No filing fee is required because of reliance on Section
24(f) and an indefinite number of shares have previously been registered pursuant to Rule 24f-2 under the Investment Company Act
of 1940.
I am writing to you to ask for your
vote on a very important matter that will significantly affect your investment in First Trust Value Line® 100 Exchange-Traded
Fund (“FVL”). Enclosed is a proxy statement and prospectus (“Proxy Statement/Prospectus”) seeking your
approval of a proposal at a special meeting of shareholders of FVL (the “Meeting”).
At the Meeting, which is expected to
be held at the offices of First Trust Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, on [________],
2020, at [_____ p.m.], shareholders will be asked to consider and vote upon a proposal involving a reorganization transaction (the
“Reorganization”) whereby FVL will be combined with First Trust Value Line® Dividend Index Fund (“FVD”),
an exchange-traded fund (“ETF”) organized as a separate series of First Trust Exchange-Traded Fund, an open-end management
investment company, pursuant to which shareholders of FVL would become shareholders of FVD.
Through the Reorganization, shares of
FVL would be exchanged, on a tax-free basis for federal income tax purposes as further described herein, for shares of FVD with
an equal aggregate net asset value, and FVL shareholders will become shareholders of FVD.
In determining to recommend approval
of the proposal, the Board of Trustees of FVL considered the following factors, among others:
The Board of Trustees of FVL has unanimously
approved the Agreement and Plan of Reorganization (the “Plan”) and the transactions it contemplates and recommends
that FVL shareholders vote “FOR” approval of the Plan and the Reorganization it contemplates. A copy of the
form of the Plan is attached as Exhibit A to the enclosed Proxy Statement/Prospectus.
Also included in this booklet are the
following materials concerning the upcoming Meeting:
While you are, of course, welcome to
join us at the Meeting, most shareholders cast their vote by filling out and signing the enclosed proxy card or by voting by touch-tone
telephone or via the Internet. We urge you to review the enclosed materials thoroughly. Once you’ve determined how you would
like your interests to be represented, please promptly complete, sign, date and return the enclosed proxy card or vote by touch-tone
telephone or via the Internet. A postage-paid envelope is enclosed for mailing, and touch-tone telephone and Internet voting instructions
are listed at the top of your proxy card.
Our proxy solicitor, AST Fund Solutions
LLC, may contact you to encourage you to exercise your right to vote.
We appreciate your participation in
this important Meeting. Thank you.
James
A. Bowen
Although we recommend that you read the entire Proxy Statement/Prospectus,
for your convenience, we have provided a brief overview of the issues to be voted on.
The Board of Trustees of FVL has determined that the
proposal is in the best interests of the Fund. The Board of Trustees unanimously recommends that you vote FOR the proposal.
Upon the closing of the reorganization of FVL into
FVD, FVL shareholders will receive newly issued shares of FVD. Shareholders of FVL will receive a number of FVD shares equal in
aggregate net asset value to the aggregate net asset value of the FVL shares held by such shareholders, each computed as of the
close of regular trading on the New York Stock Exchange on the business day immediately prior to the date of the closing of the
Reorganization (the “Valuation Time”).
FVL is an index-based exchange-traded fund (“ETF”)
whose investment objective is to seek investment results that correspond generally to the price and yield (before fees and expenses)
of an equity index called the Value Line® 100 Index (the “FVL Index”). In contrast,
FVD is an index-based ETF whose investment objective is to seek investment results that correspond generally to the price and yield
(before fees and expenses) of an equity index called the Value Line® Dividend Index (the “FVD Index”).
FVL pursues its investment objective by investing at
least 90% of its net assets (including investment borrowings) in the common stocks and depositary receipts that comprise the FVL
Index. FVL, using an indexing investment approach, attempts to replicate, before fees and expenses, the performance of the FVL
Index. FVL’s investment advisor 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. The FVL Index is developed
by Value Line Publishing, LLC (the “Index Provider”) and calculated by NYSE Arca. The FVL Index seeks to measure the
performance of the 100 highest ranked securities according to the Index Provider’s proprietary Value Line Timeliness Ranking
System.
FVD pursues its investment objective by investing at
least 90% of its net assets (including investment borrowings) in the common stocks and depositary receipts that comprise the FVD
Index. FVD, using an indexing investment approach, attempts to replicate, before fees and expenses, the performance of the FVD
Index. FVD’s investment advisor seeks a correlation of 0.95 or better (before fees and expenses) between FVL’s performance
and the performance of the FVL Index; a figure of 1.00 would represent perfect correlation. The FVD Index is developed by the Index
Provider and calculated by NYSE Arca. The FVD Index seeks to measure the performance of the securities ranked #1 or #2 according
to the Index Provider’s proprietary Value Line® SafetyTM Ranking System that are also still expected to provide
above-average dividend yield.
The principal differences between the investment strategies
of FVL and FVD are that FVL and FVD seek investment results that track different, but similar, indices, that FVD has significant
holdings in the financial and utilities sectors, and that FVD invests in securities focused on dividend yield. As a result of such
differences, FVL and FVD are subject to different risks associated with such different investments and strategies.
FVL, if requested by FVD, will attempt to dispose of
assets that do not conform to FVD’s investment objective, policies and restrictions in advance of the Reorganization. FVL
intends to pay a dividend of any undistributed realized net investment income, if any, immediately prior to the closing of the
Reorganization of FVL into FVD. The amount of dividends actually paid, if any, will depend on a number of factors, such as changes
in the value of FVL’s holdings and the extent of the liquidation of securities between the date of the Meeting and the closing
of such Reorganization. Any net investment income realized prior to the Reorganization will be distributed to FVL’s shareholders
as ordinary dividends (to the extent of net realized short-term capital gains distributed) during or with respect to the year of
sale, and such distributions will be taxable to FVL’s shareholders. As of the date hereof, no long-term capital gains dividends
are expected to be paid by FVL prior to the Reorganization.
A. You can vote
in any one of four ways:
A. Please call
AST Fund Solutions LLC, the Funds’ proxy solicitor, at [ ].
Notice is hereby given that a Special
Meeting of Shareholders (the “Meeting”) of First Trust Value Line® 100 Exchange-Traded Fund (“FVL”),
a series of First Trust Exchange-Traded Fund, a Massachusetts business trust, is expected to be held at the offices of First Trust
Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, on [_______], 2020, at [___ p.m.] Central
time, to consider the following (the “Proposal”):
To approve an Agreement and Plan
of Reorganization by and between First Trust Exchange-Traded Fund, on behalf of FVL, and First Trust Exchange-Traded Fund, on behalf
of First Trust Value Line® Dividend Index Fund (“FVD”), pursuant to which FVL would (i) transfer all
of its assets to FVD in exchange solely for newly issued shares of FVD and FVD’s assumption of all of the liabilities of
FVL and (ii) immediately distribute such newly issued shares of FVD to FVL shareholders (collectively, the “Reorganization”).
The persons named as proxies will vote
in their discretion on any other business that may properly come before the Meeting and any adjournments or postponements thereof.
The time, date and location of the Meeting
may be subject to change, or the Meeting may be held remotely, in light of the ongoing COVID-19 pandemic. Any change to the time,
date or location of the Meeting will be included in a supplement to the accompanying proxy statement and prospectus and a press
release.
Holders of record of shares of FVL at
the close of business on [_______], 2020 are entitled to notice of and to vote at the Meeting and at any adjournments or postponements
thereof.
W. Scott Jardine
The following general rules for signing
proxy cards may be of assistance to you and will avoid the time and expense to the Fund involved in validating your vote if you
fail to sign your proxy card properly.
1. Individual
Accounts: Sign your name exactly as it appears in the registration on the proxy card.
2. Joint
Accounts: Either party may sign, but the name of the party signing should conform exactly to the name shown in the registration.
