(a) Inception date is consistent with the commencement of investment
operations and is the date the initial creation units were established.
First Trust Portfolios L.P. seeded the First Trust NASDAQ Technology
Dividend Index Fund on July 19, 2012 in order to establish the Trust and
seeded the Multi-Asset Diversified Income Index Fund on August 10, 2012.
(a) Inception date is consistent with the commencement of investment
operations and is the date the initial creation units were established.
First Trust Portfolios L.P. seeded the Fund on July 19, 2012 in order to
establish the Trust.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(d) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
NOTES TO FINANCIAL STATEMENTS
FIRST TRUST EXCHANGE-TRADED FUND VI
MARCH 31, 2013 (UNAUDITED)
1. ORGANIZATION
First Trust Exchange-Traded Fund VI (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on June 4, 2012,
and is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of two funds:
First Trust NASDAQ Technology Dividend Index Fund - (NASDAQ(R) Stock
Market LLC ("NASDAQ") ticker "TDIV")
Multi-Asset Diversified Income Index Fund - (NASDAQ ticker "MDIV")
Each fund represents a separate series of shares of beneficial interest in the
Trust (each a "Fund" and collectively, the "Funds"). Each Fund's shares
currently are listed and traded on NASDAQ. Unlike conventional mutual funds,
each Fund issues and redeems shares on a continuous basis, at net asset value
("NAV"), only in large specified blocks consisting of 50,000 shares called a
"Creation Unit." Creation Units are issued and redeemed principally in-kind for
securities included in a Fund's relevant index. Except when aggregated in
Creation Units, shares are not redeemable securities of a Fund. The investment
objective of each Fund is to seek investment results that correspond generally
to the price and yield (before the Fund's fees and expenses) of the following
indices:
FUND INDEX
First Trust NASDAQ Technology Dividend Index Fund NASDAQ Technology Dividend Index(SM)(1)
Multi-Asset Diversified Income Index Fund NASDAQ Multi-Asset Diversified Income Index(1)
|
(1) This index is developed, maintained and sponsored by The NASDAQ OMX Group,
Inc., and is licensed to First Trust Advisors L.P., the investment advisor
to the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of the financial statements. The
preparation of the financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. Portfolio Valuation
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. The NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of shares outstanding.
Each Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value in
accordance with valuation procedures adopted by the Trust's Board of Trustees
and in accordance with the 1940 Act. Each Fund's securities will be valued as
follows:
Common stocks and other equity securities listed on any national or
foreign exchange (excluding NASDAQ and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for NASDAQ and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
Securities traded in an over-the-counter market are valued at their
closing bid prices.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
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, as amended) 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 a Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
"fair value." As a general principle, the current "fair value" of a security
would appear to be the amount which the owner might reasonably expect
Page 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST EXCHANGE-TRADED FUND VI
MARCH 31, 2013 (UNAUDITED)
to receive for the security upon its current sale. The use of fair value prices
by a Fund generally results in prices used by the Fund that may differ from
current market quotations or official closing prices on the applicable exchange.
A variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
In addition, differences between the prices used to calculate a Fund's NAV and
the prices used by such Fund's corresponding index could result in a difference
between a Fund's performance and the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of March 31, 2013, is
included with each Fund's Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Distributions received from a Fund's investments in real estate investment
trusts ("REITs") and master limited partnerships ("MLPs") may be comprised of
return of capital, capital gains and income. The actual character of the amounts
received during the year is not known until after the REIT's and MLP's fiscal
year end. A Fund records the character of distributions received from the REITs
and MLPs during the year based on estimates and historical information
available. The characterization of distributions received by a Fund may be
subsequently revised based on information received from the REITs and MLPs after
their tax reporting periods conclude.
