the 1940 Act, the Fund is treated as a registered investment
company, and the acquisition of shares by other registered investment companies
is subject to the restrictions of Section 12(d)(1) of the 1940 Act. The Trust,
on behalf of the Fund, has received an exemptive order from the Securities and
Exchange Commission that permits certain registered investment companies to
invest in the Fund beyond the limits set forth in
15
Section 12(d)(1), subject to certain terms and conditions, including that any
such investment companies enter into an agreement with the Fund regarding the
terms of any investment.
BOOK ENTRY
Shares are held in book-entry form, which means that no share certificates are
issued. The Depository Trust Company ("DTC") or its nominee is the record owner
of all outstanding shares of the Fund and is recognized as the owner of all
shares for all purposes.
Investors owning shares are beneficial owners as shown on the records of DTC or
its participants. DTC serves as the securities depository for all shares.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
shares, you are not entitled to receive physical delivery of share certificates
or to have shares registered in your name, and you are not considered a
registered owner of shares. Therefore, to exercise any right as an owner of
shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other stocks that you hold in
book-entry or "street name" form.
SHARE TRADING PRICES
The trading prices of shares of the Fund on ______ may differ from the Fund's
daily net asset value and can be affected by market forces of supply and demand,
economic conditions and other factors.
Information regarding the intra-day value of the shares of the Fund, also
referred to as the "indicative optimized portfolio value" ("IOPV"), is
disseminated every 15 seconds throughout the Fund's trading day by the national
securities exchange on which the shares are listed or by market data vendors or
other information providers. The IOPV should not be viewed as a "real-time"
update of the net asset value per share of the Fund because the IOPV may not be
calculated in the same manner as the net asset value, which is computed once a
day, generally at the end of the business day. The price of a non-U.S. security
that is primarily traded on a non-U.S. exchange will be updated, using the last
sale price, every 15 seconds throughout the trading day, provided, that upon the
closing of such non-U.S. exchange, the closing price of the security, after
being converted to U.S. dollars, will be used. Furthermore, in calculating the
IOPV of the Fund's shares, exchange rates may be used throughout the day (9:00
a.m. to 4:15 p.m., Eastern time) that may differ from those used to calculate
the net asset value per share of the Fund and consequently may result in
differences between the net asset value and the IOPV. The Fund is not involved
in, or responsible for, the calculation or dissemination of the IOPV of shares
of the Fund and the Fund does not make any warranty as to its accuracy.
FREQUENT PURCHASES AND REDEMPTIONS OF THE FUND'S SHARES
The Fund imposes no restrictions on the frequency of purchases and redemptions
("market timing"). In determining not to approve a written, established policy,
the Board evaluated the risks of market timing activities by the Fund's
shareholders. The Board considered that, unlike traditional mutual funds, the
Fund issues and redeems its shares at net asset value per share, generally for a
16
basket of securities intended to mirror the Fund's portfolio, plus a small
amount of cash, and the shares may be purchased and sold on ____________ at
prevailing market prices. The Board noted that the Fund's shares can only be
purchased and redeemed directly from the Fund in Creation Units by
broker-dealers and large institutional investors that have entered into
participation agreements (i.e., authorized participants ("APs")), and that the
vast majority of trading in the shares occurs on the secondary market. Because
the secondary market trades do not involve the Fund directly, it is unlikely
those trades would cause many of the harmful effects of market timing,
including: dilution, disruption of portfolio management, increases in the Fund's
trading costs and the realization of capital gains. With respect to trades
directly with the Fund, to the extent effected in-kind (i.e., for securities),
those trades do not cause any of the harmful effects (as noted above) that may
result from frequent cash trades. To the extent trades are effected in whole or
in part in cash, the Board noted that those trades could result in dilution to
the Fund and increased transaction costs, which could negatively impact the
Fund's ability to achieve its investment objective. However, the Board noted
that direct trading by APs is critical to ensuring that the shares trade at or
close to net asset value. The Fund also employs fair valuation pricing to
minimize potential dilution from market timing. The Fund imposes transaction
fees on in-kind purchases and redemptions of shares to cover the custodial and
other costs incurred by the Fund in executing in-kind trades, and with respect
to the redemption fees, these fees increase if an investor substitutes cash in
part or in whole for securities, reflecting the fact that the Fund's trading
costs increase in those circumstances. Given this structure, the Board
determined that it is not necessary to adopt policies and procedures to detect
and deter market timing of the Fund's shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends from net investment income, if any, are declared and paid monthly by
the Fund. The Fund distributes its net realized capital gains, if any, to
shareholders at least annually.
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom you purchased shares makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker.
FEDERAL TAX MATTERS
This section summarizes some of the main U.S. federal income tax consequences of
owning shares of the Fund. This section is current as of the date of this
prospectus. Tax laws and interpretations change frequently, and these summaries
do not describe all of the tax consequences to all taxpayers. For example, these
summaries generally do not describe your situation if you are a corporation, a
non-U.S. person, a broker-dealer, or other investor with special circumstances.
In addition, this section does not describe your state, local or non-U.S. tax
consequences.
This federal income tax summary is based in part on the advice of counsel to the
Fund. The Internal Revenue Service could disagree with any conclusions set forth
17
in this section. In addition, counsel to the Fund was not asked to review, and
has not reached a conclusion with respect to, the federal income tax treatment
of the assets to be included in the Fund. This may not be sufficient for you to
use for the purpose of avoiding penalties under federal tax law.
As with any investment, you should seek advice based on your individual
circumstances from your own tax advisor.
FUND STATUS
The Fund intends to continue to qualify as a "regulated investment company"
under the federal tax laws. If the Fund qualifies as a regulated investment
company and distributes its income as required by the tax law, the Fund
generally will not pay federal income taxes.
DISTRIBUTIONS
The Fund's distributions are generally taxable. After the end of each year, you
will receive a tax statement that separates the distributions of the Fund into
two categories, ordinary income distributions and capital gains dividends.
Ordinary income distributions are generally taxed at your ordinary tax rate,
however, as further discussed below, certain ordinary income distributions
received from the Fund may be taxed at the capital gains tax rates. Generally,
you will treat all capital gain dividends as long-term capital gains regardless
of how long you have owned your shares. To determine your actual tax liability
for your capital gains dividends, you must calculate your total net capital gain
or loss for the tax year after considering all of your other taxable
transactions, as described below. In addition, the Fund may make distributions
that represent a return of capital for tax purposes and thus will generally not
be taxable to you; however, such distributions may reduce basis, which could
result in you having to pay higher taxes in the future when shares are sold,
even if you sell the shares at a loss from your original investment. The tax
status of your distributions from the Fund is not affected by whether you
reinvest your distributions in additional shares or receive them in cash. The
income from the Fund that you must take into account for federal income tax
purposes is not reduced by amounts used to pay a deferred sales fee, if any. The
tax laws may require you to treat distributions made to you in January as if you
had received them on December 31 of the previous year.
Under the "Health Care and Education Reconciliation Act of 2010," income from
the Fund may also be subject to a new 3.8 % "Medicare tax" imposed for taxable
years beginning after 2012. This tax will generally apply to your net investment
income if your adjusted gross income exceeds certain threshold amounts, which
are $250,000 in the case of married couples filing joint returns and $200,000 in
the case of single individuals.
DIVIDENDS RECEIVED DEDUCTION
A corporation that owns shares generally will not be entitled to the dividends
received deduction with respect to many dividends received from the Fund because
the dividends received deduction is generally not available for distributions
from regulated investment companies. However, certain ordinary income dividends
18
on shares that are attributable to qualifying dividends received by the Fund
from certain corporations may be reported by the Fund as being eligible for the
dividends received deduction.
CAPITAL GAINS AND LOSSES AND CERTAIN ORDINARY INCOME DIVIDENDS
If you are an individual, the maximum marginal federal tax rate for net capital
gain is generally 15% (generally 0% for certain taxpayers in the 10% and 15% tax
brackets). These capital gain rates are generally effective for taxable years
beginning before January 1, 2013. For later periods, if you are an individual,
the maximum marginal federal tax rate for net capital gain is generally 20% (10%
for certain taxpayers in the 10% and 15% tax brackets). The 20% rate is reduced
to 18% for net capital gains from most property acquired after December 31, 2000
with a holding period of more than five years, and the 10% rate is reduced to 8%
for net capital gains from most property (regardless of when acquired) with a
holding period of more than five years.
Net capital gain equals net long-term capital gain minus net short-term capital
loss for the taxable year. Capital gain or loss is long-term if the holding
period for the asset is more than one year and is short-term if the holding
period for the asset is one year or less. You must exclude the date you purchase
your shares to determine your holding period. However, if you receive a capital
gain dividend from the Fund and sell your shares at a loss after holding it for
six months or less, the loss will be recharacterized as long-term capital loss
to the extent of the capital gain dividend received. The tax rates for capital
gains realized from assets held for one year or less are generally the same as
for ordinary income. The Internal Revenue Code of 1986, as amended, treats
certain capital gains as ordinary income in special situations.
Ordinary income dividends received by an individual shareholder from a regulated
investment company such as the Fund are generally taxed at the same rates that
apply to net capital gain (as discussed above), provided certain holding period
requirements are satisfied and provided the dividends are attributable to
qualifying dividends received by the Fund itself. These special rules relating
to the taxation of ordinary income dividends from regulated investment companies
generally apply to taxable years beginning before January 1, 2013. The Fund will
provide notice to its shareholders of the amount of any distribution which may
be taken into account as a dividend which is eligible for the capital gains tax
rates.
SALE OF SHARES
If you sell or redeem your shares, you will generally recognize a taxable gain
or loss. To determine the amount of this gain or loss, you must subtract your
tax basis in your shares from the amount you receive in the transaction. Your
tax basis in your shares is generally equal to the cost of your shares,
generally including sales charges. In some cases, however, you may have to
adjust your tax basis after you purchase your shares.
TAXES ON PURCHASE AND REDEMPTION OF CREATION UNITS
If you exchange equity securities for Creation Units you will generally
recognize a gain or a loss. The gain or loss will be equal to the difference
19
between the market value of the Creation Units at the time and your aggregate
basis in the securities surrendered and the cash component paid. If you exchange
Creation Units for equity securities, you will generally recognize a gain or
loss equal to the difference between your basis in the Creation Units and the
aggregate market value of the securities received and the cash redemption
amount. The Internal Revenue Service, however, may assert that a loss realized
upon an exchange of securities for Creation Units or Creation Units for
securities cannot be deducted currently under the rules governing "wash sales,"
or on the basis that there has been no significant change in economic position.
DEDUCTIBILITY OF FUND EXPENSES
Expenses incurred and deducted by the Fund will generally not be treated as
income taxable to you. In some cases, however, you may be required to treat your
portion of these Fund expenses as income. In these cases you may be able to take
a deduction for these expenses. However, certain miscellaneous itemized
deductions, such as investment expenses, may be deducted by individuals only to
the extent that all of these deductions exceed 2% of the individual's adjusted
gross income.
NON-U.S. TAX CREDIT
Because the Fund invests in non-U.S. securities, the tax statement that you
receive may include an item showing non-U.S. taxes the Fund paid to other
countries. In this case, dividends taxed to you will include your share of the
taxes the Fund paid to other countries. You may be able to deduct or receive a
tax credit for your share of these taxes.
NON-U.S. INVESTORS
If you are a non-U.S. investor (i.e., an investor other than a U.S. citizen or
resident or a U.S. corporation, partnership, estate or trust), you should be
aware that, generally, subject to applicable tax treaties, distributions from
the Fund will be characterized as dividends for federal income tax purposes
(other than dividends which the Fund properly reports as capital gain dividends)
and will be subject to U.S. federal income taxes, including withholding taxes,
subject to certain exceptions described below. However, distributions received
by a non-U.S. investor from the Fund that are properly reported by the Fund as
capital gain dividends may not be subject to U.S. federal income taxes,
including withholding taxes, provided that the Fund makes certain elections and
certain other conditions are met.
Distributions after December 31, 2013 may be subject to a U.S. withholding tax
of 30% in the case of distributions to (i) certain non-U.S. financial
institutions that have not entered into an agreement with the U.S. Treasury to
collect and disclose certain information and (ii) certain other non-U.S.
entities that do not provide certain certifications and information about the
entity's U.S. owners. Dispositions of shares by such persons may be subject to
such withholding after December 31, 2014.
INVESTMENTS IN CERTAIN NON-U.S. CORPORATIONS
If the Fund holds an equity interest in any PFICs, which are generally certain
non-U.S. corporations that receive at least 75% of their annual gross income
from passive sources (such as interest, dividends, certain rents and royalties
or capital gains) or that hold at least
20
50% of their assets in investments producing such passive income, the Fund could
be subject to U.S. federal income tax and additional interest charges on gains
and certain distributions with respect to those equity interests, even if all
the income or gain is timely distributed to its shareholders. The Fund will not
be able to pass through to its shareholders any credit or deduction for such
taxes. The Fund may be able to make an election that could ameliorate these
adverse tax consequences. In this case, the Fund would recognize as ordinary
income any increase in the value of such PFIC shares, and as ordinary loss any
decrease in such value to the extent it did not exceed prior increases included
in income. Under this election, the Fund might be required to recognize in a
year income in excess of its distributions from PFICs and its proceeds from
dispositions of PFIC stock during that year, and such income would nevertheless
be subject to the distribution requirement and would be taken into account for
purposes of the 4% excise tax. Dividends paid by PFICs will not be treated as
qualified dividend income.
DISTRIBUTION PLAN
FTP serves as the distributor of Creation Units for the Fund on an agency basis.
FTP does not maintain a secondary market in shares.
The Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1
under the 1940 Act. In accordance with its Rule 12b-1 plan, the Fund is
authorized to pay an amount up to 0.__% of its average daily net assets each
year to reimburse FTP for amounts expended to finance activities primarily
intended to result in the sale of Creation Units or the provision of investor
services. FTP may also use this amount to compensate securities dealers or other
persons that are APs for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
The Fund does not currently pay 12b-1 fees, and pursuant to a contractual
arrangement, the Fund will not pay 12b-1 fees any time before _________.
However, in the event 12b-1 fees are charged in the future, because these fees
are paid out of the Fund's assets, over time these fees will increase the cost
of your investment and may cost you more than certain other types of sales
charges.
NET ASSET VALUE
The Fund's net asset value is determined as of the close of trading (normally
4:00 p.m., Eastern time) on each day the New York Stock Exchange is open for
business. Net asset value is calculated for the Fund by taking the market price
of the Fund's total assets, including interest or dividends accrued but not yet
collected, less all liabilities, and dividing such amount by the total number of
shares outstanding. The result, rounded to the nearest cent, is the net asset
value per share. All valuations are subject to review by the Board or its
delegate.
The Fund's investments are valued daily in accordance with valuation procedures
adopted by the Fund's Board of Trustees, and in accordance with provisions of
the 1940 Act. The securities in which the Fund may invest are not listed on any
21
securities exchange or board of trade. High yield debt securities are typically
bought and sold by institutional investors in individually negotiated private
transactions that function in many respects like an over-the-counter secondary
market, although typically no formal market-makers exist. This market, while
having grown substantially since its inception, generally has fewer trades and
less liquidity than the secondary market for other types of securities. Some
debt securities have few or no trades, or trade infrequently, and information
regarding a specific security may not be widely available or may be incomplete.
Accordingly, determinations of the fair value of debt securities may be based on
infrequent and dated information. Because there is less reliable, objective data
available, elements of judgment may play a greater role in valuation of debt
securities than for other types of securities. Typically, debt securities are
valued using information provided by a third party pricing service. The third
party pricing service primarily uses broker quotes to value the securities.
The Fund's investments are valued at market value or, in the absence of market
value with respect to any portfolio securities, at fair value in accordance with
valuation procedures adopted by the Trust's Board of Trustees and in accordance
with the 1940 Act. Portfolio securities listed on any exchange other than The
NASDAQ(R) Stock Market Inc. ("NASDAQ(R)") and the London Stock Exchange
Alternative Investment Market ("AIM") are valued at the last sale price on the
business day as of which such value is being determined. Securities listed on
the NASDAQ(R) or the AIM are valued at the official closing price on the
business day as of which such value is being determined. If there has been no
sale on such day, or no official closing price in the case of securities traded
on NASDAQ(R) or the AIM, the securities are valued at the mean of the most
recent bid and ask prices on such day. Portfolio securities traded on more than
one securities exchange are valued at the last sale price or official closing
price, as applicable, on the business day as of which such value is being
determined at the close of the exchange representing the principal market for
such securities. Portfolio securities traded in the over-the-counter market, but
excluding securities trading on NASDAQ(R) and the AIM, are valued at the closing
bid prices. Short-term investments that mature in less than 60 days when
purchased are valued at amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board or its delegate at fair
value. The use of fair value pricing by the Fund is governed by valuation
procedures adopted by the Board and in accordance with the provisions of the
1940 Act. These securities generally include, but are not limited to, certain
restricted securities (securities which may not be publicly sold without
registration under the Securities Act) for which a pricing service is unable to
provide a market price; securities whose trading has been formally suspended; a
security whose market price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's net asset value or make it difficult or
impossible to obtain a reliable market quotation; and a security whose price, as
provided by the pricing service, does not reflect the security's "fair value."
As a general principle, the current "fair value" of a security would appear to
be the amount which the owner might reasonably expect to receive for the
security upon its current sale. The use of fair value prices by the Fund
generally results in the prices used by the Fund that may differ from current
market quotations or official closing prices on the applicable exchange. A
22
variety of factors may be considered in determining the fair value of such
securities. See the Fund's SAI for details.
Valuing the Fund's securities using fair value pricing will result in using
prices for those securities that may differ from current market valuations.
Because foreign securities exchanges may be open on different days than the days
during which an investor may purchase or sell shares of the Fund, the value of
the Fund's securities may change on days when investors are not able to purchase
or sell shares of the Fund. The value of securities denominated in foreign
currencies is converted into U.S. dollars at the exchange rates in effect at the
time of valuation.
FUND SERVICE PROVIDERS
______________________ acts as the administrator, accounting agent, custodian
and transfer agent to the Fund. Chapman and Cutler LLP, 111 West Monroe Street,
Chicago, Illinois 60603, serves as legal counsel to the Fund. First Trust serves
as the fund reporting agent for the Fund.
PREMIUM/DISCOUNT INFORMATION
The Fund has not yet commenced operations and, therefore, does not have
information about the differences between the Fund's daily market price on
______ and its net asset value. Once the Fund has commenced operations, this
information will be available on the Fund's website at www.ftportfolios.com.
OTHER INFORMATION
CONTINUOUS OFFERING
The Fund will issue, on a continuous offering basis, its shares in one or more
groups of a fixed number of Fund shares (each such group of such specified
number of individual Fund shares, a "Creation Unit Aggregation"). The method by
which Creation Unit Aggregations of Fund shares are created and traded may raise
certain issues under applicable securities laws. Because new Creation Unit
Aggregations of shares are issued and sold by the Fund on an ongoing basis, a
"distribution," as such term is used in the Securities Act, may occur at any
point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner which could render them statutory
underwriters and subject them to the prospectus delivery requirement and
liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with
FTP, breaks them down into constituent shares and sells such shares directly to
customers, or if it chooses to couple the creation of a supply of new shares
with an active selling effort involving solicitation of secondary market demand
for shares. A determination of whether one is an underwriter for purposes of the
23
Securities Act must take into account all the facts and circumstances pertaining
to the activities of the broker-dealer or its client in the particular case, and
the examples mentioned above should not be considered a complete description of
all the activities that could lead to a characterization as an underwriter.
Broker-dealer firms should also note that dealers who are not "underwriters" but
are effecting transactions in shares, whether or not participating in the
distribution of shares, are generally required to deliver a prospectus. This is
because the prospectus delivery exemption in Section 4(3) of the Securities Act
is not available in respect of such transactions as a result of Section 24(d) of
the 1940 Act. The Trust, on behalf of the Fund, however, has received from the
Securities and Exchange Commission an exemption from the prospectus delivery
obligation in ordinary secondary market transactions under certain
circumstances, on the condition that purchasers are provided with a product
description of the shares. As a result, broker-dealer firms should note that
dealers who are not underwriters but are participating in a distribution (as
contrasted with ordinary secondary market transactions) and thus dealing with
the shares that are part of an overallotment within the meaning of Section
4(3)(C) of the Securities Act would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(3)(c) of the Securities Act.
Firms that incur a prospectus delivery obligation with respect to shares are
reminded that, under the Securities Act Rule 153, a prospectus delivery
obligation under Section 5(b)(2) of the Securities Act owed to a broker-dealer
in connection with a sale on ______ is satisfied by the fact that the prospectus
is available from ______ upon request. The prospectus delivery mechanism
provided in Rule 153 is available with respect to transactions on a national
securities exchange, a trading facility or an alternative trading system.
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25
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26
FIRST TRUST ENHANCED LOW BETA INCOME ETF
FOR MORE INFORMATION
For more detailed information on the Fund, several additional sources of
information are available to you. The SAI, incorporated by reference into this
prospectus, contains detailed information on the Fund's policies and operation.
Additional information about the Fund's investments is available in the annual
and semi-annual reports to Shareholders. In the Fund's annual reports, you will
find a discussion of the market conditions and investment strategies that
significantly impacted the Fund's performance during the last fiscal year. The
Fund's most recent SAI, annual or semi-annual reports and certain other
information are available free of charge by calling the Fund at (800) 621-1675,
on the Fund's website at www.ftportfolios.com or through your financial advisor.
Shareholders may call the toll-free number above with any inquiries.
You may obtain this and other information regarding the Fund, including the
Codes of Ethics adopted by First Trust, FTP and the Trust, directly from the
Securities and Exchange Commission (the "SEC"). Information on the SEC's website
is free of charge. Visit the SEC's on-line EDGAR database at http://www.sec.gov
or in person at the SEC's Public Reference Room in Washington, D.C., or call the
SEC at (202) 551-8090 for information on the Public Reference Room. You may also
request information regarding the Fund by sending a request (along with a
duplication fee) to the SEC's Public Reference Section, 100 F Street, N.E.,
Washington, D.C. 20549-1520 or by sending an electronic request to
publicinfo@sec.gov.
First Trust Advisors L.P.
120 East Liberty Drive
Suite 400
Wheaton, Illinois 60187
(800) 621-1675 SEC File #: 333-182308
www.ftportfolios.com 811-22717
Preliminary Statement of Additional Information
Dated January 16, 2013
Subject to Completion
|
The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer of sale is not permitted.
