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First
Trust
Exchange-Traded
Fund VI |
Prospectus
First Trust
S-Network Streaming & Gaming ETF
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Ticker
Symbol: |
BNGE |
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Exchange: |
NYSE
Arca |
First
Trust S-Network Streaming & Gaming ETF (the “Fund”) lists and
principally trades its shares on NYSE Arca,
Inc. ("NYSE
Arca" or
the “Exchange”). 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 blocks of shares called
"Creation
Units."
The
Fund is a series of First Trust Exchange-Traded Fund VI (the “Trust”) and an
exchange-traded index fund organized as a separate series of a registered
management investment company.
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.
August 1,
2025
NOT
FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
Summary
Information
(fees paid directly from your investment)
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Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
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(expenses that you pay each year as a percentage of the value of your investment)
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Management
Fees |
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Distribution
and Service (12b-1) Fees |
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Other
Expenses |
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Total
Annual Fund Operating Expenses |
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1
Year |
3
Years |
5
Years |
10
Years |
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$ |
$ |
$ |
$ |
3
Principal
Risks
4
5
6
7
8
9
Calendar Year Total Returns as of 12/31 (1)
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10
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1
Year |
Since
Inception |
Inception
Date |
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Return Before
Taxes |
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Return After
Taxes on Distributions |
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Return After
Taxes on Distributions and Sale of Fund Shares |
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S-Network
Streaming & Gaming Index (reflects no deduction for fees,
expenses or
taxes) |
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MSCI ACWI
Index (reflects no deduction for fees, expenses or
taxes) |
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Management
Investment
Advisor
First Trust Advisors
L.P. (“First
Trust”
or the “Advisor”)
Portfolio
Managers
The Fund’s portfolio
is managed by a team (the “Investment
Committee”) consisting of:
●
Daniel J. Lindquist,
Chairman of the Investment Committee and Managing Director of First Trust
●
David G. McGarel,
Chief Investment Officer, Chief Operating Officer and Managing Director of First
Trust
●
Jon C. Erickson,
Senior Vice President of First Trust
●
Roger F. Testin,
Senior Vice President of First Trust
●
Stan Ueland, Senior
Vice President of First Trust
●
Chris A. Peterson,
Senior Vice President of First Trust
●
Erik Russo, Senior Vice President of
First Trust
The
Investment Committee members are primarily and jointly responsible for the
day-to-day management of the Fund. Each Investment
Committee member has served as a part of the portfolio management team of the
Fund since 2022.
Purchase
and Sale of Fund Shares
The Fund issues and
redeems shares on a continuous basis, at net asset value, only in large blocks
of shares called “Creation Units.” Individual shares of the Fund may only be
purchased and sold on the secondary market through a broker-dealer. Since shares
of the Fund trade on securities exchanges in the secondary market at their
market price rather than their net asset value, the Fund’s shares may trade at a
price greater than (premium) or less than (discount) the Fund’s net asset value.
An investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase shares of the Fund (bid) and the
lowest price a seller is willing to accept for shares of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask
spread”). Recent
information, including the Fund’s net asset value, market price, premiums
and
discounts, bid-ask spreads and the median bid-ask spread for the Fund’s most
recent fiscal year,is
available online at http://www.ftportfolios.com/Retail/etf/home.aspx.
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.
11
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer, registered investment
adviser, bank or other financial intermediary (collectively, “intermediaries”),
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.
12
Additional
Information on the Fund's Investment Objective and Strategies
The Fund is a series
of First Trust Exchange-Traded Fund VI and is regulated as an “investment
company” under the Investment Company Act of
1940, as amended (the “1940
Act”). The Fund operates
as an index fund and is not actively managed by First Trust. As such, the
Fund’s investment objective is to seek investment results that correspond
generally to the price and yield (before the Fund’s fees and expenses) of the
Index. In seeking to achieve this objective, the Fund will normally invest at
least 80% of its net assets (plus any borrowings for investment purposes) in the
securities that comprise the Index. VettaFi LLC serves as the index provider for
the index tracked by the Fund and may be referred to throughout this prospectus
as the “Index
Provider.” The Index
Provider is not affiliated with the Fund, the Fund's investment advisor or the
Fund's distributor.
The Fund will
generally employ a full replication strategy, meaning that it will normally
invest in all of the securities comprising the Index in proportion to their
weightings in the Index. However, under various circumstances, full replication
of the Index may not be possible or practicable. In those circumstances, the
Fund may purchase a sample of securities in the Index. The Fund may utilize
sampling when there are practical difficulties or substantial costs involved in
replicating the Index, including to address tax and regulatory issues and
respond to trading halts and other issues related to the liquidity of Index
constituents. There may also be instances in which First Trust may choose to
overweight certain securities in the Index, purchase securities not in the Index
which First Trust believes are appropriate to substitute for certain securities
in the Index, use futures or derivative instruments or utilize various
combinations of the above techniques in seeking to track the Index. The Fund may
sell securities that are represented in the Index in anticipation of their
removal from the Index or purchase securities not represented in the Index in
anticipation of their addition to the Index. During the Fund’s initial invest-up
period and during periods of high in-flows and out-flows, the Fund may not be
fully invested pursuant to its principal investment strategy.
The
Fund’s investment objective, its 80% investment strategy and each of the
policies described herein are non-fundamental policies that may be changed by
the Board of Trustees of the Trust (the “Board”) without shareholder
approval. Certain fundamental
policies of the Fund are set forth in the Statement of Additional Information
(“SAI”) under “Investment
Objective and Policies.”
While
it is not expected that the Fund will invest in the securities of other
investment companies, any such investments would be subject to limitations
imposed by the 1940 Act and the related rules and interpretations. The Fund has
adopted a policy that it will not invest in other investment companies in excess
of 1940 Act limits in reliance on Sections 12(d)(1)(F) or 12(d)(1)(G) of the
1940 Act.
S-Network
Streaming & Gaming Index
The S-Network
Streaming & Gaming Index is an index of stocks listed on major
global recognized stock exchanges that are materially engaged
in the offering of online services related to gaming and content streaming,
including user-created and studio-created content streaming, video game
development and competition support, and online gaming. The Index is
reconstituted and
rebalanced quarterly.
More
information regarding the Index, including additional detail on the Index
methodology, may be found on the Index Provider’s website. Neither the Fund, the
Board, First Trust, or any of their affiliates, are responsible for the
information set forth on the Index Provider’s website. Information from the
Index Provider’s website and any other information not expressly included in this
prospectus is not incorporated by reference in, and should not be considered
part of, this prospectus.
Fund
Investments
Principal
Investments
Equity
Securities
The
Fund invests in equity securities, including common stocks and depositary
receipts. Common stock represents an equity ownership interest in issuers.
Holders of common stock are entitled to the income and increase in the value of
the assets and business of the issuers after all debt obligations and
obligations to preferred stockholders are satisfied. Depositary receipts are
certificates typically issued by a bank or trust company that represent
ownership interests in securities of non-U.S. companies. Depositary
receipts may or may not be jointly sponsored by the underlying
issuer.
13
Non-Principal
Investments
Repurchase
Agreements
A repurchase
agreement is a transaction where a party purchases securities and simultaneously
commits to resell them at an agreed-upon date at a price reflecting a market
rate of interest unrelated to the coupon rate or maturity of the securities. The
Fund will enter into repurchase agreements only with counterparties that are
deemed to present acceptable credit risks, and the collateral securing the
repurchase agreements generally will be limited to U.S. government securities
and cash.
Cash Equivalents
and Short-Term Investments/Temporary Defensive Positions
Normally, the Fund
invests substantially all of its assets to meet its investment objective. The
Fund may invest the remainder of its assets in securities with maturities of
less than one year or 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, 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 temporary defensive strategy when the portfolio
managers 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
SAI.
Illiquid
Investments
The
Fund may invest up to 15% of its net assets in investments and other instruments
that are, at the time of investment, illiquid (determined using the Securities
and Exchange Commission's standard applicable to investment companies,
i.e., any investment
that the Fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days or less without the sale or disposition
significantly changing the market value of the investment). For this purpose,
illiquid investments may include, but are not limited to, 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 Securities Act of 1933, as amended (the “Securities
Act”),
that are deemed to be illiquid, and certain repurchase
agreements.
Disclosure
of Portfolio Holdings
The Fund’s portfolio
holdings are available on the Fund's website at http://www.ftportfolios.com.
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, which is also available on the Fund's
website.
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 supplemental disclosure pertaining to the Principal Risks
set forth above as well as additional Non-Principal Risks set forth below in
this prospectus. The order of the below risk factors does not indicate the
significance of any particular risk factor.