C. Securities Lending
The Funds may lend securities representing up to 33 1/3% of the value of their
total assets to broker-dealers, banks and other institutions to generate
additional income. When a Fund loans its portfolio securities, it will receive,
at the inception of each loan, collateral equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
loaned securities. The collateral amount is valued at the beginning of each
business day and is compared to the market value of the loaned securities from
the prior business day to determine if additional collateral is required. If
additional collateral is required, a request is sent to the borrower. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of (i) a decline in the
Page 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST EXCHANGE-TRADED FUND VI
MARCH 31, 2013 (UNAUDITED)
value of the collateral provided for the loaned securities, (ii) a decline in
the value of any investments made with cash collateral or (iii) an increase in
the value of the loaned securities if the borrower does not increase the
collateral accordingly and the borrower fails to return the securities. These
events could also trigger adverse tax consequences for the Fund.
Under the Funds' securities lending agreement, the securities lending agent will
generally bear the risk that a borrower may default on its obligation to return
loaned securities. The Funds, however, will be responsible for the risks
associated with the investment of cash collateral. A Fund may lose money on its
investment of cash collateral, which may affect its ability to repay the
collateral to the borrower without the use of other Fund assets. Each Fund that
engages in securities lending receives compensation (net of any rebate and
securities lending agent fees) for lending its securities in the form of fees or
interest on the investment of any cash received as collateral. The dividend and
interest earned on the securities loaned is accounted for in the same manner as
other dividend and interest income. At March 31, 2013, the Funds had no
securities in the securities lending program.
D. Dividends and Distribution to Shareholders
Dividends from net investment income, if any, are declared and paid monthly for
Multi-Asset Diversified Income Index Fund and quarterly for First Trust NASDAQ
Technology Dividend Index Fund or as the Board of Trustees may determine from
time to time. Prior to January 31, 2013, the dividends for Multi-Asset
Diversified Income Index Fund were declared and paid quarterly. Distributions of
net realized capital gains earned by each Fund, if any, are distributed at least
annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Funds and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the period ended
September 30, 2012 was as follows:
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Capital Return of
Income Gains Capital
------------- ------------- -------------
First Trust NASDAQ Technology Dividend Index Fund $ 49,593 $ -- $ --
Multi-Asset Diversified Income Index Fund 56,575 -- --
|
As of September 30, 2012, the components of distributable earnings on a tax
basis for each Fund were as follows:
Accumulated Net
Undistributed Capital and Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
------------- ------------- -------------
First Trust NASDAQ Technology Dividend Index Fund $ -- $ (9,548) $ (390,560)
Multi-Asset Diversified Income Index Fund 87,797 -- (227,419)
|
E. Income Taxes
Each Fund intends to qualify as a regulated investment company by complying with
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended, which includes distributing substantially all of its net investment
income and net realized gains to shareholders. Accordingly, no provision has
been made for federal and state income taxes. However, due to the timing and
amount of distributions, each Fund may be subject to an excise tax of 4% of the
amount by which approximately 98% of the Fund's taxable income exceeds the
distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. The tax period ended 2012 remains
open to federal and state audit. As of March 31, 2013, management has evaluated
the application of these standards to the Funds and has determined that no
provision for income tax is required in the Funds' financial statements for
uncertain tax positions.
Under the Regulated Investment Company Modernization Act of 2010, net capital
losses may be carried forward indefinitely, and their character is retained as
short-term and/or long-term losses. At September 30, 2012, for federal income
tax purposes, each Fund had a capital loss carryforward available that is shown
in the table below, to the extent provided by regulations, to offset future
capital gains. To the extent that these loss carryfowards are used to offset
future capital gains, it is probable that the capital gains so
Page 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST EXCHANGE-TRADED FUND VI
MARCH 31, 2013 (UNAUDITED)
offset will not be distributed to Fund shareholders. The Funds are subject to
certain limitations, under U.S. tax rules, on the use of capital loss
carryforwards and net unrealized built-in losses. These limitations apply when
there has been a 50% change in ownership.
Capital Loss
Available
------------
First Trust NASDAQ Technology Dividend Index Fund $9,548
Multi-Asset Diversified Income Index Fund --
|
F. Expenses
Expenses that are directly related to the Funds, are charged to First Trust
Advisors L.P. ("First Trust" or the "Advisor") pursuant to the Investment
Management Agreement, with the exception of distribution and service fees
pursuant to a Rule 12b-1 plan, if any, brokerage expenses, taxes, interest and
extraordinary expenses, which are charged to each respective Fund.