3. All
Other Accounts: The capacity of the individual signing the proxy should be indicated unless it is reflected in the form of registration.
For example:
This document contains a Proxy Statement/Prospectus
and is accompanied by a proxy card. A proxy card is, in essence, a ballot. When you vote your proxy, it tells us how to vote on
your behalf on an important issue relating to your fund. If you complete and sign the proxy card and return it to us in a timely
manner (or tell us how you want to vote by phone or via the Internet), we’ll vote exactly as you tell us. If you simply sign
and return the proxy card without indicating how you wish to vote, we’ll vote it in accordance with the recommendation of
the Board of Trustees as indicated on the cover of the Proxy Statement/Prospectus.
We urge you to review the Proxy Statement/Prospectus
carefully and either fill out your proxy card and return it to us by mail, vote by phone or vote via the Internet. Your prompt
return of the enclosed proxy card (or vote by phone or via the Internet) may save the necessity and expense of further solicitations.
If you have any questions, please call
AST Fund Solutions LLC, the proxy solicitor, at the special toll-free number we have set up for you: [ ].
The information contained in this Proxy Statement/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 Proxy Statement/Prospectus is being
furnished to shareholders of First Trust Value Line® 100 Exchange-Traded Fund (“FVL”), an exchange-traded
fund organized as a separate series of First Trust Exchange-Traded Fund, an open-end management investment company (the “Trust”),
in connection with a Special Meeting of Shareholders (the “Meeting”) called by the Board of Trustees of FVL (the “Board
of Trustees”) expected to be held at the offices of FVL, 120 E. Liberty Drive, Suite 400, Wheaton, Illinois 60187, on [_______],
2020, at [____ p.m.] Central time, as may be adjourned or postponed, to consider the proposal listed below, and discussed in greater
detail elsewhere in this Proxy Statement/Prospectus. The time, date and location of the Meeting may be subject to change, or the
Meeting may be held remotely, in light of the ongoing COVID-19 pandemic. Any change to the time, date or location of the Meeting
will be included in a supplement to this Proxy Statement/Prospectus and a press release. FVL and First Trust Value Line®
Dividend Index Fund (“FVD”), an exchange-traded fund organized as a separate series of the Trust, are referred to herein
collectively as the “Funds” and each is referred to herein individually as a “Fund.”
This Proxy Statement/Prospectus explains
concisely what you should know before voting on the proposal described in this Proxy Statement/Prospectus or investing in FVD.
Please read it carefully and keep it for future reference.
At the Meeting, the shareholders of
FVL will be asked to approve the proposal, as described below (the “Proposal”):
To approve an Agreement and Plan
of Reorganization by and between the Trust, on behalf of FVL, and the Trust, on behalf of FVD, the form of which is attached to
this Proxy Statement/Prospectus as Exhibit A (the “Plan”), pursuant to which FVL would (i) transfer all of its assets
to FVD in exchange solely for newly issued shares of FVD and FVD’s assumption of all of the liabilities of FVL and (ii) immediately
distribute such newly issued shares of FVD to FVL shareholders (collectively, the “Reorganization”).
The Board of Trustees has unanimously
approved the Proposal as being in the best interests of FVL, and unanimously recommends that you vote FOR the Proposal.
The Board of Trustees believes the Reorganization will allow FVL shareholders to hold shares in a fund with significantly greater
assets while allowing FVL’s shareholders the opportunity to continue their investment in a similar index strategy. In addition,
FVD has historically paid a higher distribution than FVL. No assurance can be given that FVD distributions will remain at their
current rate.
The proposed Reorganization seeks to
combine the Funds, which have similar investment strategies and risks, but also have important distinctions. The Plan provides
for the reorganization of FVL into FVD, pursuant to which FVL would (i) transfer all of its assets to FVD in exchange solely for
newly issued shares of FVD and FVD’s assumption of all of the liabilities of FVL and (ii) immediately distribute such newly
issued shares of FVD to FVL shareholders. Shareholders of FVL will receive a number of FVD shares equal in aggregate net asset
value to the aggregate net asset value of the FVL shares held as of the close of regular trading on the New York Stock Exchange
on the business day immediately prior to the closing of the reorganization of FVL into FVD (the “Valuation Time”).
Through the Reorganization, shares of FVL would be exchanged on a tax-free basis for federal income tax purposes for shares of
FVD. In the event that shareholders of FVL do not approve the Reorganization, each Fund will continue to exist and operate on
a stand-alone basis.
FVD lists and trades its shares on the
NYSE Arca Exchange (the “NYSE Arca”). Shares of FVD are not redeemable individually and therefore liquidity for individual
shareholders of FVD will be realized only through a sale on any national securities exchange on which the shares are traded at
market prices that may differ to some degree from the net asset value of the FVD shares. Reports, proxy materials and other information
concerning FVD can be inspected at the offices of the NYSE Arca.
The following documents contain additional
information about FVL and FVD, have been filed with the SEC and are incorporated by reference into this Proxy Statement/Prospectus:
(i) the prospectus and Statement of
Additional Information of FVD, dated May 1, 2019, relating to shares of FVD (SEC File No. 333-125751);
(ii) the prospectus and Statement of
Additional Information of FVL, dated May 1, 2019, relating to shares of FVL (SEC File No. 333-125751);
(iii) the audited financial statements
and related independent registered public accounting firm’s report for FVD and the financial highlights for FVD contained
in FVD’s Annual Report to Shareholders for the fiscal year ended December 31, 2019 (SEC File No. 811-21774);
(iv) the audited financial statements
and related independent registered public accounting firm’s report for FVL and the financial highlights for FVL contained
in FVL’s Annual Report to Shareholders for the fiscal year ended December 31, 2019 (SEC File No. 811-21774)
A copy of the FVD prospectus accompanies
this Proxy Statement/Prospectus. The Statement of Additional Information to this Proxy Statement/Prospectus is also incorporated
by reference and legally deemed to be part of this document, and is available upon oral or written request at no charge by calling
First Trust Advisors L.P. (“First Trust” or the “Advisor”) at (800) 621-1675 or by writing to First Trust
at 120 E. Liberty Drive, Suite 400, Wheaton, Illinois 60187. In addition, FVD will furnish, without charge, a copy of its prospectus,
most recent Annual Report or Semi-Annual Report to a FVL shareholder upon request. FVL’s prospectus dated May 1, 2019, and
Annual Report to Shareholders for the fiscal year ended December 31, 2019, containing audited financial statements, have been previously
made available or mailed to shareholders. Copies of these documents are available upon request and without charge by writing to
First Trust at the address listed above or by calling (800) 621-1675.
The Funds are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended (the “1940
Act”), and in accordance therewith are required to file reports and other information with the SEC. These reports, proxy
statement/prospectus materials and other information can be inspected and copied, after paying a duplicating fee, by electronic
request at publicinfo@sec.gov. In addition, copies of these documents may be viewed online or downloaded without charge from the
SEC’s website at www.sec.gov. Reports, proxy materials and other information concerning FVL and FVD may be inspected at the
offices of the NYSE Arca.
