FIRST TRUST
First Trust Exchange-Traded Fund
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FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
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Annual Report
For the Year Ended
December 31, 2022
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TABLE OF CONTENTS
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FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
ANNUAL REPORT
DECEMBER 31, 2022
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 4
Understanding Your Fund Expenses............................................. 6
Consolidated Portfolio of Investments........................................ 7
Consolidated Statement of Assets and Liabilities............................. 9
Consolidated Statement of Operations......................................... 10
Consolidated Statements of Changes in Net Assets............................. 11
Consolidated Financial Highlights............................................ 12
Notes to Consolidated Financial Statements................................... 13
Report of Independent Registered Public Accounting Firm ..................... 19
Additional Information....................................................... 20
Board of Trustees and Officers .............................................. 25
Privacy Policy............................................................... 27
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Cboe Vest(SM) Financial LLC ("Cboe Vest" or the
"Sub-Advisor") and their respective representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund (the "Trust") described in this
report (FT Cboe Vest Gold Strategy Quarterly Buffer ETF; hereinafter referred to
as the "Fund") to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and/or Sub-Advisor and their respective representatives
only as of the date hereof. We undertake no obligation to publicly revise or
update these forward-looking statements to reflect events and circumstances that
arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objective. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund's
shares may therefore be less than what you paid for them. Accordingly, you can
lose money investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor and/or Sub-Advisor are just that: informed opinions. They should not be
considered to be promises or advice. The opinions, like the statistics, cover
the period through the date on the cover of this report. The material risks of
investing in the Fund are spelled out in the prospectus, the statement of
additional information, and other Fund regulatory filings.
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SHAREHOLDER LETTER
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FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
DECEMBER 31, 2022
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the FT Cboe
Vest Gold Strategy Quarterly Buffer ETF (the "Fund"), which contains detailed
information about the Fund for the twelve months ended December 31, 2022.
The past year was filled with challenges, several of which surely tested the
resolve of even the most seasoned investors. The year began with the same
headwinds that existed at the end of 2021, namely: stubbornly high inflation and
rising interest rates. When Russia invaded Ukraine in late February 2022, we
added war, geopolitical tension, and potential food and energy shortages to the
list. Considering the bleak backdrop at the start of the year, it probably does
not surprise you to read that with a total return of -18.11%, 2022 was the worst
year for the S&P 500(R) Index since 2008. Even the bond market struggled to
provide a haven to weary investors. The Bloomberg U.S. Aggregate Bond Index
posted a total return of -13.01% for the year; its worst total return in 45
years.
A common topic of discussion in 2022 was whether central banks around the world
had tightened monetary policy enough to quell inflation without causing excess
damage to their economies. In the U.S., the Federal Reserve (the "Fed")
described this as a "soft landing," stating it was their intent to keep the
labor market strong but to increase interest rates enough to bring inflation
down to 2.0%. True to their word, over the course of seven interest rate hikes,
the Fed increased the Federal Funds target rate (upper bound) from 0.25% (where
it stood in March 2022) to 4.50% as of December 2022. This is the highest the
Federal Funds rate has been since 2008.
The economic impact of the Fed's tighter monetary policy quickly became evident.
Excluding the economic contraction from COVID-19 in 2020, the U.S. experienced
its first decline in the gross domestic product ("GDP") growth rate since March
2014. Data from the U.S. Bureau of Economic Analysis indicates that annualized
real GDP growth rates over the first three quarters of 2022 were -1.6%, -0.6%,
and 3.2%, respectively. Thankfully, inflation, as measured by the trailing
12-month rate on the Consumer Price Index ("CPI"), appears to be responding to
the Fed's tightening. After peaking at 9.1% in June 2022, the CPI rate fell to
6.5% at the end of December 2022. For comparative purposes, the CPI rate has
averaged 2.5% over the past 30 years. Job creation has provided a respite from
dreary economic data in recent months, but that could quickly change. Nearly
125,000 employees have lost their jobs since June 2022 as more than 120 U.S.
companies announced layoffs, according to Forbes. The jury is still out on
whether the Fed will be able to pull off a soft landing, but the job market will
tell the tale, in my opinion.
Since 1928, the S&P 500(R) Index has only fallen for two consecutive years on
four occasions: The Great Depression, World War II, the oil crisis of the 1970s
and the burst of the dot-com bubble in the early 2000s. As we enter 2023, the
U.S. economy has significant obstacles to overcome to avoid a recession and
another negative year. We will be watching and reporting on what transpires.
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
The investment objective of the FT Cboe Vest Gold Strategy Quarterly Buffer ETF
(the "Fund") is to seek to provide investors with returns (before fees, expenses
and taxes) that match the price return of the SPDR(R) Gold Trust (the
"Underlying ETF"), up to a predetermined upside cap of 6.31% (before fees,
expenses and taxes) and 6.09% (after fees and expenses, excluding brokerage
commissions, trading fees, taxes and extraordinary expenses not included in the
Fund's management fee), while providing a buffer against Underlying ETF losses
between -5% and -15% (before fees, expenses and taxes) over the period from
December 1, 2022 to February 28, 2023 (the "Target Outcome Period"). Under
normal market conditions, the Fund will invest substantially all of its assets
in U.S. Treasury securities, cash and cash equivalents, and in the shares of a
wholly-owned subsidiary (the "Subsidiary") that holds FLexible EXchange(R)
Options ("FLEX Options") that reference the price performance of the Underlying
ETF. The Fund does not invest directly in FLEX Options on the Underlying ETF.
The Fund gains exposure to these investments exclusively by investing in the
Subsidiary. The Fund will invest up to approximately 25% of its total assets in
the Subsidiary.
Subsequent Target Outcome Periods will begin on the day the prior Target Outcome
Period ends and will end on the approximate three-month anniversary of that new
Target Outcome Period. On the first day of each new Target Outcome Period, the
Fund resets by investing in a new set of FLEX Options that are designed to
provide a new cap for the new Target Outcome Period. This means that the cap
will change for each Target Outcome Period based upon prevailing market
conditions at the beginning of each Target Outcome Period. The Fund will be
perpetually offered and not terminate after the current or any subsequent Target
Outcome Period. An investor that purchases Fund shares other than on the first
day of a Target Outcome Period and/or sells Fund shares prior to the end of a
Target Outcome Period may experience results that are very different from the
target outcomes sought by the Fund for that Target Outcome Period. The Fund is
classified as non-diversified under the Investment Company Act of 1940, as
amended. The shares of the Fund are listed and traded on the Cboe BZX Exchange,
Inc., under the ticker symbol "BGLD."
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PERFORMANCE
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AVERAGE ANNUAL CUMULATIVE
1 Year TOTAL RETURNS TOTAL RETURNS
Ended Inception (1/20/21) Inception (1/20/21)
12/31/22 to 12/31/22 to 12/31/22
FUND PERFORMANCE
NAV -2.41% -3.97% -7.58%
Market Price -2.46% -4.02% -7.68%
INDEX PERFORMANCE
LBMA Gold Price -0.43% -1.18% -2.28%
S&P 500(R) Index - Price Return -19.44% -0.16% -0.32%
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Total returns for the period since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the period indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the period
indicated.
