|
First
Trust
Exchange-Traded
Fund IV |
Prospectus
First Trust North
American Energy Infrastructure Fund
|
Ticker
Symbol: |
EMLP |
|
Exchange: |
NYSE
Arca |
First
Trust North American Energy Infrastructure Fund (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 specified blocks of
shares called "Creation
Units."
The
Fund is a series of First Trust Exchange-Traded Fund IV (the “Trust”) and an actively
managed exchange-traded 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.
March 2,
2026
NOT
FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
Summary
Information
(fees paid directly from your investment)
|
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
(expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees(1) |
|
|
Distribution
and Service (12b-1) Fees |
|
|
Other
Expenses |
|
|
Acquired
Fund Fees and Expenses |
|
|
Total Annual
Fund Operating Expenses |
|
(1)
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
3
Principal
Risks
4
5
6
7
8
9
Calendar Year Total Returns as of 12/31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Since
Inception |
Inception
Date |
|
Return Before
Taxes |
|
|
|
|
|
|
Return After
Taxes on Distributions |
|
|
|
|
|
|
Return After
Taxes on Distributions and Sale of
Fund
Shares |
|
|
|
|
|
|
EMLP Blended
Benchmark(1) (reflects no
deduction
for fees, expenses or taxes) |
|
|
|
|
|
|
S&P
500® Index
(reflects no deduction for fees,
expenses or
taxes) |
|
|
|
|
|
(1)
Management
Investment
Advisor
First Trust Advisors L.P.
(“First
Trust” or the
“Advisor”)
10
Investment
Sub-Advisor
Energy Income
Partners, LLC (“Energy
Income Partners” or the “Sub-Advisor”)
Portfolio
Managers
The following persons
serve as portfolio managers of the Fund:
●
James J. Murchie,
Co-Founder, Chief Executive Officer, Co-Portfolio Manager and Principal of
Energy Income Partners
●
Eva Pao, Co-Founder,
Co-Portfolio Manager and Principal of Energy Income Partners
●
John K. Tysseland,
Co-Portfolio Manager and Principal of Energy Income Partners
●
Saul Ballesteros, Co-Portfolio
Manager and Principal of Energy Income Partners
The portfolio
managers are primarily and jointly responsible for the day-to-day management of
the Fund. Each portfolio manager has served as a part of the portfolio
management team of the Fund since 2012, except for John K. Tysseland who has
served as a member of the portfolio management team of the Fund since
2016 and Saul
Ballesteros who has served as a part of the portfolio management team of the
Fund since 2025.
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.
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.
11
Additional
Information on the Fund's Investment Objective and Strategies
The Fund is a series
of First Trust Exchange-Traded Fund IV and is regulated as an “investment
company” under the 1940
Act. The Fund is actively
managed and does not seek to track the performance of an index. The Fund’s
investment objective is fundamental and may not be changed without approval by
the holders of a majority of the outstanding voting securities of the Fund.
Unless an investment policy is identified as being fundamental, all investment
policies included in this prospectus and the Fund's Statement of Additional
Information (“SAI”) are non-fundamental and may be
changed by the Board of Trustees of the Trust (the
“Board”) without shareholder approval. If
there is a material change to the Fund’s principal investment strategies, you
should consider whether the Fund remains an appropriate investment for you.
There is no guarantee that the Fund will achieve its investment
objective. 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 has adopted
a non-fundamental investment policy pursuant to Rule 35d-1 under the 1940 Act
(the “Name
Policy”), whereby the Fund,
under normal market conditions, invests at least 80% of its net assets
(including investment borrowings) in equity securities of companies deemed by
the Sub-Advisor to be engaged in the energy infrastructure sector. The Name
Policy may be changed by
the Board of Trustees without shareholder approval upon 60 days’ prior written
notice.
Additional
Information on the Fund’s Strategy
The
Sub-Advisor believes that a professionally managed portfolio of higher dividend
paying energy infrastructure companies in non-cyclical segments offers an
attractive balance of income and growth. The Sub-Advisor’s priority is to focus
on steady fee-for-service income and will limit the cyclical energy exposure of
the portfolio in order to reduce the volatility of returns. The Sub-Advisor
believes the use of rigorous investment research and analytical tools along with
conservative portfolio construction provides
a value added service to the individual investor making an investment in these
asset classes.
The
Sub-Advisor believes that successful investing in the energy infrastructure
industry requires strict capital spending discipline because the industry is
capital intensive, mature and has low rates of overall growth. The Sub-Advisor
believes there is a high correlation between rates of return and the portion of
cash flow reinvested in the business—the
lower the level of reinvestment, the
higher the return. Capital spending discipline can result from careful prudent
management or an agreement with shareholders to pay out most available free cash
flow. The Sub-Advisor believes that companies paying out a large portion of
their available free cash flow in the form of monthly or quarterly distributions
or dividends—such
as certain pipeline companies and
utilities in the U.S. and Canada—have
a built-in capital spending discipline and provide an attractive investment
universe from
which to construct a portfolio. While growth opportunities are still available
to these companies, they must go to the capital markets and justify to
yield-sensitive shareholders the issuance of more equity and debt in order to
fund those opportunities. The Sub-Advisor believes that this transparency tends
to discourage acquisitions and new construction that would be dilutive to the
dividend paying capability on existing shares and tends to encourage
expenditures that are accretive.
A
high-payout ratio, however, brings with it an income obligation that the
Sub-Advisor believes is matched by an expectation on the part of the
shareholders that such dividends will be steady. Retail investors that make up
the bulk of the shareholder base of these securities have punished the share
prices of MLPs and similar securities when dividends or distributions have been
cut or eliminated. The Sub-Advisor believes that the assets that best support a
high-payout ratio are those with steady, fee-for-service businesses with
relatively low sustaining capital obligations. In the energy infrastructure
industry, assets such as interstate pipelines, intrastate pipelines with
long-term contracts, power generation assets, storage and terminal facilities
with long-term contracts and regulated power transmission and distribution
assets are the types of assets that fit best. By contrast, other areas of the
energy industry such as oil and gas exploration, development and production are
less well suited because the cash flows are cyclical in nature, being driven by
commodity prices, and because oil and gas assets are wasting assets, while the
dividend obligation is perpetual.