This Proxy Statement/Prospectus serves
as a prospectus of FVD in connection with the issuance of the FVD shares in the Reorganization. In this connection, no person has
been authorized to give any information or make any representation not contained in this Proxy Statement/Prospectus and, if so
given or made, such information or representation must not be relied upon as having been authorized. This Proxy Statement/Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which, or to any
person to whom, it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
INTRODUCTION
|
1
|
A. Synopsis
|
1
|
B. Risk Factors
|
8
|
C. Information About the Reorganization
|
14
|
D. Additional Information About the Investment Policies
|
23
|
Proposal — Reorganization of FVL Into FVD
|
28
|
ADDITIONAL INFORMATION ABOUT FVL AND FVD
|
29
|
GENERAL INFORMATION
|
33
|
OTHER MATTERS TO COME BEFORE THE MEETING
|
41
|
EXHIBIT A FORM OF AGREEMENT AND PLAN OF REORGANIZATION
|
A-1
|
EXHIBIT
B Form of Proxy Card for First Trust Value Line® 100 Exchange-Traded Fund
|
B-1
|
INTRODUCTION
You are being asked to vote at the Meeting to
approve the reorganization of FVL into FVD. Specifically, you are being asked to consider and approve the Plan, pursuant to which
the assets and liabilities of FVL will be transferred to FVD, and shareholders of FVL will become shareholders of FVD.
A.
Synopsis
The following is a summary of certain
information contained elsewhere in this Proxy Statement/Prospectus with respect to the proposed Reorganization and shareholders
should reference the more complete information contained in this Proxy Statement/Prospectus and in the Statement of Additional
Information contained in this registration statement (the “Reorganization SAI”) and the appendices thereto. Shareholders
should read the entire Proxy Statement/Prospectus carefully. Certain capitalized terms used but not defined in this summary are
defined elsewhere in this Proxy Statement/Prospectus.
The Proposed Reorganization
The Board of Trustees of FVL, including
the trustees who are not “interested persons” of the Fund (as defined in the 1940 Act), has unanimously approved the
proposed Reorganization, including the Plan. If the shareholders of FVL approve the Proposal, FVL will reorganize into FVD, pursuant
to which FVL would (i) transfer all of its assets to FVD in exchange solely for newly issued shares of FVD and FVD’s assumption
of all of the liabilities of FVL and (ii) immediately distribute such newly issued shares of FVD to FVL shareholders. In connection
with the Reorganization, FVD will issue to FVL shareholders book entry interests for the shares of FVD registered in a “street
name” brokerage account held for the benefit of such shareholders. Shareholders of FVL will receive a number of FVD shares
equal in aggregate net asset value to the aggregate net asset value of the FVL shares held as of the Valuation Time. Through the
Reorganization, shares of FVL would be exchanged on a tax-free basis for federal income tax purposes for shares of FVD. Like
shares of FVL, shares of FVD are not deposits or obligations of, or guaranteed or endorsed by, any financial institution, are not
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other agency, and involve risk, including
the possible loss of the principal amount invested.
Background and Reasons
for the Proposed Reorganization
Since its conversion from a closed-end
fund, FVL has failed to gather assets and gain market validation. This may be partially due to the fact that, since its conversion,
FVL has underperformed its benchmark. FVL’s Board of Trustees and management have regularly monitored the size and performance
of FVL and considered a variety of alternatives to increase its assets and have sought to develop a viable approach to address
FVL’s lack of scale. FVD has significantly greater assets than FVL and has outperformed FVL since FVL’s conversion
on June 15, 2007 through the end of 2019. The Board of Trustees and management of FVL believe the Reorganization may allow FVL
shareholders who become shareholders of FVD to experience the benefits associated with holding shares in a fund with significantly
greater assets than FVL while allowing FVL’s shareholders the opportunity to continue their investment in a similar index
strategy. Immediately after the Reorganization, FVD will have a greater asset base than FVL prior to the Reorganization. In addition,
FVD has and is expected to maintain the same total operating expense ratio on a net basis, after fee waivers and expense reimbursements,
as FVL, although FVD’s total operating expenses could increase after the current fee waivers and expense reimbursements terminate.
FVD has historically made higher distributions than FVL. No assurance can be given that FVD’s total operating expense ratio
and distributions will remain at their current rate.
Board Considerations Relating to the
Proposed Reorganization
Based on information provided by First
Trust, the Board of Trustees considered the following factors, among others, in determining to recommend that shareholders of FVL
approve the Plan and the Reorganization it contemplates:
|
·
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Compatibility of Investment Objectives and Policies. The Board of Trustees noted that FVL
and FVD are both index-based ETFs that seek to track an index provided by Value Line, Inc. ("Value Line") and that both
indices are comprised of U.S.-listed equities and selected from the same investment universe, although FVL’s underlying index
seeks to select stocks likely to be the best performers over the next six to 12 months while FVD’s underlying index seeks
to select stocks that provide above-average dividend yields with relatively low risk profiles, according to Value Line’s
proprietary methodologies. The Board of Trustees also considered the approximately 12% overlap of the Funds’ current portfolio
holdings.
|
|
·
|
Comparison of Fees and Expense Ratios; Expense Savings. The Board of Trustees considered
comparative expense information for FVL and FVD, including comparisons between the current advisory fee rates and expense ratios
for FVL and FVD and the estimated pro forma advisory fee rate and expense ratio of the combined fund. The Board of Trustees noted
that the advisory fee rate for each Fund is 0.50%, that each Fund’s total expenses are capped at 0.70% and that FVD’s
advisory fee rate would not change as a result of the Reorganization. The Board of Trustees considered that the Advisor currently
waives 19 basis points of FVL’s advisory fees under the expense cap. In addition, the Board of Trustees considered that the
Advisor recently renegotiated FVD’s index licensing fee, which decreased from 15 basis points to 12.5 basis points effective
January 2020, and will further decrease to 10 basis points effective January 2021, and that, as a result, FVD’s expense ratio
is expected to fall below the expense cap of 0.70%, benefitting both existing FVD shareholders and FVL shareholders following the
closing of the Reorganization. The Board of Trustees considered that the Reorganization would also benefit the Advisor as it would
no longer need to waive advisory fees for FVL. The Board of Trustees also considered that the slight increase in FVD’s assets
as a result of the Reorganization would increase the advisory fees payable to the Advisor.
|
|
·
|
Expenses of the Reorganization. The Board of Trustees noted that the Advisor proposed to
bear the direct costs of the Reorganization, including costs associated with proxy solicitation. The Board also noted the indirect
costs to be borne by FVL as a result of portfolio repositioning prior to the Reorganization.
|
|
·
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Improved Trading and Liquidity. The Board of Trustees considered the significantly larger
asset size and trading volume of FVD as compared to FVL and that FVL shareholders would benefit from becoming shareholders of a
larger fund with higher trading volume, likely resulting in improved liquidity and narrower bid-ask spreads experienced as shareholders
of FVD.
|
|
·
|
Fund Performance and Distribution Rates. The Board of Trustees reviewed the historical performance
of FVL and FVD, noting that FVD has outperformed FVL over the one-, three- five- and ten-year periods ended December 31, 2019,
and over the period since FVL’s conversion through December 31, 2019. The Board of Trustees also received information comparing
the Funds’ distribution rates as of December 31, 2019 and noted that FVD’s distribution rate was higher than FVL’s
distribution rate as of December 31, 2019.
|
|
·
|
Portfolio Management. The Board of Trustees noted that each Fund is managed by the Advisor’s
Investment Committee. The Board of Trustees noted that the Advisor’s Investment Committee would continue to manage FVD following
the closing of the Reorganization.
|
|
·
|
Anticipated Tax-Free Reorganization; Capital Loss Carryforwards. The Board of Trustees
noted the Advisor’s statement that the Reorganization will be structured with the intention that it qualify as a tax-free
reorganization for federal income tax purposes and that FVL and FVD will obtain an opinion of counsel substantially to this effect
(based on certain factual representations and certain customary assumptions). In addition, the Board of Trustees noted the Advisor’s
statement that FVL’s capital loss carryforwards would offset projected gains relating to portfolio repositioning and that
remaining capital loss carryforwards could be transferred in the Reorganization, which, subject to certain limitations, could then
be used by FVD.
|
|
·
|
Terms and Conditions of the Reorganization. The Board of Trustees considered the terms
and conditions of the Reorganization and whether the Reorganization would result in the dilution of the interests of existing shareholders
of FVL and FVD in light of the basis on which shares of FVD would be issued to shareholders of FVL.
|
Please see “Information About
the Reorganization—Background and Trustees’ Considerations Relating to the Proposed Reorganization”
below for a further discussion of the deliberations and considerations undertaken by the Board of Trustees in connection with the
proposed Reorganization.
