W. Scott Jardine, Esq., Secretary
First Trust Exchange-Traded Fund II
First Trust Advisors L.P.
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
(Name and Address of Agent for Service)
This Post-Effective Amendment to the Registration Statement comprises
the following papers and contents:
Index to Exhibits
Exhibits
This Post-Effective Amendment to the Registration Statement amends
Post-Effective Amendment No. 1, filed on August 23, 2007, which related to First
Trust Europe Select AlphaDEX(TM) Fund, First Trust Japan Select AlphaDEX(TM)
Fund and First Trust Dow Jones Global Select Dividend Index Fund. The purpose of
this Post-Effective Amendment is to eliminate First Trust Europe Select
AlphaDEX(TM) Fund and First Trust Japan Select AlphaDEX(TM) Fund from the
Registration Statement.
[GRAPHIC OMITTED] [LOGO OMITTED] FIRST TRUST
ADVISORS L.P.
FIRST TRUST DOW JONES GLOBAL SELECT
DIVIDEND INDEX FUND
__________, 2007
Front Cover
PRELIMINARY PROSPECTUS DATED JULY 25, 2007
SUBJECT TO COMPLETION
First Trust Dow Jones Global Select
Dividend Index Fund
PROSPECTUS
_________, 2007
First Trust Dow Jones Global Select Dividend Index Fund (the "Fund") is a series
of a registered management investment company that is offering its shares (the
"Shares") through this Prospectus.
The Fund is expected to list and trade its Shares on the _________________ (the
"Exchange"), subject to notice of issuance, under the ticker symbol "_____," at
market prices that may differ to some degree from the net asset value ("NAV") of
the Shares. Unlike conventional mutual funds, the Fund issues and redeems Shares
on a continuous basis, at NAV, only in large specified blocks consisting of
______ Shares called a "Creation Unit." The Fund's Creation Units are issued and
redeemed for securities, cash or both securities and cash.
EXCEPT WHEN AGGREGATED IN CREATION UNITS, THE SHARES ARE NOT REDEEMABLE
SECURITIES OF THE FUND.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NOT FDIC INSURED. MAY LOSE VALUE.
NO BANK GUARANTEE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Page 1
Table of Contents
Introduction--First Trust Dow Jones Global Select
Dividend Index Fund.................................................... 3
Who Should Invest in the Fund............................................. 3
Investment Objective, Strategies and Risks................................ 3
Additional Investment Strategies.......................................... 8
Additional Risks of Investing in the Fund................................. 8
Fund Organization......................................................... 9
Management of the Fund.................................................... 9
How to Buy and Sell Shares................................................ 10
Creations, Redemptions and Transaction Fees............................... 12
Dividends, Distributions and Taxes........................................ 14
Federal Tax Matters....................................................... 14
Distribution Plan......................................................... 17
Net Asset Value........................................................... 17
Fund Service Providers.................................................... 18
Index Provider............................................................ 18
Disclaimers............................................................... 18
Additional Index Information.............................................. 19
Other Information......................................................... 20
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Page 2
Introduction--
First Trust Dow Jones Global Select Dividend Index Fund
The Fund is a series of the First Trust Exchange-Traded Fund II (the "Trust"),
an investment company and an exchange-traded "index fund." The investment
objective of the Fund is to seek investment results that correspond generally to
the price and yield (before the Fund's fees and expenses) of an equity index
called the Dow Jones Global Select Dividend Index (the "Index") (Symbol: ____).
First Trust Advisors L.P. ("First Trust") is the investment adviser for the
Fund.
Who Should Invest in the Fund
The Fund is designed for investors who seek a relatively low-cost approach for
investing in a portfolio of equity securities of companies in the Index. The
Fund may be suitable for long-term investment in the market represented by the
Index and may also be used as an asset allocation tool or as a speculative
trading instrument.
Investment Objective, Strategies and Risks
INVESTMENT OBJECTIVE
The Fund seeks investment results that correspond generally to the price and
yield (before the Fund's fees and expenses) of an equity index called the Dow
Jones Global Select Dividend Index.
PRINCIPAL INVESTMENT STRATEGIES
The Fund will normally invest at least 90% of its total assets in common stocks
that comprise the Index or in American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") or European Depositary Receipts ("EDRs")
(collectively "Depositary Receipts") representing securities in the Index. The
Fund may invest the remainder of its assets in securities not included in the
Index, but which First Trust believes will help the Fund track its Index. First
Trust will seek to match the performance of the Index (before the Fund's fees
and expenses). The investment objective and the 90% investment strategy are
non-fundamental policies and require 60 days' prior written notice to
shareholders before they can be changed. As non-fundamental policies, the Board
of Trustees of the Trust can change such policies without receiving shareholder
approval.
The Fund, using an "indexing" investment approach, attempts to replicate, before
expenses, the performance of the Index. First Trust seeks a correlation of 0.95
or better (before fees and expenses) between the Fund's performance and the
performance of the Index; a figure of 1.00 would represent perfect correlation.
First Trust will regularly monitor the Fund's tracking accuracy and will use the
investment techniques described below in seeking to maintain an appropriate
correlation.
In seeking to achieve the Fund's investment objective, the Fund generally will
invest in all of the securities (or applicable Depositary Receipts) comprising
the Index in proportion to their weightings in the Index. However, under various
circumstances, it may not be possible or practicable to purchase all of those
securities in those weightings. In those circumstances, the Fund may purchase a
sample of securities in the Index. There may also be instances in which First
Trust may choose to overweight certain securities in the Index, purchase
securities not in the Index which First Trust believes are appropriate to
substitute for certain securities in the Index, use futures or other derivative
instruments, or utilize various combinations of the above techniques in seeking
to track the Index. The Fund may sell securities that are represented in the
Index in anticipation of their removal from the Index or purchase securities not
represented in the Index in anticipation of their addition to the Index.
Page 3
INDEX CONSTRUCTION
The Index is a dividend weighted index of 100 stocks selected from the Dow Jones
World Index and trades high-dividend yielding companies covering approximately
95% of the underlying market capitalization of countries determined by Dow Jones
& Company, Inc. ("Dow Jones" or the "Index Provider") to be open to foreign
investment and that offer readily-available pricing information. The Index is
compiled and maintained by Dow Jones. The stocks which comprise the Index meet
certain dividend consistency, dividend payout rate and dividend measures
established by the Index Provider. The Index universe consists of all
dividend-paying companies in the Dow Jones World Index which are subjected to
eligibility screens before being selected for inclusion in the Index.
The Index was developed with a base value of 100 as of December 31, 1998. The
inception date of the Index was _____________. The Index is rebalanced annually
in December.
See "Additional Index Information" for additional information regarding the
Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Fund will change in value,
and loss of money is a risk of investing in the Fund. The Fund may not achieve
its objective. An investment in the Fund is not a deposit with a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. An investment in the Fund involves risks similar to those of
investing in any fund of equity securities traded on exchanges. The following
specific risk factors have been identified as the principal risks of investing
in the Fund.
MARKET RISK. One of the principal risks of investing in the Fund is market risk.
Market risk is the risk that a particular security owned by the Fund, the Shares
of the Fund or securities in general may fall in value. Shares are subject to
market fluctuations caused by such factors as economic, political, regulatory or
market developments, changes in interest rates and perceived trends in
securities prices. Overall securities values could decline generally or could
underperform other investments.
INDEX TRACKING RISK. You should anticipate that the value of the Shares will
decline, more or less, in correlation with any decline in the value of the
Index.
NON-CORRELATION RISK. The Fund's return may not match the return of the Index
for a number of reasons. For example, the Fund incurs operating expenses not
applicable to the Index, and may incur costs in buying and selling securities,
especially when rebalancing the Fund's portfolio holdings to reflect changes in
the composition of the Index. In addition, the Fund's portfolio holdings may not
exactly replicate the securities included in the Index or the ratios between the
securities included in the Index.
The Fund may not be fully invested at times, either as a result of cash flows
into the Fund or reserves of cash held by the Fund to meet redemptions and
expenses. If the Fund utilizes a sampling approach or invests in futures or
other derivative positions, its return may not correlate as well with the return
of the Index, as would be the case if it purchased all of the stocks in the
Index with the same weightings as the Index. While First Trust seeks to have a
correlation of 0.95 or better, before fees and expenses, between the Fund's
performance and the performance of the Index, there can be no assurance that the
Fund will be able to achieve such a correlation. Accordingly, the Fund's
performance may correlate to a lesser extent and may possibly vary substantially
from the performance of the Index.
REPLICATION MANAGEMENT RISK. The Fund is also exposed to additional market risk
due to its policy of investing principally in the securities included in the
Index. As a result of this policy, securities held by the Fund will generally
not be bought or sold in
Page 4
response to market fluctuations and the securities may be issued by companies
concentrated in a particular industry. As a result of this policy, the Fund will
generally not sell a stock because the stock's issuer is in financial trouble,
unless that stock is removed or is anticipated to be removed from the Index.
INTELLECTUAL PROPERTY RISK. The Fund relies on a license from Dow Jones that
permits the Fund to use Dow Jones' Index and associated trade names and
trademarks ("Intellectual Property") in connection with the name and investment
strategies of the Fund. Such license and related sublicense may be terminated by
the licensor, and as a result, the Fund may lose its ability to use the
Intellectual Property. There is also no guarantee that Dow Jones has all rights
to license the Intellectual Property to First Trust, on behalf of the Fund.
Accordingly, in the event the license is terminated or Dow Jones does not have
rights to license the Intellectual Property, it may have a significant effect on
the operation of the Fund.
ISSUER SPECIFIC CHANGES RISK. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can perform
differently from the value of the market as a whole. The value of securities of
smaller issuers can be more volatile than that of larger issuers.
CONCENTRATION RISK. The Fund will be concentrated in the securities of a given
industry or sector if the Index is concentrated in such industry or sector. A
concentration makes the Fund more susceptible to any single occurrence affecting
the industry or sector and may subject the Fund to greater market risk than more
diversified funds.
CURRENCY RISK. Because the Fund's NAV is determined on the basis of U.S.
dollars, you may lose money if the local currency of a foreign market
depreciates against the U.S. dollar, even if the local currency value of the
Fund's holdings goes up.
PASSIVE INVESTMENT RISK. The Fund is not actively managed. The Fund may be
affected by a general decline in the U.S. or foreign market segments relating to
its Index. The Fund invests in securities included in, or representative of, its
Index regardless of their investment merit. The Fund does not attempt to take
defensive positions in declining markets.
NON-DIVERSIFICATION RISK. The Fund is classified as "non-diversified" under the
Investment Company Act of 1940, as amended (the "1940 Act"). As a result, the
Fund is only limited as to the percentage of its assets which may be invested in
the securities of any one issuer by the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended. Because the Fund may invest a
relatively high percentage of its assets in a limited number of issuers, the
Fund may be more susceptible to any single economic, political or regulatory
occurrence and to the financial conditions of the issuers in which it invests.
SMALL CAP AND MID CAP COMPANY RISK. The Fund may invest in small capitalization
and mid capitalization companies. Such companies may be more vulnerable to
adverse general market or economic developments, and their securities may be
less liquid and may experience greater price volatility than larger, more
established companies as a result of several factors, including limited trading
volumes, products or financial resources, management inexperience and less
publicly available information. Accordingly, such companies are generally
subject to greater market risk than larger, more established companies.
NON-U.S. SECURITIES RISK. The Fund invests in securities of non-U.S. issuers.
Investing in securities of non-U.S. issuers, which are generally denominated in
non-U.S. currencies, may involve certain risks not typically associated with
investing in securities of U.S. issuers. Some of these risks may include, but
are not limited to, the following: (i) there may be less publicly available
information about non-U.S. issuers or markets due to less rigorous disclosure or
accounting standards or regulatory practices; (ii) non-U.S. markets may be
smaller, less liquid and more
Page 5
volatile than the U.S. market; (iii) potential adverse effects of fluctuations
in currency exchange rates or controls on the value of the Fund's investments;
(iv) the economies of non-U.S. countries may grow at slower rates than expected
or may experience a downturn or recession; (v) the impact of economic,
political, social or diplomatic events; (vi) certain non-U.S. countries may
impose restrictions on the ability of non-U.S. issuers to make payments of
principal and interest to investors located in the United States due to blockage
of non-U.S. currency exchanges or otherwise; and (vii) withholding and other
non-U.S. taxes may decrease the Fund's return. These risks may be more
pronounced to the extent that the Fund invests a significant amount of its
assets in companies located in one region.
See "Additional Risks of Investing in the Fund" for additional information
regarding risks.
HOW THE FUND HAS PERFORMED
The Fund has not yet commenced operations and, therefore, does not have a
performance history.
WHAT ARE THE COSTS OF INVESTING?
The following table describes the estimated fees and expenses you may pay when
you buy or sell Creation Units of the Fund. Annual Fund operating expenses are
estimates. Investors purchasing Shares in the secondary market will not pay the
shareholder fees shown below, but may be subject to costs (including customary
brokerage commissions) charged by their broker.
Shareholder Fees (paid directly by Authorized Participants)
Sales charges (loads) None
Standard transaction fee per order(1) $___
Additional transaction charge if settled outside of the usual process
through the Continuous Net Settlement System of the
National Securities Clearing Corporation(1) Up to 3 times
the standard
transaction fee
Annual Fund Operating Expenses(2)(3)
(Expenses that are deducted from the Fund's assets)
Management Fees 0.__%
Distribution and Service (12b-1) Fees(4) 0.00%
Other Expenses(2) 0.__%
Total Annual Fund Operating Expenses 0.__%
Fee Waivers and Expense Reimbursement(5) 0.__%
Total Net Annual Fund Operating Expenses 0.__%
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EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other funds. This example does not take into
account transaction fees on purchases and redemptions of Creation Units of the
Fund or customary brokerage commissions that you pay when purchasing or selling
Shares of the Fund in the secondary market.
Page 6
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then you retain the Shares or sell all of your Shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, your costs, based on these assumptions,
would be:
1 YEAR 3 YEARS
$____ $____
---------------------
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(1) Purchasers of Creation Units and parties redeeming Creation Units must pay
a standard creation or redemption transaction fee of $___ (assuming
_________ different securities in a Creation Unit), as applicable. However,
if a Creation Unit is purchased or redeemed outside the usual process
through the National Securities Clearing Corporation or for cash, an
additional variable fee of up to three times the standard creation or
redemption transaction fee may be charged. See "Creation Transaction Fees
and Redemption Transaction Fees" below.
(2) The Fund had not fully commenced operations as of the date of this
Prospectus. The "Other Expenses" listed in the table are estimates based on
the expenses the Fund expects to incur for the current fiscal year.
(3) Expressed as a percentage of average daily net assets.
(4) The Fund has adopted a distribution and service (12b-1) plan pursuant to
which the Fund may bear a 12b-1 fee not to exceed 0.25% per annum of the
Fund's average daily net assets. However, no such fee is currently paid by
the Fund and pursuant to a contractual arrangement, the Fund will not pay
12b-1 fees any time before ____________.
(5) First Trust has agreed to waive fees and/or pay Fund expenses to the extent
necessary to prevent the operating expenses of the Fund (excluding interest
expense, brokerage commissions and other trading expenses, taxes, and
extraordinary expenses) from exceeding 0.__% of average daily net assets
per year, at least until ______, ____. Expenses borne by First Trust are
subject to reimbursement by the Fund up to three years from the date the
fee or expense was incurred, but no reimbursement payment will be made by
the Fund at any time if it would result in the Fund's expenses exceeding
0.__% of average daily net assets per year.
CREATION TRANSACTION FEES AND REDEMPTION TRANSACTION FEES
The Fund issues and redeems Shares at NAV only in large blocks of ______ Shares
(each block of ______ Shares called a "Creation Unit") or multiples thereof. As
a practical matter, only broker-dealers or large institutional investors that
have entered into authorized participant agreements with respect to purchases
and redemptions of Creation Units, called "Authorized Participants" ("APs"), can
purchase or redeem these Creation Units. Purchasers of Creation Units at NAV
must pay a standard Creation Transaction Fee (as defined below) of $___ for each
purchase transaction (assuming _________ different securities in a Creation
Unit), regardless of the number of Creation Units involved. The value of a
Creation Unit as of the first creation of such Creation Unit was approximately
$______. An AP who holds Creation Units and wishes to redeem at NAV would also
pay a standard Redemption Transaction Fee (as defined below) of $___ for each
redemption transaction (assuming __________ different securities in a Creation
Unit), regardless of the number of Creation Units involved. See "Creations,
Redemptions and Transaction Fees" later in the Prospectus. APs who hold Creation
Units in inventory will also indirectly pay Fund expenses. Assuming an
investment in a Creation Unit of $______ and a 5% return each year, assuming
that the Fund's operating expenses remain the same, and assuming brokerage costs
are not included, the total costs would be $_______ if the Creation Unit is
redeemed after one year and $_______ if the Creation Unit is redeemed after
three years.
If a Creation Unit is purchased or redeemed outside the usual process through
the National Securities Clearing Corporation or for cash, an additional variable
fee of up to three times the standard Creation or Redemption Transaction Fee may
be charged to the AP making the transaction.
The Creation Transaction Fee, Redemption Transaction Fee and variable fee are
not expenses of the Fund and do not impact the Fund's expense ratio.
Page 7
Additional Investment Strategies
Each of the policies described herein is a non-fundamental policy that may be
changed by the Board of Trustees of the Trust without shareholder approval.
Certain fundamental policies of the Fund are set forth in the Statement of
Additional Information ("SAI") under "Investment Objective and Policies."
EQUITY SECURITIES
The Fund invests primarily in equity securities of non-U.S. issuers. Eligible
equity securities include common stocks and warrants to purchase common stocks.
In addition, the Fund may invest in Depositary Receipts that represent non-U.S.
common stocks deposited with a custodian.
SHORT-TERM INVESTMENTS
The Fund may invest in cash equivalents or other short-term investments,
including U.S. government securities, commercial paper, repurchase agreements,
money-market funds or similar fixed-income securities with remaining maturities
of one year or less. For more information on short-term investments, see the
SAI.
FUTURES AND OPTIONS
The Fund may use various investment strategies designed to hedge against changes
in the values of securities the Fund owns or expects to purchase or to hedge
against interest rate or currency exchange rate changes. The securities used to
implement these strategies include financial futures contracts, options, forward
contracts, options on financial futures and stock index options.
DELAYED DELIVERY SECURITIES
The Fund may buy or sell securities on a when-issued or delayed-delivery basis,
paying for or taking delivery of the securities at a later date, normally within
15 to 45 days of the trade. Such transactions involve an element of risk because
the value of the securities to be purchased may decline before the settlement
date.
DISCLOSURE OF PORTFOLIO HOLDINGS
A description of the policies and procedures with respect to the disclosure of
the Fund's portfolio securities is included in the Fund's SAI.
Additional Risks of Investing in the Fund
Risk is inherent in all investing. Investing in the Fund involves risk,
including the risk that you may lose all or part of your investment. There can
be no assurance that the Fund will meet its stated objective. Before you invest,
you should consider the following risks.
TRADING ISSUES
Although Shares of the Fund are listed for trading on the Exchange, there can be
no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares on the Exchange may be halted due to market
conditions or for reasons that, in the view of the Exchange, make trading in
Shares inadvisable. In addition, trading in Shares on the Exchange is subject to
trading halts caused by extraordinary market volatility pursuant to the Exchange
"circuit breaker" rules. There can be no assurance that the requirements of the
Exchange necessary to maintain the listing of the Fund will continue to be met
or will remain unchanged.
Page 8
FLUCTUATION OF NET ASSET VALUE
The NAV of the Fund's Shares will generally fluctuate with changes in the market
value of the Fund's holdings. The market prices of Shares will generally
fluctuate in accordance with changes in NAV as well as the relative supply of
and demand for Shares on the Exchange. First Trust cannot predict whether Shares
will trade below, at or above their NAV. Price differences may be due, in large
part, to the fact that supply and demand forces at work in the secondary trading
market for Shares will be closely related to, but not identical to, the same
forces influencing the prices of the stocks of the Fund trading individually or
in the aggregate at any point in time. However, given that Shares can be
purchased and redeemed in Creation Units (unlike shares of many closed-end
funds, which frequently trade at appreciable discounts from, and sometimes at
premiums to, their NAV), First Trust believes that large discounts or premiums
to the NAV of Shares should not be sustained.
INFLATION
Inflation risk is the risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of the Fund's assets can decline as can the value
of the Fund's distributions. Common stock prices may be particularly sensitive
to rising interest rates, as the cost of capital rises and borrowing costs
increase.
INVESTMENT STRATEGY
The Fund is exposed to additional market risk due to its policy of investing
principally in the securities included in the Index. As a result of this policy,
securities held by the Fund will generally not be bought or sold in response to
market fluctuations. This policy may subject investors to greater market risk
than other mutual funds.
Fund Organization
The Fund is a series of the Trust, an investment company registered under the
1940 Act. The Fund is treated as a separate fund with its own investment
objective and policies. The Trust is organized as a Massachusetts business
trust. Its Board of Trustees (the "Board") is responsible for its overall
management and direction. The Board elects the Trust's officers and approves all
significant agreements, including those with the investment adviser, custodian
and fund administrative and accounting agent.
Management of the Fund
First Trust Advisors L.P. ("First Trust"), 1001 Warrenville Road, Lisle,
Illinois 60532, is the investment adviser to the Fund. In this capacity, First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio and certain other services necessary for the management
of the portfolio.
First Trust is a limited partnership with one limited partner, Grace Partners of
DuPage L.P., and one general partner, The Charger Corporation. Grace Partners of
DuPage L.P. is a limited partnership with one general partner, The Charger
Corporation, and a number of limited partners. The Charger Corporation is an
Illinois corporation controlled by the Robert Donald Van Kampen family. First
Trust discharges its responsibilities subject to the policies of the Board of
Trustees of the Trust.
First Trust serves as adviser or sub-adviser for __ mutual fund portfolios, __
exchange-traded fund portfolios and __closed-end funds and is also the portfolio
supervisor of certain unit investment trusts sponsored by First Trust Portfolios
L.P. ("FTP"), 1001 Warrenville Road, Lisle, Illinois 60532. FTP specializes in
the underwriting, trading and distribution of unit investment trusts and other
securities. FTP is the principal underwriter of the Shares of the Fund.
Page 9
There is no one individual primarily responsible for portfolio management
decisions for the Fund. Investments are made under the direction of a committee
(the "Investment Committee"). The Investment Committee consists of Daniel J.
Lindquist, Robert F. Carey, Jon C. Erickson, David G. McGarel, Roger F. Testin
and Stan Ueland. Mr. Lindquist rejoined First Trust as a Vice President in April
2004 after serving as Chief Operating Officer of Mina Capital Management LLC
from January 2004 to April 2004 and Samaritan Asset Management Services, Inc.
from April 2000 to January 2004 and has been a Senior Vice President of First
Trust and FTP since September 2005. Mr. Lindquist is Chairman of the Investment
Committee and presides over Investment Committee meetings. Mr. Lindquist is
responsible for overseeing the implementation of the Fund's investment
strategies. Mr. Carey is the Chief Investment Officer and Senior Vice President
of First Trust and Senior Vice President of FTP. As First Trust's Chief
Investment Officer, Mr. Carey consults with the Investment Committee on market
conditions and First Trust's general investment philosophy. Mr. Erickson is a
Senior Vice President of First Trust and FTP. As the head of First Trust's
Equity Research Group, Mr. Erickson is responsible for determining the
securities to be purchased and sold by funds that do not utilize quantitative
investment strategies. Mr. McGarel is a Senior Vice President of First Trust and
FTP. As the head of First Trust's Strategy Research Group, Mr. McGarel is
responsible for developing and implementing quantitative investment strategies
for those funds that have investment policies that require them to follow such
strategies. Since November 2003, Mr. Testin has been a Senior Vice President of
First Trust and FTP. From August 2001 to November 2003, Mr. Testin was a Vice
President of First Trust and FTP. Prior to joining First Trust, Mr. Testin was
an analyst for Dolan Capital Management. Mr. Testin has been the head of First
Trust's Portfolio Management Group. Mr. Ueland has been a Vice President of
First Trust and FTP since August 2005. At First Trust, he plays an important
role in executing the investment strategies of each portfolio of exchange-traded
funds advised by First Trust. Before joining First Trust, Mr. Ueland was vice
president of sales at BondWave LLC from May 2004 through August 2005, an account
executive for Mina Capital Management LLC and Samaritan Asset Management
Services, Inc. from January 2003 through May 2004, and a sales consultant at
Oracle Corporation from January 1997 through January 2003. For additional
information concerning First Trust, including a description of the services
provided to the Fund, see the Fund's SAI. In addition, the SAI provides
additional information about the compensation of Investment Committee members,
other accounts managed by members of the Investment Committee and ownership by
members of the Investment Committee of Shares of the Fund.
First Trust will receive an annual management fee from the Fund equal to 0.__%
of the Fund's average daily net assets. A discussion regarding the approval of
the Investment Management Agreement will be available in the Fund's Annual
Report to Shareholders for the period ending ___________.
The Fund is responsible for all of its expenses, including the investment
advisory fees, costs of transfer agency, custody, fund administration, legal,
audit and other services, interest, taxes, brokerage commissions and other
expenses connected with the execution of portfolio transactions, paying for its
sublicensing fees related to the Index, any distribution fees or expenses, and
extraordinary expenses. First Trust has agreed to waive fees and/or pay Fund
expenses to the extent necessary to prevent the operating expenses of the Fund
(excluding interest expense, brokerage commissions and other trading expenses,
taxes and extraordinary expenses) from exceeding 0.__% of average daily net
assets per year, at least until ___________, ____. Expenses borne by First Trust
are subject to reimbursement by the Fund up to three years from the date the fee
or expense was incurred, but no reimbursement payment will be made by the Fund
at any time if it would result in the Fund's expenses exceeding 0.__% of average
daily net assets per year.