Unlike
oil and gas exploration, development and production and petroleum refining, the
energy infrastructure industry is characterized by non-cyclical fee-for-service
revenues. Also, unlike the other segments of the energy industry, the sustaining
capital requirements for pipelines, storage and other infrastructure is low. The
Sub-Advisor believes that these two characteristics make energy infrastructure
assets a good match for investors who desire steady income that has the ability
to
grow.
Much
of the pipeline and storage infrastructure currently owned by energy
infrastructure companies were built many years ago by the major oil companies
and pipeline and power utilities. Over the years, these assets have been sold
off to fund projects with higher risk such as oil drilling, unregulated power
generation or energy trading. The result is that the legacy assets, many
of which
are natural monopolies, can now be owned as pure plays in the energy
infrastructure asset classes.
12
As
oil and gas production in the U.S. continues to rise, new technologies have made
long known resources economic, even at lower prices. The resulting higher
margins for oil and gas drilling have made the oil and gas production companies
more willing to guarantee solid returns for long-term contracts to pipeline
owners as an incentive to add capacity so they can deliver their oil and gas to
market more quickly. In essence, energy infrastructure companies have an
increased ability to “lock-in” the attractive
economics of today’s energy industry.
The
Fund may invest in equity securities of MLPs without limit, however, in order to
comply with applicable tax diversification rules, the Fund may have to limit the
percentage of its nets assets invested in MLPs on a periodic basis. The
Sub-Advisor believes that this investment opportunity is difficult for many
large investors to take advantage of, which has left these securities largely in
the hands of retail investors. Non-taxable investors, such as pension funds and
endowments, have not historically owned significant portions of these securities
because MLPs can generate a substantial amount of “unrelated business taxable
income,” or UBTI, which can be disadvantageous to such institutions. In
addition, for tax years beginning on or before October 22, 2004, MLPs
represented non-qualifying income for mutual funds.
The
Sub-Advisor has many years of experience investing in the energy sector. The
Sub-Advisor believes that investment success in the energy infrastructure
industry requires a working knowledge of the entire energy industry. In essence,
it is the businesses the pipelines connect to, much more than the pipe itself,
that determines financial success. That means knowledge of the oil and gas
segment, refining and marketing, petrochemicals and natural gas processing and
storage. It also means understanding price and cost competitiveness of competing
fuels such as coal and nuclear as well as the impact of imports and global
markets in the North American
energy industry.
In
addition, the Sub-Advisor believes that the attractive characteristics of the
energy infrastructure business can be materially enhanced by a rigorous
application of investment research and portfolio construction tools. There is
generally less research coverage of these companies than in other sectors of
comparable size whose securities are owned by institutional investors. The
Sub-Advisor believes this creates an opportunity to outperform the sector using
such investment research and portfolio construction tools. Since the companies
in this asset class are affected by virtually every phase of the energy business
(even if they are not directly invested in every phase), the Sub-Advisor
believes it is necessary to have a strong working knowledge of the business
including oil and gas production and gathering, transportation, refining and
marketing, gas liquids processing and fractionation,
petrochemical demand and cost structure as well as the regulatory framework that
regulates the industry.
Fund
Investments
Principal
Investments
Equity
Securities
Under
normal market conditions, the Fund will invest at least 80% of its net assets
(including investment borrowings) in equity securities of companies deemed by
the Sub-Advisor to be engaged in the energy infrastructure sector. Equity securities
include common
stocks; preferred securities; warrants to purchase common stocks or preferred
securities; securities convertible into common stocks or preferred securities;
master limited partnership ("MLP") units discussed
below and other securities with equity characteristics.
If
the Fund’s investment in qualifying MLPs exceeds 25% of the value of the Fund’s
total assets at the end of any quarter in which the Fund is required to test its
diversification, the Fund may not qualify as a regulated investment company for
federal income tax purposes
unless the Fund takes corrective measures within 30 days of the end of the
quarter.
Master
Limited Partnerships
MLPs
are limited partnerships whose shares (or units) are listed and traded on a U.S.
securities exchange, just like common stock. To qualify as an MLP, a partnership
must receive at least 90% of its income from qualifying sources such as natural
resource activities. Natural resource activities include the exploration,
development, mining, production, processing, refining, transportation, storage
and marketing of mineral or natural resources. MLPs generally have two classes
of owners, the general partner and limited partners. The general partner, which
is generally a major energy company, investment fund or the management of the
MLP, typically controls the MLP through a 2% general partner equity interest in
the MLP plus common units and subordinated units. Limited partners own the
remainder of the partnership, through ownership of common units, and have a limited
role in the partnership’s operations and management.
13
MLPs
are typically structured such that common units have first priority to receive
quarterly cash distributions up to an established minimum quarterly dividend
(“MQD”). Common units also
accrue arrearages in distributions to the extent the MQD is
not paid. Once common units have been paid, subordinated units receive
distributions of up to the MQD, but subordinated units do not accrue arrearages.
Distributable cash in excess of the MQD paid to both common and subordinated
units is distributed to both common and subordinated units generally on a pro
rata basis. The general partner is also eligible to receive incentive
distributions if the general partner operates the business in a manner which
maximizes value to unit holders. As the general partner increases cash
distributions to the limited partners, the general partner receives an
increasingly higher percentage of the incremental cash distributions. A common
arrangement provides that the general partner can reach a tier where the general
partner is receiving 50% of every incremental dollar paid to common and
subordinated unit holders. By providing for incentive distributions the general
partner is encouraged to streamline costs and acquire assets in order to grow
the partnership, increase the partnership’s cash flow, and raise the quarterly
cash distribution in order to reach higher tiers. Such results benefit
all security holders of the MLP.
The
Fund may invest in equity securities of MLPs without limit, however, in order to
comply with applicable tax diversification rules, the Fund may have to limit the
percentage of its nets assets invested in MLPs on a periodic basis. As of the
date of this prospectus, this limit is 25% of the Fund’s assets on a quarterly
basis. The Fund may not qualify as a regulated investment company for federal
income tax purposes unless the Fund takes corrective measures within 30 days of
the end of the quarter.
Non-U.S.
Investments
The
Fund may invest in U.S. dollar-denominated depositary receipts, U.S.
dollar-denominated foreign securities and non-U.S. dollar-denominated foreign
securities. The Fund’s investments may include American Depositary Receipts
(“ADRs”) and Global
Depositary Receipts (“GDRs”).