Principal
Risks
ASIA
RISK. The Fund invests
significantly in the securities of Asian issuers. Such investments subject the
Fund to certain risks associated
specifically with investments in securities of Asian issuers, including distinct
legal, regulatory, political and economic risks. Many Asian economies have
experienced rapid growth and industrialization, and there is no assurance that
this growth rate will be maintained. Some Asian economies are highly dependent
on trade, and economic conditions in other countries within and outside Asia can
impact these economies. Certain of these economies may be adversely affected by
trade or policy disputes with its major trade partners. There is also a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of investors and financial intermediaries. Certain Asian countries
have experienced and may in the future experience expropriation and
nationalization of assets, confiscatory taxation, currency manipulation,
political instability, armed conflict and social instability as a result of
religious, ethnic, socio-economic and/or political unrest. In particular,
escalated tensions involving North Korea and any outbreak of hostilities
involving North Korea could have a severe adverse effect on Asian economies.
Governments of certain Asian countries have exercised, and continue to exercise,
substantial influence over many aspects of the private sector. In certain cases,
the government owns or controls many companies, including the largest in the
country. Accordingly, government actions could have a significant effect on the
issuers of the Fund's
securities or on economic conditions generally. Issuers in Asia may
14
not be subject to
the same accounting, auditing and financial reporting standards as U.S.
companies and if their securities are not listed on a U.S. exchange, they may
not be subject to the same corporate governance standards as U.S. issuers. In
addition, satisfactory custodial services for investment securities may not be
available in some Asia countries, which may result in the Fund incurring additional costs and
delays in providing transportation and custody services for such securities
outside such countries. Recent
developments in relations between the U.S. and China have heightened concerns of
increased tariffs and restrictions on trade between the two countries. An
increase in tariffs or trade restrictions, or even the threat of such
developments, could lead to a significant reduction in international trade,
which could have a negative impact on the economy of Asian countries and a
commensurately negative impact on the Fund.
AUTHORIZED
PARTICIPANT CONCENTRATION RISK. Only an authorized
participant may engage in creation or redemption transactions
directly with the Fund. A limited number of institutions act as authorized
participants for the Fund. However, participants are not obligated to make a
market in the Fund’s shares or submit purchase and redemption orders for
creation units. To the extent that these institutions exit the business, reduce
their role or are unable to proceed with creation and/or redemption orders and
no other authorized participant steps forward to create or redeem, the Fund’s
shares may trade at a premium or discount to the Fund’s net asset value and
possibly face delisting and the bid/ask spread on the Fund’s shares may
widen.
COMMUNICATION
SERVICES COMPANIES RISK. The Fund invests
significantly in communication services companies. Communication
services companies may be subject to specific risks associated with legislative
or regulatory changes, adverse market conditions, and/or increased competition.
Communication services companies are particularly vulnerable to rapid
advancements in technology, the innovation of competitors, rapid product
obsolescence and government regulation and competition, both domestically and
internationally. Communication services companies also rely on the use of
intellectual property such as patents, copyrights and trademarks owned
internationally or licensed through third-parties. Legal check-ups or claims
regarding infringement of intellectual property could cause an adverse effect on
the reputation of the company. Additionally, fluctuating domestic and
international demand, shifting demographics and often unpredictable changes in
consumer tastes can drastically affect a communication services company’s
profitability. While all companies may be susceptible to network security
breaches, certain communication services companies may be particular targets of
hacking and potential theft of proprietary or consumer information or
disruptions in service, which could have a material adverse effect on their
businesses.
CONSUMER
DISCRETIONARY COMPANIES RISK. The Fund invests
significantly in consumer discretionary companies. Consumer
discretionary companies, such as retailers, media companies and consumer
services companies, provide non-essential goods and services. These companies
manufacture products and provide discretionary services directly to the
consumer, and the success of these companies is tied closely to the performance
of the overall domestic and international economy, interest rates, competition
and consumer confidence. Success depends heavily on disposable household income
and consumer spending. Consumer discretionary companies may also be strongly
affected by social trends and marketing campaigns. These companies may be
subject to severe competition, which may have an adverse impact on their
profitability. Changes in demographics and consumer tastes can also affect the
demand for, and success of, consumer discretionary products in the marketplace.
Consumer discretionary companies have historically been characterized as
relatively cyclical and therefore more volatile in
times of change.
CURRENCY
RISK.
The Fund invests in securities denominated in a non-U.S. currency. Changes in
currency exchange rates affect
the value of investments denominated in a foreign currency, the value of
dividends and interest earned from such securities and gains and losses realized
on the sale of such securities. The Fund’s net asset value could decline if a
currency to which the Fund has exposure depreciates against the U.S. dollar or
if there are delays or limits on repatriation of such currency. Currency
exchange rates can be very volatile and can change quickly and unpredictably.
Changes in currency exchange rates may affect the Fund's net asset value, the
value of dividends and interest earned, and gains and losses realized on the
sale of securities. An increase in the strength of the U.S. dollar relative to
other currencies may cause the value of the Fund to decline. Certain non-U.S.
currencies may be particularly volatile, and non-U.S. governments may intervene
in the currency markets, causing a decline in value or liquidity in the Fund's
non-U.S. holdings whose value is tied to the affected non-U.S. currency.
Additionally, the prices of non-U.S. securities that are traded in U.S. dollars
are often indirectly influenced by currency fluctuations.
CURRENT
MARKET CONDITIONS RISK. Current market
conditions risk is the risk that a particular investment, or shares of the Fund
in general, may fall in value due to current market conditions.
As a means to fight
inflation, which remains at elevated levels, the Federal Reserve and certain
foreign central banks have raised interest rates; however, the Federal Reserve has
recently lowered interest rates and may continue to do so. U.S. regulators
15
have proposed
several changes to market and issuer regulations which would directly impact the
Fund. While it is hard to predict whether any of these regulations will be
adopted, due to the current scope of proposed regulations, any regulatory
changes could adversely impact the Fund’s ability to achieve its investment
strategies or make certain investments. Regulatory changes may also increase
Fund operational costs, which could impact overall performance. Certain market
factors may result in central banks changing their approach in the future.
Recent and potential future bank failures could result in disruption to the
broader banking industry or markets generally and reduce confidence in financial
institutions and the economy as a whole, which may also heighten market
volatility and reduce liquidity. Additionally, challenges in
commercial real estate markets, including rising
interest rates, declining valuations and increasing vacancies, could have a
broader impact on financial markets.
The ongoing
adversarial political climate in the United States, as well as political and
diplomatic events both domestic and abroad, such as presidential, congressional
and gubernatorial elections in the U.S., global elections and governmental
changes and the U.S. government’s failure to agree on a long-term budget and
deficit reduction plan, have and may continue to have an adverse impact on the
U.S. regulatory landscape, markets and investor behavior, which could have a
negative impact on the Fund’s investments and operations. The potential result
of a U.S. federal government shutdown may also significantly impact investor and
consumer behavior, which may adversely impact the markets and global economy.
The change in
administration
resulting from the 2024 United States national elections could result in
significant impacts to international trade relations, tax and immigration
policies, and other aspects of the national and international political and
financial landscape, which could affect, among other things, inflation and the
securities markets generally. Global and domestic authorities and
regulators have
previously responded to serious economic disruptions with ranging fiscal and
monetary policy changes, including but not limited to, direct capital infusions
into companies, new monetary programs and dramatically lower interest rates. Any
change in these policies, or the ineffectiveness of these policies, could
increase volatility in securities markets, which may adversely impact the Fund’s
investments and performance. Any market disruptions could also delay the Fund
from making sound investment decisions in a timely manner. If the Fund
concentrates its investments in a region enduring geopolitical market
disruption, it may face higher risk of loss, although the increasing
interconnectivity between global economies and financial markets can lead to
events or conditions in one country, region or financial market adversely
impacting a different country, region or financial
market.
Other unexpected
political, regulatory and diplomatic events within the U.S. and abroad may
affect investor and consumer confidence and may adversely impact financial
markets and the broader economy. For example, ongoing armed conflicts between
Russia and Ukraine in Europe and among Israel, Iran, Hamas and other militant groups
in the Middle East, have caused and could continue
to cause significant market disruptions and volatility within the markets in
Russia, Europe, the Middle East and the United States. The hostilities and
sanctions resulting from those hostilities have and could continue to have a
significant impact on certain Fund investments as well as Fund performance and
liquidity. The economies of the United States and its trading partners, as well
as the financial markets generally, may be adversely impacted by trade
disputes, including the imposition of
tariffs, and other
matters. For example, the United States has imposed trade barriers and
restrictions on China. In addition, the
Chinese government is engaged in a longstanding dispute with Taiwan, continually
threatening an invasion. If the political climate between the United States and
China does not improve or continues to deteriorate, if China were to attempt
invading Taiwan, or if other geopolitical conflicts develop or worsen,
economies, markets and individual securities may be adversely affected, and the
value of the Fund’s assets may go down. A public health crisis and the
ensuing policies enacted by
governments and central banks may cause significant volatility and
uncertainty in global financial markets, negatively impacting global
growth prospects. As the
COVID-19 global pandemic illustrated, such events may affect certain geographic
regions, countries, sectors and industries more significantly than
others.