The Fund's per share net asset value ("NAV") 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 all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. 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 NAV 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 NAV is calculated. Since shares of the
Fund did not trade in the secondary market until after the Fund's inception, for
the period from inception to the first day of secondary market trading in shares
of the Fund, the NAV of the Fund is used as a proxy for the secondary market
trading price to calculate market returns. NAV and market returns assume that
all distributions have been reinvested in the Fund at NAV and Market Price,
respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the indices do not actually hold a portfolio of
securities and therefore do 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 presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. 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 performance.
Page 2
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD) (CONTINUED)
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FUND ALLOCATION % OF NET ASSETS
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U.S. Treasury Bills 92.1%
Money Market Funds 0.2
Purchased Options 8.8
Written Options (1.5)
Net Other Assets and Liabilities 0.4
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Total 100.0%
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Performance of a $10,000 Initial Investment
January 20, 2021 - December 31, 2022
FT Cboe Vest
Gold Strategy S&P 500(R) Index -
Quarterly Buffer ETF LBMA Gold Price Price Return
1/20/21 $10,000 $10,000 $10,000
6/30/21 9,645 9,478 11,157
12/31/21 9,469 9,814 12,374
6/30/22 9,174 9,778 9,828
12/31/22 9,242 9,772 9,968
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
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.
Page 3
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PORTFOLIO COMMENTARY
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FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
ANNUAL REPORT
DECEMBER 31, 2022 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to the FT Cboe Vest Gold Strategy Quarterly Buffer ETF ("BGLD" or the
"Fund"). First Trust is responsible for the ongoing monitoring of the Fund's
investment portfolio, managing the Fund's business affairs and providing certain
administrative services necessary for the management of the Fund.
SUB-ADVISOR
Cboe Vest(SM) Financial LLC ("Cboe Vest" or the "Sub-Advisor") serves as the
investment sub-advisor to the Fund. In this capacity, Cboe Vest is responsible
for the selection and ongoing monitoring of the securities in the Fund's
investment portfolio. Cboe Vest, with principal offices at 8350 Broad St., Suite
240, McLean, Virginia 22102, was founded in 2012. Cboe Vest had approximately
$10 billion under management or committed to management as of December 31, 2022.
PORTFOLIO MANAGEMENT TEAM
KARAN SOOD, MANAGING DIRECTOR OF CBOE VEST
HOWARD RUBIN, MANAGING DIRECTOR OF CBOE VEST
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund. Each portfolio manager has served as part of the
portfolio management team of the Fund since 2021.
MARKET RECAP
For the Fund's fiscal year ended December 31, 2022 (the "period"), global stock
markets fell sharply, as inflation rates soared to levels not seen in decades
and central bankers began hiking interest rates to combat it.
The S&P 500(R) Index, the well-known measure of U.S. large-cap stocks, ended the
period down 18.1%. Mid- and small-cap stocks, as measured by the S&P Midcap
400(R) Index and the Russell 2000(R) Small Cap Index lost 13.1% and 20.5%,
respectively. The Nasdaq 100 Index, a tech-heavy market measure, fell 32.4%.
International stock markets were down as well during the period, as exemplified
by drops in the major foreign market indices: the MSCI EAFE Index (a broad
measure of international stocks in developed markets, excluding the U.S.)
declined by 14.5%, while the MSCI Emerging Markets Index fell 20.0%.
During the period, gold, as measured by the price return of SPDR(R) Gold Shares
ETF (ticker "GLD"), declined 0.8%.
U.S. economic data suggested a softening economy. Gross domestic product ("GDP")
growth in the three most recent quarterly reports (first quarter 2022 through
third quarter 2022) came in at seasonally adjusted annualized rates of -1.6%,
-0.6%, and 3.2%, sequentially. A current Bloomberg survey of economists shows a
consensus projection of 0.4% GDP growth in 2023 (versus 2022).
The U.S. unemployment rate continues to linger around 50-year lows. Throughout
the current period, the unemployment rate trended lower. The rate was 3.9% in
December 2021 but had declined to 3.5% by December 2022.
In an effort to reduce higher-than-target inflation rates, the Federal Reserve
(the "Fed") aggressively increased the Federal Funds target rate in 2022,
increasing the target range by 4.25% (from a range of 0%-0.25% to a range of
4.25%-4.50%).
U.S. inflation levels, which had accelerated dramatically in 2021, began to fall
in the latter half of 2022. As the year began, inflation (as measured by the
Consumer Price Index (CPI - Year-over-Year)) was running at 7.0%. By June 2022,
inflation reached 9.1%, before falling to 6.5% by December 2022. The overheated
housing market also began to respond to the Fed's aggressive interest rate
hikes, with the four most recent monthly price reports (July through October
2022) each showing declining home prices (as measured by the S&P Case-Shiller
U.S. National Home Price Index).
Over the period, implied volatilities in U.S. equity markets rose, illustrated
by an increase in the Cboe Volatility Index ("VIX") from 17.2% to 21.7%. For the
period, the VIX averaged 25.6%.
PERFORMANCE ANALYSIS
The following table provides information pertaining to the caps and performance
for each of the quarterly Target Outcome Periods during the year ended December
31, 2022. The Fund's cap is reset quarterly, at the end of February, May,
August, and November. The table shows the caps that went into effect on each of
the quarterly start dates. Caps are shown both pre and post expenses.
Page 4
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PORTFOLIO COMMENTARY (CONTINUED)
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FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
ANNUAL REPORT
DECEMBER 31, 2022 (UNAUDITED)
For each quarterly target outcome period the Fund's performance is generally
impacted by a number of factors. These factors include GLD performance, the Cap
and Buffer levels, and expenses.
TARGET BGLD ACTUAL
OUTCOME PERIODS CAPS CAPS GLD BGLD ACTUAL BGLD TARGET VS. TARGET
START END BEFORE EXPENSES EXPENSES AFTER EXPENSES PERFORMANCE PERFORMANCE PERFORMANCE (VARIANCE)
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11/30/2021 2/28/2022 3.90% 0.22% 3.68% 7.78% 3.71% 3.68% 0.03%
2/28/2022 5/31/2022 7.01% 0.23% 6.78% -4.06% -4.19% -4.29% 0.10%
5/31/2022 8/31/2022 9.00% 0.23% 8.77% -6.94% -5.14% -5.23% 0.09%
8/31/2022 11/30/2022 6.92% 0.23% 6.69% 3.48% 3.36% 3.25% 0.11%
11/30/2022 2/28/2023 6.31% 0.22% 6.09% 6.09%** 1.84%** N/A* N/A*
* The target outcome period beginning November 30, 2022, had not been
completed as of December 31, 2022. This target outcome period will end on
February 28, 2023.
** Performance from 11/30/22 through 12/31/22.
MARKET AND FUND OUTLOOK
The Fed still has work to do to bring down inflation rates to acceptable levels.