The
Fund may invest in non-U.S. securities, which may include securities denominated
in U.S. dollars or in non-U.S. currencies. Because evidences of ownership of
such securities usually are held outside the United States, the Fund would be
subject to additional risks if it invested in non-U.S. securities, which include
possible adverse political and economic developments, seizure or nationalization
of foreign deposits and adoption of governmental restrictions which might
adversely affect or restrict the payment of distributions on the non-U.S.
securities to investors located outside the country of the issuer, whether from
currency blockage or otherwise. Since non-U.S. securities may be purchased with
and payable in foreign currencies, the value of these assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations.
Non-Principal
Investments
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
Advisor believes 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.
Derivatives
The
Fund may also use derivative investments such as bond index and equity index
futures, options, futures, forward contracts, swaps and other derivative
instruments to seek to enhance return, to hedge some of the risks of its
investments in securities (including interest rate and market risks), as a
substitute for a position in the underlying asset, to reduce transaction costs,
to maintain full market exposure (which means to adjust the characteristics of
its investments to more closely approximate those of the markets in which it
invests), to manage cash flows, to limit exposure to losses due to changes to
non-U.S. currency exchange rates or to preserve capital. The Fund may engage in
currency hedging transactions, including buying or selling options or entering into
other transactions including futures, forward contracts, swaps and other
derivatives transactions.
To
the extent the Fund enters into derivatives transactions, it will do so pursuant
to Rule 18f-4 under the 1940 Act. Rule 18f-4 requires the Fund to implement
certain policies and procedures designed to manage its derivatives risks,
dependent upon the Fund’s level
of exposure to derivative instruments.
14
Investment
Companies
The
Fund may invest in securities of other investment companies, including
exchange-traded funds (“ETFs”), that invest
primarily
in securities of the types in which the Fund may invest directly. As a
shareholder in an investment company, the Fund bears its ratable share of such
investment company’s expenses and would remain subject to payment of the
investment company’s advisory and administrative fees with respect to assets so
invested. Shareholders would therefore be subject to duplicative expenses to the
extent the Fund invests in other investment companies. In addition, the Fund
will incur brokerage costs when purchasing and selling shares of ETFs and
closed-end investment companies. Securities of other investment companies may be
leveraged, in which case the value and/or yield of such securities will tend to
be more volatile than securities of unleveraged
securities.
The
Fund's ability to invest in other investment companies is limited 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) and 12(d)(1)(G). The Fund may satisfy
the Name Policy by investing in investment companies and other pooled investment
vehicles that are subject to a comparable name policy and invest in the types of
securities in which the Fund may invest
directly.
Illiquid
Investments
The
Fund may invest up to 15% of its net assets in securities 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.
Covered
Call Options
The
Fund may write (or sell) covered call options on up to 30% of its net assets. A
call option on securities written by the Fund would obligate the Fund to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. A put option on
securities written by the Fund would obligate the Fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. Options on securities indices
are similar to options on securities, except that the exercise of securities
index options requires cash settlement payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
Writing covered call options may deprive the Fund of the opportunity to fully
profit from an increase in the market price of the securities in its portfolio.
Writing covered put options may deprive the Fund of the opportunity to fully
profit from a decrease in the market price of the securities to be acquired for
its portfolio. If an option written by the Fund expires unexercised, the Fund
realizes on the expiration date a capital gain equal to the premium received by
the Fund at the time the option was written. If an option purchased by the Fund
expires unexercised, the Fund realizes a capital loss equal to the premium paid
at the time the option expires. Prior to the earlier of exercise or expiration,
an exchange-traded option may be closed out by an offsetting purchase or sale of
an option of the same series (type, underlying security, exercise price, and
expiration). There can be no assurance, however, that a closing purchase or sale
transaction can be effected when the Fund desires. The Fund may sell put or call
options it has previously purchased, which could result in a net gain or loss
depending on whether the amount realized on the sale is more or less than the
premium and other transaction costs paid on the put or call
option purchased. See “Federal Income Tax Matters.”
All
call and put options written by the Fund are covered. A written call option or
put option may be covered by (i) maintaining cash or liquid securities in a
segregated account with a value at least equal to the Fund’s obligation under
the option; (ii) entering into an offsetting forward commitment; and/or (iii)
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the Fund’s net exposure on its written
option position. A written call option on securities is typically covered by
maintaining the securities that are subject to the option in a segregated
account. The Fund may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index.
The
Fund may terminate its obligations under an exchange traded call or put option
by purchasing an option identical to the one it has written. Obligations under
OTC options may be terminated only by entering into an offsetting transaction
with the counterparty to such
option. Such purchases are referred to as “closing purchase
transactions.”
15
The
Fund would normally purchase call options in anticipation of an increase, or put
options in anticipation of a decrease (“protective puts”), in the market value
of securities of the type in which it may invest. The Fund may also sell call
and put options to close out
its purchased options.
The
purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. The Fund would ordinarily realize a gain on the purchase of a
call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs;
otherwise the Fund would realize either no gain or a loss on the purchase of the
call option.
The
purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities at a specified price during the option
period. The purchase of protective puts is designed to offset or hedge against a
decline in the market value of the Fund’s portfolio securities. Put options may
also be purchased by the Fund for the purpose of affirmatively benefiting from a
decline in the price of securities which it does not own. The Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying securities decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the purchase of
put options may be offset by countervailing changes in the value of the Fund’s
portfolio securities.
The
Fund’s options transactions will be subject to limitations established by each
of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Sub-Advisor. An exchange, board of trade or other trading facility may order
the liquidation of positions found to be in excess of these limits, and it may
impose
certain other sanctions.
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 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
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.
CANADA
RISK.
The Fund invests significantly in the securities of Canadian issuers. The
Canadian economy is heavily dependent on
the demand for natural resources and agricultural products. Canada is a major
producer of commodities such as forest products, metals, agricultural products,
and energy related products like oil, gas, and hydroelectricity. Accordingly, a
change in the supply and demand of these resources, both domestically and
internationally, can have a significant effect on Canadian market performance.
Canada is a top producer of zinc and uranium and a global source of many other
natural resources, such as gold, nickel, aluminum, and lead. Conditions that
weaken demand for such products worldwide could have a negative impact on the
Canadian economy as a whole. The Canadian economy is heavily dependent on
relationships with certain key trading partners. The United States is Canada’s
largest trading and investment partner, and the Canadian economy is
significantly affected by developments in the U.S. economy. Any downturn in U.S.
economic activity is likely to have an adverse impact on the Canadian
economy.
