|
First
Trust
Exchange-Traded
Fund VI |
Prospectus
|
FUND
NAME |
TICKER
SYMBOL |
EXCHANGE |
|
Emerging
Markets Equity Select ETF |
RNEM |
Nasdaq |
|
Small Cap
US Equity Select ETF |
RNSC |
Nasdaq |
Each of the funds
listed above (each a “Fund,” and collectively, the “Funds”) lists and principally trades its
shares on Nasdaq, Inc. (“Nasdaq” or the “Exchange”). Market prices may differ to some
degree from the net asset value of the shares.
Unlike mutual funds, each Fund issues and redeems shares at net asset value,
only in large blocks of
shares called "Creation
Units."
Each
Fund is a series of First Trust Exchange-Traded Fund VI (the “Trust”) and an
exchange-traded index fund organized as a separate series of a registered
management investment company.
Except
when aggregated in Creation Units, the shares are not redeemable securities of
the Funds.
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
August 1,
2024
Summary
Information
Emerging
Markets Equity Select ETF (RNEM)
(fees paid directly from your investment)
|
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
(expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
Distribution
and Service (12b-1) Fees |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
3
Emerging
Markets Equity Select ETF (RNEM)
4
Emerging
Markets Equity Select ETF (RNEM)
5
Emerging
Markets Equity Select ETF (RNEM)
6
Emerging
Markets Equity Select ETF (RNEM)
7
Emerging
Markets Equity Select ETF (RNEM)
8
Emerging
Markets Equity Select ETF (RNEM)
9
Emerging
Markets Equity Select ETF (RNEM)
Calendar Year Total Returns as of 12/31 (1)
10
Emerging
Markets Equity Select ETF (RNEM)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
5
Years |
Since
Inception |
Inception
Date |
|
Return Before
Taxes |
|
|
|
|
|
Return After
Taxes on Distributions |
|
|
|
|
|
Return After
Taxes on Distributions and Sale of Fund Shares |
|
|
|
|
|
Nasdaq
Riskalyze Emerging MarketsTM Index
(reflects no
deduction
for fees, expenses or taxes) |
|
|
|
|
|
Nasdaq
Emerging Large Mid CapTM Index
(reflects no deduction
for fees,
expenses or taxes) |
|
|
|
|
|
MSCI Emerging
Markets Index (reflects no deduction for fees,
expenses or
taxes) |
|
|
|
|
Management
Investment
Advisor
First Trust Advisors
L.P. (“First
Trust”
or the “Advisor”)
Portfolio
Managers
The Fund’s portfolio
is managed by a team (the “Investment
Committee”) consisting
of:
●
Daniel J. Lindquist,
Chairman of the Investment Committee and Managing Director of First
Trust
●
David G. McGarel,
Chief Investment Officer, Chief Operating Officer and Managing Director of First
Trust
●
Jon C. Erickson,
Senior Vice President of First Trust
●
Roger F. Testin,
Senior Vice President of First Trust
●
Stan Ueland, Senior
Vice President of First Trust
●
Chris A. Peterson,
Senior Vice President of First Trust
●
Erik Russo, Vice
President of First Trust
The
Investment Committee members are primarily and jointly responsible for the
day-to-day management of the Fund. Each Investment Committee member has served
as a part of the portfolio management team of the Fund since 2017, except for Erik
Russo, who has served as a part of the portfolio management team since
2020.
11
Emerging
Markets Equity Select ETF (RNEM)
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
Summary
Information
Small
Cap US Equity Select ETF (RNSC)
(fees paid directly from your investment)
|
Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
|
(expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
Distribution
and Service (12b-1) Fees |
|
|
Other
Expenses |
|
|
Acquired
Fund Fees and Expenses |
|
|
Total Annual
Fund Operating Expenses |
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
13
Small
Cap US Equity Select ETF (RNSC)
14
Small
Cap US Equity Select ETF (RNSC)
15
Small
Cap US Equity Select ETF (RNSC)
16
Small
Cap US Equity Select ETF (RNSC)
17
Small
Cap US Equity Select ETF (RNSC)
Calendar Year Total Returns as of 12/31 (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Small
Cap US Equity Select ETF (RNSC)
|
|
1
Year |
5
Years |
Since
Inception |
Inception
Date |
|
Return Before
Taxes |
|
|
|
|
|
Return After
Taxes on Distributions |
|
|
|
|
|
Return After
Taxes on Distributions and Sale of Fund Shares |
|
|
|
|
|
Nasdaq
Riskalyze US Small CapTM Index
(reflects no deduction
for fees,
expenses or taxes) |
|
|
|
|
|
Nasdaq US 700
Small CapTM Index
(reflects no deduction for
fees,
expenses or taxes) |
|
|
|
|
|
S&P
SmallCap 600® Index
(reflects no deduction for fees,
expenses or
taxes) |
|
|
|
|
|
Russell
3000® Index
(reflects no deduction for fees, expenses or
taxes) |
|
|
|
|
Management
Investment
Advisor
First Trust Advisors
L.P. (“First
Trust”
or the “Advisor”)
Portfolio
Managers
The Fund’s portfolio
is managed by a team (the “Investment
Committee”) consisting
of:
●
Daniel J. Lindquist,
Chairman of the Investment Committee and Managing Director of First
Trust
●
David G. McGarel,
Chief Investment Officer, Chief Operating Officer and Managing Director of First
Trust
●
Jon C. Erickson,
Senior Vice President of First Trust
●
Roger F. Testin,
Senior Vice President of First Trust
●
Stan Ueland, Senior
Vice President of First Trust
●
Chris A. Peterson,
Senior Vice President of First Trust
●
Erik Russo, Vice
President of First Trust
The
Investment Committee members are primarily and jointly responsible for the
day-to-day management of the Fund. Each Investment Committee member has served
as a part of the portfolio management team of the Fund since 2017, except for Erik
Russo, who has served as a part of the portfolio management team 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.
19
Small
Cap US Equity Select ETF (RNSC)
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.
20
Additional
Information on the Funds' Investment Objectives and Strategies
Each
Fund is a series of First Trust Exchange-Traded Fund VI and is regulated as an
“investment company” under the 1940 Act. Each Fund operates as an index fund and
is not actively managed by First Trust. As such, each Fund’s investment
objective is to provide investment results that correspond generally to the
price and yield (before the Fund’s fees and expenses) of its Index. In seeking
to achieve this objective, each Fund will normally invest at least 90% of its
net assets (plus any borrowings for investment purposes) in the securities that
comprise its Index. Nitrogen Wealth, Inc. serves as the index provider for the
indices
tracked by the Funds. Nitrogen Wealth, Inc. may be referred to throughout this
prospectus as the “Index
Provider.”
Each
Fund will generally employ a full replication strategy, meaning that it will
normally invest in all of the securities comprising its Index in proportion to
their weightings in the Index. However, under various circumstances, full
replication of the Index may not be possible or practicable. In those
circumstances, a Fund may purchase a sample of securities in its Index. There
may also be instances in which First Trust may choose to overweight certain
securities in an Index, purchase securities not in an Index which First Trust
believes are appropriate to substitute for certain securities in the Index, use
futures or derivative instruments or utilize various combinations of the above
techniques in seeking to track an Index. Each Fund may sell securities that are
represented in its Index in anticipation of their removal from the Index or
purchase securities not represented in the Index in anticipation
of their addition to the Index.
Each
Fund’s investment objective, its 90% investment strategy and each of the
policies described herein are non-fundamental policies that may be changed by
the Board of Trustees of the Trust (the “Board”) without shareholder
approval upon 60 days’ prior
written notice to shareholders. Certain fundamental policies of the Funds are
set forth in the Statement of Additional Information
(“SAI”) under “Investment
Objective and Policies.”
Nasdaq
Riskalyze Emerging MarketsTM
Index
According to the
Index Provider, Nasdaq Riskalyze Emerging MarketsTM Index is designed to select low
volatility and liquid securities issued by
companies operating in emerging market countries. The Index is rebalanced and
reconstituted semi-annually in April and
October.
Nasdaq
Riskalyze US Small CapTM
Index
According
to the Index Provider, Nasdaq Riskalyze US Small CapTM Index is designed to
select dividend-paying securities issued by small capitalization U.S. companies.
The Index is rebalanced and reconstituted quarterly in January, April, July and
October.
More
information regarding each Index, including additional detail on the Index
methodology, may be found on the Index Provider’s website. Neither the Funds,
the Board, First Trust, or any of their affiliates, are responsible for the
information set forth on the Index Provider’s website. Information from the
Index Provider’s website and any other information not expressly included in this
prospectus is not incorporated by reference in, and should not be considered
part of, this prospectus.
Fund
Investments
Principal
Investments
Equity
Securities
The
Funds invest in equity securities, including common stocks, depositary receipts
and preferred securities. Common stock represents an equity ownership interest
in issuers. Holders of common stock are entitled to the income and increase in
the value of the assets and business of the issuers after all debt obligations
and obligations to preferred stockholders are satisfied. Depositary receipts are
certificates typically issued by a bank or trust company that represent
ownership interests in securities of non-U.S. companies. Depositary receipts may
or may not be jointly sponsored by the underlying issuer. Preferred securities,
which generally pay fixed or adjustable-rate dividends or interest to investors,
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.
Real
Estate Investment Trusts
The
Funds may invest in real estate investment trusts ("REITs"). REITs are
financial vehicles that pool investors’ capital to purchase
or finance real estate. REITs are generally classified as equity REITs, mortgage
REITs or a combination of equity and mortgage REITs. Equity REITs invest the
majority of their assets directly in real property and derive income primarily
from the
21
collection
of rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. REITs are not taxed
on income distributed to shareholders provided they comply with the applicable
tax requirements.
Non-Principal
Investments
Cash
Equivalents and Short-Term Investments
Normally,
the Funds invest substantially all of their assets to meet their objectives.