The Fed has been signaling to the market that there will be additional interest
rate hikes in 2023. The Fed's December 2022 "dot plot" that shows where they
think the Federal Funds target rate will be in the future, shows that they
expect the target range to be 5.00-5.25% by the end of 2023, or 0.75% higher
than the current target range. This may be a headwind for equities and fixed
income securities in the coming year.
Many fixed income investments still provide investors with negative real yields
(i.e., nominal yield less inflation.) This continues to bode poorly for future
fixed income returns, in our opinion. In response, investors may be looking to
reallocate away from fixed income.
Gold, historically thought of as the predominant inflation hedge, now competes
with cryptocurrencies such as Bitcoin for that honor. While gold prices were
relatively flat in 2022, it was certainly a better asset class than equities, on
a total return basis, and as such, did provide some inflation protection.
The Fund is an alternative that investors should consider. The Fund is designed
to protect investors against certain downside movements in gold prices as
measured by GLD, while limiting the investor's participation in larger upside
moves in GLD. In the current market environment, which includes elevated
inflation rates, the continuing Fed tightening cycle, and negative real yields,
the Fund, in appropriate allocations, could be a suitable alternative to either
equity and/or fixed income investments.
Page 5
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2022 (UNAUDITED)
As a shareholder of FT Cboe Vest Gold Strategy Quarterly Buffer ETF (the
"Fund"), you incur two types of costs: (1) transaction costs; and (2) ongoing
costs, including management fees, distribution and/or service (12b-1) fees, if
any, and other Fund expenses. This Example is intended to help you understand
your ongoing costs of investing in the Fund and to compare these costs with the
ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended December 31, 2022.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
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ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2022 DECEMBER 31, 2022 PERIOD PERIOD (a)
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FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
Actual $1,000.00 $1,007.30 0.90% $4.55
Hypothetical (5% return before expenses) $1,000.00 $1,020.67 0.90% $4.58
(a) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (July 1,
2022 through December 31, 2022), multiplied by 184/365 (to reflect the
six-month period).
Page 6
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
CONSOLIDATED PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2022
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- ------------------------------------------------------------------ ------------ ------------ ------------
U.S. TREASURY BILLS -- 92.1%
$ 11,938,600 U.S. Treasury Bill (a)............................................ (b) 02/23/23 $ 11,866,836
(Cost $11,866,169) ------------
SHARES DESCRIPTION VALUE
------------- ------------------------------------------------------------------------------------------------ ------------
MONEY MARKET FUNDS -- 0.2%
20,173 Dreyfus Government Cash Management Fund, Institutional Shares - 4.19% (c)....................... 20,173
(Cost $20,173) ------------
TOTAL INVESTMENTS -- 92.3%...................................................................... 11,887,009
(Cost $11,886,342) ------------
NUMBER OF NOTIONAL EXERCISE EXPIRATION
CONTRACTS DESCRIPTION AMOUNT PRICE DATE VALUE
------------- --------------------------------------------------- ------------ ------------ ------------ ------------
CALL OPTIONS PURCHASED -- 8.8%
767 SPDR(R) Gold Shares................................ $ 13,011,388 $ 156.57 02/28/23 1,130,182
(Cost $899,404) ------------
WRITTEN OPTIONS -- (1.5)%
CALL OPTIONS WRITTEN -- (1.5)%
(767) SPDR(R) Gold Shares................................ (13,011,388) 175.21 02/28/23 (192,083)
(Premiums received $140,072) ------------
PUT OPTIONS WRITTEN -- (0.0)%
(767) SPDR(R) Gold Shares................................ (13,011,388) 140.09 02/28/23 (4,602)
(Premiums received $17,673) ------------
TOTAL WRITTEN OPTIONS........................................................................... (196,685)
(Premiums received $157,745) ------------
NET OTHER ASSETS AND LIABILITIES -- 0.4%........................................................ 58,097
------------
NET ASSETS -- 100.0%............................................................................ $ 12,878,603
============
(a) This security or a portion of this security is segregated as collateral
for written options contracts. At December 31, 2022, the segregated value
of this security amounts to $1,682,867.
(b) Zero coupon security.
(c) Rate shown reflects yield as of December 31, 2022.
See Notes to Financial Statements Page 7
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
CONSOLIDATED PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2022
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2022 is as follows (see Note 2A - Portfolio Valuation in the Notes to
Consolidated Financial Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
12/31/2022 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------
U.S. Treasury Bills.................................. $ 11,866,836 $ -- $ 11,866,836 $ --
Money Market Funds................................... 20,173 20,173 -- --
-------------- -------------- -------------- --------------
Total Investments.................................... 11,887,009 20,173 11,866,836 --
Call Options Purchased............................... 1,130,182 -- 1,130,182 --
-------------- -------------- -------------- --------------
Total................................................ $ 13,017,191 $ 20,173 $ 12,997,018 $ --
============== ============== ============== ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
12/31/2022 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------
Call Options Written................................. $ (192,083) $ -- $ (192,083) $ --
Put Options Written.................................. (4,602) -- (4,602) --
-------------- -------------- -------------- --------------
Total................................................ $ (196,685) $ -- $ (196,685) $ --
============== ============== ============== ==============
Page 8 See Notes to Financial Statements
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2022
ASSETS:
Investments, at value.................................................. $ 11,887,009
Options contracts purchased, at value.................................. 1,130,182
Cash................................................................... 67,456
Dividends receivables.................................................. 109
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Total Assets........................................................ 13,084,756
---------------
LIABILITIES:
Options contracts written, at value.................................... 196,685
Investment advisory fees payables...................................... 9,468
---------------
Total Liabilities................................................... 206,153
---------------
NET ASSETS............................................................. $ 12,878,603
===============
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 12,670,633
Par value.............................................................. 7,000
Accumulated distributable earnings (loss).............................. 200,970
---------------
NET ASSETS............................................................. $ 12,878,603
===============
NET ASSET VALUE, per share............................................. $ 18.40
===============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share).............................. 700,002
===============
Investments, at cost................................................... $ 11,886,342
===============
Premiums paid on options contracts purchased........................... $ 899,404
===============
Premiums received on options contracts written......................... $ 157,745
===============
See Notes to Financial Statements Page 9
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2022
INVESTMENT INCOME:
Dividends.............................................................. $ 14,684
Interest............................................................... 172,118
---------------
Total investment income............................................. 186,802
---------------
EXPENSES:
Investment advisory fees............................................... 132,159
---------------
Total expenses...................................................... 132,159
---------------
NET INVESTMENT INCOME (LOSS)........................................... 54,643
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments......................................................... (366)
Purchased options contracts......................................... (900,187)
Written options contracts........................................... 486,203
---------------
Net realized gain (loss)............................................... (414,350)
---------------
Net change in unrealized appreciation (depreciation) on:
Investments......................................................... 195
Purchased options contracts......................................... (105,038)
Written options contracts........................................... (969)
---------------
Net change in unrealized appreciation (depreciation)................... (105,812)