16
CURRENCY
RISK.
The Fund may invest 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, the Federal
Reserve and certain foreign central banks have raised interest rates; however,
the Federal Reserve has
begun to lower interest
rates and may continue to do so. U.S. regulators 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. 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 high interest rates, declining
valuations and elevated 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
17
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, information security and related
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
may not be fully 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 or destroying data, or causing
operational disruption (e.g., through denial-of-service attacks to
make network services unavailable to intended users). 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). Emerging threats like ransomware or
zero-day exploits could
also cause disruptions to Fund operations. The use of cloud-based software or data storage by the
Fund, the Advisor, or
any of the Fund’s service providers may
exacerbate these risks. Additionally, geopolitical tension may increase
the scale and sophistication of deliberate attacks, particularly those from nation states or from entities with nation state
backing. Unintentional events, such as power outages, natural disasters,
equipment malfunctions,
processing errors or market
events that occur at a pace that overloads the information
and technology systems relied upon by the Fund or its service
providers, may also
disrupt the Fund’s business operations or impact critical data.
Cyber security incidents may also trigger
Fund obligations under data privacy laws, potentially increasing notification
and compliance burdens.
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, governmental and other regulatory authorities, exchanges and other
financial market operators, banks, brokers, dealers, insurance companies, other
financial institutions or other parties, 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. Further, errors, misconduct, or compromise of accounts of employees of
the Fund or its third-party service providers can also create material
cybersecurity risks. Cyber incidents may render records of the Fund, including
records relating to its assets and transactions, shareholder ownership of Fund
shares, and other data integral to the Fund’s functioning, inaccessible,
inaccurate or incomplete. Artificial intelligence (“AI”) and machine learning technologies
used by the Fund, the Advisor or third-party service providers may allow the
unintended
introduction of vulnerabilities into infrastructures and applications, which
could exacerbate these risks or result in cyber incidents that implicate
personal data. The Fund and its shareholders could be negatively impacted as a
result of these cyber risks associated with AI technologies. Substantial costs
may be incurred by the Fund in order to resolve or prevent cyber incidents in the
future.
The regulatory
climate governing cyber security and data protection is developing quickly and
may vary considerably across jurisdictions. Regulators continue to develop new
rules and standards related to cyber security and data protection. Compliance
with evolving regulations can be demanding and costly, requiring substantial
resources to monitor and implement required changes.
While the Fund has
established business continuity plans in the event of, and risk management
systems to prevent, such cyber incidents, there are inherent limitations in such
plans and systems, including the possibility that certain risks have not been
identified, that such plans and systems may not completely eliminate the
occurrence or mitigate the effects of cyber incidents, and that prevention and
remediation efforts will not be successful. Furthermore, the Fund cannot control
the cyber security
18
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.
DIVIDENDS
RISK.
The Fund invests in dividend-paying securities. The Fund’s investment in
dividend-paying securities could cause
the Fund to underperform similar funds that invest without consideration of an
issuer’s track record of paying dividends. Companies that issue
dividend-yielding securities are not required to continue to pay dividends on
such securities. Therefore, there is the possibility that such companies could
reduce or eliminate the payment of dividends in the future especially if the
companies are facing
an economic downturn, which could negatively affect the Fund’s
performance.
ENERGY
INFRASTRUCTURE COMPANIES RISK. The Fund invests significantly in
energy infrastructure companies. Energy infrastructure
companies are subject to risks specific to the energy and energy-related
industries. This includes but is not limited to: fluctuations in commodity
prices impacting the volume of energy commodities transported, processed, stored
or distributed; reductions in volumes of natural gas or other energy commodities
being available for transporting, processing, storing or distributing; slowdowns
in new construction and acquisitions limiting growth potential; reduced demand
for oil, natural gas and petroleum products, particularly for a sustained period
of time; depletion of natural gas reserves or other commodities; rising interest
rates resulting in higher costs of capital, increased operating costs and an
inability to execute acquisitions or expansion projects in a cost-effective manner; extreme weather
events and environmental hazards; and threats of attack by
terrorists on energy assets. In addition, energy infrastructure companies are
subject to significant federal, state and local government regulation in
virtually every aspect of their operations, including how facilities are
constructed, maintained and operated, environmental and safety controls, and the
prices they may charge for products and services. Energy infrastructure
companies may also face counterparty risk such that long term contracts may be
declared void if the counterparty to those contracts enters into bankruptcy
proceedings. Energy infrastructure companies that own interstate pipelines are
subject to regulation by U.S. Federal Energy Regulatory Commission
("FERC") with respect to the tariff rates
they may charge for transportation
services. An adverse determination by FERC with respect to the tariff rates of
such a company could have a material adverse effect on its business, financial
condition, results of operations and cash flows and its ability to pay cash
distributions or dividends. Various governmental authorities have the power to
enforce compliance with these regulations and the permits issued under them and
violators are subject to administrative, civil and criminal penalties, including
civil fines, injunctions or both. Stricter laws, regulations or enforcement
policies could be enacted in the future which would likely increase compliance
costs and may adversely affect the financial performance of energy
infrastructure companies. Certain energy infrastructure companies in the utility
industry are subject to the imposition of rate caps, increased competition due
to deregulation, the difficulty in obtaining an adequate return on invested
capital or in financing large construction projects, the limitations on
operations and increased costs and delays attributable to environmental
considerations, and the capital market’s ability to absorb utility debt. In
addition, taxes, government regulation, international politics, price and supply
fluctuations, volatile interest rates and energy conservation may cause
difficulties for these companies. Such issuers have been experiencing certain of
these problems to varying degrees. Certain energy infrastructure companies are
involved in the production of electrical equipment and components. General risks
of these companies include the general state of the economy, exchange rates,
commodity prices, intense competition, consolidation, domestic and international
politics, government regulation, import controls, excess capacity, consumer
demand and spending trends. In addition, the companies may also be significantly
affected by overall capital spending levels, economic cycles, rapid
technological changes, delays in modernization, labor relations, environmental liabilities,
governmental and product liability and e-commerce
initiatives.
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
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
19
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.
INFLATION
RISK.