How to Buy and Sell Shares
Shares will be issued or redeemed by the Fund at NAV per Share only in Creation
Unit size. See "Creations, Redemptions and Transaction Fees."
Page 10
Most investors will buy and sell Shares of the Fund in secondary market
transactions through brokers. Shares of the Fund will be listed for trading on
the secondary market on the Exchange. Shares can be bought and sold throughout
the trading day like other publicly traded shares. There is no minimum
investment. Although Shares are generally purchased and sold in "round lots" of
100 Shares, brokerage firms typically permit investors to purchase or sell
Shares in smaller "odd lots," at no per-Share price differential. When buying or
selling Shares through a broker, you should expect to incur customary brokerage
commissions, you may receive less than the NAV of the Shares, and you may pay
some or all of the spread between the bid and the offer price in the secondary
market on each leg of a round trip (purchase and sale) transaction. Share prices
are reported in dollars and cents per Share.
Investors may acquire Shares directly from the Fund, and shareholders may tender
their Shares for redemption directly to the Fund, only in Creation Units of
_______ Shares, as discussed in the "Creations, Redemptions and Transaction
Fees" section below. For purposes of the 1940 Act, the Fund is treated as a
registered investment company, and the acquisition of Shares by other registered
investment companies is subject to the restrictions of Section 12(d)(1) of the
1940 Act. The Trust, on behalf of the Fund, has received an exemptive order from
the Securities and Exchange Commission that permits certain registered
investment companies to invest in the Fund beyond the limits set forth in
Section 12(d)(1), subject to certain terms and conditions, including that any
such investment companies enter into agreements with the Fund regarding the
terms of any investment.
BOOK ENTRY
Shares are held in book-entry form, which means that no Share certificates are
issued. The Depository Trust Company ("DTC") or its nominee is the record owner
of all outstanding Shares of the Fund and is recognized as the owner of all
Shares for all purposes.
Investors owning Shares are beneficial owners as shown on the records of DTC or
its participants. DTC serves as the securities depository for all Shares.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
Shares, you are not entitled to receive physical delivery of Share certificates
or to have Shares registered in your name, and you are not considered a
registered owner of Shares. Therefore, to exercise any right as an owner of
Shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other stocks that you hold in
book-entry or "street name" form.
SHARE TRADING PRICES
The trading prices of Shares of the Fund on the Exchange may differ from the
Fund's daily NAV and can be affected by market forces of supply and demand,
economic conditions and other factors.
The ________ intends to disseminate the approximate value of Shares of the Fund
every 15 seconds. This approximate value should not be viewed as a "real-time"
update of the NAV per Share of the Fund because the approximate value may not be
calculated in the same manner as the NAV, which is computed once a day,
generally at the end of the business day. The Fund is not involved in, or
responsible for, the calculation or dissemination of the approximate value and
the Fund does not make any warranty as to its accuracy.
FREQUENT PURCHASES AND REDEMPTIONS OF THE FUND'S SHARES
The Fund imposes no restrictions on the frequency of purchases and redemptions.
In determining not to approve a written, established policy, the Board evaluated
the risks of market timing activities by the Fund's shareholders. The Board
considered that, unlike traditional mutual funds, the Fund issues and redeems
its Shares at NAV per Share for a basket of securities intended to mirror the
Fund's portfolio, plus a small amount of cash, and the Shares may be purchased
Page 11
and sold on the Exchange at prevailing market prices. Given this structure, the
Board determined that (a) it is unlikely that market timing would be attempted
by the Fund's shareholders and (b) any attempts to market time the Fund by
shareholders would not be expected to negatively impact the Fund or its
shareholders.
Creations, Redemptions and Transaction Fees
Investors such as market makers, large investors and institutions who wish to
deal in Creation Units directly with the Fund must have entered into an AP
agreement with the Fund's distributor and transfer agent, or purchase through a
dealer that has entered into such an agreement. Set forth below is a brief
description of the procedures applicable to purchases and redemptions of
Creation Units. For more detailed information, see "Creation and Redemption of
Creation Unit Aggregations" in the SAI.
PURCHASE
In order to purchase Creation Units of the Fund, an investor must deposit (i)
cash or (ii) a designated portfolio of securities determined by First Trust (the
"Deposit Securities") and generally make a small cash payment referred to as the
"Cash Component." If the Fund is allowing APs to deliver Deposit Securities in
lieu of cash to purchase Creation Units, the list of the names and the numbers
of shares of the Deposit Securities is made available by the Fund's custodian
through the facilities of the National Securities Clearing Corporation ("NSCC"),
immediately prior to the opening of business each day of the Exchange. The Cash
Component represents the difference between the NAV of a Creation Unit and the
market value of the Deposit Securities.
Orders must be placed in proper form by or through an AP which is either (i) a
"Participating Party," i.e., a broker-dealer or other participant in the
Clearing Process of the Continuous Net Settlement System of the NSCC (the
"Clearing Process") or (ii) a participant of DTC ("DTC Participant") that has
entered into an AP agreement with the Fund's distributor and transfer agent,
with respect to purchases and redemptions of Creation Units. All orders must be
placed for one or more whole Creation Units of Shares of the Fund and must be
received by the Fund's transfer agent in proper form no later than the close of
regular trading on the Exchange (ordinarily 4:00 p.m., Eastern time) ("Closing
Time") in order to receive that day's closing NAV per Share. In the case of
custom orders, as further described in the SAI, the order must be received by
the Fund's transfer agent no later than 3:00 p.m., Eastern time. A custom order
may be placed by an AP in the event that the Fund permits or requires the
substitution of an amount of cash to be added to the Cash Component (if
applicable) to replace any Deposit Security which may not be available in
sufficient quantity for delivery or which may not be eligible for trading by
such AP or the investor for which it is acting or any other relevant reason. See
"Creation and Redemption of Creation Unit Aggregations" in the SAI.
Purchasers of Creation Units must pay a standard creation transaction fee (the
"Creation Transaction Fee"), which is based on the number of different
securities in a Creation Unit according to the fee schedule set forth below:
NUMBER OF SECURITIES CREATION
IN A CREATION UNIT TRANSACTION FEE
Page 12
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by the Fund with respect to
transactions effected outside of the Clearing Process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. See "Creation and Redemption of Creation Unit
Aggregations" in the SAI. The price for each Creation Unit will equal the daily
NAV per Share times the number of Shares in a Creation Unit plus the fees
described above and, if applicable, any transfer taxes.
Shares of the Fund may be issued in advance of receipt of all Deposit Securities
subject to various conditions including a requirement to maintain on deposit
with the Fund cash at least equal to 115% of the market value of the missing
Deposit Securities. See "Creation and Redemption of Creation Unit Aggregations"
in the SAI.
LEGAL RESTRICTIONS ON TRANSACTIONS IN CERTAIN STOCKS
An investor subject to a legal restriction with respect to a particular stock
required to be deposited in connection with the purchase of a Creation Unit may,
at the Fund's discretion, be permitted to deposit an equivalent amount of cash
in substitution for any stock which would otherwise be included in the Deposit
Securities applicable to the purchase of a Creation Unit. For more details, see
"Creation and Redemption of Creation Unit Aggregations" in the SAI.
REDEMPTION
If the Fund is satisfying redemption requests by delivering securities in lieu
of cash, the Fund's custodian will make available immediately prior to the
opening of business each day of the Exchange, through the facilities of the
NSCC, the list of the names and the numbers of shares of the Fund's portfolio
securities that will be applicable that day to redemption requests in proper
form ("Fund Securities"). Fund Securities received on redemption may not be
identical to Deposit Securities, which are applicable to purchases of Creation
Units. Unless cash redemptions are available or specified for the Fund, the
redemption proceeds consist of the Fund Securities, plus cash in an amount equal
to the difference between the NAV of Shares being redeemed as next determined
after receipt by the Fund's transfer agent of a redemption request in proper
form, and the value of the Fund Securities (the "Cash Redemption Amount"), less
the applicable redemption fee and, if applicable, any transfer taxes. Should the
Fund Securities have a value greater than the NAV of Shares being redeemed, a
compensating cash payment to the Fund equal to the differential, plus the
applicable redemption fee and, if applicable, any transfer taxes will be
required to be arranged for by or on behalf of the redeeming AP. Investors
should expect to incur customary brokerage commissions in connection with
assembling a sufficient number of Shares of the Fund to constitute a redeemable
Creation Unit. For more details, see "Creation and Redemption of Creation Unit
Aggregations" in the SAI.
An order to redeem Creation Units of the Fund may only be effected by or through
an AP. An order to redeem must be placed for one or more whole Creation Units
and must be received by the Fund's transfer agent in proper form no later than
the close of regular trading on the Exchange (ordinarily 4:00 p.m., Eastern
time) in order to receive that day's closing NAV per Share. In the case of
custom orders, as further described in the SAI, the order must be received by
the Fund's transfer agent no later than 3:00 p.m., Eastern time.
Parties redeeming Creation Units must pay a standard redemption transaction fee
(the "Redemption Transaction Fee"), which is based on the number of different
securities in a Creation Unit according to the fee schedule set forth below:
Page 13
NUMBER OF SECURITIES REDEMPTION
IN A CREATION UNIT TRANSACTION FEE
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by the Fund with respect
to redemptions effected outside of the Clearing Process or to the extent that
redemptions are for cash. The Fund reserves the right to effect redemptions in
cash. A shareholder may request a cash redemption in lieu of securities,
however, the Fund may, in its discretion, reject any such request. See "Creation
and Redemption of Creation Unit Aggregations" in the SAI.
Dividends, Distributions and Taxes
Dividends from net investment income, if any, are declared and paid __________.
The Fund distributes its net realized capital gains, if any, to shareholders
quarterly.
Distributions in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option
available. Such Shares will generally be reinvested by the broker based upon the
market price of those Shares and investors may be subject to customary brokerage
commissions charged by the broker.
Federal Tax Matters
This section summarizes some of the main U.S. federal income tax consequences of
owning Shares of the Fund. This section is current as of the date of this
Prospectus. Tax laws and interpretations change frequently, and these summaries
do not describe all of the tax consequences to all taxpayers. For example, these
summaries generally do not describe your situation if you are a corporation, a
non-U.S. person, a broker-dealer, or other investor with special circumstances.
In addition, this section does not describe your state, local or non-U.S. tax
consequences.
This federal income tax summary is based in part on the advice of counsel to the
Fund. The Internal Revenue Service could disagree with any conclusions set forth
in this section. In addition, counsel to the Fund was not asked to review, and
has not reached a conclusion with respect to, the federal income tax treatment
of the assets to be included in the Fund. This may not be sufficient for you to
use for the purpose of avoiding penalties under federal tax law.
As with any investment, you should seek advice based on your individual
circumstances from your own tax adviser.
Page 14
FUND STATUS
The Fund intends to qualify as a "regulated investment company" under the
federal tax laws. If the Fund qualifies as a regulated investment company and
distributes its income as required by the tax law, the Fund generally will not
pay federal income taxes.
DISTRIBUTIONS
Fund distributions are generally taxable. After the end of each year, you will
receive a tax statement that separates your Fund's distributions into two
categories, ordinary income distributions and capital gains dividends. Ordinary
income distributions are generally taxed at your ordinary tax rate, however, as
further discussed below, certain ordinary income distributions received from the
Fund may be taxed at the capital gains tax rates. Generally, you will treat all
capital gains dividends as long-term capital gains regardless of how long you
have owned your Shares. To determine your actual tax liability for your capital
gains dividends, you must calculate your total net capital gain or loss for the
tax year after considering all of your other taxable transactions, as described
below. In addition, the Fund may make distributions that represent a return of
capital for tax purposes and thus will generally not be taxable to you. The tax
status of your distributions from the Fund is not affected by whether you
reinvest your distributions in additional Shares or receive them in cash. The
income from the Fund that you must take into account for federal income tax
purposes is not reduced by amounts used to pay a deferred sales fee, if any. The
tax laws may require you to treat distributions made to you in January as if you
had received them on December 31 of the previous year.
DIVIDENDS RECEIVED DEDUCTION
A corporation that owns Shares generally will not be entitled to the dividends
received deduction with respect to many dividends received from the Fund because
the dividends received deduction is generally not available for distributions
from regulated investment companies. However, certain ordinary income dividends
on Shares that are attributable to qualifying dividends received by the Fund
from certain corporations may be designated by the Fund as being eligible for
the dividends received deduction.
CAPITAL GAINS AND LOSSES AND CERTAIN ORDINARY INCOME DIVIDENDS
If you are an individual, the maximum marginal federal tax rate for net capital
gain is generally 15% (generally 5% for certain taxpayers in the 10% and 15% tax
brackets). These capital gains rates are generally effective for taxable years
beginning before January 1, 2011. For later periods, if you are an individual,
the maximum marginal federal tax rate for net capital gain is generally 20% (10%
for certain taxpayers in the 10% and 15% tax brackets). The 20% rate is reduced
to 18% and the 10% rate is reduced to 8% for long-term capital gains from most
property acquired after December 31, 2000 with a holding period of more than
five years.
Net capital gain equals net long-term capital gain minus net short-term capital
loss for the taxable year. Capital gain or loss is long-term if the holding
period for the asset is more than one year and is short-term if the holding
period for the asset is one year or less. You must exclude the date you purchase
your Shares to determine your holding period. However, if you receive a capital
gain dividend from the Fund and sell your Shares at a loss after holding it for
six months or less, the loss will be recharacterized as long-term capital loss
to the extent of the capital gain dividend received. The tax rates for capital
gains realized from assets held for one year or less are generally the same as
for ordinary income. The Internal Revenue Code treats certain capital gains as
ordinary income in special situations.
Ordinary income dividends received by an individual shareholder from a regulated
investment company such as the Fund are generally taxed at the same rates that
apply to net capital gain (as discussed above), provided certain holding period
requirements are satisfied and provided the dividends are attributable to
Page 15
qualifying dividends received by the Fund itself. These special rules relating
to the taxation of ordinary income dividends from regulated investment companies
generally apply to taxable years beginning before January 1, 2011. The Fund will
provide notice to its shareholders of the amount of any distribution which may
be taken into account as a dividend which is eligible for the capital gains tax
rates.
SALE OF SHARES
If you sell your Shares, you will generally recognize a taxable gain or loss. To
determine the amount of this gain or loss, you must subtract your tax basis in
your Shares from the amount you receive in the transaction. Your tax basis in
your Shares is generally equal to the cost of your Shares, generally including
sales charges. In some cases, however, you may have to adjust your tax basis
after you purchase your Shares.
TAXES ON PURCHASE AND REDEMPTION OF CREATION UNITS
If you exchange equity securities for Creation Units you will generally
recognize a gain or a loss. The gain or loss will be equal to the difference
between the market value of the Creation Units at the time and your aggregate
basis in the securities surrendered and the Cash Component paid. If you exchange
Creation Units for equity securities, you will generally recognize a gain or
loss equal to the difference between your basis in the Creation Units and the
aggregate market value of the securities received and the Cash Redemption
Amount. The Internal Revenue Service, however, may assert that a loss realized
upon an exchange of securities for Creation Units cannot be deducted currently
under the rules governing "wash sales," or on the basis that there has been no
significant change in economic position.
DEDUCTIBILITY OF FUND EXPENSES
Expenses incurred and deducted by the Fund will generally not be treated as
income taxable to you.
NON-U.S. TAX CREDIT
Because the Fund invests in non-U.S. securities, the tax statement that you
receive may include an item showing non-U.S. taxes the Fund paid to other
countries. In this case, dividends taxed to you will include your share of the
taxes the Fund paid to other countries. You may be able to deduct or receive a
tax credit for your share of these taxes.
NON-U.S. INVESTORS
If you are a non-U.S. investor (i.e., an investor other than a U.S. citizen or
resident or a U.S. corporation, partnership, estate or trust), you should be
aware that, generally, subject to applicable tax treaties, distributions from
the Fund will be characterized as dividends for federal income tax purposes
(other than dividends which the Fund designates as capital gain dividends) and
will be subject to U.S. federal income taxes, including withholding taxes,
subject to certain exceptions described below. However, distributions received
by a non-U.S. investor from the Fund that are properly designated by the Fund as
capital gain dividends may not be subject to U.S. federal income taxes,
including withholding taxes, provided that the Fund makes certain elections and
certain other conditions are met. In the case of dividends with respect to
taxable years of the Fund beginning prior to 2008, distributions from the Fund
that are properly designated by the Fund as an interest-related dividend
attributable to certain interest income received by the Fund or as a short-term
capital gain dividend attributable to certain net short-term capital gain income
received by the Fund may not be subject to U.S. federal income taxes, including
withholding taxes when received by certain non-U.S. investors, provided that the
Fund makes certain elections and certain other conditions are met.
Page 16
Distribution Plan
FTP serves as the distributor of Creation Units for the Fund on an agency basis.
FTP does not maintain a secondary market in Shares.
The Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1
under the 1940 Act. In accordance with its Rule 12b-1 plan, the Fund is
authorized to pay an amount up to 0.25% of its average daily net assets each
year to reimburse FTP for amounts expended to finance activities primarily
intended to result in the sale of Creation Units or the provision of investor
services. FTP may also use this amount to compensate securities dealers or other
persons that are APs for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual
arrangement, the Fund will not pay 12b-1 fees any time before
__________________. However, in the event 12b-1 fees are charged in the future,
because these fees are paid out of the Fund's assets, over time these fees will
increase the cost of your investment and may cost you more than certain other
types of sales charges.
Net Asset Value
The Fund's NAV is determined as of the close of trading (normally 4:00 p.m.,
Eastern time) on each day the New York Stock Exchange is open for business. NAV
is calculated for the Fund by taking the market price of the Fund's total
assets, including interest or dividends accrued but not yet collected, less all
liabilities, and dividing such amount by the total number of Shares outstanding.
The result, rounded to the nearest cent, is the NAV per Share. All valuations
are subject to review by the Board or its delegate.
In determining NAV, expenses are accrued and applied daily and securities and
other assets are generally valued as set forth below. Common stocks and other
equity securities listed on any national or non-U.S. exchange or on NASDAQ will
be valued at the last sale price for all exchanges other than NASDAQ (and the
official closing price for NASDAQ) on the exchange or system in which they are
principally traded on the valuation date. If there are no transactions on the
valuation date, securities traded principally on an exchange or on NASDAQ will
be valued at the mean between the most recent bid and ask prices. Equity
securities traded in the over-the-counter market are valued at their closing bid
prices. Fixed income securities with a remaining maturity of 60 days or more
will be valued by the Fund accounting agent using a pricing service. When price
quotes are not available, fair market value is based on prices of comparable
securities. Fixed income securities maturing within 60 days are valued by the
Fund accounting agent on an amortized cost basis. The value of any portfolio
security held by the Fund for which reliable market quotations are not readily
available or if a valuation is deemed inappropriate will be determined by the
Board or its designee in a manner that most fairly reflects the fair market
value of the security on the valuation date.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board or its delegate at fair
value. These securities generally include, but are not limited to, restricted
securities (securities which may not be publicly sold without registration under
the Securities Act of 1933) for which a pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market price is not available from a pre-established pricing source; a
security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
Page 17
the pricing service, does not reflect the security's "fair value." As a general
principle, the current "fair value" of a security would appear to be the amount
which the owner might reasonably expect to receive for the security upon its
current sale. The use of fair value prices by the Fund generally results in the
prices used by the Fund differing from the closing sale prices on the applicable
exchange and fair value prices may not reflect the actual value of a security. A
variety of factors may be considered in determining the fair value of such
securities. See the SAI for details.
Valuing the Fund's investments using fair value pricing will result in using
prices for those investments that may differ from current market valuations. Use
of fair value prices and certain current market valuations could result in a
difference between the prices used to calculate the Fund's net asset value and
the prices used by the Index, which, in turn, could result in a difference
between the Fund's performance and the performance of the Index.
Because foreign markets may be open on different days than the days during which
a shareholder may purchase the Shares of the Fund, the value of the Fund's
investments may change on the days when shareholders are not able to purchase
the Shares of the Fund.
The value of assets denominated in foreign currencies is converted into U.S.
dollars using exchange rates deemed appropriate by First Trust as investment
adviser. Any use of a different rate from the rates used by the Index may
adversely affect the Fund's ability to track the Index.
Fund Service Providers
The Bank of New York is the administrator, custodian and fund accounting and
transfer agent for the Fund. Chapman and Cutler LLP, 111 West Monroe Street,
Chicago, Illinois 60603, serves as legal counsel to the Fund.
The Trust has entered into an agreement with PFPC, Inc. ("PFPC"), 301 Bellevue
Parkway, Wilmington, Delaware 19809, whereby PFPC will provide certain
administrative services to the Trust in connection with the Board's meetings and
other related matters.
Index Provider
The Index that the Fund seeks to track is developed by the Index Provider. The
Index Provider is not affiliated with the Fund or First Trust. The Fund is
entitled to use the Index pursuant to a sublicensing arrangement by and between
the Fund and First Trust, which in turn has a licensing agreement with the Index
Provider.
Disclaimers
First Trust does not guarantee the accuracy and/or the completeness of the Index
or any data included therein, and First Trust shall have no liability for any
errors, omissions or interruptions therein. First Trust makes no warranty,
express or implied, as to results to be obtained by the Fund, owners of the
Shares of the Fund or any other person or entity from the use of the Index or
any data included therein. First Trust makes no express or implied warranties,
and expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the Index or any data included
therein. Without limiting any of the foregoing, in no event shall First Trust
have any liability for any special, punitive, direct, indirect or consequential
damages (including lost profits) arising out of matters relating to the use of
the Index, even if notified of the possibility of such damages.
Page 18
The Fund is not sponsored, endorsed, sold or promoted by Dow Jones. Dow Jones
makes no representation or warranty, express or implied, to the owners of the
Fund or any member of the public regarding the advisability of trading in the
Fund. Dow Jones' only relationship to First Trust is the licensing of certain
trademarks and trade names of Dow Jones and of the Dow Jones Global Select
Dividend Index, which is determined, composed and calculated by Dow Jones
without regard to First Trust or the Fund. Dow Jones has no obligation to take
the needs of First Trust or the owners of the Fund into consideration in
determining, composing or calculating the Dow Jones Global Select Dividend
Index. Dow Jones is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the Fund to be
listed or in the determination or calculation of the equation by which the Fund
is to be converted into cash. Dow Jones has no obligation or liability in
connection with the administration, marketing or trading of the Fund.
DOW JONES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE DOW
JONES GLOBAL SELECT DIVIDEND INDEX OR ANY DATA INCLUDED THEREIN AND DOW JONES
SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. DOW
JONES MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
FIRST TRUST, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE DOW JONES GLOBAL SELECT DIVIDEND INDEX OR ANY DATA INCLUDED THEREIN. DOW
JONES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE DOW JONES GLOBAL SELECT DIVIDEND INDEX OR ANY DATA INCLUDED
THEREIN, WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DOW JONES HAVE
ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY
AGREEMENTS OR ARRANGEMENTS BETWEEN DOW JONES AND FIRST TRUST.
Additional Index Information
INDEX METHODOLOGY
Universe
o All companies in the Dow Jones World Index, which covers approximately
95% of the underlying market capitalization of countries determined by
Dow Jones to be open to foreign investment and that offer
readily-available pricing information.
Eligibility Screens
o Companies in the Index universe are screened for dividend quality and
liquidity. To meet these eligibility requirements a company must:
o Pay a current dividend.
o Have paid a dividend in each of the previous five years.
o Have a positive five-year dividend growth rate, comparing the
current dividend with the previous five-year average.
o Have a payout ratio of less than or equal to 60% for U.S. and
European companies; or less than or equal to 80% for all other
countries.
o Have a minimum three-month daily average trading volume of
$3 million USD.
Page 19
Selection Process
1. Stocks meeting all eligibility requirements are ranked by dividend
yield.
2. The top 100 highest-yielding stocks are selected to the Index, subject
to buffers designed to limit turnover by favoring current Index
components:
o Stocks in the Index universe are ranked in descending
order by indicated annual dividend yield, defined as
a stock's unadjusted indicated annual dividend (not
including any special dividends) divided by its
unadjusted price.
o All current component stocks that are among the top
150 stocks are included in the Index.
o Noncomponent stocks are added to the Index based on their
rankings until the component count reaches 100.
Weighting
1. A company's weight in the Index is based on its dividend yield.
2. Each component's weight is capped at 10%.
The Fund will make changes to its portfolio shortly after changes to the Index
are released to the public. Investors are able to access the holdings of the
Fund and the composition and compilation methodology of the Index through the
Fund's website at www.ftportfolios.com.
In the event that the Index Provider no longer calculates the Index, the Index
license is terminated or the identity or character of the Index is materially
changed, the Board will seek to engage a replacement index. However, if that
proves to be impracticable, the Board will take whatever action it deems to be
in the best interests of the Fund. The Board will also take whatever actions it
deems to be in the best interests of the Fund if the Shares are delisted.
Other Information
For purposes of the 1940 Act, the Fund is treated as a registered investment
company, and the acquisition of Shares by other registered investment companies
is subject to the restrictions of Section 12(d)(1) of the 1940 Act. The Trust,
on behalf of the Fund, has received an exemptive order from the Securities and
Exchange Commission that permits certain registered investment companies to
invest in the Fund beyond the limits set forth in Section 12(d)(1), subject to
certain terms and conditions, including that any such investment companies enter
into agreements with the Fund regarding the terms of any investment.
