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First
Trust
Exchange-Traded
Fund IV |
Prospectus
First Trust Senior
Loan Fund
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Ticker
Symbol: |
FTSL |
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Exchange: |
Nasdaq |
First
Trust Senior Loan Fund (the “Fund”) lists and
principally trades its shares on The Nasdaq Stock Market LLC ("Nasdaq" 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.
NOT
FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
March
1, 2023
Summary
Information
(fees paid directly from your investment)
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Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
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(expenses that you pay each year as a percentage of the value of your investment)
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Management
Fees(1) |
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Distribution
and Service (12b-1) Fees |
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Other
Expenses |
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Acquired
Fund Fees and Expenses |
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Total Annual
Fund Operating Expenses |
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(1)
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1
Year |
3
Years |
5
Years |
10
Years |
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$ |
$ |
$ |
$ |
3
4
5
6
7
8
9
10
Calendar Year Total Returns as of 12/31
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|
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1
Year |
5
Years |
Since
Inception |
Inception
Date |
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Return Before
Taxes |
- |
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Return After
Taxes on Distributions |
- |
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Return After
Taxes on Distributions and Sale of Shares |
- |
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Morningstar®
LSTA® US Leveraged
Loan Index(1) (reflects no
deduction
for fees, expenses or taxes) |
- |
|
|
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(1)
Management
Investment
Advisor
First
Trust Advisors L.P. (“First
Trust”
or the “Advisor”)
Portfolio
Managers
The
following persons serve as portfolio managers of the Fund.
•
William Housey, CFA,
Managing Director of Fixed Income and Senior Portfolio Manager of First
Trust
•
Jeffrey Scott, CFA,
Senior Vice President and Portfolio Manager of First Trust
11
The
portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund. Mr. Housey has served as a part of
the portfolio management team of the Fund since 2013, while Mr. Scott has served
as part of the portfolio management team of the Fund since 2020.
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
https://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.
12
Additional
Information on the Fund's Investment Objectives and Strategies
The
Fund is a series of First Trust Exchange-Traded Fund IV and is regulated as an
“investment company” under the Investment Company Act of 1940,
as amended (the "1940
Act").
The Fund is actively managed and does not seek to track the performance of an
index. The Fund’s investment objectives are 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 objectives.
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 Senior Loans. The Name Policy may be
changed by the Board without shareholder approval upon 60 days’ prior written
notice.
Additional
Information on the Fund’s Strategy
When
identifying prospective investment opportunities in Senior Loans, the Advisor
intends to invest primarily in Senior Loans that are below
investment grade quality at the time of investment, and will rely on fundamental
credit analysis in an effort to attempt to minimize the loss of the Fund’s
capital. As a general matter, the Advisor seeks to invest in Senior Loans or
other debt of companies possessing some or all of the attributes described
below, which it believes will help generate higher risk-adjusted total
returns:
•
Senior Loans or other
debt of companies that have developed strong positions within their respective
markets and exhibit the potential to maintain sufficient cash flows and
profitability to service their obligations in a range of economic
environments.
•
Senior Loans or other
debt of companies that possess advantages in scale, scope, customer loyalty,
product pricing or product quality versus their competitors, thereby minimizing
business risk and protecting profitability.
•
Senior Loans or other
debt of established companies that have demonstrated a record of profitability
and cash flows over several economic cycles.
•
Senior Loans or other
debt of a target company that has an experienced management team with an
established track record of success.
The
Advisor seeks to invest in a portfolio of Senior Loans or other debt among
various borrowers and industries, thereby potentially reducing
the risk of a downturn in any one company or industry having a disproportionate
impact on the value of the Fund’s holdings. Loans, and the collateral securing
them, are typically monitored by agents for the lenders, which may be the
originating bank or banks.
Fund
Investments
Principal
Investments
Senior
Loans
Senior
loans represent debt obligations of sub-investment grade corporate borrowers,
similar to high yield bonds; however, senior loans are
different from traditional high yield bonds in that senior loans are typically
senior to other obligations of the borrower and generally secured by a lien on
all or some portion of the assets of the borrower. These loans are often
arranged by a syndicate of banks to refinance a borrower’s existing debt, to
finance acquisitions, dividends, leveraged buyouts, and for general corporate
purposes. Senior loans may be acquired by the Fund in whole or through the
purchase of a participation. Senior loans rank at the top of a borrower’s
capital structure in terms of priority of payment, ahead of any subordinated
debt or the borrower’s preferred or common equity. These loans are often
secured, as the holders of these loans typically hold or share a first lien
priority on most if not all of the corporate borrower’s plant, property,
equipment, receivables, cash balances, licenses, trademarks, etc. Senior loans
typically pay interest at rates which are determined periodically on the basis
of a floating base lending rate, primarily the LIBOR, SOFR, a similar reference
rate, or the prime rate offered by one or more major U.S. banks plus a premium.
Senior loans are typically made to U.S. and, to a lesser extent, non-U.S.
corporations, partnerships and other business entities which operate in various
industries and geographical regions.
13
The
senior loan market has seen a significant increase in loans with few or none of
the financial maintenance covenants (i.e.,“covenant-lite
loans”)
that have traditionally protected lenders including more aggressive terms that
favor borrowers with respect to restrictions regarding additional debt, payment
terms, income requirements and asset dispositions. A substantial amount of the
senior loans held by the Fund are expected to be covenant-lite loans, meaning
the Fund may be unable to declare an event of default if financial performance
deteriorates, renegotiate the terms of the loan based upon the elevated risk
levels or take other actions to help mitigate losses.
Corporate
Debt Securities
The
Fund may invest in corporate debt securities issued by U.S. and non-U.S.
companies of all kinds, including those with small, mid and large
capitalizations. Corporate debt securities are fixed income securities issued by
businesses to finance or expand their operations. Notes, bonds, debentures and
commercial paper are the most common types of corporate debt securities, with
the primary differences being their maturities and secured or unsecured status.
Commercial paper has the shortest term and is usually unsecured. Corporate debt
may be rated investment grade or below investment grade and may carry fixed or
floating rates of interest.
Other
Debt Securities
The
Fund may invest in unsecured and/or subordinated bank loans, loan participations
and unfunded contracts. The Fund may invest in such
loans by purchasing assignments on all or a portion of loans or loan
participations from third parties. These loans are made by or issued to
corporations primarily to finance acquisitions, refinance existing debt, support
organic growth, or pay out dividends, and are typically originated by large
banks and then syndicated out to institutional investors as well as to other
banks. Bank loans typically bear interest at a floating rate although some loans
pay a fixed rate.
High
Yield Debt
The
Fund may invest in debt instruments (e.g., bonds, loans and convertible bonds)
that are rated below investment grade, or unrated securities
deemed by the Advisor to be of comparable quality. Debt securities rated below
investment grade are commonly referred to as “high yield” or “junk” debt. For
purposes of determining whether a security is below investment grade, the lowest
available rating will be considered. High yield debt may be issued by companies
without long track records of sales and earnings, or by issuers that have
questionable credit strength. High yield debt and comparable unrated debt
securities: (a) will likely have some quality and protective characteristics
that, in the judgment of the rating agency evaluating the instrument, are out
weighed by large uncertainties or major risk exposures to adverse conditions;
and (b) are predominantly speculative with respect to the issuer’s capacity to
pay dividends or interest and repay principal in accordance with the terms of
the obligation.
Investment
Companies and
Other Pooled Investment Vehicles
The Fund may invest
in securities of investment companies and other pooled investment vehicles,
including exchange-traded funds (“ETFs”). ETFs trade on a securities
exchange and their shares may, at times, trade at a premium or discount to their
net asset value. As a shareholder in a pooled investment vehicle, the Fund bears
its ratable share of that vehicle'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 be subject to duplicative expenses to the
extent the Fund invests in other pooled investment vehicles. In addition, the
Fund will incur brokerage costs when purchasing and selling shares of ETFs and
closed-end investment companies. Securities of other pooled investment vehicles
may be leveraged, in which case the value and/or yield of such securities will
tend to be more volatile than securities of unleveraged vehicles.
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) of the 1940 Act.