STATEMENT OF ADDITIONAL INFORMATION
INVESTMENT COMPANY ACT FILE NO. 811-22717
FIRST TRUST EXCHANGE-TRADED FUND VI
TICKER
FUND NAME SYMBOL EXCHANGE
FIRST TRUST ENHANCED LOW BETA INCOME ETF
DATED __________, 2013
This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with the Prospectus dated _________, 2013 for
First Trust Enhanced Low Beta Income ETF (the "Fund"), a series of the First
Trust Exchange-Traded Fund VI (the "Trust"), as it may be revised from time to
time (the "Prospectus"). Capitalized terms used herein that are not defined have
the same meaning as in the Prospectus, unless otherwise noted. A copy of the
Prospectus may be obtained without charge by writing to the Trust's distributor,
First Trust Portfolios L.P., 120 East Liberty Drive, Suite 400, Wheaton,
Illinois 60187, or by calling toll free at (800) 621-1675.
TABLE OF CONTENTS
GENERAL DESCRIPTION OF THE TRUST AND THE FUND..................................1
EXCHANGE LISTING AND TRADING...................................................3
INVESTMENT OBJECTIVE AND POLICIES..............................................4
INVESTMENT STRATEGIES..........................................................5
INVESTMENT RISKS..............................................................11
FUND MANAGEMENT OF THE FUND...................................................16
BROKERAGE ALLOCATIONS.........................................................28
CUSTODIAN, ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT..................29
ADDITIONAL INFORMATION........................................................31
PROXY VOTING POLICIES AND PROCEDURES..........................................33
CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS.........................34
FEDERAL TAX MATTERS...........................................................43
DETERMINATION OF NAV..........................................................49
DIVIDENDS AND DISTRIBUTIONS...................................................51
MISCELLANEOUS INFORMATION.....................................................51
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GENERAL DESCRIPTION OF THE TRUST AND THE FUND
The Trust was organized as a Massachusetts business trust on June 4, 2012
and is authorized to issue an unlimited number of shares in one or more series
or "Funds." The Trust is an open-end management investment company, registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust
currently offers shares in two series, the First Trust NASDAQ Technology
Dividend Index Fund, a non-diversified series, and the Multi-Asset Diversified
Income Index Fund, a diversified series.
This SAI relates to the Fund. The shares of the Fund are referred to
herein as "Shares" or "Fund Shares." The Fund, a non-diversified series of the
Trust, represents a beneficial interest in a separate portfolio of securities
and other assets, with its own objective and policies.
The Board of Trustees of the Trust (the "Board of Trustees" or the
"Trustees") has the right to establish additional series in the future, to
determine the preferences, voting powers, rights and privileges thereof and to
modify such preferences, voting powers, rights and privileges without
shareholder approval. Shares of any series may also be divided into one or more
classes at the discretion of the Trustees.
The Trust or any series or class thereof may be terminated at any time by
the Board of Trustees upon written notice to the shareholders.
Each Share has one vote with respect to matters upon which a shareholder
vote is required consistent with the requirements of the 1940 Act and the rules
promulgated thereunder. Shares of all series of the Trust vote together as a
single class except as otherwise required by the 1940 Act, or if the matter
being voted on affects only a particular series, and, if a matter affects a
particular series differently from other series, the Shares of that series will
vote separately on such matter. The Trust's Declaration of Trust (the
"Declaration") requires a shareholder vote only on those matters where the 1940
Act requires a vote of shareholders and otherwise permits the Trustees to take
actions without seeking the consent of shareholders. For example, the
Declaration gives the Trustees broad authority to approve reorganizations
between the Fund and another entity, such as another exchange-traded fund, or
the sale of all or substantially all of the Fund's assets, or the termination of
the Trust or the Fund without shareholder approval if the 1940 Act would not
require such approval.
The Declaration provides that by becoming a shareholder of the Fund, each
shareholder shall be expressly held to have agreed to be bound by the provisions
of the Declaration. The Declaration may, except in limited circumstances, be
amended by the Trustees in any respect without a shareholder vote. The
Declaration provides that the Trustees may establish the number of Trustees and
that vacancies on the Board of Trustees may be filled by the remaining Trustees,
except when election of Trustees by the shareholders is required under the 1940
Act. Trustees are then elected by a plurality of votes cast by shareholders at a
meeting at which a quorum is present. The Declaration also provides that
Trustees may be removed, with or without cause, by a vote of shareholders
holding at least two-thirds of the voting power of the Trust, or by a vote of
two-thirds of the remaining Trustees. The provisions of the Declaration relating
to the election and removal of Trustees may not be amended without the approval
of two-thirds of the Trustees.
The holders of Fund Shares are required to disclose information on direct
or indirect ownership of Fund Shares as may be required to comply with various
laws applicable to the Fund or as the Trustees may determine, and ownership of
Fund Shares may be disclosed by the Fund if so required by law or regulation. In
addition, pursuant to the Declaration, the Trustees may, in their discretion,
require the Trust to redeem Shares held by any shareholder for any reason under
terms set by the Trustees. The Declaration provides a detailed process for the
bringing of derivative actions by shareholders in order to permit legitimate
inquiries and claims while avoiding the time, expense, distraction and other
harm that can be caused to the Fund or its shareholders as a result of spurious
shareholder demands and derivative actions. Prior to bringing a derivative
action, a demand must first be made on the Trustees. The Declaration details
various information, certifications, undertakings and acknowledgements that must
be included in the demand. Following receipt of the demand, the Trustees have a
period of 90 days, which may be extended by an additional 60 days, to consider
the demand. If a majority of the Trustees who are considered independent for the
purposes of considering the demand determine that maintaining the suit would not
be in the best interests of the Fund, the Trustees are required to reject the
demand and the complaining shareholder may not proceed with the derivative
action unless the shareholder is able to sustain the burden of proof to a court
that the decision of the Trustees not to pursue the requested action was not a
good faith exercise of their business judgment on behalf of the Fund. In making
such a determination, a Trustee is not considered to have a personal financial
interest by virtue of being compensated for his or her services as a Trustee. If
a demand is rejected, the complaining shareholder will be responsible for the
costs and expenses (including attorneys' fees) incurred by the Fund in
connection with the consideration of the demand under a number of circumstances.
If a derivative action is brought in violation of the Declaration, the
shareholder bringing the action may be responsible for the Fund's costs,
including attorneys' fees. The Declaration also provides that any shareholder
bringing an action against the Fund waives the right to trial by jury to the
fullest extent permitted by law.
The Trust is not required to and does not intend to hold annual meetings
of shareholders.
Under Massachusetts law applicable to Massachusetts business trusts,
shareholders of such a trust may, under certain circumstances, be held
personally liable as partners for its obligations. However, the Declaration
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or the
Trustees. The Declaration further provides for indemnification out of the assets
and property of the Trust for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust or the Fund itself was unable to meet its obligations.
The Declaration further provides that a Trustee acting in his or her
capacity as Trustee is not personally liable to any person other than the Trust
or its shareholders, for any act, omission, or obligation of the Trust. The
Declaration requires the Trust to indemnify any persons who are or who have been
Trustees, officers or employees of the Trust for any liability for actions or
failure to act except to the extent prohibited by applicable federal law. In
-2-
making any determination as to whether any person is entitled to the advancement
of expenses in connection with a claim for which indemnification is sought, such
person is entitled to a rebuttable presumption that he or she did not engage in
conduct for which indemnification is not available. The Declaration provides
that any Trustee who serves as chair of the Board of Trustees or of a committee
of the Board of Trustees, lead independent Trustee, or audit committee financial
expert, or in any other similar capacity will not be subject to any greater
standard of care or liability because of such position.
The Fund is advised by First Trust Advisors L.P. (the "Advisor" or "First
Trust").
The Fund intends to list and trade its Shares on [____________] (the
"Exchange"). The Shares will trade on the Exchange at market prices that may be
below, at or above net asset value ("NAV"). The Fund offers and issues Shares at
NAV only in aggregations of a specified number of Shares (each a "Creation Unit"
or a "Creation Unit Aggregation"), generally in exchange for a basket of equity
securities (the "Deposit Securities"), together with the deposit of a specified
cash payment (the "Cash Component"). Creation Units are aggregations of 50,000
Shares of the Fund.
The Trust reserves the right to offer a "cash" option for creations and
redemptions of Fund Shares. Fund Shares may be issued in advance of receipt of
Deposit Securities subject to various conditions including a requirement to
maintain on deposit with the Fund cash at least equal to 115% of the market
value of the missing Deposit Securities. See the "Creation and Redemption of
Creation Unit Aggregations" section. In each instance of such cash creations or
redemptions, transaction fees may be imposed that will be higher than the
transaction fees associated with in-kind creations or redemptions. In all cases,
such fees will be limited in accordance with the requirements of the Securities
and Exchange Commission (the "SEC") applicable to management investment
companies offering redeemable securities.
EXCHANGE LISTING AND TRADING
There can be no assurance that the requirements of the Exchange necessary
to maintain the listing of Shares of the Fund will continue to be met. The
Exchange may, but is not required to, remove the Shares of the Fund from listing
if (i) following the initial 12-month period beginning at the commencement of
trading of the Fund, there are fewer than 50 beneficial owners of the Shares of
the Fund for 30 or more consecutive trading days or (ii) such other event shall
occur or condition exist that, in the opinion of the Exchange, makes further
dealings on the Exchange inadvisable. The Exchange will remove the Shares of the
Fund from listing and trading upon termination of the Fund.
As in the case of other stocks traded on the Exchange, broker's
commissions on transactions will be based on negotiated commission rates at
customary levels.
The Fund reserves the right to adjust the price levels of Shares in the
future to help maintain convenient trading ranges for investors. Any adjustments
would be accomplished through stock splits or reverse stock splits, which would
have no effect on the net assets of the Fund.
-3-
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus describes the investment objective and certain policies of
the Fund. The following supplements the information contained in the Prospectus
concerning the investment objective and policies of the Fund.
The Fund is subject to the following fundamental policies, which may not
be changed without approval of the holders of a majority of the outstanding
voting securities of the Fund:
(1) The Fund may not issue senior securities, except as permitted
under the 1940 Act.
(2) The Fund may not borrow money, except that the Fund may (i)
borrow money from banks for temporary or emergency purposes (but not for
leverage or the purchase of investments) and (ii) engage in other
transactions permissible under the 1940 Act that may involve a borrowing
(such as obtaining short-term credits as are necessary for the clearance
of transactions, engaging in delayed-delivery transactions, or purchasing
certain futures, forward contracts and options), provided that the
combination of (i) and (ii) shall not exceed 33-1/3% of the value of the
Fund's total assets (including the amount borrowed), less the Fund's
liabilities (other than borrowings).
(3) The Fund will not underwrite the securities of other issuers
except to the extent the Fund may be considered an underwriter under the
Securities Act of 1933, as amended (the "1933 Act"), in connection with
the purchase and sale of portfolio securities.
(4) The Fund will not purchase or sell real estate or interests
therein, unless acquired as a result of ownership of securities or other
instruments (but this shall not prohibit the Fund from purchasing or
selling securities or other instruments backed by real estate or of
issuers engaged in real estate activities).
(5) The Fund may not make loans to other persons, except through (i)
the purchase of debt securities permissible under the Fund's investment
policies, (ii) repurchase agreements, or (iii) the lending of portfolio
securities, provided that no such loan of portfolio securities may be made
by the Fund if, as a result, the aggregate of such loans would exceed
33-1/3% of the value of the Fund's total assets.
(6) The Fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other instruments (but
this shall not prevent the Fund from purchasing or selling options,
futures contracts, forward contracts or other derivative instruments, or
from investing in securities or other instruments backed by physical
commodities).
(7) The Fund may not invest 25% or more of the value of its total
assets in securities of issuers in any one industry or group of
-4-
industries. This restriction does not apply to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
Except for restriction (2), if a percentage restriction is adhered to at
the time of investment, a later increase in percentage resulting from a change
in market value of the investment or the total assets will not constitute a
violation of that restriction.
For purposes of applying restriction (1) above, under the 1940 Act as
currently in effect, the Fund is not permitted to issue senior securities,
except that the Fund may borrow from any bank if immediately after such
borrowing the value of the Fund's total assets is at least 300% of the principal
amount of all of the Fund's borrowings (i.e., the principal amount of the
borrowings may not exceed 33 1/3% of the Fund's total assets). In the event that
such asset coverage shall at any time fall below 300% the Fund shall, within
three days thereafter (not including Sundays and holidays), reduce the amount of
its borrowings to an extent that the asset coverage of such borrowings shall be
at least 300%. The fundamental investment limitations set forth above limit the
Fund's ability to engage in certain investment practices and purchase securities
or other instruments to the extent permitted by, or consistent with, applicable
law. As such, these limitations will change as the statute, rules, regulations
or orders (or, if applicable, interpretations) change, and no shareholder vote
will be required or sought.
The foregoing fundamental policies of the Fund may not be changed without
the affirmative vote of the majority of the outstanding voting securities of the
Fund. The 1940 Act defines a majority vote as the vote of the lesser of (i) 67%
or more of the voting securities represented at a meeting at which more than 50%
of the outstanding securities are represented; or (ii) more than 50% of the
outstanding voting securities. With respect to the submission of a change in an
investment policy to the holders of outstanding voting securities of the Fund,
such matter shall be deemed to have been effectively acted upon with respect to
the Fund if a majority of the outstanding voting securities of the Fund vote for
the approval of such matter, notwithstanding that such matter has not been
approved by the holders of a majority of the outstanding voting securities of
any other series of the Trust affected by such matter.
In addition to the foregoing fundamental policies, the Fund is also
subject to strategies and policies discussed herein which, unless otherwise
noted, are non-fundamental restrictions and policies and may be changed by the
Board of Trustees.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest at least 80% of its
net assets (plus the amount of any borrowing for investment purposes) in
U.S.-listed equity securities. The Fund will also sell call options on the
Standard & Poor's 500 Index (the "S&P 500 Index") in order to seek additional
cash flow (in the form of premiums on the options) that may be distributed to
shareholders on a monthly basis.
Fund shareholders are entitled to 60 days' notice prior to any change in
these non-fundamental investment policies.
-5-
TYPES OF INVESTMENTS
Warrants: The Fund may invest in warrants. Warrants acquired by the Fund
entitle it to buy common stock from the issuer at a specified price and time.
They do not represent ownership of the securities but only the right to buy
them. Warrants are subject to the same market risks as stocks, but may be more
volatile in price. The Fund's investment in warrants will not entitle it to
receive dividends or exercise voting rights and will become worthless if the
warrants cannot be profitably exercised before their expiration date.
Call Options: A call option is a contractual obligation which gives the
buyer of the option the right to purchase a certain number of shares of common
stock from the writer (seller) of the option at a predetermined price. If the
predetermined price is reached, the buyer has the right, depending on the type
of option, to exercise the option at the option's expiration date or at any time
up until the option's expiration.
Non-U.S. Investments: Non-U.S. securities include securities issued or
guaranteed by companies organized under the laws of countries other than the
United States (including emerging markets), securities issued or guaranteed by
foreign, national, provincial, state, municipal or other governments with taxing
authority or by their agencies or instrumentalities and debt obligations of
supranational governmental entities such as the World Bank or European Union.
These securities will be listed on a U.S. securities exchange and will be U.S.
dollar-denominated.
Delayed-Delivery Transactions: The Fund may from time to time purchase
securities on a "when-issued" or other delayed-delivery basis. The price of
securities purchased in such transactions is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date. During the period between the purchase and settlement, the Fund does
not remit payment to the issuer, no interest is accrued on debt securities and
dividend income is not earned on equity securities. Delayed-delivery commitments
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date, which risk is in addition to the risk of a decline
in value of the Fund's other assets. While securities purchased in
delayed-delivery transactions may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them.
At the time the Fund makes the commitment to purchase a security in a
delayed-delivery transaction, it will record the transaction and reflect the
value of the security in determining its NAV.
The Fund will earmark or maintain in a segregated account cash, U.S.
government securities, and high-grade liquid debt securities equal in value to
commitments for delayed-delivery securities. Such earmarked or segregated
securities will mature or, if necessary, be sold on or before the settlement
date. When the time comes to pay for delayed-delivery securities, the Fund will
meet its obligations from then-available cash flow, sale of the securities
earmarked or held in the segregated account as described above, sale of other
securities, or, although it would not normally expect to do so, from the sale of
the delayed-delivery securities themselves (which may have a market value
greater or less than the Fund's payment obligation).
-6-
Although the Prospectus and this SAI describe certain permitted methods of
segregating assets or otherwise "covering" certain transactions, a Fund may
segregate against or cover such transactions using other methods permitted under
the 1940 Act, the rules and regulations thereunder, or orders issued by the SEC
thereunder. For these purposes, interpretations and guidance provided by the SEC
staff may be taken into account when deemed appropriate by a Fund.
Illiquid Securities: The Fund may invest in illiquid securities (i.e.,
securities that are not readily marketable). For purposes of this restriction,
illiquid securities include, but are not limited to, certain restricted
securities (securities the disposition of which is restricted under the federal
securities laws), securities that may only be resold pursuant to Rule 144A under
the 1933 Act but that are deemed to be illiquid; and repurchase agreements with
maturities in excess of seven days. However, the Fund will not acquire illiquid
securities if, as a result, such securities would comprise more than 15% of the
value of the Fund's net assets. The Board of Trustees or its delegate has the
ultimate authority to determine, to the extent permissible under the federal
securities laws, which securities are liquid or illiquid for purposes of this
15% limitation. The Board of Trustees has delegated to the First Trust the
day-to-day determination of the illiquidity of any equity or fixed-income
security, although it has retained oversight for such determinations. With
respect to Rule 144A securities, First Trust considers factors such as (i) the
nature of the market for a security (including the institutional private resale
market, the frequency of trades and quotes for the security, the number of
dealers willing to purchase or sell the security, the amount of time normally
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer), (ii) the terms of certain securities or other
instruments allowing for the disposition to a third party or the issuer thereof
(e.g., certain repurchase obligations and demand instruments), and (iii) other
permissible relevant factors.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the 1933 Act. Where registration is required, the
Fund may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than that which
prevailed when it decided to sell. Illiquid securities will be priced at fair
value as determined in good faith under procedures adopted by the Board of
Trustees. If, through the appreciation of illiquid securities or the
depreciation of liquid securities, the Fund should be in a position where more
than 15% of the value of its net assets are invested in illiquid securities,
including restricted securities which are not readily marketable, the Fund will
take such steps as is deemed advisable, if any, to protect liquidity.
Money Market Funds: The Fund may invest in shares of money market funds to
the extent permitted by the 1940 Act.
Temporary Investments: The Fund may, without limit as to percentage of
assets, purchase U.S. government securities or short-term debt securities to
keep cash on hand fully invested or for temporary defensive purposes. Short-term
debt securities are securities from issuers having a long-term debt rating of at
least A by Standard & Poor's Ratings Group ("S&P Ratings"), Moody's Investors
-7-
Service, Inc. ("Moody's") or Fitch, Inc. ("Fitch") and having a maturity of one
year or less. The use of temporary investments is not a part of a principal
investment strategy of the Fund.
Short-term debt securities are defined to include, without limitation, the
following:
(1) U.S. government securities, including bills, notes and bonds
differing as to maturity and rates of interest, which are either issued or
guaranteed by the U.S. Treasury or by U.S. government agencies or
instrumentalities. U.S. government agency securities include securities
issued by (a) the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of United States, Small Business
Administration, and the Government National Mortgage Association, whose
securities are supported by the full faith and credit of the United
States; (b) the Federal Home Loan Banks, Federal Intermediate Credit
Banks, and the Tennessee Valley Authority, whose securities are supported
by the right of the agency to borrow from the U.S. Treasury; (c) Federal
National Mortgage Association ("FNMA" or "Fannie Mae") which is a
government-sponsored organization owned entirely by private stockholders
and whose securities are guaranteed as to principal and interest by FNMA;
and (d) the Student Loan Marketing Association, whose securities are
supported only by its credit. In September 2008, FNMA was placed into
conservatorship overseen by the Federal Housing Finance Agency ("FHFA").
As conservator, FHFA will succeed to the rights, titles, powers and
privileges of FNMA and any stockholder, officer or director of the company
with respect to FNMA and its assets and title to all books, records and
company assets held by any other custodian or third party. FHFA is charged
with operating FNMA. While the U.S. government provides financial support
to such U.S. government-sponsored agencies or instrumentalities, no
assurance can be given that it always will do so since it is not so
obligated by law. The U.S. government, its agencies, and instrumentalities
do not guarantee the market value of their securities, and consequently,
the value of such securities may fluctuate.
(2) Certificates of deposit issued against funds deposited in a bank
or savings and loan association. Such certificates are for a definite
period of time, earn a specified rate of return, and are normally
negotiable. If such certificates of deposit are non-negotiable, they will
be considered illiquid securities and be subject to the Fund's 15%
restriction on investments in illiquid securities. Pursuant to the
certificate of deposit, the issuer agrees to pay the amount deposited plus
interest to the bearer of the certificate on the date specified thereon.
On October 3, 2008, the Emergency Economic Stabilization Act of 2008
increased the maximum amount of federal deposit insurance coverage payable
as to any certificate of deposit from $100,000 to $250,000 per depositor,
and the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted
on July 21, 2010, extended this increased coverage permanently.
Certificates of deposit purchased by the Fund may not be fully insured.
(3) Bankers' acceptances which are short-term credit instruments
used to finance commercial transactions. Generally, an acceptance is a
time draft drawn on a bank by an exporter or an importer to obtain a
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stated amount of funds to pay for specific merchandise. The draft is then
"accepted" by a bank that, in effect, unconditionally guarantees to pay
the face value of the instrument on its maturity date. The acceptance may
then be held by the accepting bank as an asset or it may be sold in the
secondary market at the going rate of interest for a specific maturity.