First Trust has entered into licensing agreements with NASDAQ OMX Group, Inc.
("Licensor") for the Funds. The respective license agreements allow for the use
by First Trust of each Fund's respective index and of certain trademarks and
trade names of the Licensor. The Funds are sub-licensees to the applicable
license agreements.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in each Fund's portfolio, managing the Funds' business affairs and providing
certain administrative services necessary for the management of the Funds.
For the First Trust NASDAQ Technology Dividend Index Fund and the Multi-Asset
Diversified Income Index Fund, First Trust is paid an annual unitary management
fee of 0.50% and 0.60%, respectively, of each Fund's average daily net assets.
First Trust is responsible for the expenses of each Fund including the cost of
transfer agency, custody, fund administration, legal, audit and other services,
including any compensation to Trustees, and excluding distribution and service
fees pursuant to a Rule 12b-1 plan, if any, brokerage expenses, taxes, interest,
and extraordinary expenses, which are paid by each respective Fund. First Trust
also provides fund reporting services to the Funds for a flat annual fee in the
amount of $9,250 per Fund, which is covered under the annual unitary management
fee.
The Trust has multiple service agreements with Brown Brothers Harriman & Co.
("BBH"). Under the servicing agreements, BBH performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Trust. As custodian, BBH is responsible for custody of the Trust's assets.
As fund accountant and administrator, BBH is responsible for maintaining the
books and records of the Trust's securities and cash. As transfer agent, BBH is
responsible for maintaining shareholder records for the Trust.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer of $125,000 per year and an annual per fund fee of $4,000 for each
closed-end fund or other actively managed fund and $1,000 for each index fund in
the First Trust Fund Complex. The fixed annual retainer is allocated pro rata
among each fund in the First Trust Fund Complex based on net assets.
Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and each Committee
chairman will serve two-year terms until December 31, 2013 before rotating to
serve as chairman of another committee or as Lead Independent Trustee. After
December 31, 2013, the Lead Independent Trustee and Committee chairmen will
rotate every three years. The officers and "Interested" Trustee receive no
compensation from the funds for acting in such capacities.
Page 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST EXCHANGE-TRADED FUND VI
MARCH 31, 2013 (UNAUDITED)
4. PURCHASES AND SALES OF SECURITIES
For the six months ended March 31, 2013, the cost of purchases and proceeds from
sales of investment securities for each Fund, excluding short-term investments
and in-kind transactions, were as follows:
Purchases Sales
--------------- ---------------
First Trust NASDAQ Technology Dividend Index Fund $ 15,586,892 $ 22,905,937
Multi-Asset Diversified Income Index Fund 68,962,876 96,118,230
|
For the six months ended March 31, 2013, the cost of in-kind purchases and
proceeds from in-kind sales for each Fund were as follows:
Purchases Sales
--------------- ---------------
First Trust NASDAQ Technology Dividend Index Fund $ 62,339,608 $ 11,536,147
Multi-Asset Diversified Income Index Fund 224,885,042 9,668,333
|
5. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares. In order to purchase Creation Units of a Fund, an
investor must deposit (i) a designated portfolio of equity securities determined
by First Trust (the "Deposit Securities") and generally make or receive a cash
payment referred to as the "Cash Component," which is an amount equal to the
difference between the NAV of the Fund shares (per Creation Unit aggregations)
and the market value of the Deposited Securities, and/or (ii) cash in lieu of
all or a portion 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. Purchasers of Creation
Units must pay to BBH, as transfer agent, a creation fee (the "Creation
Transaction Fee") regardless of the number of Creation Units purchased in the
transaction. The Creation Transaction Fee may vary and is based on the
composition of the securities included in each Fund's portfolio and the
countries in which the transactions are settled. The Creation Transaction Fee
may increase or decrease as each Fund's portfolio is adjusted to conform to
changes in the composition of its corresponding index. 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 operational
processing and brokerage costs, transfer fees or stamp taxes. When a Fund
permits an Authorized Participant to substitute cash or a different security in
lieu of depositing one or more of the requisite Deposit Securities, the
Authorized Participant may also be assessed an amount to cover the cost of
purchasing the Deposit Securities and/or disposing of the substituted
securities, including operational processing and brokerage costs, transfer fees,
stamp taxes, and part or all of the spread between the expected bid and offer
side of the market related to such Deposit Securities and/or substitute
securities.