Advancements in
technology may also adversely impact markets and the overall performance of the
Fund. For instance, the economy may be significantly impacted by the advanced
development and increased regulation of artificial intelligence. As the use of
technology grows, liquidity and market movements may be affected. As artificial
intelligence is used more widely, the profitability and growth of Fund holdings
may be impacted, which could significantly impact the overall performance of the
Fund. Additionally,
cyber security breaches of both government and non-government entities could
have negative impacts on infrastructure and the ability of such entities,
including the Fund, to operate properly.
These
events, and any other future events, may adversely affect the prices and
liquidity of the Fund’s portfolio investments and could result in
disruptions in the trading markets.
CYBER
SECURITY RISK. The Fund is
susceptible to operational risks through breaches in cyber security. A breach in
cyber security
refers to both intentional and unintentional events that may cause the Fund to
lose proprietary information, suffer data corruption or lose operational
capacity. Such events could cause the Fund to incur regulatory penalties,
reputational damage, additional compliance costs associated with corrective
measures and/or financial loss. These risks typically are not
16
covered
by insurance. In general, cyber incidents can result from deliberate attacks or
unintentional events. Cyber incidents include, but are not limited to, gaining
unauthorized access to digital systems (e.g., through “hacking”
or malicious software coding)
for purposes of misappropriating assets or sensitive information, corrupting
data or causing operational disruption. Cyber attacks may also be carried out in
a manner that does not require gaining unauthorized access, such as causing
denial-of-service attacks on websites (i.e., efforts to make
network services unavailable to intended users). Cyber security failures
by or breaches of the systems of the Advisor, distributor and other service
providers (including, but not limited to, sub-advisors, index providers, fund
accountants, custodians, transfer agents and administrators), market makers,
authorized participants or the issuers of securities in which the Fund invests,
have the ability to cause disruptions and impact business operations,
potentially resulting in: financial losses; interference with the Fund’s ability
to calculate its net asset value; disclosure of confidential trading
information; impediments to trading; submission of erroneous trades or erroneous
creation or redemption orders; the inability of the Fund or its service
providers to transact business; violations of applicable privacy and other laws;
regulatory fines penalties, reputational damage, reimbursement or other
compensation costs; or additional compliance costs. Substantial costs may be
incurred by the Fund in order to resolve or prevent cyber incidents in the
future. While the Fund has established business continuity plans in the event
of, and risk management systems to prevent, such cyber attacks, there are
inherent limitations in such plans and systems, including the possibility that
certain risks have not been identified and that prevention and remediation
efforts will not be successful. Furthermore, the Fund cannot control the cyber
security plans and systems put in place by service providers to the Fund,
issuers in which the Fund invests, market makers or authorized participants.
However, there is no guarantee that such efforts will succeed, and the Fund and
its shareholders could be negatively
impacted as a result.
DEPOSITARY
RECEIPTS RISK. Depositary receipts
are securities issued by a bank or trust company reflecting ownership of
underlying
securities issued by a foreign company. An investment in depositary receipts
involves further risks due to certain unique features. 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
pursuant to a deposit agreement between the underlying issuer and the
depositary. In certain cases, the depositary will vote the 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
shares into depositary receipts and vice versa. Such restrictions may cause
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 shares, the laws in certain countries may limit the ability of a
non-resident to trade the shares and to reconvert the 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 U.S. 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.
EMERGING
MARKETS RISK. The Fund
may invest in securities issued by companies incorporated in emerging market
countries. Investments in
securities issued by governments and companies operating in emerging market
countries involve additional risks relating to political, economic, or
regulatory conditions not associated with investments in securities and
instruments issued by U.S. companies or by companies operating in other
developed market countries. This is due to, among other things, the potential
for greater market volatility, lower trading volume, a lack of liquidity,
potential for market manipulation, higher levels of inflation, political and
economic instability, greater risk of a market shutdown and more governmental
limitations on foreign investments in emerging market countries than are
typically found in more developed market countries. Also, certain regions,
countries or asset types may suffer periods of relative illiquidity. Moreover,
emerging market countries often have less uniformity in accounting and reporting
requirements, unsettled securities laws, less reliable securities valuations and
greater risks associated with custody of securities than developed markets. In
addition, the Public Company Accounting Oversight Board, which regulates
auditors of U.S. public companies, may be unable to inspect audit work
papers in certain emerging market countries.
Emerging market countries often have greater risk of capital controls through
such measures as taxes or interest rate control than developed markets. Certain
emerging market countries may also lack the infrastructure necessary to attract
large amounts of foreign trade and investment. Local securities markets in
emerging market countries may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially making
prompt liquidation of holdings difficult or impossible. Settlement procedures in
emerging market countries are frequently less developed and reliable than those
in the U.S. and other developed market countries. In addition, significant
delays may occur in registering the transfer of securities. Settlement or
registration problems may make it more difficult for the Fund to value its
portfolio securities and could cause the Fund to miss attractive investment
opportunities. Investing in emerging market
17
countries
involves a higher risk of expropriation, nationalization, confiscation of assets
and property or the imposition of restrictions on foreign investments and on
repatriation of capital invested by certain emerging market countries. Enforcing
legal rights may be made difficult, costly and slow in emerging markets as there
may be additional problems enforcing claims against non-U.S. governments. As
such, the rights and remedies associated with emerging market investment
securities may be different than those available for investments in more
developed markets. For example, it may be more difficult for shareholders to
bring derivative litigation or for U.S. regulators to bring enforcement actions
against issuers in emerging markets.
In
addition, due to the differences in regulatory, accounting, audit and financial
recordkeeping standards, including financial disclosures, less information about
emerging market companies is publicly available and information that is
available may be unreliable or outdated. This may affect the Index Provider’s
ability to compute and construct the Index and may further impede the Advisor’s
ability to accurately evaluate the index data provided. This potential for error
in index construction and index data could affect the
overall performance of the Fund.
EQUITY
SECURITIES RISK. The value of the
Fund’s shares will fluctuate with changes in the value of the equity securities
in which
it invests.
Equity
securities prices fluctuate for several reasons, including changes in investors'
perceptions of the financial condition
of an issuer or the general condition of the relevant equity market, such as
market volatility, or when political or economic events affecting the issuers
occur. Common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
Additionally, holders of an issuer's common stock may be subject to greater
risks than holders of its preferred stock and debt securities because common
stockholders' claims are subordinated to those of holders of preferred
stocks and debt securities upon the bankruptcy of an issuer.
INDEX
CONCENTRATION RISK. The Fund will be
concentrated in an industry or a group of industries to the extent that the
Index
is so concentrated. To the extent that the Fund invests a significant percentage
of its assets in a single asset class or the securities of issuers within the
same country, state, region, industry or sector, an adverse economic, business
or political development may affect the value of the Fund’s investments more
than if the Fund were more broadly diversified. A significant exposure makes the
Fund more susceptible to any single occurrence and may subject the Fund to
greater market risk than a fund that is more broadly diversified. There may be
instances in which the Index, for a variety of reasons including changes in the
prices of individual securities held by the Fund, has a larger exposure to a
small number of stocks or a single stock relative to the rest of the stocks in
the Index. Under such circumstances, the Fund will not deviate from the Index
except in rare circumstances or in an immaterial way and therefore the Fund’s
returns would be more greatly influenced by the returns of the stock(s) with the
larger exposure.
INDEX
OR MODEL CONSTITUENT RISK. The Fund may be a
constituent of one or more indices or ETF models. As a result, the
Fund may be included in one or more index-tracking ETFs or mutual funds. Being a
component security of such a vehicle could greatly affect the trading activity
involving the Fund's shares, the size of the Fund and the market volatility of
the Fund’s shares. Inclusion in an index could increase demand for the Fund and
removal from an index could result in outsized selling activity in a relatively
short period of time. As a result, the Fund’s net asset value could be
negatively impacted and the Fund’s market price may be below the Fund’s net
asset value during certain periods. In addition, index rebalances may
potentially result in increased trading activity. To the extent buying or
selling activity increases, the Fund can be exposed to increased brokerage costs and
adverse tax consequences and the market price of the Fund can be negatively
affected.
INDEX
PROVIDER RISK. There is no
assurance that the Index Provider, or any agents that act on its behalf, will
compile the Index
accurately, or that the Index will be determined, maintained, constructed,
reconstituted, rebalanced, composed, calculated or disseminated accurately. The
Index Provider and its agents do not provide any representation or warranty in
relation to the quality, accuracy or completeness of data in the Index, and do
not guarantee that the Index will be calculated in accordance with its stated
methodology. The Advisor’s mandate as described in this prospectus is to manage
the Fund consistently with the Index provided by the Index Provider. The Advisor
relies upon the Index provider and its agents to accurately compile, maintain,
construct, reconstitute, rebalance, compose, calculate and disseminate the Index
accurately. Therefore, losses or costs associated with any Index Provider or
agent errors generally will be borne by the Fund and its shareholders. To
correct any such error, the Index Provider or its agents may carry out an
unscheduled rebalance of the Index or other modification of Index constituents
or weightings. When the Fund in turn rebalances its portfolio, any transaction
costs and market exposure arising from such portfolio rebalancing will be borne
by the Fund and its shareholders. Unscheduled rebalances also expose the Fund to
additional tracking error risk. Errors in respect of the quality, accuracy and
completeness of the data used to compile the Index may occur from time to time
and may not be identified and corrected by the Index Provider for a period of
time or at all, particularly where the Index is less commonly used as a
benchmark by funds or advisors.