CONTINUOUS OFFERING
The Fund will issue, on a continuous offering basis, its Shares in one or more
groups of a fixed number of Fund Shares (each such group of such specified
number of individual Fund Shares, a "Creation Unit Aggregation"). The method by
which Creation Unit Aggregations of Fund Shares are created and traded may raise
certain issues under applicable securities laws. Because new Creation Unit
Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a
"distribution," as such term is used in the Securities Act of 1933, as amended
(the "Securities Act"), may occur at any point. Broker-dealers and other persons
are cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
Page 20
manner which could render them statutory underwriters and subject them to the
prospectus delivery requirement and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with
FTP, breaks them down into constituent Shares and sells such Shares directly to
customers, or if it chooses to couple the creation of a supply of new Shares
with an active selling effort involving solicitation of secondary market demand
for Shares. A determination of whether one is an underwriter for purposes of the
Securities Act must take into account all the facts and circumstances pertaining
to the activities of the broker-dealer or its client in the particular case, and
the examples mentioned above should not be considered a complete description of
all the activities that could lead to a characterization as an underwriter.
Broker-dealer firms should also note that dealers who are not "underwriters" but
are effecting transactions in Shares, whether or not participating in the
distribution of Shares, are generally required to deliver a Prospectus. This is
because the prospectus delivery exemption in Section 4(3) of the Securities Act
is not available in respect of such transactions as a result of Section 24(d) of
the 1940 Act. The Trust, on behalf of the Fund, however, has received from the
Securities and Exchange Commission an exemption from the prospectus delivery
obligation in ordinary secondary market transactions under certain
circumstances, on the condition that purchasers are provided with a product
description of the Shares. As a result, broker-dealer firms should note that
dealers who are not underwriters but are participating in a distribution (as
contrasted with ordinary secondary market transactions) and thus dealing with
the Shares that are part of an overallotment within the meaning of Section
4(3)(a) of the Securities Act would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(3) of the Securities Act.
Firms that incur a prospectus delivery obligation with respect to Shares are
reminded that, under the Securities Act Rule 153, a prospectus delivery
obligation under Section 5(b)(2) of the Securities Act owed to a broker-dealer
in connection with a sale on the Exchange is satisfied by the fact that the
Prospectus is available from the Exchange upon request. The prospectus delivery
mechanism provided in Rule 153 is available with respect to transactions on a
national securities exchange, a trading facility or an alternative trading
system.
FOR MORE INFORMATION
For more detailed information on the Fund, several additional sources of
information are available to you. The SAI, incorporated by reference into this
Prospectus, contains detailed information on the Fund's policies and operation.
Additional information about the Fund's investments is available in the annual
and semi-annual reports to shareholders. In the Fund's annual reports, you will
find a discussion of the market conditions and investment strategies that
significantly affect the Fund's performance during the last fiscal year. The
Fund's most recent SAI and certain other information are available free of
charge by calling the Fund at (800) 621-1675, on the Fund's website at
www.ftportfolios.com or through your financial adviser. Shareholders may call
the toll-free number above with any inquiries.
You may obtain this and other information regarding the Fund, including the
Codes of Ethics adopted by First Trust, FTP and the Trust, directly from the
Securities and Exchange Commission (the "SEC"). Information on the SEC's website
is free of charge. Visit the SEC's on-line EDGAR database at http://www.sec.gov
or in person at the SEC's Public Reference Room in Washington, D.C., or call the
SEC at (202) 551-5850 for information on the Public Reference Room. You may also
request information regarding the Fund by writing to the SEC's Public Reference
Section, 100 F Street, N.E., Washington, D.C. 20549 or by sending an electronic
request, along with a duplication fee to publicinfo@sec.gov.
Page 21
[GRAPHIC OMITTED] FIRST TRUST DOW JONES
GLOBAL SELECT
DIVIDEND INDEX FUND
|
1001 Warrenville Road
Suite 300
Lisle, Illinois 60532
(800) 621-1675
www.ftportfolios.com
SEC File #: 333-143964
811-21944
Back Cover
STATEMENT OF ADDITIONAL INFORMATION
INVESTMENT COMPANY ACT FILE NO. 811-21944
FIRST TRUST EXCHANGE-TRADED FUND II
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
DATED _______________, 2007
This Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the Prospectus dated _______________, 2007 (the
"Prospectus") for the First Trust Dow Jones Global Select Dividend Index Fund, a
series of the First Trust Exchange-Traded Fund II (the "Trust"), as it may be
revised from time to time. Capitalized terms used herein that are not defined
have the same meaning as in the Prospectus, unless otherwise noted. A copy of
the Prospectus may be obtained without charge by writing to the Trust's
Distributor, First Trust Portfolios L.P., 1001 Warrenville Road, Lisle, Illinois
60532, or by calling toll free at (800) 621-1675.
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OF SALE IS NOT PERMITTED.
TABLE OF CONTENTS
GENERAL DESCRIPTION OF THE TRUST AND THE FUND.................................1
EXCHANGE LISTING AND TRADING..................................................3
INVESTMENT OBJECTIVE AND POLICIES.............................................4
INVESTMENT STRATEGIES.........................................................5
SUBLICENSE AGREEMENTS........................................................15
INVESTMENT RISKS.............................................................15
FUNDS MANAGEMENT.............................................................20
ACCOUNTS MANAGED BY INVESTMENT COMMITTEE.....................................30
BROKERAGE ALLOCATIONS........................................................31
CUSTODIAN, DISTRIBUTOR, TRANSFER AGENT, FUND ACCOUNTING AGENT, INDEX
PROVIDER AND EXCHANGE.................................................33
ADDITIONAL INFORMATION.......................................................35
PROXY VOTING POLICIES AND PROCEDURES.........................................36
CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS........................37
REGULAR HOLIDAYS.............................................................45
FEDERAL TAX MATTERS..........................................................51
DETERMINATION OF NAV.........................................................56
|
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DIVIDENDS AND DISTRIBUTIONS..................................................58
MISCELLANEOUS INFORMATION....................................................59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM......................59
|
- ii -
GENERAL DESCRIPTION OF THE TRUST AND THE FUND
The Trust was organized as a Massachusetts business trust on July 20,
2006 and is authorized to issue an unlimited number of shares in one or more
series or "Funds." The Trust is an open-end management investment company,
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Trust currently offers Shares in ___ series, including the First
Trust Dow Jones Global Select Dividend Index Fund (the "Fund,"), a
non-diversified series. This Statement of Additional Information relates only to
the Fund. The shares of the Fund are referred to herein as "Shares" or "Fund
Shares." Each series of the Trust represents a beneficial interest in a separate
portfolio of securities and other assets, with its own objective and policies.
The Board of Trustees of the Trust (the "Board of Trustees" or the
"Trustees") has the right to establish additional series in the future, to
determine the preferences, voting powers, rights and privileges thereof and to
modify such preferences, voting powers, rights and privileges without
shareholder approval. Shares of any series may also be divided into one or more
classes at the discretion of the Trustees.
Each Share has one vote with respect to matters upon which a
shareholder vote is required consistent with the requirements of the 1940 Act
and the rules promulgated thereunder. Shares of all series of the Trust vote
together as a single class except as otherwise required by the 1940 Act, or if
the matter being voted on affects only a particular series, and, if a matter
affects a particular series differently from other series, the shares of that
series will vote separately on such matter. The Trust's Declaration of Trust
(the "Declaration") requires a shareholder vote only on those matters where the
1940 Act requires a vote of shareholders and otherwise permits the Trustees to
take actions without seeking the consent of shareholders. For example, the
Declaration gives the Trustees broad authority to approve reorganizations
between the Fund and another entity, such as another exchange-traded fund, or
the sale of all or substantially all of the Fund's assets, or the termination of
the Trust or any Fund without shareholder approval if the 1940 Act would not
require such approval.
The Declaration provides that by becoming a shareholder of the Fund,
each shareholder shall be expressly held to have agreed to be bound by the
provisions of the Declaration. The Declaration may be amended or supplemented by
the Trustees in any respect without shareholder vote. The Declaration provides
that the Trustees may establish the number of Trustees and that vacancies on the
Board of Trustees may be filled by the remaining Trustees, except when election
of Trustees by the shareholders is required under the 1940 Act. Trustees are
then elected by a plurality of votes cast by shareholders at a meeting at which
a quorum is present. The Declaration also provides that Trustees may be removed,
with or without cause, by a vote of shareholders holding at least two-thirds of
the voting power of the Trust, or by a vote of two thirds of the remaining
Trustees. The provisions of the Declaration relating to the election and removal
of Trustees may not be amended without the approval of two-thirds of the
Trustees.
The holders of Fund Shares are required to disclose information on
direct or indirect ownership of Fund Shares as may be required to comply with
various laws applicable to the Fund or as the Trustees may determine, and
ownership of Fund Shares may be disclosed by the Fund if so required by law or
- 1 -
regulation. In addition, pursuant to the Declaration, the Trustees may, in their
discretion, require the Trust to redeem Shares held by any shareholder for any
reason under terms set by the Trustees. The Declaration provides a detailed
process for the bringing of derivative actions by shareholders in order to
permit legitimate inquiries and claims while avoiding the time, expense,
distraction and other harm that can be caused to the Fund or its shareholders as
a result of spurious shareholder demands and derivative actions. Prior to
bringing a derivative action, a demand must first be made on the Trustees. The
Declaration details various information, certifications, undertakings and
acknowledgements that must be included in the demand. Following receipt of the
demand, the Trustees have a period of 90 days, which may be extended by an
additional 60 days, to consider the demand. If a majority of the Trustees who
are considered independent for the purposes of considering the demand determine
that maintaining the suit would not be in the best interests of the Fund, the
Trustees are required to reject the demand and the complaining shareholder may
not proceed with the derivative action unless the shareholder is able to sustain
the burden of proof to a court that the decision of the Trustees not to pursue
the requested action was not a good faith exercise of their business judgment on
behalf of the Fund. In making such a determination, a Trustee is not considered
to have a personal financial interest by virtue of being compensated for his or
her services as a Trustee. If a demand is rejected, the complaining shareholder
will be responsible for the costs and expenses (including attorneys' fees)
incurred by the Fund in connection with the consideration of the demand under a
number of circumstances. If a derivative action is brought in violation of the
Declaration, the shareholder bringing the action may be responsible for the
Fund's costs, including attorney's fee. The Declaration also provides that any
shareholder bringing an action against the Fund waives the right to trial by
jury to the fullest extent permitted by law.
The Trust is not required to and does not intend to hold annual
meetings of shareholders.
Under Massachusetts law applicable to Massachusetts business trusts,
shareholders of such a trust may, under certain circumstances, be held
personally liable as partners for its obligations. However, the Declaration
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or the
Trustees. The Declaration further provides for indemnification out of the assets
and property of the Trust for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust or the Fund itself was unable to meet its obligations.
The Declaration further provides that a Trustee acting in his or her
capacity as Trustee is not personally liable to any person other than the Trust
or its shareholders, for any act, omission, or obligation of the Trust. The
Declaration requires the Trust to indemnify any persons who are or who have been
Trustees, officers or employees of the Trust for any liability for actions or
failure to act except to the extent prohibited by applicable federal law. In
making any determination as to whether any person is entitled to the advancement
of expenses in connection with a claim for which indemnification is sought, such
person is entitled to a rebuttable presumption that he or she did not engage in
conduct for which indemnification is not available. The Declaration provides
- 2 -
that any Trustee who serves as chair of the Board of Trustees or of a committee
of the Board of Trustees, lead independent Trustee, or audit committee financial
expert, or in any other similar capacity will not be subject to any greater
standard of care or liability because of such position.
The Funds are managed by First Trust Advisors L.P. (the "Adviser" or
"First Trust").
The Shares are listed and trade on _________________ (the "Exchange").
The Shares will trade on the Exchange at market prices that may be below, at or
above net asset value ("NAV"). The Fund offers and issues Shares at NAV only in
aggregations of a specified number of Shares (each a "Creation Unit" or a
"Creation Unit Aggregation"). In order to purchase Creation Units of the Fund,
an investor must deposit (i) cash or (ii) a designated portfolio of securities
determined by First Trust (the "Deposit Securities") and generally make a small
cash payment (the "Cash Component"). If the Fund allows delivery of Deposit
Securities in lieu of cash to purchase Creation Units, the list of the names and
numbers of shares of the Deposit Securities is made available by the Fund's
custodian through the facilities of the National Securities Clearing Corporation
(the "NSCC"), immediately prior to the opening of business each day of the
Exchange. The Cash Component represents the difference between the NAV of a
Creation Unit and the market value of the Deposit Securities. Shares are
redeemable only in Creation Unit Aggregations and, generally, in exchange for
portfolio securities and a specified cash payment. Creation Units are
aggregations of _______ Shares.
The Trust reserves the right to offer a "cash" option for creations and
redemptions of Fund Shares, although it has no current intention of doing so.
Fund Shares may be issued in advance of receipt of Deposit Securities subject to
various conditions including a requirement to maintain on deposit with the Trust
cash at least equal to 115% of the market value of the missing Deposit
Securities. See the "Creation and Redemption of Creation Unit Aggregations"
section. In each instance of such cash creations or redemptions, transaction
fees may be imposed that will be higher than the transaction fees associated
with in-kind creations or redemptions. In all cases, such fees will be limited
in accordance with the requirements of the Securities and Exchange Commission
(the "SEC") applicable to management investment companies offering redeemable
securities.
EXCHANGE LISTING AND TRADING
There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of Shares of the Fund will continue to be met.
[The Exchange may, but is not required to, remove the Shares of the Fund from
listing if (i) following the initial 12-month period beginning at the
commencement of trading of the Fund, there are fewer than 50 beneficial owners
of the Shares of the Fund for 30 or more consecutive trading days; (ii) the
value of the Fund's Index is no longer calculated or available; or (iii) such
other event shall occur or condition exist that, in the opinion of the Exchange,
makes further dealings on the Exchange inadvisable. The Exchange will remove the
Shares of the Fund from listing and trading upon termination of the Fund.]
- 3 -
As in the case of other stocks traded on the Exchange, broker's
commissions on transactions will be based on negotiated commission rates at
customary levels.
The Fund reserves the right to adjust the price levels of Shares in the
future to help maintain convenient trading ranges for investors. Any adjustments
would be accomplished through stock splits or reverse stock splits, which would
have no effect on the net assets of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus describes the investment objective and policies of the
Fund. The following supplements the information contained in the Prospectus
concerning the investment objective and policies of the Fund.
The Fund is subject to the following fundamental policies, which may
not be changed without approval of the holders of a majority of the outstanding
voting securities of the Fund:
(1) The Fund may not issue senior securities, except as
permitted under the 1940 Act.
(2) The Fund may not borrow money, except that the Fund may
(i) borrow money from banks for temporary or emergency purposes (but
not for leverage or the purchase of investments) and (ii) engage in
other transactions permissible under the 1940 Act that may involve a
borrowing (such as obtaining short-term credits as are necessary for
the clearance of transactions, engaging in delayed-delivery
transactions, or purchasing certain futures, forward contracts and
options), provided that the combination of (i) and (ii) shall not
exceed 33-1/3% of the value of the Fund's total assets (including the
amount borrowed), less the Fund's liabilities (other than borrowings).
(3) The Fund will not underwrite the securities of other
issuers except to the extent the Fund may be considered an underwriter
under the Securities Act of 1933 (the "1933 Act") in connection with
the purchase and sale of portfolio securities.
(4) The Fund will not purchase or sell real estate or
interests therein, unless acquired as a result of ownership of
securities or other instruments (but this shall not prohibit the Fund
from purchasing or selling securities or other instruments backed by
real estate or of issuers engaged in real estate activities).
(5) The Fund may not make loans to other persons, except
through (i) the purchase of debt securities permissible under the
Fund's investment policies, (ii) repurchase agreements, or (iii) the
lending of portfolio securities, provided that no such loan of
portfolio securities may be made by the Fund if, as a result, the
aggregate of such loans would exceed 33-1/3% of the value of the Fund's
total assets.
(6) The Fund may not purchase or sell physical commodities
unless acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Fund from purchasing or
- 4 -
selling options, futures contracts, forward contracts or other
derivative instruments, or from investing in securities or other
instruments backed by physical commodities).
(7) The Fund may not invest 25% or more of the value of its
total assets in securities of issuers in any one industry or group of
industries, except to the extent that the Index that the Fund
replicates, concentrates in an industry or group of industries. This
restriction does not apply to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
Except for restriction (2), if a percentage restriction is adhered to
at the time of investment, a later increase in percentage resulting from a
change in market value of the investment or the total assets will not constitute
a violation of that restriction.
The foregoing fundamental policies of the Fund may not be changed
without the affirmative vote of the majority of the outstanding voting
securities of the Fund. The 1940 Act defines a majority vote as the vote of the
lesser of (i) 67% or more of the voting securities represented at a meeting at
which more than 50% of the outstanding securities are represented; or (ii) more
than 50% of the outstanding voting securities. With respect to the submission of
a change in an investment policy to the holders of outstanding voting securities
of the Fund, such matter shall be deemed to have been effectively acted upon
with respect to the Fund if a majority of the outstanding voting securities of
the Fund vote for the approval of such matter, notwithstanding that (1) such
matter has not been approved by the holders of a majority of the outstanding
voting securities of any other series of the Trust affected by such matter, and
(2) such matter has not been approved by the vote of a majority of the
outstanding voting securities.
In addition to the foregoing fundamental policies, the Fund is also
subject to strategies and policies discussed herein which, unless otherwise
noted, are non-fundamental restrictions and policies which may be changed by the
Board of Trustees.
INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest at least 90% of its
total assets in common stocks that comprise the Dow Jones Global Select Dividend
Index (the "Index"). Fund Shareholders are entitled to 60 days' notice prior to
any change in this non-fundamental investment policy.
TYPES OF INVESTMENTS
Warrants: The Fund may invest in warrants. Warrants acquired by the
Fund entitle it to buy common stock from the issuer at a specified price and
time. They do not represent ownership of the securities but only the right to
buy them. Warrants are subject to the same market risks as stocks, but may be
more volatile in price. The Fund's investment in warrants will not entitle it to
- 5 -
receive dividends or exercise voting rights and will become worthless if the
warrants cannot be profitably exercised before their expiration date.
Delayed-Delivery Transactions: The Fund may from time to time purchase
securities on a "when-issued" or other delayed-delivery basis. The price of
securities purchased in such transactions is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date. Normally, the settlement date occurs within 45 days of the purchase.
During the period between the purchase and settlement, no payment is made by the
Fund to the issuer and no interest is accrued on debt securities or dividend
income is earned on equity securities. Delayed-delivery commitments involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in value of
the Fund's other assets. While securities purchased in delayed-delivery
transactions may be sold prior to the settlement date, the Fund intends to
purchase such securities with the purpose of actually acquiring them. At the
time the Fund makes the commitment to purchase a security in a delayed-delivery
transaction, it will record the transaction and reflect the value of the
security in determining its NAV. The Fund does not believe that NAV will be
adversely affected by purchases of securities in delayed-delivery transactions.
The Fund will earmark or maintain in a segregated account cash, U.S.
Government securities, and high-grade liquid debt securities equal in value to
commitments for delayed-delivery securities. Such earmarked or segregated
securities will mature or, if necessary, be sold on or before the settlement
date. When the time comes to pay for delayed-delivery securities, the Fund will
meet its obligations from then-available cash flow, sale of the securities
earmarked or held in the segregated account described above, sale of other
securities, or, although it would not normally expect to do so, from the sale of
the delayed-delivery securities themselves (which may have a market value
greater or less than the Fund's payment obligation).
Illiquid Securities: The Fund may invest in illiquid securities (i.e.,
securities that are not readily marketable). For purposes of this restriction,
illiquid securities include, but are not limited to, restricted securities
(securities the disposition of which is restricted under the federal securities
laws), securities that may only be resold pursuant to Rule 144A under the 1933
Act, as amended, but that are deemed to be illiquid; and repurchase agreements
with maturities in excess of seven days. However, the Fund will not acquire
illiquid securities if, as a result, such securities would comprise more than
15% of the value of the Fund's net assets. The Board of Trustees or its
delegates has the ultimate authority to determine, to the extent permissible
under the federal securities laws, which securities are liquid or illiquid for
purposes of this 15% limitation. The Board of Trustees has delegated to First
Trust the day-to-day determination of the illiquidity of any equity or
fixed-income security, although it has retained oversight and ultimate
responsibility for such determinations. Although no definitive liquidity
criteria are used, the Board of Trustees has directed First Trust to look to
factors such as (i) the nature of the market for a security (including the
institutional private resale market; the frequency of trades and quotes for the
security; the number of dealers willing to purchase or sell the security; and
the amount of time normally needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer), (ii) the terms of certain
securities or other instruments allowing for the disposition to a third party or
the issuer thereof (e.g., certain repurchase obligations and demand
instruments), and (iii) other permissible relevant factors.
- 6 -
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the 1933 Act. Where registration is required, the
Fund may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than that which
prevailed when it decided to sell. Illiquid securities will be priced at fair
value as determined in good faith under procedures adopted by the Board of
Trustees. If, through the appreciation of illiquid securities or the
depreciation of liquid securities, the Fund should be in a position where more
than 15% of the value of its net assets are invested in illiquid securities,
including restricted securities which are not readily marketable, the Fund will
take such steps as is deemed advisable, if any, to protect liquidity.
Money Market Funds: The Fund may invest in shares of money market funds
to the extent permitted by the 1940 Act.
Temporary Investments: The Fund may, without limit as to percentage of
assets, purchase U.S. Government securities or short-term debt securities to
keep cash on hand fully invested or for temporary defensive purposes. Short-term
debt securities are securities from issuers having a long-term debt rating of at
least A by Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service,
Inc. ("Moody's") or Fitch, Inc. ("Fitch") and having a maturity of one year or
less.
Short-term debt securities are defined to include, without limitation,
the following:
(1) U.S. Government securities, including bills, notes and
bonds differing as to maturity and rates of interest, which are either
issued or guaranteed by the U.S. Treasury or by U.S. Government
agencies or instrumentalities. U.S. Government agency securities
include securities issued by (a) the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of United States, Small
Business Administration, and the Government National Mortgage
Association, whose securities are supported by the full faith and
credit of the United States; (b) the Federal Home Loan Banks, Federal
Intermediate Credit Banks, and the Tennessee Valley Authority, whose
securities are supported by the right of the agency to borrow from the
U.S. Treasury; (c) Fannie Mae, whose securities are supported by the
discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and (d) the Student Loan
Marketing Association, whose securities are supported only by its
credit. While the U.S. Government provides financial support to such
U.S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it always will do so since it is not so obligated by
law. The U.S. Government, its agencies, and instrumentalities do not
guarantee the market value of their securities, and consequently, the
value of such securities may fluctuate.
(2) Certificates of deposit issued against funds deposited in
a bank or savings and loan association. Such certificates are for a
definite period of time, earn a specified rate of return, and are
normally negotiable. If such certificates of deposit are
- 7 -
non-negotiable, they will be considered illiquid securities and be
subject to the Fund's 15% restriction on investments in illiquid
securities. Pursuant to the certificate of deposit, the issuer agrees
to pay the amount deposited plus interest to the bearer of the
certificate on the date specified thereon. Under current FDIC
regulations, the maximum insurance payable as to any one certificate of
deposit is $100,000; therefore certificates of deposit purchased by the
Fund may not be fully insured.
(3) Bankers' acceptances which are short-term credit
instruments used to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an
importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on
its maturity date. The acceptance may then be held by the accepting
bank as an asset or it may be sold in the secondary market at the going
rate of interest for a specific maturity.
(4) Repurchase agreements, which involve purchases of debt
securities. In such an action, at the time the Fund purchases the
security, it simultaneously agrees to resell and redeliver the security
to the seller, who also simultaneously agrees to buy back the security
at a fixed price and time. This assures a predetermined yield for the
Fund during its holding period since the resale price is always greater
than the purchase price and reflects an agreed upon market rate. The
period of these repurchase agreements will usually be short, from
overnight to one week. Such actions afford an opportunity for the Fund
to invest temporarily available cash. The Fund may enter into
repurchase agreements only with respect to obligations of the U.S.
Government, its agencies or instrumentalities; certificates of deposit;
or bankers acceptances in which the Fund may invest. In addition, the
Fund may only enter into repurchase agreements where the market value
of the purchased securities/collateral equals at least 100% of
principal including accrued interest and is marked-to-market daily. The
risk to the Fund is limited to the ability of the seller to pay the
agreed-upon sum on the repurchase date; in the event of default, the
repurchase agreement provides that the affected Fund is entitled to
sell the underlying collateral. If the value of the collateral declines
after the agreement is entered into, however, and if the seller
defaults under a repurchase agreement when the value of the underlying
collateral is less than the repurchase price, the Fund could incur a
loss of both principal and interest. The Fund, however, intends to
enter into repurchase agreements only with financial institutions and
dealers believed by First Trust to present minimal credit risks in
accordance with criteria established by the Board of Trustees. First
Trust will review and monitor the creditworthiness of such
institutions. First Trust monitors the value of the collateral at the
time the action is entered into and at all times during the term of the
repurchase agreement. First Trust does so in an effort to determine
that the value of the collateral always equals or exceeds the
agreed-upon repurchase price to be paid to the Fund. If the seller were
to be subject to a federal bankruptcy proceeding, the ability of the
Fund to liquidate the collateral could be delayed or impaired because
of certain provisions of the bankruptcy laws.
(5) Bank time deposits, which are monies kept on deposit with
banks or savings and loan associations for a stated period of time at a
- 8 -
fixed rate of interest. There may be penalties for the early withdrawal
of such time deposits, in which case the yields of these investments
will be reduced.
(6) Commercial paper, which are short-term unsecured
promissory notes, including variable rate master demand notes issued by
corporations to finance their current operations. Master demand notes
are direct lending arrangements between the Fund and a corporation.