Parties redeeming Creation Units must pay to BBH, as transfer agent, a
redemption transaction fee (the "Redemption Transaction Fee"), regardless of the
number of Creation Units redeemed in the transaction. The Redemption Transaction
Fee may vary and is based on the composition of the securities included in each
Fund's portfolio and the countries in which the transactions are settled. The
Redemption Transaction Fee may increase or decrease as each Fund's portfolio is
adjusted to conform to changes in the composition of its corresponding index.
Each Fund reserves the right to effect redemptions in cash. An Authorized
Participant may request a cash redemption in lieu of securities; however, each
Fund may, in its discretion, reject any such request.
The standard Creation Transaction Fees and the Redemption Transaction Fees for
each Fund are as follows:
Creation Redemption
Transaction Transaction
Fees Fees
----------- -----------
First Trust NASDAQ Technology Dividend Index Fund $ 500 $ 500
Multi-Asset Diversified Income Index Fund 1,000 1,000
|
6. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
Page 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST EXCHANGE-TRADED FUND VI
MARCH 31, 2013 (UNAUDITED)
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before January 31, 2015.
7. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined there
were the following subsequent events:
On April 22, 2013, MDIV declared a dividend of $0.0758 per share to Common
Shareholders of record on April 25, 2013, payable April 30, 2013.
On May 20, 2013, MDIV declared a dividend of $0.1250 per share to Common
Shareholders of record on May 23, 2013, payable May 31, 2013.
Page 29
ADDITIONAL INFORMATION
FIRST TRUST EXCHANGE-TRADED FUND VI
MARCH 31, 2013 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
portfolio investments during the most recent 12-month period ended June 30 will
be available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website located at
http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Funds' website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
Page 30
RISK CONSIDERATIONS
FIRST TRUST EXCHANGE-TRADED FUND VI
MARCH 31, 2013 (UNAUDITED)
RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT
OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN
DOWNLOAD EACH FUND'S PROSPECTUS AT HTTP://WWW.FTPORTFOLIOS.COM OR CONTACT FIRST
TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS
THIS AND OTHER INFORMATION ABOUT EACH FUND. FOR ADDITIONAL INFORMATION ABOUT THE
RISKS ASSOCIATED WITH INVESTING IN THE FUNDS, PLEASE SEE THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE
DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS THE
DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND VI.
The following summarizes some of the risks that should be considered for the
Funds. 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 stock prices. Overall stock values could decline
generally or could underperform other investments.
An investment in a Fund involves risks similar to those of investing in any fund
of equity securities traded on an exchange. Investors buying or selling Fund
shares on the secondary market may incur brokerage commissions. In addition,
investors who sell Fund shares may receive less than the Fund shares' net asset
value. Unlike shares of open-end mutual funds, investors are generally not able
to purchase ETF shares directly from a Fund and individual ETF shares are not
redeemable. However, specified large blocks of ETF shares called creation units
can be purchased from, or redeemed to, a Fund.
Each Fund is subject to index tracking risk. You should anticipate that the
value of each Fund's shares will decline, more or less, in correlation with any
decline in the value of that Fund's corresponding index.
Each Fund's return may not match the return of the index it seeks to track for a
number of reasons. While First Trust seeks to have a correlation of 0.95 or
better, before expenses, between a Fund's performance and the performance of its
corresponding index, there can be no assurance that a Fund will be able to
achieve such a correlation. Accordingly, each Fund's performance may correlate
to a lesser extent and may possibly vary substantially from the performance of
its corresponding index.
Each Fund is exposed to additional market risk due to its policy of investing
principally in the securities included in its corresponding index. As a result
of this policy, securities held by each Fund will generally not be bought or
sold in response to market fluctuations and the securities may be issued by
companies concentrated in a particular industry. As a result, the Funds 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 the
Fund seeks to track.