18
For
example, during a period where the Index contains incorrect constituents, the
Fund tracking the Index would have market exposure to such constituents and
would be underexposed to the Index’s other constituents. Such errors may
negatively impact the Fund and its shareholders. The Index Provider and its
agents rely on various sources of information to assess the criteria of issuers
included in the Index, including information that may be based on assumptions
and estimates. Neither the Fund nor the Advisor can offer assurances that the
Index’s calculation methodology or sources of information will provide an
accurate assessment of included issuers. Unusual market conditions or
issuer-specific events may cause the Index Provider to postpone a scheduled
rebalance, exclude or substitute a security from the Index or undertake other
measures which could cause the Index to vary from its normal or expected
composition. The postponement of a scheduled rebalance in a time of market
volatility could mean that constituents that would otherwise be removed at
rebalance due to changes in market capitalizations, issuer credit ratings, or
other reasons may remain, causing the performance and constituents of the Index
to vary from those expected under normal conditions. Apart from scheduled
rebalances, the Index Provider or its agents may carry out additional ad hoc
rebalances to the Index due to unusual market conditions or in order, for
example, to correct an error in the selection of index constituents.
LIQUIDITY
RISK. The Fund may have
investments that it may not be able to dispose of or close out readily at a
favorable time or price (or at
all), or at a price approximating the Fund’s valuation of the investment. For
example, certain investments may be subject to restrictions on resale, may trade
over-the-counter or in limited volume, or may not have an active trading market.
Certain investments held by the Fund that trade on non-U.S. exchanges may be
further subject to liquidity risk due to foreign market closures or unexpected
impediments to trading in local markets. Illiquid securities may trade at a
discount from comparable, more liquid investments and may be subject to wide
fluctuations in market value and the bid/ask spread on the Fund's shares may
widen. It may be difficult for the Fund to value illiquid securities accurately.
The market for certain investments may become illiquid under adverse market or
economic conditions independent of any specific adverse changes in the
conditions of a particular issuer. If the Fund needed to sell a large block of
illiquid securities to meet shareholder redemption request or to raise cash,
these sales could further reduce the securities’ prices and adversely affect
performance of the Fund. Disposal of illiquid securities may entail registration
expenses and other transaction costs that are higher than those for liquid
securities.
MARKET
MAKER RISK. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund
shares due to a limited number of market markers. Decisions by market makers or
authorized participants to reduce their role or step away from these activities
in times of market stress could inhibit the effectiveness of the arbitrage
process in maintaining the relationship between the underlying values of the
Fund’s portfolio securities and the Fund’s market price. The Fund may rely on a
small number of third-party market makers to provide a market for the purchase
and sale of shares. Any trading halt or other problem relating to the trading
activity of these market makers could result in a dramatic change in the spread
between the Fund’s net asset value and the price at which the Fund’s shares are
trading on the Exchange, which could result in a decrease in value of the Fund’s
shares. This reduced effectiveness could result in Fund shares trading at a
discount
to net asset value and also in greater than normal intraday bid-ask spreads for
Fund shares.
MARKET
RISK.
Market risk is the risk that a particular investment, or shares of the Fund in
general, may fall in value. Securities are
subject to market fluctuations caused by real or perceived adverse economic,
political, and regulatory factors or market developments, changes in interest
rates and perceived trends in securities prices. Shares of the Fund could
decline in value or underperform other investments. In addition, local, regional
or global events such as war, acts of terrorism, market manipulation, government
defaults, government shutdowns, regulatory actions, political changes,
diplomatic developments, the imposition of sanctions and other similar measures,
spread of infectious diseases or other public health issues, recessions, natural
disasters, or other events could have a significant negative impact on the Fund
and its investments. Any of such circumstances could have a materially negative
impact on the value of the Fund’s shares, the liquidity of an investment, and
may result in increased market volatility. During any such events, the Fund’s
shares may trade at increased premiums or discounts to their net asset value,
the bid/ask spread on the Fund’s shares may widen and the returns on investment
may fluctuate.
NON-CORRELATION
RISK.
The Fund’s return may not match the return of its Index for a number of reasons.
The Fund incurs operating
expenses not applicable to its Index and may incur costs in buying and selling
securities, especially when rebalancing the Fund’s portfolio holdings to reflect
changes in the composition of the Index. In addition, the Fund’s portfolio
holdings may not exactly replicate the securities included in its Index or the
ratios between the securities included in the Index. Additionally, in order to
comply with its investment strategies and policies, the Fund portfolio may
deviate from the composition of the Index. Accordingly,
the Fund's return may underperform the return of the Index.
19
NON-DIVERSIFICATION
RISK. As
a “non-diversified” fund, the Fund may hold a smaller number of portfolio
securities than many
other funds and may be more sensitive to any single economic, business,
political or regulatory occurrence than a diversified fund. To the extent the
Fund invests in a relatively small number of issuers due to the high percentage
of the Fund’s assets invested in that security, a decline in the market value of
a particular security held by the Fund may affect its value more than if it
invested in a larger number of issuers. The value of the Fund’s shares may be
more volatile than the values of shares of more diversified
funds.
NON-U.S.
SECURITIES RISK. An investment in
securities of non-U.S. companies involves risks not associated with domestic
issuers.
Investment in non-U.S. securities may involve higher costs than investment in
U.S. securities, including higher transaction and custody costs as well as the
imposition of additional taxes by non-U.S. governments. Non-U.S. investments may
also involve risks associated with the level of currency exchange rates, less
complete financial information about the issuers, less market liquidity, more
market volatility and political instability. Future political and economic
developments, the possible imposition of withholding taxes on dividend income,
the possible seizure or nationalization of non-U.S. holdings, the imposition of
sanctions by foreign governments, the possible establishment of capital
controls, exchange controls or freezes on the convertibility of currency or the
adoption of other governmental restrictions might adversely affect an investment
in non-U.S. securities. Additionally, non-U.S. issuers may be subject to less
stringent regulation, and to different accounting, auditing and recordkeeping
requirements. The U.S. and non-U.S. markets often rise and fall at different
times or by different amounts due to
economic or other regional developments particular to a given country or
region.
OPERATIONAL
RISK.
The Fund is subject to risks arising from various operational factors,
including, but not limited to, human error,
processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and
technology or systems failures. The Fund relies on third-parties for a range of
services, including custody. Any delay or failure relating to engaging or
maintaining such service providers may affect the Fund’s ability to meet its
investment objective. Although the Fund and the Fund’s investment advisor seek
to reduce these operational risks through controls and
procedures, there is no way to completely protect against such
risks.
PASSIVE
INVESTMENT RISK. The Fund is not
actively managed. The Fund invests in securities included in or representative
of
its Index regardless of investment merit. The Fund generally will not attempt to
take defensive positions in declining markets. In the event that the Index is no
longer calculated, the Index license is terminated or the identity or character
of the Index is materially changed,
the Fund will seek to engage a replacement index.
PORTFOLIO
TURNOVER RISK. The Fund has an
investment strategy that may frequently involve buying and selling portfolio
securities.
High portfolio turnover may result in the Fund paying higher levels of
transaction costs, including brokerage commissions, dealer mark-ups and other
costs and may generate greater tax liabilities for shareholders. Portfolio
turnover risk may cause the
Fund’s performance to be less than expected.
PREMIUM/DISCOUNT
RISK.
The market price of the Fund’s shares will generally fluctuate in accordance
with changes in the Fund’s
net asset value as well as the relative supply of and demand for shares on the
Exchange. First Trust cannot predict whether shares will trade below, at or
above their net asset value because the shares trade on the Exchange at market
prices and not at 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, 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, and only to and from broker-dealers
and large institutional investors that have entered into participation
agreements (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 absent disruptions to the creation and
redemption mechanism, extreme market volatility or potential lack of authorized
participants. During stressed market conditions, the market for the Fund’s
shares may become less liquid in response to deteriorating liquidity in the
market for the Fund’s underlying portfolio holdings, which could in turn lead to
differences between the market price of the Fund’s shares and their net asset
value and the bid/ask spread on the Fund’s shares may
widen.
SMALLER
COMPANIES RISK. The stock price of
small and/or mid capitalization companies may be more volatile than those
of
larger companies and therefore the Fund’s share price may be more volatile than
those of funds that invest a larger percentage of their assets in stocks issued
by large capitalization companies. Stock prices of small and/or mid
capitalization companies are also generally more vulnerable than those of large
capitalization companies to adverse business and economic developments.
Securities of small and/or mid capitalization companies may be thinly traded,
making it difficult for the Fund to buy and sell them. In addition, small and/or
mid capitalization companies are typically less financially stable than larger,
more established companies and may reinvest a high proportion of their earnings
in their business and may not pay dividends.