The Fund’s investment in other investment
companies that adhere to a Name Policy with respect to
senior loans shall be counted towards the Fund’s investment policy of investing, under
normal market conditions, at least 80% of its net assets (including investment
borrowings) in Senior Loans. For purposes of satisfying the Fund’s
investment restrictions, such senior loan funds will also be
considered below investment grade securities. The Fund may also invest in
certain affiliated open-end funds or ETFs that are advised by the
Advisor, in which case the Fund shall receive
a rebate for any advisory fees borne in connection with the purchase of the
shares of such affiliated open-end funds or ETFs.
14
U.S.
Government Securities
The
Fund may invest in U.S. government securities. U.S. government securities
include U.S. Treasury obligations and securities issued or guaranteed
by various agencies of the U.S. government, or by various instrumentalities that
have been established or sponsored by the U.S. government. U.S. Treasury
obligations are backed by the “full faith and credit” of the U.S. government.
Securities issued or guaranteed by federal agencies and U.S. government
sponsored instrumentalities may or may not be backed by the full faith and
credit of the U.S. government.
Non-Principal
Investments
Convertible
Bonds
The
Fund may invest in convertible bonds. Convertible bonds combine the investment
characteristics of bonds and common stocks. Convertible
bonds typically consist of debt securities or preferred securities that may be
converted within a specified period of time (typically for the entire life of
the security) into a certain amount of common stock or other equity security of
the same or a different issuer at a predetermined price. They also include debt
securities with warrants or common stock attached and derivatives combining the
features of debt securities and equity securities. Convertible bonds entitle the
holder to receive interest paid or accrued on debt, or dividends paid or accrued
on preferred securities, until the securities mature or are redeemed, converted
or exchanged.
Preferred
Securities
The
Fund may invest in preferred securities, which generally pay fixed or
adjustable-rate dividends or interest to investors and have preference
over common stock in the payment of dividends or interest and the liquidation of
a company’s assets, which means that a company typically must pay dividends or
interest on its preferred securities before paying any dividends on its common
stock. Preferred securities are generally junior to all forms of the company’s
debt, including both senior and subordinated debt.
Cash
Equivalents and Short-Term Investments
Normally,
the Fund invests substantially all of its assets to meet its investment
objectives. However, the Fund may invest in short-term debt
securities, money market funds and other cash equivalents, or it may hold cash.
The percentage of the Fund invested in such holdings varies and depends on
several factors, including market conditions. For temporary defensive purposes
and during periods of high cash inflows or outflows, the Fund may depart from
its principal investment strategies and invest part or all of its assets in
these securities, or it may hold cash. During such periods, the Fund may not be
able to achieve its investment objectives. The Fund may adopt a defensive
strategy when the portfolio managers believe securities in which the Fund
normally invests have elevated risks due to political or economic factors and in
other extraordinary circumstances. For more information on eligible short-term
investments, see the Fund's SAI.
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 certain restricted
securities (securities the disposition of which is restricted under the federal
securities laws), certain 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.
Non-U.S.
Debt
Securities
Non-U.S. debt securities include debt
securities issued or guaranteed by companies organized under the laws of
countries other than the United States, debt securities issued or guaranteed by
foreign, national, provincial, state, municipal or other governments with taxing
authority or by their agencies or instrumentalities and debt obligations of
supranational governmental entities such as the World Bank or European Union.
These debt securities may be U.S. dollar-denominated or non-U.S.
dollar-denominated. Non-U.S. debt securities also include U.S.
dollar-denominated debt obligations, such as “Yankee Dollar” obligations, of foreign issuers and
of supranational government entities. Yankee Dollar obligations are
U.S. dollar-denominated obligations issued
in the U.S. capital markets by foreign corporations, banks and governments. Non-U.S. debt securities also may be traded on
non-U.S. securities exchanges or in over-the-counter capital
markets. Under normal market conditions, up to
10% of the net assets (including investment
borrowings) of the Fund may be
denominated in currencies other than the
15
U.S. dollar. To the extent the Fund invests in
such instruments, the value of the assets of the Fund
as measured in U.S. dollars will be affected by changes
in exchange rates. Generally, the Fund’s currency exchange transactions will be
conducted on a spot (i.e., cash) basis at the spot rate prevailing in
the currency exchange market. The cost of the Fund’s currency
exchange transactions will generally be the difference between the bid and offer
spot rate of the currency being purchased or sold. In order to protect against
uncertainty in the level of future currency exchange rates, the Fund is
authorized to enter into various currency exchange transactions.
Disclosure
of Portfolio Holdings
The
Fund’s portfolio holdings are available on the Fund's website at
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 objectives. 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.
BANK
LOANS RISK. The Fund may
invest in secured and unsecured participations in bank loans and assignments of
such loans. In making investments in such loans, which are made by banks or
other financial intermediaries to borrowers, the Fund will depend primarily upon
the creditworthiness of the borrower for payment of principal and interest which
will expose the Fund to the credit risk of the underlying borrower.
Participations by the Fund in a lender's portion of a bank loan typically will
result in the Fund having a contractual relationship only with such lender, not
with the borrower. The Fund may have the right to receive payments of principal,
interest and any fees to which it is entitled only from the lender selling a
loan participation and only upon receipt by such lender of such payments from
the borrower, which exposes the Fund to the credit risk of the lender. In
connection with purchasing participations, the Fund generally will have no right
to enforce compliance by the borrower with the terms of the loan agreement, nor
any rights with respect to any funds acquired by other lenders through set-off
against the borrower, and the Fund may not directly benefit from any collateral
supporting the loan in which it has purchased the participation. There is also
the risk that the value of any collateral securing a loan may decline and that
the collateral may be insufficient to cover the amount owed on the loan,
particularly for second lien loans or other junior or subordinated loans held by
the Fund; provided, however, that some loans are not secured by any collateral.
The secondary market for bank loans may not be highly liquid, and the Fund may
have difficulty selling bank loans (other than at a discount) and it may
experience settlement delays with respect to bank loan trades (in some cases
longer than 7 days.) Further, loans held by the Fund may not be considered
securities and, therefore, purchasers, such as the Fund, may not be entitled to
rely on the anti-fraud protections of the federal securities laws and would be
forced to rely upon the contractual persons in the loan agreement and states law
to enforce its rights to repayment. Many of the loans in which the Fund may
invest or obtain exposure to may be “covenant-lite” loans. The amount of public
information available with respect to bank loans may be less extensive than
available for registered or exchange-traded securities. Covenant-lite loans may
contain fewer or no maintenance covenants compared to other loans and may not
include terms which allow the lender to monitor the performance of the borrower
and declare a default if certain criteria are breached. The Fund may experience
relatively greater realized or unrealized losses or delays in enforcing its
rights on its holdings of covenant-lite loans than its holdings of loans with
the usual covenants.
CALL
RISK.
Some debt securities may be redeemed at the option of the issuer, or “called,”
before their stated maturity date. In general, an issuer will call its debt
securities if they can be refinanced by issuing new debt securities which bear a
lower interest rate. The Fund is subject to the possibility that during periods
of falling interest rates an issuer will call its high yielding debt securities.
The Fund would then be forced to invest the unanticipated proceeds at lower
interest rates, likely resulting
16
in a
decline in the Fund’s income. Such redemptions and subsequent reinvestments
would also increase the Fund’s portfolio turnover. If a called
debt security was purchased by the Fund at a premium, the value of the premium
may be lost in the event of a redemption.
CASH
TRANSACTIONS RISK. The Fund will effect
some or all of its creations and redemptions for cash rather than in-kind. 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. The Fund 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.
COVENANT-LITE
LOANS RISK. Substantially all of
the senior loans in which the Fund invests are expected to be covenant-lite
loans. The loan agreement, which sets forth the terms of a loan and the
obligations of the borrower and lender, contains certain covenants that mandate
or prohibit certain borrower actions, including financial covenants that dictate
certain minimum and maximum financial performance levels. Covenants that require
the borrower to maintain certain financial metrics during the life of the loan
(such as maintaining certain levels of cash flow and limiting leverage) are
known as “maintenance covenants.” These covenants are included to permit the
lender to monitor the performance of the borrower and declare an event of
default if breached, allowing the lender to renegotiate the terms of the loan
based upon the elevated risk levels or take other actions to help mitigate
losses. Covenant-lite loans contain fewer or no maintenance covenants making an
investment in these types of loans inherently riskier than an investment in
loans containing provisions allowing the lender reprice credit risk associated
with the borrower or restructure a problematic loan. The Fund’s elevated
exposure to such loans during a downturn in the credit cycle could cause the
Fund to experience outsized losses.