Each Fund relies on a license and related sublicense from an index provider that
permits it to use its corresponding index and associated trade names, trademarks
and service marks 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, a Fund may lose its ability to use such intellectual
property. There is no guarantee the index provider has all the rights to license
such intellectual property on behalf of the Fund. In the event the license is
terminated or the index provider does not have rights to license such
intellectual property, it may have a significant effect on the operation of the
respective Fund.
Each Fund is subject to issuer specific change 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.
Each Fund may be concentrated in stocks of companies in an individual industry
if the Fund's corresponding index is concentrated in such industry. A
concentration makes a Fund more susceptible to any single occurrence affecting
the industry and may subject a Fund to greater market risk than more diversified
funds.
The First Trust NASDAQ Technology Dividend Index Fund is considered to be
non-diversified. As a result, the Fund is exposed to additional market risk. A
non-diversified fund may invest a relatively high percentage of its assets in a
limited number of issuers. As a result, changes in the market value of a single
portfolio security could cause greater fluctuations in share price than would
occur in a diversified fund. Furthermore, non-diversified funds are more
susceptible to any single political, regulatory or economic occurrence.
Each Fund is not actively managed. A Fund may be affected by a general decline
in certain market segments relating to a Fund's corresponding index. A Fund
invests in securities included in or representative of its corresponding index
regardless of its investment merit. A Fund generally will not attempt to take
defensive positions in declining markets.
Page 31
RISK CONSIDERATIONS (CONTINUED)
FIRST TRUST EXCHANGE-TRADED FUND VI
MARCH 31, 2013 (UNAUDITED)
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 a Fund's assets can decline as can the value
of a Fund's distributions. Common stock prices may be particularly sensitive to
rising interest rates, as the cost of capital rises and borrowing costs
increase.
The Funds may invest in non-U.S. securities publicly traded in the United
States. Securities issued by non-U.S. companies present risks beyond those of
securities of U.S. issuers. Risks of investing in non-U.S. securities include:
different accounting standards; expropriation, nationalization or other adverse
political or economic developments; currency devaluation, blockages or transfer
restrictions; changes in non-U.S. currency exchange rates; taxes; restrictions
on non-U.S. investments and exchange of securities; and less government
supervision and regulation of issuers in non-U.S. countries. Prices of non-U.S.
securities also may be more volatile. These risks may be heightened for
securities of companies located in, or with significant operations in, emerging
market countries.
Depositary receipts may be less liquid than the underlying shares in their
primary trading market. Any distributions paid to the holders of depositary
receipts are usually subject to a fee charged by the depositary. Holders of
depositary receipts may have limited voting rights, and investment restrictions
in certain countries may adversely impact the value of depositary receipts
because such restrictions may limit the ability to convert equity shares into
depositary receipts and vice versa. Such restrictions may cause equity shares of
the underlying issuer to trade at a discount or premium to the market price of
the depositary receipts.
Each Fund invests in small 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.
The Multi-Asset Diversified Income Index Fund is subject to the risks of
investing in MLPs. An investment in MLP units involves risks which differ from
an investment in common stock of a corporation. Holders of MLP units have
limited control and voting rights on matters affecting the partnership. In
addition, there are certain tax risks associated with an investment in MLP units
and conflicts of interest exist between common unit holders and the general
partner, including those arising from incentive distribution payments. In
addition, there is the risk that a MLP could be, contrary to its intention,
taxed as a corporation, resulting in decreased returns from such MLP.
The Multi-Asset Diversified Income Index Fund invests in REITs. Therefore, the
Fund is subject to the risks associated with investing in real estate, which may
include, but are not limited to, fluctuations in the value of underlying
properties; defaults by borrowers or tenants; market saturation; changes in
general and local operating expenses; and other economic, political or
regulatory occurrences affecting companies in the real estate industry. In
addition to risks related to investments in real estate generally, investing in
REITs involves certain other risks related to their structure and focus, which
include, but are not limited to, dependency upon management skills, limited
diversification, the risks of locating and managing financing for projects,
heavy cash flow dependency, possible default by borrowers, the costs and
potential losses of self-liquidation of one or more holdings, the risk of a
possible lack of mortgage funds and associated interest rate risks,
overbuilding, property vacancies, increases in property taxes and operating
expenses, changes in zoning laws, losses due to environmental damages, changes
in neighborhood values and appeal to purchases, the possibility of failing to
maintain exemptions from registration under the 1940 Act and, in many cases,
relatively small market capitalization, which may result in less market
liquidity and greater price volatility.
