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First
Trust
Exchange-Traded
Fund VI |
Prospectus
First Trust
International Developed Capital Strength ETF
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Ticker
Symbol: |
FICS |
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Exchange: |
Nasdaq |
The First Trust International Developed
Capital Strength ETF (the “Fund”) lists and principally trades its
shares on The Nasdaq Stock Market LLC ("Nasdaq" or the “Exchange”). Market prices may differ to some
degree from the net asset value of the shares. Unlike mutual funds, the Fund
issues and redeems shares at net asset value, only in large blocks of shares
called "Creation
Units."
The
Fund is a series of First Trust Exchange-Traded Fund VI (the “Trust”) and an
exchange-traded index fund organized as a separate series of a registered
management investment company.
Except
when aggregated in Creation Units, the shares are not redeemable securities of
the Fund.
The
Securities and Exchange Commission has not approved or disapproved of these
securities or passed upon
the adequacy or accuracy of this prospectus. Any representation to the contrary
is a criminal offense.
NOT
FDIC INSURED MAY
LOSE VALUE NO BANK GUARANTEE
February 1,
2022
Summary
Information
(fees paid directly from your investment)
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Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
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(expenses that you pay each year as a percentage of the value of your investment)
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Management
Fees |
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Distribution
and Service (12b-1) Fees |
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Other
Expenses |
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Total
Annual Fund Operating Expenses |
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1
Year |
3
Years |
5
Years |
10
Years |
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$ |
$ |
$ |
$ |
3
4
5
6
7
8
Calendar Year Total Returns as of 12/31
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1
Year |
Since
Inception |
Inception
Date |
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Return Before
Taxes |
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Return After
Taxes On Distributions |
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Return After
Taxes on Distributions and Sale of Fund Shares |
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The
International Developed Capital Strength IndexSM (reflects no
deduction
for fees,
expenses or taxes) |
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MSCI World ex
USA Index (reflects no deduction for fees, expenses or
taxes) |
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Management
Investment
Advisor
First
Trust Advisors L.P. (“First
Trust”
or the “Advisor”)
9
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
•
Jon C. Erickson,
Senior Vice President of First Trust
•
David G. McGarel,
Chief Investment Officer, Chief Operating Officer and Managing Director 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 December 2020.
Purchase
and Sale of Fund Shares
The Fund issues and
redeems shares on a continuous basis, at net asset value, only in large blocks
of shares called “Creation Units.” Individual shares of the Fund
may only be purchased and sold on the secondary market through a broker-dealer.
Since shares of the Fund trade on securities exchanges in the secondary market
at their market price rather than their net asset value, the Fund’s shares may
trade at a price greater than (premium) or less than (discount) the Fund’s net
asset value. An investor may incur costs attributable to the difference between
the highest price a buyer is willing to pay to purchase shares of the Fund (bid)
and the lowest price a seller is willing to accept for shares of the Fund (ask)
when buying or selling shares in the secondary market (the “bid-ask
spread”). Recent
information, including the Fund’s net asset value, market price, premiums and
discounts, bid-ask spreads and the median bid-ask spread for the Fund’s most
recent fiscal year, is available online at
https://www.ftportfolios.com/Retail/etf/home.aspx.
Tax
Information
The
Fund’s distributions are taxable and will generally be taxed as ordinary income
or capital gains. Distributions on shares held in a
tax-deferred account, while not immediately taxable, will be subject to tax when
the shares are no longer held in a tax-deferred account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), First Trust and First Trust
Portfolios L.P., the Fund’s distributor, may pay the intermediary for the sale
of Fund shares and related services. These payments may create a conflict of
interest by influencing the broker-dealer or other intermediary and your
salesperson to recommend the Fund over another investment. Ask your salesperson
or visit your financial intermediary’s website for more information.
10
Additional
Information on the Fund's Investment Objective and Strategies
The
Fund is a series of First Trust Exchange-Traded Fund VI and is regulated as an
“investment company” under the 1940 Act. The Fund operates as
an index fund and is not actively managed by First Trust. As such, the Fund’s
investment objective is to seek investment results that correspond generally to
the price and yield (before the Fund’s fees and expenses) of the Index. In
seeking to achieve this objective, the Fund will normally invest at least 90% of
its net assets (including investment borrowings) in the securities that comprise
the Index. Nasdaq, Inc. serves as the index provider for the index tracked by
the Fund and may be referred to throughout this prospectus as the “Index
Provider.”
The
Fund will generally employ a full replication strategy, meaning that it will
normally invest in all of the securities comprising the Index in
proportion to their weightings in the Index. However, under various
circumstances, full replication of the Index may not be possible or practicable.
In those circumstances, the Fund may purchase a sample of securities in the
Index. The Fund may utilize sampling when there are practical difficulties or
substantial costs involved in replicating the Index, including to address tax
and regulatory issues and respond to trading halts and other issues related to
the liquidity of Index constituents. There may also be instances in which First
Trust may choose to overweight certain securities in the Index, purchase
securities not in the Index which First Trust believes are appropriate to
substitute for certain securities in the Index, use futures or derivative
instruments or utilize various combinations of the above techniques in seeking
to track the Index. The Fund may sell securities that are represented in the
Index in anticipation of their removal from the Index or purchase securities not
represented in the Index in anticipation of their addition to the
Index.
The
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 Fund are set forth in the Statement of Additional Information
(“SAI”) under “Investment
Objective and Policies.”
While
it is not expected that the Fund will invest in the securities of other
investment companies, any such investments would be subject to
limitations imposed by the 1940 Act and the related rules and interpretations.
The Fund has adopted a policy that it will not invest in other investment
companies in excess of 1940 Act limits in reliance on Sections 12(d)(1)(F) or
12(d)(1)(G) of the 1940 Act.
The
International Developed Capital Strength IndexSM
The
International Developed Capital Strength IndexSM seeks to provide
exposure to well-capitalized companies with strong market positions that have
the potential to provide their stockholders with a greater degree of stability
and performance over time. The Index is reconstituted and rebalanced
semi-annually in April and October.
More
information regarding the Index, including additional detail on the Index
methodology, may be found on the Index Provider’s website.
Neither the Fund, the Board, First Trust, or any of their affiliates, are
responsible for the information set forth on the Index Provider’s website.
Information from the Index Provider’s website and any other information not
expressly included in this prospectus is not incorporated by reference in, and
should not be considered part of, this prospectus.
Fund
Investments
Principal
Investments
Equity
Securities
The
Fund invests in equity securities, including common stocks . 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..
Real
Estate Investment Trusts
The
Fund 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
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.
11
Non-Principal
Investments
Cash
Equivalents and Short-Term Investments
Normally,
the Fund invests substantially all of its assets to meet its investment
objectives. The Fund's investment strategy contemplates that the
Fund will invest in cash equivalents, or it may hold cash. The percentage of the
Fund invested in such holdings varies and depends on several factors, including
market conditions. For temporary defensive purposes and during periods of high
cash inflows or outflows, the Fund may depart from its principal investment
strategies and invest part or all of its assets in these securities, or it may
hold cash. During such periods, the Fund may not be able to achieve its
investment objectives. The Fund may adopt a defensive strategy when the
portfolio managers believe securities in which the Fund normally invests have
elevated risks due to political or economic factors and in other extraordinary
circumstances. For more information on eligible short-term investments, see the
SAI.
Illiquid
Investments
The
Fund may invest up to 15% of its net assets in securities and other instruments
that are, at the time of investment, illiquid (determined using the
Securities and Exchange Commission's standard applicable to investment
companies, i.e., any investment that
the Fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days or less without the sale or disposition
significantly changing the market value of the investment).