There is no secondary market for the notes. However, they are
redeemable by the Fund at any time. The portfolio manager will consider
the financial condition of the corporation (e.g., earning power, cash
flow, and other liquidity ratios) and will continuously monitor the
corporation's ability to meet all of its financial obligations, because
the Fund's liquidity might be impaired if the corporation were unable
to pay principal and interest on demand. The Fund may only invest in
commercial paper rated A-1 or better by S&P, Prime-1 or higher by
Moody's or Fitch 2 or higher by Fitch.
PORTFOLIO TURNOVER
The Fund buys and sells portfolio securities in the normal course of
its investment activities. The proportion of the Fund's investment portfolio
that is sold and replaced with new securities during a year is known as the
Fund's portfolio turnover rate. A turnover rate of 100% would occur, for
example, if the Fund sold and replaced securities valued at 100% of its net
assets within one year. Active trading would result in the payment by the Fund
of increased brokerage costs and expenses.
HEDGING STRATEGIES
General Description of Hedging Strategies
The Fund may engage in hedging activities. First Trust may cause the
Fund to utilize a variety of financial instruments, including options, forward
contracts, futures contracts (hereinafter referred to as "Futures" or "Futures
Contracts"), and options on Futures Contracts to attempt to hedge the Fund's
holdings.
Hedging or derivative instruments on securities generally are used to
hedge against price movements in one or more particular securities positions
that the Fund owns or intends to acquire. Such instruments may also be used to
"lock-in" realized but unrecognized gains in the value of portfolio securities.
Hedging instruments on stock indices, in contrast, generally are used to hedge
against price movements in broad equity market sectors in which the Fund has
invested or expects to invest. Hedging strategies, if successful, can reduce the
risk of loss by wholly or partially offsetting the negative effect of
unfavorable price movements in the investments being hedged. However, hedging
strategies can also reduce the opportunity for gain by offsetting the positive
effect of favorable price movements in the hedged investments. The use of
hedging instruments is subject to applicable regulations of the SEC, the several
options and Futures exchanges upon which they are traded, the Commodity Futures
- 9 -
Trading Commission (the "CFTC") and various state regulatory authorities. In
addition, the Fund's ability to use hedging instruments may be limited by tax
considerations.
General Limitations on Futures and Options Transactions
The Trust has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the National Futures
Association, the Futures industry's self-regulatory organization. The Fund will
not enter into Futures and options transactions if the sum of the initial margin
deposits and premiums paid for unexpired options exceeds 5% of the Fund's total
assets. In addition, the Fund will not enter into Futures Contracts and options
transactions if more than 30% of its net assets would be committed to such
instruments.
The foregoing limitations are not fundamental policies of the Fund and
may be changed without shareholder approval as regulatory agencies permit.
Asset Coverage for Futures and Options Positions
The Fund will comply with the regulatory requirements of the SEC and
the CFTC with respect to coverage of options and Futures positions by registered
investment companies and, if the guidelines so require, will earmark or set
aside cash, U.S. Government securities, high grade liquid debt securities and/or
other liquid assets permitted by the SEC and CFTC in a segregated custodial
account in the amount prescribed. Securities earmarked or held in a segregated
account cannot be sold while the Futures or options position is outstanding,
unless replaced with other permissible assets, and will be marked-to-market
daily.
Stock Index Options
The Fund may purchase stock index options, sell stock index options in
order to close out existing positions, and/or write covered options on stock
indices for hedging purposes. Stock index options are put options and call
options on various stock indices. In most respects, they are identical to listed
options on common stocks. The primary difference between stock options and index
options occurs when index options are exercised. In the case of stock options,
the underlying security, common stock, is delivered. However, upon the exercise
of an index option, settlement does not occur by delivery of the securities
comprising the stock index. The option holder who exercises the index option
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. This amount of cash is equal to
the difference between the closing price of the stock index and the exercise
price of the option expressed in dollars times a specified multiple.
A stock index fluctuates with changes in the market values of the
stocks included in the index. For example, some stock index options are based on
a broad market index, such as the Standard & Poor's 500 or the Value Line(R)
Composite Indices or a more narrow market index, such as the Standard & Poor's
100. Indices may also be based on an industry or market segment. Options on
stock indices are currently traded on the following exchanges: the Chicago Board
- 10 -
Options Exchange, the New York Stock Exchange ("NYSE"), the American Stock
Exchange (the "AMEX"), the NYSE Arca, Inc. and the Philadelphia Stock Exchange.
The Fund's use of stock index options is subject to certain risks.
Successful use by the Fund of options on stock indices will be subject to the
ability of First Trust to correctly predict movements in the directions of the
stock market. This requires different skills and techniques than predicting
changes in the prices of individual securities. In addition, the Fund's ability
to effectively hedge all or a portion of the securities in its portfolio, in
anticipation of or during a market decline through transactions in put options
on stock indices, depends on the degree to which price movements in the
underlying index correlate with the price movements of the securities held by
the Fund. Inasmuch as the Fund's securities will not duplicate the components of
an index, the correlation will not be perfect. Consequently, the Fund will bear
the risk that the prices of its securities being hedged will not move in the
same amount as the prices of its put options on the stock indices. It is also
possible that there may be a negative correlation between the index and the
Fund's securities, which would result in a loss on both such securities and the
options on stock indices acquired by the Fund.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the options
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot be
reflected in the options markets. The purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. The
purchase of stock index options involves the risk that the premium and
transaction costs paid by the Fund in purchasing an option will be lost as a
result of unanticipated movements in prices of the securities comprising the
stock index on which the option is based.
Certain Considerations Regarding Options
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or elsewhere may exist. If
the Fund is unable to close out a call option on securities that it has written
before the option is exercised, the Fund may be required to purchase the
optioned securities in order to satisfy its obligation under the option to
deliver such securities. If the Fund is unable to effect a closing sale
transaction with respect to options on securities that it has purchased, it
would have to exercise the option in order to realize any profit and would incur
transaction costs upon the purchase and sale of the underlying securities.
The writing and purchasing of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Imperfect correlation between
the options and securities markets may detract from the effectiveness of
attempted hedging. Options transactions may result in significantly higher
transaction costs and portfolio turnover for the Fund.
- 11 -
Futures Contracts
The Fund may enter into Futures Contracts, including index Futures as a
hedge against movements in the equity markets, in order to hedge against changes
on securities held or intended to be acquired by the Fund or for other purposes
permissible under the Commodity Exchange Act (the "CEA"). The Fund's hedging may
include sales of Futures as an offset against the effect of expected declines in
stock prices and purchases of Futures as an offset against the effect of
expected increases in stock prices. The Fund will not enter into Futures
Contracts which are prohibited under the CEA and will, to the extent required by
regulatory authorities, enter only into Futures Contracts that are traded on
national Futures exchanges and are standardized as to maturity date and
underlying financial instrument. The principal interest rate Futures exchanges
in the United States are the Chicago Board of Trade and the Chicago Mercantile
Exchange. Futures exchanges and trading are regulated under the CEA by the CFTC.
An interest rate Futures Contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (e.g., a debt security) or currency for a specified price
at a designated date, time and place. An index Futures Contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index Futures
Contract was originally written. Transaction costs are incurred when a Futures
Contract is bought or sold and margin deposits must be maintained. A Futures
Contract may be satisfied by delivery or purchase, as the case may be, of the
instrument or by payment of the change in the cash value of the index. More
commonly, Futures Contracts are closed out prior to delivery by entering into an
offsetting transaction in a matching Futures Contract. Although the value of an
index might be a function of the value of certain specified securities, no
physical delivery of those securities is made. If the offsetting purchase price
is less than the original sale price, a gain will be realized. Conversely, if
the offsetting sale price is more than the original purchase price, a gain will
be realized; if it is less, a loss will be realized. The transaction costs must
also be included in these calculations. There can be no assurance, however, that
the Fund will be able to enter into an offsetting transaction with respect to a
particular Futures Contract at a particular time. If the Fund is not able to
enter into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits on the Futures Contract.
Margin is the amount of funds that must be deposited by the Fund with
its custodian in a segregated account in the name of the Futures commission
merchant in order to initiate Futures trading and to maintain the Fund's open
positions in Futures Contracts. A margin deposit is intended to ensure the
Fund's performance of the Futures Contract.
The margin required for a particular Futures Contract is set by the
exchange on which the Futures Contract is traded and may be significantly
modified from time to time by the exchange during the term of the Futures
Contract. Futures Contracts are customarily purchased and sold on margins that
may range upward from less than 5% of the value of the Futures Contract being
traded.
- 12 -
If the price of an open Futures Contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the loss on the
Futures Contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
Futures Contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Fund. In computing daily NAV, the Fund will
mark to market the current value of its open Futures Contracts. The Fund expects
to earn interest income on its margin deposits.
Because of the low margin deposits required, Futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Future Contracts were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount initially invested in the Futures Contract. However, the Fund would
presumably have sustained comparable losses if, instead of the Futures Contract,
it had invested in the underlying financial instrument and sold it after the
decline.
Most United States Futures exchanges limit the amount of fluctuation
permitted in Futures Contract prices during a single trading day. The day limit
establishes the maximum amount that the price of a Futures Contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
Futures Contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures Contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of Futures positions
and subjecting some investors to substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a Futures position. The Fund would continue to
be required to meet margin requirements until the position is closed, possibly
resulting in a decline in the Fund's NAV. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.
A public market exists in Futures Contracts covering a number of
indices, including, but not limited to, the S&P 500 Index, the S&P 100 Index,
the NASDAQ 100 Index(R), the Value Line(R) Composite Index and the New York
Stock Exchange Composite Index.
- 13 -
Options on Futures
The Fund may also purchase or write put and call options on Futures
Contracts and enter into closing transactions with respect to such options to
terminate an existing position. A Futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a Futures Contract at a specified exercise price prior to the
expiration of the option. Upon exercise of a call option, the holder acquires a
long position in the Futures Contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. Prior to
exercise or expiration, a Futures option may be closed out by an offsetting
purchase or sale of a Futures option of the same series.
The Fund may use options on Futures Contracts in connection with
hedging strategies. Generally, these strategies would be applied under the same
market and market sector conditions in which the Fund uses put and call options
on securities or indices. The purchase of put options on Futures Contracts is
analogous to the purchase of puts on securities or indices so as to hedge the
Fund's securities holdings against the risk of declining market prices. The
writing of a call option or the purchasing of a put option on a Futures Contract
constitutes a partial hedge against declining prices of securities which are
deliverable upon exercise of the Futures Contract. If the price at expiration of
a written call option is below the exercise price, the Fund will retain the full
amount of the option premium which provides a partial hedge against any decline
that may have occurred in the Fund's holdings of securities. If the price when
the option is exercised is above the exercise price, however, the Fund will
incur a loss, which may be offset, in whole or in part, by the increase in the
value of the securities held by the Fund that were being hedged. Writing a put
option or purchasing a call option on a Futures Contract serves as a partial
hedge against an increase in the value of the securities the Fund intends to
acquire.
As with investments in Futures Contracts, the Fund is required to
deposit and maintain margin with respect to put and call options on Futures
Contracts written by it. Such margin deposits will vary depending on the nature
of the underlying Futures Contract (and the related initial margin
requirements), the current market value of the option, and other Futures
positions held by the Fund. The Fund will earmark or set aside in a segregated
account at the Fund's custodian, liquid assets, such as cash, U.S. Government
securities or other high-grade liquid debt obligations equal in value to the
amount due on the underlying obligation. Such segregated assets will be
marked-to-market daily, and additional assets will be earmarked or placed in the
segregated account whenever the total value of the earmarked or segregated
assets falls below the amount due on the underlying obligation.
The risks associated with the use of options on Futures Contracts
include the risk that the Fund may close out its position as a writer of an
option only if a liquid secondary market exists for such options, which cannot
be assured. The Fund's successful use of options on Futures Contracts depends on
First Trust's ability to correctly predict the movement in prices of Futures
Contracts and the underlying instruments, which may prove to be incorrect. In
addition, there may be imperfect correlation between the instruments being
hedged and the Futures Contract subject to the option. For additional
information, see "Futures Contracts." Certain characteristics of the Futures
market might increase the risk that movements in the prices of Futures Contracts
or options on Futures Contracts might not correlate perfectly with movements in
- 14 -
the prices of the investments being hedged. For example, all participants in the
Futures and options on Futures Contracts markets are subject to daily variation
margin calls and might be compelled to liquidate Futures or options on Futures
Contracts positions whose prices are moving unfavorably to avoid being subject
to further calls. These liquidations could increase the price volatility of the
instruments and distort the normal price relationship between the Futures or
options and the investments being hedged. Also, because of initial margin
deposit requirements, there might be increased participation by speculators in
the Futures markets. This participation also might cause temporary price
distortions. In addition, activities of large traders in both the Futures and
securities markets involving arbitrage, "program trading," and other investment
strategies might result in temporary price distortions.
SUBLICENSE AGREEMENTS
The Fund has entered into a sublicense agreement (the "Sublicense
Agreement") with [First Trust, First Trust Portfolios L.P. ("First Trust
Portfolios") and Dow Jones & Company, Inc. ("Dow Jones") (the "Index Provider"),
that grants the Fund and First Trust a non-exclusive and non-transferable
sublicense to use certain intellectual property of the Index Provider in
connection with the issuance, distribution, marketing and/or promotion of the
Fund. Pursuant to the Sublicense Agreement, the Fund and First Trust have agreed
to be bound by certain provisions of a product license agreement by and between
the Index Provider and First Trust Portfolios (the "Product License Agreement").
Pursuant to the Product License Agreement, First Trust Portfolios will pay the
Index Provider an annual license fee of _____% of the average daily net assets
of the Fund, provided that, the minimum annual payment paid to the Index
Provider under the Product License Agreement shall be $________. The Fund will
reimburse First Trust and First Trust will reimburse First Trust Portfolios for
the costs associated with the Product License Agreement.]
INVESTMENT RISKS
Overview
An investment in the Fund should be made with an understanding of the
risks which an investment in common stocks entails, including the risk that the
financial condition of the issuers of the equity securities or the general
condition of the common stock market may worsen and the value of the equity
securities and therefore the value of the Fund may decline. The Fund may not be
an appropriate investment for those who are unable or unwilling to assume the
risks involved generally with an equity investment. The past market and earnings
performance of any of the equity securities included in the Fund is not
predictive of their future performance. Common stocks are especially susceptible
to general stock market movements and to volatile increases and decreases of
value as market confidence in and perceptions of the issuers change. These
perceptions are based on unpredictable factors including expectations regarding
government, economic, monetary and fiscal policies, inflation and interest
rates, economic expansion or contraction, and global or regional political,
economic or banking crises. First Trust cannot predict the direction or scope of
any of these factors. Shareholders of common stocks have rights to receive
- 15 -
payments from the issuers of those common stocks that are generally subordinate
to those of creditors of, or holders of debt obligations or preferred stocks of,
such issuers.
Shareholders of common stocks of the type held by the Fund have a right
to receive dividends only when and if, and in the amounts, declared by the
issuer's board of directors and have a right to participate in amounts available
for distribution by the issuer only after all other claims on the issuer have
been paid. Common stocks do not represent an obligation of the issuer and,
therefore, do not offer any assurance of income or provide the same degree of
protection of capital as do debt securities. The issuance of additional debt
securities or preferred stock will create prior claims for payment of principal,
interest and dividends which could adversely affect the ability and inclination
of the issuer to declare or pay dividends on its common stock or the rights of
holders of common stock with respect to assets of the issuer upon liquidation or
bankruptcy. The value of common stocks is subject to market fluctuations for as
long as the common stocks remain outstanding, and thus the value of the equity
securities in the Fund will fluctuate over the life of the Fund and may be more
or less than the price at which they were purchased by the Fund. The equity
securities held in the Fund may appreciate or depreciate in value (or pay
dividends) depending on the full range of economic and market influences
affecting these securities, including the impact of the Fund's purchase and sale
of the equity securities and other factors.
Holders of common stocks incur more risk than holders of preferred
stocks and debt obligations because common stockholders, as owners of the
entity, have generally inferior rights to receive payments from the issuer in
comparison with the rights of creditors of, or holders of debt obligations or
preferred stocks issued by, the issuer. Cumulative preferred stock dividends
must be paid before common stock dividends and any cumulative preferred stock
dividend omitted is added to future dividends payable to the holders of
cumulative preferred stock. Preferred stockholders are also generally entitled
to rights on liquidation which are senior to those of common stockholders.
ADDITIONAL RISKS OF INVESTING IN THE FUND
Liquidity
Whether or not the equity securities in the Fund are listed on a
securities exchange, the principal trading market for the equity securities may
be in the over-the-counter market. As a result, the existence of a liquid
trading market for the equity securities may depend on whether dealers will make
a market in the equity securities. There can be no assurance that a market will
be made for any of the equity securities, that any market for the equity
securities will be maintained or that there will be sufficient liquidity of the
equity securities in any markets made. The price at which the equity securities
are held in the Fund will be adversely affected if trading markets for the
equity securities are limited or absent.
- 16 -
Small Capitalization and Mid Capitalization Companies
The equity securities in the Fund may include small cap and mid cap
company stocks. Small cap and mid cap company stocks have customarily involved
more investment risk than large capitalization stocks. Small cap and mid cap
companies may have limited product lines, markets or financial resources; may
lack management depth or experience; and may be more vulnerable to adverse
general market or economic developments than large cap companies. Some of these
companies may distribute, sell or produce products that have recently been
brought to market and may be dependent on key personnel.
The prices of small cap and mid cap company securities are often more
volatile than prices associated with large cap company issues, and can display
abrupt or erratic movements at times, due to limited trading volumes and less
publicly available information. Also, because small cap and mid cap companies
normally have fewer shares outstanding and these shares trade less frequently
than large cap companies, it may be more difficult for the Fund which contains
these equity securities to buy and sell significant amounts of such shares
without an unfavorable impact on prevailing market prices. The securities of
small cap and mid cap companies are often traded over-the-counter and may not be
traded in the volumes typical of a national securities exchange.
Non-Diversification
The Fund is classified as "non-diversified" under the 1940 Act. As a
result, the Fund is limited as to the percentage of its assets which may be
invested in the securities of any one issuer only by the diversification
requirements imposed by the Internal Revenue Code of 1986, as amended. Because
the Fund may invest a relatively high percentage of its assets in a limited
number of issuers, the Fund may be more susceptible to any single economic,
political or regulatory occurrence and to the financial conditions of the
issuers in which it invests.
Intellectual Property Risk
The Fund relies on a license and related sublicense that permits the
Fund to use the Index and associated trade names and trademarks ("Intellectual
Property") in connection with the name and investment strategies of the Fund.
Such license and related sublicense may be terminated by the Index Provider and,
as a result, the Fund may lose its ability to use the Intellectual Property.
There is also no guarantee that the Index Provider has all rights to license the
Intellectual Property to First Trust Portfolios, on behalf of First Trust and
the Fund. Accordingly, in the event the license is terminated or the Index
Provider does not have rights to license the Intellectual Property, it may have
a significant effect on the operation of the Fund.
Non-U.S. Securities Risk
The Fund will invest in the securities of issuers domiciled in
jurisdictions other than the United States and such stocks may be denominated in
currencies other than the U.S. dollar. These securities are in the form of
American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") or
are directly listed on a U.S. securities exchange. Investments in securities of
- 17 -
non-U.S. issuers involve special risks not presented by investments in
securities of U.S. issuers, including: (i) there may be less publicly available
information about non-U.S. issuers or markets due to less rigorous disclosure or
accounting standards or regulatory practices; (ii) many non-U.S. markets are
smaller, less liquid and more volatile than the U.S. market; (iii) potential
adverse effects of fluctuations in currency exchange rates or controls on the
value of the Fund's investments; (iv) the economies of non-U.S. countries may
grow at slower rates than expected or may experience a downturn or recession;
(v) the impact of economic, political, social or diplomatic events; (vi) certain
non-U.S. countries may impose restrictions on the ability of non-U.S. issuers to
make payments of principal and interest to investors located in the U.S. due to
blockage of non-U.S. currency exchanges or otherwise; and (vii) withholding and
other non-U.S. taxes may decrease the Fund's return.
Issuer Specific Changes Risk. The value of an individual security or
particular type of security can be more volatile than the market as a whole and
can perform differently from the value of the market as a whole.
RISKS AND SPECIAL CONSIDERATIONS CONCERNING DERIVATIVES
In addition to the foregoing, the use of derivative instruments
involves certain general risks and considerations as described below.
(1) Market Risk. Market risk is the risk that the value of
the underlying assets may go up or down. Adverse movements in the value
of an underlying asset can expose the Fund to losses. Market risk is
the primary risk associated with derivative transactions. Derivative
instruments may include elements of leverage and, accordingly,
fluctuations in the value of the derivative instrument in relation to
the underlying asset may be magnified. The successful use of derivative
instruments depends upon a variety of factors, particularly the
portfolio manager's ability to predict movements of the securities,
currencies, and commodities markets, which may require different skills
than predicting changes in the prices of individual securities. There
can be no assurance that any particular strategy adopted will succeed.
A decision to engage in a derivative transaction will reflect the
portfolio manager's judgment that the derivative transaction will
provide value to the Fund and its shareholders and is consistent with
the Fund's objective, investment limitations, and operating policies.
In making such a judgment, the portfolio manager will analyze the
benefits and risks of the derivative transactions and weigh them in the
context of the Fund's overall investments and investment objective.
(2) Credit Risk. Credit risk is the risk that a loss may be
sustained as a result of the failure of a counterparty to comply with
the terms of a derivative instrument. The counterparty risk for
exchange-traded derivatives is generally less than for
privately-negotiated or over-the-counter ("OTC") derivatives, since
generally a clearing agency, which is the issuer or counterparty to
each exchange-traded instrument, provides a guarantee of performance.
For privately-negotiated instruments, there is no similar clearing
agency guarantee. In all transactions, the Fund will bear the risk that
the counterparty will default, and this could result in a loss of the
expected benefit of the derivative transactions and possibly other
losses to the Fund. The Fund will enter into transactions in derivative
- 18 -
instruments only with counterparties that First Trust reasonably
believes are capable of performing under the contract.
(3) Correlation Risk. Correlation risk is the risk that there
might be an imperfect correlation, or even no correlation, between
price movements of a derivative instrument and price movements of
investments being hedged. When a derivative transaction is used to
completely hedge another position, changes in the market value of the
combined position (the derivative instrument plus the position being
hedged) result from an imperfect correlation between the price
movements of the two instruments. With a perfect hedge, the value of
the combined position remains unchanged with any change in the price of
the underlying asset. With an imperfect hedge, the value of the
derivative instrument and its hedge are not perfectly correlated. For
example, if the value of a derivative instrument used in a short hedge
(such as writing a call option, buying a put option or selling a
Futures Contract) increased by less than the decline in value of the
hedged investments, the hedge would not be perfectly correlated. This
might occur due to factors unrelated to the value of the investments
being hedged, such as speculative or other pressures on the markets in
which these instruments are traded. The effectiveness of hedges using
instruments on indices will depend, in part, on the degree of
correlation between price movements in the index and the price
movements in the investments being hedged.
(4) Liquidity Risk. Liquidity risk is the risk that a
derivative instrument cannot be sold, closed out, or replaced quickly
at or very close to its fundamental value. Generally, exchange
contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out
with the other party to the transaction. The Fund might be required by
applicable regulatory requirements to maintain assets as "cover,"
maintain segregated accounts, and/or make margin payments when it takes
positions in derivative instruments involving obligations to third
parties (i.e., instruments other than purchase options). If the Fund is
unable to close out its positions in such instruments, it might be
required to continue to maintain such assets or accounts or make such
payments until the position expires, matures, or is closed out. These
requirements might impair the Fund's ability to sell a security or make
an investment at a time when it would otherwise be favorable to do so,
or require that the Fund sell a portfolio security at a disadvantageous
time. The Fund's ability to sell or close out a position in an
instrument prior to expiration or maturity depends upon the existence
of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the counterparty to enter into a transaction
closing out the position. Due to liquidity risk, there is no assurance
that any derivatives position can be sold or closed out at a time and
price that is favorable to the Fund.
(5) Legal Risk. Legal risk is the risk of loss caused by the
unenforceability of a party's obligations under the derivative. While a
party seeking price certainty agrees to surrender the potential upside
in exchange for downside protection, the party taking the risk is
looking for a positive payoff. Despite this voluntary assumption of
- 19 -
risk, a counterparty that has lost money in a derivative transaction
may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.
(6) Systemic or "Interconnection" Risk. Systemic or
interconnection risk is the risk that a disruption in the financial
markets will cause difficulties for all market participants. In other
words, a disruption in one market will spill over into other markets,
perhaps creating a chain reaction. Much of the OTC derivatives market
takes place among the OTC dealers themselves, thus creating a large
interconnected web of financial obligations. This interconnectedness
raises the possibility that a default by one large dealer could create
losses for other dealers and destabilize the entire market for OTC
derivative instruments.
FUNDS MANAGEMENT
The general supervision of the duties performed for the Fund under the
investment management agreement is the responsibility of the Board of Trustees.
There are five Trustees of the Trust, one of whom is an "interested person" (as
the term is defined in the 1940 Act) and four of whom are Trustees who are not
officers or employees of First Trust or any of its affiliates ("Independent
Trustees"). The Trustees set broad policies for the Fund, choose the Trust's
officers and hire the Trust's investment adviser. The officers of the Trust
manage its day to day operations and are responsible to the Trust's Board of
Trustees. The following is a list of the Trustees and officers of the Trust and
a statement of their present positions and principal occupations during the past
five years, the number of portfolios each Trustee oversees and the other
directorships they hold, if applicable.