(4) Repurchase agreements, which involve purchases of debt
securities. In such an action, at the time the Fund purchases the
security, it simultaneously agrees to resell and redeliver the security to
the seller, who also simultaneously agrees to buy back the security at a
fixed price and time. This assures a predetermined yield for the Fund
during its holding period since the resale price is always greater than
the purchase price and reflects an agreed upon market rate. The period of
these repurchase agreements will usually be short, from overnight to one
week. Such actions afford an opportunity for the Fund to invest
temporarily available cash. The Fund may enter into repurchase agreements
only with respect to obligations of the U.S. government, its agencies or
instrumentalities; certificates of deposit; or bankers' acceptances in
which the Fund may invest. In addition, the Fund may only enter into
repurchase agreements where the market value of the purchased
securities/collateral equals at least 100% of principal including accrued
interest and is marked-to-market daily. The risk to the Fund is limited to
the ability of the seller to pay the agreed-upon sum on the repurchase
date; in the event of default, the repurchase agreement provides that the
Fund is entitled to sell the underlying collateral. If the value of the
collateral declines after the agreement is entered into, however, and if
the seller defaults under a repurchase agreement when the value of the
underlying collateral is less than the repurchase price, the Fund could
incur a loss of both principal and interest. The Fund, however, intends to
enter into repurchase agreements only with financial institutions and
dealers believed by First Trust to present minimal credit risks in
accordance with criteria approved by the Board of Trustees. First Trust
will review and monitor the creditworthiness of such institutions. First
Trust monitors the value of the collateral at the time the action is
entered into and during the term of the repurchase agreement. First Trust
does so in an effort to determine that the value of the collateral always
equals or exceeds the agreed-upon repurchase price to be paid to the Fund.
If the seller were to be subject to a federal bankruptcy proceeding, the
ability of the Fund to liquidate the collateral could be delayed or
impaired because of certain provisions of the bankruptcy laws.
(5) Bank time deposits, which are monies kept on deposit with banks
or savings and loan associations for a stated period of time at a fixed
rate of interest. There may be penalties for the early withdrawal of such
time deposits, in which case the yields of these investments will be
reduced.
(6) Commercial paper, which are short-term unsecured promissory
notes, including variable rate master demand notes issued by corporations
to finance their current operations. Master demand notes are direct
lending arrangements between the Fund and a corporation. There is no
secondary market for the notes. However, they are redeemable by the Fund
at any time. The Fund's portfolio managers will consider the financial
condition of the corporation (e.g., earning power, cash flow, and other
liquidity ratios) and will continuously monitor the corporation's ability
-9-
to meet all of its financial obligations, because the Fund's liquidity
might be impaired if the corporation were unable to pay principal and
interest on demand. The Fund may only invest in commercial paper rated A-1
or higher by S&P Ratings, Prime-1 or higher by Moody's or F2 or higher by
Fitch.
PORTFOLIO TURNOVER
The Fund buys and sells portfolio securities in the normal course of its
investment activities. The proportion of the Fund's investment portfolio that is
bought and sold during a year is known as the Fund's portfolio turnover rate. A
turnover rate of 100% would occur, for example, if the Fund bought and sold
securities valued at 100% of its net assets within one year. A high portfolio
turnover rate could result in the payment by the Fund of increased brokerage
costs, expenses and taxes.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, as a non-principal investment
strategy, the Fund may lend portfolio securities to broker-dealers, banks or
other institutional borrowers of securities. As with other extensions of credit,
there may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially.
However, the Fund will only enter into domestic loan arrangements with
broker-dealers, banks, or other institutions which First Trust has determined
are creditworthy under guidelines established by the Board of Trustees. The Fund
will pay a portion of the income earned on the lending transaction to the
placing broker and may pay administrative and custodial fees in connection with
these loans.
In these loan arrangements, the Fund will receive collateral in the form
of cash, U.S. government securities equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
securities loaned as determined at the time of loan origination. This collateral
must be valued daily by First Trust or the Fund's lending agent and, if the
market value of the loaned securities increases, the borrower must furnish
additional collateral to the Fund. During the time portfolio securities are on
loan, the borrower pays the Fund any dividends or interest paid on the
securities. Loans are subject to termination at any time by the Fund or the
borrower. While the Fund does not have the right to vote securities on loan, it
would terminate the loan and regain the right to vote if that were considered
important with respect to the investment. When the Fund lends portfolio
securities to a borrower, payments in lieu of dividends made by the borrower to
the Fund will not constitute "qualified dividends" taxable at the same rate as
long-term capital gains, even if the actual dividends would have constituted
qualified dividends had the Fund held the securities.
-10-
HEDGING STRATEGIES
General Description of Hedging Strategies
The Fund may engage in hedging activities. First Trust may cause the Fund
to utilize a variety of financial instruments, including options, forward
contracts, futures contracts (hereinafter referred to as "Futures" or "Futures
Contracts"), and options on Futures Contracts to attempt to hedge the Fund's
holdings. The use of Futures is not a part of a principal investment strategy of
the Fund.
Hedging or derivative instruments on securities generally are used to
hedge against price movements in one or more particular securities positions
that the Fund owns or intends to acquire. Such instruments may also be used to
"lock-in" realized but unrecognized gains in the value of portfolio securities.
Hedging instruments on stock indices, in contrast, generally are used to hedge
against price movements in broad equity market sectors in which a Fund has
invested or expects to invest. Hedging strategies, if successful, can reduce the
risk of loss by wholly or partially offsetting the negative effect of
unfavorable price movements in the investments being hedged. However, hedging
strategies can also reduce the opportunity for gain by offsetting the positive
effect of favorable price movements in the hedged investments. The use of
hedging instruments is subject to applicable regulations of the SEC, the several
options and futures exchanges upon which they are traded, the Commodity Futures
Trading Commission (the "CFTC") and various state regulatory authorities. In
addition, the Fund's ability to use hedging instruments may be limited by tax
considerations.
General Limitations on Futures and Options Transactions
The Trust has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the National Futures
Association, the Futures industry's self-regulatory organization. The Fund will
not enter into Futures and options transactions if the sum of the initial margin
deposits and premiums paid for unexpired options exceeds 5% of the Fund's total
assets. In addition, the Fund will not enter into Futures Contracts and options
transactions if more than 30% of its net assets would be committed to such
instruments.
On February 9, 2012, the CFTC adopted amendments to its rules that, once
effective, may affect the ability of the Trust, on behalf of a Fund, to continue
to claim this exclusion. A Fund that seeks to claim the exclusion after the
effectiveness of the amended rules would be limited in its ability to use
futures and options on futures. If a Fund were no longer able to claim the
exclusion, the Advisor would be required to register as a "commodity pool
operator," and the Fund and the Advisor would be subject to regulation under the
Commodity Exchange Act (the "CEA").
The foregoing limitations are non-fundamental policies of the Fund and may
be changed without shareholder approval as regulatory agencies permit.
-11-
Asset Coverage for Futures and Options Positions
The Fund will comply with the regulatory requirements of the SEC and the
CFTC with respect to coverage of options and Futures positions by registered
investment companies and, if the guidelines so require, will earmark or set
aside cash, U.S. government securities, high grade liquid debt securities and/or
other liquid assets permitted by the SEC and CFTC in a segregated custodial
account in the amount prescribed. Securities earmarked or held in a segregated
account cannot be sold while the Futures or options position is outstanding,
unless replaced with other permissible assets, and will be marked-to-market
daily.
Stock Index Options
The Fund may purchase stock index options, sell stock index options in
order to close out existing positions, and/or write covered options on stock
indices for hedging purposes. Stock index options are put options and call
options on various stock indices. In most respects, they are identical to listed
options on common stocks. The primary difference between stock options and index
options occurs when index options are exercised. In the case of stock options,
the underlying security, common stock, is delivered. However, upon the exercise
of an index option, settlement does not occur by delivery of the securities
comprising the stock index. The option holder who exercises the index option
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. This amount of cash is equal to
the difference between the closing price of the stock index and the exercise
price of the option expressed in dollars times a specified multiple.
A stock index fluctuates with changes in the market values of the stocks
included in the index. For example, some stock index options are based on a
broad market index, such as the S&P 500 Index or the Value Line(R) Composite
Index or a more narrow market index, such as the S&P 100 Index. Indices may also
be based on an industry or market segment. Options on stock indices are
currently traded on the following exchanges: the Chicago Board Options Exchange,
NYSE Amex Options, The NASDAQ(R) Stock Market LLC ("NASDAQ(R)")and the
Philadelphia Stock Exchange.
The Fund's use of stock index options is subject to certain risks.
Successful use by the Fund of options on stock indices will be subject to the
ability of First Trust to correctly predict movements in the directions of the
stock market. This requires different skills and techniques than predicting
changes in the prices of individual securities. In addition, the Fund's ability
to effectively hedge all or a portion of the securities in its portfolio, in
anticipation of or during a market decline through transactions in put options
on stock indices, depends on the degree to which price movements in the
underlying index correlate with the price movements of the securities held by
the Fund. Inasmuch as the Fund's securities will not duplicate the components of
the index, the correlation will not be perfect. Consequently, the Fund will bear
the risk that the prices of its securities being hedged will not move in the
same amount as the prices of its put options on the stock indices. It is also
possible that there may be a negative correlation between the index and the
Fund's securities, which would result in a loss on both such securities and the
options on stock indices acquired by the Fund.
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The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the options markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the options markets. The purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The purchase of stock index
options involves the risk that the premium and transaction costs paid by the
Fund in purchasing an option will be lost as a result of unanticipated movements
in prices of the securities comprising the stock index on which the option is
based.
Certain Considerations Regarding Options
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or elsewhere may exist. If
the Fund is unable to close out a call option on securities that it has written
before the option is exercised, the Fund may be required to purchase the
optioned securities in order to satisfy its obligation under the option to
deliver such securities. If the Fund is unable to effect a closing sale
transaction with respect to options on securities that it has purchased, it
would have to exercise the option in order to realize any profit and would incur
transaction costs upon the purchase and sale of the underlying securities.
The writing and purchasing of options is a highly specialized activity,
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Imperfect correlation between
the options and securities markets may detract from the effectiveness of
attempted hedging. Options transactions may result in significantly higher
transaction costs and portfolio turnover for the Fund.
Futures Contracts
The Fund may enter into Futures Contracts, including index Futures as a
hedge against movements in the equity markets, in order to hedge against changes
on securities held or intended to be acquired by the Fund or for other purposes
permissible under the CEA. The Fund's hedging may include sales of Futures as an
offset against the effect of expected declines in stock prices and purchases of
Futures as an offset against the effect of expected increases in stock prices.
The Fund will not enter into Futures Contracts which are prohibited under the
CEA and will, to the extent required by regulatory authorities, enter only into
Futures Contracts that are traded on national Futures exchanges and are
standardized as to maturity date and underlying financial instrument. The
principal interest rate Futures exchanges in the United States are the Chicago
Board of Trade and the Chicago Mercantile Exchange. Futures exchanges and
trading are regulated under the CEA by the CFTC.
An interest rate Futures Contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (e.g., a debt security) or currency for a specified price
at a designated date, time and place. An index Futures Contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the close of the
-13-
last trading day of the contract and the price at which the index Futures
Contract was originally written. Transaction costs are incurred when a Futures
Contract is bought or sold and margin deposits must be maintained. A Futures
Contract may be satisfied by delivery or purchase, as the case may be, of the
instrument or by payment of the change in the cash value of the index. More
commonly, Futures Contracts are closed out prior to delivery by entering into an
offsetting transaction in a matching Futures Contract. Although the value of an
index might be a function of the value of certain specified securities, no
physical delivery of those securities is made. If the offsetting purchase price
is less than the original sale price, a gain will be realized. Conversely, if
the offsetting sale price is more than the original purchase price, a gain will
be realized; if it is less, a loss will be realized. The transaction costs must
also be included in these calculations. There can be no assurance, however, that
the Fund will be able to enter into an offsetting transaction with respect to a
particular Futures Contract at a particular time. If the Fund is not able to
enter into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits on the Futures Contract.
Margin is the amount of funds that must be deposited by the Fund with its
custodian in a segregated account in the name of the Futures commission merchant
in order to initiate Futures trading and to maintain the Fund's open positions
in Futures Contracts. A margin deposit is intended to ensure the Fund's
performance of the Futures Contract.
The margin required for a particular Futures Contract is set by the
exchange on which the Futures Contract is traded and may be significantly
modified from time to time by the exchange during the term of the Futures
Contract. Futures Contracts are customarily purchased and sold on margins that
may range upward from less than 5% of the value of the Futures Contract being
traded.
If the price of an open Futures Contract changes (by increase in the case
of a sale or by decrease in the case of a purchase) so that the loss on the
Futures Contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
Futures Contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Fund. In computing daily NAV, the Fund will
mark to market the current value of its open Futures Contracts. The Fund expects
to earn interest income on its margin deposits.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Future Contracts were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount initially invested in the Futures Contract. However, the Fund would
presumably have sustained comparable losses if, instead of the Futures Contract,
it had invested in the underlying financial instrument and sold it after the
decline.
-14-
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract prices during a single trading day. The day limit establishes
the maximum amount that the price of a Futures Contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of Futures Contract,
no trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures Contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of Futures positions and subjecting some
investors to substantial losses.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a Futures position. The Fund would continue to be
required to meet margin requirements until the position is closed, possibly
resulting in a decline in the Fund's NAV. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.
A public market exists in Futures Contracts covering a number of indices,
including, but not limited to, the S&P 500 Index, the S&P 100 Index, the
NASDAQ-100 Index(R), the Value Line(R) Composite Index and the NYSE Composite
Index.
Options on Futures
The Fund may also purchase or write put and call options on Futures
Contracts and enter into closing transactions with respect to such options to
terminate an existing position. A Futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a Futures Contract at a specified exercise price prior to the
expiration of the option. Upon exercise of a call option, the holder acquires a
long position in the Futures Contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. Prior to
exercise or expiration, a Futures option may be closed out by an offsetting
purchase or sale of a Futures option of the same series.
The Fund may use options on Futures Contracts in connection with hedging
strategies. Generally, these strategies would be applied under the same market
and market sector conditions in which the Fund uses put and call options on
securities or indices. The purchase of put options on Futures Contracts is
analogous to the purchase of puts on securities or indices so as to hedge the
Fund's securities holdings against the risk of declining market prices. The
writing of a call option or the purchasing of a put option on a Futures Contract
constitutes a partial hedge against declining prices of securities which are
deliverable upon exercise of the Futures Contract. If the price at expiration of
a written call option is below the exercise price, the Fund will retain the full
amount of the option premium which provides a partial hedge against any decline
that may have occurred in the Fund's holdings of securities. If the price when
the option is exercised is above the exercise price, however, the Fund will
incur a loss, which may be offset, in whole or in part, by the increase in the
value of the securities held by the Fund that were being hedged. Writing a
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put option or purchasing a call option on a Futures Contract serves as a partial
hedge against an increase in the value of the securities the Fund intends to
acquire.
As with investments in Futures Contracts, the Fund is required to deposit
and maintain margin with respect to put and call options on Futures Contracts
written by them. Such margin deposits will vary depending on the nature of the
underlying Futures Contract (and the related initial margin requirements), the
current market value of the option, and other Futures positions held by the
Fund. The Fund will earmark or set aside in a segregated account at the Fund's
custodian, liquid assets, such as cash, U.S. government securities or other
high-grade liquid debt obligations equal in value to the amount due on the
underlying obligation. Such earmarked or segregated assets will be
marked-to-market daily, and additional assets will be earmarked or placed in a
segregated account whenever the total value of the earmarked or segegated assets
falls below the amount due on the underlying obligation.
The risks associated with the use of options on Futures Contracts include
the risk that the Fund may close out its position as a writer of an option only
if a liquid secondary market exists for such options, which cannot be assured.
The Fund's successful use of options on Futures Contracts depends on First
Trust's ability to correctly predict the movement in prices of Futures Contracts
and the underlying instruments, which may prove to be incorrect. In addition,
there may be imperfect correlation between the instruments being hedged and the
Futures Contract subject to the option. For additional information, see "Futures
Contracts." Certain characteristics of the Futures market might increase the
risk that movements in the prices of Futures Contracts or options on Futures
Contracts might not correlate perfectly with movements in the prices of the
investments being hedged. For example, all participants in the Futures and
options on Futures Contracts markets are subject to daily variation margin calls
and might be compelled to liquidate Futures or options on Futures Contracts
positions whose prices are moving unfavorably to avoid being subject to further
calls. These liquidations could increase the price volatility of the instruments
and distort the normal price relationship between the Futures or options and the
investments being hedged. Also, because of initial margin deposit requirements,
there might be increased participation by speculators in the Futures markets.
This participation also might cause temporary price distortions. In addition,
activities of large traders in both the Futures and securities markets involving
arbitrage, "program trading," and other investment strategies might result in
temporary price distortions.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, as a non-principal investment
strategy certain of the Funds may lend portfolio securities to broker-dealers,
banks or other institutional borrowers of securities. As with other extensions
of credit, there may be risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, the Funds will only enter into domestic loan arrangements
with broker-dealers, banks or other institutions which First Trust has
determined are creditworthy under guidelines approved by the Board of Trustees.
The Funds will pay a portion of the income earned on the lending transaction to
the placing broker and may pay administrative and custodial fees in connection
with these loans.
-16-
In these loan arrangements, the Funds will receive collateral in the form
of cash, U.S. government securities equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
securities loaned as determined at the time of loan origination. This collateral
must be valued daily by First Trust or the applicable Fund's lending agent and,
if the market value of the loaned securities increases, the borrower must
furnish additional collateral to the lending Fund. During the time portfolio
securities are on loan, the borrower pays the lending Fund any dividends or
interest paid on the securities. Loans are subject to termination at any time by
the lending Fund or the borrower. While a Fund does not have the right to vote
securities on loan, it would terminate the loan and regain the right to vote if
that were considered important with respect to the investment. When a Fund lends
portfolio securities to a borrower, payments in lieu of dividends made by the
borrower to the Fund will not constitute "qualified dividends" taxable at the
same rate as long-term capital gains, even if the actual dividends would have
constituted qualified dividends had the Fund held the securities.
INVESTMENT RISKS
Overview
An investment in the Fund should be made with an understanding of the
risks which an investment in common stocks entails, including the risk that the
financial condition of the issuers of the equity securities or the general
condition of the common stock market may worsen and the value of the equity
securities and therefore the value of the Fund may decline. The Fund may not be
an appropriate investment for those who are unable or unwilling to assume the
risks involved generally with an equity investment. The past market and earnings
performance of any of the equity securities included in the Fund is not
predictive of their future performance. Common stocks are especially susceptible
to general stock market movements and to volatile increases and decreases of
value as market confidence in and perceptions of the issuers change. These
perceptions are based on unpredictable factors including expectations regarding
government, economic, monetary and fiscal policies, inflation and interest
rates, economic expansion or contraction, and global or regional political,
economic or banking crises. First Trust cannot predict the direction or scope of
any of these factors. Shareholders of common stocks have rights to receive
payments from the issuers of those common stocks that are generally subordinate
to those of creditors of, or holders of debt obligations or preferred stocks of,
such issuers.
Shareholders of common stocks of the type held by the Fund have a right to
receive dividends only when and if, and in the amounts, declared by the issuer's
board of directors and have a right to participate in amounts available for
distribution by the issuer only after all other claims on the issuer have been
paid. Common stocks do not represent an obligation of the issuer and, therefore,
do not offer any assurance of income or provide the same degree of protection of
capital as do debt securities. The issuance of additional debt securities or
preferred stock will create prior claims for payment of principal, interest and
dividends which could adversely affect the ability and inclination of the issuer
to declare or pay dividends on its common stock or the rights of holders of
common stock with respect to assets of the issuer upon liquidation or
bankruptcy. The value of common stocks is subject to market fluctuations for as
long as the common stocks remain outstanding, and thus the value of the equity
-17-
securities in the Fund will fluctuate over the life of the Fund and may be more
or less than the price at which they were purchased by the Fund. The equity
securities held in the Fund may appreciate or depreciate in value (or pay
dividends) depending on the full range of economic and market influences
affecting these securities, including the impact of the Fund's purchase and sale
of the equity securities and other factors.
Holders of common stocks incur more risk than holders of preferred stocks
and debt obligations because common stockholders, as owners of the entity, have
generally inferior rights to receive payments from the issuer in comparison with
the rights of creditors of, or holders of debt obligations or preferred stocks
issued by, the issuer. Cumulative preferred stock dividends must be paid before
common stock dividends and any cumulative preferred stock dividend omitted is
added to future dividends payable to the holders of cumulative preferred stock.
Preferred stockholders are also generally entitled to rights on liquidation
which are senior to those of common stockholders.
Whether or not the equity securities in the Fund are listed on a
securities exchange, the principal trading market for certain of the equity
securities in the Fund may be in the over-the-counter market. As a result, the
existence of a liquid trading market for the equity securities may depend on
whether dealers will make a market in the equity securities. There can be no
assurance that a market will be made for any of the equity securities, that any
market for the equity securities will be maintained or that there will be
sufficient liquidity of the equity securities in any markets made. The price at
which the equity securities are held in the Fund will be adversely affected if
trading markets for the equity securities are limited or absent.
Derivatives Risk
The use of derivatives presents risks different from, and possibly greater
than, the risks associated with investing directly in traditional securities.
Among the risks presented are market risk, credit risk, management risk and
liquidity risk. The use of derivatives can lead to losses because of adverse
movements in the price or value of the underlying asset, index or rate, which
may be magnified by certain features of the derivatives. In addition, when the
Fund invests in certain derivative securities, including, but not limited to,
when-issued securities, forward commitments, futures contracts and interest rate
swaps, they are effectively leveraging their investments, which could result in
exaggerated changes in the net asset value of the Fund's Shares and can result
in losses that exceed the amount originally invested. The success of First
Trust's derivatives strategies will depend on its ability to assess and predict
the impact of market or economic developments on the underlying asset, index or
rate and the derivative itself, without the benefit of observing the performance
of the derivative under all possible market conditions. Liquidity risk exists
when a security cannot be purchased or sold at the time desired, or cannot be
purchased or sold without adversely affecting the price.
Non-U.S. Securities Risk
An investment in non-U.S. securities involves risks in addition to the
usual risks inherent in domestic investments, including currency risk. The value
of a non-U.S. security in U.S. dollars tends to decrease when the value of the
U.S. dollar rises against the non-U.S. currency in which the security is
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denominated and tends to increase when the value of the U.S. dollar falls
against such currency. Non-U.S. securities are affected by the fact that in many
countries there is less publicly available information about issuers than is
available in the reports and ratings published about companies in the United
States and companies may not be subject to uniform accounting, auditing and
financial reporting standards. Other risks inherent in non-U.S. investments may
include expropriation; confiscatory taxation; withholding taxes on dividends and
interest; less extensive regulation of non-U.S. brokers, securities markets and
issuers; diplomatic developments; and political or social instability. Non-U.S.
economies may differ favorably or unfavorably from the U.S. economy in various
respects, and many non-U.S. securities are less liquid and their prices tend to
be more volatile than comparable U.S. securities. From time to time, non-U.S.
securities may be difficult to liquidate rapidly without adverse price effects.