Disclosure
of Portfolio Holdings
The
Fund’s portfolio holdings are available on the Fund's website at
www.ftportfolios.com. A description of the policies and procedures with
respect to the disclosure of the Fund's portfolio securities is included in the
Fund's SAI, which is also available on the Fund's website.
Risks
of Investing in the Fund
Risk
is inherent in all investing. Investing in the Fund involves risk, including the
risk that you may lose all or part of your investment. There can
be no assurance that the Fund will meet its stated objective. Before you invest,
you should consider the following disclosure pertaining to the Principal Risks
set forth above as well as additional Non-Principal Risks set forth below in
this prospectus. The order of the below risk factors does not indicate the
significance of any particular risk factor.
Principal
Risks
AUTHORIZED
PARTICIPANT CONCENTRATION RISK. Only an authorized
participant may engage in creation or redemption transactions directly with the
Fund. A limited number of institutions act as authorized participants for the
Fund. However, participants are not obligated to make a market in the Fund’s
shares or submit purchase and redemption orders for creation units. To the
extent that these institutions exit the business, reduce their role or are
unable to proceed with creation and/or redemption orders and no other authorized
participant steps forward to create or redeem, the Fund’s shares may trade at a
premium or discount to the Fund’s net asset value and possibly face
delisting.
CURRENCY
RISK. Changes in
currency exchange rates affect the value of investments denominated in a foreign
currency, the value of dividends and interest earned from such securities and
gains and losses realized on the sale of such securities. The Fund’s net asset
value could decline if a currency to which the Fund has exposure depreciates
against the U.S. dollar or if there are delays or limits on repatriation of such
currency. Currency exchange rates can be very volatile and can change quickly
and unpredictably. Changes in currency exchange rates may affect the Fund's net
asset value, the value of dividends and interest earned, and gains and losses
realized on the sale of securities. An increase in the strength of the U.S.
dollar relative to other currencies may cause the value of the Fund to decline.
Certain non-U.S. currencies may be particularly volatile, and non-U.S.
governments may intervene in the currency markets, causing a decline in value or
liquidity in the Fund's non-U.S. holdings whose value is tied to the affected
non-U.S. currency. Additionally, the prices of non-U.S. securities that are
traded in U.S. dollars are often indirectly influenced by currency
fluctuations.
CYBER
SECURITY RISK. The Fund is
susceptible to operational risks through breaches in cyber security. A breach in
cyber security refers to both intentional and unintentional events that may
cause the Fund to lose proprietary information, suffer data corruption or lose
operational capacity. Such events could cause the Fund to incur regulatory
penalties, reputational damage, additional compliance costs associated with
corrective measures and/or financial loss. These risks typically are not covered
by insurance. In general, cyber incidents can result from deliberate attacks or
unintentional events. Cyber incidents include, but are not limited to, gaining
unauthorized access to digital systems (e.g., through “hacking”
or malicious software
12
coding)
for purposes of misappropriating assets or sensitive information, corrupting
data or causing operational disruption. Cyber attacks may
also be carried out in a manner that does not require gaining unauthorized
access, such as causing denial-of-service attacks on websites (i.e., efforts to make
network services unavailable to intended users). Cyber security failures by or
breaches of the systems of the Advisor, distributor and other service providers
(including, but not limited to, sub-advisors, index providers, fund accountants,
custodians, transfer agents and administrators), market makers, authorized
participants or the issuers of securities in which the Fund invests, have the
ability to cause disruptions and impact business operations, potentially
resulting in: financial losses; interference with the Fund’s ability to
calculate its net asset value; disclosure of confidential trading information;
impediments to trading; submission of erroneous trades or erroneous creation or
redemption orders; the inability of the Fund or its service providers to
transact business; violations of applicable privacy and other laws; regulatory
fines penalties, reputational damage, reimbursement or other compensation costs;
or additional compliance costs. Substantial costs may be incurred by the Fund in
order to resolve or prevent cyber incidents in the future. While the Fund has
established business continuity plans in the event of, and risk management
systems to prevent, such cyber attacks, there are inherent limitations in such
plans and systems, including the possibility that certain risks have not been
identified and that prevention and remediation efforts will not be successful.
Furthermore, the Fund cannot control the cyber security plans and systems put in
place by service providers to the Fund, issuers in which the Fund invests,
market makers or authorized participants. However, there is no guarantee that
such efforts will succeed, and the Fund and its shareholders could be negatively
impacted as a result.
EQUITY
SECURITIES RISK. The value of the
Fund’s shares will fluctuate with changes in the value of the equity securities
in which it invests.
Equity
securities prices fluctuate for several reasons, including changes in investors'
perceptions of the financial condition of an issuer or the general condition of
the relevant equity market, such as market volatility, or when political or
economic events affecting the issuers occur. Common stock prices may be
particularly sensitive to rising interest rates, as the cost of capital rises
and borrowing costs increase. Equity securities may decline significantly in
price over short or extended periods of time, and such declines may occur in the
equity market as a whole, or they may occur in only a particular country,
company, industry or sector of the market. Additionally, holders of an issuer's
common stock may be subject to greater risks than holders of its preferred stock
and debt securities because common stockholders' claims are subordinated to
those of holders of preferred stocks and debt securities upon the bankruptcy of
an issuer.
EUROPE
RISK. The Fund may
invest in the securities of European issuers. Therefore, in addition to the
risks associated with investments in non-U.S. securities generally, the Fund is
subject to certain risks associated specifically with investments in securities
of European issuers. Political or economic disruptions in European countries,
even in countries in which the Fund is not invested, may adversely affect
security values and thus the Fund’s holdings. A significant number of countries
in Europe are member states in the EU, and the member states no longer control
their own monetary policies by directing independent interest rates for their
currencies. In these member states, the authority to direct monetary policies,
including money supply and official interest rates for the Euro, is exercised by
the European Central Bank. In a 2016 referendum, the United Kingdom elected to
withdraw from the EU. After years of negotiations between the United Kingdom and
the EU, a withdrawal agreement was reached whereby the United Kingdom formally
left the EU. As the second largest economy among EU members, the implications of
the United Kingdom’s withdrawal are difficult to gauge and cannot be fully
known. Trade between the United Kingdom and the EU is highly integrated through
supply chains and trade in services, as well as through multinational companies.
The United Kingdom’s departure may negatively impact the EU and Europe as a
whole by causing volatility within the EU, triggering prolonged economic
downturns in certain European countries or sparking additional member states to
contemplate departing the EU (thereby perpetuating political instability in the
region).
INDEX
CONCENTRATION RISK. The
Fund will be concentrated in an industry or a group of industries to the extent
that the Index is so concentrated. To the extent that the Fund invests a
significant percentage of its assets in a single asset class or the securities
of issuers within the same country, state, region, industry or sector, an
adverse economic, business or political development may affect the value of the
Fund’s investments more than if the Fund were more broadly diversified. A
significant exposure makes the Fund more susceptible to any single occurrence
and may subject the Fund to greater market risk than a fund that is more broadly
diversified. There may be instances in which the Index, for a variety of reasons
including changes in the prices of individual securities held by the Fund, has a
larger exposure to a small number of stocks or a single stock relative to the
rest of the stocks in the Index. Under such circumstances, the Fund will not
deviate from the Index except in rare circumstances or in an immaterial way and
therefore the Fund’s returns would be more greatly influenced by the returns of
the stock(s) with the larger exposure.
INDEX
OR
MODEL CONSTITUENT RISK.
The Fund may be a constituent of one or more indices or ETF models. As a result,
the Fund may be included in one or more index-tracking ETFs or mutual funds.
Being a component security of such a vehicle could greatly affect the trading
activity involving the Fund, the size of the Fund and the market volatility of
the Fund’s shares.