Each Fund may invest the remainder of its assets in securities with maturities
of less than one year or cash equivalents, or it may hold cash. The percentage
of a 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, a 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, a Fund may not be able to achieve its
investment objective. A Fund may adopt a defensive strategy when the portfolio
managers believe securities in which such Fund normally invests have elevated
risks due to political or economic factors and in other extraordinary
circumstances. For more information on
eligible short-term investments, see the SAI.
Investment
Companies
Certain
Funds may invest in the securities of other investment companies, including
exchange-traded funds ("ETFs"). ETFs are
managed registered investment companies which invest in various types of
securities. ETFs issue shares of common stock that are traded on a securities
exchange. ETFs trade on a securities exchange and their shares may, at times,
trade at a premium or discount to their net asset value. Each Fund’s ability to
invest in other investment companies is limited by the 1940 Act and the related rules
and interpretations.
As a
shareholder in a pooled investment vehicle, a Fund will bear 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 a
Fund invests in other pooled investment vehicles. In addition, a Fund will incur
brokerage costs when purchasing and selling shares of money market funds and
ETFs. 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.
Each
Fund, except for the Emerging Markets Equity Select ETF, has adopted a policy
that it will not invest in other investment companies in excess
of 1940 Act limits in reliance on Sections 12(d)(1)(F) or 12(d)(1)(G) of the
1940 Act.
Illiquid
Investments
Each
Fund may invest up to 15% of its net assets in investments and other instruments
that are, at the time of investment, illiquid (determined using the Securities
and Exchange Commission’s standard applicable to investment companies,
i.e., securities
that cannot be disposed of by a Fund within seven days in the ordinary course of
business at approximately the amount at which the
Fund has valued the securities).
Disclosure
of Portfolio Holdings
Each
Fund’s portfolio holdings are available on the Funds' website at
www.ftportfolios.com. A description of the policies and procedures with respect
to the disclosure of each Fund's portfolio securities is included in the Funds'
SAI, which is also available on the Funds'
website.
Risks
of Investing in the Funds
Risk
is inherent in all investing. Investing in a Fund involves risk, including the
risk that you may lose all or part of your investment. There can be no assurance
that a Fund will meet its stated objective. Before you invest, you should
consider the following disclosure pertaining to the Principal Risks set forth
above as well as Non-Principal Risks set forth below in this prospectus.
The
order of the below risk factors does not indicate the significance of any
particular risk factor.
Principal
Risks
ASIA
RISK.
Certain Funds invest significantly in the securities of Asian issuers. Such
investments subject a Fund to certain risks
associated specifically with investments in securities of Asian issuers,
including distinct legal, regulatory, political and economic risks. Many Asian
economies have experienced rapid growth and industrialization, and there is no
assurance that
22
this
growth rate will be maintained. Some Asian economies are highly dependent on
trade, and economic conditions in other countries within and outside Asia can
impact these economies. Certain of these economies may be adversely affected by
trade or policy disputes with its major trade partners. There is also a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of investors and financial intermediaries. Certain Asian countries
have experienced and may in the future experience expropriation and
nationalization of assets, confiscatory taxation, currency manipulation,
political instability, armed conflict and social instability as a result of
religious, ethnic, socio-economic and/or political unrest. In particular,
escalated tensions involving North Korea and any outbreak of hostilities
involving North Korea could have a severe adverse effect on Asian economies.
Governments of certain Asian countries have exercised, and continue to exercise,
substantial influence over many aspects of the private sector. In certain cases,
the government owns or controls many companies, including the largest in the
country. Accordingly, government actions could have a significant effect on the
issuers of a Fund’s securities or on economic conditions generally. Issuers in
Asia may not be subject to the same accounting, auditing and financial reporting
standards as U.S. companies and if their securities are not listed on a U.S.
exchange, they may not be subject to the same corporate governance standards as
U.S. issuers. In addition, satisfactory custodial services for investment
securities may not be available in some Asia countries, which may result in a
Fund incurring additional costs and delays in providing transportation and
custody services for such securities outside such countries. Recent developments
in relations between the U.S. and China have heightened concerns of increased
tariffs and restrictions on trade between the two countries. An increase in
tariffs or trade restrictions, or even the threat of such developments, could
lead to a significant reduction in international trade, which could have a
negative impact on the economy of Asian countries
and a commensurately negative impact on the Fund.
AUTHORIZED
PARTICIPANT CONCENTRATION RISK. Only an authorized
participant may engage in creation or redemption transactions
directly with a Fund. A limited number of institutions act as authorized
participants for a Fund. Although participants are not obligated to make a
market in a 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, a 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.
CURRENCY
RISK.
Certain Funds 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. A 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 a 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 a 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 a Fund's
non-U.S. holdings whose value is tied to the affected non-U.S. currency.
Additionally, the prices of non-U.S. securities that are traded in U.S. dollars
are often indirectly influenced by currency fluctuations.
CURRENT
MARKET CONDITIONS RISK. Current market
conditions risk is the risk that a particular investment, or shares of a Fund in
general, may fall in value due to current market conditions.
As a means to fight
inflation, which remains at elevated levels, the Federal Reserve and certain
foreign central banks have raised interest rates, and the Federal Reserve has begun
the process to reverse previously implemented quantitative easing. U.S. regulators have
proposed several changes to market and issuer regulations which would directly
impact the Funds. While it is hard to predict whether any of these regulations
will be adopted, due to the current scope of proposed regulations, any
regulatory changes could adversely impact a Fund’s ability to achieve its
investment strategies or make certain investments. Regulatory changes may also
increase Fund operational costs, which could impact overall performance. Certain
market factors may result in central banks changing their approach in the
future. Recent and potential future bank failures could result in disruption to
the broader banking industry or markets generally and reduce confidence in
financial institutions and the economy as a whole, which may also heighten
market volatility and reduce liquidity.
The
ongoing adversarial political climate in the United States, as well as political
and diplomatic events both domestic and abroad, such as presidential,
congressional and gubernatorial elections in the U.S., global elections and
governmental changes and the U.S. government’s failure to agree on a long-term
budget and deficit reduction plan, have and may continue to have an adverse
impact on the U.S. regulatory landscape, markets and investor behavior, which
could have a negative impact on
23
a
Fund’s investments and operations. The potential result of a U.S. federal
government shutdown may also significantly impact investor and consumer
behavior, which may adversely impact the markets and global economy. Global and
domestic authorities and regulators have previously responded to serious
economic disruptions with ranging fiscal and monetary policy changes, including
but not limited to, direct capital infusions into companies, new monetary
programs and dramatically lower interest rates. Any change in these policies, or
the ineffectiveness of these policies, could increase volatility in securities
markets, which may adversely impact a Fund’s investments and performance. Any
market disruptions could also delay a Fund from making sound investment
decisions in a timely manner. If a Fund concentrates its investments in a region
enduring geopolitical market disruption, it may face higher risk of loss,
although the increasing interconnectivity between global economies and financial
markets can lead to events or conditions in one country, region or financial
market adversely impacting a different country, region or financial
market.
Other unexpected
political, regulatory and diplomatic events within the U.S. and abroad may
affect investor and consumer confidence and may adversely impact financial
markets and the broader economy. For example, ongoing armed conflicts between Russia and
Ukraine in Europe and among Israel, Hamas and other militant groups in
the Middle East, have caused and could continue
to cause significant market disruptions and volatility within the markets in
Russia, Europe, the
Middle East and the United
States. The hostilities and sanctions resulting from those hostilities have and
could continue to have a significant impact on certain Fund investments as well
as Fund performance and liquidity. The economies of the United States and its
trading partners, as well as the financial markets generally, may be adversely
impacted by trade disputes and other matters. For example, the United States has
imposed trade barriers and restrictions on China. In addition, the Chinese
government is engaged in a longstanding dispute with Taiwan, continually
threatening an invasion. If the political climate between the United States and
China does not improve or continues to deteriorate, if China were to attempt
invading Taiwan, or if other geopolitical conflicts develop or worsen,
economies, markets and individual securities may be adversely affected, and the
value of a Fund’s assets may go down. The COVID-19 global pandemic, or any
future public health crisis, 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 vaccines have been developed, there is no guarantee that
vaccines will be effective against emerging future variants of the disease. As
this global pandemic illustrated, such events may affect certain geographic regions,
countries, sectors and industries more significantly than others.
Advancements
in technology may also adversely impact markets and the overall performance of a
Fund. For instance, the economy may be significantly impacted by the advanced
development and increased regulation of artificial intelligence. As the use of
technology grows, liquidity and market movements may be affected. As artificial
intelligence is used more widely, the profitability and growth of Fund holdings
may be impacted, which could significantly impact the overall performance of
a
Fund.
These
events, and any other future events, may adversely affect the prices and
liquidity of a Fund’s portfolio investments and could result in
disruptions in the trading markets.
CYBER
SECURITY RISK. The Funds are
susceptible to operational risks through breaches in cyber security. A breach in
cyber security
refers to both intentional and unintentional events that may cause a Fund to
lose proprietary information, suffer data corruption or lose operational
capacity. Such events could cause a 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 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 a Fund invests, have the ability to cause
disruptions and impact business operations, potentially resulting in: financial
losses; interference with a 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 a 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 a Fund in order to resolve or
prevent cyber incidents in the future. While the Funds have 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
Funds cannot control the cyber security plans and systems put
24
in
place by service providers to the Funds, issuers in which the Funds invest,
market makers or authorized participants. However, there is no guarantee that
such efforts will succeed, and the Funds and their shareholders could be
negatively impacted as a result.
DEPOSITARY
RECEIPTS RISK. Certain Funds invest
in depositary receipts. Depositary receipts are securities issued by a bank
or
trust company reflecting ownership of underlying securities issued by a foreign
company. An investment in depositary receipts involves further risks due to
certain unique features. Any distributions paid to the holders of depositary
receipts are usually subject to a fee charged by the depositary. Holders of
depositary receipts may have limited voting rights pursuant to a deposit
agreement between the underlying issuer and the depositary. In certain cases,
the depositary will vote the shares deposited with it as directed by the
underlying issuer’s board of directors. Furthermore, investment restrictions in
certain countries may adversely impact the value of depositary receipts because
such restrictions may limit the ability to convert shares into depositary
receipts and vice versa. Such restrictions may cause shares of the underlying
issuer to trade at a discount or premium to the market price of the depositary
receipt. Moreover, if depositary receipts are converted into shares, the laws in
certain countries may limit the ability of a non-resident to trade the shares
and to reconvert the shares to depositary receipts. Depositary receipts may be
“sponsored” or “unsponsored.” Sponsored depositary receipts are established
jointly by a depositary and the underlying issuer, whereas unsponsored
depositary receipts may be established by a depositary without participation by
the underlying issuer. Holders of unsponsored depositary receipts generally bear
all the costs associated with establishing the unsponsored depositary receipts.