Depositary Receipts Risk
The Fund may hold securities of certain non-U.S. companies in the form of
Depositary Receipts. Depositary Receipts may not necessarily be denominated in
the same currency as the underlying securities into which they may be converted.
ADRs are receipts typically issued by an American bank or trust company that
evidence ownership of underlying securities issued by a foreign corporation.
EDRs are receipts issued by a European bank or trust company evidencing
ownership of securities issued by a foreign corporation. New York shares are
typically issued by a company incorporated in the Netherlands and represent a
direct interest in the company. Unlike traditional depositary receipts, New York
share programs do not involve custody of the Dutch shares of the company. GDRs
are receipts issued throughout the world that evidence a similar arrangement.
ADRs, EDRs and GDRs may trade in foreign currencies that differ from the
currency the underlying security for each ADR, EDR or GDR principally trades in.
Global shares are the actual (ordinary) shares of a non-U.S. company which trade
both in the home market and the United States. Generally, ADRs and New York
shares, in registered form, are designed for use in the U.S. securities markets.
EDRs, in registered form, are used to access European markets. GDRs, in
registered form, are tradable both in the United States and in Europe and are
designed for use throughout the world. Global shares are represented by the same
share certificate in the United States and the home market. Separate registrars
in the United States and the home country are maintained. In most cases,
purchases occurring on a U.S. exchange would be reflected on the U.S. registrar.
Global shares may also be eligible to list on exchanges in addition to the
United States and the home country. The Fund may hold unsponsored Depositary
Receipts. The issuers of unsponsored Depositary Receipts are not obligated to
disclose material information in the United States; therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the Depositary Receipts.
Passive Foreign Investment Companies Risk
The Fund may invest in companies that are considered to be "passive
foreign investment companies" ("PFICs"), which are generally certain non-U.S.
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, certain rents and royalties or capital
gains) or that hold at least 50% of their assets in investments producing such
-19-
passive income. Therefore, the Fund could be subject to U.S. federal income tax
and additional interest charges on gains and certain distributions with respect
to those equity interests, even if all the income or gain is distributed to its
shareholders in a timely manner. The Fund will not be able to pass through to
its shareholders any credit or deduction for such taxes.
ADDITIONAL RISKS OF INVESTING IN THE FUND
Liquidity Risk
Whether or not the equity securities in the Fund are listed on a
securities exchange, the principal trading market for certain of the equity
securities in the Fund may be in the over-the-counter ("OTC") market. As a
result, the existence of a liquid trading market for the equity securities may
depend on whether dealers will make a market in the equity securities. There can
be no assurance that a market will be made for any of the equity securities,
that any market for the equity securities will be maintained or that there will
be sufficient liquidity of the equity securities in any markets made. The price
at which the equity securities are held in the Fund will be adversely affected
if trading markets for the equity securities are limited or absent.
RISKS AND SPECIAL CONSIDERATIONS CONCERNING DERIVATIVES
In addition to the foregoing, the use of derivative instruments involves
certain general risks and considerations as described below.
(1) Market Risk. Market risk is the risk that the value of the
underlying assets may go up or down. Adverse movements in the value of an
underlying asset can expose the Fund to losses. Derivative instruments may
include elements of leverage and, accordingly, fluctuations in the value
of the derivative instrument in relation to the underlying asset may be
magnified. The successful use of derivative instruments depends upon a
variety of factors, particularly the portfolio managers' ability to
predict movements of the securities, currencies, and commodities markets,
which may require different skills than predicting changes in the prices
of individual securities. There can be no assurance that any particular
strategy adopted will succeed. A decision to engage in a derivative
transaction will reflect the portfolio managers' judgment that the
derivative transaction will provide value to the Fund and its shareholders
and is consistent with the Fund's objectives, investment limitations, and
operating policies. In making such a judgment, the portfolio managers will
analyze the benefits and risks of the derivative transactions and weigh
them in the context of the Fund's overall investments and investment
objectives.
(2) Credit Risk. Credit risk is the risk that a loss may be
sustained as a result of the failure of a counterparty to comply with the
terms of a derivative instrument. The counterparty risk for
exchange-traded derivatives is generally less than for
privately-negotiated or OTC derivatives, since generally a clearing
agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated
-20-
instruments, there is no similar clearing agency guarantee. In all
transactions, the Fund will bear the risk that the counterparty will
default, and this could result in a loss of the expected benefit of the
derivative transactions and possibly other losses to the Fund. The Fund
will enter into transactions in derivative instruments only with
counterparties that First Trust reasonably believes are capable of
performing under the contract.
(3) Correlation Risk. Correlation risk is the risk that there might
be an imperfect correlation, or even no correlation, between price
movements of a derivative instrument and price movements of investments
being hedged. When a derivative transaction is used to completely hedge
another position, changes in the market value of the combined position
(the derivative instrument plus the position being hedged) result from an
imperfect correlation between the price movements of the two instruments.
With a perfect hedge, the value of the combined position remains unchanged
with any change in the price of the underlying asset. With an imperfect
hedge, the value of the derivative instrument and its hedge are not
perfectly correlated. For example, if the value of a derivative instrument
used in a short hedge (such as writing a call option, buying a put option
or selling a Futures Contract) increased by less than the decline in value
of the hedged investments, the hedge would not be perfectly correlated.
This might occur due to factors unrelated to the value of the investments
being hedged, such as speculative or other pressures on the markets in
which these instruments are traded. The effectiveness of hedges using
instruments on indices will depend, in part, on the degree of correlation
between price movements in the index and the price movements in the
investments being hedged.
(4) Liquidity Risk. Liquidity risk is the risk that a derivative
instrument cannot be sold, closed out, or replaced quickly at or very
close to its fundamental value. Generally, exchange contracts are very
liquid because the exchange clearinghouse is the counterparty of every
contract. OTC transactions are less liquid than exchange-traded
derivatives since they often can only be closed out with the other party
to the transaction. The Fund might be required by applicable regulatory
requirements to maintain assets as "cover," maintain segregated accounts,
and/or make margin payments when it takes positions in derivative
instruments involving obligations to third parties (i.e., instruments
other than purchase options). If the Fund is unable to close out its
positions in such instruments, it might be required to continue to
maintain such assets or accounts or make such payments until the position
expires, matures, or is closed out. These requirements might impair the
Fund's ability to sell a security or make an investment at a time when it
would otherwise be favorable to do so, or require that the Fund sell a
portfolio security at a disadvantageous time. The Fund's ability to sell
or close out a position in an instrument prior to expiration or maturity
depends upon the existence of a liquid secondary market or, in the absence
of such a market, the ability and willingness of the counterparty to enter
into a transaction closing out the position. Due to liquidity risk, there
is no assurance that any derivatives position can be sold or closed out at
a time and price that is favorable to the Fund.
(5) Legal Risk. Legal risk is the risk of loss caused by the
unenforceability of a party's obligations under the derivative. While a
party seeking price certainty agrees to surrender the potential upside
-21-
in exchange for downside protection, the party taking the risk is looking
for a positive payoff. Despite this voluntary assumption of risk, a
counterparty that has lost money in a derivative transaction may try to
avoid payment by exploiting various legal uncertainties about certain
derivative products.
(6) Systemic or "Interconnection" Risk. Systemic or interconnection
risk is the risk that a disruption in the financial markets will cause
difficulties for all market participants. In other words, a disruption in
one market will spill over into other markets, perhaps creating a chain
reaction. Much of the OTC derivatives market takes place among the OTC
dealers themselves, thus creating a large interconnected web of financial
obligations. This interconnectedness raises the possibility that a default
by one large dealer could create losses for other dealers and destabilize
the entire market for OTC derivative instruments.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The general supervision of the duties performed for the Fund under the
investment management agreement is the responsibility of the Board of Trustees.
There are five Trustees of the Trust, one of whom is an "interested person" (as
the term is defined in the 1940 Act) and four of whom are Trustees who are not
officers or employees of First Trust or any of its affiliates ("Independent
Trustees"). The Trustees set broad policies for the Fund, choose the Trust's
officers and hire the Trust's investment advisor. The officers of the Trust
manage its day-to-day operations and are responsible to the Trust's Board of
Trustees. The following is a list of the Trustees and executive officers of the
Trust and a statement of their present positions and principal occupations
during the past five years, the number of portfolios each Trustee oversees and
the other directorships they hold, if applicable. Each Trustee has been elected
for an indefinite term. The officers of the Trust serve indefinite terms. Each
Trustee, except for James A. Bowen, is an Independent Trustee. Mr. Bowen is
deemed an "interested person" (as that term is defined in the 1940 Act)
("Interested Trustee") of the Trust due to his position as Chief Executive
Officer of First Trust, investment advisor to the Fund.
-22-
NUMBER OF
PORTFOLIOS
IN THE FIRST
TERM OF OFFICE TRUST FUND OTHER
AND YEAR FIRST COMPLEX TRUSTEESHIPS OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
Trustee who is an
Interested Person of the
Trust
--------------------------
James A. Bowen(1) Chairman of the o Indefinite Chief Executive __ Portfolios None
120 East Liberty Drive, Board and Trustee term Officer (December
Wheaton, IL 60187 2010 to Present),
D.O.B.: 09/55 President (until
o Since December 2010), First
inception Trust Advisors L.P.
and First Trust
Portfolios L.P.;
Chairman of the Board
of Directors,
BondWave LLC
(Software Development
Company/Investment
Advisor) and
Stonebridge Advisors
LLC (Investment
Advisor)
Independent Trustees
--------------------------
Richard E. Erickson Trustee o Indefinite Physician; President, __ Portfolios None
c/o First Trust Advisors term Wheaton Orthopedics;
120 East Liberty Drive, Co-owner and
Suite 400 Co-Director (January
Wheaton, IL 60187 o Since 1996 to May 2007),
D.O.B.: 04/51 inception Sports Med Center for
Fitness; Limited
Partner, Gundersen
Real Estate Limited
Partnership; Member,
Sportsmed LLC
Thomas R. Kadlec Trustee o Indefinite President (March 2010 __ Portfolios Director of
c/o First Trust Advisors term to Present), Senior ADM Investor
L.P. Vice President and Services, Inc.
120 East Liberty Drive, o Since Chief Financial and ADM
Suite 400 inception Officer (May 2007 to Investor
Wheaton, IL 60187 March 2010), Vice Services
D.O.B.: 11/57 President and Chief International
Financial Officer
(1990 to May 2007),
ADM Investor
Services, Inc.
(Futures Commission
Merchant)
Robert F. Keith Trustee o Indefinite President (2003 to __ Portfolios Director of
c/o First Trust Advisors term Present), Hibs Trust Company
L.P. Enterprises of Illinois
120 East Liberty Drive, o Since (Financial and
Suite 400 inception Management
Wheaton, IL 60187 Consulting)
D.O.B.: 11/56
Niel B. Nielson Trustee o Indefinite President and Chief __ Portfolios Director of
c/o First Trust Advisors term Executive Officer Covenant
L.P. (July 2012 to Transport Inc.
120 East Liberty Drive, o Since Present), Dew
Suite 400 inception Learning LLC;
Wheaton, IL 60187 President (June 2002
D.O.B.: 03/54 to June 2012),
Covenant College
|
-23-
NUMBER OF
PORTFOLIOS
IN THE FIRST
TERM OF OFFICE TRUST FUND OTHER
AND YEAR FIRST COMPLEX TRUSTEESHIPS OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
Officers of the Trust
--------------------------
Mark R. Bradley President and o Indefinite Chief Financial N/A N/A
120 East Liberty Drive, Chief Executive term Officer, Chief
Wheaton, IL 60187 Officer Operating Officer
D.O.B.: 11/57 o Since (December 2010 to
inception Present), First Trust
Advisors L.P. and
First Trust
Portfolios L.P.;
Chief Financial
Officer, BondWave LLC
(Software Development
Company/Investment
Advisor) and
Stonebridge Advisors
LLC (Investment
Advisor)
James M. Dykas Treasurer, Chief o Indefinite Controller (January N/A N/A
120 East Liberty Drive, Financial Officer term 2011 to Present),
Suite 400 and Chief Senior Vice President
Wheaton, IL 60187 Accounting o Since (April 2007 to
D.O.B.: 01/66 Officer inception January 2011), Vice
President (January
2005 to April 2007),
First Trust Advisors
L.P. and First Trust
Portfolios L.P
W. Scott Jardine Secretary o Indefinite General Counsel, N/A N/A
120 East Liberty Drive, term First Trust Advisors
Suite 400 L.P. and First Trust
Wheaton, IL 60187 o Since Portfolios L.P.;
D.O.B.: 05/60 inception Secretary, BondWave
LLC (Software
Development
Company/Investment
Advisor) and
Stonebridge Advisors
LLC (Investment
Advisor)
Daniel J. Lindquist Vice President o Indefinite Senior Vice President N/A N/A
120 East Liberty Drive, term (September 2005 to
Suite 400 Present), Vice
Wheaton, IL 60187 o Since President (April 2004
D.O.B.: 02/70 inception to September 2005),
First Trust Advisors
L.P. and First Trust
Portfolios L.P.
Kristi A. Maher Assistant o Indefinite Deputy General N/A N/A
120 East Liberty Drive, Secretary and term Counsel (May 2007 to
Suite 400 Chief Compliance Present), Assistant
Wheaton, IL 60187 Officer o Since General Counsel
D.O.B.: 12/66 inception (March 2004 to May
2007), First Trust
Advisors L.P. and
First Trust
Portfolios L.P.
Roger F. Testin Vice President o Indefinite Senior Vice President N/A N/A
120 East Liberty Drive, term (November 2003 to
Suite 400 Present), First Trust
Wheaton, IL 60187 o Since Advisors L.P. and
D.O.B.: 06/66 inception First Trust
Portfolios L.P.
|
-24-
NUMBER OF
PORTFOLIOS
IN THE FIRST
TERM OF OFFICE TRUST FUND OTHER
AND YEAR FIRST COMPLEX TRUSTEESHIPS OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
Stan Ueland Vice President o Indefinite Vice President N/A N/A
120 East Liberty Drive, term (August 2005 to
Suite 400 Present), First Trust
Wheaton, IL 60187 o Since Advisors L.P. and
D.O.B.: 11/70 inception First Trust
Portfolios L.P; Vice
President (May 2004
to August 2005),
BondWave LLC
(Software Development
Company/Investment
Advisor)
|
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust, investment advisor of
the Fund.
UNITARY BOARD LEADERSHIP STRUCTURE
Each Trustee serves as a trustee of all open-end and closed-end funds in
the First Trust Fund Complex (as defined below), which is known as a "unitary"
board leadership structure. Each Trustee currently serves as a trustee of First
Trust Series Fund, First Trust Variable Insurance Trust and First Defined
Portfolio Fund, LLC, open-end funds with twelve portfolios advised by First
Trust; First Trust Senior Floating Rate Income Fund II, Macquarie/First Trust
Global Infrastructure/Utilities Dividend & Income Fund, First Trust Energy
Income and Growth Fund, First Trust Enhanced Equity Income Fund, First
Trust/Aberdeen Global Opportunity Income Fund, First Trust Mortgage Income Fund,
First Trust Strategic High Income Fund II, First Trust/Aberdeen Emerging
Opportunity Fund, First Trust Specialty Finance and Financial Opportunities
Fund, First Trust Active Dividend Income Fund, First Trust High Income
Long/Short Fund, First Trust Energy Infrastructure Fund and First Trust MLP and
Energy Income Fund, closed-end funds advised by First Trust; and the Trust,
First Trust Exchange-Traded Fund, First Trust Exchange-Traded Fund II, First
Trust Exchange-Traded Fund IV, First Trust Exchange-Traded AlphaDEX(R) Fund and
First Trust Exchange-Traded AlphaDEX(R) Fund II, exchange-traded funds with __
portfolios advised by First Trust (each a "First Trust Fund" and collectively,
the "First Trust Fund Complex"). None of the Trustees who are not "interested
persons" of the Trust, nor any of their immediate family members, has ever been
a director, officer or employee of, or consultant to, First Trust, First Trust
Portfolios or their affiliates. In addition, the officers of the Trust (other
than Stan Ueland and Roger Testin) hold the same positions with the other funds
in the First Trust Fund Complex as they hold with the Trust. Mr. Ueland, Vice
President of the Trust, serves in the same position for all of the funds in the
First Trust Fund Complex with the exception of First Defined Portfolio Fund,
LLC, First Trust Series Fund and the closed-end funds. Mr. Testin, Vice
President of the Trust, serves in the same position for all funds in the First
Trust Fund Complex with the exception of the closed-end funds.
The management of the Fund, including general supervision of the duties
performed for the Fund under the investment management agreement between the
Trust, on behalf of the Fund, and the Advisor, is the responsibility of the
Board of Trustees. The Trustees of the Trust set broad policies for the Fund,
-25-
choose the Trust's officers, and hire the Fund's investment advisor and other
service providers. The officers of the Trust manage the day-to-day operations
and are responsible to the Trust's Board. The Trust's Board is composed of four
Independent Trustees and one Interested Trustee. The Interested Trustee, James
A. Bowen, serves as the Chairman of the Board for each fund in the First Trust
Fund Complex.
The same five persons serve as Trustees on the Trust's Board and on the
Boards of all other First Trust Funds. The unitary board structure was adopted
for the First Trust Funds because of the efficiencies it achieves with respect
to the governance and oversight of the First Trust Funds. Each First Trust Fund
is subject to the rules and regulations of the 1940 Act (and other applicable
securities laws), which means that many of the First Trust Funds face similar
issues with respect to certain of their fundamental activities, including risk
management, portfolio liquidity, portfolio valuation and financial reporting.
Because of the similar and often overlapping issues facing the First Trust
Funds, including among the Fund, the Board of the First Trust Funds believes
that maintaining a unitary board structure promotes efficiency and consistency
in the governance and oversight of all First Trust Funds and reduces the costs,
administrative burdens and possible conflicts that may result from having
multiple boards. In adopting a unitary board structure, the Trustees seek to
provide effective governance through establishing a board the overall
composition of which will, as a body, possesses the appropriate skills,
diversity, independence and experience to oversee the Fund's business.
Annually, the Board reviews its governance structure and the committee
structures, their performance and functions and reviews any processes that would
enhance Board governance over the Fund's business. The Board has determined that
its leadership structure, including the unitary board and committee structure,
is appropriate based on the characteristics of the funds it serves and the
characteristics of the First Trust Fund Complex as a whole.
In order to streamline communication between the Advisor and the
Independent Trustees and create certain efficiencies, the Board has a Lead
Independent Trustee who is responsible for: (i) coordinating activities of the
Independent Trustees; (ii) working with the Advisor, Fund counsel and the
independent legal counsel to the Independent Trustees to determine the agenda
for Board meetings; (iii) serving as the principal contact for and facilitating
communication between the Independent Trustees and the Fund's service providers,
particularly the Advisor; and (iv) any other duties that the Independent
Trustees may delegate to the Lead Independent Trustee. The Lead Independent
Trustee is selected by the Independent Trustees and serves a two-year term or
until his successor is selected.
The Board has established four standing committees (as described below)
and has delegated certain of its responsibilities to those committees. The Board
and its committees meet frequently throughout the year to oversee the Fund's
activities, review contractual arrangements with and performance of service
providers, oversee compliance with regulatory requirements, and review Fund
performance. The Independent Trustees are represented by independent legal
counsel at all Board and committee meetings (other than meetings of the
Executive Committee). Generally, the Board acts by majority vote of all the
Trustees, including a majority vote of the Independent Trustees if required by
applicable law.
-26-
The three committee Chairmen and the Lead Independent Trustee rotate every
two years in serving as Chairman of the Audit Committee, the Nominating and
Governance Committee or the Valuation Committee, or as Lead Independent Trustee.
The Lead Independent Trustee also serves on the Executive Committee with the
Interested Trustee.
The four standing committees of the First Trust Fund Complex are: the
Executive Committee (and Pricing and Dividend Committee), the Nominating and
Governance Committee, the Valuation Committee and the Audit Committee. The
Executive Committee, which meets between Board meetings, is authorized to
exercise all powers of and to act in the place of the Board of Trustees to the
extent permitted by the Trust's Declaration of Trust and By-Laws. Such Committee
is also responsible for the declaration and setting of dividends. Mr. Keith and
Mr. Bowen are members of the Executive Committee.
The Nominating and Governance Committee is responsible for appointing and
nominating non-interested persons to the Trust's Board of Trustees. Messrs.
Erickson, Kadlec, Keith and Nielson are members of the Nominating and Governance
Committee. If there is no vacancy on the Board of Trustees, the Board will not
actively seek recommendations from other parties, including shareholders. The
Board of Trustees adopted a mandatory retirement age of 72 for Trustees, beyond
which age Trustees are ineligible to serve. The Committee will not consider new
trustee candidates who are 72 years of age or older. When a vacancy on the Board
of Trustees of a First Trust Fund occurs and nominations are sought to fill such
vacancy, the Nominating and Governance Committee may seek nominations from those
sources it deems appropriate in its discretion, including shareholders of the
applicable Fund. To submit a recommendation for nomination as a candidate for a
position on the Board of Trustees, shareholders of the applicable Fund shall
mail such recommendation to W. Scott Jardine, Secretary, at the Trust's address,
120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187. Such recommendation
shall include the following information: (i) evidence of Fund ownership of the
person or entity recommending the candidate (if a Fund shareholder); (ii) a full
description of the proposed candidate's background, including their education,
experience, current employment and date of birth; (iii) names and addresses of
at least three professional references for the candidate; (iv) information as to
whether the candidate is an "interested person" in relation to the Fund, as such
term is defined in the 1940 Act, and such other information that may be
considered to impair the candidate's independence; and (v) any other information
that may be helpful to the Committee in evaluating the candidate. If a
recommendation is received with satisfactorily completed information regarding a
candidate during a time when a vacancy exists on the Board or during such other
time as the Nominating and Governance Committee is accepting recommendations,
the recommendation will be forwarded to the Chairman of the Nominating and
Governance Committee and the counsel to the Independent Trustees.
Recommendations received at any other time will be kept on file until such time
as the Nominating and Governance Committee is accepting recommendations, at
which point they may be considered for nomination.
The Valuation Committee is responsible for the oversight of the pricing
procedures of each Fund. Messrs. Erickson, Kadlec, Keith and Nielson are members
of the Valuation Committee.