Inflation risk is the risk that the value of assets or income from investments
will be less in the future as inflation
decreases the value of money. As inflation increases, the present value of the
Fund’s assets and distributions may decline.This risk is more prevalent with
respect to debt securities held by the Fund. Inflation creates uncertainty over
the future real value (after inflation) of an investment. Inflation rates may
change frequently and drastically as a result of various factors, including
unexpected shifts in the domestic or global economy, and the Fund’s investments
may not keep pace with inflation, which may result in
losses to Fund investors.
LARGE
CAPITALIZATION COMPANIES RISK. Large capitalization
companies may grow at a slower rate and be less able to adapt
to changing market conditions than smaller capitalization companies. Thus, the
return on investment in securities of large capitalization companies may be less
than the return on investment in securities of small and/or mid capitalization
companies. The performance of large capitalization companies also tends to trail
the overall market during different market cycles.
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.
MANAGEMENT
RISK.
The Fund is subject to management risk because it is an actively managed
portfolio. In managing the Fund’s
investment portfolio, the portfolio managers will apply investment techniques
and risk analyses that may not produce the desired result. There can be no
guarantee that the Fund will meet its investment objective, meet relevant
benchmarks or perform as well as
other funds with similar objectives.
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 makers. 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.
20
MLP
RISK.
Investments in securities of MLPs involve certain risks different from or in
addition to the risks of investing in common stocks,
including for example risks related to the limited ability of investors to
control an MLP and to vote on matters affecting the MLP, risks related to
potential conflicts of interest between an MLP and the MLP's general partner,
the risk that an MLP will generate insufficient cash flow to meet its current
operating requirements, the risk that an MLP will issue additional securities or
engage in other transactions that will have the effect of diluting the interests
of existing investors, and risks related to the general partner's right to
require investors to sell their common units at an undesirable time or price.
MLP common units can be affected by macro-economic and other factors affecting
the stock market in general, changes or anticipated changes in interest rates,
investor sentiment towards MLPs or the energy sector generally, changes in a
particular issuer's financial condition, or unfavorable or unanticipated poor
performance of a particular issuer (in the case of MLPs, generally measured in
terms of distributable cash flow). Prices of common units of individual MLPs
also can be affected by other factors unique to the partnership or company,
including earnings power and coverage ratios. Certain MLP securities may trade
in relatively low volumes due to their smaller capitalizations or other factors,
which may cause them to have a high degree of price volatility and lack
sufficient market liquidity to enable the Fund to effect a sale at an
advantageous time or price. Because many MLPs pay out most of their operating
cash flows, the MLPs rely on capital markets for access to equity and debt
financing to fund growth through organization. If market conditions limit an
MLPs access to capital markets, the MLPs growth prospects could diminish and its
costs of capital increase, which would decrease the value of the common units
held by the Fund. MLPs are now a higher cost way of financing these industries;
the reverse of the conditions that led to the growth of the asset class in the
early part of the last decade. As a result, the industry is witnessing the
consolidation or simplification of corporate structures where the MLP sleeve of
capital is being eliminated because it no longer reduces a company’s cost of
equity financing. Even for MLPs that have avoided exposure to commodity prices
and have been successful in growing their dividends, the cost of the MLP
structure has risen due to growing incentive payments to the general partner.
These incentives increase with per share dividend growth at the limited
partnership level and are due on newly issued shares, as well as older shares
that have experienced the growth. As a result, the more successful the MLP is in
growing its dividends, the closer it gets to paying incentives to the
parent/general partner that are more onerous than a tax at the corporate level.
The lower the corporate tax rate, the sooner this threshold is crossed. In many
cases, MLPs are merely a part of the corporate finance structure of a company.
MLPs are
created when they lower the cost of equity financing and are no longer used when
they do not.
MLP
TAX RISK. The Fund’s ability
to meet its investment objective relies in part upon the level of taxable income
it receives from
the MLPs in which it invests, a factor over which the Fund has no control. The
benefit the Fund derives from its investment in MLPs is largely dependent on
their being treated as partnerships for U.S. federal income tax purposes.
Partnerships do not pay U.S. federal income tax at the partnership level.
Rather, each partner is allocated a share of the partnership’s income, gains,
losses, deductions and expenses. A change in current tax law or a change in the
underlying business mix of a given MLP could result in an MLP being treated as a
corporation for U.S. federal income tax purposes, which would result in the MLP
being required to pay U.S. federal income tax (as well as state and local income
taxes) on its taxable income at the applicable corporate tax rate. This would
have the effect of reducing the amount of cash available for distribution by an
MLP and could result in a significant reduction in the value of the Fund’s
investment. The classification of an MLP as a corporation for U. S. federal
income tax purposes would have the effect of reducing the amount of cash
available for distribution by the MLP and causing any such distributions
received by the Fund to be taxed as dividend income to the extent of the MLP’s
current or accumulated earnings and profits. To the extent a distribution
received by the Fund from an MLP is treated as a return of capital, the Fund’s
adjusted tax basis in the interests of the MLP may be reduced, which will result
in an increase in the amount of income or gain (or decrease in the amount of
loss) that will be recognized by the Fund for tax purposes upon the sale of any
such interests or upon subsequent distributions in respect of such interests.
Furthermore, any return of capital distribution received from an MLP may require
the Fund to restate the character of its distributions and amend any shareholder
tax reporting previously issued.
See "Deferred Tax Liability Risk."
MONEY
MARKET/SHORT-TERM SECURITIES RISK. To the extent that
the Fund invests in money market or short-term securities,
the Fund may be subject to certain risks associated with such investments. An
investment in a money market fund or short-term securities is not a bank deposit
and is not insured or guaranteed by any bank, the Federal Deposit Insurance
Corporation or any other government agency. It is possible for the Fund to lose
money by investing in money market funds. A money market fund may not achieve
its investment objective. Changes in government regulations may affect the value
of an
investment in a money market fund.
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
21
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. The Fund may invest
in non-U.S. securities. 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. These errors
or failures may adversely affect the Fund’s operations, including its
ability to execute its investment process, calculate or disseminate its NAV or
intraday indicative optimized portfolio value in a timely manner, and process
creations or redemptions. The Fund relies on third-parties for
a range of services, including custody, valuation, administration, transfer
services, securities lending and accounting, among many others. 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.