NUMBER OF
PORTFOLIOS IN
THE FIRST OTHER
TERM OF OFFICE TRUST FUND TRUSTEESHIPS
AND YEAR FIRST COMPLEX OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
Trustee who is an
Interested Person of the
Trust
-------------------------
James A. Bowen(1) President, o Indefinite President, First ___ Portfolios Trustee of
1001 Warrenville Road, Chairman of the term Trust Portfolios L.P. Wheaton College
Suite 300 Board, Chief and First Trust
Lisle, IL 60532 Executive Officer Advisors L.P.;
D.O.B.: 09/55 and Trustee o 2006 Chairman of the Board
of Directors, Bond
Wave LLC (Software
Development
Company/Broker-Dealer)
and Stonebridge
Advisors LLC
Trustees who are not
Interested Persons of the
Trust
-------------------------
Richard E. Erickson Trustee o Indefinite Physician, President ___ Portfolios None
c/o First Trust Advisors term Wheaton Orthopedics;
L.P. Co-Owner and
1001 Warrenville Road, Co-Director, Sports
Suite 300 o 2006 Med Center for
Lisle, IL 60532 Fitness; Limited
D.O.B.: 04/51 Partner, Gundersen
Real Estate
Partnership
- 20 -
NUMBER OF
PORTFOLIOS IN
THE FIRST OTHER
TERM OF OFFICE TRUST FUND TRUSTEESHIPS
AND YEAR FIRST COMPLEX OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
Thomas R. Kadlec Trustee o Indefinite Senior Vice President ___ Portfolios None
c/o First Trust Advisors term (May 2007 to Present)
L.P. and Vice President,
1001 Warrenville Road, o 2006 Chief Financial
Suite 300 Officer (1990 to May
Lisle, IL 60532 2007), ADM Investor
D.O.B.: 11/57 Services, Inc.
(Futures Commission
Merchant); President,
ADM Derivatives, Inc.
(May 2005 to
Present); Registered
Representative (2000
to Present),
Segerdahl & Company,
Inc., an NASD member
(Broker-Dealer)
Robert F. Keith Trustee o Indefinite President, Hibs ___ Portfolios None
c/o First Trust Advisors term Enterprises Financial
L.P. and Management
1001 Warrenville Road, o 2006 Consulting (2003 to
Suite 300 Present); Aramark
Lisle, IL 60532 ServiceMaster
D.O.B.: 11/56 Management Services
(2001 to 2003);
President and Chief
Operating Officer,
ServiceMaster
Management Services
(1998 to 2003)
Niel B. Nielson Trustee o Indefinite President (2002 to ___ Portfolios Director of
c/o First Trust Advisors term Present), Covenant Covenant Transport Inc.
L.P. College; Associate
1001 Warrenville Road, o 2006 Pastor (1997 to
Suite 300 2002), College Church
Lisle, IL 60532 in Wheaton
D.O.B.: 03/54
Officers of the Trust
---------------------
Mark R. Bradley Treasurer, o Indefinite Chief Financial N/A N/A
1001 Warrenville Road, Controller, Chief term Officer, Managing
Suite 300 Financial Officer Director, First Trust
Lisle, IL 60532 and Chief Portfolios L.P. and
D.O.B.: 11/57 Accounting Officer o 2006 First Trust Advisors
L.P.; Chief Financial
Officer L.P., Bond
Wave LLC (Software
Development
Company/Broker-Dealer)
and Stonebridge
Advisors LLC
Kelley Christensen Vice President o Indefinite Assistant Vice N/A N/A
1001 Warrenville Road, term President of First
Suite 300 Trust Portfolios L.P.
Lisle, IL 60532 o 2006 and First Trust
D.O.B.: 09/70 Advisors L.P.
- 21 -
NUMBER OF
PORTFOLIOS IN
THE FIRST OTHER
TERM OF OFFICE TRUST FUND TRUSTEESHIPS
AND YEAR FIRST COMPLEX OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
James M. Dykas Assistant o Indefinite Senior Vice N/A N/A
1001 Warrenville Road, Treasurer term President, First
Suite 300 Trust Portfolios L.P.
Lisle, IL 60532 o 2006 (April 2007 to
D.O.B.: 01/66 Present); Vice
President, First
Trust Portfolios L.P.
(January 2005 to
April 2007);
Executive Director of
Van Kampen Asset
Management and Morgan
Stanley Investment
Management (December
2002 to January
2005); Vice
President, Van Kampen
Asset Management and
Morgan Stanley
Investment Management
(December 2000 to
December 2002)
W. Scott Jardine Secretary and o Indefinite General Counsel, N/A N/A
1001 Warrenville Road, Chief Compliance term First Trust
Suite 300 Officer Portfolios L.P. and
Lisle, IL 60532 o 2006 First Trust Advisors
D.O.B.: 05/60 L.P.; Secretary, Bond
Wave LLC (Software
Development
Company/Broker-Dealer)
and Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Senior Vice N/A N/A
1001 Warrenville Road, term President, First
Suite 300 Trust Advisors L.P.
Lisle, IL 60532 o 2006 and First Trust
D.O.B.: 02/70 Portfolios L.P.
(September 2005 to
Present); Vice
President, First
Trust Advisors L.P.
and First Trust
Portfolios L.P.
(April 2004 to
September 2005);
Chief Operating
Officer, Mina Capital
Management, LLC
(January 2004 to
April 2004); Chief
Operating Officer,
Samaritan Asset
Management Services,
Inc. (April 2000 to
January 2004)
Kristi A. Maher Assistant o Indefinite Deputy General N/A N/A
1001 Warrenville Road, Secretary term Counsel, First Trust
Suite 300 Portfolios L.P. and
Lisle, IL 60532 o 2006 First Trust Advisors
D.O.B.: 12/66 L.P. (May 2007 to
Present); Assistant
General Counsel
(March 2004 to
May 2007), First
Trust Portfolios L.P.
and First Trust
Advisors L.P.;
Associate, Chapman
and Cutler LLP (1995
to March 2004)
- 22 -
NUMBER OF
PORTFOLIOS IN
THE FIRST OTHER
TERM OF OFFICE TRUST FUND TRUSTEESHIPS
AND YEAR FIRST COMPLEX OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
Roger Testin Vice President o Indefinite Senior Vice N/A N/A
1001 Warrenville Road, term President, First
Suite 300 Trust Portfolios L.P.
Lisle, IL 60532 o 2006 and First Trust
D.O.B.: 06/66 Advisors L.P.
(November 2003 to
Present), Vice
President, First
Trust Portfolios L.P.
and First Trust
Advisors L.P. (August
2001 to
November 2003);
Analyst (1998 to
2001), Dolan Capital
Management
Stan Ueland Assistant Vice o Indefinite Vice President, First N/A N/A
1001 Warrenville Road, President term Trust Advisors L.P.
Suite 300 and First Trust
Lisle, IL 60532 o 2006 Portfolios L.P.
D.O.B.: 11/70 (August 2005 to
Present); Vice
President; BondWave
LLC (May 2004 to
August 2005); Account
Executive, Mina
Capital Management,
LLC and Samaritan
Asset Management
Services, Inc.
(January 2003 to May
2004); Sales
Consultant, Oracle
Corporation (January
1997 to January 2003)
--------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position of President of First Trust, investment adviser of the Funds.
|
The Board of Trustees has four standing committees: the Executive
Committee (Pricing and Dividend Committee), the Nominating and Governance
Committee, the Valuation Committee and the Audit Committee. The Executive
Committee, which meets between Board meetings, is authorized to exercise all
powers of and to act in the place of the Board of Trustees to the extent
permitted by the Trust's Declaration of Trust and By-laws. The members of the
Executive Committee shall also serve as a special committee of the Board known
as the Pricing and Dividend Committee, which is authorized to exercise all of
the powers and authority of the Board in respect of the declaration and setting
of dividends. Messrs. Kadlec and Bowen are members of the Executive Committee.
The Nominating and Governance Committee is responsible for appointing
and nominating non-interested persons to the Board. Messrs. Erickson, Kadlec,
Keith and Nielson, are members of the Nominating and Governance Committee. If
there is no vacancy on the Board of Trustees, the Board will not actively seek
recommendations from other parties, including Shareholders. When a vacancy on
the Board occurs and nominations are sought to fill such vacancy, the Nominating
and Governance Committee may seek nominations from those sources it deems
appropriate in its discretion, including Shareholders of the Funds. To submit a
recommendation for nomination as a candidate for a position on the Board,
Shareholders of the Funds shall mail such recommendation to W. Scott Jardine at
the Fund's address, 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532.
Such recommendation shall include the following information: (a) evidence of
- 23 -
Fund ownership of the person or entity recommending the candidate (if a Fund
Shareholder); (b) a full description of the proposed candidate's background,
including his or her education, experience, current employment and date of
birth; (c) names and addresses of at least three professional references for the
candidate; (d) information as to whether the candidate is an "interested person"
in relation to the Funds, as such term is defined in the 1940 Act, and such
other information that may be considered to impair the candidate's independence;
and (e) any other information that may be helpful to the Nominating and
Governance Committee in evaluating the candidate. If a recommendation is
received with satisfactorily completed information regarding a candidate during
a time when a vacancy exists on the Board or during such other time as the
Nominating and Governance Committee is accepting recommendations, the
recommendation will be forwarded to the chairman of the Nominating and
Governance Committee and the outside counsel to the Independent Trustees.
Recommendations received at any other time will be kept on file until such time
as the Nominating and Governance Committee is accepting recommendations, at
which point they may be considered for nomination.
The Valuation Committee is responsible for the oversight of the pricing
procedures of the Funds. Messrs. Erickson, Kadlec, Keith, and Nielson are
members of the Valuation Committee.
The Audit Committee is responsible for overseeing the Fund's accounting
and financial reporting process, the system of internal controls, audit process
and evaluating and appointing independent auditors (subject also to Board
approval). Messrs. Erickson, Kadlec, Keith and Nielson serve on the Audit
Committee.
Messrs. Erickson, Nielson, Kadlec, Keith and Bowen are trustees of the
First Defined Portfolio Fund, LLC, an open-end fund advised by First Trust with
eight portfolios, as well as First Trust Value Line(R) 100 Fund, First
Trust/Four Corners Senior Floating Rate Income Fund, First Trust/Four Corners
Senior Floating Rate Income Fund II, Macquarie/First Trust Global
Infrastructure/Utilities Dividend & Income Fund, Energy Income and Growth Fund,
First Trust/Fiduciary Asset Management Covered Call Fund, First Trust/Aberdeen
Global Opportunity Income Fund, First Trust/FIDAC Mortgage Income Fund, First
Trust Strategic High Income Fund, First Trust Strategic High Income Fund II,
First Trust Strategic High Income Fund III, First Trust Tax-Advantaged Preferred
Income Fund and First Trust/Aberdeen Emerging Opportunity Fund, closed-end funds
advised by First Trust and First Trust Exchange-Traded Fund, an exchange-traded
fund advised by First Trust with various series. None of the Trustees who are
not "interested persons" of the Trust, nor any of their immediate family
members, has ever been a director, officer or employee of, or consultant to,
First Trust, First Trust Portfolios or their affiliates. In addition, Mr. Bowen
and the other officers of the Trust (other than Stan Ueland and Roger Testin)
hold the same positions with the First Defined Portfolio Fund, LLC, First Trust
Value Line(R) 100 Fund, First Trust/Four Corners Senior Floating Rate Income
Fund, First Trust/Four Corners Senior Floating Rate Income Fund II,
Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund,
Energy Income and Growth Fund, First Trust/Fiduciary Asset Management Covered
Call Fund, First Trust/Aberdeen Global Opportunity Income Fund, First
Trust/FIDAC Mortgage Income Fund, First Trust Strategic High Income Fund, First
Trust Strategic High Income Fund II, First Trust Strategic High Income Fund III,
First Trust Tax-Advantaged Preferred Income Fund, First Trust/Aberdeen Emerging
Opportunity Fund and First Trust Exchange-Traded Fund (collectively with the
- 24 -
Trust, the "First Trust Fund Complex") as they hold with the Trust. Mr. Ueland,
Assistant Vice President of the Trust, serves in the same position for the
exchange-traded portfolios advised by First Trust. Mr. Testin, Vice President of
the Trust, serves in the same position for First Trust Value Line(R) 100 Fund,
First Trust Exchange-Traded Fund and First Defined Portfolio Fund, LLC.
The Independent Trustees are paid an annual retainer of $10,000 for
each investment company in the First Trust Fund Complex up to a total of 14
investment companies (the "Trustee Compensation I") and an annual retainer of
$7,500 for each subsequent investment company added to the First Trust Fund
Complex (the "Trustee Compensation II," and together with Trustee Compensation
I, the "Aggregate Trustee Compensation"). The Aggregate Trustee Compensation is
divided equally among each of the investment companies in the First Trust Fund
Complex. No additional meeting fees are paid in connection with board or
committee meetings. Trustees are also reimbursed for travel and out-of-pocket
expenses in connection with all meetings.
Additionally, Mr. Kadlec is paid annual compensation of $10,000 to
serve as the Lead Trustee and Mr. Nielson is paid annual compensation of $5,000
to serve as the chairman of the Audit Committee of each of the investment
companies in the First Trust Fund Complex. Such additional compensation to
Messrs. Kadlec and Nielson is paid by the investment companies in the First
Trust Fund Complex and equally divided among those investment companies.
The following table sets forth the estimated compensation to be paid by
the Trust projected during a full fiscal year to each of the Trustees and the
total compensation paid to each of the Trustees by the First Trust Fund Complex
for the calendar year ended December 31, 2006. The Trust has no retirement or
pension plans. The officers and Trustee who are "interested persons" as
designated above serve without any compensation from the Trust.
ESTIMATED AGGREGATE TOTAL TOTAL COMPENSATION FROM
NAME OF TRUSTEE COMPENSATION FROM THE TRUST(1) THE FIRST TRUST FUND COMPLEX(2)
James A. Bowen $__________ $__________
Richard E. Erickson $__________ $__________
Thomas R. Kadlec $__________ $__________
Robert F. Keith(3) $__________ $__________
Niel B. Nielson $__________ $__________
--------------------
(1) The compensation estimated to be paid by the Trust to the Trustees for a
full fiscal year for services to the Trust.
(2) The total compensation paid to Messrs. Erickson, Kadlec, Keith and
Nielson, Independent Trustees, from the Funds of the Trust and the
investment companies in the First Trust Fund Complex for the calendar year
ended December 31, 2006 is based on compensation paid to these Trustees
for services as Trustees to the First Defined Portfolio Fund, LLC, an
open-end fund (with eight portfolios) advised by First Trust, plus
compensation paid to these Trustees by the First Trust Value Line(R) 100
Fund, the First Trust/Four Corners Senior Floating Rate Income Fund, the
First Trust/Four Corners Senior Floating Rate Income Fund II, the
Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income
Fund, the Energy Income and Growth Fund, the First Trust/Fiduciary Asset
Management Covered Call Fund, the First Trust/Aberdeen Global Opportunity
Income Fund, the First Trust/FIDAC Mortgage Income Fund, the First Trust
Strategic High Income Fund, the First Trust Strategic High Income Fund II,
the First Trust Strategic High Income Fund III, the First Trust
- 25 -
Tax-Advantaged Preferred Income Fund, the First Trust/Aberdeen Emerging
Opportunity Fund and the First Trust Exchange-Traded Fund.
(3) Mr. Keith joined the Board of Trustees of certain funds in the First Trust
Fund Complex on June 12, 2006 and First Defined Portfolio Fund on April
30, (2007.)
|
The Trust has no employees. Its officers are compensated by First
Trust.
The following table sets forth the dollar range of equity securities
beneficially owned by the Trustees in the Funds and in other funds overseen by
the Trustees in the First Trust Fund Complex as of December 31, 2006:
AGGREGATE DOLLAR RANGE OF
DOLLAR RANGE OF EQUITY SECURITIES IN
EQUITY SECURITIES ALL REGISTERED INVESTMENT COMPANIES
IN THE FUNDS OVERSEEN BY TRUSTEE IN THE FIRST TRUST
TRUSTEE (NUMBER OF SHARES HELD) FUND COMPLEX
Mr. Bowen None Over $100,000
Dr. Erickson None $50,001-$100,000
Mr. Kadlec None Over $100,000
Mr. Keith None Over $100,000
Mr. Nielson None $50,001-$100,000
|
As of _______________, 2007, the Trustees who are not "interested
persons" of the Trust and immediate family members do not own beneficially or of
record any class of securities of an investment adviser or principal underwriter
of the Fund or any person directly or indirectly controlling, controlled by, or
under common control with an investment adviser or principal underwriter of the
Fund.
As of _______________, 2007, the officers and Trustees, in the
aggregate, owned less than 1% of the Shares of the Fund.
As of _______________, 2007, no person owned of record, or is known by
the Trust to own of record, beneficially 5% or more of the Shares of the Fund.
The Board of Trustees of the Trust, including the Independent Trustees,
approved the Investment Management Agreement (the "Investment Management
Agreement") for the Fund for an initial two-year term at a meeting held on
_______________, 20__. The Board of Trustees determined that the Investment
Management Agreement is in the best interests of the Fund in light of the
services, expenses and such other matters as the Board considered to be relevant
in the exercise of its reasonable business judgment.
Investment Adviser. First Trust provides investment tools and
portfolios for advisers and investors. First Trust is committed to theoretically
sound portfolio construction and empirically verifiable investment management
approaches. Its asset management philosophy and investment discipline is deeply
rooted in the application of intuitive factor analysis and model implementation
to enhance investment decisions.
- 26 -
First Trust acts as investment adviser for and manages the investment
and reinvestment of the assets of the Fund. First Trust also administers the
Trust's business affairs, provides office facilities and equipment and certain
clerical, bookkeeping and administrative services, and permits any of its
officers or employees to serve without compensation as Trustees or officers of
the Trust if elected to such positions.
Pursuant to the Investment Management Agreement between First Trust and
the Trust, the Fund has agreed to pay an annual management fee equal to _____%
of its average daily net assets.
The Fund is responsible for all its expenses, including the investment
advisory fees, costs of transfer agency, custody, fund administration, legal,
audit and other services, interest, taxes, sublicensing fees, brokerage
commissions and other expenses connected with executions of portfolio
transactions, any distribution fees or expenses and extraordinary expenses.
Until two years after the initial public issuance of Fund Shares, First Trust
has agreed to waive fees and/or pay Fund expenses to the extent necessary to
prevent the operating expenses of the Fund (excluding interest expense,
brokerage commissions and other trading expenses, taxes and extraordinary
expenses) from exceeding ____% of average daily net assets until __________,
20__. Expenses borne by First Trust are subject to reimbursement by the Fund up
to three years from the date the fee or expense was incurred, but no
reimbursement payment will be made by the Fund at any time if it would result in
the Fund's expenses exceeding _____% of average daily net assets.
Under the Investment Management Agreement, First Trust shall not be
liable for any loss sustained by reason of the purchase, sale or retention of
any security, whether or not such purchase, sale or retention shall have been
based upon the investigation and research made by any other individual, firm or
corporation, if such recommendation shall have been selected with due care and
in good faith, except loss resulting from willful misfeasance, bad faith, or
gross negligence on the part of First Trust in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties. The Investment Management Agreement continues until
_____ years after the initial issuance of Fund Shares, and thereafter only if
approved annually by the Board of Trustees, including a majority of the
Independent Trustees. The Investment Management Agreement terminates
automatically upon assignment and is terminable at any time without penalty as
to the Fund by the Board of Trustees, including a majority of the Independent
Trustees, or by vote of the holders of a majority of the Fund's outstanding
voting securities on 60 days' written notice to First Trust, or by First Trust
on 60 days' written notice to the Fund.
First Trust is located at 1001 Warrenville Road, Lisle, Illinois 60532.
Investment Committee. The Investment Committee of First Trust is
primarily responsible for the day-to-day management of the Fund. There are
currently six members of the Investment Committee, as follows:
- 27 -
POSITION WITH LENGTH OF SERVICE PRINCIPAL OCCUPATION
NAME FIRST TRUST WITH FIRST TRUST DURING PAST FIVE YEARS
Daniel J. Lindquist Senior Vice President Since 2004 Senior Vice President, First
Trust and First Trust
Portfolios L.P.
(September 2005 to Present);
Vice President, First Trust
and First Trust Portfolios
L.P. (April 2004 to September
2005) Chief Operating Officer,
Mina Capital Management, LLC
(January 2004 to April 2004);
Chief Operating Officer,
Samaritan Asset Management
Services, Inc. (April 2000 to
January 2004)
Robert F. Carey Chief Investment Officer Since 1991 Chief Investment Officer and
and Senior Vice President Senior Vice President, First
Trust; Senior Vice President,
First Trust Portfolios L.P.
Jon C. Erickson Senior Vice President Since 1994 Senior Vice President, First
Trust and First Trust
Portfolios L.P. (August 2002
to Present); Vice President,
First Trust and First Trust
Portfolios L.P. (March 1994 to
August 2002)
David G. McGarel Senior Vice President Since 1997 Senior Vice President, First
Trust and First Trust
Portfolios L.P. (August 2002
to present); Vice President,
First Trust and First Trust
Portfolios L.P. (August 1997
to August 2002)
Roger F. Testin Senior Vice President Since 2001 Senior Vice President, First
Trust and First Trust
Portfolios L.P. (November 2003
to Present); Vice President,
First Trust and First Trust
Portfolios L.P. (August 2001
to November 2003); Analyst,
Dolan Capital Management (1998
to 2001)
- 28 -
POSITION WITH LENGTH OF SERVICE PRINCIPAL OCCUPATION
NAME FIRST TRUST WITH FIRST TRUST DURING PAST FIVE YEARS
Stan Ueland Vice President Since 2005 Vice President of First Trust
and First Trust Portfolios
L.P. (August 2005 to Present);
Vice President; BondWave LLC
(May 2004 to August 2005);
Account Executive, Mina
Capital Management, LLC and
Samaritan Asset Management
Services, Inc. (January 2003
to May 2004); Sales
Consultant, Oracle Corporation
(January 1997 to January 2003)
|
Daniel J. Lindquist: Mr. Lindquist is Chairman of the Investment
Committee and presides over Investment Committee meetings. Mr. Lindquist is also
responsible for overseeing the implementation of the Fund's investment
strategies.
David G. McGarel: As the head of First Trust's Strategy Research Group,
Mr. McGarel is responsible for developing and implementing quantitative
investment strategies for those funds that have investment policies that require
them to follow such strategies.
Jon C. Erickson: As the head of First Trust's Equity Research Group,
Mr. Erickson is responsible for determining the securities to be purchased and
sold by funds that do not utilize quantitative investment strategies.
Roger F. Testin: As head of First Trust's Portfolio Management Group,
Mr. Testin is responsible for executing the instructions of the Strategy
Research Group and Equity Research Group in the Fund's Portfolios.
Robert F. Carey: As First Trust's Chief Investment Officer, Mr. Carey
consults with the Investment Committee on market conditions and First Trust's
general investment philosophy.
Stan Ueland: Mr. Ueland plays an important role in executing the
investment strategies of each
portfolio of exchange-traded funds advised by First Trust.
No member of the Investment Committee beneficially owned any Shares of
the Fund.
Compensation. The compensation structure for each member of the
Investment Committee is based upon a fixed salary as well as a discretionary
bonus determined by the management of First Trust. Salaries are determined by
management and are based upon an individual's position and overall value to the
firm. Bonuses are also determined by management and are based upon an
individual's overall contribution to the success of the firm and the
profitability of the firm. Salaries and bonuses for members of the Investment
Committee are not based upon criteria such as performance of the Fund or the
- 29 -
value of assets included in the Fund's portfolios. In addition, Mr. Carey, Mr.
Erickson, Mr. Lindquist and Mr. McGarel also have an indirect ownership stake in
the firm and will therefore receive their allocable share of ownership-related
distributions.
The Investment Committee manages the investment vehicles with the
number of accounts and assets, as of December 31, 2006, set forth in the table
below:
ACCOUNTS MANAGED BY INVESTMENT COMMITTEE
REGISTERED INVESTMENT OTHER POOLED
COMPANIES INVESTMENT VEHICLES
NUMBER OF ACCOUNTS NUMBER OF ACCOUNTS OTHER ACCOUNTS NUMBER OF
INVESTMENT COMMITTEE MEMBER ($ ASSETS) ($ ASSETS) ACCOUNTS ($ ASSETS)
Robert F. Carey 37 ($2,680,560,650) 2 ($73,595,630) 0($0)
Roger F. Testin 37 ($2,680,560,650) 2 ($73,595,630) 3,547($816,900,185)
Jon C. Erickson 37 ($2,680,560,650) 2 ($73,595,630) 3,547($816,900,185)
David G. McGarel 37 ($2,680,560,650) 2 ($73,595,630) 3,547($816,900,185)
Daniel J. Lindquist 37 ($2,680,560,650) 2 ($73,595,630) 0($0)
Stan Ueland 10 ($709,673,350) 0 ($0) 0($0)
|
None of the accounts managed by the Investment Committee pay an
advisory fee that is based upon the performance of the account. In addition,
First Trust believes that there are no material conflicts of interest that may
arise in connection with the Investment Committee's management of the Fund's
investments and the investments of the other accounts managed by the Investment
Committee. However, because the investment strategy of the Funds and the
investment strategies of many of the other accounts managed by the Investment
Committee are based on fairly mechanical investment processes, the Investment
Committee may recommend that certain clients sell and other clients buy a given
security at the same time. In addition, because the investment strategies of the
Funds and other accounts managed by the Investment Committee generally result in
the clients investing in readily available securities, First Trust believes that
there should not be material conflicts in the allocation of investment
opportunities between the Funds and other accounts managed by the Investment
Committee.