In addition, the issuers of the securities underlying unsponsored depositary
receipts are not obligated to disclose material information in the U.S. and,
therefore, there may be less information available regarding such issuers and
there may not be a correlation between such information and the market value of
the depositary receipts.
DIVIDENDS
RISK.
Certain Funds invest in dividend-paying securities. A Fund’s investment in
dividend-paying securities could cause
the Fund to underperform similar funds that invest without consideration of an
issuer’s track record of paying dividends. Companies that issue
dividend-yielding securities are not required to continue to pay dividends on
such securities. Therefore, there is the possibility that such companies could
reduce or eliminate the payment of dividends in the future especially if the
companies are facing
an economic downturn, which could negatively affect a Fund’s
performance.
EMERGING
MARKETS RISK. Certain
Funds invest in securities issued by companies operating in emerging market
countries. Investments in
securities issued by governments and companies operating in emerging market
countries involve additional risks relating to political, economic, or
regulatory conditions not associated with investments in securities and
instruments issued by U.S. companies or by companies operating in other
developed market countries. This is due to, among other things, the potential
for greater market volatility, lower trading volume, a lack of liquidity,
potential for market manipulation, higher levels of inflation, political and
economic instability, greater risk of a market shutdown and more governmental
limitations on foreign investments in emerging market countries than are
typically found in more developed market countries. Also, certain regions, countries
or asset types may suffer periods of relative illiquidity. Moreover, emerging market countries
often have less uniformity in
accounting and reporting requirements, unsettled securities laws, less reliable
securities valuations and greater risks associated with custody of securities
than developed markets. In addition, the Public Company Accounting Oversight
Board, which regulates auditors of U.S. public companies, is unable to inspect
audit work papers in certain emerging market countries. Emerging market
countries often have greater risk of capital controls through such measures as
taxes or interest rate control than developed markets. Certain emerging market
countries may also lack the infrastructure necessary to attract large amounts of
foreign trade and investment. Local securities markets in emerging market
countries may trade a small number of securities and may be unable to respond
effectively to increases in trading volume, potentially making prompt
liquidation of holdings difficult or impossible. Settlement procedures in
emerging market countries are frequently less developed and reliable than those
in the U.S. and other developed market countries. In addition, significant
delays may occur in registering the transfer of securities. Settlement or
registration problems may make it more difficult for a Fund to value its
portfolio securities and could cause the Fund to miss attractive investment
opportunities. Investing in emerging market countries involves a higher risk of
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investments and on repatriation of capital
invested by certain emerging market countries. Enforcing legal rights may be
made difficult, costly and slow in emerging markets as there may be additional
problems enforcing claims against non-U.S. governments. As such, the rights and
remedies associated with emerging market investment securities may be different
than those available for investments in more developed markets. For example, it
may be more difficult for shareholders to bring derivative litigation or for U.S.
regulators to bring enforcement actions against issuers in emerging
markets.
In
addition, due to the differences in regulatory, accounting, audit and financial
recordkeeping standards, including financial disclosures, less information about
emerging market companies is publicly available and information that is
available may be unreliable or outdated. This may affect the Index Provider’s
ability to compute and construct the Index and may further impede
25
the
Advisor’s ability to accurately evaluate the index data provided. This potential
for error in index construction and index data could affect the
overall performance of a Fund.
EQUITY
SECURITIES RISK. The value of a
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.
FINANCIAL
COMPANIES RISK. Certain Funds invest
significantly in financial companies. Financial companies are subject to
extensive
governmental regulation and intervention, which may adversely affect the scope
of their activities, the prices they can charge, the amount and types of capital
they must maintain and, potentially, their size. Governmental regulation may
change frequently and may have significant adverse consequences for financial
companies, including effects not intended by such regulation. The impact of more
stringent capital requirements, or recent or future regulation in various
countries, on any individual financial company or on financial companies as a
whole cannot be predicted. Certain risks may impact the value of investments in
financial companies more severely than those of investments in other issuers,
including the risks associated with companies that operate with substantial
financial leverage. Financial companies may also be adversely affected by
volatility in interest rates, loan losses and other customer defaults, decreases
in the availability of money or asset valuations, credit rating downgrades and
adverse conditions in other related markets. Insurance companies in particular
may be subject to severe price competition and/or rate regulation, which may
have an adverse impact on their profitability. Financial companies are
also a
target for cyber attacks and may experience technology malfunctions and
disruptions as a result.
INDEX
CONCENTRATION RISK. A Fund will be
concentrated in an industry or a group of industries to the extent that the
Index
is so concentrated. To the extent that a Fund invests a significant percentage
of its assets in a single asset class or the securities of issuers within the
same country, state, region, industry or sector, an adverse economic, business
or political development may affect the value of the Fund’s investments more
than if a Fund were more broadly diversified. A significant exposure makes a
Fund more susceptible to any single occurrence and may subject a Fund to greater
market risk than a fund that is more broadly diversified. There may be instances
in which the Index, for a variety of reasons including changes in the prices of
individual securities held by a Fund, has a larger exposure to a small number of
stocks or a single stock relative to the rest of the stocks in the Index. Under
such circumstances, a Fund will not deviate from the Index except in rare
circumstances or in an immaterial way and therefore the Fund’s returns would be
more greatly influenced by the returns of the stock(s) with the larger
exposure.
INDEX
OR MODEL CONSTITUENT RISK. Each Fund may be a
constituent of one or more indices or ETF models. As a result, a
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 a 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 a Fund and
removal from an index could result in outsized selling activity in a relatively
short period of time. As a result, a 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,
a Fund can be exposed to increased brokerage costs and adverse tax
consequences and the market price of the Fund can be negatively
affected.
INDEX
PROVIDER RISK. There is no
assurance that the Index Provider, or any agents that act on its behalf, will
compile an Index
accurately, or that an Index will be determined, maintained, constructed,
reconstituted, rebalanced, composed, calculated or disseminated accurately. The
Index Provider and its agents do not provide any representation or warranty in
relation to the quality, accuracy or completeness of data in an Index, and do
not guarantee that an Index will be calculated in accordance with its stated
methodology. The Advisor’s mandate as described in this prospectus is to manage
each Fund consistently with the Index provided by the Index Provider. The
Advisor relies upon the Index provider and its agents to accurately compile,
maintain, construct, reconstitute, rebalance, compose, calculate and disseminate
an Index accurately. Therefore, losses or costs associated with any Index
Provider or agent errors generally will be borne by a Fund and its shareholders.
To correct any such error, the Index Provider or its agents may carry out an
unscheduled rebalance of an Index or other modification of Index constituents or
weightings. When a Fund in turn rebalances its portfolio, any transaction costs
and market exposure arising from such portfolio rebalancing will be borne by a
Fund and its shareholders. Unscheduled rebalances also expose a
26
Fund to additional
tracking error risk. Errors in respect of the quality, accuracy and completeness
of the data used to compile an Index may occur from time to time and may not be
identified and corrected by the Index Provider for a period of time or at all,
particularly where an Index is less commonly used as a benchmark by funds or
advisors. For example, during a period where an Index contains incorrect
constituents, a Fund tracking the Index would have market exposure to such
constituents and would be underexposed to the Index’s other constituents. Such
errors may negatively impact a Fund and its shareholders. The Index Provider and
its agents rely on various sources of information to assess the criteria of
issuers included in an Index, including information that may be based on
assumptions and estimates. Neither a Fund nor the Advisor can offer assurances
that an Index’s calculation methodology or sources of information will provide
an accurate assessment of included issuers. Unusual market conditions
or issuer-specific
events may cause the Index Provider to postpone a scheduled rebalance, exclude
or
substitute a security from the Index or undertake other measures which could cause an Index to vary
from its normal or expected
composition. The postponement of a scheduled rebalance in a time of market
volatility could mean that constituents that would otherwise be removed at
rebalance due to changes in market capitalizations, issuer credit ratings, or
other reasons may remain, causing the performance and constituents of an Index
to vary from those expected under normal conditions. Apart from scheduled
rebalances, the Index Provider or its agents may carry out additional ad hoc
rebalances to an Index due to unusual market conditions or in
order, for example, to correct an error in the selection of index
constituents.
INDIA
RISK.
Certain Funds invest significantly in the securities of Indian issuers.
Investment in Indian securities involves risks in
addition to those associated with investments in securities of issuers in more
developed countries, which may adversely affect the value of a Fund’s assets.
Such heightened risks include, among others, political and legal uncertainty,
greater government control over the economy, currency fluctuations or blockage
and the risk of nationalization or expropriation of assets. In addition,
religious and border disputes persist in India. Moreover, India has experienced
civil unrest and hostilities with neighboring countries, including Pakistan, and
the Indian government has confronted separatist movements in several Indian
states. In addition, inflation in India remains at very high levels. High
inflation may lead to the adoption of corrective measures designed to moderate
growth, regulate prices of staples and other commodities and otherwise contain
inflation. Such measures could inhibit economic activity in India. The
securities market of India is characterized by a small number of listed
companies that have significantly smaller market capitalizations, greater price
volatility, greater delays and possibility of disruptions in settlement
transactions, greater political uncertainties and greater dependence on
international trade or development assistance and substantially less liquidity
than companies in more developed markets. The securities industry in India is
also subject less governmental regulation than in other countries. Indian
issuers are subject to less regulation and scrutiny with regard to financial
reporting, accounting and auditing than U.S. companies. Therefore, information
regarding Indian corporations may be less reliable and all material information
may not be available. Certain restrictions on foreign investment may decrease
the liquidity of a Fund’s portfolio or subject the Fund to higher transaction
costs. Investments in Indian securities may also be limited or prevented, at
times, due to the limits on foreign ownership imposed by the RBI. The Indian
government has exercised, and continues to exercise, significant influence over
many aspects of the Indian economy, and the number of public sector enterprises
in India is substantial. Accordingly, Indian government actions in the future
could have a significant effect on the Indian economy, which could affect the
prices and yields of securities in a Fund’s portfolio. In addition, the economy
of India may differ favorably or unfavorably from the U.S. economy in such
respects as the rate of growth of gross domestic product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. Agriculture occupies a more prominent position in the Indian economy
than in the U.S. economy, and therefore the Indian economy is more susceptible
to adverse changes in weather. Furthermore, monsoons and other natural disasters
in India
and surrounding regions also can affect the value of a Fund’s
investments.