13
Inclusion
in an index could increase demand for the Fund and removal from an index could
result in outsized selling activity in a relatively short
period of time. As a result, the Fund’s net asset value could be negatively
impacted and the Fund’s market price may be below the Fund’s net asset value
during certain periods. In addition, index rebalances may potentially result in
increased trading activity. To the extent buying or selling activity increases,
the Fund can be exposed to increased brokerage costs and adverse tax
consequences and the market price of the Fund can be negatively
affected.
INDEX
PROVIDER RISK. There is no
assurance that the Index Provider, or any agents that act on its behalf, will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. The Index Provider and its agents do not provide any representation
or warranty in relation to the quality, accuracy or completeness of data in the
Index, and do not guarantee that the Index will be calculated in accordance with
its stated methodology. The Advisor’s mandate as described in this prospectus is
to manage the Fund consistently with the Index provided by the Index Provider.
The Advisor relies upon the Index provider and its agents to accurately compile,
maintain, construct, reconstitute, rebalance, compose, calculate and disseminate
the Index accurately. Therefore, losses or costs associated with any Index
Provider or agent errors generally will be borne by the Fund and its
shareholders. To correct any such error, the Index Provider or its agents may
carry out an unscheduled rebalance of the Index or other modification of Index
constituents or weightings. When the Fund in turn rebalances its portfolio, any
transaction costs and market exposure arising from such portfolio rebalancing
will be borne by the Fund and its shareholders. Unscheduled rebalances also
expose the Fund to additional tracking error risk. Errors in respect of the
quality, accuracy and completeness of the data used to compile the Index may
occur from time to time and may not be identified and corrected by the Index
Provider for a period of time or at all, particularly where the Index is less
commonly used as a benchmark by funds or advisors. For example, during a period
where the Index contains incorrect constituents, the Fund tracking the Index
would have market exposure to such constituents and would be underexposed to the
Index’s other constituents. Such errors may negatively impact the Fund and its
shareholders. The Index Provider and its agents rely on various sources of
information to assess the criteria of issuers included in the Index, including
information that may be based on assumptions and estimates. Neither the Fund nor
the Advisor can offer assurances that the Index’s calculation methodology or
sources of information will provide an accurate assessment of included issuers.
Unusual market conditions may cause the Index Provider to postpone a scheduled
rebalance, which could cause the Index to vary from its normal or expected
composition. The postponement of a scheduled rebalance in a time of market
volatility could mean that constituents that would otherwise be removed at
rebalance due to changes in market capitalizations, issuer credit ratings, or
other reasons may remain, causing the performance and constituents of the Index
to vary from those expected under normal conditions. Apart from scheduled
rebalances, the Index Provider or its agents may carry out additional ad hoc
rebalances to the Index due to unusual market conditions or in order, for
example, to correct an error in the selection of index
constituents.
INDUSTRIALS
COMPANIES RISK. The Fund may invest
significantly in industrials companies. The value of securities issued by
industrials companies may be adversely affected by supply and demand related to
their specific products or services and industrials sector products in general.
The products of manufacturing companies may face obsolescence due to rapid
technological developments and frequent new product introduction. World events
and changes in government regulations, import controls, economic conditions and
exchange rates may adversely affect the performance of companies in the
industrials sector. Industrials companies may be adversely affected by liability
for environmental damage and product liability claims. Industrials companies may
also be adversely affected by changes or trends in commodity prices, which may
be influenced by unpredictable factors. Industrials companies, particularly
aerospace and defense companies, may also be adversely affected by government
spending policies because companies in this sector tend to rely to a significant
extent on government demand for their products and services.
INFLATION
RISK.
Inflation risk is the risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the present value of the Fund’s assets and distributions
may decline. Inflation creates uncertainty over the future real value (after
inflation) of an investment. Inflation rates may change frequently and
drastically as a result of various factors, including unexpected shifts in the
domestic or global economy, and the Fund’s investments may not keep pace with
inflation, which may result in losses to Fund investors.
INTERNATIONAL
CLOSED MARKET TRADING RISK. Because securities
held by the Fund may trade on non-U.S. exchanges that are closed when the Fund’s
primary listing exchange is open, there are likely to be deviations between the
current price of an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote
from the closed foreign market), resulting in premiums or discounts to the
Fund’s net asset value that may be greater than those experienced by other
exchange-traded funds. However, because shares can be created and redeemed in
Creation Units at the Fund’s net asset value, it is not expected that large
discounts or premiums to the net asset value of the Fund will be sustained over
the long term
14
(unlike shares of
many closed-end funds, which frequently trade at appreciable discounts from, and
sometimes at premiums to, their net asset
values).
LARGE
CAPITALIZATION COMPANIES RISK. Large capitalization
companies may grow at a slower rate and be less able to adapt to changing market
conditions than smaller capitalization companies. Thus, the return on investment
in securities of large capitalization companies may be less than the return on
investment in securities of small and/or mid capitalization companies. The
performance of large capitalization companies also tends to trail the overall
market during different market cycles.
LOW
VOLATILITY RISK. The Fund may seek to
invest in low volatility stocks. 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 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 the Fund’s
participation in market gains when market volatility is high. Low volatility
stocks also may not protect against market declines. A low volatility strategy
may also increase portfolio transaction costs, which could result in losses or
reduce gains, and may not be successful.
MARKET
MAKER RISK. The Fund faces
numerous market trading risks, including the potential lack of an active market
for Fund shares due to a limited number of market markers. Decisions by market
makers or authorized participants to reduce their role or step away from these
activities in times of market stress could inhibit the effectiveness of the
arbitrage process in maintaining the relationship between the underlying values
of the Fund’s portfolio securities and the Fund’s market price. The Fund may
rely on a small number of third-party market makers to provide a market for the
purchase and sale of shares. Any trading halt or other problem relating to the
trading activity of these market makers could result in a dramatic change in the
spread between the Fund’s net asset value and the price at which the Fund’s
shares are trading on the Exchange, which could result in a decrease in value of
the Fund’s shares. This reduced effectiveness could result in Fund shares
trading at a discount to net asset value and also in greater than normal
intraday bid-ask spreads for Fund shares.
MARKET
RISK. Market risk is the
risk that a particular security, or shares of the Fund in general, may fall in
value. Securities are subject to market fluctuations caused by such factors as
economic, political, regulatory or market developments, changes in interest
rates and perceived trends in securities prices. Shares of the Fund could
decline in value or underperform other investments due to short-term market
movements or any longer periods during more prolonged market downturns. In
addition, local, regional or global events such as war, acts of terrorism,
spread of infectious diseases or other public health issues, recessions, or
other events could have a significant negative impact on the Fund and its
investments. For example, the coronavirus disease 2019 (COVID-19) global
pandemic and the aggressive responses taken by many governments, including
closing borders, restricting international and domestic travel, and the
imposition of prolonged quarantines or similar restrictions, had negative
impacts, and in many cases severe impacts, on markets worldwide. While the
development of vaccines has slowed the spread of the virus and allowed for the
resumption of reasonably normal business activity in the United States, many
countries continue to impose lockdown measures in an attempt to slow the spread.
Additionally, there is no guarantee that vaccines will be effective against
emerging variants of the disease. As this global pandemic illustrated, such
events may affect certain geographic regions, countries, sectors and industries
more significantly than others. These events also adversely affect the prices
and liquidity of the Fund’s portfolio securities or other instruments and could
result in disruptions in the trading markets. Any of such circumstances could
have a materially negative impact on the value of the Fund’s shares and result
in increased market volatility. During any such events, the Fund’s shares may
trade at increased premiums or discounts to their net asset value.
NON-CORRELATION
RISK.
The Fund’s return may not match the return of its Index for a number of reasons.