CREDIT
RATING AGENCY RISK.
Credit ratings are determined by credit rating agencies such as S&P Global
Ratings, Moody’s Investors Services, Inc. and Fitch Inc., and are only the
opinions of such entities. Ratings assigned by a rating agency are not absolute
standards of credit quality and do not evaluate market risk or the liquidity of
securities. Any shortcomings or inefficiencies in credit rating agencies’
processes for determining credit ratings may adversely affect the credit ratings
of securities held by the Fund and, as a result, may adversely affect those
securities’ perceived or actual credit risk.
CREDIT
RISK. An
issuer or other obligated party of a debt security may be unable or unwilling to
make dividend, interest and/or principal payments when due. In addition, the
value of a debt security may decline because of concerns about the issuer’s
ability or unwillingness to make such payments. Debt securities are subject to
varying degrees of credit risk which are often reflected in credit ratings. The
credit rating of a debt security may be lowered if the issuer or other obligated
party suffers adverse changes to its financial condition. These adverse changes
may lead to greater volatility in the price of the debt security and affect the
security’s liquidity. High yield and comparable unrated debt securities, while
generally offering higher yields than investment grade debt with similar
maturities, involve greater risks, including the possibility of dividend or
interest deferral, default or bankruptcy, and are regarded as predominantly
speculative with respect to the issuer’s capacity to pay dividends or interest
and repay principal. To the extent that the Fund holds debt securities that are
secured or guaranteed by financial institutions, changes in credit quality of
such financial institutions could cause values of the debt security to
deviate.
CYBER
SECURITY RISK. The Fund is
susceptible to operational risks through breaches in cyber security. A breach in
cyber security refers to both intentional and unintentional events that may
cause the Fund to lose proprietary information, suffer data corruption or lose
operational capacity. Such events could cause the Fund to incur regulatory
penalties, reputational damage, additional compliance costs associated with
corrective measures and/or financial loss. These risks typically are not covered
by insurance. In general, cyber incidents can result from deliberate attacks or
unintentional events. Cyber incidents include, but are not limited to, gaining
unauthorized access to digital systems (e.g., through “hacking”
or malicious software coding) for purposes of misappropriating assets or
sensitive information, corrupting data or causing operational disruption. Cyber
attacks may also be carried out in a manner that does not require gaining
unauthorized access, such as causing denial-of-service attacks on websites
(i.e., efforts to make
network services unavailable to intended users). Cyber security
17
failures
by or breaches of the systems of the Advisor, distributor and other service
providers (including, but not limited to, sub-advisors, index
providers, fund accountants, custodians, transfer agents and administrators),
market makers, authorized participants or the issuers of securities in which the
Fund invests, have the ability to cause disruptions and impact business
operations, potentially resulting in: financial losses; interference with the
Fund’s ability to calculate its net asset value; disclosure of confidential
trading information; impediments to trading; submission of erroneous trades or
erroneous creation or redemption orders; the inability of the Fund or its
service providers to transact business; violations of applicable privacy and
other laws; regulatory fines penalties, reputational damage, reimbursement or
other compensation costs; or additional compliance costs. Substantial costs may
be incurred by the Fund in order to resolve or prevent cyber incidents in the
future. While the Fund has established business continuity plans in the event
of, and risk management systems to prevent, such cyber attacks, there are
inherent limitations in such plans and systems, including the possibility that
certain risks have not been identified and that prevention and remediation
efforts will not be successful. Furthermore, the Fund cannot control the cyber
security plans and systems put in place by service providers to the Fund,
issuers in which the Fund invests, market makers or authorized participants.
However, there is no guarantee that such efforts will succeed, and the Fund and
its shareholders could be negatively impacted as a result.
DEBT
SECURITIES RISK. Investments in debt
securities subject the holder to the credit risk of the issuer. Credit risk
refers to the possibility that the issuer or other obligor of a security will
not be able or willing to make payments of interest and principal when due.
Generally, the value of debt securities will change inversely with changes in
interest rates. To the extent that interest rates rise, certain underlying
obligations may be paid off substantially slower than originally anticipated and
the value of those securities may fall sharply. During periods of falling
interest rates, the income received by the Fund may decline. If the principal on
a debt security is prepaid before expected, the prepayments of principal may
have to be reinvested in obligations paying interest at lower rates. Debt
securities generally do not trade on a centralized securities exchange making
them generally less liquid and more difficult to value than common stock. The
values of debt securities may also increase or decrease as a result of market
fluctuations, actual or perceived inability or unwillingness of issuers,
guarantors or liquidity providers to make scheduled principal or interest
payments or illiquidity in debt securities markets generally.
DEFAULTED
SECURITIES RISK. The Fund may invest
in defaulted securities. Defaulted securities pose a greater risk that principal
will not be repaid than non-defaulted securities. The reorganization or
liquidation of an issuer of a defaulted security may result in the Fund losing
its entire investment or being required to accept cash or securities with a
value less than its original investment. It may also be difficult to obtain
complete and accurate information regarding the true financial condition of the
issuer of a defaulted security. Defaulted securities and any securities received
in an exchange for such securities may be subject to restrictions on
resale.
DISTRESSED
SECURITIES RISK. The Fund may invest
in distressed debt securities. Distressed securities are speculative and involve
substantial risks in addition to the risks of investing in high-yield debt
securities that are not in default. In some instances, the Fund will not receive
interest payments from the distressed securities it holds and may incur
additional expenses to protect its investment. These securities may present a
substantial risk of default and there is a substantial risk that the principal
will not be repaid. The Fund may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal or of
interest on its portfolio holdings. In any reorganization or liquidation
proceeding relating to a portfolio company, the Fund may lose its entire
investment or may be required to accept cash or securities with a value less
than its original investment. Distressed securities and any securities received
in exchange for such securities may be subject to restrictions on
resale.
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.
EXTENSION
RISK.
Extension risk is the risk that, when interest rates rise, certain obligations
will be paid off by the issuer (or other obligated party) more slowly than
anticipated, causing the value of these debt securities to fall. Rising interest
rates tend to extend the duration of debt securities, making them more sensitive
to changes in interest rates. The value of longer-term debt securities generally
changes more in response to changes in interest rates than shorter-term debt
securities. As a result,
18
in a
period of rising interest rates, securities may exhibit additional volatility
and may lose value. Extension risk is particularly prevalent for a
callable debt security where an increase in interest rates could result in the
issuer of that security choosing not to redeem the debt security as anticipated
on the security’s call date. Such a decision by the issuer could have the effect
of lengthening the debt security’s expected maturity, making it more vulnerable
to interest rate risk and reducing its market value.
FLOATING
RATE DEBT INSTRUMENTS RISK. Investments in floating rate debt
instruments are subject to the same risks as investments in other types of debt
securities, including credit risk, interest rate risk, liquidity risk and
valuation risk. Floating rate debt instruments include debt securities issued by
corporate and governmental entities, as well as bank loans, mortgage-backed
securities and asset-backed securities. Floating rate debt instruments are
structured so that the security’s coupon rate fluctuates based upon the level of
a reference rate. Most commonly, the coupon rate of a floating rate debt
instrument is set at the level of a widely followed interest rate, plus a fixed
spread. As a result, the coupon on floating rate debt instrument will generally
decline in a falling interest rate environment, causing the Fund to experience a
reduction in the income it receives from the instrument. A floating rate debt
instrument’s coupon rate resets periodically according to its terms.
Consequently, in a rising interest rate environment, floating rate debt
instruments with coupon rates that reset infrequently may lag behind the changes
in market interest rates. Floating rate debt instruments may also contain terms
that impose a maximum coupon rate the issuer will pay, regardless of the level
of the reference rate. The Fund may invest in floating rate loans considered to
be high yield, or “junk,” instruments and considered speculative because of the
credit risk of their issuers. Such issuers are more likely than investment grade
issuers to default on their payments of interest and principal owed to the Fund.