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ (520,162)
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ (465,519)
===============
Page 10 See Notes to Financial Statements
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
YEAR PERIOD
ENDED ENDED
12/31/2022 12/31/2021 (a)
--------------- ---------------
OPERATIONS:
Net investment income (loss)........................................... $ 54,643 $ (72,171)
Net realized gain (loss)............................................... (414,350) (702,490)
Net change in unrealized appreciation (depreciation)................... (105,812) 298,317
--------------- ---------------
Net increase (decrease) in net assets resulting from operations........ (465,519) (476,344)
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.................................................. (31,758) --
Return of capital...................................................... (16,277) --
--------------- ---------------
Total distributions to shareholders.................................... (48,035) --
--------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................................. 14,891,168 23,206,989
Cost of shares redeemed................................................ (19,479,127) (4,750,529)
--------------- ---------------
Net increase (decrease) in net assets resulting from
shareholder transactions............................................ (4,587,959) 18,456,460
--------------- ---------------
Total increase (decrease) in net assets................................ (5,101,513) 17,980,116
NET ASSETS:
Beginning of period.................................................... 17,980,116 --
--------------- ---------------
End of period.......................................................... $ 12,878,603 $ 17,980,116
=============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................ 950,002 --
Shares sold............................................................ 800,000 1,200,002
Shares redeemed........................................................ (1,050,000) (250,000)
--------------- ---------------
Shares outstanding, end of period...................................... 700,002 950,002
=============== ===============
(a) Inception date is January 20, 2021, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
See Notes to Financial Statements Page 11
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
CONSOLIDATED FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR PERIOD
ENDED ENDED
12/31/2022 12/31/2021 (a)
--------------- ---------------
Net asset value, beginning of period........................... $ 18.93 $ 19.99
--------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................................... 0.08 (0.08)
Net realized and unrealized gain (loss)........................ (0.54) (0.98)
--------- ---------
Total from investment operations............................... (0.46) (1.06)
--------- ---------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.......................................... (0.05) --
Return of capital.............................................. (0.02) --
--------- ---------
Total distributions............................................ (0.07) --
--------- ---------
Net asset value, end of period................................. $ 18.40 $ 18.93
========= =========
TOTAL RETURN (b)............................................... (2.41)% (5.30)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................... $ 12,879 $ 17,980
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets.................. 0.90% 0.90% (c)
Ratio of net investment income (loss) to average net assets.... 0.37% (0.87)% (c)
Portfolio turnover rate (d).................................... 0% 0%
(a) Inception date is January 20, 2021, 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 returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(c) 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.
Page 12 See Notes to Financial Statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022
1. ORGANIZATION
First Trust Exchange-Traded Fund (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on August 8,
2003, and is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of twenty-three exchange-traded funds. This report
covers the FT Cboe Vest Gold Strategy Quarterly Buffer ETF (the "Fund"), which
trades under the ticker "BGLD" on the Cboe BZX Exchange, Inc. The Fund
represents a separate series of shares of beneficial interest in the Trust.
Unlike conventional mutual funds, the Fund issues and redeems shares on a
continuous basis, at net asset value ("NAV"), only in large blocks of shares
known as "Creation Units."
The Fund is an actively managed exchange-traded fund. The Fund's investment
objective is to seek to provide investors with returns (before fees, expenses
and taxes) that match the price return of the SPDR(R) Gold Trust (the
"Underlying ETF"), up to a predetermined upside cap of 6.31% (before fees,
expenses and taxes) and 6.09% (after fees and expenses, excluding brokerage
commissions, trading fees, taxes and extraordinary expenses not included in the
Fund's management fee), while providing a buffer against Underlying ETF losses
between -5% and -15% (before fees, expenses and taxes) over the period from
December 1, 2022 to February 28, 2023 (the "Target Outcome Period"). Prior to
December 1, 2022, the Fund's investment objective included an upside cap of
3.90%, 7.01%, 9.00% and 6.92% (before fees, expenses and taxes) and 3.68%,
6.78%, 8.77 and 6.69% (after fees and expenses, excluding brokerage commissions,
trading fees, taxes and extraordinary expenses not included in the Fund's
management fee) and a Target Outcome Period of December 1, 2021 to February 28,
2022, March 1, 2022 to May 31, 2022, June 1, 2022 to August 31, 2022 and
September 1, 2022 to November 30, 2022, respectively. Under normal market
conditions, the Fund will invest substantially all of its assets in U.S.
Treasury securities, cash and cash equivalents, and in the shares of a
wholly-owned subsidiary (the "Subsidiary") that holds FLexible EXchange(R)
Options ("FLEX Options") that reference the price performance of the Underlying
ETF. The Subsidiary is wholly-owned by the Fund and is organized under the laws
of the Cayman Islands. The Fund does not invest directly in FLEX Options on the
Underlying ETF. The Fund gains exposure to these investments exclusively by
investing in the Subsidiary. The Fund will invest up to approximately 25% of its
total assets in the Subsidiary. As of December 31, 2022, the Fund invested
20.87% of the Fund's total assets in the Subsidiary. There can be no assurance
that the Fund will achieve its investment objective. The Fund may not be
appropriate for all investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board Accounting
Standards Codification Topic 946, "Financial Services-Investment Companies." The
consolidated financial statements include the accounts on a consolidated basis
of the Subsidiary. All intercompany accounts and transactions have been
eliminated in consolidation. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of the
consolidated financial statements. The preparation of the consolidated financial
statements in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP") requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the consolidated
financial statements. Actual results could differ from those estimates.
A. PORTFOLIO VALUATION
The Fund's NAV is determined daily as of the close of regular trading on the New
York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the
NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV
is determined as of that time. The Fund's NAV is calculated by dividing the
value of all assets of the Fund (including accrued interest and dividends), less
all liabilities (including accrued expenses and dividends declared but unpaid),
by the total number of shares outstanding.
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. Market
value prices represent readily available market quotations such as last sale or
official closing prices from a national or foreign exchange (i.e., a regulated
market) and are primarily obtained from third-party pricing services. Fair value
prices represent any prices not considered market value prices and are either
obtained from a third-party pricing service or are determined by the Pricing
Committee of the Fund's investment advisor, First Trust Advisors L.P. ("First
Trust" or the "Advisor") in accordance with valuation procedures approved by the
Trust's Board of Trustees, and in accordance with provisions of the 1940 Act and
rules thereunder. Investments valued by the Advisor's Pricing Committee, if any,
are footnoted as such in the footnotes to the Consolidated Portfolio of
Investments. The Fund's investments are valued as follows:
Exchange-traded options contracts (other than FLEX Option contracts) are
valued at the closing price in the market where such contracts are
principally traded. If no closing price is available, exchange-traded
options contracts are fair valued at the mean of their most recent bid and
asked price, if available, and otherwise at their closing bid price.
Over-the-counter options contracts are valued at the mean of their most
recent bid and asked price, if available, and otherwise at their closing
bid price. FLEX Option contracts are normally valued using a model-based
price provided by a third-party pricing vendor. On days when a trade in a
FLEX Option contract occurs, the trade price will be used to value such
FLEX Option contracts in lieu of the model price.