The Fund incurs operating expenses not applicable to its Index and may incur
costs in buying and selling securities, especially when rebalancing the Fund’s
portfolio holdings to reflect changes in the composition of the Index. In
addition, the Fund’s portfolio holdings may not exactly replicate the securities
included in its Index or the ratios between the securities included in the
Index.
NON-DIVERSIFICATION
RISK. As
a “non-diversified” fund, the Fund may hold a smaller number of portfolio
securities than many other funds and may be more sensitive to any single
economic, business, political or regulatory occurrence than a diversified fund.
To the extent the Fund invests in a relatively small number of issuers due to
the high percentage of the Fund’s assets invested in that security, a decline in
the market value of a particular security held by the Fund may affect its value
more than if it invested in a larger number of issuers. The value of the Fund’s
shares may be more volatile than the values of shares of more diversified funds.
15
NON-U.S.
SECURITIES RISK. An investment in
securities of non-U.S. companies involves risks not associated with domestic
issuers. Investment in non-U.S. securities may involve higher costs than
investment in U.S. securities, including higher transaction and custody costs as
well as the imposition of additional taxes by non-U.S. governments. Non-U.S.
investments may also involve risks associated with the level of currency
exchange rates, less complete financial information about the issuers, less
market liquidity, more market volatility and political instability. Future
political and economic developments, the possible imposition of withholding
taxes on dividend income, the possible seizure or nationalization of non-U.S.
holdings, the imposition of sanctions by foreign governments, the possible
establishment of capital controls, exchange controls or freezes on the
convertibility of currency or the adoption of other governmental restrictions
might adversely affect an investment in non-U.S. securities. Additionally,
non-U.S. issuers may be subject to less stringent regulation, and to different
accounting, auditing and recordkeeping requirements. The U.S. and non-U.S.
markets often rise and fall at different times or by different amounts due to
economic or other regional developments particular to a given country or
region.
OPERATIONAL
RISK. The Fund is
subject to risks arising from various operational factors, including, but not
limited to, human error, processing and communication errors, errors of the
Fund’s service providers, counterparties or other third-parties, failed or
inadequate processes and technology or systems failures. The Fund relies on
third-parties for a range of services, including custody. Any delay or failure
relating to engaging or maintaining such service providers may affect the Fund’s
ability to meet its investment objective. Although the Fund and the Fund’s
investment advisor seek to reduce these operational risks through controls and
procedures, there is no way to completely protect against such
risks.
PASSIVE
INVESTMENT RISK. The
Fund is not actively managed. The Fund invests in securities included in or
representative of its Index regardless of investment merit. The Fund generally
will not attempt to take defensive positions in declining markets. In the event
that the Index is no longer calculated, the Index license is terminated or the
identity or character of the Index is materially changed, the Fund will seek to
engage a replacement index.
PREMIUM/DISCOUNT
RISK.
The market price of the Fund’s shares will generally fluctuate in accordance
with changes in the Fund’s net asset value as well as the relative supply of and
demand for shares on the Exchange. First Trust cannot predict whether shares
will trade below, at or above their net asset value because the shares trade on
the Exchange at market prices and not at net asset value. Price differences may
be due, in large part, to the fact that supply and demand forces at work in the
secondary trading market for shares will be closely related, but not identical,
to the same forces influencing the prices of the holdings of the Fund trading
individually or in the aggregate at any point in time. However, given that
shares can only be purchased and redeemed in Creation Units, and only to and
from broker-dealers and large institutional investors that have entered into
participation agreements (unlike shares of closed-end funds, which frequently
trade at appreciable discounts from, and sometimes at premiums to, their net
asset value), First Trust believes that large discounts or premiums to the net
asset value of shares should not be sustained absent disruptions to the creation
and redemption mechanism, extreme market volatility or potential lack of
authorized participants. During stressed market conditions, the market for the
Fund’s shares may become less liquid in response to deteriorating liquidity in
the market for the Fund’s underlying portfolio holdings, which could in turn
lead to differences between the market price of the Fund’s shares and their net
asset value.
REIT
RISK. The Fund invests
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 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. REITs are pooled
investment vehicles that have their own expenses. As a shareholder in a REIT,
the Fund bears its ratable share of the REIT’s expenses, subjecting Fund
shareholders to additional expenses.
16
TRADING
ISSUES RISK. Trading in Fund
shares on the Exchange may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in shares inadvisable. In
addition, trading in Fund shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will
remain unchanged. The Fund may have difficulty maintaining its listing on the
Exchange in the event the Fund’s assets are small, the Fund does not have enough
shareholders, or if the Fund is unable to proceed with creation and/or
redemption orders.
Non-Principal
Risks
BORROWING
AND LEVERAGE RISK. If
the Fund borrows money, it must pay interest and other fees, which may reduce
the Fund’s returns. Any such borrowings are intended to be temporary. However,
under certain market conditions, including periods of decreased liquidity, such
borrowings might be outstanding for longer periods of time. As prescribed by the
1940 Act, the Fund will be required to maintain specified asset coverage of at
least 300% with respect to any bank borrowing immediately following such
borrowing and at all times thereafter. The Fund may be required to dispose of
assets on unfavorable terms if market fluctuations or other factors reduce the
Fund’s asset coverage to less than the prescribed amount.
CASH
TRANSACTIONS RISK. The
Fund may, under certain circumstances, effect a portion of creations and
redemptions for cash, rather than in-kind securities. As a result, an investment
in the Fund may be less tax-efficient than an investment in an ETF that effects
its creations and redemptions only in-kind. ETFs are able to make in-kind
redemptions and avoid being taxed on gains on the distributed portfolio
securities at the fund level. A Fund that effects redemptions for cash may be
required to sell portfolio securities in order to obtain the cash needed to
distribute redemption proceeds. Any recognized gain on these sales by the Fund
will generally cause the Fund to recognize a gain it might not otherwise have
recognized, or to recognize such gain sooner than would otherwise be required if
it were to distribute portfolio securities only in-kind. The Fund intends to
distribute these gains to shareholders to avoid being taxed on this gain at the
fund level and otherwise comply with the special tax rules that apply to it.
This strategy may cause shareholders to be subject to tax on gains they would
not otherwise be subject to, or at an earlier date than if they had made an
investment in a different ETF. Moreover, cash transactions may have to be
carried out over several days if the securities market is relatively illiquid
and may involve considerable brokerage fees and taxes. These brokerage fees and
taxes, which will be higher than if the Fund sold and redeemed its shares
entirely in-kind, will be passed on to those
purchasing and redeeming Creation Units in the form of creation and redemption
transaction fees. In addition, these factors may result in wider spreads between
the bid and the offered prices of the Fund’s shares than for ETFs that
distribute portfolio securities in-kind.
FAILURE
TO QUALIFY AS A REGULATED INVESTMENT COMPANY RISK. If, in any year, the
Fund fails to qualify as a regulated investment company under the applicable tax
laws, the Fund would be taxed as an ordinary corporation. In such circumstances,
the Fund 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.
INTELLECTUAL
PROPERTY RISK. The Fund relies on a
sublicense from First Trust that permits the Fund to use the associated trade
names, trademarks and/or service marks (the “Intellectual
Property”) in connection with
the name and/or investment strategies of the Fund. Such license may be
terminated by the owners of the Intellectual Property and, as a result, the Fund
may lose its ability to use the Intellectual Property. There is also no
guarantee that the owners of the Intellectual Property have all rights to
license the Intellectual Property to First Trust for use by the Fund.
Accordingly, in the event the license is terminated or the owners of the
Intellectual Property do not have rights to license the Intellectual Property,
it may have a significant effect on the operation of the Fund.
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 the Fund invests. In addition, litigation regarding any of the issuers of
the securities owned by the Fund, or industries represented by these issuers,
may negatively impact the value of the securities. Such legislation or
litigation may cause the Fund to lose value or may result in higher portfolio
turnover if the Advisor determines to sell such a holding.