An economic downturn would also generally lead to a higher non-payment rate, and
a floating rate debt instrument may lose significant market value before a
default occurs. To the extent the Fund invests in floating rate loans, such
instruments may be subject to legal or contractual restrictions on resale, may
trade infrequently, and their value may be impaired when the Fund needs to
liquidate such securities. It is possible that the collateral securing a
floating rate loan may be insufficient or unavailable to the Fund, and that the
Fund’s rights to collateral may be limited by bankruptcy or insolvency laws.
Additionally, there is no central clearinghouse for loan trades and the loan
market has not established enforceable settlement standards or remedies for
failure to settle. As such, the secondary market for floating rate loans may be
subject to irregular trading activity, wide bid/ask spreads and extended trade
settlement periods which may cause the Fund to be unable to realize the full
value of its investment. Lastly, floating rate loans may not be considered
“securities,” and purchasers, such as the Fund, therefore may not be entitled to
rely on the anti-fraud protections of the federal securities laws.
HIGH
YIELD SECURITIES RISK. The Fund’s
investment in high yield securities, or “junk” bonds, may entail increased
credit risks and the risk that the value of the Fund’s assets will decline, and
may decline precipitously, with increases in interest rates. In recent years
there have been wide fluctuations in interest rates and therefore in the value
of debt securities generally. High yield securities are, under most
circumstances, subject to greater market fluctuations and risk of loss of income
and principal than are investments in lower-yielding, higher-rated debt
securities. As interest rates rise, the value of high yield securities may
decline precipitously. Increased rates may also indicate a slowdown in the
economy which may adversely affect the credit of issuers of high yield
securities resulting in a higher incidence of defaults among such issuers. A
slowdown in the economy, or a development adversely affecting an issuer’s
creditworthiness, may result in the issuer being unable to maintain earnings or
sell assets at the rate and at the prices, respectively, that are required to
produce sufficient cash flow to meet its interest and principal requirements.
The Fund’s portfolio managers cannot predict future economic policies or their
consequences or, therefore, the course or extent of any similar market
fluctuations in the future. In addition, high yield securities are generally
less liquid than investment grade securities.
INCOME
RISK.
The Fund’s income may decline when interest rates fall. This decline can occur
because the Fund may subsequently invest in lower-yielding securities as debt
securities in its portfolio mature, are near maturity or are called, or the Fund
otherwise needs to purchase additional debt securities. In addition, the Fund’s
income could decline when the Fund experiences defaults on the debt securities
it holds.
INDEX
OR MODEL CONSTITUENT RISK. The Fund may be a constituent of one
or more indices or ETF models. As a result, the Fund may be included in one or
more index-tracking ETFs or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving the Fund's shares,
the size of the Fund and the market volatility of the Fund’s shares. Inclusion
in an index could increase demand for the Fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, the Fund’s net asset value could be negatively impacted and the Fund’s
market price may be below the Fund’s net asset value during certain periods. In
addition, index rebalances may potentially result in increased trading activity.
To the extent buying or selling activity increases, the Fund can be exposed to
increased brokerage costs and adverse tax consequences and the market price of
the Fund can be negatively affected.
19
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.
INFORMATION
TECHNOLOGY COMPANIES RISK. The Fund invests
significantly in information technology companies. Information technology
companies produce and provide hardware, software and information technology
systems and services. Information technology companies are generally subject to
the following risks: rapidly changing technologies and existing product
obsolescence; short product life cycles; fierce competition; aggressive pricing
and reduced profit margins; the loss of patent, copyright and trademark
protections; cyclical market patterns; evolving industry standards; and frequent
new product introductions and new market entrants. Information technology
companies may be smaller and less experienced companies, with limited product
lines, markets or financial resources and fewer experienced management or
marketing personnel. Information technology company stocks, particularly those
involved with the internet, have experienced extreme price and volume
fluctuations that are often unrelated to their operating performance. In
addition, information technology companies are particularly vulnerable to
federal, state and local government regulation, and competition and
consolidation, both domestically and internationally, including competition from
foreign competitors with lower production costs. Information technology
companies also face competition for services of qualified personnel and heavily
rely on patents and intellectual property rights and the ability to enforce such
rights to maintain a competitive advantage.
INTEREST
RATE RISK. The value of debt
securities held by the Fund will fluctuate in value with changes in interest
rates. In general, debt securities will increase in value when interest rates
fall and decrease in value when interest rates rise. The Fund may be subject to
a greater risk of rising interest rates than would normally be the case due to
the current period of historically low rates and the effect of potential
government fiscal policy initiatives and resulting market reaction to those
initiatives. Interest rate risk is generally lower for shorter term investments
and higher for longer term investments. Duration is a common measure of interest
rate risk. Duration measures a debt security’s expected life on a present value
basis, taking into account the debt security’s yield, interest payments and
final maturity. Duration is a reasonably accurate measure of a debt security’s
price sensitivity to changes in interest rates. The longer the duration of a
debt security, the greater the debt security’s price sensitivity is to changes
in interest rates. Rising interest rates also may lengthen the duration of debt
securities with call features, since exercise of the call becomes less likely as
interest rates rise, which in turn will make the securities more sensitive to
changes in interest rates and result in even steeper price declines in the event
of further interest rate increases. An increase in interest rates could also
cause principal payments on a debt security to be repaid at a slower rate than
expected. This risk is particularly prevalent for a callable debt security where
an increase in interest rates could cause the issuer of that security to not
redeem the security as anticipated on the call date, effectively lengthening the
security’s expected maturity, in turn making that security more vulnerable to
interest rate risk and reducing its market value. When interest rates fall, the
Fund may be required to reinvest the proceeds from the sale, redemption or early
prepayment of a debt security at a lower interest rate.
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 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.
LIBOR
TRANSITION RISK. The
United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, intends to
cease making LIBOR available as a reference rate over a phase-out period that
began on January 1, 2022. However, subsequent
announcements by the FCA, the LIBOR administrators, and other regulators
indicate that it is possible that the most widely used LIBOR rates may continue
until mid-2023. The unavailability or replacement of LIBOR may affect the value,
liquidity or return on certain Fund investments and may result in costs incurred
in connection with closing out positions and entering into new trades. Any
potential effects of the transition away from LIBOR on the Fund or on certain
instruments in which the Fund invests can be difficult to ascertain, and they
may vary depending on a variety of factors. In the United States, it is
anticipated that in many instances SOFR, will replace LIBOR as the reference
rate for many of the floating rate instruments held by the Fund. There is no
assurance that the composition or characteristics of SOFR, or any alternative
reference rate, will be similar to or produce the same value or economic
equivalence as LIBOR or that instruments using an alternative rate will have the
same volume or liquidity. As a result, the transition process might lead to
increased volatility and reduced liquidity in markets that currently rely on
LIBOR to determine interest rates; a reduction in the value of some LIBOR-based
investments;
20
increased
difficulty in borrowing or refinancing and diminished effectiveness of any
applicable hedging strategies against instruments whose
terms currently include LIBOR; and/or costs incurred in connection with
temporary borrowings and closing out positions and entering into new agreements.
Any such effects (as well as other unforeseen effects) of the transition away
from LIBOR and the adoption of alternative reference rates could result in
losses to the Fund.
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. Illiquid securities may trade
at a discount from comparable, more liquid investments and may be subject to
wide fluctuations in market value. 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(s), 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 markers. Decisions by market
makers or authorized participants to reduce their role or step away from these
activities in times of market stress could inhibit the effectiveness of the
arbitrage process in maintaining the relationship between the underlying values
of the Fund’s portfolio securities and the Fund’s market price. The Fund may
rely on a small number of third-party market makers to provide a market for the
purchase and sale of shares. Any trading halt or other problem relating to the
trading activity of these market makers could result in a dramatic change in the
spread between the Fund’s net asset value and the price at which the Fund’s
shares are trading on the Exchange, which could result in a decrease in value of
the Fund’s shares. This reduced effectiveness could result in Fund shares
trading at a discount to net asset value and also in greater than normal
intraday bid-ask spreads for Fund shares.
MARKET
RISK. Market risk is the
risk that a particular security, or shares of the Fund in general, may fall in
value. Securities are subject to market fluctuations caused by such factors as
economic, political, regulatory 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 due to short-term market
movements or any longer periods during more prolonged market downturns. In
addition, local, regional or global events such as war, acts of terrorism,
spread of infectious diseases or other public health issues, recessions, or
other events could have a significant negative impact on the Fund and its
investments. For example, the coronavirus disease 2019 (COVID-19) global
pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause
significant volatility and uncertainty in global financial markets, negatively
impacting global growth prospects. While the
U.S. has resumed “reasonably” normal
business activity, many countries continue to impose lockdown measures.