Page 13
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022
U.S. Treasuries are valued on the basis of valuations provided by a
third-party pricing service approved by the Trust's Board of Trustees.
Shares of open-end funds are valued based on NAV per share.
If the Fund's investments are not able to be priced by pre-established pricing
methods, such investments may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. A variety of factors
may be considered in determining the fair value of such investments.
Valuing the Fund's holdings using fair value pricing will result in using prices
for those holdings that may differ from current market valuations. The
Subsidiary's holdings will be valued in the same manner as the Fund's holdings.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of December 31, 2022, is
included with the Fund's Consolidated Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing
requirements to determine fair value in good faith for purposes of the 1940 Act.
The rule permits fund boards to designate a fund's investment advisor to perform
fair value determinations, subject to board oversight and certain other
conditions. The rule also defines when market quotations are "readily available"
for purposes of the 1940 Act and requires a fund to fair value a portfolio
investment when a market quotation is not readily available. The SEC also
adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping
requirements associated with fair value determinations. The compliance date for
Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the
Trust's Board of Trustees designated the Advisor as its valuation designee to
perform fair value determinations and approved new Advisor Valuation Procedures
for the Trust.
B. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are recorded as of the trade date. Realized gains and
losses from investment transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded daily on the accrual basis. Amortization of premiums and accretion of
discounts are recorded using the effective interest method.
C. FLEX OPTIONS
FLEX Options are customized equity or index option contracts that trade on an
exchange, but provide investors with the ability to customize key contract terms
like exercise prices, styles and expiration dates. FLEX Options are guaranteed
for settlement by the Options Clearing Corporation.
The Fund, through the Subsidiary, purchases and sells call and put FLEX Options
based on the performance of the Underlying ETF. The FLEX Options that the
Subsidiary holds that reference the Underlying ETF will give the Subsidiary the
right to receive or deliver shares of the Underlying ETF on the option
expiration date at a strike price, depending on whether the option is a put or
call option and whether the Subsidiary purchases or sells the option. The FLEX
Options held by the Subsidiary are European style options, which are exercisable
at the strike price only on the FLEX Option expiration date.
Page 14
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022
When the Subsidiary writes (sells) an option, an amount equal to the premium
received by the Subsidiary is included in "Options contracts written, at value"
on the Consolidated Statement of Assets and Liabilities. Gain or loss on written
options is presented separately as "Net realized gain (loss) on written options
contracts" on the Consolidated Statement of Operations. When the Subsidiary
purchases a call or put option, the premium paid represents the cost of the call
or put option, which is included in "Options contracts purchased, at value" on
the Consolidated Statement of Assets and Liabilities. Gain or loss on purchased
options is included in "Net realized gain (loss) on purchased options contracts"
on the Consolidated Statement of Operations.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid annually by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized capital gains earned by the Fund, if any, are
distributed at least annually. The Fund may also designate a portion of the
amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the consolidated financial
statements are periodically adjusted for permanent differences in order to
reflect their tax character. These permanent differences are primarily due to
the varying treatment of income and gain/loss on significantly modified
portfolio securities held by the Fund and have no impact on net assets or NAV
per share. Temporary differences, which arise from recognizing certain items of
income, expense and gain/loss in different periods for consolidated financial
statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid during the fiscal year ended December
31, 2022 and the fiscal period ended December 31, 2021 was as follows:
Distributions paid from: 2022 2021
Ordinary income $ 31,758 $ --
Capital gains -- --
Return of capital 16,277 --
As of December 31, 2022, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income $ --
Accumulated capital and other gain (loss) (2,991)
Net unrealized appreciation (depreciation) 195,286
E. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), which includes distributing substantially all
of its net investment income and net realized gains to shareholders.
Accordingly, no provision has been made for federal and state income taxes.
However, due to the timing and amount of distributions, the Fund may be subject
to an excise tax of 4% of the amount by which approximately 98% of the Fund's
taxable income exceeds the distributions from such taxable income for the
calendar year.
The Subsidiary is classified as a controlled foreign corporation under
Subchapter N of the Code. Therefore, the Fund is required to increase its
taxable income by its share of the Subsidiary's income, whether or not such
earnings are distributed by the Subsidiary to the Fund. Net investment losses of
the Subsidiary cannot be deducted by the Fund in the current period nor carried
forward to offset taxable income in future periods.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. The taxable years ended 2021 and
2022 remain open to federal and state audit. As of December 31, 2022, management
has evaluated the application of these standards to the Fund and has determined
that no provision for income tax is required in the Fund's consolidated
financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which
allow it to carry a realized capital loss forward indefinitely following the
year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of
capital loss carryforwards and net unrealized built-in losses. These limitations
apply when there has been a 50% change in ownership. At December 31, 2022, for
federal income tax purposes, the Fund had $210 of non- expiring capital loss
carryforwards that may be carried forward indefinitely.
Certain losses realized during the current fiscal year may be deferred and
treated as occurring on the first day of the following fiscal year for federal
income tax purposes. For the fiscal year ended December 31, 2022, the Fund had
no net late year ordinary or capital losses.
Page 15
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022
In order to present paid-in capital and accumulated distributable earnings
(loss) (which consists of accumulated net investment income (loss), accumulated
net realized gain (loss) and net unrealized appreciation (depreciation)) on the
Consolidated Statement of Assets and Liabilities that more closely represent
their tax character, certain adjustments have been made to paid-in capital,
accumulated net investment income (loss) and accumulated net realized gain
(loss). These adjustments are primarily due to the difference between book and
tax treatments of net investment income from the Subsidiary. The results of
operations and net assets were not affected by these adjustments. For the fiscal
year ended December 31, 2022, the adjustments for the Fund were as follows:
Accumulated Accumulated
Net Investment Net Realized Paid-in
Income (Loss) Gain (Loss) Capital
-------------- -------------- --------------
$ (19,959) $ 414,140 $ (394,181)
As of December 31, 2022, the aggregate cost, gross unrealized appreciation,
gross unrealized depreciation, and net unrealized appreciation/(depreciation) on
investments (including short positions and derivatives, if any) for federal
income tax purposes were as follows:
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
-------------- -------------- -------------- --------------
$ 11,886,342 $ 234,226 $ (38,940) $ 195,286
F. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3).
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the ongoing monitoring of the Fund's and the
Subsidiary's investment portfolios, managing the Fund's business affairs and
providing certain administrative services necessary for the management of the
Fund.
First Trust is responsible for the expenses of the Fund and the Subsidiary
including the cost of transfer agency, sub-advisory, custody, fund
administration, legal, audit and other services, but excluding fee payments
under the Investment Management Agreement, interest, taxes, acquired fund fees
and expenses, if any, brokerage commissions and other expenses connected with
the execution of portfolio transactions, distribution and service fees payable
pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. Effective
November 1, 2022, the annual unitary management fee payable by the Fund to First
Trust for these services will be reduced at certain levels of the Fund's net
assets ("breakpoints") and calculated pursuant to the schedule below.