- 30 -
BROKERAGE ALLOCATIONS
First Trust is responsible for decisions to buy and sell securities for
the Fund and for the placement of the Fund's securities business, the
negotiation of the commissions to be paid on brokered transactions, the prices
for principal trades in securities, and the allocation of portfolio brokerage
and principal business. It is the policy of First Trust to seek the best
execution at the best security price available with respect to each transaction,
and with respect to brokered transactions in light of the overall quality of
brokerage and research services provided to First Trust and its clients. The
best price to the Fund means the best net price without regard to the mix
between purchase or sale price and commission, if any. Purchases may be made
from underwriters, dealers, and, on occasion, the issuers. Commissions will be
paid on the Fund's Futures and options transactions, if any. The purchase price
of portfolio securities purchased from an underwriter or dealer may include
underwriting commissions and dealer spreads. The Fund may pay mark-ups on
principal transactions. In selecting broker/dealers and in negotiating
commissions, First Trust considers, among other things, the firm's reliability,
the quality of its execution services on a continuing basis and its financial
condition. Fund portfolio transactions may be effected with broker/dealers who
have assisted investors in the purchase of Shares.
Section 28(e) of the Securities Exchange Act of 1934 permits an
investment adviser, under certain circumstances, to cause an account to pay a
broker or dealer who supplies brokerage and research services a commission for
effecting a transaction in excess of the amount of commission another broker or
dealer would have charged for effecting the transaction. Brokerage and research
services include (a) furnishing advice as to the value of securities, the
advisability of investing, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities, (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
In light of the above, in selecting brokers, First Trust may consider
investment and market information and other research, such as economic,
securities and performance measurement research, provided by such brokers, and
the quality and reliability of brokerage services, including execution
capability, performance, and financial responsibility. Accordingly, the
commissions charged by any such broker may be greater than the amount another
firm might charge if First Trust determines in good faith that the amount of
such commissions is reasonable in relation to the value of the research
information and brokerage services provided by such broker to First Trust or the
Trust. First Trust believes that the research information received in this
manner provides the Fund with benefits by supplementing the research otherwise
available to the Fund. The Investment Management Agreement provides that such
higher commissions will not be paid by the Funds unless the adviser determines
in good faith that the amount is reasonable in relation to the services
provided. The investment advisory fees paid by the Fund to First Trust under the
Investment Management Agreement are not reduced as a result of receipt by First
Trust of research services. First Trust has advised the Board that it does not
use soft dollars.
- 31 -
First Trust places portfolio transactions for other advisory accounts
advised by it, and research services furnished by firms through which the Fund
effects their securities transactions may be used by First Trust in servicing
all of its accounts; not all of such services may be used by First Trust in
connection with the Fund. First Trust believes it is not possible to measure
separately the benefits from research services to each of the accounts
(including the Fund) advised by it. Because the volume and nature of the trading
activities of the accounts are not uniform, the amount of commissions in excess
of those charged by another broker paid by each account for brokerage and
research services will vary. However, First Trust believes such costs to the
Fund will not be disproportionate to the benefits received by the Fund on a
continuing basis. First Trust seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by the
Fund and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the Fund.
In making such allocations between the Fund and other advisory accounts, the
main factors considered by First Trust are the respective investment objectives,
the relative size of portfolio holding of the same or comparable securities, the
availability of cash for investment and the size of investment commitments
generally held.
Administrator. The Bank of New York ("BONY") serves as Administrator
for the Fund. Its principal address is 101 Barclay St., New York, NY 10286.
BONY serves as Administrator for the Trust pursuant to a Fund
Administration and Accounting Agreement. Under such agreement, BONY is obligated
on a continuous basis, to provide such administrative services as the Board
reasonably deems necessary for the proper administration of the Trust and the
Fund. BONY will generally assist in all aspects of the Trust's and the Fund's
operations; supply and maintain office facilities (which may be in BONY's own
offices), statistical and research data, data processing services, clerical,
accounting, bookkeeping and record keeping services (including, without
limitation, the maintenance of such books and records as are required under the
1940 Act and the rules thereunder, except as maintained by other agency agents),
internal auditing, executive and administrative services, and stationery and
office supplies; prepare reports to shareholders or investors; prepare and file
tax returns; supply financial information and supporting data for reports to and
filings with the SEC and various state Blue Sky authorities; supply supporting
documentation for meetings of the Board of Trustees; provide monitoring reports
and assistance regarding compliance with the Declaration of Trust, by-laws,
investment objectives and policies and with federal and state securities laws;
and negotiate arrangements with, and supervise and coordinate the activities of,
agents and others to supply services.
Pursuant to the Fund Administration and Accounting Agreement, the Trust
has agreed to indemnify the Administrator for certain liabilities, including
certain liabilities arising under the federal securities laws, unless such loss
or liability results from negligence or willful misconduct in the performance of
its duties.
Pursuant to the Fund Administration and Accounting Agreement between
BONY and the Trust, the Fund has agreed to pay such compensation as is mutually
agreed from time to time and such out-of-pocket expenses as incurred by BONY in
the performance of its duties. This fee is subject to reduction for assets over
$1 billion.
- 32 -
The Trust on behalf of the Fund, has entered into an agreement with
PFPC, Inc. ("PFPC"), 301 Bellevue Parkway, Wilmington, Delaware 19809, whereby
PFPC will provide certain board administrative services to the Trust in
connection with the Board's meetings and other related matters.
CUSTODIAN, DISTRIBUTOR, TRANSFER AGENT, FUND ACCOUNTING AGENT,
INDEX PROVIDER AND EXCHANGE
Custodian. BONY, as custodian for the Fund pursuant to a Custody
Agreement, holds the Fund's assets. BONY also serves as transfer agent of the
Fund pursuant to a Transfer Agency and Service Agreement. As Fund accounting
agent, BONY calculates the NAV of Shares and calculates net income and realized
capital gains or losses. BONY may be reimbursed by the Fund for its
out-of-pocket expenses.
Distributor. First Trust Portfolios L.P. is the Distributor and
principal underwriter of the Shares of the Fund. Its principal address is 1001
Warrenville Road, Lisle, Illinois 60532. The Distributor has entered into a
Distribution Agreement with the Trust pursuant to which it distributes Fund
Shares. Shares are continuously offered for sale by the Fund through the
Distributor only in Creation Unit Aggregations, as described in the Prospectus
and below under the heading "Creation and Redemption of Creation Units."
12b-1 Plan. The Trust has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the 1940 Act (the "Plan") pursuant to which the Fund may
reimburse the Distributor up to a maximum annual rate of _____% its average
daily net assets.
Under the Plan and as required by Rule 12b-1, the Trustees will receive
and review after the end of each calendar quarter a written report provided by
the Distributor of the amounts expended under the Plan and the purpose for which
such expenditures were made.
The Plan was adopted in order to permit the implementation of the
Fund's method of distribution. However, no such fee is currently paid by the
Fund, and pursuant to a contractual agreement, the Fund will not pay 12b-1 fees
any time before ___________, 20___.
Aggregations. Fund Shares in less than Creation Unit Aggregations are
not distributed by the Distributor. The Distributor will deliver the Prospectus
and, upon request, this SAI to persons purchasing Creation Unit Aggregations and
will maintain records of both orders placed with it and confirmations of
acceptance furnished by it. The Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a member of the
National Association of Securities Dealers, Inc. ("NASD").
The Distribution Agreement provides that it may be terminated as to the
Fund at any time, without the payment of any penalty, on at least 60 days'
written notice by the Trust to the Distributor (i) by vote of a majority of the
Independent Trustees or (ii) by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund. The Distribution Agreement
will terminate automatically in the event of its assignment (as defined in the
1940 Act).
- 33 -
The Distributor may also enter into agreements with securities dealers
("Soliciting Dealers") who will solicit purchases of Creation Unit Aggregations
of Fund Shares. Such Soliciting Dealers may also be Participating Parties (as
defined in "Procedures for Creation of Creation Unit Aggregations" below) and
DTC Participants (as defined in "DTC Acts as Securities Depository for Fund
Shares" below).
Index Provider. The Index that the Fund seeks to track is compiled by
Dow Jones.
The Index Provider is not affiliated with the Fund, First Trust
Portfolios or First Trust. The Fund is entitled to use the Index pursuant to a
sublicensing arrangement by and among the Fund, the Index Provider, First Trust
and First Trust Portfolios, which in turn has a license agreement with the Index
Provider.
[The Fund is not sponsored, endorsed, sold or promoted by Dow Jones.
Dow Jones makes no representation or warranty, express or implied, to the owners
of the Fund or any member of the public regarding the advisability of trading in
the Fund. Dow Jones' only relationship to First Trust is the licensing of
certain trademarks and trade names of Dow Jones and of the Dow Jones Global
Select Dividend Index, which is determined, composed and calculated by Dow Jones
without regard to First Trust or the Fund. Dow Jones has no obligation to take
the needs of First Trust or the owners of the Fund into consideration in
determining, composing or calculating the Dow Jones Global Select Dividend
Index. Dow Jones is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the Fund to be
listed or in the determination or calculation of the equation by which the Fund
is to be converted into cash. Dow Jones has no obligation or liability in
connection with the administration, marketing or trading of the Fund.
DOW JONES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE DOW JONES GLOBAL SELECT DIVIDEND INDEX OR ANY DATA INCLUDED THEREIN AND DOW
JONES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN. DOW JONES MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY FIRST TRUST, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE DOW JONES GLOBAL SELECT DIVIDEND INDEX OR ANY DATA INCLUDED
THEREIN. DOW JONES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE DOW JONES GLOBAL SELECT DIVIDEND INDEX OR ANY DATA
INCLUDED THEREIN, WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DOW
JONES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY
AGREEMENTS OR ARRANGEMENTS BETWEEN DOW JONES AND FIRST TRUST.]
Exchange. The only relationship that the Exchange has with First Trust
or the Distributor of the Fund in connection with the Fund is that the Exchange
lists the Shares of the Fund pursuant to its Listing Agreement with the Trust.
The Exchange is not responsible for and has not participated in the
determination of pricing or the timing of the issuance or sale of the Shares of
the Fund or in the determination or calculation of the asset value of the Fund.
- 34 -
The Exchange has no obligation or liability in connection with the
administration, marketing or trading of the Fund.
ADDITIONAL INFORMATION
Book Entry Only System. The following information supplements and
should be read in conjunction with the section in the Prospectus entitled "Book
Entry."
DTC Acts as Securities Depository for Fund Shares. Shares of the Fund
are represented by securities registered in the name of DTC or its nominee, Cede
& Co., and deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold securities of
its participants (the "DTC Participants") and to facilitate the clearance and
settlement of securities transactions among the DTC Participants in such
securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities,
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC. More specifically, DTC is owned by
a number of its DTC Participants and by the NYSE, the AMEX and the NASD. Access
to the DTC system is also available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a DTC Participant, either directly or indirectly (the "Indirect Participants").
Beneficial ownership of Shares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in Shares (owners of such
beneficial interests are referred to herein as "Beneficial Owners") is shown on,
and the transfer of ownership is effected only through, records maintained by
DTC (with respect to DTC Participants) and on the records of DTC Participants
(with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC
Participant a written confirmation relating to their purchase and sale of
Shares.
Conveyance of all notices, statements and other communications to
Beneficial Owners is effected as follows. Pursuant to a letter agreement between
DTC and the Trust, DTC is required to make available to the Trust upon request
and for a fee to be charged to the Trust a listing of the Shares of the Fund
held by each DTC Participant. The Trust shall inquire of each such DTC
Participant as to the number of Beneficial Owners holding Shares, directly or
indirectly, through such DTC Participant. The Trust shall provide each such DTC
Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Trust shall pay to each such DTC Participants a fair
and reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
- 35 -
Fund distributions shall be made to DTC or its nominee, as the
registered holder of all Fund Shares. DTC or its nominee, upon receipt of any
such distributions, shall immediately credit DTC Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
Shares of the Fund as shown on the records of DTC or its nominee. Payments by
DTC Participants to Indirect Participants and Beneficial owners of Shares held
through such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a "street name," and will be the
responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspect of the
records relating to or notices to Beneficial Owners, or payments made on account
of beneficial ownership interests in such Shares, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests, or for any other aspect of the relationship between DTC and the DTC
Participants or the relationship between such DTC Participants and the Indirect
Participants and Beneficial Owners owning through such DTC Participants.
DTC may decide to discontinue providing its service with respect to
Shares at any time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action to find a replacement for DTC to
perform its functions at a comparable cost.
PROXY VOTING POLICIES AND PROCEDURES
The Trust has adopted a proxy voting policy that seeks to ensure that
proxies for securities held by the Fund are voted consistently and solely in the
best economic interests of the Fund.
A senior member of First Trust is responsible for oversight of the
Fund's proxy voting process. First Trust has engaged the services of
Institutional Shareholder Services, Inc. ("ISS"), to make recommendations to
First Trust on the voting of proxies relating to securities held by the Fund.
ISS provides voting recommendations based upon established guidelines and
practices. First Trust reviews ISS recommendations and frequently follows the
ISS recommendations. However, on selected issues, First Trust may not vote in
accordance with the ISS recommendations when First Trust believes that specific
ISS recommendations are not in the best interests of the Fund. If First Trust
manages the assets of a company or its pension plan and any of First Trust's
clients hold any securities of that company, First Trust will vote proxies
relating to such company's securities in accordance with the ISS recommendations
to avoid any conflict of interest. If a client requests First Trust to follow
specific voting guidelines or additional guidelines, First Trust will review the
request and inform the client only if First Trust is not able to follow the
client's request.
First Trust has adopted the ISS Proxy Voting Guidelines. While these
guidelines are not intended to be all-inclusive, they do provide guidance on
First Trust's general voting policies.
Information regarding how the Fund votes future proxies relating to
portfolio securities during the most recent 12-month period ended June 30, will
be available upon request and without charge on the Fund's website at
- 36 -
www.ftportfolios.com, by calling (800) 621-1675 or by accessing the SEC's
website at http://www.sec.gov.
Quarterly Portfolio Schedule. The Trust is required to disclose, after
its first and third fiscal quarters, the complete schedule of the Fund's
portfolio holdings with the SEC on Form N-Q. Form N-Q for the Fund is available
on the SEC's website at http://www.sec.gov. The Fund's Form N-Q may also be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C. and
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. The Trust's Form N-Q is available without charge, upon
request, by calling (800) 621-1675 or (800) 983-0903 or by writing to First
Trust Portfolios, L.P., 1001 Warrenville Road, Lisle, Illinois 60532.
Policy Regarding Disclosure of Portfolio Holdings. The Trust has
adopted a policy regarding the disclosure of information about the Fund's
portfolio holdings. The Fund's portfolio holdings are publicly disseminated each
day the Fund is open for business through financial reporting and news services,
including publicly accessible Internet web sites. In addition, a basket
composition file, which includes the security names and share quantities to
deliver in exchange for Fund Shares, together with estimates and actual cash
components, is publicly disseminated daily prior to the opening of the Exchange
via the NSCC. The basket represents one Creation Unit of the Fund. The Trust,
First Trust and BONY will not disseminate non-public information concerning the
Trust.
Code of Ethics. In order to mitigate the possibility that the Funds
will be adversely affected by personal trading, the Trust, First Trust and the
Distributor have adopted Codes of Ethics under Rule 17j-1 of the 1940 Act. These
Codes contain policies restricting securities trading in personal accounts of
the officers, Trustees and others who normally come into possession of
information on portfolio transactions. These Codes are on public file with, and
are available from, the SEC.
CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS
Creation. The Trust issues and sells Shares of the Fund only in
Creation Unit Aggregations on a continuous basis through the Distributor,
without a sales load, at their NAVs next determined after receipt, on any
Business Day (as defined below), of an order in proper form.
A "Business Day" is any day on which the NYSE is open for business. As
of the date of this SAI, the NYSE observes the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Deposit of Securities and Deposit or Delivery of Cash. The
consideration for purchase of Creation Unit Aggregations of the Fund may consist
of (i) cash or (ii) an in-kind deposit of a designated portfolio of equity
securities--the "Deposit Securities"--per each Creation Unit Aggregation
constituting a substantial replication oF the stocks included in the underlying
index ("Fund Securities") and an amount of cash--the "Cash Component"--computed
- 37 -
as described below. Together, the Deposit Securities and the Cash Component
constitute the "Fund Deposit," which represents the minimum initial and
subsequent investment amount for a Creation Unit Aggregation of the Fund.
The Cash Component is sometimes also referred to as the Balancing
Amount. The Cash Component serves the function of compensating for any
differences between the NAV per Creation Unit Aggregation and the Deposit Amount
(as defined below). The Cash Component is an amount equal to the difference
between the NAV of Fund Shares (per Creation Unit Aggregation) and the "Deposit
Amount"--an amount equal to the market value of the Deposit Securities. If the
Cash Component is a positive number (i.e., the NAV per Creation Unit Aggregation
exceeds the Deposit Amount), the creator will deliver the Cash Component. If the
Cash Component is a negative number (i.e., the NAV per Creation Unit Aggregation
is less than the Deposit Amount), the creator will receive the Cash Component.
The Custodian, through NSCC (discussed below), makes available on each
Business Day, prior to the opening of business on the Exchange (currently 9:30
a.m., Eastern time), the list of the names and the required number of shares of
each Deposit Security to be included in the current Fund Deposit (based on
information at the end of the previous Business Day) for the Fund.
Such Fund Deposit is applicable, subject to any adjustments as
described below, in order to effect creations of Creation Unit Aggregations of
the Fund until such time as the next-announced composition of the Deposit
Securities is made available.
The identity and number of shares of the Deposit Securities required
for a Fund Deposit for the Fund changes as rebalancing adjustments and corporate
action events are reflected within the Fund from time to time by First Trust
with a view to the investment objective of the Fund. The composition of the
Deposit Securities may also change in response to adjustments to the weighting
or composition of the Component Stocks of the underlying index. In addition, the
Trust reserves the right to permit or require the substitution of an amount of
cash--i.e., a "cash in lieu" amount--to be added to the Cash Component to
replace any Deposit Security that may noT be available in sufficient quantity
for delivery or which might not be eligible for trading by an Authorized
Participant (as defined below) or the investor for which it is acting or other
relevant reason. The adjustments described above will reflect changes known to
First Trust on the date of announcement to be in effect by the time of delivery
of the Fund Deposit, in the composition of the underlying index or resulting
from certain corporate actions.
In addition to the list of names and numbers of securities constituting
the current Deposit Securities of a Fund Deposit, the Custodian, through the
NSCC, also makes available on each Business Day, the estimated Cash Component,
effective through and including the previous Business Day, per outstanding
Creation Unit Aggregation of the Fund.
Procedures for Creation of Creation Unit Aggregations. In order to be
eligible to place orders with the Distributor and to create a Creation Unit
Aggregation of the Fund, an entity must be (i) a "Participating Party," a
clearing agency that is registered with the SEC; or (ii) a DTC Participant (see
the Book Entry Only System section), and, in each case, must have executed an
- 38 -
agreement with the Distributor and transfer agent, with respect to creations and
redemptions of Creation Unit Aggregations ("Participant Agreement") (discussed
below). A Participating Party and DTC Participant are collectively referred to
as an "Authorized Participant." Investors should contact the Distributor for the
names of Authorized Participants that have signed a Participant Agreement. All
Fund Shares, however created, will be entered on the records of DTC in the name
of Cede & Co. for the account of a DTC Participant.
All orders to create Creation Unit Aggregations must be received by the
transfer agent no later than the closing time of the regular trading session on
The New York Stock Exchange ("Closing Time") (ordinarily 4:00 p.m., Eastern
time) in each case on the date such order is placed in order for creation of
Creation Unit Aggregations to be effected based on the NAV of Shares of the Fund
as next determined on such date after receipt of the order in proper form. In
the case of custom orders, the order must be received by the transfer agent no
later than 3:00 p.m. Eastern time on the trade date. A custom order may be
placed by an Authorized Participant in the event that the Trust permits or
requires the substitution of an amount of cash to be added to the Cash Component
to replace any Deposit Security which may not be available in sufficient
quantity for delivery or which may not be eligible for trading by such
Authorized Participant or the investor for which it is acting or other relevant
reason. The date on which an order to create Creation Unit Aggregations (or an
order to redeem Creation Unit Aggregations, as discussed below) is placed is
referred to as the "Transmittal Date." Orders must be transmitted by an
Authorized Participant by telephone or other transmission method acceptable to
the transfer agent pursuant to procedures set forth in the Participant
Agreement, as described below. Severe economic or market disruptions or changes,
or telephone or other communication failure may impede the ability to reach the
transfer agent or an Authorized Participant.
All orders from investors who are not Authorized Participants to create
Creation Unit Aggregations shall be placed with an Authorized Participant, as
applicable, in the form required by such Authorized Participant. In addition,
the Authorized Participant may request the investor to make certain
representations or enter into agreements with respect to the order, e.g., to
provide for payments of cash, when required. Investors should be aware that
their particular broker may not have executed a Participant Agreement and that,
therefore, orders to create Creation Unit Aggregations of the Fund have to be
placed by the investor's broker through an Authorized Participant that has
executed a Participant Agreement. In such cases there may be additional charges
to such investor. At any given time, there may be only a limited number of
broker-dealers that have executed a Participant Agreement. Those persons placing
orders should ascertain the deadlines applicable to DTC and the Federal Reserve
Bank wire system by contacting the operations department of the broker or
depository institution effectuating such transfer of Deposit Securities and Cash
Component.
Placement of Creation Orders. For each Fund, BONY shall cause the
sub-custodian of the Funds to maintain an account into which the Authorized
Participant shall deliver, on behalf of itself or the party on whose behalf it
is acting, the securities included in the designated Fund Deposit (or the cash
value of all or part of such securities, in the case of a permitted or required
value of all or part of such securities, in the case of a permitted or required
cash purchase or "cash in lieu" amount), with any appropriate adjustments as
advised by the Trust. Deposit Securities must be delivered to an account
maintained at the applicable local sub-custodian(s). Orders to purchase Creation
- 39 -
Unit Aggregations must be received by the Distributor from an Authorized
Participant on its own or another investor's behalf by the closing time of the
regular trading session on the applicable listing exchange on the relevant
Business Day. However, when a relevant local market is closed due to local
market holidays, the local market settlement process will not commence until the
end of the local holiday period. Settlement must occur by 2:00 p.m., Eastern
time, on the contractual settlement date.
The Authorized Participant must also make available no later than 2:00
p.m., Eastern time, on the contractual settlement date, by means satisfactory to
the Trust, immediately-available or same-day funds estimated by the Trust to be
sufficient to pay the Cash Component next determined after acceptance of the
purchase order, together with the applicable purchase transaction fee. Any
excess funds will be returned following settlement of the issue of the Creation
Unit Aggregation.
To the extent contemplated by the applicable Participant Agreement,
Creation Unit Aggregations of the Funds will be issued to such Authorized
Participant notwithstanding the fact that the corresponding Fund Deposits have
not been received in part or in whole, in reliance on the undertaking of the
Authorized participant to deliver the missing Deposit Securities as soon as
possible, which undertaking shall be secured by such Authorized Participant's
delivery and maintenance of collateral consisting of cash in the form of U.S.
dollars in immediately available funds having a value (marked to market daily)
at least equal to _______%, which First Trust may change from time to time of
the value of the missing Deposit Securities. Such cash collateral must be
delivered no later than 2:00 p.m., Eastern time, on the contractual settlement
date. The Participant Agreement will permit the Fund to buy the missing Deposit
Securities at any time and will subject the Authorized Participant to liability
for any shortfall between the cost to the Trust of purchasing such securities
and the value of the collateral.
Acceptance of Orders for Creation Unit Aggregations. The Trust reserves
the absolute right to reject a creation order transmitted to it by the
Distributor with respect to the Fund if: (i) the order is not in proper form;
(ii) the investor(s), upon obtaining the Fund Shares ordered, would own 80% or
more of the currently outstanding shares of the Fund; (iii) the Deposit
Securities delivered are not as disseminated for that date by the Custodian, as
described above; (iv) acceptance of the Deposit Securities would have certain
adverse tax consequences to the Fund; (v) acceptance of the Fund Deposit would,
in the opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit
would otherwise, in the discretion of the Trust or First Trust, have an adverse
effect on the Trust or the rights of beneficial owners; or (vii) in the event
that circumstances outside the control of the Trust, the Custodian, the
Distributor and First Trust make it for all practical purposes impossible to
process creation orders. Examples of such circumstances include acts of God;
public service or utility problems such as fires, floods, extreme weather
conditions and power outages resulting in telephone, telecopy and computer
failures; market conditions or activities causing trading halts; systems
failures involving computer or other information systems affecting the Trust,
First Trust, the Distributor, DTC, NSCC, the Custodian or sub-custodian or any
other participant in the creation process, and similar extraordinary events. The
Distributor shall notify a prospective creator of a Creation Unit and/or the
Authorized Participant acting on behalf of such prospective creator of its
rejection of the order of such person. The Trust, the Custodian, any
- 40 -
sub-custodian and the Distributor are under no duty, however, to give
notification of any defects or irregularities in the delivery of Fund Deposits,
nor shall any of them incur any liability for the failure to give any such
notification.
All questions as to the number of shares of each security in the
Deposit Securities and the validity, form, eligibility, and acceptance for
deposit of any securities to be delivered shall be determined by the Trust, and
the Trust's determination shall be final and binding.
Creation Transaction Fee. Purchasers of Creation Units will be required
to pay a standard creation transaction fee (the "Creation Transaction Fee"),
described below, payable to BONY regardless of the number of Creation Units. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by the Fund with respect to
transactions effected outside of the Clearing Process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. Investors are responsible for the costs of transferring
the securities constituting the Deposit Securities to the account of the Trust.