Additionally, there is no guarantee that vaccines will be effective against
emerging variants of the disease. Additionally, in February 2022, Russia invaded Ukraine
which has caused and could continue to
cause significant market disruptions and volatility within the markets in
Russia, Europe, and the United States. The hostilities and sanctions resulting from those
hostilities could have a significant impact on certain Fund investments as well
as Fund performance. These events also adversely affect the prices and liquidity
of the Fund’s portfolio securities or other instruments and could result in
disruptions in the trading markets. Any of such circumstances could have a
materially negative impact on the value of the Fund’s shares and 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 and the bid/ask
spread on the Fund’s shares may widen.
OPERATIONAL
RISK.
The Fund is subject to risks arising from various operational factors,
including, but not limited to, human error, processing and communication errors,
errors of the Fund’s service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. The Fund
relies on third-parties for a range of services, including custody. Any delay or
failure relating to engaging or maintaining such service providers may affect
the Fund’s ability to meet its investment objective. Although the Fund and the
Fund’s investment advisor seek to reduce these operational risks through
controls and procedures, there is no way to completely protect against such
risks.
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
21
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.
PREPAYMENT
RISK.
Prepayment risk is the risk that the issuer of a debt security will repay
principal (in part or in whole) prior to the scheduled maturity date. Debt
securities allowing prepayment may offer less potential for gains during a
period of declining interest rates, as the Fund may be required to reinvest the
proceeds of any prepayment at lower interest rates, reducing its income. If the
Fund purchased the debt securities at a premium, prepayments on the securities
could cause the Fund to lose a portion of its principal investment. These
factors may cause the value of an investment in the Fund to change. The impact
of prepayments on the price of a debt security may be difficult to predict and
may increase the security’s volatility.
SENIOR
LOAN RISK. Senior loans
represent debt obligations of sub-investment grade corporate borrowers, similar
to high yield bonds; however, senior loans are different from traditional high
yield bonds in that senior loans are typically senior to other obligations of
the borrower and generally secured by the assets of the borrower. The senior
loan market has seen a significant increase in loans with limited financial
maintenance covenants or, in some cases, no financial maintenance covenants
(i.e., “covenant-lite
loans”) that would typically be included in a traditional loan credit agreement
and general weakening of other restrictive covenants applicable to the borrower
such as limitations on incurrence of additional debt, restrictions on payments
of junior debt or restrictions on dividends and distributions, all of which may
impact recovery values and/or trading levels of senior loans in the future. The
absence of financial maintenance covenants in a loan agreement generally means
that the lender may be unable to declare a default if financial performance
deteriorates. This may hinder the Fund’s ability to reprice credit risk
associated with the borrower and reduce the Fund’s ability to restructure a
problematic loan and mitigate potential loss. As a result, the Fund’s exposure
to losses on investments in senior loans may be increased, especially during a
downturn in the credit cycle or changes in market or economic
conditions.
Senior
loans are also subject to the same risks as investments in other types of debt
securities, including credit risk, interest rate risk, liquidity
risk and valuation risk that may be heightened because of the limited public
information available regarding senior loans and because loan borrowers may be
more highly leveraged and tend to be more adversely affected by changes in
market or economic conditions. If the Fund holds a senior loan through another
financial institution or relies on a financial institution to administer the
loan, its receipt of principal and interest on the loan may be subject to the
credit risk of that financial institution. Although senior loans are generally
secured by specific collateral, there can be no assurance that liquidation of
such collateral would satisfy the borrower’s obligation in the event of
non-payment of scheduled interest or principal or that such collateral could be
readily liquidated. To the extent that a senior loan is collateralized by equity
interests in the borrower or its subsidiaries, such equity interest may lose all
of its value in the event of the bankruptcy of the borrower. Uncollateralized
senior loans involve a greater risk of loss. Senior loans made in connection
with highly leveraged transactions are subject to greater risks than other
senior loans. For example, the risks of default or bankruptcy of the borrower or
the risks that other creditors of the borrower may seek to nullify or
subordinate the Fund’s claims on any collateral securing the loan are greater in
highly leveraged transactions.
Additionally,
there is no central clearinghouse for loan trades and the loan market has not
established enforceable settlement standards or remedies
for failure to settle. As such, the secondary market for senior loans may be
subject to irregular trading activity, wide bid/ask spreads and extended trade
settlement periods, which may cause the Fund to be unable to realize the full
value of its investment. Lastly, senior loans may not be considered
“securities,” and the Fund may not be entitled to rely on the anti-fraud
protections of the federal securities laws and could be forced to rely on the
contractual provisions in the loan agreement and state law to enforce its right
to repayment.
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
22
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.
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.
U.S.
GOVERNMENT SECURITIES RISK. The Fund may invest in U.S.
government securities. U.S. government securities are subject to interest rate
risk but generally do not involve the credit risks associated with investments
in other types of debt securities. As a result, the yields available from U.S.
government securities are generally lower than the yields available from other
debt securities. U.S. government securities are guaranteed only as to the timely
payment of interest and the payment of principal when held to maturity. While
securities issued or guaranteed by U.S. federal government agencies (such as
Ginnie Mae) are backed by the full faith and credit of the U.S. Department of
the Treasury, securities issued by government sponsored entities (such as Fannie
Mae and Freddie Mac) are solely the obligation of the issuer and generally do
not carry any guarantee from the U.S. government. No assurance can be given that
the U.S. government will provide financial support to its government sponsored
entities or any other agency if not obligated by law to do so.
VALUATION
RISK. The sale price the Fund could receive
for a security may differ from the Fund’s valuation of the security,
particularly for securities that trade in low volume or volatile markets or that
are valued using a fair value methodology. Unlike publicly traded securities
that trade on national securities exchanges, there is no central place or
exchange for trading most debt securities. Debt securities generally trade on an
“over-the-counter” market. Due to the lack of centralized information and
trading, and variations in lot sizes of certain debt securities, the valuation
of debt securities may carry more uncertainty and risk than that of publicly
traded securities. Debt securities are commonly valued by third-party pricing
services that utilize a range of market-based inputs and assumptions, including
readily available market quotations obtained from broker-dealers making markets
in such securities, cash flows and transactions for comparable instruments.
However, because the available information is less reliable and more subjective,
elements of judgment may play a greater role in valuation of debt securities
than for other types of securities. Different pricing services may incorporate
different assumptions and inputs into their valuation methodologies, potentially
resulting in different values for the same securities. As a result, if the
Advisor were to change its valuation policies, or if the Fund were to change
pricing services, or if a pricing service were to change its valuation
methodology, there could be a material impact, either positive or negative, on
the Fund’s net asset value. Additionally, pricing services generally price debt
securities assuming orderly transactions of an institutional “round lot” size,
but some trades may occur in smaller, “odd lot” sizes, often at lower
prices than institutional round lot trades. There is no assurance that the Fund
will be able to sell a portfolio security at the price established by the
pricing service, which could result in a loss to the Fund. In addition, the value of the debt
securities in the Fund’s portfolio may change on days or during time periods
when shareholders will not be able to purchase or sell the Fund’s shares.
Authorized Participants who purchase or redeem Fund shares on days when the Fund
is holding fair-valued securities may receive fewer or more shares, or lower or
higher redemption proceeds, than they would have received had the Fund not
fair-valued securities or used a different valuation methodology. Net asset
value calculation may also be impacted by operational risks arising from factors
such as failures in systems and technology.
WARRANTS
AND RIGHTS RISK. Warrants and rights
do not carry with them the right to dividends or voting rights with respect to
the securities that they entitle their holder to purchase, and they do not
represent any rights in the assets of the issuer. As
23
a
result, warrants and rights may be considered more speculative than certain
other types of investments. In addition, the value of a warrant or
right does not necessarily change with the value of the underlying securities.
The Fund could lose the value of a warrant or right if the right to subscribe to
additional shares is not exercised prior to the warrant’s or right’s expiration
date. The market for warrants and rights may be very limited and there may at
times not be a liquid secondary market for warrants and rights.
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.