INFLATION
RISK.
Certain Funds are subject to 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 a Fund’s assets and distributions may
decline. 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 a Fund’s investments may not keep pace with
inflation, which may result in losses to Fund
investors.
LARGE
CAPITALIZATION COMPANIES RISK. Certain Funds may
invest in the securities of large capitalization companies. Large
capitalization companies may grow at a slower rate and be less able to adapt to
changing market conditions than smaller capitalization companies. Thus, the
return on investment in securities of large capitalization companies may be less
than the return on investment in securities of small and/or mid capitalization
companies. The performance of large capitalization companies also tends
to trail the overall market during different market cycles.
LOW
VOLATILITY RISK. Certain Funds
utilize a low volatility style of investing. Although subject to the risks of
common stocks, low
volatility stocks are seen as having a lower risk profile than the overall
markets. However, a portfolio comprised of low
27
volatility
stocks may not produce investment exposure that has lower variability to changes
in such stocks’ price levels. Low volatility stocks are likely to underperform
the broader market during periods of rapidly rising stock prices and may reduce
a Fund’s
participation in market gains.
MARKET
CAPITALIZATION DEVIATION RISK. Certain Funds seek
to hold securities with a market capitalization that falls within
a specific range. However, because of possible corporate action or market
movement, there can be no assurance that the securities held by a Fund will stay
within the Fund’s intended market capitalization range. As a result, a Fund may
be exposed to additional risk or
investors may not be given the opportunity to invest fully in a certain market
capitalization range.
MARKET
MAKER RISK. The Funds face
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 a
Fund’s portfolio securities and the Fund’s market price. A 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 a Fund’s net asset value and the price at which the Fund’s shares are
trading on the Exchange, which could result in a decrease in value of the Fund’s
shares. This reduced effectiveness could result in Fund shares trading at a
discount to net asset value
and also in greater than normal intraday bid-ask spreads for Fund
shares.
MARKET
RISK.
Market risk is the risk that a particular investment, or shares of a Fund in
general, may fall in value. Securities are
subject to market fluctuations caused by real or perceived adverse economic,
political, and regulatory factors or market developments, changes in interest
rates and perceived trends in securities prices. Shares of a Fund could decline
in value or underperform other investments. In addition, local, regional or
global events such as war, acts of terrorism, market manipulation, government
defaults, government shutdowns, regulatory actions, political changes,
diplomatic developments, the imposition of sanctions and other similar measures,
spread of infectious diseases or other public health issues, recessions, natural
disasters, or other events could have a significant negative impact on a Fund
and its investments. Any of such circumstances could have a materially negative
impact on the value of a Fund’s shares, the liquidity of an investment, and may
result in increased market volatility. During any such events, a Fund’s shares
may trade at increased premiums or discounts to their net asset value, the
bid/ask
spread on a Fund’s shares may widen and the returns on investment may
fluctuate.
MID
CAPITALIZATION COMPANIES RISK. Certain Funds may invest in
securities of mid capitalization companies. Mid capitalization
companies may be more vulnerable to adverse general market or economic
developments and thus may experience greater price volatility than more
established large capitalization companies. Securities of mid capitalization
companies may also be less liquid than securities of large capitalization
companies and may have more limited trading volumes. Accordingly, such companies are
generally subject to greater market risk than larger, more established
companies.
NON-CORRELATION
RISK. A
Fund’s return may not match the return of its Index for a number of reasons. A
Fund incurs operating
expenses not applicable to its Index and may incur costs in buying and selling
securities, especially when rebalancing the Fund’s portfolio holdings to reflect
changes in the composition of the Index. In addition, a Fund’s portfolio
holdings may not exactly replicate the securities included in its Index or the
ratios between the securities included in the Index. Additionally, in order to
comply with its investment strategies and policies, a Fund’s portfolio may
deviate from the composition of the Index. Accordingly, a
Fund's return may underperform the return of its Index.
NON-U.S.
SECURITIES RISK. Certain Funds invest
in non-U.S. securities. An investment in securities of non-U.S. companies
involves
risks not associated with domestic issuers. Investment in non-U.S. securities
may involve higher costs than investment in U.S. securities, including higher
transaction and custody costs as well as the imposition of additional taxes by
non-U.S. governments. Non-U.S. investments may also involve risks associated
with the level of currency exchange rates, less complete financial information
about the issuers, less market liquidity, more market volatility and political
instability. Future political and economic developments, the possible imposition
of withholding taxes on dividend income, the possible seizure or nationalization
of non-U.S. holdings, the imposition of sanctions by foreign governments, the
possible establishment of capital controls, exchange controls or freezes on the
convertibility of currency or the adoption of other governmental restrictions
might adversely affect an investment in non-U.S. securities. Additionally,
non-U.S. issuers may be subject to less stringent regulation, and to different
accounting, auditing and recordkeeping requirements. The U.S. and non-U.S.
markets often rise and fall at different times or by different amounts due to
economic or other regional developments particular to a given country
or
region.
OPERATIONAL
RISK.
Each Fund is subject to risks arising from various operational factors,
including, but not limited to, human error,
processing and communication errors, errors of a Fund’s service providers,
counterparties or other third-parties, failed
28
or
inadequate processes and technology or systems failures. Each 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 each
Fund's ability to meet its investment objective. Although the Funds and the
Funds’ investment advisor seek to reduce these operational risks through
controls
and procedures, there is no way to completely protect against such
risks.
PASSIVE
INVESTMENT RISK. The Funds are not
actively managed. Each Fund invests in securities included in or representative
of
its Index regardless of investment merit. The Funds generally will not attempt
to take defensive positions in declining markets. In the event that an Index is
no longer calculated, the corresponding Index license is terminated or the
identity or character of an Index is
materially changed, the applicable Fund will seek to engage a replacement
index.
PORTFOLIO
TURNOVER RISK. The Funds have an
investment strategy that may frequently involve buying and selling portfolio
securities.
High portfolio turnover may result in a Fund paying higher levels of transaction
costs, including brokerage commissions, dealer mark-ups and other costs and may
generate greater tax liabilities for shareholders. Portfolio turnover
risk may
cause a Fund’s performance to be less than expected.
PREFERRED
SECURITIES RISK. Certain Funds may
invest in preferred securities. 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 a Fund owns a preferred security that
is deferring its distributions, a 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 a Fund. Preferred securities may also
be substantially less liquid than other securities, including common
stock.
PREMIUM/DISCOUNT
RISK.
The market price of a Fund’s shares will generally fluctuate in accordance with
changes in the Fund’s
net asset value as well as the relative supply of and demand for shares on the
Exchange. First Trust cannot predict whether shares will trade below, at or
above their net asset value because the shares trade on the Exchange at market
prices and not at net asset value. Price differences may be due, in large part,
to the fact that supply and demand forces at work in the secondary trading
market for shares will be closely related, but not identical, to the same forces
influencing the prices of the holdings of a 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 a Fund’s shares may become less liquid in
response to deteriorating liquidity in the market for a Fund’s underlying
portfolio holdings, which could in turn lead to differences between the market
price of a Fund’s shares and their net asset value and the bid/ask spread on
the
Fund’s shares may widen.
REIT
RISK. Certain Funds may
invest in REITs. REITs typically own and operate income-producing real estate,
such as residential or
commercial buildings, or real-estate related assets, including mortgages. As a
result, investments in REITs are subject to the risks associated with investing
in real estate, which may include, but are not limited to: fluctuations in the
value of underlying properties; defaults by borrowers or tenants; market
saturation; changes in general and local operating expenses; and other economic,
political or regulatory occurrences affecting companies in the real estate
sector. Additionally, investing in REITs involves certain other risks related to
their structure and focus, which include, but are not limited to, dependency
upon management skills, limited diversification, the risks of locating and
managing financing for projects, heavy cash flow dependency, possible default by
borrowers, the costs and potential losses of self-liquidation of one or more
holdings, the risk of a possible lack of mortgage funds and associated interest
rate risks, overbuilding, property vacancies, increases in property taxes and
operating expenses, changes in zoning laws, losses due to environmental damages,
changes in neighborhood values and appeal to purchasers, the possibility of
failing to maintain exemptions from registration under the 1940 Act, failure to
satisfy the requirements of the Internal Revenue Code of 1986 for maintaining
REIT status and, in many cases, relatively small
29
market
capitalization, which may result in less market liquidity and greater price
volatility for a REIT’s shares. REITs are also subject to the risk that the real
estate market may experience an economic downturn generally, which may have a
material effect on the real
estate in which the REITs invest and their underlying portfolio
securities.
SMALL
CAPITALIZATION COMPANIES RISK. Certain Funds may invest in
securities of small capitalization companies. Small capitalization companies may
be more vulnerable to adverse general market or economic developments, and their
securities may be less liquid and may experience
greater price volatility than large and mid capitalization companies as a result
of several factors, including limited trading
volumes, fewer products or financial
resources, management inexperience and less
publicly available
information.
Accordingly, such companies are generally subject
to greater market risk than large and mid capitalization
companies.
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 a Fund will continue to be met or will remain
unchanged. A Fund may have difficulty maintaining its listing on the Exchange in
the event a 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.