The standard creation transaction fee is based on the number of different
securities in a Creation Unit according to the fee schedule set forth below:
NUMBER OF SECURITIES CREATION
IN A CREATION UNIT TRANSACTION FEE
Redemption of Fund Shares In Creation Units Aggregations. Fund Shares
may be redeemed only in Creation Unit Aggregations at their NAV next determined
after receipt of a redemption request in proper form by the Fund through the
Transfer Agent and only on a Business Day. The Fund will not redeem Shares in
amounts less than Creation Unit Aggregations. Beneficial owners must accumulate
enough Shares in the secondary market to constitute a Creation Unit Aggregation
in order to have such Shares redeemed by the Trust. There can be no assurance,
however, that there will be sufficient liquidity in the public trading market at
any time to permit assembly of a Creation Unit Aggregation. Investors should
expect to incur customary brokerage and other costs in connection with
assembling a sufficient number of Fund Shares to constitute a redeemable
Creation Unit Aggregation.
With respect to the Funds, the Custodian, through the NSCC, makes
available prior to the opening of business on the Exchange (currently 9:30 a.m.,
Eastern time) on each Business Day, the identity of the Fund Securities that
will be applicable (subject to possible amendment or correction) to redemption
requests received in proper form (as described below) on that day. Fund
- 41 -
Securities received on redemption may not be identical to Deposit Securities
that are applicable to creations of Creation Unit Aggregations.
Unless cash redemptions are available or specified for the Fund, the
redemption proceeds for a Creation Unit Aggregation generally consist of Fund
Securities--as announced on the Business Day of the request for redemption
received in proper form--plus or minus cash in an amount equal to the difference
between the NAV of the Fund Shares being redeemed, as next determined after a
receipt of a request in proper form, and the value of the Fund Securities (the
"Cash Redemption Amount"), less a redemption transaction fee as listed below. In
the event that the Fund Securities have a value greater than the NAV of the Fund
Shares, a compensating cash payment equal to the difference is required to be
made by or through an Authorized Participant by the redeeming shareholder.
The right of redemption may be suspended or the date of payment
postponed (i) for any period during which the NYSE is closed (other than
customary weekend and holiday closings); (ii) for any period during which
trading on the NYSE is suspended or restricted; (iii) for any period during
which an emergency exists as a result of which disposal of the Shares of the
Fund or determination of the Fund's NAV is not reasonably practicable; or (iv)
in such other circumstances as is permitted by the SEC.
Redemption Transaction Fee. A redemption transaction fee (the
"Redemption Transaction Fee") is imposed to offset transfer and other
transaction costs that may be incurred by the Fund. An additional variable fee
of up to three times the Redemption Transaction Fee may be charged to
approximate additional expenses incurred by the Fund due to the redemptions
being effected outside of the Clearing Process or to the extent that redemptions
are for cash. The Fund reserves the right to effect redemptions in cash. A
shareholder may request a cash redemption in lieu of securities; however, the
Fund may, in its discretion, reject any such request. Investors will also bear
the costs of transferring the Fund Securities from the Trust to their account or
on their order. 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 Aggregation may be charged an additional fee for such services.
The standard redemption transaction fee is based on the number of
different securities in a Creation Unit according to the fee schedule set forth
below:
NUMBER OF SECURITIES REDEMPTION
IN A CREATION UNIT TRANSACTION FEE
- 42 -
Placement of Redemption Orders. Orders to redeem Creation Unit
Aggregations must be delivered through an Authorized Participant that has
executed a Participant Agreement. Investors other than Authorized Participants
are responsible for making arrangements for a redemption request to be made
through an Authorized Participant. An order to redeem Creation Unit Aggregations
of the Fund is deemed received by the Trust on the Transmittal Date if: (i) such
order is received by BONY (in its capacity as Transfer Agent) not later than the
Closing Time on the Transmittal Date; (ii) such order is accompanied or followed
by the requisite number of shares of the Fund specified in such order, which
delivery must be made through DTC to BONY no later than 10:00 a.m., Eastern
time, on the next Business Day following the Transmittal Date; and (iii) all
other procedures set forth in the Participant Agreement are properly followed.
Deliveries of Fund Securities to redeeming investors generally will be made
within three Business Days. Due to the schedule of holidays in certain
countries, however, the delivery of in-kind redemption proceeds for the Funds
may take longer than three Business Days after the day on which the redemption
request is received in proper form. In such cases, the local market settlement
procedures will not commence until the end of the local holiday periods. See
below for a list of the local holidays in the foreign countries relevant to the
Funds.
In connection with taking delivery of shares of Fund Securities upon
redemption of shares of the Funds, a redeeming Beneficial Owner, or Authorized
Participant action on behalf of such Beneficial Owner must maintain appropriate
security arrangements with a qualified broker-dealer, bank or other custody
provider in each jurisdiction in which any of the Fund Securities are
customarily traded, to which account such Fund Securities will be delivered.
To the extent contemplated by an Authorized Participant's agreement, in
the event the Authorized Participant has submitted a redemption request in
proper form but is unable to transfer all or part of the Creation Unit
Aggregation to be redeemed to the Fund's Transfer Agent, the Transfer Agent will
nonetheless accept the redemption request in reliance on the undertaking by the
Authorized Participant to deliver the missing shares as soon as possible. Such
undertaking shall be secured by the Authorized Participant's delivery and
maintenance of collateral consisting of cash having a value (marked to market
daily) at least equal to ______, which First Trust may change from time to time,
of the value of the missing shares.
The current procedures for collateralization of missing shares require,
among other things, that any cash collateral shall be in the form of U.S.
dollars in immediately available funds and shall be held by BONY and marked to
market daily, and that the fees of BONY and any sub-custodians in respect of the
delivery, maintenance and redelivery of the cash collateral shall be payable by
the Authorized Participant. The Authorized Participant's agreement will permit
the Trust, on behalf of the affected Fund, to purchase the missing shares or
acquire the Deposit Securities and the Cash Component underlying such shares at
any time and will subject the Authorized Participant to liability for any
shortfall between the cost to the Trust of purchasing such shares, Deposit
Securities or Cash Component and the value of the collateral.
The calculation of the value of the Fund Securities and the Cash
Redemption Amount to be delivered upon redemption will be made by BONY according
to the procedures set forth under Determination of NAV computed on the Business
Day on which a redemption order is deemed received by the Trust. Therefore, if a
redemption order in proper form is submitted to BONY by a DTC Participant not
- 43 -
later than Closing Time on the Transmittal Date, and the requisite number of
shares of the relevant Fund are delivered to BONY prior to the DTC Cut-Off-Time,
then the value of the Fund Securities and the Cash Redemption Amount to be
delivered will be determined by BONY on such Transmittal Date. If, however, a
redemption order is submitted to BONY by a DTC Participant not later than the
Closing Time on the Transmittal Date but either (i) the requisite number of
shares of the relevant Fund are not delivered by the DTC Cut-Off-Time, as
described above, on such Transmittal Date, or (ii) the redemption order is not
submitted in proper form, then the redemption order will not be deemed received
as of the Transmittal date. In such case, the value of the Fund Securities and
the Cash Redemption Amount to be delivered will be computed on the Business Day
that such order is deemed received by the Trust, i.e., the Business Day on which
the shares of the relevant Fund are delivered through DTC to BONY by the DTC
Cut-Off-Time on such Business Day pursuant to a properly submitted redemption
order.
If it is not possible to effect deliveries of the Fund Securities, the
Trust may in its discretion exercise its option to redeem such shares in cash,
and the redeeming Beneficial Owner will be required to receive its redemption
proceeds in cash. In addition, an investor may request a redemption in cash that
the Fund may, in its sole discretion, permit. In either case, the investor will
receive a cash payment equal to the NAV of its shares based on the NAV of shares
of the relevant Fund next determined after the redemption request is received in
proper form (minus a redemption transaction fee and additional charge for
requested cash redemptions specified above, to offset the Trust's brokerage and
other transaction costs associated with the disposition of Fund Securities). The
Fund may also, in its sole discretion, upon request of a shareholder, provide
such redeemer a portfolio of securities that differs from the exact composition
of the Fund Securities but does not differ in NAV.
Redemptions of shares for Fund Securities will be subject to compliance
with applicable federal and state securities laws and the Fund (whether or not
it otherwise permits cash redemptions) reserves the right to redeem Creation
Unit Aggregations for cash to the extent that the Trust could not lawfully
deliver specific Fund Securities upon redemptions or could not do so without
first registering the Fund Securities under such laws. An Authorized Participant
or an investor for which it is acting subject to a legal restriction with
respect to a particular stock included in the Fund Securities applicable to the
redemption of a Creation Unit Aggregation may be paid an equivalent amount of
cash. The Authorized Participant may request the redeeming Beneficial Owner of
the shares to complete an order form or to enter into agreements with respect to
such matters as compensating cash payment.
Because the Portfolio Securities of the Fund may trade on the relevant
exchange(s) on days that the listing exchange for the Fund is closed or are
otherwise not Business Days for such Fund, stockholders may not be able to
redeem their shares of such Fund, or the purchase and sell shares of such Fund
on the Listing exchange for the Fund, on days when the NAV of such Fund could be
significantly affected by events in the relevant foreign markets.
- 44 -
REGULAR HOLIDAYS
The Fund generally intends to effect deliveries of Creation Units and
Portfolio Securities on a basis of "T" plus three Business Days (i.e., days on
which the New York Stock Exchange is open). The Fund may effect deliveries of
Creation Units and Portfolio Securities on a basis other than T plus three in
order to accommodate local holiday schedules, to account for different treatment
among non-U.S. and U.S. markets of dividend record dates and ex-dividend dates,
or under certain other circumstances. The ability of the Trust to effect in-kind
creations and redemptions within three Business Days of receipt of an order in
good form is subject, among other things, to the condition that, within the time
period from the date of the order to the date of delivery of the securities,
there are no days that are holidays in the applicable foreign market. For every
occurrence of one or more intervening holidays in the applicable non-U.S. market
that are not holidays observed in the U.S. equity market, the redemption
settlement cycle will be extended by the number of such intervening holidays. In
addition to holidays, other unforeseeable closings in a non-U.S. market due to
emergencies may also prevent the Trust from delivering securities within normal
settlement period.
The securities delivery cycles currently practicable for transferring
Portfolio Securities to redeeming investors, coupled with non-U.S. market
holiday schedules, will require a delivery process longer than seven calendar
days for some Funds in certain circumstances. The holidays applicable to the
Fund during such periods are listed below, as are instances where more than
seven days will be needed to deliver redemption proceeds. Although certain
holidays may occur on different dates in subsequent years, the number of days
required to deliver redemption proceeds in any given year is not expected to
exceed the maximum number of days listed below for the Fund. The proclamation of
new holidays, the treatment by market participants of certain days as "informal
holidays" (e.g., days on which no or limited securities transactions occur, as a
result of substantially shortened trading hours), the elimination of existing
holidays, or changes in local securities delivery practices, could affect the
information set forth herein at some time in the future.
The dates in calendar year 2007 in which the regular holidays affecting
the relevant securities markets of the below-listed countries are as follows:
ARGENTINA
January 6 May 25 December 8
April 13 June 19 December 25
April 14 August 21
May 1 October 16
AUSTRALIA
January 2 April 17 October 2
January 26 April 25 November 7
March 13 June 12 December 25
April 14 August 7 December 26
|
- 45 -
AUSTRIA
January 6 June 5 December 8
April 14 June 15 December 25
April 17 August 15 December 26
May 1 October 26 December 29
May 25 November 1
BELGIUM
April 14
April 17
May 1
December 25
BRAZIL
January 20 April 14 November 2
January 25 April 21 November 15
February 27 June 15 December 25
February 28 September 7
March 1 October 12
CANADA
January 2 August 7 December 25
April 14 September 4 December 26
May 22 October 9
July 3 November 13
CHILE
April 14 August 15 November 1
May 1 September 18 December 8
June 12 September 19 December 25
June 26 October 9
CHINA (Shanghai)
January 2 February 20 October 2
January 3 April 14 October 3
January 16 May 1 October 4
January 26 May 2 October 5
January 27 May 3 October 6
January 30 May 4 October 9
January 31 May 5 November 23
February 1 May 29 December 25
February 2 July 4
February 3 September 4
CHINA (Shenzhen)
January 2 April 5 October 2
January 3 April 14 October 3
January 26 April 17 October 4
January 27 May 1 October 5
January 30 May 2 October 6
January 31 May 3 October 30
February 1 May 4 December 25
February 2 May 5 December 26
February 3 May 31
|
- 46 -
DENMARK
April 13 May 25
April 14 June 5
April 17 December 25
May 12 December 26
FINLAND
January 6 May 25 December 26
April 14 June 23
April 17 December 6
May 1 December 25
FRANCE
April 14 December 26
April 17
May 1
December 25
GERMANY
April 14 December 26
April 17
May 1
December 25
GREECE
January 6 April 21 August 15
March 6 April 24 December 25
April 14 May 1 December 26
April 17 June 12
HONG KONG
January 2 April 14 May 31
January 30 April 17 October 2
January 31 May 1 October 30
April 5 May 5 December 25
December 26
|
- 47 -
INDIA
January 11 March 31 August 15
January 26 April 6 October 2
February 9 April 11 October 24
March 15 April 14 October 25
March 30 May 1 December 25
IRELAND
April 14 December 25
April 17 December 26
May 1
June 5
ISRAEL
March 14 April 19 October 1
March 28 May 2 October 2
April 12 May 3 October 6
April 13 June 1 October 8
April 14 June 2 October 9
April 16 August 3 October 10
April 17 September 22 October 11
April 18 September 24 October 12
October 13
ITALY
April 14 December 25
April 17 December 26
May 1
August 15
JAPAN
January 2 May 3 September 18
January 3 May 4 October 9
January 9 May 5 November 3
March 21 July 17 November 23
|
- 48 -
MALAYSIA
January 2 February 2 October 24
January 10 April 11 October 25
January 30 May 1 December 25
January 31 May 12
February 1 August 31
MEXICO
March 21 May 1 December 12
April 13 November 20 December 25
April 14 December 1
NEW ZEALAND
January 2 April 17 December 25
January 3 April 25 December 26
February 6 June 5
April 14 October 23
NETHERLANDS
April 14 December 26
April 17
May 1
December 25
NORWAY
April 13 May 17 December 26
April 14 May 25
April 17 June 5
May 1 December 25
PORTUGAL
April 14 December 26
April 17
May 1
December 25
SINGAPORE
January 2 April 14 October 24
January 10 May 1 December 25
January 20 May 12
January 31 August 9
SOUTH AFRICA
January 2 April 17 August 9
March 1 April 27 September 25
March 21 May 1 December 25
April 14 June 16 December 26
SOUTH KOREA
January 30 May 31 October 5
March 1 June 6 October 6
April 5 July 17 December 25
May 1 August 15 December 29
May 5 October 3
|
- 49 -
SPAIN
January 6 August 15 December 8
April 14 October 12 December 25
April 17 November 1 December 26
May 1 December 6
SWEDEN
January 6 May 25 December 26
April 14 June 5
April 17 June 23
May 1 December 25
SWITZERLAND
January 2 May 25 December 26
April 14 June 5
April 17 August 1
May 1 December 25
TAIWAN
January 26 February 1 May 1
January 27 February 2 May 31
January 30 February 28 October 6
January 31 April 5 October 10
THAILAND
January 2 April 19 August 14
February 13 May 1 October 23
April 6 May 5 December 5
April 13 May 12 December 11
April 14 July 11
UNITED KINGDOM
January 2 May 29
April 14 August 28
April 17 December 25
May 1 December 26
UNITED STATES
January 2 May 29 November 23
January 16 July 4 December 25
February 20 September 4
April 14
|
- 50 -
FEDERAL TAX MATTERS
This section summarizes some of the main U.S. federal income tax
consequences of owning Shares of the Fund. This section is current as of the
date of the Prospectus. Tax laws and interpretations change frequently, and
these summaries do not describe all of the tax consequences to all taxpayers.
For example, these summaries generally do not describe your situation if you are
a corporation, a non-U.S. person, a broker-dealer, or other investor with
special circumstances. In addition, this section does not describe your state or
foreign tax consequences.
This federal income tax summary is based in part on the advice of
counsel to the Fund. The Internal Revenue Service could disagree with any
conclusions set forth in this section. In addition, our counsel was not asked to
review, and has not reached a conclusion with respect to the federal income tax
treatment of the assets to be deposited in the Fund. This may not be sufficient
for prospective investors to use for the purpose of avoiding penalties under
federal tax law.
As with any investment, prospective investors should seek advice based
on their individual circumstances from their own tax advisor.
The Fund intends to qualify annually and to elect to be treated as a
regulated investment company under the Internal Revenue Code (the "Code").
To qualify for the favorable U.S. federal income tax treatment
generally accorded to regulated investment companies, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer generally
limited for the purposes of this calculation to an amount not greater than 5% of
the value of the Fund's total assets and not greater than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities (other than U.S. Government
securities or the securities of other regulated investment companies) of any one
issuer, or two or more issuers which the Fund controls which are engaged in the
same, similar or related trades or businesses; and (c) distribute at least 90%
of its investment company taxable income (which includes, among other items,
dividends, interest and net short-term capital gains in excess of net long-term
capital losses) and at least 90% of its net tax-exempt interest income each
taxable year.
As a regulated investment company, the Fund generally will not be
subject to U.S. federal income tax on its investment company taxable income (as
that term is defined in the Code, but without regard to the deduction for
dividends paid) and net capital gain (the excess of net long-term capital gain
over net short-term capital loss), if any, that it distributes to shareholders.
The Fund intends to distribute to its shareholders, at least annually,
- 51 -
substantially all of its investment company taxable income and net capital gain.
If the Fund retains any net capital gain or investment company taxable income,
it will generally be subject to federal income tax at regular corporate rates on
the amount retained. In addition, amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax unless, generally, the Fund distributes during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for the one-year period ending October 31
of the calendar year, and (3) any ordinary income and capital gains for previous
years that were not distributed during those years. In order to prevent
application of the excise tax, the Fund intends to make its distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of the current calendar year if it is declared
by the Fund in October, November or December with a record date in such a month
and paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
If the Fund failed to qualify as a regulated investment company or
failed to satisfy the 90% distribution requirement in any taxable year, the Fund
would be taxed as an ordinary corporation on its taxable income (even if such
income were distributed to its shareholders) and all distributions out of
earnings and profits would be taxed to shareholders as ordinary income.
DISTRIBUTIONS
Dividends paid out of the Fund's investment company taxable income are
generally taxable to a shareholder as ordinary income to the extent of the
Fund's earnings and profits, whether paid in cash or reinvested in additional
shares. However, certain ordinary income distributions received from the Fund
may be taxed at capital gains tax rates. In particular, ordinary income
dividends received by an individual shareholder from a regulated investment
company such as the Fund are generally taxed at the same rates that apply to net
capital gain, provided that certain holding period requirements are satisfied
and provided the dividends are attributable to qualifying dividends received by
the Fund itself. Dividends received by the Fund from REITs and foreign
corporations are qualifying dividends eligible for this lower tax rate only in
certain circumstances.
These special rules relating to the taxation of ordinary income
dividends from regulated investment companies generally apply to taxable years
beginning before January 1, 2011. The Fund will provide notice to its
shareholders of the amount of any distributions that may be taken into account
as a dividend which is eligible for the capital gains tax rates. The Fund can
not make any guarantees as to the amount of any distribution which will be
regarded as a qualifying dividend.
A corporation that owns Shares generally will not be entitled to the
dividends received deduction with respect to many dividends received from the
Fund because the dividends received deduction is generally not available for
distributions from regulated investment companies. However, certain ordinary
- 52 -
income dividends on Shares that are attributable to qualifying dividends
received by the Fund from certain domestic corporations may be designated by the
Fund as being eligible for the dividends received deduction.
Distributions of net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any, properly designated as capital
gain dividends are taxable to a shareholder as long-term capital gains,
regardless of how long the shareholder has held Fund Shares. Shareholders
receiving distributions in the form of additional Shares, rather than cash,
generally will have a cost basis in each such Share equal to the value of a
Share of the Fund on the reinvestment date. A distribution of an amount in
excess of the Fund's current and accumulated earnings and profits will be
treated by a shareholder as a return of capital which is applied against and
reduces the shareholder's basis in his or her Shares. To the extent that the
amount of any such distribution exceeds the shareholder's basis in his or her
Shares, the excess will be treated by the shareholder as gain from a sale or
exchange of the Shares.
Shareholders will be notified annually as to the U.S. federal income
tax status of distributions, and shareholders receiving distributions in the
form of additional Shares will receive a report as to the value of those Shares.
SALE OR EXCHANGE OF FUND SHARES
Upon the sale or other disposition of Shares of the Fund, which a
shareholder holds as a capital asset, such a shareholder may realize a capital
gain or loss which will be long-term or short-term, depending upon the
shareholder's holding period for the Shares. Generally, a shareholder's gain or
loss will be a long-term gain or loss if the Shares have been held for more than
one year.
Any loss realized on a sale or exchange will be disallowed to the
extent that Shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after disposition of Shares or to the extent that the shareholder, during
such period, acquires or enters into an option or contract to acquire,
substantially identical stock or securities. In such a case, the basis of the
Shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund Shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of long-term capital gain received by the
shareholder with respect to such Shares.
TAXES ON PURCHASE AND REDEMPTION OF CREATION UNITS
If a shareholder exchanges equity securities for Creation Units the
shareholder will generally recognize a gain or a loss. The gain or loss will be
equal to the difference between the market value of the Creation Units at the
time and the shareholder's aggregate basis in the securities surrendered and the
Cash Component paid. If a shareholder exchanges Creation Units for equity
securities, then the shareholder will generally recognize a gain or loss equal
to the difference between the shareholder's basis in the Creation Units and the
aggregate market value of the securities received and the Cash Redemption
Amount. The Internal Revenue Service, however, may assert that a loss realized
- 53 -
upon an exchange of securities for Creation Units or Creation Units for
securities cannot be deducted currently under the rules governing "wash sales,"
or on the basis that there has been no significant change in economic position.
NATURE OF FUND'S INVESTMENTS
Certain of the Fund's investment practices are subject to special and
complex federal income tax provisions that may, among other things, (i)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (ii) convert lower taxed long-term capital gain into higher taxed
short-term capital gain or ordinary income, (iii) convert an ordinary loss or a
deduction into a capital loss (the deductibility of which is more limited), (iv)
cause the Fund to recognize income or gain without a corresponding receipt of
cash, (v) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur and (vi) adversely alter the characterization of
certain complex financial transactions.
FUTURES CONTRACTS AND OPTIONS
The Fund's transactions in Futures Contracts and options will be
subject to special provisions of the Code that, among other things, may affect
the character of gains and losses realized by the Fund (i.e., may affect whether
gains or losses are ordinary or capital, or short-term or long-term), may
accelerate recognition of income to the Fund and may defer Fund losses. These
rules could, therefore, affect the character, amount and timing of distributions
to shareholders. These provisions also (a) will require the Fund to
mark-to-market certain types of the positions in its portfolio (i.e., treat them
as if they were closed out), and (b) may cause the Fund to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the 90% distribution requirement for qualifying to be taxed as a
regulated investment company and the 98% distribution requirement for avoiding
excise taxes.
BACKUP WITHHOLDING
The Fund may be required to withhold U.S. federal income tax from all
taxable distributions and sale proceeds payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. The withholding percentage
is 28% until 2011, when the percentage will revert to 31% unless amended by
Congress. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from such backup withholding. This withholding is not
an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
U.S. taxation of a shareholder who, as to the United States, is a
nonresident alien individual, a foreign trust or estate, a foreign corporation
or foreign partnership ("non-U.S. shareholder") depends on whether the income of
- 54 -
the Fund is "effectively connected" with a U.S. trade or business carried on by
the shareholder.
Income Not Effectively Connected. If the income from the Fund is not
"effectively connected" with a U.S. trade or business carried on by the non-U.S.
shareholder, distributions of investment company taxable income will generally
be subject to a U.S. tax of 30% (or lower treaty rate), which tax is generally
withheld from such distributions.
Distributions of capital gain dividends and any amounts retained by the
Fund which are designated as undistributed capital gains will not be subject to
U.S. tax at the rate of 30% (or lower treaty rate) unless the non-U.S.
shareholder is a nonresident alien individual and is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements. However, this 30% tax on capital gains of nonresident alien
individuals who are physically present in the United States for more than the
182 day period only applies in exceptional cases because any individual present
in the United States for more than 182 days during the taxable year is generally
treated as a resident for U.S. income tax purposes; in that case, he or she
would be subject to U.S. income tax on his or her worldwide income at the,
graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In
the case of a non-U.S. shareholder who is a nonresident alien individual, the
Fund may be required to withhold U.S. income tax from distributions of net
capital gain unless the non-U.S. shareholder certifies his or her non-U.S.
status under penalties of perjury or otherwise establishes an exemption. If a
non-U.S. shareholder is a nonresident alien individual, any gain such
shareholder realizes upon the sale or exchange of such shareholder's shares of
the Fund in the United States will ordinarily be exempt from U.S. tax unless the
gain is U.S. source income and such shareholder is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements.