SMALLER
COMPANIES RISK. The Fund may invest
in the securities of small and/or mid-capitalization companies. Small and/or
mid-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 larger, more established companies as a
result
17
of
several factors, including limited trading volumes, products or financial
resources, management inexperience and less publicly available
information. Accordingly, such companies are generally subject to greater market
risk than larger, more established companies.
Fund
Organization
The
Fund is a series of the Trust, an investment company registered under the 1940
Act. The Fund is treated as a separate fund with its own
investment objectives and policies. The Trust is organized as a Massachusetts
business trust. The Board is responsible for the overall management and
direction of the Trust. The Board elects the Trust’s officers and approves all
significant agreements, including those with the Advisor, custodian and fund
administrative and accounting agent.
Management
of the Fund
First
Trust Advisors L.P., 120 East Liberty Drive, Wheaton, Illinois 60187, is the
investment advisor to the Fund. In this capacity, First Trust is
responsible for the selection and ongoing monitoring of the securities in the
Fund's portfolio and certain other services necessary for the management of the
Fund.
First
Trust is a limited partnership with one limited partner, Grace Partners of
DuPage L.P., and one general partner, The Charger Corporation. Grace
Partners of DuPage L.P. is a limited partnership with one general partner, The
Charger Corporation, and a number of limited partners. The Charger Corporation
is an Illinois corporation controlled by James A. Bowen, the Chief Executive
Officer of First Trust. First Trust discharges its responsibilities subject to
the policies of the Board.
First Trust serves
as advisor or sub-advisor for eight mutual fund portfolios, 10 exchange-traded
funds consisting of 193
series and 16 closed-end funds. It is also the portfolio supervisor of certain
unit investment trusts sponsored by First Trust Portfolios L.P. (“FTP”), an affiliate of First Trust, 120
East Liberty Drive, Wheaton, Illinois 60187. FTP specializes in the
underwriting, trading and distribution of unit investment trusts and other
securities. FTP is the principal underwriter of the shares of the
Fund.
The
members of the Investment Committee are primarily and jointly responsible for
the management of the Fund. Investments are made under the
direction of the Investment Committee. The Investment Committee consists of
Daniel J. Lindquist, Jon C. Erickson, David G. McGarel, Roger F. Testin, Stan
Ueland, Chris A. Peterson and Erik Russo.
•
Mr. Lindquist is
Chairman of the Investment Committee and presides over Investment Committee
meetings. Mr. Lindquist is responsible for overseeing the implementation of the
Fund’s investment strategy. Mr. Lindquist was a Senior Vice President of First
Trust and FTP from September 2005 to July 2012 and is now a Managing Director of
First Trust and FTP. Mr. Lindquist is a recipient of the Chartered Financial
Analyst designation.
•
Mr. 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. 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. 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 20 years of financial services industry experience and is a recipient of
the Chartered Financial Analyst designation.
18
•
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 Fund, see the Fund's SAI. Additional
information about the compensation of Investment Committee members, other
accounts managed by members of the Investment Committee and ownership by members
of the Investment Committee of shares of the Fund is provided in the
SAI.
Management
Fee
Pursuant to an
investment management agreement between First Trust and the Trust, on behalf of
the Fund (the “Investment
Management Agreement”),
First Trust manages the investment of the Fund's assets. First Trust is paid an
annual unitary management fee by the Fund equal to 0.70% of the Fund's average
daily net assets and is responsible for the Fund's expenses, including the cost
of transfer agency, custody, fund administration, legal, audit and other
services, but excluding fee payments under the Investment Management Agreement,
interest, taxes, acquired fund fees and expenses, if any, brokerage commissions
and other expenses connected with the execution of portfolio transactions,
expenses associated with short sales transactions, distribution and service fees
payable pursuant to a Rule 12b-1 plan, if any, and extraordinary
expenses.
A discussion
regarding the Board’s approval of the Investment Management Agreement
is available in the
Fund’s Annual Report to Shareholders for the period ended September 30,
2021.
How
to Buy and Sell Shares
Most
investors buy and sell shares of the Fund in secondary market transactions
through brokers. Shares of the Fund are listed for trading on the
secondary market on one or more national securities exchanges. Shares can be
bought and sold throughout the trading day like other publicly traded shares.
There is no minimum investment when buying shares on the Exchange. Although
shares are generally purchased and sold in “round lots” of 100 shares, brokerage
firms typically permit investors to purchase or sell shares in smaller “odd
lots,” at no per-share price differential. When buying or selling shares through
a broker, investors should expect to pay brokerage commissions, investors may
receive less than the net asset value of the shares because shares are bought
and sold at market prices rather than at net asset value, and investors may pay
some or all of the bid-ask spread for each transaction (purchase or sale) of
Fund shares. Share prices are reported in dollars and cents per
share.
Under
normal circumstances, the Fund will pay out redemption proceeds to a redeeming
authorized participant within two days after the
authorized participant’s redemption request is received, in accordance with the
process set forth in the Fund’s SAI and in the agreement between the authorized
participant and the Fund’s distributor. However, the Fund reserves the right,
including under stressed market conditions, to take up to seven days after the
receipt of a redemption request to pay an authorized participant, all as
permitted by the 1940 Act. If the Fund has foreign investments in a country
where a local market holiday, or series of consecutive holidays, or the extended
delivery cycles for transferring foreign investments to redeeming authorized
participants prevents the Fund from delivering such foreign investments to an
authorized participant in response to a redemption request, the Fund may take up
to 15 days after the receipt of the redemption request to deliver such
investments to the authorized participant.
For
purposes of the 1940 Act, the Fund is treated as a registered investment
company, and, absent an available exemption or exemptive relief,
the acquisition of shares by other registered investment companies and companies
relying on Sections 3(c)(1) and 3(c)(7) of the 1940 Act is subject to the
restrictions of Section 12(d)(1) of the 1940 Act. The Trust, on behalf of the
Fund, has received an exemptive order from the Securities and Exchange
Commission that permits certain registered investment companies to invest in the
Fund beyond the limits set forth in Section 12(d)(1), subject to certain terms
and conditions, including that any such investment companies enter into
agreements with the Fund regarding the terms of any investment.
Book
Entry
Shares
are held in book-entry form, which means that no share certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is
the record owner of all outstanding shares of the Fund and is recognized as the
owner of all shares for all purposes.
Investors
owning shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all
shares. Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing
19
corporations
and other institutions that directly or indirectly maintain a custodial
relationship with DTC. As a beneficial owner of shares, you are
not entitled to receive physical delivery of share certificates or to have
shares registered in your name, and you are not considered a registered owner of
shares. Therefore, to exercise any right as an owner of shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other stocks that you hold in book-entry or “street
name” form.
Share
Trading Prices
The
trading price of shares of the Fund on the secondary market is based on market
price and may differ from the Fund’s daily net asset value and
can be affected by market forces of supply and demand, economic conditions and
other factors.