20
Small
and/or mid capitalization companies may also depend on a small number of
essential personnel who may also be less experienced than the management of
larger companies, making these companies more vulnerable to experiencing adverse
effects due to the loss or inexperience of personnel. Small and/or mid
capitalization companies also normally have less diverse product lines than
those of large capitalization companies and are more susceptible to adverse
developments concerning their
products.
STREAMING
AND GAMING RISK. The Fund is subject
to certain risks specifically associated with investments in companies
that
are materially engaged in the offering of online services related to gaming and
content streaming, including user-created and studio-created content streaming,
video game development and competition support, and online gaming. These
companies can face intense competition, may be dependent on a limited number of
products which can rapidly become obsolete and often heavily rely on the
protection of patents and trademarks. They can be subject to intense litigation
regarding intellectual property rights, cybersecurity and privacy. These
companies are also subject to changes in economic conditions, consumer demand,
discretionary spending and technological developments. Additionally, legislative
or regulatory changes can impact the ability for these companies to operate in
certain jurisdictions and the activities in which they are allowed to engage,
which could significantly
affect their profitability.
TRADING
ISSUES RISK. Trading in Fund
shares on the Exchange may be halted due to market conditions or for reasons
that, in
the view of the Exchange, make trading in shares inadvisable. In addition,
trading in Fund shares on the Exchange is subject to trading halts caused by
extraordinary market volatility pursuant to the Exchange’s “circuit breaker”
rules. There can be no assurance that the requirements of the Exchange necessary
to maintain the listing of the Fund will continue to be met or will remain
unchanged. The Fund may have difficulty maintaining its listing on the Exchange
in the event the Fund’s assets are small, the Fund does
not have enough shareholders, or if the Fund is unable to proceed with creation
and/or redemption orders.
VALUATION
RISK. The Fund may hold
securities or other assets that may be valued on the basis of factors other than
market quotations. This may
occur because the asset or security does not trade on a centralized exchange, or
in times of market turmoil or reduced liquidity. There are multiple methods that
can be used to value a portfolio holding when market quotations are not readily
available. Fund investments that trade on non-U.S. exchanges that close prior to
the close of the NYSE may be fair valued using a systematic fair valuation
model. If these foreign investments meet certain criteria in relation to the
valuation model, their valuation is systematically adjusted to reflect the
impact of movement in the U.S. market after the close of certain foreign
markets. The value established for any portfolio holding at a point in time
might differ from what would be produced using a different methodology or if it
had been priced using market quotations. In addition, there is no assurance that
the Fund could sell or close out a portfolio position for the value established
for it at any time, and it is possible that the Fund would incur a loss because
a portfolio position is sold or closed out at a discount to the valuation
established by the Fund at that time. The Fund’s ability to value investments
may be impacted by technological issues or errors by pricing services or
other third-party
service providers.
VARIABLE
INTEREST ENTITIES RISK. In China, direct ownership of
companies in certain sectors by foreign individuals and entities is
prohibited. In order to allow for foreign investment in these businesses, many
Chinese companies have created VIE structures to enable indirect foreign
ownership. In such an arrangement, a Chinese operating company typically
establishes an offshore shell company in another jurisdiction, such as the
Cayman Islands. That shell company enters into service and other contracts with
the Chinese issuer or operating company to obtain economic exposure to the
Chinese company, then issues shares on an exchange outside of mainland China,
and U.S. investors hold stock in the non-Chinese shell company rather than
directly in the Chinese issuer or operating company. This arrangement allows
U.S. investors, such as the Fund, to obtain economic exposure to the Chinese
issuer or operating company through contractual means rather than through formal
equity ownership. Because neither the shell company nor the Fund owns actual
equity interests in the Chinese operating company, they do not have the voting
rights or other types of control that an equity holder would expect to benefit
from. Although VIEs are a longstanding industry practice and well known to
officials and regulators in China, VIEs are not formally recognized under
Chinese law. Intervention by the Chinese government with respect to VIEs could
significantly affect the Chinese company’s performance and the enforceability of
the VIE’s contractual arrangements that establish the links between the Chinese
company and the shell company in which the Fund invests. This could considerably
impact the financial condition of the shell company in which the Fund invests by
limiting its ability to consolidate the financial results of the Chinese
operating company into its own financial statements, as well as make the value
of the shares held by the Fund effectively worthless. Further, if Chinese
officials prohibit the existence of VIEs, the market value of the Fund’s
associated holdings would likely suffer significant, and possibly permanent
effects, which could negatively impact the Fund’s net asset value and could
result in substantial losses. Further, it is uncertain whether any new laws,
rules or regulations relating to VIE structures will be adopted or, if adopted, what impact they
would have on the value of the Fund’s shares.
21
VIEs
are also subject to the investment risks associated with the underlying Chinese
issuer or operating company. Chinese companies are not subject to the same
degree of regulatory requirements or accounting standards and oversight as
companies in more developed countries. As a result, information about the
Chinese securities and VIEs in which the Fund invests may be less reliable and
incomplete. There also may be significant obstacles to obtaining information
necessary for investigations into or litigation against Chinese companies and
VIEs, and shareholders may have limited legal remedies, which could negatively
impact the Fund. Additionally, U.S.-listed VIEs may be delisted if they do not
meet U.S. accounting standards and auditor oversight requirements. Delisting
would significantly decrease the liquidity and value of the securities, decrease
the ability of the Fund to invest in such securities and may increase the cost
of the Fund if required to seek alternative markets in which to invest in such
securities.
Non-Principal
Risks
BORROWING
AND LEVERAGE RISK. If the Fund borrows
money, it must pay interest and other fees, which may reduce the Fund’s
returns. Any such borrowings are intended to be temporary. However, under
certain market conditions, including periods of decreased liquidity, such
borrowings might be outstanding for longer periods of time. As prescribed by the
1940 Act, the Fund will be required to maintain specified asset coverage of at
least 300% with respect to any bank borrowing immediately following such
borrowing and at all times thereafter. 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.
CASH
TRANSACTIONS RISK. The Fund may, under
certain circumstances, effect a portion of creations and redemptions for
cash,
rather than in-kind securities. As a result, an investment in the Fund may be
less tax-efficient than an investment in an ETF that effects its creations and
redemptions only in-kind. ETFs are able to make in-kind redemptions and avoid
being taxed on gains on the distributed portfolio securities at the fund level.
A Fund that effects redemptions for cash 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 a 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 only in-kind. The Fund intends to distribute 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
ETF. 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 entirely 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 ETFs
that distribute portfolio securities in-kind.
FAILURE
TO QUALIFY AS A REGULATED INVESTMENT COMPANY RISK. If, in any year, the
Fund fails to qualify as a regulated investment
company under the applicable tax laws, the Fund would be taxed as an ordinary
corporation. In such circumstances, the Fund's taxable income would be subject
to tax at the Fund level and to a further tax at the shareholder level when such
income is distributed and the Fund could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial distributions
before requalifying as a regulated investment company that is accorded special
tax treatment. This would cause investors to incur higher tax liabilities than
they otherwise would have incurred and would have a negative impact on Fund
returns. If the Fund fails to qualify as a regulated investment company,
distributions to the Fund's shareholders generally would be eligible (i) for
treatment as qualified dividend income in the case of individual shareholders
and (ii) for the dividends received
deduction in the case of corporate shareholders. See "Federal Tax
Matters."
INTELLECTUAL
PROPERTY RISK. The Fund relies on a
license and related sublicense that permits the Fund to use its Index
and
associated trade names, trademarks and service marks (the “Intellectual
Property”) in connection with
the Fund’s name and
investment strategies. Such license and related sublicense may be terminated by
the Index Provider, and, as a result, the Fund may lose its ability to use the
Intellectual Property. There is also no guarantee that the Index Provider has
all rights to license the Intellectual Property for use by the Fund.
Accordingly, in the event the license is terminated or the Index Provider
does not
have rights to license the Intellectual Property, it may have a significant
effect on the operation of the Fund.
INTERNATIONAL
CLOSED MARKET TRADING RISK. Because securities
held by the Fund trade on non-U.S. exchanges that are
closed when the Fund’s primary listing exchange is open, there are likely to be
deviations between the current price of an underlying security and the last
quoted price for the underlying security (i.e., the Fund’s quote
from the closed foreign market) used
for purposes of calculating the Fund's net asset value, resulting in premiums or
discounts to the Fund’s net asset value that may be greater than those
experienced by other exchange-traded funds. In addition, shareholders may not be
able to
22
purchase
and sell shares of the Fund on days when the net asset value of the Fund could
be significantly affected by events in the relevant
foreign markets.
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.
LEGISLATION/LITIGATION
RISK. From time to time,
various legislative initiatives are proposed and/or enacted in the United
States
and abroad, which may have a negative impact on certain companies in which the
Fund invests. In addition, litigation regarding any of the issuers of the
securities owned by the Fund, or industries represented by these issuers, may
negatively impact the value of the securities. Such legislation or litigation
may cause the Fund to lose value or may result in higher portfolio turnover if the Advisor determines to
sell such a holding.