CONVERTIBLE
SECURITIES RISK. Convertible
securities are bonds, debentures, notes, preferred stocks or other securities
that may be converted or exchanged (by the holder or by the issuer, depending on
the terms of the securities) into shares of the underlying common stock (or cash
or securities of equivalent value) at a stated exchange ratio. If a convertible
security held by the Fund is called for redemption or conversion, the Fund could
be required to tender it for redemption, convert it into the underlying equity
security or sell it to a third party, which may have an adverse effect on the
Fund’s ability to achieve its investment objective. The market values of
convertible securities tend to decline as interest rates increase. However, a
convertible security’s market value also tends to reflect the market price of
the equity security of the issuing company, particularly when the price of the
equity security is greater than the convertible security’s conversion price
(i.e., the predetermined
price or exchange ratio at which the convertible security can be converted or
exchanged for the underlying equity security). Convertible securities are also
exposed to the risk that an issuer will be unable to meet its obligation to make
dividend or principal payments when due as a result of changing financial or
market conditions. Convertible debt securities generally offer lower interest or
dividend yields than non-convertible debt securities of similar credit quality
because of their potential for capital appreciation. Moreover, there can be no
assurance that convertible securities will provide current income prior to
conversion because the issuers of the convertible securities may default on
their obligations. If the convertible security has a conversion or call feature
that allows the issuer to redeem the security before the conversion date, the
potential for capital appreciation may be diminished. In the event that
convertible securities are not optional but mandatory based upon the price of
the underlying common stock, the Fund may be subject to additional exposure to
loss of income in situations where it would prefer to hold debt.
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.
DEPENDENCE
ON KEY PERSONNEL RISK. The 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
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 Advisor.
EUROPE
RISK. The Fund may invest
in the securities of European issuers. Therefore, in addition to the risks
associated with investments in non-U.S. securities generally, the Fund is
subject to certain risks associated specifically with investments in securities
of European issuers. Political or economic disruptions in European countries,
even in countries in which the Fund is not invested, may adversely affect
security values and thus the Fund’s holdings. A significant number of countries
in Europe are member states in the EU, and the member states no longer control
their own monetary policies by directing independent interest rates for their
currencies. In these member states, the authority to direct monetary policies,
including money supply
24
and
official interest rates for the Euro, is exercised by the European Central Bank.
In a 2016 referendum, the United Kingdom elected to withdraw
from the EU. After years of negotiations between the United Kingdom and the EU,
a withdrawal agreement was reached whereby the United Kingdom formally left the
EU. As the second largest economy among EU members, the implications of the
United Kingdom’s withdrawal are difficult to gauge and cannot be fully known.
Trade between the United Kingdom and the EU is highly integrated through supply
chains and trade in services, as well as through multinational companies. The
United Kingdom’s departure may negatively impact the EU and Europe as a whole by
causing volatility within the EU, triggering prolonged economic downturns in
certain European countries or sparking additional member states to contemplate
departing the EU (thereby perpetuating political instability in the
region).
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 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.
INTERNATIONAL
CLOSED MARKET TRADING RISK. Because securities held by the Fund
trade on non-U.S. exchanges that are closed when the Fund’s primary listing
exchange is open, there are likely to be deviations between the current price of
an underlying security and the last quoted price for the underlying security
(i.e., the Fund’s quote from the closed
foreign market) used for purposes of calculating the
Fund's net asset value, resulting in premiums or discounts to the Fund’s net
asset value that may be greater than those experienced by other exchange-traded
funds. In addition, shareholders may not be able to purchase and sell shares of
the Fund on days when the net asset value of the Fund could
be significantly affected by events in the relevant foreign markets.
ISSUER
SPECIFIC CHANGES RISK. The value of an
individual security or particular type of security can be more volatile than the
market as a whole and can perform differently from the value of the market as a
whole.
LEGISLATION/LITIGATION
RISK.
From time to time, various legislative initiatives are proposed in the United
States and abroad which may have a negative impact on certain companies
represented owned by the Fund. 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.
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.
PREFERRED
SECURITIES RISK. Preferred securities
combine some of the characteristics of both common stocks and bonds. Preferred
securities are typically subordinated to bonds and other debt securities in a
company’s capital structure in terms of priority to corporate income, subjecting
them to greater credit risk than those debt securities. Preferred securities
often include provisions that permit the issuer, at its discretion, to defer
distributions for a stated period without any adverse consequences to the
issuer. If the Fund owns a preferred security that is deferring its
distributions, the Fund may be required to report income for federal income tax
purposes although it has not yet received such income in cash. Generally,
holders of preferred securities have no voting rights with respect to the
issuing company unless preferred dividends have been in arrears for a specified
number of periods, at which time the preferred security holders may elect a
number of directors to the issuer’s board of director. Generally, once the
issuer pays all the arrearages, the preferred security holders no longer have
voting rights. In certain circumstances, an issuer of preferred securities may
redeem the securities prior to a specified date. For instance, for certain types
of preferred securities, a redemption may be triggered by a change in federal
income tax or securities laws or a change in regulatory trademark. As with
redemption provisions of debt securities, a special redemption by the issuer may
negatively impact the return of the preferred security held by the Fund.
Preferred securities may also be substantially less liquid than other
securities, including common stock.
25
RESTRICTED
SECURITIES RISK. Restricted
securities are securities that cannot be offered for public resale unless
registered under the applicable securities laws or that have a contractual
restriction that prohibits or limits their resale. Restricted securities include
private placement securities that have not been registered under the applicable
securities laws, such as Rule 144A securities, and securities of U.S. and
non-U.S. issuers that are issued pursuant to Regulation S. Private placements
are generally subject to strict restrictions on resale. Restricted securities
may be illiquid as they generally are not listed on an exchange and may have no
active trading market. The Fund may be unable to sell a restricted security on
short notice or may be able to sell them only at a price below current value. It
may be more difficult to determine a market value for a restricted security.
Also, the Fund may get limited information about the issuer of a restricted
security, so it may be less able to predict a loss. In addition, if Fund
management receives material non-public information about the issuer, the Fund
may as a result be unable to sell the securities. Certain restricted securities
may involve a high degree of business and financial risk and may result in
substantial losses.
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
objectives 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, 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 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 9 mutual fund portfolios, 10
exchange-traded funds consisting of 201 series and 14 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.
William
Housey and Jeffrey Scott are the Fund’s portfolio managers and share
responsibilities for the day-to-day management of the Fund’s
investment portfolio.
•
William Housey, CFA, Managing
Director of Fixed Income, Senior Portfolio Manager. Mr. Housey joined First
Trust Advisors L.P. in June 2010 as the Senior Portfolio Manager for the
Leveraged Finance Team and has 26 years of investment experience. Mr. Housey is
a Managing Director of Fixed Income and is also a member of the First Trust
Strategic Model Investment Committee and the Fixed Income Sub-Committee. Prior
to joining First Trust, Mr. Housey was at Morgan Stanley Investment Management
and its wholly owned subsidiary, Van Kampen Funds, Inc. for 11 years where he
last served as Executive Director and Co-Portfolio Manager. Mr. Housey has
extensive experience in the portfolio management of both leveraged and
unleveraged credit products, including senior loans, high-yield bonds, credit
derivatives and corporate restructurings. Mr. Housey received a B.S. in Finance
from Eastern Illinois University and an M.B.A. in Finance as well as Management
and Strategy from Northwestern University’s Kellogg School of Business. He also
holds the FINRA Series 7, Series 52 and Series 63 licenses. Mr. Housey also
holds the Chartered Financial Analyst designation. He is a member of the CFA
Institute and the CFA Society of Chicago. Mr. Housey also serves on the Village
of Glen Ellyn, IL Police Pension Board.
•
Jeffrey Scott, CFA, Senior Vice
President, Portfolio Manager. Mr. Scott is a Portfolio Manager for the Leveraged
Finance Team at First Trust Advisors L.P. He has 33 years of experience in the
investment management industry and has extensive experience in credit analysis,
product development, and product management. Prior to joining First Trust, Mr.