The Board of Trustees of each Fund has
concluded that the Reorganization is in the best interests of its respective Fund and the interests of the existing shareholders
of each Fund will not be diluted as a result of the Reorganization. In the event that shareholders of FVL do not approve the Reorganization,
each Fund will continue to exist and operate on a stand-alone basis.
Material Federal Income Tax Consequences
of the Reorganization
For federal income tax purposes, no gain
or loss is expected to be recognized by FVL or its shareholders as a direct result of the Reorganization. Any undistributed net
investment income realized prior to the Reorganization will be distributed to FVL’s shareholders as ordinary dividends (to
the extent of net realized short-term capital gains distributed) during or with respect to the year of sale, and such distributions
will be taxable to FVL’s shareholders. As of the date hereof, no long-term capital gains dividends are expected to be paid
by FVL prior to the Reorganization. Through the Reorganization, FVL shares will be exchanged, on a tax-free basis for federal income
tax purposes, for shares of FVD with an equal aggregate net asset value, and FVL shareholders will become shareholders of FVD.
Comparison of the Funds
General. Both FVL and FVD are
diversified, index-based ETFs that were created as series of the Trust, an open-end management investment company organized as
a Massachusetts business trust on August 8, 2003.
Investment Objectives, Policies and
Strategies. The investment strategies of FVL and FVD are similar, but have some important distinctions, each as discussed and
summarized below. The primary differences between the investment strategies of FVL and FVD are as follows (i) FVL and FVD seek
investment results that track different, but similar, indices, (ii) FVD has significant holdings in the financial and utilities
sectors, and (iii) FVD invests in securities focused on dividend yield. As a result of such differences, FVL and FVD are subject
to the different risks associated with such different investments and strategies. The similarities and differences between the
Funds’ investment objectives, principal strategies and policies and non-principal and other investment strategies and policies
are highlighted below.
Each Fund’s investment objective
is a fundamental policy of the Fund and may not be changed without the approval of a “majority of the outstanding voting
securities” of the respective Fund. A “majority of the outstanding voting securities” means the lesser of (i) 67%
or more of the shares represented at a meeting at which more than 50% of the outstanding shares are represented, or (ii) more
than 50% of the outstanding shares.
Purchase, Redemption and Distribution.
FVL and FVD issue and redeem shares on a continuous basis, at net asset value, only in large specified blocks of shares (each a
“Creation Unit”). FVL and FVD shares are not individually redeemable securities of FVL and FVD, respectively, except
when aggregated as Creation Units. Shares of FVL and FVD are listed and traded on NYSE Arca under the ticker symbol “FVL”
and “FVD,” respectively, to provide liquidity for individual shareholders of FVL and FVD in amounts less than the size
of a Creation Unit. Shareholders of FVL and FVD are entitled to dividends as declared by their respective Trustees. Each of FVL
and FVD distribute their net investment income quarterly and their net realized capital gains at least annually, if any.
Past Performance. The bar charts
and tables below provide some indication of the risks of investing in the Funds by showing you how the performance of each Fund
has varied from year to year, and how the average total returns of the Funds for different periods compare. A Fund’s past
performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance information
for FVD is provided below.
First Trust Value Line®
Dividend Index Fund
Calendar Tear Total Returns as of
12/31
FVD’s past performance (before
and after taxes) is not necessarily an indication of how FVD will perform in the future.
Returns before taxes do not reflect
the effects of any income or capital gains taxes. All after-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of any state or local tax. Returns after taxes on distributions
reflect the taxed return on the payment of dividends and capital gains. Returns after taxes on distributions and sale of shares
assume a shareholder sold their shares at period end, and, therefore, are also adjusted for any capital gains or losses incurred.
Returns for the market indices do not include expenses, which are deducted from FVD returns, or taxes.
A shareholder’s own actual after-tax
returns will depend on their specific tax situation and may differ from what is shown here. After-tax returns are not relevant
to investors who hold, or will hold, FVD shares in tax-deferred accounts such as individual retirement accounts (“IRAs”)
or employee-sponsored retirement plans.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2019
|
FVD
|
1 Year
|
5 Year
|
10 Year
|
Since Inception(1)
|
Return Before Taxes
|
26.56%
|
10.79%
|
13.17%
|
10.16%
|
Return After Taxes on Distributions
|
25.47%
|
9.75%
|
12.06%
|
8.68%
|
Return After Taxes on Distributions and Sale of Fund Shares
|
15.69%
|
8.01%
|
10.37%
|
7.74%
|
Value Line® Dividend Index(2),(3) (reflects no deduction for fees, expenses or taxes)
|
27.63%
|
11.67%
|
14.08%
|
N/A
|
S&P 500® Index (reflects no deduction for fees, expenses or taxes)
|
31.49%
|
11.70%
|
13.56%
|
9.64%
|
Dow Jones U.S. Select Dividend IndexSM(3) (reflects no deduction for fees, expenses or taxes)
|
23.11%
|
9.91%
|
13.41%
|
N/A
|
|
(1)
|
Inception Date 8/19/2003
|
|
(2)
|
On December 15, 2006, FVD acquired the assets and adopted the financial and performance history of First Trust Value Line® Dividend
Fund (the “Predecessor FVD Fund”), a closed-end fund, which had an inception date of August 19, 2003. The inception
date total returns at Net Asset Value include the sales load of $0.675 per share on the initial offering. The investment goals,
strategies and policies of FVD are substantially similar to those of the Predecessor FVD Fund. The inception date of the FVD Index
was July 3, 2006. Returns for the FVD Index are only disclosed for those periods in which the FVD Index was in existence for the
entire period. The cumulative total returns for the period from the reorganization date (12/15/06) through period end (12/31/19)
were 201.19% and 202.63% at Net Asset Value and Market Value, respectively. That compares to an FVD Index return of 233.65% for
the same period. The average annual total returns for the period from the reorganization date (12/15/06) through period end (12/31/19)
were 8.82% and 8.86% at Net Asset Value and Market Value, respectively. That compares to an FVD Index return of 9.68% for the same
period.
|
Net Asset Value and Market Value returns
assume that all dividend distributions have been reinvested in the Fund at Net Asset Value and Market Value, respectively. Prior
to December 15, 2006, Net Asset Value and Market Value returns assumed that all dividend distributions were reinvested at prices
obtained by the Dividend Reinvestment Plan of the Predecessor FVD Fund and the price used to calculate Market Value return was
the AMEX (now known as the NYSE MKT) closing market price of the Predecessor FVD Fund.
|
(3)
|
Performance data is not available for all the periods shown in the table for the index because performance data does not exist
for some of the entire periods.
|
Performance information for FVL is provided
below.
First Trust Value Line®
100 Exchange-Traded Fund
Calendar Tear Total Returns as of
12/31
FVL’s past performance (before
and after taxes) is not necessarily an indication of how FVL will perform in the future.
Returns before taxes do not reflect
the effects of any income or capital gains taxes. All after-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of any state or local tax. Returns after taxes on distributions
reflect the taxed return on the payment of dividends and capital gains. Returns after taxes on distributions and sale of shares
assume a shareholder sold their shares at period end, and, therefore, are also adjusted for any capital gains or losses incurred.
Returns for the market indices do not include expenses, which are deducted from FVL returns, or taxes.