-27-
The Audit Committee is responsible for overseeing each Fund's accounting
and financial reporting process, the system of internal controls, audit process
and evaluating and appointing independent auditors (subject also to Board
approval). Messrs. Erickson, Kadlec, Keith and Nielson serve on the Audit
Committee.
RISK OVERSIGHT
As part of the general oversight of the Fund, the Board is involved in the
risk oversight of the Fund. The Board has adopted and periodically reviews
policies and procedures designed to address each Fund's risks. Oversight of
investment and compliance risk, including oversight of any sub-advisors, is
performed primarily at the Board level in conjunction with the Advisor's
investment oversight group and the Trust's Chief Compliance Officer ("CCO").
Oversight of other risks also occurs at the committee level. The Advisor's
investment oversight group reports to the Board at quarterly meetings regarding,
among other things, Fund performance and the various drivers of such performance
as well as information related to sub-advisors and their operations and
processes. The Board reviews reports on the Fund's and the service providers'
compliance policies and procedures at each quarterly Board meeting and receives
an annual report from the CCO regarding the operations of the Fund's and the
service providers' compliance program. In addition, the Independent Trustees
meet privately each quarter with the CCO. The Audit Committee reviews with the
Advisor each Fund's major financial risk exposures and the steps the Advisor has
taken to monitor and control these exposures, including each Fund's risk
assessment and risk management policies and guidelines. The Audit Committee
also, as appropriate, reviews in a general manner the processes other Board
committees have in place with respect to risk assessment and risk management.
The Nominating and Governance Committee monitors all matters related to the
corporate governance of the Fund. The Valuation Committee monitors valuation
risk and compliance with the Fund's Valuation Procedures and oversees the
pricing agents and actions by the Advisor's Pricing Committee with respect to
the valuation of portfolio securities.
Not all risks that may affect the Fund can be identified nor can controls
be developed to eliminate or mitigate their occurrence or effects. It may not be
practical or cost effective to eliminate or mitigate certain risks, the
processes and controls employed to address certain risks may be limited in their
effectiveness, and some risks are simply beyond the reasonable control of the
Fund or the Advisor or other service providers. Moreover, it is necessary to
bear certain risks (such as investment related risks) to achieve a Fund's goals.
As a result of the foregoing and other factors, the Fund's ability to manage
risk is subject to substantial limitations.
BOARD DIVERSIFICATION AND TRUSTEE QUALIFICATIONS
As described above, the Nominating and Governance Committee of each Board
oversees matters related to the nomination of Trustees. The Nominating and
Governance Committee seeks to establish an effective Board with an appropriate
range of skills and diversity, including, as appropriate, differences in
background, professional experience, education, vocations, and other individual
characteristics and traits in the aggregate. Each Trustee must meet certain
basic requirements, including relevant skills and experience, time availability,
-28-
and if qualifying as an Independent Trustee, independence from the Advisor,
sub-advisors, underwriters or other service providers, including any affiliates
of these entities.
Listed below for each current Trustee are the experiences, qualifications
and attributes that led to the conclusion, as of the date of this SAI, that each
current Trustee should serve as a trustee.
Richard E. Erickson, M.D., is an orthopedic surgeon and President of
Wheaton Orthopedics. He also has been a co-owner and director of a fitness
center and a limited partner of two real estate companies. Dr. Erickson has
served as a Trustee of each First Trust Fund since its inception. Dr. Erickson
has also served as the Lead Independent Trustee (2008 - 2009), Chairman of the
Nominating and Governance Committee (2003 - 2007) and Chairman of the Valuation
Committee (June 2006 - 2007 and 2010 - 2011) of the First Trust Funds. He
currently serves as Chairman of the Audit Committee (since January 1, 2012) of
the First Trust Funds.
Thomas R. Kadlec is President of ADM Investor Services Inc. ("ADMIS"), a
futures commission merchant and wholly-owned subsidiary of the Archer Daniels
Midland Company ("ADM"). Mr. Kadlec has been employed by ADMIS and its
affiliates since 1990 in various accounting, financial, operations and risk
management capacities. Mr. Kadlec serves on the boards of several international
affiliates of ADMIS and is a member of ADM's Integrated Risk Committee, which is
tasked with the duty of implementing and communicating enterprise-wide risk
management. Mr. Kadlec has served as a Trustee of each First Trust Fund, except
First Defined Portfolio Fund, LLC, since its inception. He has served as a
Trustee of First Defined Portfolio Fund, LLC, since 2004. Mr. Kadlec also served
on the Executive Committee from the organization of the first First Trust
closed-end fund in 2003 until he was elected as the first Lead Independent
Trustee in December 2005, serving as such through 2007. He also served as
Chairman of the Valuation Committee (2008 - 2009), Chairman of the Audit
Committee (2010 - 2011) and he currently serves as Chairman of the Nominating
and Governance Committee (since January 1, 2012) of the First Trust Funds.
Robert F. Keith is President of Hibs Enterprises, a financial and
management consulting firm. Mr. Keith has been with Hibs Enterprises since 2003.
Prior thereto, Mr. Keith spent 18 years with ServiceMaster and Aramark,
including three years as President and COO of ServiceMaster Consumer Services,
where he led the initial expansion of certain products overseas, five years as
President and COO of ServiceMaster Management Services and two years as
President of Aramark ServiceMaster Management Services. Mr. Keith is a certified
public accountant and also has held the positions of Treasurer and Chief
Financial Officer of ServiceMaster, at which time he oversaw the financial
aspects of ServiceMaster's expansion of its Management Services division in to
Europe, the Middle East and Asia. Mr. Keith has served as a Trustee of the First
Trust Funds since June 2006. Mr. Keith has also served as the Chairman of the
Audit Committee (2008 - 2009) and Chairman of the Nominating and Governance
Committee (2010 - 2011) of the First Trust Funds. He currently serves as Lead
Independent Trustee and on the Executive Committee (since January 1, 2012) of
the First Trust Funds.
-29-
Niel B. Nielson, Ph.D., has served as President and Chief Executive
Officer of Dew Learning LLC (a global provider of digital and on-line
educational products and services) since 2012. Mr. Nielson formerly served as
President of Covenant College (2002-2012), and as a partner and trader (of
options and futures contracts for hedging options) for Ritchie Capital Markets
Group (1996 -1997), where he held an administrative management position at this
proprietary derivatives trading company. He also held prior positions in new
business development for ServiceMaster Management Services Company, and in
personnel and human resources for NationsBank of North Carolina, N.A. and
Chicago Research and Trading Group, Ltd. ("CRT"). His international experience
includes serving as a director of CRT Europe, Inc. for two years, directing out
of London all aspects of business conducted by the U.K. and European subsidiary
of CRT. Prior to that, Mr. Nielson was a trader and manager at CRT in Chicago.
Mr. Nielson has served as a Trustee of each First Trust Fund since its inception
and of the First Trust Funds since 1999. Mr. Nielson has also served as the
Chairman of the Audit Committee (2003 - 2006), Chairman of the Nominating and
Governance Committee (2008 - 2009) and Lead Independent Trustee (2010 - 2011)
and currently serves as Chairman of the Valuation Committee (since January 1,
2012) of the First Trust Funds.
James A. Bowen is Chief Executive Officer of First Trust Advisors L.P. and
First Trust Portfolios L.P. and until January 23, 2012, also served as President
and Chief Executive Officer of the First Trust Funds. Mr. Bowen is involved in
the day-to-day management of the First Trust Funds and serves on the Executive
Committee. He has over 26 years of experience in the investment company business
in sales, sales management and executive management. Mr. Bowen has served as a
Trustee of each First Trust Fund since its inception and of the First Trust
Funds since 1999.
Each Independent Trustee is paid a fixed annual retainer of $125,000 per
year and an annual per fund fee of $4,000 for each closed-end fund or other
actively managed fund and $1,000 for each index fund in the First Trust Fund
Complex. The fixed annual retainer is allocated pro rata among each fund in the
First Trust Fund Complex based on net assets. Additionally, the Lead Independent
Trustee is paid $15,000 annually, the Chairman of the Audit Committee is paid
$10,000 annually, and each of the Chairmen of the Nominating and Governance
Committee and the Valuation Committee is paid $5,000 annually to serve in such
capacities, with such compensation allocated pro rata among each fund in the
First Trust Fund Complex based on net assets. Trustees are also reimbursed by
the investment companies in the First Trust Fund Complex for travel and
out-of-pocket expenses incurred in connection with all meetings. Each Chairman
and the Lead Independent Trustee will serve a two year term expiring December
31, 2013 before rotating to serve as a Chairman of another Committee or as Lead
Independent Trustee.
The following table sets forth the estimated compensation (including
reimbursement for travel and out-of-pocket expenses) to be paid by the Fund for
a full fiscal year and the actual compensation paid by the First Trust Fund
Complex for the calendar year ended December 31, 2012, respectively. The Trust
has no retirement or pension plans. The officers and Trustee who are "interested
persons" as designated above serve without any compensation from the Trust. The
Trust has no employees. Its officers are compensated by First Trust.
-30-
ESTIMATED COMPENSATION FROM TOTAL COMPENSATION FROM
NAME OF TRUSTEE THE FUND(1) THE FIRST TRUST FUND COMPLEX(2)
Richard E. Erickson $ $
Thomas R. Kadlec $ $
Robert F. Keith $ $
Niel B. Nielson $ $
|
(1) The estimated compensation to be paid by the Fund to the Independent
Trustees for one fiscal year for services to the Fund.
(2) The total compensation paid to the Independent Trustees for the calendar
year ended December 31, 2012 for services to the ten portfolios of First
Defined Portfolio Fund, LLC, First Trust Series Fund and First Trust
Variable Insurance Trust, open-end funds, __ closed-end funds and __
series of the Trust, First Trust Exchange-Traded Fund, First Trust
Exchange-Traded Fund II, First Trust Exchange-Traded Fund IV, First Trust
Exchange-Traded AlphaDEX(R) Fund and First Trust Exchange-Traded
AlphaDEX(R) Fund II, all advised by First Trust.
The following table sets forth the dollar range of equity securities
beneficially owned by the Trustees in the Fund and in other funds overseen by
the Trustees in the First Trust Fund Complex as of ____________:
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN
DOLLAR RANGE OF ALL REGISTERED INVESTMENT COMPANIES
EQUITY SECURITIES OVERSEEN BY TRUSTEE IN THE FIRST
IN THE FUND TRUST
TRUSTEE (NUMBER OF SHARES HELD) FUND COMPLEX
Interested Trustee
James A. Bowen None $50,001 - $100,000
Independent Trustees
Richard E. Erickson None Over $100,000
Thomas R. Kadlec None Over $100,000
Robert F. Keith None Over $100,000
Niel B. Nielson None Over $100,000
|
As of _________, 2013 the Independent Trustees of the Trust and immediate
family members did not own beneficially or of record any class of securities of
an investment advisor or principal underwriter of the Fund or any person
directly or indirectly controlling, controlled by, or under common control with
an investment advisor or principal underwriter of the Fund.
As of _________, 2013 the officers and Trustees, in the aggregate, owned
less than 1% of the Shares of the Fund.
As of _________, 2013 First Trust Portfolios was the sole shareholder of
the Fund. As sole shareholder, First Trust Portfolios has the ability to control
the outcome of any item presented to shareholders for approval.
Investment Advisor. The Board of Trustees of the Trust, including the
Independent Trustees, approved an investment management agreement (the
"Investment Management Agreement") for the Fund for an initial two-year term
-31-
at a meeting held on [_________, 2013]. The Board of Trustees determined that
the Investment Management Agreement is in the best interests of the Fund in
light of the services, expenses and such other matters as the Board of Trustees
considered to be relevant in the exercise of its reasonable business judgment.
Pursuant to the Investment Management Agreement between First Trust and
the Trust, First Trust will manage the investment of the Fund's assets and will
be responsible for managing the Fund's business affairs and providing certain
clerical, bookkeeping and other administrative services, and for paying all
expenses of the Fund, excluding the fee payments under the Investment Management
Agreement, interest, taxes, brokerage commissions and other expenses connected
with the execution of portfolio transactions, distribution and service fees
payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. First
Trust also permits any of its officers or employees to serve without
compensation as Trustees or officers of the Trust if elected to such positions.
The Fund has agreed to pay First Trust an annual management fee equal to 0.__%
of its average daily net assets.
First Trust, 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187,
is the investment advisor to the Fund. First Trust is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. Grace Partners of DuPage L.P. is a limited partnership with
one general partner, The Charger Corporation, and a number of limited partners.
The Charger Corporation is an Illinois corporation controlled by James A. Bowen,
the Chief Executive Officer of First Trust. First Trust discharges its
responsibilities subject to the policies of the Board of Trustees.
First Trust provides investment tools and portfolios for advisors and
investors. First Trust is committed to theoretically sound portfolio
construction and empirically verifiable investment management approaches. Its
asset management philosophy and investment discipline is deeply rooted in the
application of intuitive factor analysis and model implementation to enhance
investment decisions.
Under the Investment Management Agreement, First Trust shall not be liable
for any loss sustained by reason of the purchase, sale or retention of any
security, whether or not such purchase, sale or retention shall have been based
upon the investigation and research made by any other individual, firm or
corporation, if such recommendation shall have been selected with due care and
in good faith, except loss resulting from willful misfeasance, bad faith, or
gross negligence on the part of First Trust in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties. The Investment Management Agreement continues until two
years after the initial issuance of Fund Shares, and thereafter only if approved
annually by the Board of Trustees, including a majority of the Independent
Trustees. The Investment Management Agreement terminates automatically upon
assignment and is terminable at any time without penalty as to the Fund by the
Board of Trustees, including a majority of the Independent Trustees, or by vote
of the holders of a majority of the Fund's outstanding voting securities on 60
days' written notice to First Trust, or by First Trust on 60 days' written
notice to the Fund.
-32-
Portfolio Managers.
POSITION WITH LENGTH OF SERVICE PRINCIPAL OCCUPATION
NAME FIRST TRUST WITH FIRST TRUST DURING PAST FIVE YEARS
John Gambla Senior Portfolio Manager
Rob A. Guttschow Senior Portfolio Manager
|
John Gambla: As a Senior Portfolio Manager at First Trust, Mr. Gambla is
responsible for the day-to-day implementation of the Fund's portfolio management
decisions.
Rob A. Guttschow: As a Senior Portfolio Manager at First Trust, Mr.
Guttschow is responsible for the day-to-day implementation of the Fund's
portfolio management decisions.
No member of the Investment Committee beneficially owns any Shares of the
Fund.
Compensation. The compensation structure for each member of the Investment
Committee is based upon a fixed salary as well as a discretionary bonus
determined by the management of First Trust. Salaries are determined by
management and are based upon an individual's position and overall value to the
firm. Bonuses are also determined by management and are based upon an
individual's overall contribution to the success of the firm and the
profitability of the firm. Salaries and bonuses for members of the Investment
Committee are not based upon criteria such as performance of the Funds or the
value of assets included in the Funds' portfolios.
The Investment Committee manages the investment vehicles (other than the
Fund) with the number of accounts and assets, as of _____, set forth in the
table below:
-33-
ACCOUNTS MANAGED BY INVESTMENT COMMITTEE
REGISTERED INVESTMENT OTHER POOLED
COMPANIES INVESTMENT VEHICLES
NUMBER OF ACCOUNTS NUMBER OF ACCOUNTS OTHER ACCOUNTS NUMBER OF
INVESTMENT COMMITTEE MEMBER ($ ASSETS) ($ ASSETS) ACCOUNTS ($ ASSETS)
John Gambla
Rob A. Guttschow
|
None of the accounts managed by the Investment Committee pay an advisory
fee that is based upon the performance of the account. In addition, First Trust
believes that there are no material conflicts of interest that may arise in
connection with the Investment Committee's management of the Fund's investments
and the investments of the other accounts managed by the Investment Committee.
However, because the investment strategy of the Fund and the investment
strategies of many of the other accounts managed by the Investment Committee are
based on fairly mechanical investment processes, the Investment Committee may
recommend that certain clients sell and other clients buy a given security at
the same time. In addition, because the investment strategies of the Fund and
other accounts managed by the Investment Committee generally result in the
clients investing in readily available securities, First Trust believes that
there should not be material conflicts in the allocation of investment
opportunities between the Fund and other accounts managed by the Investment
Committee.
BROKERAGE ALLOCATIONS
First Trust is responsible for decisions to buy and sell securities for
the Fund and for the placement of the Fund's securities business, the
negotiation of the commissions to be paid on brokered transactions, the prices
for principal trades in securities, and the allocation of portfolio brokerage
and principal business. It is the policy of First Trust to seek the best
execution at the best security price available with respect to each transaction,
and with respect to brokered transactions in light of the overall quality of
brokerage and research services provided to First Trust and its clients. The
best price to the Fund means the best net price without regard to the mix
-34-
between purchase or sale price and commission, if any. Purchases may be made
from underwriters, dealers, and, on occasion, the issuers. Commissions will be
paid on the Fund's Futures and options transactions, if any. The purchase price
of portfolio securities purchased from an underwriter or dealer may include
underwriting commissions and dealer spreads. The Fund may pay mark-ups on
principal transactions. In selecting broker/dealers and in negotiating
commissions, First Trust considers, among other things, the firm's reliability,
the quality of its execution services on a continuing basis and its financial
condition. Fund portfolio transactions may be effected with broker/dealers who
have assisted investors in the purchase of Shares.
Section 28(e) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") permits an investment advisor, under certain circumstances, to cause
an account to pay a broker or dealer who supplies brokerage and research
services a commission for effecting a transaction in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services include (a) furnishing advice as to
the value of securities, the advisability of investing, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; (b) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody). Such brokerage
and research services are often referred to as "soft dollars." First Trust has
advised the Board of Trustees that it does not currently intend to use soft
dollars.
Notwithstanding the foregoing, in selecting brokers, First Trust may in
the future consider investment and market information and other research, such
as economic, securities and performance measurement research, provided by such
brokers, and the quality and reliability of brokerage services, including
execution capability, performance, and financial responsibility. Accordingly,
the commissions charged by any such broker may be greater than the amount
another firm might charge if First Trust determines in good faith that the
amount of such commissions is reasonable in relation to the value of the
research information and brokerage services provided by such broker to First
Trust or the Trust. In addition, First Trust must determine that the research
information received in this manner provides the Fund with benefits by
supplementing the research otherwise available to the Fund. The Investment
Management Agreement provides that such higher commissions will not be paid by
the Fund unless First Trust determines in good faith that the amount is
reasonable in relation to the services provided. The investment advisory fees
paid by the Fund to First Trust under the Investment Management Agreement would
not be reduced as a result of receipt by First Trust of research services.
First Trust places portfolio transactions for other advisory accounts
advised by it, and research services furnished by firms through which the Fund
effects securities transactions may be used by First Trust in servicing all of
its accounts; not all of such services may be used by First Trust in connection
with the Fund. First Trust believes it is not possible to measure separately the
benefits from research services to each of the accounts (including the Fund)
advised by it. Because the volume and nature of the trading activities of the
accounts are not uniform, the amount of commissions in excess of those charged
by another broker paid by each account for brokerage and research services will
vary. However, First Trust believes such costs to the Fund will not be
disproportionate to the benefits received by the Fund on a continuing basis.
-35-
First Trust seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In making
such allocations between the Fund and other advisory accounts, the main factors
considered by First Trust are the respective investment objectives, the relative
size of portfolio holding of the same or comparable securities, the availability
of cash for investment and the size of investment commitments generally held.
CUSTODIAN, ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT
Custodian, Administrator, Fund Accountant and Transfer Agent.
[______________________] ("_____"), as custodian for the Fund pursuant to a
Custodian Agreement, holds the Fund's assets. Also, pursuant to an
Administrative Agency Agreement, _____ provides certain administrative and
accounting services to the Fund, including maintaining the Fund's books of
account, records of the Fund's securities transactions and certain other books
and records; acting as liaison with the Fund's independent registered public
accounting firm by providing such accountant with various audit-related
information with respect to the Fund; and providing other continuous accounting
and administrative services. _____ also serves as the Fund's transfer agent
pursuant to a ___________ Agreement. _____ is located at
[_______________________].
Pursuant to the Administrative Agency Agreement, the Trust on behalf of
the Fund has agreed to indemnify the Administrator for certain liabilities,
including certain liabilities arising under the federal securities laws, unless
such loss or liability results from negligence or willful misconduct in the
performance of its duties.
Pursuant to the Fund Administration and Accounting Agreement between _____
and the Trust, the Fund has agreed to pay such compensation as is mutually
agreed from time to time and such out-of-pocket expenses as incurred by _____ in
the performance of its duties.
Distributor. First Trust Portfolios L.P., an affiliate of First Trust, is
the distributor ("FTP" the "Distributor") and principal underwriter of the
Shares of the Fund. Its principal address is 120 East Liberty Drive, Suite 400,
Wheaton, Illinois 60187. The Distributor has entered into a Distribution
Agreement with the Trust pursuant to which it distributes Fund Shares. Shares
are continuously offered for sale by the Fund through the Distributor only in
Creation Unit Aggregations, as described in the Prospectus and below under the
heading "Creation and Redemption of Creation Units."
First Trust may, from time to time and from its own resources, pay, defray
or absorb costs relating to distribution, including payments out of its own
resources to the Distributor, or to otherwise promote the sale of Shares. First
Trust's available resources to make these payments include profits from advisory
fees received from the Fund. The services First Trust may pay for include, but
are not limited to, advertising and attaining access to certain conferences and
seminars, as well as being presented with the opportunity to address investors
and industry professionals through speeches and written marketing materials.
-36-
12b-1 Plan. The Trust has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act (the "Plan") pursuant to which the Fund may reimburse
the Distributor up to a maximum annual rate of 0.25% its average daily net
assets.
Under the Plan and as required by Rule 12b-1, the Trustees will receive
and review after the end of each calendar quarter a written report provided by
the Distributor of the amounts expended under the Plan and the purpose for which
such expenditures were made. With the exception of the Distributor and its
affiliates, no "interested person" of the Trust (as that term is defined in the
1940 Act) and no Trustee of the Trust has a direct or indirect financial
interest in the operation of the Plan or any related agreement.