The Fund, the
Advisor and the Fund’s service providers may utilize AI technologies, including
machine learning models and generative AI, to improve operational efficiency and
in connection with research, among other purposes. The Fund and the Advisor have
little control over the use of AI in third-party products or services. The use
of AI introduces numerous potential challenges and the use of AI can lead to
reputational damage, legal liabilities, and competitive disadvantages, as well
as negatively impact business operations, which may occur with or without
mismanagement in the use of the AI. AI requires the collection and processing of
substantial amounts of data, which poses risks of data inaccuracies,
incompleteness, and inherent biases, and which can degrade the technology’s
effectiveness and reliability. Such data can include proprietary information,
the use of which by AI may be unauthorized and subject to potential liability.
AI also presents the risk of “misalignment.” This is the scenario where AI’s behavior
becomes purposefully adversarial to the goals of the user.
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.
SIGNIFICANT
EXPOSURE RISK. 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 that affected a
particular asset class, region or industry 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 volatility and market risk than a fund that is more broadly
diversified.
22
SMALLER
COMPANIES RISK. The Fund invests in
the securities of small and/or mid capitalization companies. 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. 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.
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.
UTILITY
COMPANIES RISK. The Fund invests
significantly in utility companies. Utility companies include companies
producing or
providing gas, electricity or water. The risks inherent in the utility sector
include a variety of factors that may adversely affect the business or
operations of utility companies, including: high interest costs associated with
capital construction and improvement programs; difficulty in raising adequate
capital on reasonable terms in periods of high inflation and unsettled capital
markets; governmental regulation of rates that the issuer can charge to
customers; costs associated with compliance with, and adjusting to changes to,
environmental and other regulations; counterparty risk; effects of economic
slowdowns and surplus capacity; increased competition from other providers of
utility services; costs associated with the reduced availability of certain
types of fuel, occasionally reduced availability and high costs of natural gas
for resale, and the effects of energy conservation policies. Some utility
companies also face risks associated with the effects of a national energy
policy and lengthy delays, and greatly increased costs and other problems,
associated with the design, construction, licensing, regulation and operation of
nuclear facilities for electric generation, including, among other
considerations: the problems associated with the use of radioactive materials
and the disposal of radioactive wastes; technological innovations that may
render existing plants, equipment or products obsolete; difficulty in obtaining
regulatory approval of new technologies; potential impacts of terrorist
activities on the utility industry and its customers; and the impact of natural
or man-made disasters. Utility companies may also be subject to regulation by
various governmental authorities and may be affected by the imposition of
special tariffs and changes in tax laws, regulatory policies and accounting
standards. Deregulation is subjecting utility companies to greater competition
and may adversely affect profitability. As deregulation allows utility companies
to diversify outside of their original geographic regions and their traditional
lines of business, utility companies may engage in riskier ventures. There is no
assurance that regulatory authorities will, in the future, grant rate increases,
or that such increases will be adequate to permit
the payment of dividends on stocks issued by a utility
company.
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.
23
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.
COVERED
CALL STRATEGY RISK. The writer of a
covered call option forgoes any profit from increases in the market value
of
the underlying security covering the call option above the sum of the premium
and the strike price of the call but retains the risk of loss if the underlying
security declines in value. The premiums received from the options may not be
sufficient to offset any losses sustained on the underlying stocks over time.
The Fund will have no control over the exercise of the option by the option
holder and may lose the benefit from any capital appreciation on the underlying
security. A number of factors may influence the option holder’s decision to
exercise the option, including the value of the underlying security, price
volatility, dividend yield and interest rates. To the extent that these factors
increase the value of the call option, the option holder is more likely to
exercise the option, which may negatively affect the Fund.
DEFERRED
TAX LIABILITY RISK. Cash
distributions from an MLP to the Fund that exceed the Fund’s allocable share of
the MLP’s taxable income
are considered return of capital that reduce the Fund's adjusted tax basis in the Fund's
MLP equity securities. Such
distributions are not ordinarily subject to tax at the time of distribution
unless the distributions exceed the Fund’s adjusted tax basis in the Fund’s MLP
equity securities. The reductions in the Fund's adjusted tax basis in the MLP will
increase the amount
of gain (or decrease the amount of loss) recognized by the Fund on a subsequent
sale of the MLP equity securities. The Fund will accrue deferred income taxes
for any future tax liability associated with: (i) that portion of MLP
distributions considered to be a tax-deferred return of capital; and (ii)
capital appreciation of its investments. Upon the sale of an MLP security, the
Fund may be liable for previously deferred taxes. The Fund’s accrued deferred
tax liability will be reflected each day in the Fund's net asset value (“NAV”). Increases in deferred tax
liability will decrease NAV. Conversely, decreases in deferred liability
will increase NAV. The Fund will rely to some extent on information provided by
the MLPs, which is not necessarily timely, to estimate deferred tax liability
for purposes of financial statement reporting and determining the NAV. From time
to time, the Fund will modify the estimates or assumptions regarding the Fund’s
deferred tax liability as new information becomes available. The
Fund's estimates
regarding its deferred tax liability are made in good faith; however, the
daily
estimate of the Fund's
deferred tax liability used to calculate the Fund’s NAV could vary significantly
from the Fund's actual tax
liability. The Fund will generally compute deferred income taxes based on the
federal income tax rate applicable to corporations and an assumed rate
attributable to state taxes.
DEPENDENCE
ON KEY PERSONNEL RISK. The Sub-Advisor is
dependent upon the experience and expertise of the Fund’s portfolio
managers in providing advisory services with respect to the Fund’s investments.
If the Sub-Advisor were to lose the services of any of these portfolio managers,
its ability to service the Fund could be adversely affected. There can be no
assurance that a suitable replacement could be found for any of the portfolio
managers in the event of their death, resignation, retirement or inability to act
on behalf of the Sub-Advisor.
24
DEPOSITARY
RECEIPTS RISK. The Fund invests in
depositary receipts. 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.
DERIVATIVES
RISK.