REPURCHASE
AGREEMENT RISK. A repurchase
agreement is an agreement to purchase a security from a party at one price
and
a simultaneous agreement to sell it back to the original party at an agreed-upon
price, typically representing the purchase price plus interest. Repurchase
agreements may be viewed as loans made by the Fund which are collateralized by
the securities subject to repurchase. The Fund's investment return on such
transactions will depend on the counterparty's willingness and ability to
perform its obligations under a repurchase agreement. If the Fund's counterparty
should default on its obligations and the Fund is delayed or prevented from
recovering the collateral, or if the value of the collateral is insufficient,
the Fund may have to borrow
cash, subject to certain legal limits, or realize a loss.
RESTRICTED
SECURITIES RISK. Restricted
securities are securities that cannot be offered for public resale unless
registered under
the applicable securities laws or that have a contractual restriction that
prohibits or limits their resale. Restricted securities include private
placement securities that have not been registered under the applicable
securities laws, such as Rule 144A securities, and securities of U.S. and
non-U.S. issuers that are issued pursuant to Regulation S. Private placements
are generally subject to strict restrictions on resale. Restricted securities
may be illiquid as they generally are not listed on an exchange and may have no
active trading market. The Fund may be unable to sell a restricted security on
short notice or may be able to sell them only at a price below current value. It
may be more difficult to determine a market value for a restricted security.
Also, the Fund may get limited information about the issuer of a restricted
security, so it may be less able to predict a loss. In addition, if Fund
management receives material non-public information about the issuer, the Fund
may as a result be unable to sell the securities. Certain restricted securities
may involve a high degree of business and financial risk and may result in
substantial losses.
SECURITIES
LENDING RISK. The Fund may engage
in securities lending. Securities lending involves exposure to certain risks,
including
counterparty risk, collateral risk and operational risk. Counterparty risk is
the risk that the borrower may fail to return the securities in a timely manner
or at all. As a result, to the extent the Fund engages in securities lending, in
such transactions it may suffer a loss and experience delays in recovering the
lent securities. Any delay in the return of securities on loan may restrict the
ability of the Fund to meet delivery or payment obligations. Collateral risk is
the risk that the collateral received may be realized at a value lower than the
value of the securities lent, whether due to inaccurate pricing of the
collateral, adverse market movements in the value of the collateral, intra-day
increases in the value of the securities lent, a deterioration in the credit
rating of the collateral issuer, or the illiquidity of the market in which the
collateral is traded. Securities lending also entails operational risks, such as
settlement failures or delays in the settlement of instructions. Such failures
or delays may restrict the ability of the Fund to meet delivery or payment
obligations. Lastly, securities lending activities may result in adverse tax
consequences for the Fund and its shareholders. For instance, substitute
payments for dividends received by the Fund for securities loaned out by the
Fund will not be considered qualified dividend income. The Fund could lose money
if its short-term investment
of the collateral declines in value over the period of the
loan.
WARRANTS
AND RIGHTS RISK. Warrants and rights
do not carry with them the right to dividends or voting rights with respect
to
the securities that they entitle their holder to purchase, and they do not
represent any rights in the assets of the issuer. As a result, warrants and
rights may be considered more speculative than certain other types of
investments. In addition, the value of a warrant or right does not necessarily
change with the value of the underlying securities. The Fund could lose the
value of a warrant or right if the right to subscribe to additional shares is
not exercised prior to the warrant’s or right’s expiration date. The market for
warrants and rights may be very limited and there may at times not be a liquid
secondary market for warrants and
rights.
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. The
Board is
23
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 Advisor, distributor, custodian and fund
administrative and accounting agent.
Management
of the Fund
First
Trust Advisors L.P., 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 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 Fund.
First Trust serves
as advisor or sub-advisor for 12 mutual fund portfolios, 10
exchange-traded funds consisting of 295 series and 5 closed-end funds. It is also the
portfolio supervisor of certain unit investment trusts sponsored by First Trust
Portfolios L.P. (“FTP”), an affiliate of First Trust, 120
East Liberty Drive, Wheaton, Illinois 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.
The
members of the Investment Committee are jointly and primarily responsible for
the management of the Fund. Investments are made under the direction of the
Investment Committee. The Investment Committee consists of Daniel J. Lindquist, David
G. McGarel, Jon C. Erickson, Roger F. Testin, Stan Ueland, Chris A. Peterson and
Erik Russo.
●
Mr. Lindquist is
Chairman of the Investment Committee and presides over Investment Committee
meetings. Mr. Lindquist is responsible for overseeing the implementation of the
Fund’s investment strategy. Mr. Lindquist was a Senior Vice President of First
Trust and FTP from September 2005 to July 2012 and is now a Managing Director of
First Trust and FTP. Mr. Lindquist is a recipient of the Chartered Financial
Analyst designation.
●
Mr. McGarel is the
Chief Investment Officer, Chief Operating Officer and a Managing Director of
First Trust and FTP. As First Trust’s Chief Investment Officer, Mr. McGarel
consults with the other members of the Investment Committee on market conditions
and First Trust’s general investment philosophy. Mr. McGarel was a Senior Vice
President of First Trust and FTP from January 2004 to July 2012. Mr. McGarel is
a recipient of the Chartered Financial Analyst designation.
●
Mr. Erickson joined
First Trust in 1994 and is a Senior Vice President of First Trust and FTP. As
the head of First Trust’s Equity Research Group, Mr. Erickson is responsible for
determining the securities to be purchased and sold by funds that do not utilize
quantitative investment strategies. Mr. Erickson is a recipient of the Chartered
Financial Analyst designation.
●
Mr. Testin is a
Senior Vice President of First Trust and FTP. Mr. Testin is the head of First
Trust’s Portfolio Management Group. Mr. Testin has been a Senior Vice President
of First Trust and FTP since November 2003. Mr. Testin is a recipient of the
Chartered Financial Analyst designation.
●
Mr. Ueland joined
First Trust as a Vice President in August 2005 and has been a Senior Vice
President of First Trust and FTP since September 2012. At First Trust, he plays
an important role in executing the investment strategies of each portfolio of
exchange-traded funds advised by First Trust.
●
Mr. Peterson is a
Senior Vice President and head of First Trust’s strategy research group. He
joined First Trust in January of 2000. Mr. Peterson is responsible for
developing and implementing quantitative equity investment strategies. Mr.
Peterson received his B.S. in Finance from Bradley University in 1997 and his
M.B.A. from the University of Chicago Booth School of Business in 2005. He has
over 26 years of financial services industry experience and is a recipient of
the Chartered Financial Analyst designation.
●
Mr. Russo is a Senior Vice President
of First Trust. He is responsible for implementing the investment strategies of
each portfolio of exchange-traded funds advised by First Trust in his role as a
Portfolio Manager. Mr. Russo joined First Trust in January of
2010.
For
additional information concerning First Trust, including a description of the
services provided to the Fund, see the Fund's SAI. Additional information about
the compensation of Investment Committee members, other accounts managed by
members of the Investment Committee and ownership by members of the Investment
Committee of shares of the Fund is provided in the SAI.
24
Management
Fee
Pursuant to an
investment management agreement between First Trust and the Trust, on behalf of
the Fund (the “Investment
Management
Agreement”), First Trust
manages the investment of the Fund's assets. First Trust is paid an annual
unitary management fee by
the Fund equal to 0.70% of the Fund's average daily net assets and is
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, acquired
fund fees and expenses, if any, brokerage commissions and other expenses
connected with the execution of portfolio transactions, expenses associated with
short sales transactions, if any, distribution and service fees
payable pursuant to a Rule 12b-1 plan, if any, and extraordinary
expenses.
As
approved by the Trust’s Board of Trustees, the management fee paid to First
Trust will be reduced at certain levels of Fund net assets
(“breakpoints”). See the Fund's
Statement of Additional Information for more information on the
breakpoints.
A discussion
regarding the Board’s approval of the continuation of the Investment Management
Agreement is available in the Fund’s Form N-CSR for the fiscal
period ended September 30, 2024.
How
to Buy and Sell Shares
Most
investors buy and sell shares of the Fund in secondary market transactions
through brokers. Shares of the Fund are listed for trading on the secondary
market on one or more national securities exchanges. Shares can be bought and
sold throughout the trading day like other publicly traded shares. There is no
minimum investment when buying shares on the Exchange. 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 pay brokerage commissions, investors may receive less
than the net asset value of the shares because shares are bought and sold at
market prices rather than at net asset value, and investors may pay some or all
of the bid-ask spread for each
transaction (purchase or sale) of Fund shares. Share prices are reported in
dollars and cents per share.