VARIABLE
INTEREST ENTITIES RISK. In China, direct
ownership of companies in certain sectors by foreign individuals and
entities
is prohibited. In order to allow for foreign investment in these businesses,
many Chinese companies have created VIE structures to enable indirect foreign
ownership. In such an arrangement, a Chinese operating company typically
establishes an offshore shell company in another jurisdiction, such as the
Cayman Islands. That shell company enters into service and other contracts with
the Chinese issuer or operating company to obtain economic exposure to the
Chinese company, then issues shares on an exchange outside of mainland China,
and U.S. investors hold stock in the non-Chinese shell company rather than
directly in the Chinese issuer or operating company. This arrangement allows
U.S. investors, such as a Fund, to obtain economic exposure to the Chinese
issuer or operating company through contractual means rather than through formal
equity ownership. Because neither the shell company nor the Fund owns actual
equity interests in the Chinese operating company, they do not have the voting
rights or other types of control that an equity holder would expect to benefit
from. Although VIEs are a longstanding industry practice and well known to
officials and regulators in China, VIEs are not formally recognized under
Chinese law. Intervention by the Chinese government with respect to VIEs could
significantly affect the Chinese company’s performance and the enforceability of
the VIE’s contractual arrangements that establish the links between the Chinese
company and the shell company in which a Fund invests. This could considerably
impact the financial condition of the shell company in which a Fund invests by
limiting its ability to consolidate the financial results of the Chinese
operating company into its own financial statements, as well as make the value
of the shares held by the Fund effectively worthless. Further, if Chinese
officials prohibit the existence of VIEs, the market value of a Fund’s
associated holdings would likely suffer significant, and possibly permanent
effects, which could negatively impact the Fund’s net asset value and could
result in substantial losses. Further, it is uncertain whether any new laws,
rules or regulations relating to VIE structures will be adopted or, if adopted, what
impact they would have on the value of a Fund’s shares.
VIEs
are also subject to the investment risks associated with the underlying Chinese
issuer or operating company. Chinese companies are not subject to the same
degree of regulatory requirements or accounting standards and oversight as
companies in more developed countries. As a result, information about the
Chinese securities and VIEs in which a Fund invests may be less reliable and
incomplete. There also may be significant obstacles to obtaining information
necessary for investigations into or litigation against Chinese companies and
VIEs, and shareholders may have limited legal remedies, which could negatively
impact a Fund. Additionally, U.S.-listed VIEs may be delisted if they do not
meet U.S. accounting standards and auditor oversight requirements. Delisting
would significantly decrease the liquidity and value of the securities, decrease
the ability of a Fund to invest in such securities and may increase the cost of
the Fund if required to seek alternative markets in which to invest in
such
securities.
Non-Principal
Risks
BORROWING
AND LEVERAGE RISK. If a 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, a 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. A 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.
30
CASH
TRANSACTIONS RISK. Certain Funds may
effect a portion of creation and redemptions for cash, rather than in-kind
securities.
As a result, an investment in such a Fund may be less tax-efficient than an
investment in an ETF that effects its creations and redemptions only in-kind.
ETFs are able to make in-kind redemptions and avoid being taxed on gains on the
distributed portfolio securities at the fund level. A Fund that effects
redemptions for cash may be required to sell portfolio securities in order to
obtain the cash needed to distribute redemption proceeds. Any recognized gain on
these sales by a 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 Funds intend 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 a Fund sold
and redeemed its shares 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 a Fund’s shares than for ETFs that distribute portfolio
securities
in-kind.
FAILURE
TO QUALIFY AS A REGULATED INVESTMENT COMPANY RISK. If, in any year, a Fund fails to
qualify as a regulated investment company
under the applicable tax laws, that Fund would be taxed as an ordinary
corporation. In such circumstances, the Fund's taxable income would be subject to
tax at the Fund level and to a further tax at the shareholder level when such
income
is distributed and a
Fund could be required to recognize unrealized gains, pay substantial taxes and
interest and make substantial
distributions before requalifying as a regulated investment company that is
accorded special tax treatment. This would cause
investors to incur higher tax liabilities than they otherwise would have
incurred and would have a negative impact on Fund returns. If the Fund fails to
qualify as a regulated investment company, distributions to the Fund's
shareholders generally would be eligible (i) for treatment as qualified dividend
income in the case of individual shareholders and (ii) for the dividends
received deduction in
the case of corporate shareholders. See "Federal Tax
Matters."
INTELLECTUAL
PROPERTY RISK. Each Fund relies on
a license and related sublicense that permits a Fund to use its Index
and
associated trade names, trademarks and service marks (the “Intellectual
Property”) in connection with
the Fund’s name and
investment strategies. Such license and related sublicense may be terminated by
the Index Provider, and, as a result, a Fund may lose its ability to use the
Intellectual Property. There is also no guarantee that the Index Provider has
all rights to license the Intellectual Property for use by a Fund. Accordingly,
in the event the license is terminated or the Index Provider does not have rights
to license the Intellectual Property, it may have a significant effect on the
operation of a Fund.
INTERNATIONAL
CLOSED MARKET TRADING RISK. Because securities
held by a Fund trade on non-U.S. exchanges that are
closed when a 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., a Fund’s quote from
the closed foreign market) used
for purposes of calculating a Fund's net asset value, resulting in premiums or
discounts to a 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 a Fund on days when the net asset value of the Fund
could be significantly affected by events in the relevant foreign
markets.
INVESTMENT
COMPANIES RISK. Certain Funds may
invest in securities of other investment companies. As a shareholder in
another
investment company, the Funds will bear its ratable share of that investment
company’s expenses, and would remain subject to payment of the Funds’ advisory
and administrative fees with respect to assets so invested. Shareholders would
therefore be subject to duplicative expenses to the extent the Funds invest in
other investment companies. In addition, the Funds will incur
brokerage costs when purchasing and selling shares of exchange-traded investment
companies.
ISSUER
SPECIFIC CHANGES RISK. The value of an
individual security or particular type of security can be more volatile than the
market as a whole and can perform differently from the value of the market as a
whole.
LEGISLATION/LITIGATION
RISK.
From time to time, various legislative initiatives are proposed in the United
States and abroad, which
may have a negative impact on certain companies in which a Fund invests. In
addition, litigation regarding any of the issuers of the securities owned by a
Fund, or industries represented by these issuers, may negatively impact the
value of the securities. Such legislation or litigation may cause a Fund to lose
value or may result in higher portfolio turnover if the Advisor determines to sell
such a holding.
REPURCHASE
AGREEMENT RISK. Certain Funds may
enter into repurchase agreements. A repurchase agreement is an agreement
to purchase a security from a party at one price and a simultaneous agreement to
sell it back to the original party
31
at
an agreed-upon price, typically representing the purchase price plus interest.
Repurchase agreements may be viewed as loans made by a Fund which are
collateralized by the securities subject to repurchase. A Fund's investment
return on such transactions will depend on the counterparty's willingness and
ability to perform its obligations under a repurchase agreement. If a Fund's
counterparty should default on its obligations and a Fund is delayed or
prevented from recovering the collateral, or if the value of
the collateral is insufficient, a Fund may have to borrow cash, subject to
certain legal limits, or realize a loss.
RESTRICTED
SECURITIES RISK. Certain Funds may
invest in restricted securities. 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. A 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, a 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, a Fund may as a result be unable to sell the securities.
Certain restricted securities may involve a high degree of business and
financial risk and may result in substantial losses.
SECURITIES
LENDING RISK. The Funds may engage
in securities lending. Securities lending involves exposure to certain risks,
including
counterparty risk, collateral risk and operational risk. Counterparty risk is
the risk that the borrower may fail to return the securities in a timely manner
or at all. As a result, to the extent a Fund engages in securities lending, in
such transactions it may suffer a loss and experience delays in recovering the
lent securities. Any delay in the return of securities on loan may restrict the
ability of a Fund to meet delivery or payment obligations. Collateral risk is
the risk that the collateral received may be realized at a value lower than the
value of the securities lent, whether due to inaccurate pricing of the
collateral, adverse market movements in the value of the collateral, intra-day
increases in the value of the securities lent, a deterioration in the credit
rating of the collateral issuer, or the illiquidity of the market in which the
collateral is traded. Securities lending also entails operational risks, such as
settlement failures or delays in the settlement of instructions. Such failures
or delays may restrict the ability of a Fund to meet delivery or payment
obligations. Lastly, securities lending activities may result in adverse tax
consequences for a Fund and its shareholders. For instance, substitute payments
for dividends received by a Fund for securities loaned out by the Fund will not
be considered qualified dividend income. A Fund could lose money if its
short-term investment of the
collateral declines in value over the period of the loan.
Fund
Organization
Each
Fund is a series of the Trust, an investment company registered under the 1940
Act. Each 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 Funds
First
Trust Advisors L.P., 120 East Liberty Drive, Wheaton, Illinois 60187, is the
investment advisor to the Funds. In this capacity, First Trust is responsible
for the selection and ongoing monitoring of the securities in each Fund’s
portfolio and certain other services necessary
for the management of the portfolios.
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 Funds.
First Trust serves
as advisor or sub-advisor for 11 mutual fund portfolios, 10
exchange-traded funds consisting of 256 series and 9 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 each Fund.
32
There
is no one individual primarily responsible for portfolio management decisions
for the Funds. Investments are made under the direction of the Investment
Committee. The Investment Committee consists of Daniel J. Lindquist,
David G.
McGarel, Jon C. Erickson, Roger F. Testin, Stan Ueland, Chris A. Peterson and
Erik Russo.
●
Mr. Lindquist is
Chairman of the Investment Committee and presides over Investment Committee
meetings. Mr. Lindquist is responsible for overseeing the implementation of each
Fund’s investment strategy. Mr. Lindquist was a Senior Vice President of First
Trust and FTP from September 2005 to July 2012 and is now a Managing Director of
First Trust and FTP. Mr. Lindquist is a recipient of the Chartered Financial
Analyst designation.