Frequent
Purchases and Redemptions of the Fund's Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions
(“market
timing”). In determining not
to approve a written, established policy, the Board evaluated the risks of
market timing activities by the Fund's shareholders. The Board considered that
the Fund's shares can only be purchased and redeemed directly from the Fund in
Creation Units by broker-dealers and large institutional investors that have
entered into participation agreements (i.e., authorized
participants (“APs”)) and that the vast
majority of trading in the Fund's shares occurs on the secondary market. Because
the secondary market trades do not involve the Fund directly, it is unlikely
those trades would cause many of the harmful effects of market timing, including
dilution, disruption of portfolio management, increases in the Fund's trading
costs and the realization of capital gains. With respect to trades directly with
the Fund, to the extent effected in-kind (i.e., for securities),
those trades do not cause any of the harmful effects that may result from
frequent cash trades. To the extent that may effect the purchase or redemption
of Creation Units in exchange wholly or partially for cash, the Board noted that
such trades could result in dilution to the Fund and increased transaction
costs, which could negatively impact the Fund's ability to achieve its
investment objective. However, the Board noted that direct trading by APs is
critical to ensuring that the shares trade at or close to net asset value. In
addition, the Fund imposes fixed and variable transaction fees on purchases and
redemptions of Creation Units to cover the custodial and other costs incurred by
the Fund in effecting trades. Finally, the Advisor monitors purchase and
redemption orders from APs for patterns of abusive trading and the Fund reserves
the right to not accept orders from APs that the Advisor has determined may be
disruptive to the management of the Fund, or otherwise not in the Fund's best
interests.
Dividends,
Distributions and Taxes
Dividends
from net investment income, if any, are declared and paid quarterly by the Fund.
The Fund distributes its net realized capital gains, if
any, to shareholders at least annually.
Distributions
in cash may be reinvested automatically in additional whole shares only if the
broker through whom you purchased shares makes such
option available. Such shares will generally be reinvested by the broker based
upon the market price of those shares and investors may be subject to customary
brokerage commissions charged by the broker.
Federal
Tax Matters
This
section summarizes some of the main U.S. federal income tax consequences of
owning shares of the Fund. This section is current as of the
date of this prospectus. Tax laws and interpretations change frequently, and
these summaries do not describe all of the tax consequences to all taxpayers.
For example, these summaries generally do not describe your situation if you are
a corporation, a non-U.S. person, a broker-dealer, or other investor with
special circumstances. In addition, this section does not describe your state,
local or non-U.S. tax consequences.
This federal income
tax summary is based in part on the advice of counsel to the Fund. The Internal
Revenue Service could disagree with any conclusions set
forth in this section. In addition, counsel to the Fund may not have been asked
to review, and may not have reached a conclusion with respect to, the federal
income tax treatment of the assets to be included in the Fund. 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.
20
Fund
Status
The Fund intends to
continue to qualify as a
“regulated investment company” under the federal tax laws. If the Fund qualifies
as a regulated investment company and distributes its income as required by the
tax law, the Fund generally will not pay federal income taxes.
Distributions
The Fund’s
distributions are generally taxable. After the end of each year, you will
receive a tax statement that separates the distributions of the Fund into two
categories, ordinary income distributions and capital 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 the 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.
To
determine your actual tax liability for your capital gain dividends, you must
calculate your total net capital gain or loss for the tax year after
considering all of your other taxable transactions, as described below. In
addition, the Fund may make distributions that represent a return of capital for
tax purposes and thus will generally not be taxable to you; however, such
distributions may reduce your tax basis in your shares, which could result in
you having to pay higher taxes in the future when shares are sold, even if you
sell the shares at a loss from your original investment. A "return of capital"
is a return, in whole or in part, of the funds that you previously invested in
the Fund. A return of capital distribution should not be considered part of a
Fund’s dividend yield or total return of an investment in Fund shares. The tax
status of your distributions from the Fund is not affected by whether you
reinvest your distributions in additional shares or receive them in cash. The
income from the Fund that you must take into account for federal income tax
purposes is not reduced by amounts used to pay a deferred sales fee, if any. The
tax laws may require you to treat distributions made to you in January as if you
had received them on December 31 of the previous year.
Income
from the Fund may also be subject to a 3.8% “Medicare tax.” This tax generally
applies to your net investment income if your adjusted
gross income exceeds certain threshold amounts, which are $250,000 in the case
of married couples filing joint returns and $200,000 in the case of single
individuals.
Dividends
Received Deduction
A
corporation that owns shares generally will not be entitled to the dividends
received deduction with respect to many dividends received from the
Fund because the dividends received deduction is generally not available for
distributions from regulated investment companies. However, certain ordinary
income dividends on shares that are attributable to qualifying dividends
received by the Fund from certain corporations may be reported by the Fund as
being eligible for the dividends received deduction.
Capital
Gains and Losses and Certain Ordinary Income Dividends
If you are an
individual, the maximum marginal stated federal tax rate for net capital gain is
generally 20% (15% or 0% for taxpayers with taxable incomes below
certain thresholds). Some capital gains, including some portion of your capital
gain dividends may be taxed at a higher maximum stated tax rate. Capital 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 the Fund and sell your shares at a loss after holding
it for six months or less, the loss will be recharacterized as long-term capital
loss to the extent of the capital gain dividend received. The tax rates for
capital gains realized from assets held for one year or less are generally the
same as for ordinary income. The Internal Revenue Code of 1986, as amended,
treats certain capital gains as ordinary income in special situations.
21
An election may be
available to you to defer recognition of the gain attributable to a capital gain
dividend if you make certain qualifying investments within a
limited time. You should talk to your tax advisor about the availability of this
deferral election and its requirements.
Ordinary income
dividends received by an individual shareholder from a regulated investment
company such as the Fund are generally taxed at the same rates
that apply to net capital gain (as discussed above), provided certain holding
period requirements are satisfied and provided the dividends are attributable to
qualifying dividends received by the Fund itself. Distributions with respect to
shares in real estate investment trusts and foreign corporations are qualifying
dividends only in limited circumstances. The Fund will provide notice to its
shareholders of the amount of any distribution which may be taken into account
as a dividend which is eligible for the capital gains tax rates.
Sale
of Shares
If you sell or
redeem your shares, you will generally recognize a taxable gain or loss. To
determine the amount of this gain or loss, you must subtract your tax
basis in your shares from the amount you receive in the transaction. Your tax
basis in your shares is generally equal to the cost of your shares, generally
including sales charges. In some cases, however, you may have to adjust your tax
basis after you purchase your shares. 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 Internal
Revenue Service, however, may assert that a loss realized upon an exchange of
securities for Creation Units or Creation Units for securities cannot be
deducted currently under the rules governing “wash sales,” or on the basis that
there has been no significant change in economic position.
Treatment
of Fund Expenses
Expenses incurred and
deducted by the Fund will generally not be treated as income taxable to
you.
Non-U.S.
Tax Credit
Because
the Fund may invest in in non-U.S. securities, the tax statement that you
receive may include an item showing non-U.S. taxes the Fund paid
to other countries. In this case, dividends taxed to you will include your share
of the taxes the Fund paid to other countries. You may be able to deduct or
receive a tax credit for your share of these taxes.
Non-U.S.
Investors
If you are a
non-U.S. investor (i.e., an investor other than a U.S.
citizen or resident or a U.S. corporation, partnership, estate or trust), you
should be aware that, generally, subject to applicable tax treaties,
distributions from the Fund will be characterized as dividends for federal
income tax purposes (other than dividends which the Fund properly reports as
capital gain dividends) and will be subject to U.S. federal income taxes,
including withholding taxes, subject to certain exceptions described below.
However, distributions received by a non-U.S. investor from the Fund that are
properly reported by the Fund as capital gain dividends may not be subject to
U.S. federal income taxes, including withholding taxes, provided that the Fund
makes certain elections and certain other conditions are met. Distributions from
the Fund that are properly reported by the Fund as an interest-related dividend
attributable to certain interest income received by the Fund or as a short-term
capital gain dividend attributable to certain net short-term capital gain income
received by the Fund may not be subject to U.S. federal income taxes, including
withholding taxes when received by certain non-U.S. investors, provided that the
Fund makes certain elections and certain other conditions are met.
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
22
dispositions.
It is the responsibility of the entity through which you hold your shares to determine the applicable withholding.
It is the responsibility of the entity through which you hold your shares to determine the applicable withholding.