Under
normal circumstances, the Fund will pay out redemption proceeds to a redeeming
authorized participant within one day after the authorized participant’s
redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the authorized participant and the
Fund’s distributor. However, the Fund reserves the right, including under
stressed market conditions, to take up to seven days after the receipt of a
redemption request to pay an authorized participant, all as permitted by the
1940 Act. If the Fund has foreign investments in a country where a local market
holiday, or series of consecutive holidays, or the extended delivery cycles for
transferring foreign investments to redeeming authorized participants prevents
the Fund from delivering such foreign investments to an authorized participant
in response to a redemption request, the Fund may take up to 15 days after the
receipt of the redemption request to deliver such investments to the
authorized participant.
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
and companies relying on Sections 3(c)(1) and 3(c)(7) of the 1940 Act is subject
to the restrictions of
Section 12(d)(1) of the 1940 Act and the related rules and
interpretations.
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 price of shares of the Fund on the secondary market is based on market
price and 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.
25
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 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 Fund's 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 that may result from frequent cash trades. To
the extent that the Fund may effect the purchase or redemption of Creation Units
in exchange wholly or partially for cash, the Board noted that such 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. In addition, the
Fund imposes fixed and variable transaction fees on purchases and redemptions of
Creation Units to cover the custodial and other costs incurred by the Fund in
effecting trades. Finally, the Advisor monitors purchase and redemption orders
from APs for patterns of abusive trading and the Fund reserves the right to not
accept orders from APs
that the Advisor has determined may be disruptive to the management of the
Fund.
Dividends,
Distributions and Taxes
Dividends
from net investment income, if any, are declared and paid quarterly 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 (“IRS”) could disagree with
any conclusions set forth in this section. The following disclosure 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” (a
“RIC”) under the federal
tax laws. If the Fund qualifies as a RIC 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 gain 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 gain 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 your tax basis in your shares, 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. A “return of capital” is a return, in
whole or
26
in
part, of the funds that you previously invested in the Fund. A return of capital
distribution should not be considered part of a Fund’s dividend yield or total
return of an investment in Fund shares. 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 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.
Income
from the Fund may also be subject to a 3.8% “Medicare tax.” This tax generally
applies 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 RICs. However, certain ordinary income dividends 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 stated federal tax rate for net
capital gain is generally 20% (15% or 0% for taxpayers with taxable incomes
below certain thresholds). Some capital gains, including some portion of your
capital gain dividends may be taxed at a higher maximum stated tax rate. Capital
gains may also be subject to the Medicare tax described above.
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 share 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.
An
election may be available to you to defer recognition of the gain attributable
to a capital gain dividend if you make certain qualifying investments within a
limited time. You should talk to your tax advisor about the availability of this
deferral election and its
requirements.
Ordinary
income dividends received by an individual shareholder from a RIC 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. 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 brokerage fees, if any. In some cases, however, you may have to adjust
your tax basis after you purchase your shares. An election may be available to
you to defer recognition of capital gain if you make certain qualifying
investments within a limited time. You should talk to your tax advisor about the
availability of this
deferral election and its requirements.
Taxes
on Purchase and Redemption of Creation Units
If
you exchange securities for Creation Units, you 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 your aggregate basis in the
securities surrendered and the cash component paid. If you exchange Creation
Units for 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 IRS,
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.
27
Treatment
of Fund Expenses
Expenses incurred and
deducted by the Fund will generally not be treated as income taxable to
you.
Non-U.S.
Tax Credit
If
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 from
the Fund that are properly reported by the Fund as an interest-related dividend
attributable to certain interest income received by the Fund or as a short-term
capital gain dividend attributable to certain net short-term capital gain income
received by the Fund may not be subject to U.S. federal income taxes, including
withholding taxes when received by certain non-U.S. investors, provided that the
Fund makes certain elections and certain other conditions are met. For tax years
after December 31, 2022, amounts paid to or recognized by a non-U.S. affiliate
that are excluded from tax under the portfolio interest, capital gain dividends,
short-term capital gains or tax-exempt interest dividend exceptions or
applicable treaties, may be taken into consideration in determining whether a
corporation is an “applicable
corporation” subject to a 15% minimum tax on adjusted financial statement
income.
Distributions
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
are not resident in a jurisdiction that has entered into such an agreement with
the U.S. Treasury and (ii) certain other non-U.S. entities that do not provide
certain certifications and information about the entity’s U.S. owners. This
withholding tax is also currently scheduled to apply to the gross proceeds from
the disposition of securities that produce U.S. source interest or
dividends.
However, proposed regulations may eliminate the requirement to withhold on
payments of gross proceeds from dispositions.
It is the
responsibility of the entity through which you hold your shares to determine the
applicable withholding.
Investments
in Certain Non-U.S. Corporations
If
the Fund holds an equity interest in any “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 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 are not 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 the Rule 12b-1 plan, the Fund is authorized to pay an
amount up to 0.25% 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
28
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 July 31, 2027. 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 (“NAV”) is determined as of
the close of regular trading (normally 4:00 p.m., Eastern Time) on each
day
the New York Stock Exchange (“NYSE”) is open for
trading. If the NYSE closes early on a valuation day, the Fund’s NAV
will
be determined as of that time. The Fund’s NAV is calculated by dividing the
value of the net assets of the Fund (i.e., the value
of its total assets less total liabilities) by the total number of outstanding
shares of the Fund, generally rounded to the nearest
cent.
Section
2(a)(41) of the 1940 Act provides that when a market quotation is readily
available for a fund’s portfolio investment, it must be valued at the market
value. Rule 2a-5 under the 1940 Act (“Rule
2a-5”)
defines a readily available market quotation as
“a quoted price (unadjusted) in active markets for identical investments that
the fund can access at the measurement date, provided that a quotation will not
be readily available if it is not reliable.” If a market quotation is not
“readily available,” then the portfolio
investment must be fair valued as determined in good faith by a fund’s board of
trustees.
Rule
2a-5 permits a fund’s board of trustees to designate the fund’s investment
adviser as its “valuation designee” to perform fair value determinations,
subject to certain conditions. Accordingly, the Fund’s Board has designated
First Trust as its valuation designee (the “Valuation
Designee”) pursuant to Rule
2a-5 and has directed the Valuation Designee to perform the functions
required
in Rule 2a-5(a) subject to the requirements of Rule 2a-5(b) on behalf of all
portfolio investments of the Fund, subject to the Board’s oversight. First Trust
has established a pricing committee (the “Pricing
Committee”) to assist in the
administration of
the duties of the Valuation Designee. The Valuation Designee has adopted
valuation procedures for the First Trust Funds (the “Valuation
Procedures”), a brief summary of
which is set forth below.
The
Pricing Committee has identified certain portfolio investments that are
routinely categorized as having a readily available market quotation. The market
value of an investment with a readily available market quotation is typically
determined on the basis of official closing prices or last reported sale prices
or equivalent price, although this can vary based on investment type
and/or
the availability of such prices.
The
Pricing Committee has also identified certain portfolio investments that are
routinely categorized as fair valued investments. In general, for such
investments, the Fund’s accounting agent will obtain all pricing data for use in
valuing such investments from a pricing service provider approved by the Pricing
Committee (each, a “Pricing
Service Provider”), subject to the
oversight of
the Pricing Committee. Pricing Service Providers typically value
non-exchange-traded instruments utilizing a range of market-based inputs and
assumptions. For example, when available, Pricing Service Providers may utilize
inputs such as benchmark yields, reported trades, broker-dealer quotes, spreads,
and transactions for comparable instruments. In pricing certain instruments, a
Pricing Service Provider may consider information about an instrument’s issuer
or market activity. Pricing Service Provider valuations of non-exchange-traded
instruments generally represent the service’s good faith opinion as to what the
holder of an instrument would receive in an orderly transaction for an
institutional round lot position under current market conditions. Certain
exchange-traded options, such as FLEX Options, are typically valued using a
model-based price provided by a Pricing
Service Provider.
Portfolio
investments trading on foreign exchanges or over-the-counter markets that close
prior to the close of the NYSE may be fair valued using a systematic fair
valuation model provided by a Pricing Service Provider. If these foreign
securities meet certain criteria in relation to the valuation model, their
valuation is systematically adjusted to reflect the impact of movement
in the
U.S. market after the close of certain foreign markets.
If
no price is available from a Pricing Service Provider or if the Pricing
Committee has reason to question the accuracy or the reliability of a price
supplied for a portfolio investment or the use of amortized cost, the Pricing
Committee will determine the fair value of such portfolio investment in a manner
that it believes most appropriately reflects the fair value of the portfolio
investment on the valuation date (a “Special
Fair Value Pricing Situation”). In a Special Fair
Value Pricing Situation, the Pricing Committee
will determine a fair value price subject to the process outlined in the
Valuation Procedures and based on a consideration of all
available information to the Pricing Committee at the time of the
determination.
29
Additionally,
for foreign securities, if an extraordinary market event occurs between the time
the last “current” market quotation is available for a security in the Fund’s
portfolio and the time the Fund’s NAV is determined that calls into doubt
whether that earlier market quotation represents fair value at the time the
Fund’s NAV is determined, the Pricing Committee will determine the fair valuation as
set forth in the Valuation Procedures.