●
Mr. McGarel is the
Chief Investment Officer, Chief Operating Officer and a Managing Director of
First Trust and FTP. As First Trust’s Chief Investment Officer, Mr. McGarel
consults with the other members of the Investment Committee on market conditions
and First Trust’s general investment philosophy. Mr. McGarel was a Senior Vice
President of First Trust and FTP from January 2004 to July 2012. Mr. McGarel is
a recipient of the Chartered Financial Analyst designation.
●
Mr. Erickson joined
First Trust in 1994 and is a Senior Vice President of First Trust and FTP. As
the head of First Trust’s Equity Research Group, Mr. Erickson is responsible for
determining the securities to be purchased and sold by funds that do not utilize
quantitative investment strategies. Mr. Erickson is a recipient of the Chartered
Financial Analyst designation.
●
Mr. Testin is a
Senior Vice President of First Trust and FTP. Mr. Testin is the head of First
Trust’s Portfolio Management Group. Mr. Testin has been a Senior Vice President
of First Trust and FTP since November 2003. Mr. Testin is a recipient of the
Chartered Financial Analyst designation.
●
Mr. Ueland joined
First Trust as a Vice President in August 2005 and has been a Senior Vice
President of First Trust and FTP since September 2012. At First Trust, he plays
an important role in executing the investment strategies of each portfolio of
exchange-traded funds advised by First Trust.
●
Mr. Peterson is a Senior Vice
President and head of First Trust’s strategy research group. He joined First
Trust in January of 2000. Mr. Peterson is responsible for developing and
implementing quantitative equity investment strategies. Mr. Peterson received
his B.S. in Finance from Bradley University in 1997 and his M.B.A. from the
University of Chicago Booth School of Business in 2005. He has over 26 years of
financial services industry experience and is a recipient of the Chartered
Financial Analyst designation.
●
Mr. Russo is a Vice
President of First Trust. He is responsible for implementing the investment
strategies of each portfolio of exchange-traded funds advised by First Trust in
his role as a Portfolio Manager. Mr. Russo joined First Trust in January of
2010.
For
additional information concerning First Trust, including a description of the
services provided to the Funds, see the Funds' SAI. Additional information about
the compensation of Investment Committee members, other accounts managed by
members of the Investment Committee and ownership by members of the Investment
Committee of shares of the Funds is provided in the
SAI.
Management
Fee
Pursuant
to an investment management agreement between First Trust and the Trust, on
behalf of the Funds (the "Investment
Management
Agreement"), First Trust
manages each Fund's assets. First Trust is paid an annual unitary management fee
based on
each Fund's average daily net assets at the rate set forth below and is
responsible for expenses of the Funds, including the cost of transfer agency,
custody, fund administration, license fees, legal, audit and other services. The
annual unitary management fee does not cover fee payments under the Investment
Management Agreement, interest, taxes, acquired fund fees and expenses,
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.
|
Fund |
Management
Fee |
|
Emerging
Markets Equity Select ETF |
0.75% |
|
Small Cap US
Equity Select ETF |
0.60% |
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 Funds' Statement of
Additional Information for more information on the breakpoints.
33
How
to Buy and Sell Shares
Most
investors buy and sell shares of a Fund in secondary market transactions through
brokers. Shares of each 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 an 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, a Fund will pay out redemption proceeds to a redeeming authorized
participant within one
day
after
the authorized participant’s redemption request is received, in accordance with
the process set forth in a Fund’s SAI and in the agreement between the
authorized participant and the Fund’s distributor. However, each 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 a 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, a 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, each Fund is treated as a registered investment
company, and the acquisition of shares by other registered investment companies
and companies relying on Sections 3(c)(1) 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 a Fund and is
recognized as the owner of all shares for all purposes.
Investors
owning shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all shares.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
shares, you are not entitled to receive physical delivery of share certificates
or to have shares registered in your name, and you are not considered a
registered owner of shares. Therefore, to exercise any right as an owner of
shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other stocks that
you hold
in book-entry or “street name” form.
Share
Trading Prices
The
trading price of shares of a Fund on the secondary market is based on market
price and may differ from such 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 Funds' Shares
The
Funds impose 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 Funds' shareholders. The Board considered that the Funds'
shares can only be purchased and redeemed directly from the Funds 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 Funds' shares occurs on the secondary market. Because
the secondary market
trades do not involve the Funds 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 Funds' trading costs and
the realization of capital gains. With respect to trades directly with the
Funds, 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 Funds 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 a Fund and increased transaction costs, which could
negatively impact the Funds' ability to achieve its investment objective.
However, the Board noted that direct trading by APs is critical to ensuring that
the shares trade at or close to net asset value. In addition, the Funds impose
fixed and variable transaction fees on purchases and redemptions of Creation
Units to cover the custodial and other costs incurred by the Funds in effecting
trades. Finally, the Advisor monitors
34
purchase
and redemption orders from APs for patterns of abusive trading and the Funds
reserve the right to not accept orders from APs that the
Advisor has determined may be disruptive to the management of the
Funds.
Dividends,
Distributions and Taxes
Dividends
from net investment income from the Funds, if any, are declared and paid
quarterly by the Funds. The Funds distribute their 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 Funds. 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
Funds. 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
Each
Fund intends to continue to qualify as a “regulated investment company” (a
“RIC”) under the federal
tax laws. If a Fund qualifies as a RIC and distributes its income as required by
the tax law, the Fund generally will not pay federal income
taxes.
Distributions
The
Funds' distributions are generally taxable. After the end of each year, you will
receive a tax statement that separates the distributions of a 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. Some portion of the ordinary
income distributions that
are attributable to dividends received by a Fund from shares in certain real
estate investment trusts may
be designated by the Fund as eligible for a deduction for qualified business income, provided certain holding period requirements are satisfied. Generally, you will treat all capital gain dividends as long-term capital gains regardless of how long you have owned your shares.
be designated by the Fund as eligible for a deduction for qualified business income, provided certain holding period requirements are satisfied. 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 Funds 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 a Fund is not affected by whether you reinvest your distributions in
additional shares or receive them in cash. The tax laws may require you to treat
distributions made to you in January as if you had received them on December 31
of the previous year.
Income
from a 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 a Fund because
the dividends received deduction is generally not available for distributions
from RICs. However,
35
certain
ordinary income dividends on shares that are attributable to qualifying
dividends received by the Funds from certain corporations may be
reported by the Funds as being eligible for the dividends received
deduction.
Capital
Gains and Losses and Certain Ordinary Income Dividends
If
you are an individual, the maximum marginal stated federal tax rate for net
capital gain is generally 20% (15% or 0% for taxpayers with taxable incomes
below certain thresholds).Some capital gains, including some portion of your
capital gain dividends, may be taxed at a higher maximum stated tax rate.
Capital gain received from assets held for more than one year that is considered
“unrecaptured section 1250 gain” (which may be the case, for example, with some
capital gains attributable to equity interests in real estate investment trusts
that constitute interests in entities treated as real estate investment trusts
for federal income tax purposes) is taxed at a maximum marginal stated federal
tax rate of 25%. In the case of capital gain dividends, the determination of
which portion of the capital gain dividend, if any, is subject to the 25% tax
rate, will be made based on rules prescribed by the United States Treasury.
Capital gains may also be subject to the Medicare tax described
above.
Net
capital gain equals net long-term capital gain minus net short-term capital loss
for the taxable year. Capital gain or loss is long-term if the holding period
for the asset is more than one year and is short-term if the holding period for
the asset is one year or less. You must exclude the date you purchase your
shares to determine your holding period. However, if you receive a capital gain
dividend from a 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 RICs such as the
Funds 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
Funds themselves. Distributions with respect to shares in real estate investment
trusts and foreign corporations are qualifying dividends only in limited
circumstances. Each Fund will provide notice to its shareholders of the amount
of any distribution which may be taken into account as a dividend which
is
eligible for the capital gains tax rates.
Sale
of Shares
If
you sell or redeem your shares, you will generally recognize a taxable gain or
loss. To determine the amount of this gain or loss, you must subtract your tax
basis in your shares from the amount you receive in the transaction. Your tax
basis in your shares is generally equal to the cost of your shares, generally
including brokerage fees, if any. In some cases, however, you may have to adjust
your tax basis after you purchase your shares. An election may be available to
you to defer recognition of capital gain if you make certain qualifying
investments within a limited time. You should talk to your tax advisor about the
availability of this
deferral election and its requirements.
Taxes
on Purchase and Redemption of Creation Units
If
you exchange securities for Creation Units, you will generally recognize a gain
or a loss. The gain or loss will be equal to the difference between the market
value of the Creation Units at the time and your aggregate basis in the
securities surrendered and the cash component paid. If you exchange Creation
Units for securities, you will generally recognize a gain or loss equal to the
difference between your basis in the Creation Units and the aggregate market
value of the securities received and the cash redemption amount. The IRS,
however, may assert that a loss realized upon an exchange of securities for
Creation Units or Creation Units for securities cannot be deducted currently
under the rules governing “wash sales,” or on the basis that there has been no
significant change in economic position.
Treatment
of Fund Expenses
Expenses incurred and
deducted by the Funds will generally not be treated as income taxable to
you.
Non-U.S.
Tax Credit
If
your Fund invests in non-U.S. securities, the tax statement that you receive may
include an item showing non-U.S. taxes the Fund paid to other countries. In this
case, dividends taxed to you will include your share of the taxes the Fund paid
to other
countries. You may be able to deduct or receive a tax credit for your share of
these taxes.
36
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 a 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 a 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 a
Fund that are properly reported by the Fund as an interest-related dividend
attributable to certain interest income received by the Fund or as a short-term
capital gain dividend attributable to certain net short-term capital gain income
received by the Fund may not be subject to U.S. federal income taxes, including
withholding taxes when received by certain non-U.S. investors, provided that the
Fund makes certain elections and certain other conditions are met. For tax years
after December 31, 2022, amounts paid to or recognized by a non-U.S. affiliate
that are excluded from tax under the portfolio interest, capital gain dividends,
short-term capital gains or tax-exempt interest dividend exceptions or
applicable treaties, may be taken into consideration in determining whether a
corporation is an “applicable
corporation” subject to a 15% minimum tax on adjusted financial statement
income.