REITs are also subject to the risk that the real estate market may experience an
economic downturn generally, which may have a material effect on the real estate
in which the REITs invest and their underlying portfolio securities.
The Multi-Asset Diversified Income Index Fund invests in ETFs. ETFs are
generally index funds bought and sold on a securities exchange. An ETF trades
like common stock and represents a portfolio of securities designed to track a
particular market index. The risks of owning an ETF generally reflect the risks
of owning the underlying securities they are designed to track, although lack of
liquidity in an ETF could result in it being more volatile and ETFs have
management fees that increase their costs.
The Multi-Asset Diversified Income Index Fund invests in an exchange-traded fund
that invests in high yield securities, which are subject to greater market
fluctuations and risk of loss than securities with higher investment ratings.
These securities are issued by companies that may have limited operating
history, narrowly focused operations, and/or other impediments to the timely
payment of periodic interest and principal at maturity. If the economy slows
down or dips into recession, the issuers of high-yield securities may not have
sufficient resources to continue making timely payment of periodic interest and
principal at maturity. The market for high-yield securities is smaller and less
liquid than that for investment grade securities. High-yield securities are
generally not listed on a national securities exchange but trade in the
over-the-counter markets. Due to the smaller, less liquid market for high-yield
securities, the bid-offer spread on such securities is generally greater than it
is for investment grade securities and the purchase or sale of such securities
may take longer to complete.
Page 32
RISK CONSIDERATIONS (CONTINUED)
FIRST TRUST EXCHANGE-TRADED FUND VI
MARCH 31, 2013 (UNAUDITED)
The Multi-Asset Diversified Income Index Fund invests in preferred securities.
Preferred securities combine some of the characteristics of both common stocks
and bonds. Preferred securities are typically subordinated to bonds and other
debt instruments in a company's capital structure, in terms of priority to
corporate income, and therefore will be subject to greater credit risk than
those debt instruments. Preferred securities are also subject to credit risk,
interest rate risk and income risk.
Credit risk is the risk that an issuer of a security will be unable or unwilling
to make dividend, interest and/or principal payments when due and the related
risk that the value of a security may decline because of concerns about the
issuer's ability to make such payments. Credit risk may be heightened for a fund
because it may invest in exchange-traded funds that invest in "high yield" or
"junk" debt; such securities, while generally offering higher yields than
investment-grade debt with similar maturities, involve greater risks, including
the possibility of dividend or interest deferral, default or bankruptcy, and are
regarded as predominantly speculative with respect to the issuer's capacity to
pay dividends or interest and repay principal.
The First Trust NASDAQ Technology Dividend Index Fund invests in the securities
of companies in the technology sector. General risks of technology companies
include the risks of rapidly changing technologies, short product life cycles,
fierce competition, aggressive pricing and reduced profit margins, loss of
patent, copyright and trademark protections, cyclical market patterns, evolving
industry standards, and frequent new product introductions. Technology companies
may be smaller and less experienced companies, with limited product lines,
markets or financial resources and fewer experienced management or marketing
personnel.
The First Trust NASDAQ Technology Dividend Index Fund invests in companies in
the telecommunications sector. Telecommunications companies are subject to
risks, such as: a market characterized by increasing competition and regulation
by the Federal Communications Commission and various state regulatory
authorities; the need to commit substantial capital to meet increasing
competition, particularly in formulating new products and services using new
technology; and technological innovations that may make various products and
services obsolete.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
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FIRST TRUST
First Trust Exchange-Traded Fund VI
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
Brown Brothers Harriman & Co.
50 Milk Street
Boston, MA 02109
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
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