The use of derivative instruments involves risks different from, or possibly
greater than, the risks associated with
investing directly in securities and other traditional investments. These risks
include or may include: (i) the risk that the
value
of the underlying assets may go up or down; (ii) the risk that the
counterparty to a derivative transaction may not fulfill its
contractual obligations; (iii) the risk of
mispricing or improper valuation of a derivative; (iv) the risk that changes in
the value
of the derivative may not correlate perfectly with the underlying asset;
(v) the
risk that a derivative instrument cannot be
sold, closed out or replaced quickly at or very close to its fundamental value;
(vi) the
risk of loss caused by the unenforceability of a
party’s obligations under the derivative; and (vii) the risk that a
disruption in the financial markets will cause difficulties for
all market participants. Derivative prices are highly volatile and may fluctuate
substantially during a short period of time. Such prices are influenced by
numerous factors that affect the markets, including, but not limited to:
changing supply and demand relationships; government programs and policies;
national and international political and economic events, changes in interest
rates, inflation and deflation and changes in supply and demand relationships.
Trading derivative instruments involves risks different from, or possibly
greater than, the risks associated with investing directly in securities.
Derivative contracts ordinarily have leverage inherent in their terms. The low
margin deposits normally required in trading derivatives, including futures
contracts, permit a high degree of leverage. Accordingly, a relatively small
price movement may result in an immediate and substantial loss. The use of
leverage may also cause the Fund to liquidate portfolio positions when it would
not be advantageous to do so. The use of leveraged derivatives can magnify
potential for gain or loss and, therefore, amplify the effects of market
volatility on share price.
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."
INTERNATIONAL
CLOSED MARKET TRADING RISK. Because securities held by the Fund
may 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 purchase and sell shares of the Fund on
the listing exchange for
the Fund on days when the net asset value of the Fund could be significantly
affected by events in the relevant foreign markets.
INVESTMENT
COMPANIES RISK. The Fund may invest
in securities of other investment companies. As a shareholder in another
investment
company, the Fund will bear its ratable share of that investment company’s
expenses, and would remain subject to payment of the Fund’s advisory and
administrative fees with respect to assets so invested. Shareholders would
therefore
25
be
subject to duplicative expenses to the extent the Fund invests in other
investment companies. In addition, the Fund will incur brokerage costs
when purchasing and selling shares of exchange-traded investment
companies.
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 Sub-Advisor
determines to sell such a holding.
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 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, Sub-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 overseeing the Sub-Advisor in the investment of the Fund’s assets, managing
the Fund’s business affairs and providing
certain clerical, bookkeeping and other administrative services.
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 11 mutual fund portfolios, 10
exchange-traded funds consisting of 307 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 Trust, on behalf
of the Fund, and First Trust have retained Energy Income Partners, LLC located
at 10 Wright Street, Westport, Connecticut 06880 to serve as the Fund’s
investment sub-advisor pursuant to an investment sub-advisory agreement (the
"Sub-Advisory
Agreement"). In this
capacity, Energy Income Partners is responsible for the selection and on-going
monitoring of the
securities in the Fund’s investment portfolio. Energy Income Partners is a
registered investment advisor founded in October 2003 by James J. Murchie, Eva
Pao and Linda Longville to provide professional asset management services in the
area of high-payout securities in the energy infrastructure sector. In addition
to serving as Sub-Advisor to the Fund, Energy Income Partners serves as the
investment manager to two privately placed funds, one registered investment
company, separately managed accounts and provides a model portfolio to unified
managed accounts. Energy Income Partners also serves as the sub-advisor to three
actively managed ETFs, First Trust EIP Power Solutions ETF (NYSE Arca:
FPWR), FT Energy Income Partners Enhanced
Income ETF (EIPI) and FT Energy Income Partners Strategy ETF (NYSE Arca: EIPX)
and a sleeve of First Trust Multi-Income Allocation Portfolio, a series of the
First Trust Variable Insurance Trust. Energy Income Partners mainly focuses on
portfolio companies that operate infrastructure assets such as pipelines,
storage and terminals that receive fee-based or regulated income from their
customers. As of October
31, 2025, Energy Income Partners served as investment advisor to investment
portfolios with $5.9
billion in assets. First Trust Capital Partners, LLC, an affiliate of First
Trust, owns, through a wholly-owned
subsidiary, a 15% ownership interest in each of the Energy Income Partners and
EIP Partners, LLC, a Delaware limited liability company and
affiliate of Energy Income Partners.
James J. Murchie,
Eva Pao, John K. Tysseland and Saul
Ballesteros are the Fund's portfolio managers and are jointly and primarily
responsible for the day-to-day management of the Fund's investment
portfolio.
●
James J. Murchie is a
Co-Founder, Chief Executive Officer, Co-Portfolio Manager and a Principal of
Energy Income Partners. After founding Energy Income Partners in October 2003,
Mr. Murchie and the Energy Income Partners
26
investment
team joined Pequot Capital Management Inc. (“Pequot
Capital”) in December 2004.
In August 2006, Mr.
Murchie and the Energy Income Partners investment team left Pequot Capital and
re-established Energy Income Partners. Prior to founding Energy Income Partners,
Mr. Murchie was a Portfolio Manager at Lawhill Capital Partners, LLC
(“Lawhill
Capital”), a long/short
equity hedge fund investing in commodities and equities in
the energy and basic industry sectors. Before Lawhill Capital, Mr. Murchie was a
Managing Director at Tiger Management, LLC, where his primary responsibility was
managing a portfolio of investments in commodities and related equities. Mr.
Murchie was also a Principal at Sanford C. Bernstein. He began his career at
British Petroleum, PLC. Mr. Murchie holds a BA in history and anthropology from
Rice University and received his MA from Harvard
University.
●
Eva Pao is a
Co-Founder, Co-Portfolio Manager and Principal of Energy Income Partners. She is
a Co-founder of Energy Income Partners since inception in 2003. From 2005 to
mid-2006, Ms. Pao joined Pequot Capital Management during Energy Income
Partners’ affiliation with Pequot. Prior to Harvard Business School, Ms. Pao was
a Manager at Enron Corp where she managed a portfolio in Canadian oil and gas
equities for Enron’s internal hedge fund that specialized in energy-related
equities and managed a natural gas trading book. Ms. Pao received her
undergraduate degree at Rice University and received her MBA from Harvard
Business School.
●
John K. Tysseland is
a Co-Portfolio Manager and Principal of Energy Income Partners. Prior to joining
Energy Income Partners, Mr. Tysseland worked at Citi Research most currently
serving as a Managing Director where he covered midstream energy companies and
MLPs. From 1998 to 2005, he worked at Raymond James & Associates as a Vice
President who covered the oilfield service industry and established the firm’s
initial coverage of MLPs in 2001. Prior to that, he was an Equity Trader at
Momentum Securities from 1997 to 1998 and an Assistant Executive Director at
Sumar Enterprises from 1996 to 1997. Mr. Tysseland graduated from The University
of Texas at Austin with a BA in economics.