Distributions
may be subject to a U.S. withholding tax of 30% in the case of distributions to
(i) certain non-U.S. financial institutions that have not entered into an
agreement with the U.S. Treasury to collect and disclose certain information and
are not resident in a jurisdiction that has entered into such an agreement with
the U.S. Treasury and (ii) certain other non-U.S. entities that do not provide
certain certifications and information about the entity’s U.S. owners. This
withholding tax is also currently scheduled to apply to the gross proceeds from
the disposition of securities that produce U.S. source interest or dividends.
However, proposed regulations may eliminate the requirement to withhold on
payments of gross proceeds from dispositions.
It
is the responsibility of the entity through which you hold your shares to
determine the applicable withholding.
Investments
in Certain Non-U.S. Corporations
If a
Fund holds an equity interest in any “passive foreign investment companies”
(“PFICs”), which are
generally certain non-U.S. corporations
that receive at least 75% of their annual gross income from passive sources
(such as interest, dividends, certain rents and royalties or capital gains) or
that hold at least 50% of their assets in investments producing such passive
income, a 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. A Fund will not be able to pass through to its shareholders any
credit or deduction for such taxes. A Fund may be able to make an election that
could ameliorate these adverse tax consequences. In this case, a Fund would
recognize as ordinary income any increase in the value of such PFIC shares, and
as ordinary loss any decrease in such value to the extent it did not exceed
prior increases included in income. Under this election, a Fund might be
required to recognize in a year income in excess of its distributions from PFICs
and its proceeds from dispositions of PFIC stock during that year, and such
income would nevertheless be subject to the distribution requirement and would
be taken into account for purposes of the 4% excise tax. Dividends paid by PFICs
are not treated as qualified dividend
income.
Distribution
Plan
FTP
serves as the distributor of Creation Units for the Funds 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 Funds are authorized
to pay an amount up to 0.25% of their 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 Funds do not
currently pay 12b-1 fees, and pursuant to a contractual arrangement, the Funds
will not pay 12b-1 fees any time before July 31, 2025. However, in the event 12b-1
fees are charged in the future, because these fees are paid out of the Funds'
assets, over time these fees will increase the cost of your investment and may
cost you more than certain other types of sales charges.
37
Net
Asset Value
Each
Fund’s net asset value (“NAV”) is determined as of
the close of regular trading (normally 4:00 p.m., Eastern Time) on each
day the New York Stock Exchange (“NYSE”) is open for
trading. If the NYSE closes early on a valuation day, a Fund’s NAV will
be determined as of that time. Each Fund’s NAV is calculated by dividing the
value of the net assets of the Fund (i.e., the value
of its total assets less total liabilities) by the total number of outstanding
shares of the Fund, generally rounded to the nearest
cent.
Section
2(a)(41) of the 1940 Act provides that when a market quotation is readily
available for a fund’s portfolio investment, it must be valued at the market
value. Rule 2a-5 under the 1940 Act (“Rule
2a-5”)
defines a readily available market quotation as
“a quoted price (unadjusted) in active markets for identical investments that
the fund can access at the measurement date, provided that a quotation will not
be readily available if it is not reliable.” If a market quotation is not
“readily available,” then the portfolio
investment must be fair valued as determined in good faith by a fund’s board of
trustees.
Rule
2a-5 permits a fund’s board of trustees to designate the fund’s investment
adviser as its “valuation designee” to perform fair value determinations,
subject to certain conditions. Accordingly, the Funds’ Board has designated
First Trust as its valuation designee (the “Valuation
Designee”) pursuant to Rule
2a-5 and has directed the Valuation Designee to perform the functions
required
in Rule 2a-5(a) subject to the requirements of Rule 2a-5(b) on behalf of all
portfolio investments of the Funds, subject to the Board’s oversight. First
Trust has established a pricing committee (the “Pricing
Committee”) to assist in the
administration of
the duties of the Valuation Designee. The Valuation Designee has adopted
valuation procedures for the First Trust Funds (the “Valuation
Procedures”), a brief summary of
which is set forth below.
The
Pricing Committee has identified certain portfolio investments that are
routinely categorized as having a readily available market quotation. The market
value of an investment with a readily available market quotation is typically
determined on the basis of official closing prices or last reported sale prices
or equivalent price, although this can vary based on investment type
and/or
the availability of such prices.
The
Pricing Committee has also identified certain portfolio investments that are
routinely categorized as fair valued investments. In general, for such
investments, the Funds’ accounting agent will obtain all pricing data for use in
valuing such investments from a pricing service provider approved by the Pricing
Committee (each, a “Pricing
Service Provider”), subject to the
oversight of
the Pricing Committee. Pricing Service Providers typically value
non-exchange-traded instruments utilizing a range of market-based inputs and
assumptions. For example, when available, Pricing Service Providers may utilize
inputs such as benchmark yields, reported trades, broker-dealer quotes, spreads,
and transactions for comparable instruments. In pricing certain instruments, a
Pricing Service Provider may consider information about an instrument’s issuer
or market activity. Pricing Service Provider valuations of non-exchange-traded
instruments generally represent the service’s good faith opinion as to what the
holder of an instrument would receive in an orderly transaction for an
institutional round lot position under current market conditions. Certain
exchange-traded options, such as FLEX Options, are typically valued using a
model-based price provided by a Pricing
Service Provider.
Portfolio
investments trading on foreign exchanges or over-the-counter markets that close
prior to the close of the NYSE may be fair valued using a systematic fair
valuation model provided by a Pricing Service Provider. If these foreign
securities meet certain criteria in relation to the valuation model, their
valuation is systematically adjusted to reflect the impact of movement
in the
U.S. market after the close of certain foreign markets.
If
no price is available from a Pricing Service Provider or if the Pricing
Committee has reason to question the accuracy or the reliability of a price
supplied for a portfolio investment or the use of amortized cost, the Pricing
Committee will determine the fair value of such portfolio investment in a manner
that it believes most appropriately reflects the fair value of the portfolio
investment on the valuation date (a “Special
Fair Value Pricing Situation”). In a Special Fair
Value Pricing Situation, the Pricing Committee
will determine a fair value price subject to the process outlined in the
Valuation Procedures and based on a consideration of all
available information to the Pricing Committee at the time of the
determination.
Additionally,
for foreign securities, if an extraordinary market event occurs between the time
the last “current” market quotation is available for a security in a Fund’s
portfolio and the time the Fund’s NAV is determined that calls into doubt
whether that earlier market quotation represents fair value at the time the
Fund’s NAV is determined, the Pricing Committee will determine the fair valuation as
set forth in the Valuation Procedures.
Fair
value represents a good faith approximation of the value of a portfolio
investment and is the amount a Fund might reasonably expect to receive from the
current sale of that investment in an arm’s-length transaction. Valuing a Fund’s
investments using fair value pricing will result in prices that may differ from
current market valuations, if any, and that may
38
not
be the prices at which those investments could have been sold during the period
in which the particular fair values were used. While the Valuation Procedures
and Valuation Designee’s processes are intended to result in a Fund’s NAV
calculation that fairly reflects the values as of the time of pricing, the fair
value determined for a portfolio instrument may be materially different from the
value that could be realized upon the sale of that instrument.
Foreign
currencies are translated into U.S. dollars at the exchange rate of such
currencies against the U.S. dollar as provided by a Pricing Service Provider.
All assets denominated in foreign currencies will be converted into U.S. dollars
at the exchange rates in effect at
the time of valuation.
Fund
Service Providers
The Bank of New York
Mellon, 240 Greenwich Street, New York, New York 10286, acts as the
administrator, fund accounting agent, transfer agent and custodian for the
Funds. Chapman and Cutler LLP, 320 South Canal St., Chicago, Illinois
60606, serves as legal
counsel to the Funds. Brown Brothers Harriman & Co. located at 50 Post
Office Square, Boston, Massachusetts, 02110 shall remain custodian for certain
identified assets of Emerging Markets Equity Select ETF that are currently
subject to transfer
restrictions.
Index
Provider
The
Indices are compiled by the Index Provider. The Index Provider is not affiliated
with the Funds, First Trust or FTP. Each Fund is entitled to use the applicable
Index pursuant to a sublicensing arrangement with First Trust, which in turn has
a licensing agreement with the Index Provider. First Trust also licenses from
the Index Provider the Index Provider’s intellectual property to create
ETF-based model portfolios that may be available on the Index Provider’s
platform and to provide risk-based scores to ETFs advised by First Trust.
Nasdaq, Inc. will serve as the calculation agent for the Indices (the
“Index
Calculation Agent”). The
Index Calculation Agent is responsible for the management of the day-to-day
operations of the Indices, including calculating the value of the Index every 15
seconds, widely disseminating the Index values every 15 seconds and tracking
corporate actions, some of which result
in Index adjustments.
Disclaimers
First
Trust does not guarantee the accuracy and/or the completeness of the Indices or
any data included therein, and First Trust shall have no liability for any
errors, omissions or interruptions therein. First Trust makes no warranty,
express or implied, as to results to be obtained by the Funds, owners of the
shares of the Funds or any other person or entity from the use of the Indices or
any data included therein. First Trust makes no express or implied warranties,
and expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the Indices or any data included
therein. Without limiting any of the foregoing, in no event shall First Trust
have any liability for any special, punitive, direct, indirect or consequential
damages (including lost profits) arising out of matters relating to the use of
the Indices, even if notified of the possibility of such
damages.