Investments
in Certain Non-U.S. Corporations
If
the Fund holds an equity interest in any “passive foreign investment companies”
(“PFICs”), which are
generally certain non-U.S. corporations that receive at least 75% of their
annual gross income from passive sources (such as interest, dividends, certain
rents and royalties or capital gains) or that hold at least 50% of their assets
in investments producing such passive income, the Fund could be subject to U.S.
federal income tax and additional interest charges on gains and certain
distributions with respect to those equity interests, even if all the income or
gain is timely distributed to its shareholders. The Fund will not be able to
pass through to its shareholders any credit or deduction for such taxes. The
Fund may be able to make an election that could ameliorate these adverse tax
consequences. In this case, the Fund would recognize as ordinary income any
increase in the value of such PFIC shares, and as ordinary loss any decrease in
such value to the extent it did not exceed prior increases included in income.
Under this election, the Fund might be required to recognize in a year income in
excess of its distributions from PFICs and its proceeds from dispositions of
PFIC stock during that year, and such income would nevertheless be subject to
the distribution requirement and would be taken into account for purposes of the
4% excise tax. Dividends paid by PFICs are not treated as qualified dividend
income.
Distribution
Plan
FTP
serves as the distributor of Creation Units for the Fund on an agency basis. FTP
does not maintain a secondary market in shares.
The
Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1 under
the 1940 Act. In accordance with the Rule 12b-1 plan, the
Fund is authorized to pay an amount up to 0.25% of 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 Fund does not
currently pay 12b-1 fees, and pursuant to a contractual arrangement, the Fund
will not pay 12b-1 fees any time before January 31, 2023.
However, in the event 12b-1 fees are charged in the future, because these fees
are paid out of the Fund's assets, over time these fees will increase the cost
of your investment and may cost you more than certain other types of sales
charges.
Net
Asset Value
The
Fund's net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern Time) on each day the New York Stock Exchange
is open for business. Net asset value is calculated for the Fund by taking the
market price of the Fund’s total assets, including interest or dividends accrued
but not yet collected, less all liabilities, and dividing such amount by the
total number of shares outstanding. The result, rounded to the nearest cent, is
the net asset value per share. All valuations are subject to review by the Board
or its delegate.
The
Fund's investments are valued daily at market value or, in the absence of market
value with respect to any portfolio securities, at fair
value, in accordance with valuation procedures adopted by the Board and in
accordance with the 1940 Act. Portfolio securities listed on any exchange other
than Nasdaq and the London Stock Exchange Alternative Investment Market
(“AIM”) are valued at the
last sale price on the business day as of which such value is being determined.
Securities listed on Nasdaq or the AIM are valued at the official closing price
on the business day as of which such value is being determined. If there has
been no sale on such day, or no official closing price in the case of securities
traded on Nasdaq or the AIM, the securities are fair valued at the mean of the
most recent bid and ask prices on such day. Portfolio securities traded on more
than one securities exchange are valued at the last sale price or official
closing price, as applicable, on the business day as of which such value is
being determined at the close of the exchange representing the principal market
for such securities. Portfolio securities traded in the over-the-counter market,
but excluding securities trading on Nasdaq or the AIM, are fair valued at the
mean of the most recent bid and asked price, if available, and otherwise at the
closing bid price. Short-term investments that mature in less than 60 days when
purchased are fair valued at cost adjusted for amortization of premiums and
accretion of discount, provided the Advisor’s Pricing Committee has determined
that the use of amortized cost is an appropriate reflection of fair value given
market and issuer-specific conditions existing at the time of determination. Net
asset value may change on days when investors may not sell or redeem Fund
shares.
23
Certain
securities in which the Fund may invest are not listed on any securities
exchange or board of trade. Such securities are typically bought
and sold by institutional investors in individually negotiated private
transactions that function in many respects like an over-the-counter secondary
market, although typically no formal market makers exist. Certain securities,
particularly debt securities, have few or no trades, or trade infrequently, and
information regarding a specific security may not be widely available or may be
incomplete. Accordingly, determinations of the fair value of debt securities may
be based on infrequent and dated information. Because there is less reliable,
objective data available, elements of judgment may play a greater role in
valuation of debt securities than for other types of securities. Typically, debt
securities are valued using information provided by a third-party pricing
service. The third-party pricing service primarily uses broker quotes to value
such securities.
Certain
securities may not be able to be priced by pre-established pricing methods. Such
securities may be valued by the Board or its delegate, the
Advisor’s Pricing Committee, at fair value. The use of fair value pricing by the
Fund is governed by valuation procedures adopted by the Board and in accordance
with the provisions of the 1940 Act. These securities generally include, but are
not limited to, certain restricted securities (securities which may not be
publicly sold without registration under the Securities Act) for which a pricing
service is unable to provide a market price; securities whose trading has been
formally suspended; a security whose market or fair value price is not available
from a pre-established pricing source; a security with respect to which an event
has occurred that is likely to materially affect the value of the security after
the market has closed but before the calculation of the Fund's net asset value
or make it difficult or impossible to obtain a reliable market quotation; and a
security whose price, as provided by the pricing service, does not reflect the
security’s fair value. As a general principle, the current fair value of a
security would appear to be the amount which the owner might reasonably expect
to receive for the security upon its current sale. When fair value prices are
used, generally they will differ from the current market quotations or official
closing prices on the applicable exchange. A variety of factors may be
considered in determining the fair value of such securities. See the Fund's SAI
for details.
Because
foreign securities exchanges may be open on different days than the days during
which an investor may purchase or sell shares of the
Fund, the value of the Fund's securities may change on days when investors are
not able to purchase or sell shares of the Fund. The value of securities
denominated in foreign currencies is converted into U.S. dollars at the exchange
rates in effect at the time of valuation. Any use of a different rate from the
rates used by the Index may adversely affect a Fund's ability to track the
Index.
Fund
Service Providers
Brown Brothers
Harriman & Co., 50 Post Office Square, Boston, Massachusetts 02110, acts as
the administrator, accounting agent, custodian and transfer agent
for the Fund. Chapman and Cutler LLP, 320 S. Canal St., Chicago, Illinois 60606,
serves as legal counsel to the Fund. First Trust serves as the fund reporting
agent for the Fund.
Index
Provider
The
Index is compiled by the Index Provider. The Index Provider is not affiliated
with the Fund, First Trust or FTP. The Fund is entitled to use the
Index pursuant to a sublicensing arrangement with First Trust, which in turn has
a licensing agreement with the Index Provider. The Index Provider or its agent
also serves as calculation agent for the Index (the “Index
Calculation Agent”). The Index
Calculation Agent is responsible for the management of the day-to-day operations
of the Index, including calculating the value of the Index every second, widely
disseminating the Index values every second 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 Index or
any data included therein, and First Trust shall have no
liability for any errors, omissions or interruptions therein. First Trust makes
no warranty, express or implied, as to results to be obtained by the Fund,
owners of the shares of the Fund or any other person or entity from the use of
the Index or any data included therein. First Trust makes no express or implied
warranties, and expressly disclaims all warranties of merchantability or fitness
for a particular purpose or use with respect to the Index or any data included
therein. Without limiting any of the foregoing, in no event shall First Trust
have any liability for any special, punitive, direct, indirect or consequential
damages (including lost profits) arising out of matters relating to the use of
the Index, even if notified of the possibility of such damages.