Breakpoints
-------------------------------------------------------------------------
Fund net assets up to and including $2.5 billion 0.9000%
Fund net assets greater than $2.5 billion up to and including $5 billion 0.8775%
Fund net assets greater than $5 billion up to and including $7.5 billion 0.8550%
Fund net assets greater than $7.5 billion up to and including $10 billion 0.8325%
Fund net assets greater than $10 billion 0.8100%
Prior to November 1, 2022, the Fund paid First Trust an annual unitary
management fee equal to 0.9000% of its average daily net assets. The Subsidiary
does not pay First Trust a separate management fee.
Cboe Vest(SM) Financial LLC ("Cboe Vest"), an affiliate of First Trust, serves
as the Fund's sub-advisor and manages the Fund's portfolio subject to First
Trust's supervision. Pursuant to the Investment Management Agreement, between
the Trust, on behalf of the Fund, and the Advisor, and the Investment
Sub-Advisory Agreement among the Trust, on behalf of the Fund, the Advisor and
Cboe Vest, First Trust will supervise Cboe Vest and its management of the
investment of the Fund's assets and will pay Cboe Vest for its services as the
Fund's sub-advisor a sub-advisory fee equal to 50% of any remaining monthly
unitary management fee paid to the Advisor after the average Fund's expenses
accrued during the most recent twelve months are subtracted from the unitary
management fee for that month.
Page 16
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
a target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee Chairs
rotate every three years. The officers and "Interested" Trustee receive no
compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of securities, excluding
short-term investments, derivatives, and in-kind transactions, for the fiscal
year ended December 31, 2022, were $0 and $0, respectively.
For the fiscal year ended December 31, 2022, the Fund did not have any in-kind
purchases or sales.
5. DERIVATIVE TRANSACTIONS
The following table presents the types of derivatives held by the Subsidiary at
December 31, 2022, the primary underlying risk exposure and the location of
these instruments as presented on the Consolidated Statement of Assets and
Liabilities.
ASSET DERIVATIVES LIABILITY DERIVATIVES
---------------------------------------- ----------------------------------------
CONSOLIDATED CONSOLIDATED
DERIVATIVES STATEMENT OF ASSETS AND STATEMENT OF ASSETS AND
INSTRUMENT RISK EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
----------------- ----------------- ------------------------ ------------- ------------------------ -------------
Commodity Options contracts Options contracts
Options Risk purchased, at value $ 1,130,182 written, at value $ 196,685
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the fiscal year
ended December 31, 2022, on derivative instruments, as well as the primary
underlying risk exposure associated with the instruments.
CONSOLIDATED STATEMENT OF OPERATIONS LOCATION
-----------------------------------------------------------------------------
COMMODITY RISK EXPOSURE
Net realized gain (loss) on:
Purchased options contracts $ (900,187)
Written options contracts 486,203
Net change in unrealized appreciation (depreciation) on:
Purchased options contracts (105,038)
Written options contracts (969)
During the fiscal year ended December 31, 2022, the premiums for purchased
options contracts opened were $4,142,564 and the premiums for purchased options
contracts closed, exercised and expired were $4,439,126.
During the fiscal year ended December 31, 2022, the premiums for written options
contracts opened were $937,375 and the premiums for written options contracts
closed, exercised and expired were $1,100,817.
The Fund does not have the right to offset financial assets and liabilities
related to options contracts on the Consolidated Statement of Assets and
Liabilities.
Page 17
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
The Fund generally issues and redeems its shares in primary market transactions
through a creation and redemption mechanism and does not sell or redeem
individual shares. Instead, financial entities known as "Authorized
Participants" have contractual arrangements with the Fund or one of the Fund's
service providers to purchase and redeem Fund shares directly with the Fund in
large blocks of shares known as "Creation Units." Prior to the start of trading
on every business day, the Fund publishes through the National Securities
Clearing Corporation ("NSCC") the "basket" of securities, cash or other assets
that it will accept in exchange for a Creation Unit of the Fund's shares. An
Authorized Participant that wishes to effectuate a creation of the Fund's shares
deposits with the Fund the "basket" of securities, cash or other assets
identified by the Fund that day, and then receives the Creation Unit of the
Fund's shares in return for those assets. After purchasing a Creation Unit, the
Authorized Participant may continue to hold the Fund's shares or sell them in
the secondary market. The redemption process is the reverse of the purchase
process: the Authorized Participant redeems a Creation Unit of the Fund's shares
for a basket of securities, cash or other assets. The combination of the
creation and redemption process with secondary market trading in the Fund's
shares and underlying securities provides arbitrage opportunities that are
designed to help keep the market price of the Fund's shares at or close to the
NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These
fees may vary based upon various fact-based circumstances, including, but not
limited to, the composition of the securities included in the Creation Unit or
the countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share of the Fund times the number of shares
in a Creation Unit, plus the fees described above and, if applicable, any
operational processing and brokerage costs, transfer fees, stamp taxes and part
or all of the spread between the expected bid and offer side of the market
related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units.
These fees may vary based upon various fact-based circumstances, including, but
not limited to, the composition of the securities included in the Creation Unit
or the countries in which the transactions are settled. The price received for
each Creation Unit will equal the daily NAV per share of the Fund times the
number of shares in a Creation Unit, minus the fees described above and, if
applicable, any operational processing and brokerage costs, transfer fees, stamp
taxes and part or all of the spread between the expected bid and offer side of
the market related to the securities comprising the redemption basket. Investors
who use the services of a broker or other such intermediary in addition to an
Authorized Participant to effect a redemption of a Creation Unit may also be
assessed an amount to cover the cost of such services. The redemption fee
charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits
redemption fees to no more than 2% of the value of the shares redeemed.
7. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is
authorized to pay an amount up to 0.25% of its average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Fund, 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
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before April 30, 2024.
8. INDEMNIFICATION
The Trust, on behalf of the Fund, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
9. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the consolidated financial statements were issued and has determined
that there were no subsequent events requiring recognition or disclosure in the
consolidated financial statements that have not already been disclosed.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying consolidated statement of assets and
liabilities of FT Cboe Vest Gold Strategy Quarterly Buffer ETF (the "Fund"), a
series of the First Trust Exchange-Traded Fund, including the consolidated
portfolio of investments, as of December 31, 2022, the related consolidated
statement of operations for the year then ended, the consolidated statements of
changes in net assets and the consolidated financial highlights for the year
ended December 31, 2022, and the period from January 20, 2021 (commencement of
operations) through December 31, 2021, and the related notes. In our opinion,
the financial statements and financial highlights present fairly, in all
material respects, the financial position of the Fund as of December 31, 2022,
and the results of its operations for the year then ended, and the changes in
its net assets and the financial highlights for the year ended December 31,
2022, and the period from January 20, 2021 (commencement of operations) through
December 31, 2021 in conformity with accounting principles generally accepted in
the United States of America.