No such fee is currently paid by the Fund under the Plan, and pursuant to
a contractual agreement, the Fund will not pay 12b-1 fees any time before
___________.
Aggregations. Fund Shares in less than Creation Unit Aggregations are not
distributed by the Distributor. The Distributor will deliver the Prospectus and,
upon request, this SAI to persons purchasing Creation Unit Aggregations and will
maintain records of both orders placed with it and confirmations of acceptance
furnished by it. The Distributor is a broker-dealer registered under the 1934
Act and a member of the Financial Industry Regulatory Authority ("FINRA").
The Distribution Agreement provides that it may be terminated at any time,
without the payment of any penalty, on at least 60 days' written notice by the
Trust to the Distributor (i) by vote of a majority of the Independent Trustees
or (ii) by vote of a majority of the outstanding voting securities (as defined
in the 1940 Act) of the Fund. The Distribution Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor shall enter into agreements with participants that utilize
the facilities of the Depository Trust Company (the "DTC Participants"), which
have international, operational, capabilities and place orders for Creation Unit
Aggregations of Fund Shares. Participating Parties (as defined in "Creation and
Redemption of Creation Unit Aggregations" below) shall be DTC Participants (as
defined in "Additional Information" below).
Exchange. The only relationship that the Exchange has with First Trust or
the Distributor of the Fund in connection with the Fund is that the Exchange
will list the Shares of the Fund and disseminates the intra-day portfolio values
that are calculated by the IPV Calculator pursuant to its listing agreement with
the Trust. The Exchange is not responsible for and has not participated in the
determination of pricing or the timing of the issuance or sale of the Shares of
the Fund or in the determination or calculation of the asset value of the Fund.
The Exchange has no obligation or liability in connection with the
administration, marketing or trading of the Fund.
ADDITIONAL INFORMATION
Book Entry Only System. The following information supplements and should
be read in conjunction with the Prospectus.
-37-
DTC Acts as Securities Depository for Fund Shares. Shares of the Fund are
represented by securities registered in the name of The Depository Trust Company
("DTC") or its nominee, Cede & Co., and deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold securities of
its participants (the "DTC Participants") and to facilitate the clearance and
settlement of securities transactions among the DTC Participants in such
securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities,
or certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC. More specifically, DTC is owned by
a number of its DTC Participants and by the New York Stock Exchange (the "NYSE")
and FINRA. Access to the DTC system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a DTC Participant, either directly or indirectly (the
"Indirect Participants").
Beneficial ownership of Shares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in Shares (owners of such
beneficial interests are referred to herein as "Beneficial Owners") is shown on,
and the transfer of ownership is effected only through, records maintained by
DTC (with respect to DTC Participants) and on the records of DTC Participants
(with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC
Participant a written confirmation relating to their purchase and sale of
Shares.
Conveyance of all notices, statements and other communications to
Beneficial Owners is effected as follows. Pursuant to a letter agreement between
DTC and the Trust, DTC is required to make available to the Trust upon request
and for a fee to be charged to the Trust a listing of the Shares of the Fund
held by each DTC Participant. The Trust shall inquire of each such DTC
Participant as to the number of Beneficial Owners holding Shares, directly or
indirectly, through such DTC Participant. The Trust shall provide each such DTC
Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Trust shall pay to each such DTC Participants a fair
and reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
Fund distributions shall be made to DTC or its nominee, as the registered
holder of all Fund Shares. DTC or its nominee, upon receipt of any such
distributions, shall immediately credit DTC Participants' accounts with payments
in amounts proportionate to their respective beneficial interests in Shares of
the Fund as shown on the records of DTC or its nominee. Payments by DTC
Participants to Indirect Participants and Beneficial Owners of Shares held
through such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a "street name," and will be the
responsibility of such DTC Participants.
-38-
The Trust has no responsibility or liability for any aspect of the records
relating to or notices to Beneficial Owners, or payments made on account of
beneficial ownership interests in such Shares, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests, or for
any other aspect of the relationship between DTC and the DTC Participants or the
relationship between such DTC Participants and the Indirect Participants and
Beneficial Owners owning through such DTC Participants.
DTC may decide to discontinue providing its service with respect to Shares
at any time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action to find a replacement for DTC to
perform its functions at a comparable cost.
PROXY VOTING POLICIES AND PROCEDURES
The Board has delegated to First Trust the proxy voting responsibilities
for the Fund and has directed First Trust to vote proxies consistent with the
Fund's best interests. First Trust has engaged the services of ISS Governance
Services, a division of RiskMetrics Group, Inc. ("ISS"), to make recommendations
to First Trust on the voting of proxies relating to securities held by the Fund.
If First Trust manages the assets of a company or its pension plan and any of
First Trust's clients hold any securities of that company, First Trust will vote
proxies relating to such company's securities in accordance with the ISS
recommendations to avoid any conflict of interest. While these guidelines are
not intended to be all-inclusive, they do provide guidance on First Trust's
general voting policies.]
Information regarding how the Fund voted proxies (if any) relating to
portfolio securities during the most recent 12-month period ended June 30,
will be available upon request and without charge on the Fund's website at
http://www.ftportfolios.com, by calling (800) 621-1675 or by accessing the SEC's
website at http://www.sec.gov.
Quarterly Portfolio Schedule. The Trust is required to disclose, after its
first and third fiscal quarters, the complete schedule of the Fund's portfolio
holdings with the SEC on Form N-Q. Form N-Q for the Trust is available on the
SEC's website at http://www.sec.gov. The Fund's Form N-Q may also be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C. and
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. The Trust's Form N-Q is available without charge, upon
request, by calling (800) 621-1675 or by writing to First Trust Portfolios L.P.,
120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187.
Policy Regarding Disclosure of Portfolio Holdings. The Trust has adopted a
policy regarding the disclosure of information about the Fund's portfolio
holdings. The Board of Trustees must approve all material amendments to this
policy. The Fund's portfolio holdings are publicly disseminated each day the
Fund is open for business through financial reporting and news services,
including publicly accessible Internet websites. In addition, a basket
composition file, which includes the security names and share quantities to
deliver in exchange for Fund Shares, together with estimates and actual cash
components, is publicly disseminated each day the NYSE is open for trading via
the National Securities Clearing Corporation ("NSCC"). The basket represents one
-39-
Creation Unit of the Fund. The Fund's portfolio holdings are also available on
the Fund's website at http://www.ftportfolios.com. The Trust, First Trust, FTP
and _____ will not disseminate non-public information concerning the Trust.
Codes of Ethics. In order to mitigate the possibility that the Fund will
be adversely affected by personal trading, the Trust, First Trust and the
Distributor have adopted Codes of Ethics under Rule 17j-1 of the 1940 Act. These
Codes of Ethics contain policies restricting securities trading in personal
accounts of the officers, Trustees and others who normally come into possession
of information on portfolio transactions. Personnel subject to the Codes of
Ethics may invest in securities that may be purchased or held by the Fund;
however, the Codes of Ethics require that each transaction in such securities be
reviewed by the Chief Compliance Officer or his or her designee. These Codes of
Ethics are on public file with, and are available from, the SEC.
CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS
Creation. The Trust issues and sells Shares of the Fund only in Creation
Unit Aggregations on a continuous basis through the Distributor, without a sales
load, at their NAVs next determined after receipt, on any Business Day (as
defined below), of an order in proper form.
A "Business Day" is any day on which the NYSE is open for business. As of
the date of this SAI, the NYSE observes the following holidays: New Year's Day,
Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Deposit of Securities and Deposit or Delivery of Cash. The consideration
for purchase of Creation Unit Aggregations of the Fund may consist of (i) cash
in lieu of all or a portion of the Deposit Securities, as defined below, and/or
(ii) a designated portfolio of equity securities determined by First Trust--the
"Deposit Securities"--per each Creation Unit Aggregation ("Fund Securities") and
generally an amount of cash--the "Cash Component"--computed as described below.
Together, the Deposit Securities and the Cash Component (including the cash in
lieu amount) constitute the "Fund Deposit," which represents the minimum initial
and subsequent investment amount for a Creation Unit Aggregation of the Fund.
The Cash Component is sometimes also referred to as the Balancing Amount.
The Cash Component serves the function of compensating for any differences
between the NAV per Creation Unit Aggregation and the Deposit Amount (as defined
below). The Cash Component is an amount equal to the difference between the NAV
of Fund Shares (per Creation Unit Aggregation) and the "Deposit Amount"--an
amount equal to the market value of the Deposit Securities and/or cash in lieu
of all or a portion of the Deposit Securities. If the Cash Component is a
positive number (i.e., the NAV per Creation Unit Aggregation exceeds the Deposit
Amount), the creator will deliver the Cash Component. If the Cash Component is a
negative number (i.e., the NAV per Creation Unit Aggregation is less than the
Deposit Amount), the creator will receive the Cash Component.
-40-
The Custodian, through the NSCC (discussed below), makes available on each
Business Day, prior to the opening of business of the NYSE (currently 9:30 a.m.,
Eastern Time), the list of the names and the required number of shares of each
Deposit Security to be included in the current Fund Deposit (based on
information at the end of the previous Business Day) for the Fund.
Such Fund Deposit is applicable, subject to any adjustments as described
below, in order to effect creations of Creation Unit Aggregations of the Fund
until such time as the next-announced composition of the Deposit Securities is
made available.
The identity and number of shares of the Deposit Securities required for a
Fund Deposit for the Fund changes as rebalancing adjustments and corporate
action events are reflected within the Fund from time to time by First Trust
with a view to the investment objectives of the Fund. In addition, the Trust
reserves the right to permit or require the substitution of an amount of
cash--i.e., a "cash in lieu" amount--to be added to the Cash Component to
replace any Deposit Security that may not be available in sufficient quantity
for delivery or which might not be eligible for trading by an Authorized
Participant (as defined below) or the investor for which it is acting or other
relevant reason. The adjustments described above will reflect changes known to
First Trust on the date of announcement to be in effect by the time of delivery
of the Fund Deposit or resulting from certain corporate actions.
In addition to the list of names and numbers of securities constituting
the current Deposit Securities of a Fund Deposit, the Custodian, through the
NSCC, also makes available on each Business Day, the estimated Cash Component,
effective through and including the previous Business Day, per outstanding
Creation Unit Aggregation of the Fund.
Procedures for Creation of Creation Unit Aggregations. In order to be
eligible to place orders with the Distributor and to create a Creation Unit
Aggregation of the Fund, an entity must be a DTC Participant (see the Book Entry
Only System section), and must have executed an agreement with the Distributor
and transfer agent, with respect to creations and redemptions of Creation Unit
Aggregations ("Participant Agreement") (discussed below), and have international
operational capabilities. A DTC Participant is also referred to as an
"Authorized Participant." Investors should contact the Distributor for the names
of Authorized Participants that have signed a Participant Agreement. All Fund
Shares, however created, will be entered on the records of DTC in the name of
Cede & Co. for the account of a DTC Participant.
All orders to create Creation Unit Aggregations must be received by the
transfer agent no later than the closing time of the regular trading session on
the NYSE ("Closing Time") (ordinarily 4:00 p.m., Eastern Time) in each case on
the date such order is placed in order for creation of Creation Unit
Aggregations to be effected based on the NAV of Shares of the Fund as next
determined on such date after receipt of the order in proper form. In the case
of custom orders, the order must be received by the transfer agent no later than
3:00 p.m. Eastern Time on the trade date. A custom order may be placed by an
Authorized Participant in the event that the Trust permits or requires the
substitution of an amount of cash to be added to the Cash Component to replace
any Deposit Security which may not be available, which may not be available in
sufficient quantity for delivery or which may not be eligible for trading by
-41-
such Authorized Participant or the investor for which it is acting or other
relevant reason. The date on which an order to create Creation Unit Aggregations
(or an order to redeem Creation Unit Aggregations, as discussed below) is placed
is referred to as the "Transmittal Date." Orders must be transmitted by an
Authorized Participant by telephone or other transmission method acceptable to
the transfer agent pursuant to procedures set forth in the Participant
Agreement, as described below. Severe economic or market disruptions or changes,
or telephone or other communication failure may impede the ability to reach the
transfer agent or an Authorized Participant.
For non-U.S. Securities, Deposit Securities must be delivered to an
account maintained at the applicable local subcustodian of the Trust on or
before the International Contractual Settlement Date (as defined below). If a
Deposit Security is an ADR or similar domestic instrument, it may be delivered
to the Custodian. The Authorized Participant must also pay on or before the
International Contractual Settlement Date immediately available or same-day
funds estimated by Trust to be sufficient to pay the Cash Component next
determined after acceptance of the Creation Order, together with the applicable
Creation Transaction Fee (as defined below) and additional variable amounts, as
described below. Orders must be transmitted by an Authorized Participant by
telephone or other transmission method acceptable to the transfer agent pursuant
to procedures set forth in the Participant Agreement (as described below).
All orders from investors who are not Authorized Participants to create
Creation Unit Aggregations shall be placed with an Authorized Participant, as
applicable, in the form required by such Authorized Participant. In addition,
the Authorized Participant may request the investor to make certain
representations or enter into agreements with respect to the order, e.g., to
provide for payments of cash, when required. Investors should be aware that
their particular broker may not have executed a Participant Agreement and that,
therefore, orders to create Creation Unit Aggregations of the Fund have to be
placed by the investor's broker through an Authorized Participant that has
executed a Participant Agreement. In such cases there may be additional charges
to such investor. At any given time, there may be only a limited number of
broker-dealers that have executed a Participant Agreement. Those persons placing
orders should ascertain the deadlines applicable to DTC and the Federal Reserve
Bank wire system by contacting the operations department of the broker or
depository institution effectuating such transfer of Deposit Securities and Cash
Component.
Placement of Creation Orders. In order to redeem Creation Units of the
Fund, an Authorized Participant must submit an order to redeem for one or more
Creation Units. All such orders must be received by the Fund's transfer agent in
proper form no later than the close of regular trading on the NYSE (ordinarily
4:00 p.m. Eastern Time) in order to receive that day's closing NAV per share.
Orders must be placed in proper form by or through an Authorized Participant,
which is a DTC Participant, i.e., a subcustodian of the Trust. Deposit
Securities must be delivered to the Trust through DTC or NSCC, and Deposit
Securities which are non-U.S. securities must be delivered to an account
maintained at the applicable local subcustodian of the Trust on or before the
International Contractual Settlement Date, as defined below. If a Deposit
Security is an ADR or similar domestic instrument, it may be delivered to the
Custodian. The Authorized Participant must also pay on or before the
International Contractual Settlement Date immediately available or same-day
funds estimated by Trust to be sufficient to pay the Cash Component next
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determined after acceptance of the Creation Order, together with the applicable
Creation Transaction Fee (as defined below) and, if applicable, any operational
processing and brokerage costs, transfer fees or stamp taxes. The "International
Contractual Settlement Date" is the earlier of (i) the date upon which all of
the required Deposit Securities, the Cash Component and any other cash amounts
which may be due are delivered to the Fund or (ii) the latest day for settlement
on the customary settlement cycle in the jurisdiction(s) where any of the
securities of such Fund are customarily traded. A custom order may be placed by
an Authorized Participant in the event that the Fund permits or requires the
substitution of an amount of cash to be added to the Cash Component (if
applicable) to replace any Deposit Security which may not be available in
sufficient quantity for delivery or which may not be eligible for trading by
such Authorized Participant or the investor for which it is acting or any other
relevant reason.
The Authorized Participant must also make available no later than 2:00
p.m., Eastern Time, on the International Contractual Settlement Date, by means
satisfactory to the Trust, immediately-available or same-day funds estimated by
the Trust to be sufficient to pay the Cash Component next determined after
acceptance of the purchase order, together with the applicable purchase
transaction fee. Any excess funds will be returned following settlement of the
issue of the Creation Unit Aggregation.
A Creation Unit Aggregation will not be issued until the transfer of good
title to the Trust of the portfolio of Deposit Securities, the payment of the
Cash Component, the payment of any other cash amounts and the Creation
Transaction Fee (as defined below) have been completed. When the required
Deposit Securities which are U.S. securities have been delivered to the Trust
through DTC or NSCC, and Deposit Securities which are non-U.S. securities have
been delivered to the Custodian and each relevant subcustodian confirms to
Custodian that the required Deposit Securities which are non-U.S. securities
(or, when permitted in the sole discretion of Trust, the cash in lieu thereof)
have been delivered to the account of the relevant subcustodian, the Custodian
shall notify the Distributor and the transfer agent which, acting on behalf of
the Trust, will issue and cause the delivery of the Creation Unit Aggregations.
The Trust may in its sole discretion permit or require the substitution of an
amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash Component
to replace any Deposit Security which may not be available in sufficient
quantity for delivery or for other similar reasons. If the Distributor, acting
on behalf of the Trust, determines that a "cash in lieu" amount will be
accepted, the Distributor will notify the Authorized Participant and the
transfer agent, and the Authorized Participant shall deliver, on behalf of
itself or the party on whose behalf it is acting, the "cash in lieu" amount,
with any appropriate adjustments as advised by the Trust as discussed below.
In the event that an order for a Creation Unit is incomplete on the
International Contractual Settlement Date because certain or all of the Deposit
Securities are missing, the Trust may issue a Creation Unit notwithstanding such
deficiency in reliance on the undertaking of the Authorized Participant to
deliver the missing Deposit Securities as soon as possible, which undertaking
shall be secured by an Additional Cash Deposit with respect to undelivered
Deposit Securities. The Trust may permit, in its discretion, the Authorized
Participant to substitute a different security in lieu of depositing some or all
of the Deposit Securities. Substitution of cash
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or a different security might be permitted or required, for example, because one
or more Deposit Securities may be unavailable in the quantity needed or may not
be eligible for trading by the Authorized Participant due to local trading
restrictions or other restrictions.
To the extent contemplated by the applicable Participant Agreement,
Creation Unit Aggregations of the Fund will be issued to such Authorized
Participant notwithstanding the fact that the corresponding Fund Deposits have
not been received in part or in whole, in reliance on the undertaking of the
Authorized Participant to deliver the missing Deposit Securities as soon as
possible, which undertaking shall be secured by such Authorized Participant's
delivery and maintenance of collateral consisting of cash in the form of U.S.
dollars in immediately available funds having a value (marked to market daily)
at least equal to 115% which First Trust may change from time to time of the
value of the missing Deposit Securities. Such cash collateral must be delivered
no later than 2:00 p.m., Eastern Time, on the contractual settlement date. The
Participant Agreement will permit the Fund to buy the missing Deposit Securities
at any time and will subject the Authorized Participant to liability for any
shortfall between the cost to the Trust of purchasing such securities and the
value of the collateral.
Acceptance of Orders for Creation Unit Aggregations. The Trust reserves
the absolute right to reject a creation order transmitted to it by the
Distributor with respect to a Fund if: (i) the order is not in proper form; (ii)
the investor(s), upon obtaining the Fund Shares ordered, would own 80% or more
of the currently outstanding shares of the Fund; (iii) the required Fund Deposit
is not delivered; (iv) acceptance of the Deposit Securities would have certain
adverse tax consequences to the Fund; (v) acceptance of the Fund Deposit would,
in the opinion of the Trust, be unlawful; (vi) acceptance of the Fund Deposit
would otherwise have an adverse effect on the Trust, the Fund or the rights of
Beneficial Owners; or (vii) in the event that circumstances outside the control
of the Trust or the Fund make it for all practical purposes impossible to
process creation orders. Examples of such circumstances include acts of God or
public service or utility problems such as fires, floods, extreme weather
conditions and power outages resulting in telephone, telecopy and computer
failures; market conditions or activities causing trading halts; systems
failures involving computer or other information systems affecting the Fund, the
Trust, First Trust, the Distributor, the transfer agent, DTC, NSCC, the
Custodian or sub-custodian or any other participant in the creation process, and
similar extraordinary events. In addition, an order may be rejected for
practical reasons such as the imposition by a foreign government or a regulatory
body of controls, or other monetary, currency or trading restrictions that
directly affect the portfolio securities held or systems failures involving
computer or other information systems affecting any relevant sub-custodian. The
Distributor shall notify a prospective creator of a Creation Unit and/or the
Authorized Participant acting on behalf of such prospective creator of its
rejection of the order of such person. The Trust, the Custodian, any
sub-custodian and the Distributor are under no duty, however, to give
notification of any defects or irregularities in the delivery of Fund Deposits,
nor shall any of them incur any liability for the failure to give any such
notification.
All questions as to the number of shares of each security in the Deposit
Securities and the validity, form, eligibility, and acceptance for deposit of
any securities to be delivered shall be determined by the Trust, and the Trust's
determination shall be final and binding.
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Creation Transaction Fee. Purchasers of Creation Units must pay a creation
transaction fee (the "Creation Transaction Fee") that is currently $_______. The
Creation Transaction Fee is applicable to each purchase transaction regardless
of the number of Creation Units purchased in the transaction. The Creation
Transaction Fee may vary and is based on the composition of the securities
included in the Fund's portfolio and the countries in which the transactions are
settled. The price for each Creation Unit will equal the daily NAV per Share
times the number of Shares in a Creation Unit plus the fees described above and,
if applicable, any operational processing and brokerage costs, transfer fees or
stamp taxes. When the Fund permits an Authorized Participant to substitute cash
or a different security in lieu of depositing one or more of the requisite
Deposit Securities, the Authorized Participant may also be assessed an amount to
cover the cost of purchasing the Deposit Securities and/or disposing of the
substituted securities, including operational processing and brokerage costs,
transfer fees, stamp taxes, and part or all of the spread between the expected
bid and offer side of the market related to such Deposit Securities and/or
substitute securities.
Shares of the Fund may be issued in advance of receipt of all Deposit
Securities subject to various conditions including a requirement to maintain on
deposit with the Fund cash at least equal to 115% of the market value of the
missing Deposit Securities.
Redemption of Fund Shares In Creation Unit Aggregations. Fund Shares may
be redeemed only in Creation Unit Aggregations at their NAV next determined
after receipt of a redemption request in proper form by the Fund through the
transfer agent and only on a Business Day. The Fund will not redeem Shares in
amounts less than Creation Unit Aggregations. Beneficial Owners must accumulate
enough Shares in the secondary market to constitute a Creation Unit Aggregation
in order to have such Shares redeemed by the Trust. Shares generally will be
redeemed in Creation Unit Aggregations in exchange for a particular portfolio of
securities ("Fund Securities"). A redeeming beneficial owner must maintain
appropriate security arrangements with a broker-dealer, bank or other custody
provider in each jurisdiction in which any of the portfolio securities are
customarily traded. If such arrangements cannot be made, or it is not possible
to effect deliveries of the portfolio securities in a particular jurisdiction or
under certain other circumstances (for example, holders may incur unfavorable
tax treatment in some countries if they are entitled to receive "in-kind"
redemption proceeds), Fund Shares may be redeemed for cash at the discretion of
First Trust. There can be no assurance, however, that there will be sufficient
liquidity in the public trading market at any time to permit assembly of a
Creation Unit Aggregation. Investors should expect to incur customary brokerage
and other costs in connection with assembling a sufficient number of Fund Shares
to constitute a redeemable Creation Unit Aggregation.