A shareholder’s own actual after-tax
returns will depend on their specific tax situation and may differ from what is shown here. After-tax returns are not relevant
to investors who hold FVL shares in tax-deferred accounts such as IRAs or employee-sponsored retirement plans.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2019
|
FVL
|
1 Year
|
5 Year
|
10 Year
|
Since Inception(1)
|
Return Before Taxes
|
22.38%
|
2.94%
|
8.79%
|
5.37%
|
Return After Taxes on Distributions
|
21.94%
|
2.65%
|
8.53%
|
4.58%
|
Return After Taxes on Distributions and Sale of Fund Shares
|
13.24%
|
2.13%
|
7.07%
|
4.07%
|
Value Line® 100 Index(2),(3) (reflects no deduction for fees, expenses or taxes)
|
23.42%
|
3.89%
|
9.80%
|
N/A
|
Russell 3000®Index (reflects no deduction
for
fees, expenses or taxes)
|
31.02%
|
11.24%
|
13.42%
|
9.74%
|
S&P 500® Index (reflects no deduction for fees, expenses or taxes)
|
-45.24%
|
7.91%
|
13.18%
|
8.49%
|
|
(1)
|
Inception Date 6/12/2003
|
|
(2)
|
On June 15, 2007, FVL acquired the assets and adopted the financial and performance history of First Trust Value Line® 100
Fund (the “Predecessor FVL Fund,”) a closed-end fund, which had an inception date of June 12, 2003. The inception date
total returns at Net Asset Value include the sales load of $0.675 per share on the initial offering. The investment goals, strategies
and policies of FVL are substantially similar to those of the Predecessor FVL Fund. The inception date of the FVL Index was January
16, 2007. Returns for the FVL Index are only disclosed for those periods in which the FVL Index was in existence for the entire
period. The cumulative total returns for the period from the reorganization date (06/15/07) through period end (12/31/19) were
44.30% and 44.24% at Net Asset Value and Market Value, respectively. That compares to an FVL Index return of 61.14% for that same
period. The average annual total returns for the period from the reorganization date (6/15/07) through period end (12/31/19) were
2.97% and 2.96% at Net Asset Value and Market Value, respectively. That compares to an FVL Index return of 3.88% for the same period.
Net Asset Value and Market Value returns assume that all dividend distributions have been reinvested in the Fund at Net Asset Value
and Market Value, respectively. Prior to June 15, 2007, Net Asset Value and Market Value returns assumed that all dividend distributions
were reinvested at prices obtained by the Dividend Reinvestment Plan of the Predecessor FVL Fund and the price used to calculate
Market Value return was the AMEX (now known as the NYSE MKT) closing market price of the Predecessor FVL Fund.
|
|
(3)
|
Performance data is not available for all the periods shown in the table for the index because performance data does not exist
for some of the entire periods.
|
B. Risk Factors
The investment strategies of FVL and
FVD are similar, but have some important distinctions, as discussed in this Proxy Statement/Prospectus. The principal differences
between the investment strategies of FVL and FVD are as follows (i) FVL and FVD seek investment results that track different, but
similar, indices, (ii) FVD has significant holdings in the financial and utilities sectors, and (iii) FVD invests in securities
focused on dividend yield. As a result of such differences, FVL and FVD are subject to different risks associated with such different
investments and strategies.
Aside from these differences, as investment
companies following similar strategies, many of the principal risks applicable to an investment in FVL are also applicable to an
investment in FVD. Shares of each Fund may change in value, and an investor could lose money by investing in either Fund. The Funds
may not achieve their investment objectives. An investment in a 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 a Fund involves risks similar to
those of investing in equity securities of any fund traded on an exchange. Risk is inherent in all investing.
As noted above, although many of the
principal risks applicable to an investment in FVL are also applicable to an investment in FVD, there are some differences in the
risks applicable to each Fund. FVD has significant holdings in financial companies and utilities companies making it more susceptible
to risks associated with those sectors than funds without such significant holdings such as FVL. FVD also invests in securities
that are expected to provide above-average dividend yield and therefore is more susceptible to the risks associated with dividends
and inflation which are described below.
Because the Funds have substantially
similar investment strategies, the Funds’ principal risks are substantially similar. The principal risks below should be
considered by shareholders of FVL in their evaluation of the Reorganization.
General Risks of Investing in the Funds
Authorized
Participant Concentration Risk
Only
an authorized participant may engage in creation or redemption transactions directly with a Fund. A limited number of institutions
act as authorized participants for each Fund. To the extent that these institutions exit the business or are unable to proceed
with creation and/or redemption orders and no other authorized participant steps forward to create or redeem, each Fund’s
shares may trade at a premium or discount to such Fund’s net asset value and possibly face delisting.
Cyber Security Risk
Each Fund is susceptible to operational risks
through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause
a Fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a Fund to
incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial
loss. Cyber security breaches may involve unauthorized access to a Fund’s digital information systems through “hacking”
or malicious software coding but may also result from outside attacks such as denial-of-service attacks through efforts to make
network services unavailable to intended users. In addition, cyber security breaches of the securities issuers or a Fund’s
third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers
in which a Fund invests, can also subject a Fund to many of the same risks associated with direct cyber security breaches. Although
each Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee
that such efforts will succeed, especially because each Fund does not directly control the cyber security systems of issuers or
third-party service providers.
Depositary Receipts Risk
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
the equity shares into depositary receipts and vice versa. Such restrictions may cause the equity shares of the underlying issuer
to trade at a discount or premium to the market price of the depositary receipts.
Equity
Securities Risk
The value of a Fund’s shares will
fluctuate with changes in the value of the equity securities in which it invests. Equity securities prices fluctuate for several
reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of
the relevant equity market, such as market volatility, or when political or economic events affecting an issuer occur. Common stock
prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity
market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
Index
Constituent Risk
A
Fund may be a constituent of one or more indices. As a result, a Fund may be included in one or more index-tracking exchange-traded
funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a Fund’s
shares, the size of a Fund and the market volatility of a Fund. Inclusion in an index could increase demand for a Fund and removal
from an index could result in outsized selling activity in a relatively short period of time. As a result, a Fund’s net asset
value could be negatively impacted and such Fund’s market price may be below such Fund’s net asset value during certain
periods. In addition, index rebalances may potentially result in increased trading activity in a Fund’s shares.
Index
Provider Risk
There is no assurance that an index provider,
or any agents that act on its behalf, will compile an index accurately, or that an index will be determined, maintained, constructed,
reconstituted, rebalanced, composed, calculated or disseminated accurately. An index provider and its agents do not provide any
representation or warranty in relation to the quality, accuracy or completeness of data in an index, and do not guarantee that
an index will be calculated in accordance with its stated methodology. The Advisor’s mandate as described in this prospectus
is to manage each Fund consistently with an index provided by the index provider. The Advisor relies upon the index provider and
its agents to accurately compile, maintain, construct, reconstitute, rebalance, compose, calculate and disseminate the index accurately.
Therefore, losses or costs associated with any index provider or agent errors generally will be borne by the Fund and its shareholders.
To correct any such error, an index provider or its agents may carry out an unscheduled rebalance of an index or other modification
of index constituents or weightings. When the Fund in turn rebalances its portfolio, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne by the Fund and its shareholders. Unscheduled rebalances also expose the
Fund to additional tracking error risk. Errors in respect of the quality, accuracy and completeness of the data used to compile
an index may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all,
particularly where an index is less commonly used as a benchmark by funds or advisors. For example, during a period where an index
contains incorrect constituents, the Fund tracking an index would have market exposure to such constituents and would be underexposed
to an index’s other constituents. Such errors may negatively impact the Fund and its shareholders. An index provider and
its agents rely on various sources of information to assess the criteria of issuers included in the Index, including information
that may be based on assumptions and estimates. Neither the Fund nor the Advisor can offer assurances that an index’s calculation
methodology or sources of information will provide an accurate assessment of included issuers.