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on the Fund's
financial statements and financial highlights based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Fund in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement, whether due to error or fraud. The Fund is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an opinion on the effectiveness of the Fund's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2022, by correspondence with
the custodian and brokers; when replies were not received from brokers, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 24, 2023
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
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FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
For the taxable year ended December 31, 2022, the following percentages of
ordinary income (including the short-term capital gain) distribution paid by the
Fund qualify for the dividends received deduction available to corporations and
are hereby designated as qualified dividend income:
Dividend Received Deduction Qualified Dividend Income
--------------------------- -------------------------
0.00% 0.00%
Distributions paid to foreign shareholders during the Fund's fiscal year ended
December 31, 2022 that were properly designated by the Fund as "interest-related
dividends" or "short-term capital gain dividends," may not be subject to federal
income tax provided that the income was earned directly by such foreign
shareholders.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest 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 fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
more broadly diversified.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the value
of the underlying ETF up to the cap for the investor's investment period.
Additionally, the fund will not participate in gains of the underlying ETF above
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FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022 (UNAUDITED)
the cap and a shareholder may lose their entire investment. If the fund seeks
enhanced returns, there are certain time periods when the value of the fund may
fall faster than the value of the underlying ETF, and it is very unlikely that,
on any given day during which the underlying ETF share price increases in value,
the fund's share price will increase at the same rate as the enhanced returns
sought by the fund, which is designed for an entire target outcome period.
Trading flexible exchange options involves risks different from, or possibly
greater than, the risks associated with investing directly in securities, such
as less liquidity and correlation and valuation risks. A fund may experience
substantial downside from specific flexible exchange option positions and
certain positions may expire worthless.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. 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 stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, 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.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or
more indices or ETF models. As a result, such a fund may be included in one or
more index-tracking exchange-traded funds or mutual funds. Being a component
security of such a vehicle could greatly affect the trading activity involving a
fund, the size of the fund and the market volatility of the fund. 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, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods. In addition, index rebalances may potentially result in increased
trading activity in a fund's shares.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
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FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022 (UNAUDITED)
LIBOR RISK. To the extent a fund invests in floating or variable rate
obligations that use the London Interbank Offered Rate ("LIBOR") as a reference
interest rate, it is subject to LIBOR Risk. The United Kingdom's Financial
Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a
reference rate over a phase-out period that began December 31, 2021. There is no
assurance that any alternative reference rate, including the Secured Overnight
Financing Rate ("SOFR") will be similar to or produce the same value or economic
equivalence as LIBOR or that instruments using an alternative rate will have the
same volume or liquidity. The unavailability or replacement of LIBOR may affect
the value, liquidity or return on certain fund investments and may result in
costs incurred in connection with closing out positions and entering into new
trades. Any potential effects of the transition away from LIBOR on the fund or
on certain instruments in which the fund invests can be difficult to ascertain,
and they may vary depending on a variety of factors, and they could result in
losses to the fund.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
MARKET RISK. Market risk is the risk that a particular security, or shares of a
fund in general, may fall in value. Securities held by a fund, as well as shares
of a fund itself, are subject to market fluctuations caused by factors such as
general economic conditions, political events, regulatory or market
developments, changes in interest rates and perceived trends in securities
prices. Shares of a fund could decline in value or underperform other
investments as a result of the risk of loss associated with these market
fluctuations. 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 a fund
and its investments. Such events may affect certain geographic regions,
countries, sectors and industries more significantly than others. In February
2022, Russia invaded Ukraine which has caused and could continue to cause
significant market disruptions and volatility within the markets in Russia,
Europe, and the United States. The hostilities and sanctions resulting from
those hostilities could have a significant impact on certain fund investments as
well as fund performance. The COVID-19 global pandemic and the ensuing policies
enacted by governments and central banks have caused and may continue to cause
significant volatility and uncertainty in global financial markets. While the
U.S. has resumed "reasonably" normal business activity, many countries continue
to impose lockdown measures. Additionally, there is no guarantee that vaccines
will be effective against emerging variants of the disease. These events also
adversely affect the prices and liquidity of a 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 a
fund's shares and result in increased market volatility. During any such events,
a fund's shares may trade at increased premiums or discounts to their net asset
value and the bid/ask spread on a fund's shares may widen.
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities;
capital controls; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; the imposition of sanctions by foreign
governments; different legal or accounting standards; and less government
supervision and regulation of exchanges in foreign countries. Investments in
non-U.S. securities may involve higher costs than investments in U.S.
securities, including higher transaction and custody costs, as well as
additional taxes imposed by non-U.S. governments. These risks may be heightened
for securities of companies located, or with significant operations, in emerging
market countries.
OPERATIONAL RISK. Each fund is subject to risks arising from various operational
factors, including, but not limited to, human error, processing and
communication errors, errors of a fund's service providers, counterparties or
other third-parties, failed or inadequate processes and technology or systems
failures. Each fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service
providers may affect a fund's ability to meet its investment objective. Although
the funds and the funds' investment advisor seek to reduce these operational
risks through controls and procedures, there is no way to completely protect
against such risks.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
PREFERRED SECURITIES RISK. Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt securities in a company's capital
structure in terms of priority to corporate income, subjecting them to greater
credit risk than those debt securities. Generally, holders of preferred
securities have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of periods, at
which time the preferred security holders may obtain limited rights. In certain
circumstances, an issuer of preferred securities may defer payment on the
securities and, in some cases, redeem the securities prior to a specified date.
Preferred securities may also be substantially less liquid than other
securities, including common stock.
VALUATION RISK. The valuation of certain securities may carry more risk than
that of common stock. Uncertainties in the conditions of the financial markets,
unreliable reference data, lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset pricing. A fund may hold
investments in sizes smaller than institutionally sized round lot positions
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FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022 (UNAUDITED)
(sometimes referred to as odd lots). However, third-party pricing services
generally provide evaluations on the basis of institutionally-sized round lots.
If a fund sells certain of its investments in an odd lot transaction, the sale
price may be less than the value at which such securities have been held by the
fund. Odd lots often trade at lower prices than institutional round lots. There
is no assurance that the fund will be able to sell a portfolio security at the
price established by the pricing service, which could result in a loss to the
fund.
DISCLAIMER
The Fund is not sponsored, endorsed, sold or promoted by SPDR(R) Gold Shares,
SPDR, or Standard & Poor's(R) (together with their affiliates hereinafter
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 or the FLEX Options. The Corporations make no
representations or warranties, express or implied, regarding the advisability of
investing in the Fund or the FLEX Options or results to be obtained by the Fund
or the FLEX Options, shareholders or any other person or entity from use of the
SPDR(R) Gold Shares. The Corporations have no liability in connection with the
management, administration, marketing or trading of the Fund or the FLEX
Options.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING APPROVAL OF AMENDMENTS TO THE INVESTMENT
MANAGEMENT AGREEMENT AND INVESTMENT SUB-ADVISORY AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund (the "Trust"),
including the Independent Trustees, unanimously approved the amendment (the
"Advisory Agreement Amendment") of the Investment Management Agreement (the
"Advisory Agreement") with First Trust Advisors L.P. (the "Advisor") and the
amendment (the "Sub-Advisory Agreement Amendment" and together with the Advisory
Agreement Amendment, the "Amendments") of the Investment Sub-Advisory Agreement
(the "Sub-Advisory Agreement" and together with the Advisory Agreement, the
"Agreements") among the Trust, the Advisor and Cboe Vest Financial LLC (the
"Sub-Advisor") on behalf of the FT Cboe Vest Gold Strategy Quarterly ETF (the
"Fund").