With respect to the Fund, the Custodian, through the NSCC, makes available
prior to the opening of business on the NYSE (currently 9:30 a.m. Eastern Time)
on each Business Day, the identity of the Fund Securities that will be
applicable (subject to possible amendment or correction) to redemption requests
received in proper form (as described below) on that day. Fund Securities
received on redemption may not be identical to Deposit Securities that are
applicable to creations of Creation Unit Aggregations.
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Unless cash redemptions are available or specified for the Fund, the
redemption proceeds for a Creation Unit Aggregation generally consist of Fund
Securities--as announced on the Business Day of the request for redemption
received in proper form--plus or minus cash in an amount equal to the difference
between the NAV of the Creation Unit Aggregation being redeemed, as next
determined after a receipt of a request in proper form, and the value of the
Fund Securities (the "Cash Redemption Amount"), less the applicable Redemption
Transaction Fee as listed below and, if applicable, any operational processing
and brokerage costs, transfer fees or stamp taxes. In the event that the Fund
Securities have a value greater than the NAV of the Fund Shares, a compensating
cash payment equal to the difference plus, the applicable Redemption Transaction
Fee and, if applicable, any operational processing and brokerage costs, transfer
fees or stamp taxes is required to be made by or through an Authorized
Participant by the redeeming shareholder.
The right of redemption may be suspended or the date of payment postponed
(i) for any period during which the NYSE is closed (other than customary weekend
and holiday closings); (ii) for any period during which trading on the NYSE is
suspended or restricted; (iii) for any period during which an emergency exists
as a result of which disposal of the Shares of the Fund or determination of the
Fund's NAV is not reasonably practicable; or (iv) in such other circumstances as
is permitted by the SEC.
Redemption Transaction Fee. Parties redeeming Creation Units must pay a
redemption transaction fee (the "Redemption Transaction Fee") that is currently
$________. The Redemption Transaction Fee is applicable to each redemption
transaction regardless of the number of Creation Units redeemed in the
transaction. The Redemption Transaction Fee may vary and is based on the
composition of the securities included in the Fund's portfolio and the countries
in which the transactions are settled. The Fund reserves the right to effect
redemptions in cash. A shareholder may request a cash redemption in lieu of
securities; however, the Fund may, in its discretion, reject any such request.
Investors will also bear the costs of transferring the Fund Securities from the
Trust to their account or on their order. Investors who use the services of a
broker or other such intermediary in addition to an Authorized Participant to
effect a redemption of a Creation Unit Aggregation may also be assessed an
amount to cover the cost of such services.
Placement of Redemption Orders. Orders to redeem Creation Unit
Aggregations must be delivered through an Authorized Participant that has
executed a Participant Agreement. Investors other than Authorized Participants
are responsible for making arrangements for a redemption request to be made
through an Authorized Participant. An order to redeem Creation Unit Aggregations
of the Fund is deemed received by the Trust on the Transmittal Date if: (i) such
order is received by _____ (in its capacity as transfer agent) not later than
the Closing Time on the Transmittal Date; (ii) such order is accompanied or
followed by the requisite number of shares of the Fund specified in such order,
which delivery must be made through DTC to _____; and (iii) all other procedures
set forth in the Participant Agreement are properly followed.
Under the 1940 Act, the Fund would generally be required to make payment
of redemption proceeds within seven days after a security is tendered is
redemption. However, because the settlement of redemptions of Fund Shares is
-46-
contingent not only on the settlement cycle of the United States securities
markets, but also on delivery cycles of foreign markets, the Fund's redemption
proceeds must be paid within the maximum number of calendar days required for
such payment or satisfaction in the principal local foreign markets where
transactions in portfolio securities customarily clear and settle, but no later
than 12 calendar days following tender of a Creation Unit Aggregation. Due to
the schedule of holidays in certain countries, however, the delivery of in-kind
redemption proceeds for the Fund may take longer than three Business Days after
the day on which the redemption request is received in proper form. In such
cases, the local market settlement procedures will not commence until the end of
the local holiday periods. See below for a list of the local holidays in the
foreign countries relevant to the Fund.
In connection with taking delivery of shares of Fund Securities upon
redemption of shares of the Fund, a redeeming Beneficial Owner, or Authorized
Participant acting on behalf of such Beneficial Owner must maintain appropriate
security arrangements with a qualified broker-dealer, bank or other custody
provider in each jurisdiction in which any of the Fund Securities are
customarily traded, to which account such Fund Securities will be delivered.
To the extent contemplated by an Authorized Participant's agreement, in
the event the Authorized Participant has submitted a redemption request in
proper form but is unable to transfer all or part of the Creation Unit
Aggregation to be redeemed to the Fund's transfer agent, the transfer agent will
nonetheless accept the redemption request in reliance on the undertaking by the
Authorized Participant to deliver the missing shares as soon as possible. Such
undertaking shall be secured by the Authorized Participant's delivery and
maintenance of collateral consisting of cash having a value (marked to market
daily) at least equal to 115%, which First Trust may change from time to time,
of the value of the missing shares.
The current procedures for collateralization of missing shares require,
among other things, that any cash collateral shall be in the form of U.S.
dollars in immediately available funds and shall be held by _____ and marked to
market daily, and that the fees of _____ and any sub-custodians in respect of
the delivery, maintenance and redelivery of the cash collateral shall be payable
by the Authorized Participant. The Authorized Participant's agreement will
permit the Trust, on behalf of the affected Fund, to purchase the missing shares
or acquire the Deposit Securities and the Cash Component underlying such shares
at any time and will subject the Authorized Participant to liability for any
shortfall between the cost to the Trust of purchasing such shares, Deposit
Securities or Cash Component and the value of the collateral.
The calculation of the value of the Fund Securities and the Cash
Redemption Amount to be delivered/received upon redemption will be made by _____
according to the procedures set forth in this SAI under "Determination of NAV"
computed on the Business Day on which a redemption order is deemed received by
the Trust. Therefore, if a redemption order in proper form is submitted to _____
by a DTC Participant not later than Closing Time on the Transmittal Date, and
the requisite number of shares of the relevant Fund are delivered to _____ prior
to the DTC Cut-Off-Time, then the value of the Fund Securities and the Cash
Redemption Amount to be delivered will be determined by _____ on such
Transmittal Date. If, however, a redemption order is submitted to _____ by a DTC
Participant not later than the Closing Time on the Transmittal Date but either
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(i) the requisite number of Shares of the relevant Fund are not delivered by the
DTC Cut-Off-Time, as described above, on such Transmittal Date, or (ii) the
redemption order is not submitted in proper form, then the redemption order will
not be deemed received as of the Transmittal Date. In such case, the value of
the Fund Securities and the Cash Redemption Amount to be delivered/received will
be computed on the Business Day that such order is deemed received by the Trust,
i.e., the Business Day on which the shares of the relevant Fund are delivered
through DTC to _____ by the DTC Cut-Off-Time on such Business Day pursuant to a
properly submitted redemption order.
If it is not possible to effect deliveries of the Fund Securities, the
Trust may in its discretion exercise its option to redeem such Fund Shares in
cash, and the redeeming Beneficial Owner will be required to receive its
redemption proceeds in cash. In addition, an investor may request a redemption
in cash that the Fund may, in its sole discretion, permit. In either case, the
investor will receive a cash payment equal to the NAV of its Fund Shares based
on the NAV of Shares of the relevant Fund next determined after the redemption
request is received in proper form (minus a redemption transaction fee and
additional charge for requested cash redemptions specified above, to offset the
Trust's brokerage and other transaction costs associated with the disposition of
Fund Securities). The Fund may also, in its sole discretion, upon request of a
shareholder, provide such redeemer cash in lieu of some securities added to the
Cash Redemption Amount, but in no event will the total value of the securities
delivered and the cash transmitted differ from the NAV.
Redemptions of Fund Shares for Fund Securities will be subject to
compliance with applicable federal and state securities laws and the Fund
(whether or not it otherwise permits cash redemptions) reserves the right to
redeem Creation Unit Aggregations for cash to the extent that the Trust could
not lawfully deliver specific Fund Securities upon redemptions or could not do
so without first registering the Fund Securities under such laws. An Authorized
Participant or an investor for which it is acting subject to a legal restriction
with respect to a particular stock included in the Fund Securities applicable to
the redemption of a Creation Unit Aggregation may be paid an equivalent amount
of cash. The Authorized Participant may request the redeeming Beneficial Owner
of the Fund Shares to complete an order form or to enter into agreements with
respect to such matters as compensating cash payment, beneficial ownership of
Shares or delivery instructions.
Because the Portfolio Securities of the Fund may trade on the relevant
exchange(s) on days that the listing exchange for the Fund is closed or are
otherwise not Business Days for the Fund, shareholders may not be able to redeem
their shares of such Fund, or purchase and sell shares of such Fund on the
listing exchange for the Fund, on days when the NAV of the Fund could be
significantly affected by events in the relevant foreign markets.
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FEDERAL TAX MATTERS
This section summarizes some of the main U.S. federal income tax
consequences of owning Shares of the Fund. This section is current as of the
date of the Prospectus. Tax laws and interpretations change frequently, and
these summaries do not describe all of the tax consequences to all taxpayers.
For example, these summaries generally do not describe your situation if you are
a corporation, a non-U.S. person, a broker-dealer, or other investor with
special circumstances. In addition, this section does not describe your state,
local or foreign tax consequences.
This federal income tax summary is based in part on the advice of counsel
to the Fund. The Internal Revenue Service could disagree with any conclusions
set forth in this section. In addition, our counsel was not asked to review, and
has not reached a conclusion with respect to the federal income tax treatment of
the assets to be deposited in the Fund. This may not be sufficient for
prospective investors to use for the purpose of avoiding penalties under federal
tax law.
As with any investment, prospective investors should seek advice based on
their individual circumstances from their own tax advisor.
The Fund intends to qualify annually and to elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code").
To qualify for the favorable U.S. federal income tax treatment generally
accorded to regulated investment companies, the Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies, or net income derived from interests in certain publicly traded
partnerships; (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items (including receivables), U.S. government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer generally limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. government securities or
the securities of other regulated investment companies) of any one issuer, or
two or more issuers which the Fund controls which are engaged in the same,
similar or related trades or businesses, or the securities of one or more of
certain publicly traded partnerships; and (c) distribute at least 90% of its
investment company taxable income (which includes, among other items, dividends,
interest and net short-term capital gains in excess of net long-term capital
losses) and at least 90% of its net tax-exempt interest income each taxable
-49-
year. There are certain exceptions for failure to qualify if the failure is for
reasonable cause or is de minimis, and certain corrective action is taken and
certain tax payments are made by the Fund.
As a regulated investment company, the Fund generally will not be subject
to U.S. federal income tax on its investment company taxable income (as that
term is defined in the Code, but without regard to the deduction for dividends
paid) and net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any, that it distributes to shareholders. The Fund
intends to distribute to its shareholders, at least annually, substantially all
of its investment company taxable income and net capital gain. If the Fund
retains any net capital gain or investment company taxable income, it will
generally be subject to federal income tax at regular corporate rates on the
amount retained. In addition, amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax unless, generally, the Fund distributes during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98.2% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for the one-year period ending October 31
of the calendar year, and (3) any ordinary income and capital gains for previous
years that were not distributed during those years. In order to prevent
application of the excise tax, the Fund intends to make its distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of the current calendar year if it is declared
by the Fund in October, November or December with a record date in such a month
and paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
Subject to certain reasonable cause and de minimis exceptions, if the Fund
failed to qualify as a regulated investment company or failed to satisfy the 90%
distribution requirement in any taxable year, the Fund would be taxed as an
ordinary corporation on its taxable income (even if such income were distributed
to its shareholders) and all distributions out of earnings and profits would be
taxed to shareholders as ordinary income.
DISTRIBUTIONS
Dividends paid out of the Fund's investment company taxable income are
generally taxable to a shareholder as ordinary income to the extent of the
Fund's earnings and profits, whether paid in cash or reinvested in additional
shares. However, certain ordinary income distributions received from the Fund
may be taxed at capital gains tax rates. In particular, ordinary income
dividends received by an individual shareholder from a regulated investment
company such as the Fund are generally taxed at the same rates that apply to net
capital gain, provided that certain holding period requirements are satisfied
and provided the dividends are attributable to qualifying dividends received by
the Fund itself. Dividends received by the Fund from foreign corporations are
qualifying dividends eligible for this lower tax rate only in certain
circumstances.
These special rules relating to the taxation of ordinary income dividends
from regulated investment companies generally apply to taxable years beginning
before January 1, 2013. The Fund will provide notice to its shareholders of
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the amount of any distributions that may be taken into account as a dividend
which is eligible for the capital gains tax rates. The Fund cannot make any
guarantees as to the amount of any distribution which will be regarded as a
qualifying dividend.
Under the "Health Care and Education Reconciliation Act of 2010," income
from the Fund may also be subject to a new 3.8% "Medicare tax" imposed for
taxable years beginning after 2012. This tax will generally apply to net
investment income if the taxpayer's adjusted gross income exceeds certain
threshold amounts, which are $250,000 in the case of married couples filing
joint returns and $200,000 in the case of single individuals.
A corporation that owns Shares generally will not be entitled to the
dividends received deduction with respect to many dividends received from the
Fund because the dividends received deduction is generally not available for
distributions from regulated investment companies. However, certain ordinary
income dividends on Shares that are attributable to qualifying dividends
received by the Fund from certain domestic corporations may be reported by the
Fund as being eligible for the dividends received deduction.
Distributions of net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any, properly reported as capital
gain dividends are taxable to a shareholder as long-term capital gains,
regardless of how long the shareholder has held Fund Shares. Shareholders
receiving distributions in the form of additional Shares, rather than cash,
generally will have a cost basis in each such Share equal to the value of a
Share of the Fund on the reinvestment date. A distribution of an amount in
excess of the Fund's current and accumulated earnings and profits will be
treated by a shareholder as a return of capital which is applied against and
reduces the shareholder's basis in his or her Shares. To the extent that the
amount of any such distribution exceeds the shareholder's basis in his or her
Shares, the excess will be treated by the shareholder as gain from a sale or
exchange of the Shares.
Shareholders will be notified annually as to the U.S. federal income tax
status of distributions, and shareholders receiving distributions in the form of
additional Shares will receive a report as to the value of those Shares.
SALE OR EXCHANGE OF FUND SHARES
Upon the sale or other disposition of Shares of the Fund, which a
shareholder holds as a capital asset, such a shareholder may realize a capital
gain or loss which will be long-term or short-term, depending upon the
shareholder's holding period for the Shares. Generally, a shareholder's gain or
loss will be a long-term gain or loss if the Shares have been held for more than
one year.
Any loss realized on a sale or exchange will be disallowed to the extent
that Shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after disposition of Shares or to the extent that the shareholder, during
such period, acquires or enters into an option or contract to acquire,
substantially identical stock or securities. In such a case, the basis of the
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Shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund Shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of long-term capital gain received by the
shareholder with respect to such Shares.
TAXES ON PURCHASE AND REDEMPTION OF CREATION UNITS
If a shareholder exchanges equity securities for Creation Units the
shareholder will generally recognize a gain or a loss. The gain or loss will be
equal to the difference between the market value of the Creation Units at the
time and the shareholder's aggregate basis in the securities surrendered and the
Cash Component paid. If a shareholder exchanges Creation Units for equity
securities, then the shareholder will generally recognize a gain or loss equal
to the difference between the shareholder's basis in the Creation Units and the
aggregate market value of the securities received and the Cash Redemption
Amount. The Internal Revenue Service, however, may assert that a loss realized
upon an exchange of securities for Creation Units or Creation Units for
securities cannot be deducted currently under the rules governing "wash sales,"
or on the basis that there has been no significant change in economic position.
NATURE OF FUND INVESTMENTS
Certain of the Fund's investment practices are subject to special and
complex federal income tax provisions that may, among other things, (i)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (ii) convert lower taxed long-term capital gain into higher taxed
short-term capital gain or ordinary income, (iii) convert an ordinary loss or a
deduction into a capital loss (the deductibility of which is more limited), (iv)
cause the Fund to recognize income or gain without a corresponding receipt of
cash, (v) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur and (vi) adversely alter the characterization of
certain complex financial transactions.
FUTURES CONTRACTS AND OPTIONS
The Fund's transactions in Futures Contracts and options will be subject
to special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (i.e., may affect whether
gains or losses are ordinary or capital, or short-term or long-term), may
accelerate recognition of income to the Fund and may defer Fund losses. These
rules could, therefore, affect the character, amount and timing of distributions
to shareholders. These provisions also (a) will require the Fund to
mark-to-market certain types of the positions in its portfolio (i.e., treat them
as if they were closed out), and (b) may cause the Fund to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the 90% distribution requirement for qualifying to be taxed as a
regulated investment company and the distribution requirements for avoiding
excise taxes.
-52-
INVESTMENTS IN CERTAIN FOREIGN CORPORATIONS
If the Fund holds an equity interest in any PFICs, which are generally
certain foreign corporations that receive at least 75% of their annual gross
income from passive sources (such as interest, dividends, certain rents and
royalties or capital gains) or that hold at least 50% of their assets in
investments producing such passive income, the Fund could be subject to U.S.
federal income tax and additional interest charges on gains and certain
distributions with respect to those equity interests, even if all the income or
gain is timely distributed to its shareholders. The Fund will not be able to
pass through to its shareholders any credit or deduction for such taxes. The
Fund may be able to make an election that could ameliorate these adverse tax
consequences. In this case, the Fund would recognize as ordinary income any
increase in the value of such PFIC shares, and as ordinary loss any decrease in
such value to the extent it did not exceed prior increases included in income.
Under this election, the Fund might be required to recognize in a year income in
excess of its distributions from PFICs and its proceeds from dispositions of
PFIC stock during that year, and such income would nevertheless be subject to
the distribution requirement and would be taken into account for purposes of the
4% excise tax (described above). Dividends paid by PFICs will not be treated as
qualified dividend income.
BACKUP WITHHOLDING
The Fund may be required to withhold U.S. federal income tax from all
taxable distributions and sale proceeds payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. The withholding percentage
is 28% until 2013, when the percentage will revert to 31% unless amended by
Congress. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from such backup withholding. This withholding is not
an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
U.S. taxation of a shareholder who, as to the United States, is a
nonresident alien individual, a foreign trust or estate, a foreign corporation
or foreign partnership ("non-U.S. shareholder") depends on whether the income of
the Fund is "effectively connected" with a U.S. trade or business carried on by
the shareholder.
In addition to the rules described above concerning the potential
imposition of withholding on distributions to non-U.S. persons, distributions
after December 31, 2012, to non-U.S. persons that are "financial institutions"
may be subject to a withholding tax of 30% unless an agreement is in place
between the financial institution and the U.S. Treasury to collect and disclose
information about accounts, equity investments, or debt interests in the
financial institution held by one or more U.S. persons. For these purpose, a
"financial institution" means any entity that (i) accepts deposits in the
ordinary course of a banking or similar business, (ii) holds financial assets
for the account of others as a substantial portion of its business, or (iii) is
engage (or holds itself out as being engaged) primarily in the business of
-53-
investing, reinvesting or trading in securities, partnership interests,
commodities or any interest (including a futures contract or option) in such
securities, partnership interests or commodities.
Distributions to non-financial non-U.S. entities (other than publicly
traded foreign entities, entities owned by residents of U.S. possessions,
foreign governments, international organizations, or foreign central banks)
after December 31, 2012, will also be subject to a withholding tax of 30% if the
entity does not certify that the entity does not have any substantial U.S.
owners or provide the name, address and TIN of each substantial U.S. owner.
Income Not Effectively Connected. If the income from the Fund is not
"effectively connected" with a U.S. trade or business carried on by the non-U.S.
shareholder, distributions of investment company taxable income will generally
be subject to a U.S. tax of 30% (or lower treaty rate), which tax is generally
withheld from such distributions.
Distributions of capital gain dividends and any amounts retained by the
Fund which are designated as undistributed capital gains will not be subject to
U.S. tax at the rate of 30% (or lower treaty rate) unless the non-U.S.
shareholder is a nonresident alien individual and is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements. However, this 30% tax on capital gains of nonresident alien
individuals who are physically present in the United States for more than the
182 day period only applies in exceptional cases because any individual present
in the United States for more than 182 days during the taxable year is generally
treated as a resident for U.S. income tax purposes; in that case, he or she
would be subject to U.S. income tax on his or her worldwide income at the
graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In
the case of a non-U.S. shareholder who is a nonresident alien individual, the
Fund may be required to withhold U.S. income tax from distributions of net
capital gain unless the non-U.S. shareholder certifies his or her non-U.S.
status under penalties of perjury or otherwise establishes an exemption. If a
non-U.S. shareholder is a nonresident alien individual, any gain such
shareholder realizes upon the sale or exchange of such shareholder's shares of
the Fund in the United States will ordinarily be exempt from U.S. tax unless the
gain is U.S. source income and such shareholder is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements.
In the case of dividends with respect to taxable years of the Fund
beginning prior to 2012, dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities and that are derived from short-term
capital gains and qualifying net interest income (including income from original
issue discount and market discount), and that are properly reported by the Fund
as "interest-related dividends" or "short-term capital gain dividends," will
generally not be subject to United States withholding tax, provided that the
income would not be subject to federal income tax if earned directly by the
foreign shareholder. In addition, capital gains distributions attributable to
gains from U.S. real property interests (including certain U.S. real property
holding corporations) will generally be subject to United States withholding tax
and will give rise to an obligation on the part of the foreign shareholder to
file a United States tax return.
Income Effectively Connected. If the income from the Fund is "effectively
connected" with a U.S. trade or business carried on by a non-U.S. shareholder,
-54-
then distributions of investment company taxable income and capital gain
dividends, any amounts retained by the Fund which are designated as
undistributed capital gains and any gains realized upon the sale or exchange of
shares of the Fund will be subject to U.S. income tax at the graduated rates
applicable to U.S. citizens, residents and domestic corporations. Non-U.S.
corporate shareholders may also be subject to the branch profits tax imposed by
the Code. The tax consequences to a non-U.S. shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described herein.