●
Saul Ballesteros is a Co-Portfolio
Manager and Principal of Energy Income Partners. He joined Energy Income
Partners as a partner in 2006. Mr. Ballesteros previously managed the Trading
and Operations division and specializes in Energy Income Partners’ options
strategies. His prior roles included, a Proprietary Trader in Commodities and
Derivatives, a Portfolio Manager at Enron Corporation, then Mirant Corporation
and then FPL Group Inc. He was a Manager of Financial Planning at IBM from
1991-1994. He received a BS from Duke University and an MBA from Northwestern
University.
For additional
information concerning First Trust, the Sub-Advisor and the portfolio managers,
including a description of the services provided to the Fund, see the
Fund's SAI. Additional
information about the portfolio managers’ compensation, other accounts managed by
the portfolio managers and the portfolio managers’ ownership of shares in the
Fund is provided in the SAI.
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
oversees Energy Income Partners’ management of the Fund’s assets and pays Energy
Income
Partners for its services as Sub-Advisor. First Trust is paid an annual unitary
management fee by the Fund equal to 0.95% 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, 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 and the Investment Sub-Advisory Agreement is
available in the Fund's Form N-CSR for the year ended October 31,
2025.
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
27
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.
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.
28
Dividends,
Distributions and Taxes
Dividends
from net investment income from the Fund, 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.
Due
to the tax treatment under current law of cash distributions made by MLPs in
which the Fund invests, a portion of the distributions the Fund anticipates
making may consist of tax-deferred return of capital. To the extent that
distributions exceed such Fund’s earnings and profits, distributions are
generally not treated as taxable income for the investor. Instead, Fund
shareholders will experience a reduction in the basis of their shares, which may
increase the capital gain or reduce capital loss, realized upon the sale of such
shares. Thus, if the Fund’s capital was the source of a distribution and the
payment amounted to a return of capital, the Fund would be required to provide a
written notice to that effect. A “return of capital” represents a return on a
shareholder’s original investment in the Fund, and should not be confused with a
dividend from earnings and profits. Upon the sale of Fund shares, shareholders
generally will recognize capital gain or loss measured by the difference between
the sale proceeds received by the shareholder and the shareholder’s federal
income tax basis in shares sold, as adjusted to reflect return of
capital.
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. An adverse federal income tax audit
of a partnership that the Fund invests in could result in the Fund being
required to pay federal income tax or
pay a deficiency dividend (without having received additional
cash).
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 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.
29
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. Some
portion of your capital gain dividends may be attributable to the Fund’s
interest in a master limited partnership which may be subject to a maximum
marginal stated federal tax rate of 28%, rather than the rates set forth above.
In the case of capital gain dividends, the determination of which portion of the
capital gain dividend, if any, is subject to the 28% tax rate, will be made
based on rules prescribed by the United States Treasury. 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.
Treatment
of Fund Expenses
Expenses incurred and
deducted by the Fund will generally not be treated as income taxable to
you.
30
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.
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 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 March 31, 2027. However, in the event 12b-1
fees are charged in the future, because these fees are paid
31
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 and overseen by the Pricing Committee
(each, a “Pricing Service
Provider”), or in the
case of
certain derivative instruments from (indirectly through the Fund) a counterparty
transacting in such instruments, 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.
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
32
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
the administrator, custodian and fund accounting and transfer agent for the
Fund. Chapman and Cutler LLP, 320 South Canal Street, Chicago, Illinois 60606,
serves
as legal counsel to the Fund.
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.
33
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 October 31, 2025 and is incorporated by reference
in the Fund's SAI, which is available upon request.
First
Trust Exchange-Traded Fund IV
Financial
Highlights
For a share outstanding throughout each period
For a share outstanding throughout each period
First
Trust North American Energy Infrastructure Fund (EMLP)
|
|
Year
Ended October 31, | ||||
|
|
2025 |
2024 |
2023 |
2022 |
2021 |
|
Net
asset value, beginning of period |
$34.11 |
$26.31 |
$26.70 |
$25.02 |
$19.68 |
|
Income
from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
0.46
(a) |
0.47
(a) |
0.36
(a) |
0.37 |
0.19 |
|
Net
realized and unrealized gain (loss) |
4.18 |
8.44 |
0.30 |
2.14 |
6.01 |
|
Total
from investment operations |
4.64 |
8.91 |
0.66 |
2.51 |
6.20 |
|
Distributions
paid to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(1.18
) |
(1.11
) |
(1.05
) |
(0.37
) |
(0.86
) |
|
Return of
capital |
— |
— |
— |
(0.46
) |
— |
|
Total
distributions |
(1.18
) |
(1.11
) |
(1.05
) |
(0.83
) |
(0.86
) |
|
Net
asset value, end of period |
$37.57 |
$34.11 |
$26.31 |
$26.70 |
$25.02 |
|
Total
Return(b) |
13.67
% |
34.48
% |
2.49
% |
10.19
% |
31.97
% |
|
Ratios
to average net assets/supplemental data: |
|
|
|
|
|
|
Net
assets, end of period (in 000’s) |
$3,311,883 |
$2,790,077 |
$2,273,264 |
$2,570,305 |
$2,129,135 |
|
Ratio of
total expenses to average net assets(c)
|
0.95
% |
0.95
% |
0.95
% |
0.95
% |
0.95
% |
|
Ratio of
net investment income (loss) to average net
assets(c) |
1.25
% |
1.58
% |
1.33
% |
1.08
% |
0.71
% |
|
Portfolio
turnover rate(d) |
36
% |
23
% |
32
% |
32
% |
52
% |
(a)
Based
on average shares outstanding.
(b)
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.
(c)
Ratio
of total expenses to average net assets and ratio of net investment income
(loss) to average net assets do not reflect the Fund’s proportionate share of
expenses and income of underlying investment companies in which the Fund
invests.
(d)
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.
34
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.
35
|
First
Trust
Exchange-Traded
Fund IV |
First Trust North
American Energy Infrastructure Fund
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.
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 #: 333-174332
811-22559