Market
Maker Risk
A
Fund faces numerous market trading risks, including the potential lack of an active market for Fund shares due to a limited number
of market markers. Decisions by market makers or authorized participants to reduce their role or step away from these activities
in times of market stress could inhibit the effectiveness of the arbitrage process in maintaining the relationship between the
underlying values of a Fund’s portfolio securities and a Fund’s market price. A Fund may rely on a small number of
third-party market makers to provide a market for the purchase and sale of shares. Any trading halt or other problem relating to
the trading activity of these market makers could result in a dramatic change in the spread between a Fund’s net asset value
and the price at which a Fund’s shares are trading on the Exchange, which could result in a decrease in value of a Fund’s
shares. This reduced effectiveness could result in a Fund’s shares trading at a discount to net asset value and also in greater
than normal intraday bid-ask spreads for a Fund’s shares.
Market
Risk
Market risk is the risk that a particular
security, or shares of a Fund in general, may fall in value. Securities are subject to market fluctuations caused by such factors
as economic, political, regulatory or market developments, changes in interest rates and perceived trends in securities prices.
Shares of a Fund could decline in value or underperform other investments. In addition, local, regional or global events such as
war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant
negative impact on a Fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries
more significantly than others. Such events could adversely affect the prices and liquidity of a Fund’s portfolio securities
or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially
negative impact on the value of a Fund’s shares and result in increased market volatility. During any such events, the Fund’s
shares may trade at increased premiums or discounts to their net asset value.
Non-Correlation
Risk
A Fund’s return may not match
the return of its index for a number of reasons. A Fund incurs operating expenses not applicable to its index, and may incur costs
in buying and selling securities, especially when rebalancing a Fund’s portfolio holdings to reflect changes in the composition
of its index. In addition, a Fund’s portfolio holdings may not exactly replicate the securities included in its index or
the ratios between the securities included in its index.
Passive
Investment Risk
The
Funds are not actively managed. Each Fund invests in securities included in or representative of its index regardless of investment
merit. Each Fund generally will not attempt to take defensive positions in declining markets. In the event that an index is no
longer calculated, the index license is terminated or the identity or character of the index is materially changed, a Fund will
seek to engage a replacement index.
Portfolio
Turnover Risk
High portfolio turnover may result in
a Fund paying higher levels of transaction costs and may generate greater tax liabilities for shareholders. Portfolio turnover
risk may cause a Fund’s performance to be less than expected.
Premium/Discount
Risk
The market price of a Fund’s shares
will generally fluctuate in accordance with changes in a Fund’s net asset value as well as the relative supply of and demand
for shares on the exchange on which it trades. A Fund’s investment advisor cannot predict whether shares will trade below,
at or above their net asset value because the shares trade on an exchange at market prices and not at net asset value. Price differences
may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for shares will be
closely related, but not identical, to the same forces influencing the prices of the holdings of the Fund trading individually
or in the aggregate at any point in time. However, given that shares can only be issued and redeemed in Creation Units, and only
to and from broker-dealers and large institutional investors that have entered into participation agreements (unlike shares of
closed-end funds, which frequently trade at appreciable discounts from, and sometimes at premiums to, their net asset value), each
Fund’s investment advisor believes that large discounts or premiums to the net asset value of shares should not be sustained.
Significant
Exposure Risk
To the extent that a Fund invests a
large percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry
or sector, an adverse economic, business or political development may affect the value of a Fund’s investments more than
if a Fund were more broadly diversified. A significant exposure makes a Fund more susceptible to any single occurrence and may
subject a Fund to greater market risk than a fund that is more broadly diversified.
Smaller
Companies Risk
Small and/or mid capitalization companies
may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience
greater price volatility than larger, more established companies as a result of several factors, including limited trading volumes,
fewer products or financial resources, management inexperience and less publicly available information. Accordingly, such companies
are generally subject to greater market risk than larger, more established companies.
Trading
Issues Risk
Although the shares of each Fund are listed
for trading on an exchange, there can be no assurance that an active trading market for such shares will develop or be maintained.
Further, secondary markets may be subject to irregular trading activity and wide bid-ask spreads (which may be especially pronounced
for smaller funds). Trading in shares on an 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 an exchange is subject to trading halts caused
by extraordinary market volatility pursuant to the exchange’s “circuit breaker” rules. Market makers are under
no obligation to make a market in a Fund’s shares, and authorized participants are not obligated to submit purchase or redemption
orders for Creation Units. In the event market makers cease making a market in a Fund’s shares or authorized participants
stop submitting purchase or redemption orders for Creation Units, Fund shares may trade at a larger premium or discount to their
net asset value. There can be no assurance that the requirements of an exchange necessary to maintain the listing of a Fund will
continue to be met or will remain unchanged. A Fund may have difficulty maintaining its listing on an exchange in the event such
Fund’s assets are small or such Fund does not have enough shareholders.
Principal
Risks Exclusive to FVD
The following specific factors have been identified
as the principal risks of investing in FVD that do not pertain to FVL. These risks should be considered by shareholders of FVL
in their evaluation of the Reorganization. An investment in FVD may not be appropriate for all investors. FVD is not intended to
be a complete investment program. Investors should consider their long-term investment goals and financial needs when making an
investment decision with respect to FVD. Shares of FVD at any point in time may be worth less than an investor’s original
investment. As indicated, FVL may also be subject to certain of these risks.
Dividends
Risk
FVD’s investment in dividend-paying securities
could cause FVD to underperform similar funds that invest without consideration of an issuer’s track record of paying dividends.
Companies that issue dividend-paying securities are not required to continue to pay dividends on such securities. Therefore, there
is the possibility that such companies could reduce or eliminate the payment of dividends in the future.
Financial Companies Risk
Financial companies, such as retail and commercial
banks, insurance companies and financial services companies, are especially subject to the adverse effects of economic recession,
currency exchange rates, extensive government regulation, decreases in the availability of capital, volatile interest rates, portfolio
concentrations in geographic markets, industries or products (such as commercial and residential real estate loans), competition
from new entrants and blurred distinctions in their fields of business.
Inflation Risk
Inflation risk is the risk that the value of
assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases,
the present value of FVD’s assets and distributions may decline.
Utilities Companies Risk
Utilities companies include companies producing
or providing gas, electricity or water. These companies are subject to the risk of the imposition of rate caps, increased competition
due to deregulation, the difficulty in obtaining an adequate return on invested capital or in financing large construction projects,
the limitations on operations and increased costs and delays attributable to environmental considerations and the capital market’s
ability to absorb utility debt. In addition, taxes, government regulation, international politics, price and supply fluctuations,
volatile interest rates and energy conservation may negatively affect utilities companies.
Principal Risks Related to the Proposed Reorganization
The following are principal risks related to
the proposed Reorganization:
Anticipated Benefits Risk
Although it is anticipated that the Reorganization
will lead to certain benefits for FVL and FVD shareholders, we cannot assure you that these benefits, along with any other benefits
that are anticipated from the Reorganization, will be realized.
Tax
Risk
In addition to the foregoing risks of
investing in FVD, tax risk is associated with the proposed Reorganization. FVL’s
counsel is giving an opinion that the Reorganization will be a tax-free reorganization for federal income tax purposes. See “Information
about the Reorganization – Federal Income Tax Consequences.” However, no ruling is being sought from the Internal Revenue
Service (the “IRS”) to determine whether the IRS in fact agrees with the opinion of FVL’s counsel. The opinion
of FVL’s counsel’s opinion is not binding upon the IRS, and the IRS could take a position different from that reflected
in the opinion. The opinion does not address state or foreign tax consequences of the Reorganization, which could vary from state
to state and country to country. The opinion relies upon the current statute and regulations, portions of which have been changed
recently and have not yet been subject to full and complete interpretation by the courts. In addition, tax laws and rules may change
in the future, and some changes may apply retroactively. The opinion only addresses current law.