Scott served as an Assistant Portfolio Manager and as a Senior Credit Analyst
for Morgan Stanley/Van Kampen from October 2008 to June 2010. As Assistant
Portfolio Manager, Mr. Scott served on a team that managed over $4.0 billion of
Senior Loan assets in three separate funds: Van Kampen Senior Loan
26
Fund;
Van Kampen Senior Income Trust; and Van Kampen Dynamic Credit Opportunities
Fund. His responsibilities
included assisting with portfolio construction, buy and sell decision making,
and monitoring fund liquidity and leverage. Mr. Scott earned a B.S. in Finance
and Economics from Elmhurst College and an M.B.A. with specialization in
Analytical Finance and Econometrics and Statistics from the University of
Chicago. He also holds the Chartered Financial Analyst designation and is a
member of the CFA Institute and the CFA Society of Chicago.
For
additional information concerning First Trust, including a description of the
services provided to the Fund, see the Fund’s SAI. Additional
information about the 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
manages the investment of the Fund's assets. First Trust is paid an annual
management fee equal to 0.85% 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 is available in the Fund’s Annual Report to Shareholders
for the fiscal year ended October 31, 2022.
How
to Buy and Sell Shares
Most
investors buy and sell shares of the Fund in secondary market transactions
through brokers. Shares of the Fund are listed for trading on the
secondary market on one or more national securities exchanges. Shares can be
bought and sold throughout the trading day like other publicly traded shares.
There is no minimum investment when buying shares on the Exchange. Although
shares are generally purchased and sold in “round lots” of 100 shares, brokerage
firms typically permit investors to purchase or sell shares in smaller “odd
lots,” at no per-share price differential. When buying or selling shares through
a broker, investors should expect to pay brokerage commissions, investors may
receive less than the net asset value of the shares because shares are bought
and sold at market prices rather than at net asset value, and investors may pay
some or all of the bid-ask spread for each transaction (purchase or sale) of
Fund shares. Share prices are reported in dollars and cents per
share.
Under
normal circumstances, the Fund will pay out redemption proceeds to a redeeming
authorized participant within two days 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 Section 3(c)(1)
or 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.
27
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 objectives. However, the Board noted that direct trading by APs is
critical to ensuring that the shares trade at or close to net asset value. In
addition, the Fund imposes fixed and variable transaction fees on purchases and
redemptions of Creation Units to cover the custodial and other costs incurred by
the Fund in effecting trades. Finally, the Advisor monitors purchase and
redemption orders from APs for patterns of abusive trading and the Fund reserves
the right to not accept orders from APs that the Advisor has determined may be
disruptive to the management of the Fund.
Dividends,
Distributions and Taxes
Dividends
from net investment income, if any, are declared and paid monthly by the Fund.
The Fund distributes its net realized capital gains, if
any, to shareholders at least annually.
Distributions
in cash may be reinvested automatically in additional whole shares only if the
broker through whom you purchased shares makes such
option available. Such shares will generally be reinvested by the broker based
upon the market price of those shares and investors may be subject to customary
brokerage commissions charged by the broker.
Federal
Tax Matters
This
section summarizes some of the main U.S. federal income tax consequences of
owning shares of the Fund. This section is current as of the
date of this prospectus. Tax laws and interpretations change frequently, and
these summaries do not describe all of the tax consequences to all taxpayers.
For example, these summaries generally do not describe your situation if you are
a corporation, a non-U.S. person, a broker-dealer, or other investor with
special circumstances. In addition, this section does not describe your state,
local or non-U.S. tax consequences.
This federal income
tax summary is based in part on the advice of counsel to the Fund. The Internal
Revenue Service (“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.
28
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 income from the Fund that you
must take into account for federal income tax purposes is not reduced by amounts
used to pay a deferred sales fee, if any. The tax laws may require you to treat
distributions made to you in January as if you had received them on December 31
of the previous year.
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 income below certain thresholds). Some capital gains, including some
portion of your capital gain dividends may be taxed at a higher maximum stated
tax rate. Capital gains may also be subject to the Medicare tax described
above.
Net
capital gain equals net long-term capital gain minus net short-term capital loss
for the taxable year. Capital gain or loss is long-term if the
holding period for the asset is more than one year and is short-term if the
holding period for the asset is one year or less. You must exclude the date you
purchase your shares to determine your holding period. However, if you receive a
capital gain dividend from the Fund and sell your share at a loss after holding
it for six months or less, the loss will be recharacterized as long-term capital
loss to the extent of the capital gain dividend received. The tax rates for
capital gains realized from assets held for one year or less are generally the
same as for ordinary income. The Internal Revenue Code of 1986, as amended,
treats certain capital gains as ordinary income in special
situations.
An
election may be available to you to defer recognition of the gain attributable
to a capital gain dividend if you make certain qualifying
investments within a limited time. You should talk to your tax advisor about the
availability of this deferral election and its requirements.
Ordinary income
dividends received by an individual shareholder from a RIC such as the Fund are generally
taxed at the same rates that apply to net capital gain (as discussed above),
provided certain holding period requirements are satisfied and provided the
dividends are attributable to qualifying dividends received by the Fund itself.
The Fund will provide notice to its shareholders of the amount of any
distribution which may be taken into account as a dividend which is eligible for
the capital gains tax rates.
Sale
of Shares
If you sell or
redeem your shares, you will generally recognize a taxable gain or loss. To
determine the amount of this gain or loss, you must subtract your tax
basis in your shares from the amount you receive in the transaction. Your tax
basis in your shares is generally equal to the cost of your shares, generally
including brokerage fees, if any. In some cases, however, you
29
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.
Non-U.S.
Tax Credit
Because
the Fund may invest 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,
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 passive foreign investment company
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
30
income
in excess of its distributions from passive foreign investment companies and its
proceeds from dispositions of passive foreign investment
company 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 passive foreign investment companies 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, 2024.
However, in the event 12b-1 fees are charged in the future, because these fees
are paid out of the Fund's assets, over time these fees will increase the cost
of your investment and may cost you more than certain other types of sales
charges.
Net
Asset Value
The
Fund's net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern Time) on each day the New York Stock Exchange
is open for business. Net asset value is calculated for the Fund by taking the
market price of the Fund’s total assets, including interest or dividends accrued
but not yet collected, less all liabilities, and dividing such amount by the
total number of shares outstanding. The result, rounded to the nearest cent, is
the net asset value per share. All valuations are subject to review by the Board
or its delegate.
The Fund’s
investments are valued daily in accordance with valuation procedures
approved by the Board,
and in accordance with provisions of the 1940 Act and the rules thereunder. Rule
2a-5 under the 1940 Act requires the fair valuation of all portfolio investments
for which market quotations are not readily available. Pursuant to Rule 2a-5
under the 1940 Act, the Board has appointed the Advisor as its valuation
designee for all portfolio investments. Certain securities in which the Fund may
invest are not listed on any securities exchange or board of trade. Such
securities are typically bought and sold by institutional investors in
individually negotiated private transactions that function in many respects like
an over the counter secondary market, although typically no formal market makers
exist. Certain securities, particularly debt securities, have few or no trades,
or trade infrequently, and information regarding a specific security may not be
widely available or may be incomplete. Accordingly, determinations of the fair
value of debt securities may be based on infrequent and dated information.
Because there is less reliable, objective data available, elements of judgment
may play a greater role in valuation of debt securities than for other types of
securities. Typically, debt securities are valued using information provided by
a third-party pricing service. The third-party pricing service primarily uses
broker quotes to value the securities.
The Fund’s
investments are valued daily at market value or, in the absence of market value
with respect to any portfolio securities, at fair value, in
accordance with valuation procedures approved by the Board and in accordance
with the 1940 Act and the rules thereunder. Portfolio securities listed on any
exchange other than Nasdaq and the London Stock Exchange Alternative Investment
Market (“AIM”) are valued at the last sale price
on the business day as of which such value is being determined. Securities
listed on Nasdaq or the AIM are valued at the official closing price on the
business day as of which such value is being determined. Portfolio securities
traded on more than one securities exchange are valued at the last sale price or
official closing price, as applicable, on the business day as of which such
value is being determined at the close of the exchange representing the primary
exchange for such securities. Portfolio securities traded in the
over-the-counter market, but excluding securities trading on Nasdaq or the AIM,
are valued at the mean of the most recent bid and asked price, if available, and
otherwise at the last trade price. Short-term investments that mature in less
than 60 days when purchased are fair valued at cost adjusted for amortization of
premiums and accretion of discount, provided the Advisor has determined that the
use of amortized cost is an appropriate reflection of fair value given market
and issuer-specific conditions existing at the time of determination. Net asset
value may change on days when investors may not sell or redeem Fund
shares.