Under the provisions of the American Jobs Creation Act of 2004 (the
"2004 Tax Act"), dividends paid by the Fund to shareholders who are nonresident
aliens or foreign entities and that are derived from short-term capital gains
and qualifying net interest income (including income from original issue
discount and market discount), and that are properly designated by the Fund as
"interest-related dividends" or "short-term capital gain dividends," will
generally not be subject to United States withholding tax, provided that the
income would not be subject to federal income tax if earned directly by the
foreign shareholder. In addition, pursuant to the 2004 Tax Act, capital gains
distributions attributable to gains from U.S. real property interests (including
certain U.S. real property holding corporations) will generally be subject to
United States withholding tax and will give rise to an obligation on the part of
the foreign shareholder to file a United States tax return. The provisions
contained in the legislation relating to distributions to shareholders who are
nonresident aliens or foreign entities generally would apply to distributions
with respect to taxable years of the Fund beginning after December 31, 2004 and
before January 1, 2008.
Income Effectively Connected. If the income from the Fund is
"effectively connected" with a U.S. trade or business carried on by a non-U.S.
shareholder, then distributions of investment company taxable income and capital
gain dividends, any amounts retained by the Fund which are designated as
undistributed capital gains and any gains realized upon the sale or exchange of
- 55 -
shares of the Fund will be subject to U.S. income tax at the graduated rates
applicable to U.S. citizens, residents and domestic corporations. Non-U.S.
corporate shareholders may also be subject to the branch profits tax imposed by
the Code. The tax consequences to a non-U.S. shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described herein.
Non-U.S. shareholders are advised to consult their own tax advisors with respect
to the particular tax consequences to them of an investment in the Fund.
OTHER TAXATION
Fund shareholders may be subject to state, local and foreign taxes on
their Fund distributions. Shareholders are advised to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Fund.
DETERMINATION OF NAV
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Net Asset Value."
The per share NAV of the Fund is determined by dividing the total value
of the securities and other assets, less liabilities, by the total number of
Shares outstanding. The Fund's NAV may not be calculated on days during which
the Fund receives no orders to purchase shares and no shares are tendered for
redemption. In determining NAV, portfolio securities for the Fund for which
accurate market quotations are readily available will be valued by the Fund
accounting agent as follows:
(1) Common stocks and other equity securities listed on any
national or foreign exchange will be valued at the last sale price on
the exchange or system in which they are principally traded on the
valuation date and at the official closing price for securities listed
on NASDAQ(R). If there are nO transactions on the valuation day,
securities traded principally on an exchange will be valued at the mean
between the most recent bid and ask prices.
(2) Securities traded in the over-the-counter market are
valued at their closing bid prices.
(3) Exchange traded options and Futures Contracts will be
valued at the closing price in the market where such contracts are
principally traded. Over-the-counter options and Futures Contracts will
be valued at their closing bid prices.
(4) Forward foreign currency exchange contracts which are
traded in the United States on regulated exchanges will be valued by
calculating the mean between the last bid and asked quotations supplied
to a pricing service by certain independent dealers in such contracts.
- 56 -
In addition, the following types of securities will be valued as
follows:
(1) Fixed income securities with a remaining maturity of 60
days or more will be valued by the fund accounting agent using a
pricing service. When price quotes are not available, fair market value
is based on prices of comparable securities.
(2) Fixed income securities maturing within 60 days are
valued by the fund accounting agent on an amortized cost basis.
(3) Repurchase agreements will be valued as follows.
Overnight repurchase agreements will be valued at cost. Term purchase
agreements (i.e., those whose maturity exceeds seven days) will be
valued by First Trust at the average of the bid quotations obtained
daily from at least two recognized dealers.
(4) Structured Products, including currency-linked notes,
credit-linked notes and other similar instruments, will be valued by
the Fund Accounting Agent using a pricing service or quotes provided by
the selling dealer or financial institution. When price quotes are not
available, fair market value is based on prices of comparable
securities. Absent a material difference between the exit price for a
particular structured product and the market rates for similar
transactions, the structured product will be valued at its exit price.
(5) Interest rate swaps and credit default swaps will be
valued by the Fund Accounting Agent using a pricing service or quotes
provided by the selling dealer or financial institution. When price
quotes are not available, fair market value is based on prices of
comparable securities. Absent a material difference between the exit
price for a particular swap and the market rates for similar
transactions, the swap will be valued at its exit price.
The value of any portfolio security held by the Fund for which market
quotations are not readily available will be determined by First Trust in a
manner that most fairly reflects fair market value of the security on the
valuation date, based on a consideration of all available information.
Certain securities may not be able to be priced by pre-established
pricing methods. Such securities may be valued by the Board of Trustees or its
delegate at fair value. These securities generally include but are not limited
to, restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933) for which a pricing service is
unable to provide a market price; securities whose trading has been formally
suspended; a security whose market price is not available from a pre-established
pricing source; a security with respect to which an event has occurred that is
likely to materially affect the value of the security after the market has
closed but before the calculation of Fund NAV (as may be the case in foreign
markets on which the security is primarily traded) or make it difficult or
impossible to obtain a reliable market quotation; and a security whose price, as
provided by the pricing service, does not reflect the security's "fair value."
As a general principle, the current "fair value" of an issue of securities would
- 57 -
appear to be the amount which the owner might reasonably expect to receive for
them upon their current sale. A variety of factors may be considered in
determining the fair value of such securities.
Valuing the Fund's investments using fair value pricing will result in
using prices for those investments that may differ from current market
valuations. Use of fair value prices and certain current market valuations could
result in a difference between the prices used to calculate the Fund's net asset
value and the prices used by the Index, which, in turn, could result in a
difference between the Fund's performance and the performance of the Index.
Because foreign markets may be open on different days than the days
during which a shareholder may purchase the Shares of the Fund, the value of the
Fund's investments may change on the days when shareholders are not able to
purchase the Shares of the Fund.
The value of assets denominated in foreign currencies is converted into
U.S. dollars using exchange rates deemed appropriate by First Trust as
investment adviser. Any use of a different rate from the rates used by the Index
may adversely affect the Fund's ability to track the Index.
The Fund may suspend the right of redemption for the Fund only under
the following unusual circumstances: (a) when the NYSE is closed (other than
weekends and holidays) or trading is restricted; (b) when trading in the markets
normally utilized is restricted, or when an emergency exists as determined by
the SEC so that disposal of the Fund's investments or determination of its net
assets is not reasonably practicable; or (c) during any period when the SEC may
permit.
DIVIDENDS AND DISTRIBUTIONS
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Dividends, Distributions and
Taxes."
General Policies. Dividends from net investment income, if any, are
declared and paid quarterly. Distributions of net realized securities gains, if
any, generally are declared and paid once a year, but the Trust may make
distributions on a more frequent basis. The Trust reserves the right to declare
special distributions if, in its reasonable discretion, such action is necessary
or advisable to preserve the status of the Fund as a RIC or to avoid imposition
of income or excise taxes on undistributed income.
Dividends and other distributions of Fund Shares are distributed, as
described below, on a pro rata basis to Beneficial Owners of such Shares.
Dividend payments are made through DTC Participants and Indirect Participants to
Beneficial Owners then of record with proceeds received from the Fund.
Dividend Reinvestment Service. No reinvestment service is provided by
the Trust. Broker-dealers may make available the DTC book-entry Dividend
Reinvestment Service for use by Beneficial Owners of the Fund for reinvestment
of their dividend distributions. Beneficial Owners should contact their brokers
in order to determine the availability and costs of the service and the details
of participation therein. Brokers may require Beneficial Owners to adhere to
- 58 -
specific procedures and timetables. If this service is available and used,
dividend distributions of both income and realized gains will be automatically
reinvested in additional whole Shares of the Fund purchased in the secondary
market.
MISCELLANEOUS INFORMATION
Counsel. Chapman and Cutler LLP, 111 West Monroe Street, Chicago,
Illinois 60603, is counsel to the Trust.
Independent Registered Public Accounting Firm. Deloitte & Touche LLP,
111 South Wacker Drive, Chicago, Illinois 60601, serves as the Fund's
independent registered public accounting firm. The firm audits the Fund's
financial statements and performs other related audit services.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
[TO COME]
First Trust Dow Jones Global Select Dividend Index Fund
Statement of Assets and Liabilities
________, 20___
- 59 -
First Trust Exchange-Traded Fund II
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
EXHIBIT NO. DESCRIPTION
(a) Declaration of Trust of the Registrant. (1)
(b) By-Laws of the Registrant. (1)
(c) Amended and Restated Establishment and Designation of Series dated
June 11, 2007. (2)
(d) (1) Investment Management Agreement. (4)
(2) Expense Reimbursement, Fee Waiver and Recovery Agreement. (4)
(e) Distribution Agreement. (4)
(f) Not Applicable.
(g) Custody Agreement between the Registrant and The Bank of New York. (4)
(h) (1) Transfer Agency Agreement between the Registrant and The Bank
of New York. (4)
(2) Administration and Accounting Agreement between the
Registrant and The Bank of New York. (4)
(3) Form of Subscription Agreement. (4)
(4) Form of Participant Agreement. (4)
(5) Sublicense Agreement by and among by and among First Trust DJ
STOXX(R) Select Dividend 30 Index Fund, STOXX Limited, and
First Trust Advisors L.P. (4)
(6) Sublicense Agreement by and among First Trust FTSE EPRA/NAREIT
Global Real Estate Index Fund, FTSE International Limited, and
First Trust Advisors L.P. (4)
(7) IPV Calculation Agreement by and between First Trust Advisors L.P.
and Telekurs (USA) Inc. (4)
(i) (1) Opinion and Consent of Chapman and Cutler LLP. (5)
(2) Opinion and Consent of Bingham McCutchen LLP. (5)
(3) Consent of Deloitte & Touche dated _________, 2007. (5)
(j) Not Applicable.
(k) Not Applicable.
(l) Not Applicable.
(m) (1) 12b-1 Service Plan. (4)
(2) Letter Agreement regarding 12b-1 fees. (4)
(n) Not Applicable.
(o) Not Applicable.
(p) (1) First Trust Advisors L.P. Investment Adviser Code of Ethics,
amended on May 31, 2006. (2)
(2) First Trust Portfolios L.P. Code of Ethics, amended on May
31, 2006. (2)
(3) First Trust Funds Code of Ethics, amended on May 31, 2006.(2)
(q) Powers of Attorney for Messrs. Bowen, Erickson, Kadlec, Keith and
Nielson authorizing James A. Bowen, W. Scott Jardine and
Eric F. Fess to execute the Registration Statement. (3)
(1) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A (File No. 333-143964) filed on June 21, 2007.
(2) Incorporated by reference to the Registrant's Registrations Statement
on Form N-1A (File No. 333-143964) filed on August 23, 2007
(3) Incorporated by reference to the Registrant's Registrations Statement
on Form N-1A (File No. 333-143964) filed on August 24, 2007
(4) Incorporated by reference to the Registrant's Registrations Statement
on Form N-1A (File No. 333-143964) filed on August 30, 2007
(5) To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not Applicable.
ITEM 25. INDEMNIFICATION
Section 9.5 of the Registrant's Declaration of Trust provides as
follows:
Section 9.5. Indemnification and Advancement of Expenses. Subject to
the exceptions and limitations contained in this Section 9.5, every person who
is, or has been, a Trustee, officer, or employee of the Trust, including persons
who serve at the request of the Trust as directors, trustees, officers,
employees or agents of another organization in which the Trust has an interest
as a shareholder, creditor or otherwise (hereinafter referred to as a "Covered
Person"), shall be indemnified by the Trust to the fullest extent permitted by
law against liability and against all expenses reasonably incurred or paid by
him or in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or having been
such a Trustee, director, officer, employee or agent and against amounts paid or
incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person to
the extent such indemnification is prohibited by applicable federal law.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Subject to applicable federal law, expenses of preparation and
presentation of a defense to any claim, action, suit or proceeding subject to a
claim for indemnification under this Section 9.5 shall be advanced by the Trust
prior to final disposition thereof upon receipt of an undertaking by or on
behalf of the recipient to repay such amount if it is ultimately determined that
he is not entitled to indemnification under this Section 9.5.
To the extent that any determination is required to be made as to
whether a Covered Person engaged in conduct for which indemnification is not
provided as described herein, or as to whether there is reason to believe that a
Covered Person ultimately will be found entitled to indemnification, the Person
or Persons making the determination shall afford the Covered Person a rebuttable
presumption that the Covered Person has not engaged in such conduct and that
there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification.
As used in this Section 9.5, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, demands, actions, suits, investigations,
regulatory inquiries, proceedings or any other occurrence of a similar nature,
whether actual or threatened and whether civil, criminal, administrative or
other, including appeals, and the words "liability" and "expenses" shall include
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
First Trust Advisors L.P. ("First Trust") serves as investment adviser
to the Registrant, serves as adviser or subadviser to 25 mutual funds, 35
exchange-traded funds and 14 closed-end funds and is the portfolio supervisor of
certain unit investment trusts. Its principal address is 1001 Warrenville Road,
Suite 300, Lisle, Illinois 60532.
The principal business of certain of First Trust's principal executive
officers involves various activities in connection with the family of unit
investment trusts sponsored by First Trust Portfolios L.P. ("FTP"). FTP's
principal address is 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532.
Information as to other business, profession, vocation or employment
during the past two years of the officers and directors of First Trust is as
follows:
NAME AND POSITION WITH FIRST TRUST EMPLOYMENT DURING PAST TWO YEARS
James A. Bowen, Managing Director/President Managing Director/President, FTP; Chairman of the Board
of Directors, BondWave LLC and Stonebridge Advisors LLC
Ronald D. McAlister, Managing Director Managing Director, FTP
Mark R. Bradley, Chief Financial Officer Chief Financial Officer and Managing Director, FTP; Chief
and Managing Director Financial Officer, BondWave LLC and Stonebridge Advisors LLC
Robert F. Carey, Chief Investment Officer Senior Vice President, FTP
and Senior Vice President
W. Scott Jardine,General Counsel General Counsel, FTP; Secretary of BondWave LLC and
Stonebridge Advisors LLC
Kristi A. Maher, Deputy General Counsel Deputy General Counsel, FTP; Assistant General Counsel, FTP
Michelle Quintos, Assistant General Counsel Assistant General Counsel, FTP; Associate, Jones Day,
2002 to December 2005
John Vasko, Assistant General Counsel Senior Counsel, Michaels and May, October 2006 to May
2007; Assistant General Counsel, ARAMARK Corporation
Pamela Wirt, Assistant General Counsel Of Counsel, Vedder, Price, Kaufman and Kammholz, P.C.,
February 2006 to January 2007; Independent Contractor
Attorney, SBA Network Services, Inc.
|
NAME AND POSITION WITH FIRST TRUST EMPLOYMENT DURING PAST TWO YEARS
R. Scott Hall, Managing Director Managing Director, FTP
Andrew S. Roggensack, Managing Director Managing Director, FTP
Elizabeth H. Bull, Senior Vice President Senior Vice President, FTP
Christopher L. Dixon, Senior Vice President Senior Vice President, FTP
Jane Doyle, Senior Vice President Senior Vice President, FTP
James M. Dykas, Senior Vice President Senior Vice President, FTP since April 2007; Vice
President, FTP from January 2005 to April 2007; Executive
Director, Van Kampen Asset Management and Morgan Stanley
Investment Management, 1999 to January 2005
Jon C. Erickson, Senior Vice President Senior Vice President, FTP
Kenneth N. Hass, Senior Vice President Senior Vice President, FTP
Jason T. Henry, Senior Vice President Senior Vice President, FTP
Daniel J. Lindquist, Senior Vice President Senior Vice President, FTP
David G. McGarel, Senior Vice President Senior Vice President, FTP
Mitchell Mohr, Senior Vice President Senior Vice President, FTP
Joseph McDermott, Chief Compliance Officer Senior Vice President, FTP since April 2006; CCO Driehaus
and Senior Vice President Capital Management LLC, Driehaus Securities LLC and
Driehaus Mutual Funds, January 2004 to April 2006
Robert M. Porcellino, Senior Vice President Senior Vice President, FTP
Roger F. Testin, Senior Vice President Senior Vice President, FTP
James P. Koeneman, Vice President Vice President, FTP
Alan M. Rooney, Vice President Senior Vice President, FTP
Ronda L. Saeli, Vice President Vice President, FTP
Kirk Sims, Vice President Vice President, FTP
Walter E. Stubbings, Jr., Vice President Vice President, FTP
Richard S. Swiatek, Vice President Vice President, FTP
|
NAME AND POSITION WITH FIRST TRUST EMPLOYMENT DURING PAST TWO YEARS
Stan Ueland, Vice President Vice President, FTP since August 2005; Vice President
BondWave LLC, May 2004 to August 2005
Brad Bradley, Assistant Vice President Assistant Vice President, FTP
Kelley A. Christensen, Assistant Vice President Assistant Vice President, FTP
Katie D. Collins, Assistant Vice President Assistant Vice President, FTP
Kristen Johanneson, Assistant Vice President Assistant Vice President, FTP
Lynae Peays, Assistant Vice President Assistant Vice President, FTP
Omar Sepulveda, Assistant Vice President Assistant Vice President, FTP
John H. Sherren, Assistant Vice President Assistant Vice President, FTP
Michael S. Stange, Assistant Vice President Assistant Vice President, FTP
|
ITEM 27. PRINCIPAL UNDERWRITER
(a) FTP serves as principal underwriter of the shares of the
Registrant, First Trust Exchange-Traded Fund, First Trust Exchange-Traded
AlphaDEX(TM) Fund and the First Defined Portfolio Fund LLC. FTP serves as
principal underwriter and depositor of the following investment companies
registered as unit investment trusts: the First Trust Combined Series, FT Series
(formerly known as the First Trust Special Situations Trust), the First Trust
Insured Corporate Trust, the First Trust of Insured Municipal Bonds, and the
First Trust GNMA. The name of each director, officer and partner of FTP is
provided below.
(b) Positions and Offices with Underwriter.
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
The Charger Corporation General Partner None
Grace Partners of DuPage L.P. Limited Partner None
James A. Bowen Managing Director/President President, Chairman of the Board,
Trustee, Chief Executive Officer
Mark R. Bradley Chief Financial Officer; Treasurer, Chief Financial Officer
Managing Director and Chief Accounting Officer
|
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Robert W. Bredemeier Managing Director None
Frank L. Fichera Managing Director None
Russell J. Graham Managing Director None
R. Scott Hall Managing Director None
W. Scott Jardine General Counsel Chief Compliance Officer and Secretary
Kristi A. Maher Deputy General Counsel Assistant Secretary
Michelle Quintos Assistant General Counsel None
John Vasko Assistant General Counsel None
Pamela Wirt Assistant General Counsel None
Ronald D. McAlister Managing Director None
Richard A. Olson Managing Director None
Andrew S. Roggensack Managing Director None
Elizabeth H. Bull Senior Vice President None
Robert F. Carey Senior Vice President None
Patricia L. Costello Senior Vice President None
Christopher L. Dixon Senior Vice President None
Jane Doyle Senior Vice President None
James M. Dykas Senior Vice President Assistant Treasurer
Jon C. Erickson Senior Vice President None
Kenneth N. Hass Senior Vice President None
Thomas V. Hendricks Senior Vice President None
Jason T. Henry Senior Vice President None
Christian D. Jeppesen Senior Vice President None
Christopher A. Lagioia Senior Vice President None
|
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Daniel J. Lindquist Senior Vice President Vice President
Joseph McDermott Senior Vice President None
David G. McGarel Senior Vice President None
Mark R. McHenney Senior Vice President None
Mitchell Mohr Senior Vice President None
Paul E. Nelson Senior Vice President None
Steve R. Nelson Senior Vice President None
Robert M. Porcellino Senior Vice President None
Steven R. Ritter Senior Vice President None
Alan Rooney Senior Vice President None
Francine Russell Senior Vice President None
Brad A. Shaffer Senior Vice President None
Brian Sheehan Senior Vice President None
James J. Simpson Senior Vice President None
Andrew C. Subramanian Senior Vice President None
Mark P. Sullivan Senior Vice President None
Roger F. Testin Senior Vice President Vice President
Chadwick K. Thorson Senior Vice President None
Gregory E. Wearsch Senior Vice President None
Patrick Woelfel Senior Vice President None
Dan Affetto Vice President None
Lance Allen Vice President None
Eric Anderson Vice President None
Carlos Barbosa Vice President None
Michael Bean Vice President None
|
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Rob Biddinger Vice President None
Mike Britt Vice President None
Nathan S. Cassel Vice President None
Robert E. Christensen Vice President None
Will Cobb Vice President None
Joshua Crosley Vice President None
Michael Dawson Vice President None
Michael Durr Vice President None
Albert K. Davis Vice President None
Daren J. Davis Vice President None
Sean Degnan Vice President None
Robert T. Doak Vice President None
Joel D. Donley Vice President None
Brett Egner Vice President None
Mike Flaherty Vice President None
Wendy Flaherty Vice President None
Edward Foley Vice President None
Don Fuller Vice President None
John Gillis Vice President None
Patrick Good Vice President None
Matt D. Graham Vice President None
Matt Griffin Vice President None
William M. Hannold Vice President None
Mary Jane Hansen Vice President None
Vance Hicks Vice President None
|
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Rick Johnson Vice President None
Tom Knickerbocker Vice President None
James P. Koeneman Vice President None
Thomas E. Kotcher Vice President None
Daniel Lavin Vice President None
Michael P. Leyden Vice President None
Keith L. Litavsky Vice President None
Stephanie L. Martin Vice President None
Marty McFadden Vice President None
Sean Moriarty Vice President None
John O'Sullivan Vice President None
David Pagano Vice President None
Brian K. Penney Vice President None
Blair R. Peterson Vice President None
Jason Peterson Vice President None
Tom Powell Vice President None
Marisa Prestigiacomo Vice President None
Craig Prichard Vice President None
David A. Rieger Vice President None
Michael Rogers Vice President None
Paul Rowe Vice President None
James Rowlette Vice President None
Ronda L. Saeli Vice President None
Jeffrey M. Samuel Vice President None
Peter H. Sandford Vice President None
|
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Timothy Schival Vice President None
Stacy Shearer Vice President None
Nim Short Vice President None
Kirk Sims Vice President None
Edward J. Sistowicz Vice President None
Jonathan L. Steiner Vice President None
Eric Stoiber Vice President None
Walter E. Stubbings, Jr. Vice President None
Terry Swagerty Vice President None
Richard S. Swiatek Vice President None
Brian Taylor Vice President None
John Taylor Vice President None
Kerry Tazakine Vice President None
Timothy Trudo Vice President None
Stanley Ueland Vice President Assistant Vice President
Bryan Ulmer Vice President None
Barbara E. Vinson Vice President None
Dan Waldron Vice President None
Christopher Walsh Vice President None
Jeff Westergaard Vice President None
Lewin M. Williams Vice President None
Jeffrey S. Barnum Assistant Vice President None
Owen Birts III Assistant Vice President None
Toby A. Bohl Assistant Vice President None
Brad Bradley Assistant Vice President None
|
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Kelley A. Christensen Assistant Vice President Vice President
Katie D. Collins Assistant Vice President None
Michael DeBella Assistant Vice President None
Ann Marie Giudice Assistant Vice President None
Debbie Del Giudice Assistant Vice President None
Chris Fallow Assistant Vice President None
Anita K. Henderson Assistant Vice President None
James V. Huber Assistant Vice President None
Kristen Johanneson Assistant Vice President None
Daniel C. Keller Assistant Vice President None
Robert J. Madeja Assistant Vice President None
David M. McCammond-Watts Assistant Vice President None
Michelle Parker Assistant Vice President None
Lynae Peays Assistant Vice President None
Debra K. Scherbring Assistant Vice President None
Steve Schwarting Assistant Vice President None
Omar Sepulveda Assistant Vice President None
John H. Sherren Assistant Vice President None
Michael S. Stange Assistant Vice President None
Lee Sussman Assistant Vice President None
Christopher J. Thill Assistant Vice President None
Dave Tweeten Assistant Vice President None
Thomas G. Wisnowski Assistant Vice President None
|
* All addresses are
1001 Warrenville Road,
Lisle, IL 60532
unless otherwise noted.
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
First Trust Advisors L.P. ("First Trust"), 1001 Warrenville Road, Suite
300, Lisle, Illinois 60532, maintains the Registrant's organizational documents,
minutes of meetings, contracts of the Registrant and all advisory material of
the investment adviser.
The Bank of New York ("BONY"), 101 Barclay Street, New York, New York
10286, maintains all general and subsidiary ledgers, journals, trial balances,
records of all portfolio purchases and sales, and all other requirement records
not maintained by First Trust.
BONY also maintains all the required records in its capacity as
transfer, accounting, dividend payment and interest holder service agent for the
Registrant.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Lisle, in the State of Illinois, on the 26th day
of October, 2007
FIRST TRUST EXCHANGE-TRADED FUND II
By: /s/ James A. Bowen
-------------------------------------
James A. Bowen, President
|
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
SIGNATURE DATE
/s/ Mark R. Bradley Treasurer, Controller and Chief
-------------------- Financial and Accounting Officer October 26, 2007
Mark R. Bradley
/s/ James A. Bowen President, Chief Executive
--------------------- Officer, Chairman and Trustee October 26, 2007
James A. Bowen
*/s/ Richard E. Erickson Trustee )
------------------------ )
Richard E. Erickson )
)
*/s/ Thomas R. Kadlec Trustee )
------------------------ ) By: /s/ James A. Bowen
Thomas R. Kadlec ) ---------------------
) James A. Bowen
*/s/ Robert F. Keith Trustee ) Attorney-In-Fact
------------------------ ) October 26, 2007
Robert F. Keith
)
*/s/ Niel B. Nielson Trustee )
------------------------ )
Niel B. Nielson )
|
* Original powers of attorney authorizing James A. Bowen, W. Scott Jardine
and Eric F. Fess to execute Registrant's Registration Statement, and
Amendments thereto, for each of the trustees of the Registrant on whose
behalf this Registration Statement is filed, were previously executed and
filed and are incorporated by reference herein.
-17-
INDEX TO EXHIBITS