24
The
Fund is not sponsored, endorsed, sold or promoted by Nasdaq, Inc. or its
affiliates (Nasdaq, with its 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 Fund. The Corporations make no
representation or warranty, express or implied to the owners of the Fund or any
member of the public regarding the advisability of investing in securities
generally or in the Fund particularly, or the ability of the Index to track
general stock market performance. The Corporations’ only relationship to First
Trust (“Licensee”) is in the licensing
of the Nasdaq®, Dorsey
Wright®, and certain trade
names of the Corporations and the use of the Index, which is determined,
composed and calculated by Nasdaq without regard to Licensee or the Fund. Nasdaq
has no obligation to take the needs of the Licensee or the owners of the Fund
into consideration in determining, composing or calculating Index. The
Corporations are not responsible for and have not participated in the
determination of the timing of, prices at, or quantities of the Fund to be
issued or in the determination or calculation of the equation by which the Fund
is to be converted into cash. The Corporations have no liability in connection
with the administration, marketing or trading of the Fund.
THE
CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF
THE INDEX OR ANY DATA INCLUDED
THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY LICENSEE, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE 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
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 Fund's shares was greater (at
a premium) and less (at a discount) than the Fund's net
asset value for the most recently completed year, and the most recently
completed calendar quarters since that year (or life of the Fund, if shorter),
is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Total
Return Information
The table below
compares the total return of the Fund to the total return of the Index on which
it is based and a market index. The information presented for the
Fund is for the period indicated.
“Cumulative total
returns” represent the total change in value of an investment over the period
indicated. The net asset value per share of the Fund is the value of
one share of the Fund and is computed by dividing the value of all assets of the
Fund (including accrued interest and dividends), less liabilities (including
accrued expenses and dividends declared but unpaid), by the total number of
outstanding shares. The net asset value return is based on the net asset value
per share of the Fund and the market return is based on the market price per
share of the Fund. The price used to calculate market return (“Market
Price”) is determined by
using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s net
asset value is calculated. Under SEC rules, the NBBO consists of the highest
displayed buy and lowest sell prices among the various exchanges trading the
Fund at the time the Fund's net asset value is calculated. Since the shares of
the Fund typically do not trade in the secondary market until several days after
the Fund's inception, for the period from inception to the first day of
secondary market trading in shares of the Fund, the net asset value of the Fund
is used as a proxy for the secondary market trading price to calculate market
returns. Market and net asset value returns assume that all distributions have
been reinvested in the Fund at Market Price and net asset value, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, an index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns reflect the reinvestment of dividends on securities in
the index. The returns shown in the table below do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of shares of the Fund. The investment return and principal value of shares
of the Fund will vary with changes in market conditions. Shares of the Fund may
be worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
25
First
Trust International Developed Capital Strength ETF (FICS)
Total Returns as of September 30, 2021
Total Returns as of September 30, 2021
|
|
Cumulative |
|
|
Inception
(12/15/2020) |
|
Fund
Performance |
|
|
Net Asset
Value |
14.25% |
|
Market
Price |
14.48% |
|
Index
Performance |
|
|
The
International Developed Capital Strength IndexSM |
16.00% |
|
MSCI World
ex USA Index |
11.29% |
26
Financial
Highlights
The financial
highlights table is intended to help you understand the Fund's financial
performance for the period shown. Certain information reflects financial
results for a single share of the Fund. The total return represents the rate
that an investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). The information for
the period indicated has been derived from financial statements audited by
Deloitte & Touche LLP, whose report, along with the Fund's financial
statements, is included in the Fund's Annual Report to Shareholders dated
September 30, 2021 and is incorporated by reference in the Fund's SAI, which is
available upon request.
First Trust
Exchange-Traded Fund VI
Financial
Highlights
For a share outstanding throughout the period
For a share outstanding throughout the period
First Trust
International Developed Capital Strength ETF (FICS)
|
|
Period
Ended
9/30/2021(a) |
|
| |
|
Net
asset value, beginning of period |
$30.09 |
|
Income
from investment operations: |
|
|
Net
investment income (loss) |
0.36 |
|
Net
realized and unrealized gain (loss) |
3.93 |
|
Total
from investment operations |
4.29 |
|
Distributions
paid to shareholders from: |
|
|
Net
investment income |
(0.34) |
|
Net
asset value, end of period |
$34.04 |
|
Total
Return(b) |
14.25% |
|
Ratios
to average net assets /supplemental data: |
|
|
Net assets,
end of period (in 000’s) |
$10,213 |
|
Ratio of
total expenses to average net assets |
(c)0.70% |
|
Ratio of
net investment income (loss) to average net assets |
(c)1.29% |
|
Portfolio
turnover rate(d)
|
23% |
(a)
Inception date
is December 15, 2020, which is consistent with the commencement of investment
operations and is the date the initial creation units were
established.
(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 return presented does 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)
Annualized.
(d)
Portfolio
turnover is calculated for the time period presented and is not annualized for
periods of less than a year and does not include securities received or
delivered from processing creations or redemptions and in-kind transactions.
27
Other
Information
Continuous
Offering
The
Fund issues, on a continuous offering basis, its shares in one or more groups of
a fixed number of Fund shares (each such group of such
specified number of individual Fund shares, a “Creation
Unit Aggregation”). The method by
which Creation Unit Aggregations of Fund shares are created and traded may raise
certain issues under applicable securities laws. Because new Creation Unit
Aggregations of shares are issued and sold by the Fund on an ongoing basis, a
“distribution,” as such term is used in the Securities Act, may occur at any
point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner which could render them statutory
underwriters and subject them to the prospectus delivery requirement and
liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an
order with FTP, breaks them down into constituent shares and sells such shares
directly to customers, or if it chooses to couple the creation of a supply of
new shares with an active selling effort involving solicitation of secondary
market demand for shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker-dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a characterization
as an underwriter.
Broker-dealer firms
should also note that dealers who are not “underwriters” but are effecting
transactions in shares, whether or not participating in the
distribution of shares, are generally required to deliver a prospectus. This is
because the prospectus delivery exemption in Section 4(a)(3) of the Securities
Act is not available in respect of such transactions as a result of Section
24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers
who are not underwriters but are participating in a distribution (as contrasted
with ordinary secondary market transactions) and thus dealing with the shares
that are part of an overallotment within the meaning of Section 4(a)(3)(C) of
the Securities Act would be unable to take advantage of the prospectus delivery
exemption provided by Section 4(a)(3) of the Securities Act. Firms that incur a
prospectus delivery obligation with respect to shares are reminded that, under
the Securities Act Rule 153, a prospectus delivery obligation under Section
5(b)(2) of the Securities Act owed to a broker-dealer in connection with a sale
on the Exchange is satisfied by the fact that the prospectus is available from
the Exchange upon request. The prospectus delivery mechanism provided in Rule
153 is available with respect to transactions on a national securities exchange,
a trading facility or an alternative trading system.
28
|
First
Trust
Exchange-Traded
Fund VI |
First Trust International Developed Capital Strength ETF
For
More Information
For
more detailed information on the Fund, several additional sources of information
are available to you. The SAI, incorporated by
reference into this prospectus, contains detailed information on the Fund's
policies and operation. Additional information about the Fund's investments is
available in the annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly impacted the Fund's performance during
the last fiscal year. The Fund's most recent SAI, annual and semi-annual reports
and certain other information are available free of charge by calling the Fund
at (800) 621-1675, on the Fund's website at www.ftportfolios.com or through your
financial advisor. Shareholders may call the toll-free number above with any
inquiries.
You may obtain
this and other information regarding the Fund, including the SAI and the Codes
of Ethics adopted by
First Trust, FTP and the Trust, directly from the Securities and Exchange
Commission (the "SEC"). Information on the SEC’s website
is free of charge. Visit the SEC’s online EDGAR database at www.sec.gov. You may
also request information regarding the Fund by sending a request (along with a
duplication fee) to the SEC by sending an electronic request to
[email protected].
First Trust
Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(800) 621-1675
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(800) 621-1675
www.ftportfolios.com
SEC File #:
333-182308
811-22717
811-22717