The Board approved the Amendments at a meeting held on October 24, 2022. As part
of the review process, the Board reviewed information and had preliminary
discussions with the Advisor regarding the proposed Amendments at meetings held
on April 18, 2022, June 12-13, 2022 and September 18-19, 2022. Following those
preliminary discussions, the Board requested and received information from the
Advisor regarding the proposed Amendments, and that information was considered
at an executive session of the Independent Trustees and their counsel held prior
to the October 24, 2022 meeting, as well as at the October meeting.
In reviewing the Advisory Agreement Amendment, the Board considered that the
purpose of the Advisory Agreement Amendment is to modify the unitary fee rate
for the Fund under the Advisory Agreement by introducing a breakpoint schedule
pursuant to which the unitary fee rate paid by the Fund to the Advisor will be
reduced as assets of the Fund meet certain thresholds. In reviewing the
Sub-Advisory Agreement Amendment, the Board considered that the purpose of the
Sub-Advisory Agreement Amendment is to modify the sub-advisory fee rate for the
Fund under the Sub-Advisory Agreement to reflect the modification of the unitary
fee rate schedule under the Advisory Agreement Amendment. The Board noted the
Advisor's representations that the quality and quantity of the services provided
to the Fund by the Advisor under the Advisory Agreement and by the Sub-Advisor
under the Sub-Advisory Agreement will not be reduced or modified as a result of
the Advisory Agreement Amendment and the Sub-Advisory Agreement Amendment, and
that the obligations of the Advisor under the Advisory Agreement and the
obligations of the Sub-Advisor under the Sub-Advisory Agreement will remain the
same in all respects.
The Board noted that it, including the Independent Trustees, last approved the
continuation of the Agreements for a one-year period ending June 30, 2023 at a
meeting held on June 12-13, 2022. The Board noted that in connection with such
approval it had determined, based upon the information provided, that the terms
of the Agreements were fair and reasonable and that the continuation of the
Agreements was in the best interests of the Fund in light of the nature, extent
and quality of the services provided and such other matters as the Board
considered to be relevant in the exercise of its business judgment.
Based on all of the information considered, the Board, including the Independent
Trustees, unanimously determined that the terms of the Amendments are fair and
reasonable and that the Amendments are in the best interests of the Fund.
REMUNERATION
First Trust Advisors L.P. ("First Trust") is authorised and regulated by the
U.S. Securities and Exchange Commission and is entitled to market shares of
certain funds it manages, including FT Cboe Vest Gold Strategy Quarterly Buffer
ETF (the "Fund"), in certain member states in the European Economic Area in
accordance with the cooperation arrangements in Article 42 of the Alternative
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FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022 (UNAUDITED)
Investment Fund Managers Directive (the "Directive"). First Trust is required
under the Directive to make disclosures in respect of remuneration. The
following disclosures are made in line with First Trust's interpretation of
currently available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2022, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Fund is $7,203. This
figure is comprised of $279 paid (or to be paid) in fixed compensation and
$6,924 paid (or to be paid) in variable compensation. There were a total of 24
beneficiaries of the remuneration described above. Those amounts include $3,799
paid (or to be paid) to senior management of First Trust Advisors L.P. and
$3,404 paid (or to be paid) to other employees whose professional activities
have a material impact on the risk profiles of First Trust Advisors L.P. or the
Funds (collectively, "Code Staff").
Code Staff included in the aggregated figures disclosed above are rewarded in
line with First Trust's remuneration policy (the "Remuneration Policy") which is
determined and implemented by First Trust's senior management. The Remuneration
Policy reflects First Trust's ethos of good governance and encapsulates the
following principal objectives:
i. to provide a clear link between remuneration and performance of
First Trust and to avoid rewarding for failure;
ii. to promote sound and effective risk management consistent with the
risk profiles of the Funds managed by First Trust; and
iii. to remunerate staff in line with the business strategy, objectives,
values and interests of First Trust and the Funds managed by First
Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when
considering and implementing remuneration for Code Staff and considers whether
any potential award to such person(s) would give rise to a conflict of interest.
First Trust does not reward failure, or consider the taking of risk or failure
to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in
respect of performance-related remuneration of Code Staff by reference to a
broad range of measures including (i) individual performance (using financial
and non-financial criteria), and (ii) the overall performance of First Trust.
Remuneration is not based upon the performance of the Funds.
The elements of remuneration are balanced between fixed and variable and the
senior management sets fixed salaries at a level sufficient to ensure that
variable remuneration incentivises and rewards strong individual performance but
does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
Page 24
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE THE FIRST TRUST OTHER TRUSTEESHIPS
NAME, AND YEAR FIRST FUND COMPLEX OR DIRECTORSHIPS HELD
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY BY TRUSTEE DURING
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical Group, 222 None
(1951) Physician & Officer, Wheaton Orthopedics
o Since Inception (1990 to 2021)
Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 222 Director, National Futures
(1957) Services, Inc. (Futures Commission Association and ADMIS
o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly,
Director of ADM Investor
Services, Inc., ADM
Investor Services
International, ADMIS Hong
Kong Ltd., and Futures
Industry Association
Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate Aurora 222 Director and Board Chair
(1964) Health and President, Advocate Aurora of Advocate Home Health
o Since 2021 Continuing Health Division (Integrated Services, Advocate Home
Healthcare System) Care Products and Advocate
Hospice; Director and
Board Chair of Aurora At
Home (since 2018);
Director of Advocate
Physician Partners
Accountable Care
Organization; Director and
Board Chair of RML Long
Term Acute Care Hospitals;
and Director of Senior
Helpers (since 2021)
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial 222 Formerly, Director of
(1956) and Management Consulting) Trust Company of Illinois
o Since Inception
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 222 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 222 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P., Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 25
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022 (UNAUDITED)
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer,
(1966) Executive Officer First Trust Advisors L.P. and First Trust Portfolios
o Since January 2016 L.P.; Chief Financial Officer, BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1972) Officer and Chief First Trust Portfolios L.P.
Accounting Officer o Since January 2016
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First
(1970) Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Chief Compliance
Officer Since
January 2011
o Assistant Secretary
Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 26
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PRIVACY POLICY
--------------------------------------------------------------------------------
FT CBOE VEST GOLD STRATEGY QUARTERLY BUFFER ETF (BGLD)
DECEMBER 31, 2022 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
professional or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies."
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2022
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FIRST TRUST
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Cboe Vest(SM) Financial LLC
8350 Broad Street, Suite 240
McLean, VA 22102
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
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