Non-U.S. shareholders are advised to consult their own tax advisors with respect
to the particular tax consequences to them of an investment in the Fund.
OTHER TAXATION
Fund shareholders may be subject to state, local and foreign taxes on
their Fund distributions. Shareholders are advised to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Fund.
DETERMINATION OF NAV
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Net Asset Value."
The per share NAV of the Fund is determined by dividing the total value of
the securities and other assets, less liabilities, by the total number of Shares
outstanding. Under normal circumstances, daily calculation of the NAV will
utilize the last closing price of each security held by the Fund at the close of
the market on which such security is principally listed. In determining NAV,
portfolio securities for the Fund for which accurate market quotations are
readily available will be valued by the Fund accounting agent as follows:
(1) Common stocks and other equity securities listed on any national
or foreign exchange other than NASDAQ(R) and the London Stock Exchange
Alternative Investment Market ("AIM") will be valued at the last sale
price on the business day as of which such value is being determined.
Securities listed on NASDAQ(R) or AIM are valued at the official closing
price on the business day as of which such value is being determined. If
there has been no sale on such day, or no official closing price in the
case of securities traded on NASDAQ(R) and AIM, the securities are valued
at the mean of the most recent bid and ask prices on such day. Portfolio
securities traded on more than one securities exchange are valued at the
last sale price or official closing price, as applicable, on the business
day as of which such value is being determined at the close of the
exchange representing the principal market for such securities.
(2) Securities traded in the over-the-counter market are valued at
their closing bid prices.
(3) Exchange traded options and Futures Contracts will be valued at
the closing price in the market where such contracts are principally
traded. If no closing price is available, exchange-traded options and
-55-
futures contracts will be valued at the mean between the last bid and
asked price. Over-the-counter options and Futures Contracts will be valued
at their closing bid prices.
(4) Forward foreign currency exchange contracts which are traded in
the United States on regulated exchanges will be valued by calculating the
mean between the last bid and asked quotations supplied to a pricing
service by certain independent dealers in such contracts.
In addition, the following types of securities will be valued as follows:
(1) Fixed income securities with a remaining maturity of 60 days or
more will be valued by the fund accounting agent using a pricing service.
When price quotes are not available, fair value is based on prices of
comparable securities.
(2) Fixed income securities maturing within 60 days are valued by
the Fund accounting agent on an amortized cost basis.
(3) Repurchase agreements will be valued as follows. Overnight
repurchase agreements will be valued at cost. Term repurchase agreements
(i.e., those whose maturity exceeds seven days) will be valued by First
Trust at the average of the bid quotations obtained daily from at least
two recognized dealers.
The value of any portfolio security held by the Fund for which market
quotations are not readily available will be determined by First Trust in a
manner that most fairly reflects fair market value of the security on the
valuation date, based on a consideration of all available information.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate
at fair value. These securities generally include but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the 1933 Act) for which a pricing service is unable to
provide a market price; securities whose trading has been formally suspended; a
security whose market price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of Fund NAV (as may be the case in foreign markets on
which the security is primarily traded) or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the pricing service, does not reflect the security's "fair value." As a general
principle, the current "fair value" of an issue of securities would appear to be
the amount which the owner might reasonably expect to receive for them upon
their current sale. A variety of factors may be considered in determining the
fair value of such securities.
The Fund may suspend the right of redemption for the Fund only under the
following unusual circumstances: (a) when the NYSE is closed (other than
weekends and holidays) or trading is restricted; (b) when trading in the markets
normally utilized is restricted, or when an emergency exists as determined by
-56-
the SEC so that disposal of the Fund's investments or determination of its net
assets is not reasonably practicable; or (c) during any period when the SEC may
permit.
DIVIDENDS AND DISTRIBUTIONS
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Dividends, Distributions and
Taxes."
General Policies. Dividends from net investment income of the Fund, if
any, are declared and paid semi-annually. Distributions of net realized
securities gains, if any, generally are declared and paid once a year, but the
Trust may make distributions on a more frequent basis. The Trust reserves the
right to declare special distributions if, in its reasonable discretion, such
action is necessary or advisable to preserve the status of the Fund as a
regulated investment company or to avoid imposition of income or excise taxes on
undistributed income.
Dividends and other distributions of Fund Shares are distributed, as
described below, on a pro rata basis to Beneficial Owners of such Shares.
Dividend payments are made through DTC Participants and Indirect Participants to
Beneficial Owners then of record with proceeds received from the Fund.
Dividend Reinvestment Service. No reinvestment service is provided by the
Trust. Broker-dealers may make available the DTC book-entry Dividend
Reinvestment Service for use by Beneficial Owners of the Fund for reinvestment
of their dividend distributions. Beneficial Owners should contact their brokers
in order to determine the availability and costs of the service and the details
of participation therein. Brokers may require Beneficial Owners to adhere to
specific procedures and timetables. If this service is available and used,
dividend distributions of both income and realized gains will be automatically
reinvested in additional whole Shares of the Fund purchased in the secondary
market.
MISCELLANEOUS INFORMATION
Counsel. Chapman and Cutler LLP, 111 West Monroe Street, Chicago, Illinois
60603, is counsel to the Trust.
Independent Registered Public Accounting Firm. Deloitte & Touche LLP, 111
S. Wacker Drive, Chicago, Illinois 60606 serves as the Fund's independent
registered public accounting firm. The firm audits the Fund's financial
statements and performs other related audit services.
-57-
First Trust Exchange-Traded Fund VI
PART C - OTHER INFORMATION
ITEM 28. EXHIBITS
EXHIBIT NO. DESCRIPTION
(a) (1) Declaration of Trust of the Registrant (1)
(2) Establishment and Designation of Series (1)
(b) By-Laws of the Registrant. (1)
(c) Not Applicable.
(d) Form of Investment Management Agreement. (2)
(e) Form of Distribution Agreement. (2)
(f) Not Applicable.
(g) Form of Custody Agreement between the Registrant and Brown Brothers
Harriman Co. (2)
(h) (1) Administrative Agency Agreement between the Registrant and Brown
Brothers Harriman Co. (2)
(2) Form of Subscription Agreement. (2)
(i) (1) Opinion and Consent of Bingham McCutchen LLP dated August 9, 2012
(2)
(2) Opinion and Consent of Chapman and Cutler LLP dated August 9,
2012. (2)
(j) Consent of Independent Registered Public Accounting Firm. (2)
(k) Not Applicable.
(l) Not Applicable.
(m) Form of 12b-1 Service Plan. (2)
(n) Not Applicable.
(o) Not Applicable.
(p) (1) First Trust Advisors L.P., First Trust Portfolios L.P. Code of
Ethics, amended on December 31, 2010. (2)
(2) First Trust Funds Code of Ethics, amended on March 22, 2010. (2)
(q) Powers of Attorney for Messrs. Bowen, Erickson, Kadlec and Keith
authorizing James A. Bowen, Mark R. Bradley, W. Scott Jardine, Kristi
A. Maher and Eric F. Fess to execute the Registration Statement. (1)
(1) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A (File No. 333-182308) filed on June 25, 2012.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A (File No. 333-182308) filed on August 9, 2012.
ITEM 29. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not Applicable.
ITEM 30. INDEMNIFICATION
Section 9.5 of the Registrant's Declaration of Trust provides as follows:
Section 9.5. Indemnification and Advancement of Expenses. Subject to the
exceptions and limitations contained in this Section 9.5, every person who is,
or has been, a Trustee, officer, or employee of the Trust, including persons who
serve at the request of the Trust as directors, trustees, officers, employees or
agents of another organization in which the Trust has an interest as a
shareholder, creditor or otherwise (hereinafter referred to as a "Covered
Person"), shall be indemnified by the Trust to the fullest extent permitted by
law against liability and against all expenses reasonably incurred or paid by
him or in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or having been
such a Trustee, director, officer, employee or agent and against amounts paid or
incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person to the
extent such indemnification is prohibited by applicable federal law.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Subject to applicable federal law, expenses of preparation and
presentation of a defense to any claim, action, suit or proceeding subject to a
claim for indemnification under this Section 9.5 shall be advanced by the Trust
prior to final disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if it is ultimately
determined that he is not entitled to indemnification under this Section 9.5.
To the extent that any determination is required to be made as to whether
a Covered Person engaged in conduct for which indemnification is not provided as
described herein, or as to whether there is reason to believe that a Covered
Person ultimately will be found entitled to indemnification, the Person or
Persons making the determination shall afford the Covered Person a rebuttable
presumption that the Covered Person has not engaged in such conduct and that
there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification.
As used in this Section 9.5, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, demands, actions, suits, investigations,
regulatory inquiries, proceedings or any other occurrence of a similar nature,
whether actual or threatened and whether civil, criminal, administrative or
other, including appeals, and the words "liability" and "expenses" shall include
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
ITEM 31. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
First Trust Advisors L.P. ("First Trust"), investment adviser to the
Registrant, serves as adviser or subadviser to 11 mutual funds, 70
exchange-traded funds and 12 closed-end funds and is the portfolio supervisor of
certain unit investment trusts. Its principal address is 120 East Liberty Drive,
Suite 400, Wheaton, Illinois 60187.
The principal business of certain of First Trust's principal executive
officers involves various activities in connection with the family of unit
investment trusts sponsored by First Trust Portfolios L.P. ("FTP"). FTP's
principal address is 120 East Liberty Drive, Wheaton, Illinois 60187.
Information as to other business, profession, vocation or employment
during the past two years of the officers and directors of First Trust is as
follows:
NAME AND POSITION WITH FIRST TRUST EMPLOYMENT DURING PAST TWO YEARS
James A. Bowen, Chief Executive Officer Chief Executive Officer (since December 2010) and
President (prior to December 2010), FTP; Chairman of the
Board of Directors, BondWave LLC and Stonebridge Advisors LLC
Ronald D. McAlister, Managing Director Managing Director, FTP
Mark R. Bradley, Chief Financial Officer/ Chief Financial Officer and and Chief Operating Officer
Chief Operating Officer (since December 2010), FTP; Chief Financial Officer,
BondWave LLC and Stonebridge Advisors LLC
|
NAME AND POSITION WITH FIRST TRUST EMPLOYMENT DURING PAST TWO YEARS
Robert F. Carey, Chief Market Strategist Senior Vice President, FTP
and Senior Vice President
W. Scott Jardine, General Counsel and Secretary and General Counsel, FTP; Secretary
Secretary of BondWave LLC and Stonebridge Advisors LLC
Kristi A. Maher, Deputy General Counsel Deputy General Counsel, FTP
Erin Klassman, Assistant General Counsel Assistant General Counsel, FTP
John Vasko, Assistant General Counsel Assistant General Counsel, FTP
Amy Lum, Assistant General Counsel Assistant General Counsel (since November
2010), FTP; Of Counsel, The Law Offices of
Beau T. Grieman (August 2009 to March 2010);
Associate, Perkins Coie (April 2008 to August
2009)
Lisa Weier, Assistant General Counsel Assistant General Counsel (since January 2011),
FTP; Associate, Chapman and Cutler LLP
Heidemarie Gregoriev, Compliance Counsel Compliance Counsel (since October 2011), FTP;
Of Counsel, Vedder Price P.C.
Benjamin D. McCulloch Associate Counsel, FTP
R. Scott Hall, Managing Director Managing Director, FTP
Andrew S. Roggensack, President Managing Director and President (since December
2010), FTP
Kathleen Brown, Senior Vice President and CCO and Senior Vice President, FTP
Chief Compliance Officer
Elizabeth H. Bull, Senior Vice President Senior Vice President, FTP
Christopher L. Dixon, Senior Vice Senior Vice President, FTP
President
Jane Doyle, Senior Vice President Senior Vice President, FTP
James M. Dykas, Senior Vice President Senior Vice President and Controller
and Controller (since December 2010), FTP
Jon C. Erickson, Senior Vice President Senior Vice President, FTP
Ken Fincher, Senior Vice President Senior Vice President, FTP
Rosanne Gatta, Board Liaison Associate Board Liaison Associate (July 2010 to Present),
FTP; Assistant Vice President (July 2010 to
February 2011), PNC Global Investment Servicing
|
NAME AND POSITION WITH FIRST TRUST EMPLOYMENT DURING PAST TWO YEARS
Kenneth N. Hass, Senior Vice President Senior Vice President, FTP
Jason T. Henry, Senior Vice President Senior Vice President, FTP
Daniel J. Lindquist, Senior Vice President Senior Vice President, FTP
David G. McGarel, Chief Investment Officer Senior Vice President, FTP
and Senior Vice President
Mitchell Mohr, Senior Vice President Senior Vice President, FTP
Robert M. Porcellino, Senior Vice Senior Vice President, FTP
President
Alan M. Rooney, Senior Vice President Senior Vice President, FTP
Roger F. Testin, Senior Vice President Senior Vice President, FTP
Christina Knierim, Senior Vice President Vice President, FTP
Brad Bradley, Vice President Vice President, FTP
Chris Fallow, Vice President Vice President, FTP
Todd Larson, Vice President Vice President, FTP
Ronda L. Saeli-Chiappe, Vice President Vice President, FTP
Stan Ueland, Vice President Vice President, FTP
Katherine Urevig, Vice President Vice President, FTP
Katie D. Collins, Assistant Vice President Assistant Vice President, FTP
Kristen Johanneson, Assistant Vice Assistant Vice President, FTP
President
Coleen D. Lynch, Assistant Vice President Assistant Vice President, FTP
Omar Sepulveda, Assistant Vice President Assistant Vice President, FTP
John H. Sherren, Assistant Vice President Assistant Vice President, FTP
Brian Wesbury, Chief Economist Senior Vice President, FTP
|
ITEM 32. PRINCIPAL UNDERWRITER
(a) FTP serves as principal underwriter of the shares of the Registrant,
First Trust Exchange-Traded Fund, First Trust Exchange-Traded Fund II, First
Trust Exchange-Traded Fund IV, First Trust Exchange-Traded AlphaDEX(R) Fund,
First Trust Exchange-Traded AlphaDEX(R) Fund II, First Trust Series Fund and the
First Defined Portfolio Fund LLC. FTP serves as principal underwriter and
depositor of the following investment companies registered as unit investment
trusts: the First Trust Combined Series, FT Series (formerly known as the First
Trust Special Situations Trust), the First Trust Insured Corporate Trust, the
First Trust of Insured Municipal Bonds, and the First Trust GNMA. The name of
each director, officer and partner of FTP is provided below.
(b) Positions and Offices with Underwriter.
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
The Charger Corporation General Partner None
Grace Partners of DuPage L.P. Limited Partner None
James A. Bowen Chief Executive Officer Trustee and Chairman of the Board
Mark R. Bradley Chief Financial Officer/Chief President and Chief Executive
Operating Officer Officer
James M. Dykas Senior Vice President/ Treasurer, Chief Financial Officer
Controller and Chief Accounting Officer
Frank L. Fichera Managing Director None
Russell J. Graham Managing Director None
R. Scott Hall Managing Director None
Ronald D. McAlister Managing Director None
Richard A. Olson Managing Director None
Andrew S. Roggensack Managing Director/President None
W. Scott Jardine Secretary and General Counsel Secretary
Kristi A. Maher Deputy General Counsel Chief Compliance Officer and
Assistant Secretary
Erin Klassman Assistant General Counsel Assistant Secretary
|
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
John Vasko Assistant General Counsel None
Amy Lum Assistant General Counsel None
Lisa Weier Assistant General Counsel None
Heidemarie Gregoriev Compliance Counsel None
Benjamin D. McCulloch Associate Counsel None
Dan Affeto Senior Vice President None
Bob Bartel Senior Vice President None
Elizabeth H. Bull Senior Vice President None
Robert F. Carey Senior Vice President None
Patricia L. Costello Senior Vice President None
Christopher L. Dixon Senior Vice President None
Jane Doyle Senior Vice President None
Jon C. Erickson Senior Vice President None
Ken Fincher Senior Vice President None
Rosanne Gatta Board Liaison Associate Assistant Secretary
Kenneth N. Hass Senior Vice President None
Jason T. Henry Senior Vice President None
Rich Jaeger Senior Vice President None
Christian D. Jeppesen Senior Vice President None
Christopher A. Lagioia Senior Vice President None
Daniel J. Lindquist Senior Vice President Vice President
David G. McGarel Senior Vice President None
Mark R. McHenney Senior Vice President None
Mitchell Mohr Senior Vice President None
Paul E. Nelson Senior Vice President None
Steve R. Nelson Senior Vice President None
|
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Robert M. Porcellino Senior Vice President None
Steven R. Ritter Senior Vice President None
Alan Rooney Senior Vice President None
Francine Russell Senior Vice President None
Brad A. Shaffer Senior Vice President None
Brian Sheehan Senior Vice President None
Andrew C. Subramanian Senior Vice President None
Mark P. Sullivan Senior Vice President None
Roger F. Testin Senior Vice President Vice President
Gregory E. Wearsch Senior Vice President None
Patrick Woelfel Senior Vice President None
Kathleen Brown Senior Vice President; Chief None
Compliance Officer
Jonathan Ackerhalt Vice President None
Lance Allen Vice President None
Jeff Ambrose Vice President None
Kyle Baker Vice President None
Carlos Barbosa Vice President None
Andrew Barnum Vice President None
Michael Bean Vice President None
Dan Blong Vice President None
Bill Braasch Vice President None
Brad Bradley Vice President None
Cory Bringle Vice President None
Mike Britt Vice President None
|
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Alex Brozyna Vice President None
Nathan S. Cassel Vice President None
Joshua Crosley Vice President None
Michael Dawson Vice President None
Michael Darr Vice President None
Daren J. Davis Vice President None
Michael DeBella Vice President None
Sean Degnan Vice President None
Joel D. Donley Vice President None
Brett Egner Vice President None
Stacy Eppen Vice President None
Chris Fallow Vice President Assistant Vice President
Ben Ferwerdo Vice President None
Don Fuller Vice President None
Joann Godbout Vice President None
Matt D. Graham Vice President None
William M. Hannold Vice President None
Mary Jane Hansen Vice President None
Gaby Harman Vice President None
Ryan Issakainen Vice President None
Rich Jacquemart Vice President None
Rick Johnson Vice President None
Greg Keefer Vice President None
Tom Knickerbocker Vice President None
Christina Knierim Vice President None
|
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Thomas E. Kotcher Vice President None
Todd Larson Vice President None
Daniel Lavin Vice President None
Michael P. Leyden Vice President None
Keith L. Litavsky Vice President None
Eric Maisel Vice President None
Grant Markgraf Vice President None
Stephanie L. Martin Vice President None
Marty McFadden Vice President None
Nate Memmott Vice President None
Sean Moriarty Vice President None
John O'Sullivan Vice President None
David Pagano Vice President None
Brian K. Penney Vice President None
Blair R. Peterson Vice President None
Jason Peterson Vice President None
Craig Pierce Vice President None
Marisa Prestigiacomo Vice President None
Craig Prichard Vice President None
David A. Rieger Vice President None
James Rowlette Vice President None
Ronda L. Saeli-Chiappe Vice President None
Jeffrey M. Samuel Vice President None
Debra K. Scherbring Vice President None
|
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Nim Short Vice President None
Edward J. Sistowicz Vice President None
Cal Smith Vice President None
Eric Stoiber Vice President None
Terry Swagerty Vice President None
Brian Taylor Vice President None
Kerry Tazakine Vice President None
Timothy Trudo Vice President None
Stanley Ueland Vice President Assistant Vice President
Bryan Ulmer Vice President None
Katherine Urevig Vice President None
Barbara E. Vinson Vice President None
Dan Waldron Vice President None
Lewin M. Williams Vice President None
Jeffrey S. Barnum Assistant Vice President None
Toby A. Bohl Assistant Vice President None
Steve Claiborne Assistant Vice President None
Katie D. Collins Assistant Vice President None
Ann Marie Giudice Assistant Vice President/Treasurer None
Debbie Del Giudice Assistant Vice President None
Ken Harrison Assistant Vice President None
Anita K. Henderson Assistant Vice President None
James V. Huber Assistant Vice President None
Kristen Johanneson Assistant Vice President None
Daniel C. Keller Assistant Vice President None
|
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Coleen D. Lynch Assistant Vice President Assistant Vice President
Robert J. Madeja Assistant Vice President None
David M. McCammond-Watts Assistant Vice President None
Michelle Parker Assistant Vice President None
Steve Schwarting Assistant Vice President None
Omar Sepulveda Assistant Vice President None
John H. Sherren Assistant Vice President None
Lee Sussman Assistant Vice President None
Christopher J. Thill Assistant Vice President None
Dave Tweeten Assistant Vice President None
Thomas G. Wisnowski Assistant Vice President None
|
* All addresses are 120 East Liberty Drive,
Wheaton, Illinois 60187 unless otherwise noted.
(c) Not Applicable.
ITEM 33. LOCATION OF ACCOUNTS AND RECORDS
First Trust, 120 East Liberty Drive, Wheaton, Illinois 60187, maintains
the Registrant's organizational documents, minutes of meetings, contracts of the
Registrant and all advisory material of the investment adviser.
ITEM 34. MANAGEMENT SERVICES
Not Applicable.
ITEM 35. UNDERTAKINGS
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, duly authorized in the
City of Wheaton, and State of Illinois on the 16th day of January, 2013.
FIRST TRUST EXCHANGE-TRADED FUND VI
By: /s/ Mark R. Bradley
-------------------------------
Mark R. Bradley, President and
Chief Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
SIGNATURE TITLE DATE
President and January 16, 2013
/s/ Mark R. Bradley Chief Executive Officer
------------------------------------
Mark R. Bradley
Treasurer, Chief January 16, 2013
/s/ James M. Dykas Financial Officer and
------------------------------------ Chief Accounting Officer
James M. Dykas
)
James A. Bowen* Trustee )
)
)
Richard E. Erickson* Trustee )
)
)
Thomas R. Kadlec* Trustee ) BY: /s/ W. Scott Jardine
) ---------------------------
) W. Scott Jardine
Robert F. Keith* Trustee ) Attorney-In-Fact
) January 16, 2013
)
Niel B. Nielson* Trustee )
)
|
* Original powers of attorney authorizing James A. Bowen, W. Scott Jardine,
Mark R. Bradley, Eric F. Fess and Kristi A. Maher to execute Registrant's
Registration Statement, and Amendments thereto, for each of the trustees
of the Registrant on whose behalf this Registration Statement is filed,
are incorporated by reference herein.
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