Senior
Loans in which the Fund invests are not listed on any securities exchange or
board of trade. Senior Loans are typically bought and sold by
institutional investors in individually negotiated private transactions that
function in many respects like
31
an
over-the-counter secondary market, although typically no formal market-makers
exist. This market, while having grown substantially since
its inception, generally has fewer trades and less liquidity than the secondary
market for other types of securities. Some Senior Loans have few or no trades,
or trade infrequently, and information regarding a specific Senior Loan may not
be widely available or may be incomplete. Accordingly, determinations of the
market value of Senior Loans may be based on infrequent and dated information.
Because there is less reliable, objective data available, elements of judgment
may play a greater role in valuation of Senior Loans than for other types of
securities. Typically, Senior Loans are fair valued using information provided
by a third-party pricing service. The third-party pricing service primarily uses
over-the-counter pricing from dealer runs and broker quotes from indicative
sheets to value the Senior Loans.
Certain securities
may not be able to be priced by pre-established pricing methods. Such securities
may be valued by the Advisor at fair value. The use of fair value
pricing by the Fund is governed by valuation procedures approved by the Board
and in accordance with the provisions of the 1940 Act and the rules thereunder.
These securities generally include, but are not limited to, certain restricted
securities (securities which may not be publicly sold without registration under
the Securities Act) for which a pricing service is unable to provide a market
price; securities whose trading has been formally suspended; a security whose
market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund’s net asset value or make it difficult or
impossible to obtain a reliable market quotation; and a security whose price, as
provided by the pricing service, does not, in the opinion of the Advisor,
reflect the security’s fair value. As a general principle, the current fair
value of a security would appear to be the amount which the owner might
reasonably expect to receive for the portfolio investment upon the measurement
date under current market conditions. When fair value prices are used, generally
they will differ from the current market valuations. See the Fund’s SAI for
details.
Because
foreign securities exchanges may be open on different days than the days during
which an investor may purchase or sell shares of the
Fund, the value of the Fund's securities may change on days when investors are
not able to purchase or sell shares of the Fund. The value of securities
denominated in foreign currencies is converted into U.S. dollars at the exchange
rates in effect at the time of valuation.
Fund
Service Providers
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 S. Canal St., 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 https://www.ftportfolios.com/Retail/etf/home.aspx.
Total
Return Information
The table below
compares the total return of the Fund to a market index. The information
presented for the Fund is for the period indicated.
“Average
annual total returns” represent the average annual change in the value of an
investment over the period indicated. “Cumulative total
returns” represent the total change in value of an investment over the period
indicated. The return information shown under “Annual Total Return” in the
Fund’s summary prospectus represents the average annual total returns of the
Fund as of the calendar year end, while the information presented below is as of
the Fund’s fiscal year end. The net asset value per share of the Fund is the
value of one share of the Fund and is computed by dividing the value of all
assets of the Fund (including accrued interest and dividends), less liabilities
(including accrued expenses and dividends declared but unpaid), by the total
number of outstanding shares. The net asset value return is based on the net
asset value per share of the Fund and the market return is based on the market
price per share of the Fund. The price used to calculate market return
(“Market
Price”)
is determined by using the midpoint of the national best bid and offer price
(“NBBO”) as of the time that
the Fund’s net asset value is calculated. Under SEC rules, the NBBO consists of
the highest displayed buy and lowest sell prices among the various exchanges
trading the Fund at the time the Fund's net asset value is calculated. Prior to
January 1, 2019, the price used was the midpoint between the highest bid and the
lowest offer on the stock exchange on which shares of the Fund were listed for
trading as of the time that the Fund's net asset value was calculated. Since the
shares of the Fund typically do not trade
32
in the secondary
market until several days after the Fund's inception, for the period from
inception to the first day of secondary market trading in shares of the Fund,
the net asset value of the Fund is used as a proxy for the secondary market
trading price to calculate market returns. Market and net asset value returns
assume that all distributions have been reinvested in the Fund at Market Price
and net asset value, respectively. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, an index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. Also, market returns do not include brokerage commissions that may
be payable on secondary market transactions. If brokerage commissions were
included, market returns would be lower. The total returns reflect the
reinvestment of dividends on securities in the index. The returns shown in the
table below do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or the redemption or sale of shares of the Fund. The
investment return and principal value of shares of the Fund will vary with
changes in market conditions. Shares of the Fund may be worth more or less than
their original cost when they are redeemed or sold in the market. The Fund's
past performance is no guarantee of future results.
First
Trust Senior Loan Fund (FTSL)
Total Returns as of October 31, 2022
Total Returns as of October 31, 2022
|
|
|
Average
Annual |
Cumulative | ||
|
|
1
Year |
5
Years |
Inception
(5/1/2013) |
5
Years |
Inception
(5/1/2013) |
|
Fund
Performance |
|
|
|
|
|
|
Net Asset
Value |
-2.38% |
2.45% |
2.70% |
12.89% |
28.85% |
|
Market
Price |
-2.64% |
2.39% |
2.69% |
12.55% |
28.67% |
|
Index
Performance |
|
|
|
|
|
|
Morningstar®
LSTA® US
Leveraged Loan Index(1) |
-1.76% |
3.07% |
3.39% |
16.31% |
37.23% |
(1)
Formerly,
S&P/LSTA Leveraged Loan Index.
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 Annual Report to Shareholders dated
October 31, 2022 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 Senior Loan Fund (FTSL)
|
|
Year
Ended October 31, | ||||
|
|
2022 |
2021 |
2020 |
2019 |
2018 |
|
Net
asset value, beginning of period |
$47.78 |
$45.85 |
$47.15 |
$47.75 |
$48.26 |
|
Income
from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
1.89 |
1.54 |
1.67 |
2.13 |
1.87 |
|
Net
realized and unrealized gain (loss) |
(3.01) |
1.92 |
(1.27) |
(0.57) |
(0.43) |
|
Total
from investment operations |
(1.12) |
3.46 |
0.40 |
1.56 |
1.44 |
|
Distributions
paid to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(1.90) |
(1.53) |
(1.67) |
(2.15) |
(1.92) |
|
Return of
capital |
— |
— |
(0.03) |
(0.01) |
(0.03) |
|
Total
distributions paid to shareholders |
(1.90) |
(1.53) |
(1.70) |
(2.16) |
(1.95) |
|
Net
asset value, end of period |
$44.76 |
$47.78 |
$45.85 |
$47.15 |
$47.75 |
|
Total
Return (a) |
(2.38)% |
7.60% |
0.90% |
3.37% |
3.03% |
|
Ratios/supplemental
data: |
|
|
|
|
|
|
Net
assets, end of period (in 000’s) |
$2,938,655 |
$2,866,652 |
$1,276,964 |
$1,603,148 |
$1,883,903 |
|
Ratios
to average net assets: |
|
|
|
|
|
|
Ratio of
total expenses to average net assets (b)
|
0.85% |
0.85% |
0.85% |
0.85% |
0.85% |
|
Ratio of
net investment income (loss) to average net
assets |
4.07% |
3.27% |
3.63% |
4.50% |
3.94% |
|
Portfolio
turnover rate (c) |
63% |
92% |
76% |
44% |
88% |
(a)
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.
(b)
The
Fund indirectly bears its proportionate share of fees and expenses incurred by
the underlying funds in which the Fund invests. This ratio does not include
these indirect fees and expenses.
(c)
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.
35
|
First
Trust
Exchange-Traded
Fund IV |
First
Trust Senior Loan 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. 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. The Fund's most recent SAI, annual and semi-annual reports
and certain other information are available free of charge by calling the Fund
at (800) 621-1675, on the Fund's website at www.ftportfolios.com or through your
financial advisor. Shareholders may call the toll-free number above with any
inquiries.
You
may obtain this and other information regarding the Fund, including the 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
www.sec.gov. You may also request information regarding the Fund by sending a
request (along with a duplication fee) to the SEC by sending an electronic
request to [email protected].
First Trust
Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(800) 621-1675
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(800) 621-1675
www.ftportfolios.com
SEC
File #: 333-174332
811-22559
811-22559