The tax opinion also relies on certain
representations by the parties to the Reorganization as to current facts and future behavior. If such representations are not in
fact correct, the Reorganization could be viewed as a taxable sale of the assets of FVL to FVD resulting in gain recognition to
FVL. Under such circumstances, the shareholders of FVL would individually owe taxes on the gain recognized in the Reorganization,
and potentially for their proportionate portion of the taxes of FVL. No reserves are being created to fund any such tax liability,
and it is not anticipated that any portion of the distribution of shares will be designated as a capital gain distribution.
C. Information About the Reorganization
General
The Board of Trustees of FVL has unanimously
approved, and the shareholders of FVL are being asked to approve, the Plan by and between the Trust, on behalf of FVL, and the
Trust, on behalf of FVD, and the transactions it contemplates, including the reorganization of FVL into FVD in exchange for shares
of FVD, on a tax-free basis for federal income tax purposes as provided for therein. The Board of Trustees believes the Reorganization
will allow FVL shareholders to hold shares in a fund with significantly greater assets while allowing FVL’s shareholders
the opportunity to continue their investment in a similar index strategy. In addition, FVD is expected to maintain a similar total
operating expense ratio as FVL following the Reorganization, although FVD’s total operating expense ratio could increase.
The Board of Trustees of each Fund has determined that the proposed Reorganization is in the best interests of its respective Fund
and that the interests of its respective Fund’s existing shareholders will not be diluted as a result of the transactions
contemplated by the Reorganization.
The affirmative vote of a majority of
the outstanding voting securities of FVL is required to approve the Plan. The “vote of a majority of the outstanding voting
securities” is defined in the 1940 Act as the vote of the lesser of (i) 67% or more of the shares of the Fund present at
the Meeting, if the holders of more than 50% of such outstanding shares are present in person or represented by proxy; or (ii)
more than 50% of such outstanding shares of the Fund. Abstentions and broker non-votes will be treated as present for purposes
of determining a quorum at the Meeting. Abstentions and broker non-votes will have the same effect as a vote against the approval
of the Plan and the Reorganization it contemplates.
A copy of the Plan is attached hereto
as Exhibit A for your reference.
Terms of the Reorganization
Pursuant to, and subject to the conditions
contained in, the Plan, the proposed Reorganization seeks to combine the Funds, which have similar investment strategies and risks,
but also have important distinctions. The Plan provides for the reorganization of FVL into FVD, pursuant to which FVL would (i)
transfer all of its assets to FVD in exchange solely for newly issued shares of FVD and FVD’s assumption of all of the liabilities
of FVL and (ii) immediately distribute such newly issued shares of FVD to FVL shareholders. As a result, all of the assets of FVL
will be transferred to FVD and FVD will assume all of the liabilities of FVL, including without limitation FVL’s indemnification
obligations to its trustees and officers. Shareholders of FVL will receive a number of FVD shares equal in aggregate net asset
value to the aggregate net asset value of the FVL shares held as of the Valuation Time. Through the Reorganization, shares of FVL
would be exchanged on a tax-free basis for federal income tax purposes for shares of FVD. In the event that shareholders of FVL
do not approve the Reorganization, each Fund will continue to exist and operate on a stand-alone basis.
The newly issued FVD shares in the Reorganization
will be distributed to the shareholders of FVL in book entry form registered in a “street name” brokerage account held
for the benefit of such shareholders upon the conversion of their FVL shares. Shareholders of FVL will receive a number of FVD
shares based on their holdings in FVL as of the Valuation Time. FVD will not issue certificates representing FVD shares in connection
with the Reorganization, except for any global share certificate or certificates required by a securities depository in connection
with the establishment of book-entry ownership of FVD shares.
If requested by FVD, FVL agrees, prior to the
closing date of the reorganization, to attempt to dispose of assets that do not conform to FVD’s investment objective, policies
and restrictions. In addition, if it is determined that the FVL and the FVD portfolios, when aggregated, would contain investments
exceeding certain percentage limitations imposed upon FVD with respect to such investments, FVL, if requested by FVD, will dispose
of a sufficient amount of such investments as may be necessary to avoid violating such limitations as of the closing date of the
Reorganization. It is anticipated that 87% of FVL’s securities will be liquidated prior to the Reorganization. As a result
of the disposition of its assets, FVL may declare a taxable distribution that, together with all previous distributions, will have
the effect of distributing to FVL shareholders all of its net investment income, if any, net of brokerage commissions, through
the date of the Reorganization. As of the date hereof, no long-term capital gains dividends are expected prior to the Reorganization.
The sale of such investments may increase the taxable distribution to shareholders of FVL occurring prior to the Reorganization
above that which they would have received absent the Reorganization. It is estimated that portfolio repositioning will result in
transaction costs payable by FVL in advance of the Reorganization of approximately $11,000, or 0.03% of its net assets, based on
average costs normally incurred in such transactions.
The direct expenses incurred in connection
with the Reorganization (whether or not the Reorganization is consummated) will be borne by First Trust. Direct Reorganization
- related expenses include, without limitation: (a) expenses associated with the preparation and filing of this Proxy Statement/Prospectus
and related proxy materials; (b) postage; (c) printing; (d) accounting fees; (e) legal fees; (f) solicitation costs; and (g) other
related administrative or operational costs. First Trust estimates that the amount of direct expenses to be incurred by First Trust
will be approximately $346,850.
The Plan may be terminated and the Reorganization
abandoned due to (i) mutual agreement of the Trust, on behalf of FVD, and the Trust, on behalf of FVL; (ii) a breach by the
non-terminating party of any representation, or warranty, or agreement to be performed at or before the closing of the reorganization,
if not cured within 30 days of the breach and prior to the closing; (iii) a condition precedent to the obligations of the terminating
party that has not been met or waived and it reasonably appears that it will not or cannot be met; or (iv) a determination by the
Board of Trustees of either FVL or FVD that the consummation of the transactions contemplated in the Plan is not in the best interests
of its respective Fund involved in the transactions contemplated by the Plan.
If the Proposal as presented in this
Proxy Statement/Prospectus is approved at the Meeting, the Reorganization is expected to be completed shortly after the meeting.
Background
and Trustees’ Considerations Relating to the Proposed Reorganization
On January 30, 2020,
the Board of Trustees of the Trust, on behalf of its series FVL and FVD, approved the the Reorganization. For the reasons discussed
below, the Board of Trustees determined that the proposed Reorganization would be in the best interests of FVL and FVD and that
the interests of the existing shareholders of FVL and FVD would not be diluted as a result of the Reorganization.
The Board of Trustees
considered the Reorganization over the course of meetings held in December 2019 and January 2020. At those meetings, the Advisor,
the investment adviser to both FVL and FVD, discussed with the Board of Trustees its reasons for proposing the Reorganization.
The Advisor noted that FVL has underperformed its benchmark over the one-, three-, five- and ten-year periods ended December 31,
2019, and over the period since FVL’s conversion from a closed-end fund to an index-based ETF on June 15, 2007 through December
31, 2019. In addition, the Advisor stated that FVL has received limited market validation in the form of fund flows, noting that
it has had net outflows in every year since 2010, that 2010 was the only year it had net inflows since its conversion, and that,
as of December 31, 2019, it had approximately $38.5 million in assets. The Advisor further noted that, due to the relative underperformance
of FVL’s index-based strategy and FVL’s pattern of outflows, the Advisor believes the Fund is unlikely to regain market
acceptance. Based on all the information reviewed, the Advisor expressed its view that reorganizing FVL into FVD was an attractive
option, given the compatibility of the investment strategies of the two Funds, the better historical performance and net flows
of FVD, the significantly larger size of FVD and the likelihood of improved trading and liquidity to be experienced by shareholders
of FVL as shareholders of FVD.