The Products are not
sponsored, endorsed, sold or promoted by Nasdaq, Inc., Nitrogen Wealth, Inc. or
their affiliates (Nasdaq, Nitrogen Wealth with their respective affiliates, are
referred to as the “Corporations”). The Corporations have not passed
on the
legality or suitability of, or the accuracy or adequacy of descriptions and
disclosures relating to, the Products. The Corporations make no representation
or warranty, express or implied to the owners of the Products or any member of
the public regarding the advisability of investing in securities generally or in
the Products particularly, or the ability of the Nasdaq Riskalyze Emerging
MarketsTM Index and Nasdaq Riskalyze US Small
CapTM Index to track general stock market
performance. The Corporations'
only relationship to Emerging Markets Equity Select ETF and Small Cap US Equity Select ETF
(“Licensee”) is in the licensing
of the Nasdaq®, and certain trade names of the
Corporations and the use of the Nasdaq Riskalyze Emerging MarketsTM Index and Nasdaq Riskalyze US Small
CapTM Index which are determined, composed
and calculated by Nasdaq without regard to Licensee
or the Products. Nasdaq has no obligation to take the needs of the Licensee or
the owners of the Products into consideration in determining, composing or
calculating the Nasdaq Riskalyze Emerging MarketsTM Index and Nasdaq Riskalyze US
Small CapTM Index. The Corporations are not
responsible for and have not participated in the determination of the timing of,
prices at, or quantities of the Products to be issued or in the determination or
calculation of the equation by which the Products are to be converted into cash.
The Corporations have no liability in connection with the administration,
marketing or trading of
the Products.
The
Corporations do not guarantee the accuracy and/or uninterrupted calculation of
the Nasdaq Riskalyze Emerging MarketsTM Index
and
Nasdaq Riskalyze US Small CapTM Index or any data
included therein. The Corporations make no
39
warranty,
express or implied, as to results to be obtained by Licensee, owners of the
products, or any other person or entity from the use of the Nasdaq Riskalyze
Emerging MarketsTM Index
and
Nasdaq Riskalyze US Small CapTM Index or
any
data included therein. The Corporations make no express or implied warranties,
and expressly disclaim all warranties of merchantability or fitness for a
particular purpose or use with respect to the Nasdaq Riskalyze Emerging
MarketsTM
Index
and
Nasdaq Riskalyze US Small CapTM Index or any data
included therein. Without limiting any of the foregoing, in
no event shall the Corporations have any liability for any lost profits or
special, incidental, punitive, indirect, or consequential
damages, even if notified of the possibility of such damages.
Premium/Discount
Information
Information
showing the number of days the market price of the Funds' shares was greater (at
a premium) and less (at a discount) than the Funds' net asset value for the most
recently completed year, and the most recently completed calendar quarters
since
that year (or life of a Fund, if shorter), is available at
https://www.ftportfolios.com/Retail/etf/home.aspx.
40
Financial
Highlights
The financial
highlights table is intended to help you understand each Fund's financial
performance for the periods shown. Certain information reflects financial
results for a single share of each Fund. The total returns represent the rate
that an investor would have earned (or lost) on an investment in a 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 each Fund's financial
statements, is included in the Funds' Annual Report to Shareholders dated
March 31, 2024 and is
incorporated by reference in each Fund's SAI, which is available upon
request.
First
Trust Exchange-Traded Fund VI
Financial
Highlights
For a share outstanding throughout each period
For a share outstanding throughout each period
Emerging
Markets Equity Select ETF (RNEM)
|
|
Year
Ended March 31, | ||||
|
|
2024 |
2023 |
2022 |
2021 |
2020 |
|
Net
asset value, beginning of period |
$44.78 |
$48.61 |
$49.21 |
$37.80 |
$50.89 |
|
Income
from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
1.12
(a) |
1.57 |
1.61 |
1.15 |
1.50 |
|
Net
realized and unrealized gain (loss) |
6.70 |
(4.13
) |
(0.67
) |
11.64 |
(13.22
) |
|
Total
from investment operations |
7.82 |
(2.56
) |
0.94 |
12.79 |
(11.72
) |
|
Distributions
paid to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.84
) |
(1.27
) |
(1.20
) |
(1.38
) |
(1.37
) |
|
Return of
capital |
— |
— |
(0.34
) |
— |
— |
|
Total
distributions |
(0.84
) |
(1.27
) |
(1.54
) |
(1.38
) |
(1.37
) |
|
Net
asset value, end of period |
$51.76 |
$44.78 |
$48.61 |
$49.21 |
$37.80 |
|
Total
Return (b) |
17.61
% |
(4.97
)% |
1.91
% |
34.44
% |
(23.66
)% |
|
Ratios
to average net assets/supplemental data: |
|
|
|
|
|
|
Net
assets, end of period (in 000’s) |
$18,115 |
$8,956 |
$7,292 |
$7,381 |
$7,561 |
|
Ratio of
total expenses to average net assets |
0.75
% |
0.75
% |
0.75
% |
0.75
% |
0.75
% |
|
Ratio of
net investment income (loss) to average net assets |
2.29
% |
3.61
% |
3.30
% |
2.94
% |
2.83
% |
|
Portfolio
turnover rate (c) |
104
% |
65
% |
72
% |
75
% |
82
% |
(a)
Based on
average shares
outstanding.
(b)
Total return is
calculated assuming an initial investment made at the net asset value at the
beginning of the period, reinvestment of all distributions at net asset value
during the period, and redemption at net asset value on the last day of the
period. The returns presented do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption or sale of Fund
shares. Total return is calculated for the time period presented and is not
annualized for periods of less than a year.
(c)
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.
41
First
Trust Exchange-Traded Fund VI
Financial
Highlights
For a share outstanding throughout each period
For a share outstanding throughout each period
Small
Cap US Equity Select ETF (RNSC)
|
|
Year
Ended March 31, | ||||
|
|
2024 |
2023 |
2022 |
2021 |
2020 |
|
Net
asset value, beginning of period |
$26.56 |
$28.97 |
$28.18 |
$14.87 |
$20.84 |
|
Income
from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
0.62
(a) |
0.56 |
0.46 |
0.28 |
0.36 |
|
Net
realized and unrealized gain (loss) |
2.38 |
(2.42
) |
0.78 |
13.34 |
(5.98
) |
|
Total
from investment operations |
3.00 |
(1.86
) |
1.24 |
13.62 |
(5.62
) |
|
Distributions
paid to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.60
) |
(0.55
) |
(0.45
) |
(0.31
) |
(0.35
) |
|
Net
asset value, end of period |
$28.96 |
$26.56 |
$28.97 |
$28.18 |
$14.87 |
|
Total
Return (b) |
11.45
% |
(6.28
)% |
4.39
% |
92.49
% |
(27.51
)% |
|
Ratios
to average net assets/supplemental data: |
|
|
|
|
|
|
Net
assets, end of period (in 000’s) |
$39,102 |
$27,887 |
$21,725 |
$9,864 |
$5,946 |
|
Ratio of
total expenses to average net assets |
0.60
% |
0.60
% |
0.60
% |
0.60
% |
0.60
% |
|
Ratio of
net investment income (loss) to average net assets |
2.29
% |
2.22
% |
1.79
% |
1.37
% |
1.97
% |
|
Portfolio
turnover rate (c) |
52
% |
72
% |
49
% |
71
% |
52
% |
(a)
Based on
average shares
outstanding.
(b)
Total return is
calculated assuming an initial investment made at the net asset value at the
beginning of the period, reinvestment of all distributions at net asset value
during the period, and redemption at net asset value on the last day of the
period. The returns presented do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption or sale of Fund
shares. Total return is calculated for the time period presented and is not
annualized for periods of less than a year.
(c)
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.
42
Other
Information
Continuous
Offering
Each
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 a 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 of 1933.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with
FTP, breaks them down into constituent shares and sells such shares directly to
customers, or if it chooses to couple the creation of a supply of new shares
with an active selling effort involving solicitation of secondary market demand
for shares. A determination of whether one is an underwriter for purposes of the
Securities Act must take into account all the facts and circumstances pertaining
to the activities of the broker-dealer or its client in the particular case, and
the examples mentioned above should not be considered a complete description of
all the activities that could lead to a characterization as
an underwriter.
Broker-dealer
firms should also note that dealers who are not “underwriters” but are effecting
transactions in shares, whether or not participating in the distribution of
shares, are generally required to deliver a prospectus. This is because the
prospectus delivery exemption in Section 4(a)(3) of the Securities Act is not
available in respect of such transactions as a result of Section
24(d) of
the 1940 Act. As a result, broker-dealer firms should note that dealers who are
not underwriters but are participating
in a distribution (as contrasted with ordinary secondary market transactions)
and thus dealing with the shares that are part of an overallotment within the
meaning of Section 4(a)(3)(C) of
the Securities Act would be unable to take advantage
of the prospectus delivery exemption provided by Section 4(a)(3) of
the Securities Act. Firms that incur a prospectus delivery
obligation with respect to shares are reminded that, under the Securities Act
Rule 153, a prospectus delivery obligation under Section 5(b)(2) of
the Securities Act owed to a broker-dealer in connection with a sale on the
Exchange is satisfied by the
fact that the prospectus is available from the Exchange upon request. The
prospectus delivery mechanism provided in Rule 153 is available with respect to
transactions on a national securities exchange, a trading facility or an
alternative trading system.
FTP, or its
affiliates, or a fund or unit investment trust for which FTP or an affiliate
serves as sponsor or investment advisor, may purchase shares of a Fund through a
broker-dealer or other investors, including in secondary market transactions,
and because FTP or its affiliates may be deemed affiliates of such Fund, the
shares are being registered to permit the resale of these shares from time to
time after any such purchase. A Fund will not receive any of the proceeds from
the resale of such shares.
43
|
First
Trust
Exchange-Traded
Fund VI |
Emerging Markets Equity Select
ETF
Small Cap US Equity Select ETF
Small Cap US Equity Select ETF
For
More Information
For
more detailed information on the Funds, several additional sources of
information are available to you. The SAI, incorporated by reference into this
prospectus, contains detailed information on the Funds' policies and operation.
Additional information about the Funds' investments is available in the annual
and semi-annual reports to shareholders. In the Funds' annual report, you will
find a discussion of the market conditions and investment strategies that
significantly impacted the Funds' performance during the last fiscal year. The
Funds' most recent SAI, annual and semi-annual reports and certain other
information are available free of charge by calling the Funds at (800) 621-1675,
on the Funds' 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 Funds, 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 Funds 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 #: 333-182308
811-22717