Fair
value represents a good faith approximation of the value of a portfolio
investment and is the amount the Fund might reasonably expect to receive from
the current sale of that investment in an arm’s-length transaction. Valuing the
Fund’s investments using fair value pricing will result in prices that may
differ from current market valuations, if any, and that may not be the prices at
which those investments could have been sold during the period in which the
particular fair values were used. While the Valuation Procedures and Valuation
Designee’s processes are intended to result in the Fund’s NAV calculation that
fairly reflects the values as of the time of pricing, the fair value determined
for a portfolio instrument may be materially different from the
value that could be realized upon the sale of that instrument.
Foreign
currencies are translated into U.S. dollars at the exchange rate of such
currencies against the U.S. dollar as provided by a Pricing Service Provider.
All assets denominated in foreign currencies will be converted into U.S. dollars
at the exchange rates in effect at
the time of valuation.
Fund
Service Providers
The Bank of New York
Mellon, 240 Greenwich Street, New York, New York 10286, acts as administrator,
fund accounting agent, transfer agent and custodian for the Fund. Chapman and
Cutler LLP, 320 South Canal Street, Chicago, Illinois 60606,
serves as legal counsel to the Fund. First Trust serves as the fund reporting
agent for the Fund.
Index
Provider
The
Index is compiled by the Index Provider. The Index Provider is not affiliated
with the Fund, First Trust or FTP. The Fund is entitled to use the Index
pursuant to a sublicensing arrangement with First Trust, which in turn has a
licensing agreement with the Index Provider. The Index Provider or its agent
also serves as calculation agent for the Index (the “Index
Calculation Agent”). The
Index Calculation Agent is responsible for the management of the day-to-day
operations of the Index, including distributing the value of the
Index every 15 seconds, and tracking corporate actions.
Disclaimers
First
Trust does not guarantee the accuracy and/or the completeness of the Index or
any data included therein, and First Trust shall have no liability for any
errors, omissions or interruptions therein. First Trust makes no warranty,
express or implied, as to results to be obtained by the Fund, owners of the
shares of the Fund or any other person or entity from the use of the Index or
any data included therein. First Trust makes no express or implied warranties,
and expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the Index or any data included
therein. Without limiting any of the foregoing, in no event shall First Trust
have any liability for any special, punitive, direct, indirect or consequential
damages (including lost profits) arising out of matters relating to the use of
the Index, even if notified of the possibility of such
damages.
S-Network
and S-Network Streaming & Gaming Index are service marks of VettaFi LLC and
have been licensed for use by First Trust Advisors L.P. The Fund is not issued,
sponsored, endorsed, sold or promoted by VettaFi LLC (collectively, “VettaFi”). VettaFi
makes no representation or warranty, express or implied, to the purchasers or
owners of the Fund or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly or the ability of
the Index to track general market performance. VettaFi's only relationship to
the Fund is the licensing of the service marks and the Index, which is
determined, composed and calculated by VettaFi without regard to First Trust
Advisors L.P. or the Fund. VettaFi is not responsible for and has not
participated in the determination of the timing of, prices at, or quantities of
the Fund issued by First Trust Advisors L.P. VettaFi has no obligation or
liability in connection with the issuance, administration, marketing or
trading
of the Fund.
NEITHER
FIRST TRUST ADVISORS L.P., THE FUND NOR VETTAFI LLC (COLLECTIVELY, WITH ITS
AFFILIATES “VETTAFI
LLC”)
GUARANTEE
THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN
AND FIRST TRUST ADVISORS L.P., THE FUND AND VETTAFI LLC SHALL HAVE NO LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. FIRST TRUST ADVISORS L.P.,
THE FUND AND VETTAFI LLC MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS
TO BE OBTAINED BY FIRST TRUST ADVISORS L.P., THE FUND, THE OWNERS OF THE FUND,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED
THEREIN. FIRST TRUST
30
ADVISORS
L.P., THE FUND AND VETTAFI LLC MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL FIRST TRUST ADVISORS L.P., THE
FUND OR VETTAFI LLC HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Premium/Discount
Information
Information showing
the number of days the market price of the Fund's shares was greater (at a
premium) and less (at a discount) than the Fund's net asset value for the most
recently completed year, and the most recently completed calendar quarters
since that year (or life
of the Fund, if shorter), is available
at http://www.ftportfolios.com/Retail/etf/home.aspx.
31
Financial
Highlights
The financial
highlights table is intended to help you understand the Fund's financial
performance for the periods shown. Certain information reflects financial
results for a single share of the Fund. The total returns represent the rate
that an investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). The information for
the periods indicated has been derived from financial statements audited by
Deloitte & Touche LLP, whose report, along with the Fund's financial
statements, is included in the Fund's Form N-CSR dated March 31,
2025 and is incorporated by reference in the Fund's SAI, which is available upon
request.
First
Trust Exchange-Traded Fund VI
Financial
Highlights
For a share outstanding throughout each period
For a share outstanding throughout each period
First
Trust S-Network Streaming & Gaming ETF (BNGE)
|
|
Year
Ended March 31, |
|
Period
Ended
March
31, | ||
|
|
2025 |
2024 |
2023 |
2022(a) | |
|
Net
asset value, beginning of period |
$25.24 |
$21.05 |
$23.28 |
|
$24.46 |
|
Income
from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
0.01
(b) |
0.04
(b) |
0.04 |
|
0.03 |
|
Net
realized and unrealized gain (loss) |
4.04 |
4.34 |
(2.17
) |
|
(1.20
) |
|
Total
from investment operations |
4.05 |
4.38 |
(2.13
) |
|
(1.17
) |
|
Distributions
paid to shareholders from: |
|
|
|
|
|
|
Net
investment income |
— |
(0.17
) |
(0.08
) |
|
(0.00
)(c) |
|
Net
realized gain |
— |
— |
(0.02
) |
|
— |
|
Return of
capital |
— |
(0.02
) |
— |
|
— |
|
Total
distributions |
— |
(0.19
) |
(0.10
) |
|
(0.00
)(c) |
|
Net
asset value, end of period |
$29.29 |
$25.24 |
$21.05 |
|
$23.28 |
|
Total
return(d) |
16.05
% |
20.89
% |
(9.08
)% |
|
(4.81
)% |
|
Ratios
to average net assets/supplemental data: |
|
|
|
|
|
|
Net
assets, end of period (in 000’s) |
$4,393 |
$5,048 |
$4,210 |
|
$3,492 |
|
Ratio of
total expenses to average net assets |
0.70
% |
0.70
% |
0.70
% |
|
0.71
%(e) |
|
Ratio of
net investment income (loss) to average net assets |
0.04
% |
0.20
% |
0.17
% |
|
0.47
%(e) |
|
Portfolio
turnover rate(f) |
31
% |
30
% |
42
% |
|
0
% |
(a)
Inception
date is January 25, 2022, which is consistent with the commencement of
investment operations and is the date the initial creation units were
established.
(b)
Based
on average shares outstanding.
(c)
Amount
represents less than $0.01.
(d)
Total
return is calculated assuming an initial investment made at the net asset value
at the beginning of the period, reinvestment of all distributions at net asset
value during the period, and redemption at net asset value on the last day of
the period. The returns presented do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption or sale of Fund
shares. Total return is calculated for the time period presented and is not
annualized for periods of less than a year.
(e)
Annualized.
(f)
Portfolio
turnover is calculated for the time period presented and is not annualized for
periods of less than a year and does not include securities received or
delivered from processing creations or redemptions and in-kind
transactions.
32
Other
Information
Continuous
Offering
The
Fund issues, 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
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(a)(3) of the Securities Act is not
available in respect of such transactions as a result of Section
24(d) of
the 1940 Act. 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(a)(3)(C) of
the Securities Act would be unable to take advantage
of the prospectus delivery exemption provided by Section 4(a)(3) 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 the
Exchange is satisfied by the
fact that the prospectus is available from the Exchange 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.
FTP,
or its affiliates, or a fund or unit investment trust for which FTP or an
affiliate serves as sponsor or investment advisor, may purchase shares of the
Fund through a broker-dealer or other investors, including in secondary market
transactions, and because FTP or its affiliates may be deemed affiliates of the
Fund, the shares are being registered to permit the resale of these shares from
time to time after any such purchase. The Fund will not receive any of the
proceeds from the resale of such shares.
33
|
First
Trust
Exchange-Traded
Fund VI |
First Trust
S-Network Streaming & Gaming 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 and in Form
N-CSR. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that
significantly impacted the Fund's performance during the last fiscal year.
In Form N-CSR, you
will find the Fund’s annual
and semi-annual financial statements. The Fund's most recent SAI, annual
and semi-annual reports and certain other
information such as
Fund financial statements are available free of charge by calling the Fund at
(800)
621-1675, on the Fund's website at http://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 SAI and 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 online EDGAR database at http://www.sec.gov. You may also request information
regarding the Fund by sending a request (along with a duplication fee) to the
SEC by sending an electronic request to
[email protected].
First Trust
Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(800) 621-1675
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(800) 621-1675
http://www.ftportfolios.com
SEC
File #: 333-182308
811-22717