In advance of the
meetings at which the Reorganization was discussed, the Advisor provided the Board of Trustees with a variety of materials relating
to the Reorganization, including the rationale for and expected benefits of the Reorganization and comparative information about
the Funds. In connection with the meetings and prior to approving the Reorganization, the Trustees who are not “interested
persons” (as defined in the 1940 Act) of FVL or FVD (the “Independent Trustees”) reviewed the information provided
with the Advisor, reviewed with independent legal counsel applicable law and their duties in considering the Reorganization and
met in private sessions without the Advisor present.
Based
upon all the information provided and the discussions at the meetings, the Board of Trustees, including all of the Independent
Trustees, approved the Reorganization and recommends that shareholders of FVL vote to approve the Reorganization. In determining
to approve the Reorganization and to recommend that shareholders of FVL vote to approve the Reorganization, the Board of Trustees
considered, among other things, the following factors:
|
·
|
Compatibility of Investment Objectives and Policies. The Board of Trustees noted that FVL
and FVD are both index-based ETFs that seek to track an index provided by Value Line and that both indices are comprised of U.S.-listed
equities and selected from the same investment universe, although FVL’s underlying index seeks to select stocks likely to
be the best performers over the next six to 12 months while FVD’s underlying index seeks to select stocks that provide above-average
dividend yields with relatively low risk profiles, according to Value Line’s proprietary methodologies. The Board of Trustees
also considered the approximately 12% overlap of the Funds’ current portfolio holdings.
|
|
·
|
Comparison of Fees and Expense Ratios; Expense Savings. The Board of Trustees considered
comparative expense information for FVL and FVD, including comparisons between the current advisory fee rates and expense ratios
for FVL and FVD and the estimated pro forma advisory fee rate and expense ratio of the combined fund. The Board of Trustees noted
that the advisory fee rate for each Fund is 0.50%, that each Fund’s total expenses are capped at 0.70% and that FVD’s
advisory fee rate would not change as a result of the Reorganization. The Board of Trustees considered that the Advisor currently
waives 19 basis points of FVL’s advisory fees under the expense cap. In addition, the Board of Trustees considered that the
Advisor recently renegotiated FVD’s index licensing fee, which decreased from 15 basis points to 12.5 basis points effective
January 2020, and will further decrease to 10 basis points effective January 2021, and that, as a result, FVD’s expense ratio
is expected to fall below the expense cap of 0.70%, benefitting both existing FVD shareholders and FVL shareholders following the
closing of the Reorganization. The Board of Trustees considered that the Reorganization would also benefit the Advisor as it would
no longer need to waive advisory fees for FVL. The Board of Trustees also considered that the slight increase in FVD’s assets
as a result of the Reorganization would increase the advisory fees payable to the Advisor.
|
|
·
|
Expenses of the Reorganization. The Board of Trustees noted that the Advisor proposed to
bear the direct costs of the Reorganization, including costs associated with proxy solicitation. The Board of Trustees also noted
the indirect costs to be borne by FVL as a result of portfolio repositioning prior to the Reorganization.
|
|
·
|
Improved Trading and Liquidity. The Board of Trustees considered the significantly larger
asset size and trading volume of FVD as compared to FVL and that FVL shareholders would benefit from becoming shareholders of a
larger fund with higher trading volume, likely resulting in improved liquidity and narrower bid-ask spreads experienced as shareholders
of FVD.
|
|
·
|
Fund Performance and Distribution Rates. The Board of Trustees reviewed the historical performance
of FVL and FVD, noting that FVD has outperformed FVL over the one-, three- five- and ten-year periods ended December 31, 2019,
and over the period since FVL’s conversion through December 31, 2019. The Board of Trustees also received information comparing
the Funds’ distribution rates as of December 31, 2019 and noted that FVD’s distribution rate was higher than FVL’s
distribution rate as of December 31, 2019.
|
|
·
|
Portfolio Management. The Board of Trustees noted that each Fund is managed by the Advisor’s
Investment Committee. The Board of Trustees noted that the Advisor’s Investment Committee would continue to manage FVD following
the closing of the Reorganization.
|
|
·
|
Anticipated Tax-Free Reorganization; Capital Loss Carryforwards. The Board of Trustees
noted the Advisor’s statement that the Reorganization will be structured with the intention that it qualify as a tax-free
reorganization for federal income tax purposes and that FVL and FVD will obtain an opinion of counsel substantially to this effect
(based on certain factual representations and certain customary assumptions). In addition, the Board of Trustees noted the Advisor’s
statement that FVL’s capital loss carryforwards would offset projected gains relating to portfolio repositioning and that
remaining capital loss carryforwards could be transferred in the Reorganization, which, subject to certain limitations, could then
be used by FVD.
|
|
·
|
Terms and Conditions of the Reorganization. The Board of Trustees considered the terms
and conditions of the Reorganization and whether the Reorganization would result in the dilution of the interests of existing shareholders
of FVL and FVD in light of the basis on which shares of FVD would be issued to shareholders of FVL.
|
Based upon on all of
the foregoing considerations, the Board of Trustees approved the proposed Plan and the Reorganization contemplated thereby and
determined that the proposed Reorganization would be in the best interests of FVL and FVD. The Board of Trustees also determined
that the interests of the existing shareholders of FVL and FVD would not be diluted as a result of the Reorganization. The Board
of Trustees of FVL, including the Independent Trustees, unanimously recommends that shareholders of FVL approve the Plan and the
Reorganization.
Capitalization
The following table sets forth the unaudited
capitalization of each Fund as of December 31, 2019, and the pro forma combined capitalization of FVD as if the Reorganization
had occurred on such date. The following is for informational purposes only. No assurance can be given as to how many shares of
FVD will be received by the shareholders of FVL on the date the Reorganization takes place, and the foregoing should not be relied
upon to reflect the number of shares of FVD that actually will be received on or after such date.
|
|
FVL
|
|
FVD
|
|
Pro Forma Adjustments
|
|
FVD
Pro Forma Combined Fund(1)
|
Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares, $0.01 par value per share, 1,689,982 shares outstanding
for FVL, 268,287,986 shares outstanding for FVD, 269,358,830 shares outstanding for FVD Pro Forma Combined Fund(2)
|
|
$
|
16,900
|
|
|
$
|
2,682,880
|
|
|
$
|
(6,192
|
)
|
|
$
|
2,693,588
|
(2)
|
Paid-in Surplus
|
|
|
47,221,525
|
|
|
|
8,873,760,119
|
|
|
|
6,192
|
|
|
|
8,920,987,836
|
|
Accumulated distributable earnings (loss)
|
|
|
(8,655,928
|
)
|
|
|
788,775,745
|
|
|
|
—
|
|
|
|
780,119,817
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets
|
|
$
|
38,582,497
|
|
|
$
|
9,665,218,744
|
|
|
$
|
0
|
|
|
$
|
9,703,801,241
|
(4)
|
|
(1)
|
The adjusted balances are presented as if the Reorganization were effective as of December 31, 2019 for information purposes
only. The actual closing date of the Reorganization is expected to be promptly after shareholder approval of the Reorganization,
at which time the results would be reflective of the actual composition of shareholders’ equity at that date.
|
|
(2)
|
Assumes the issuance of 1,070,844 of FVD shares in the Reorganization which number is based on the net asset value of the FVD
shares and the net asset value of FVL common shares, as of December 31, 2019. The issuance of such number of FVD Shares would result
in the distribution of approximately 0.634 shares of FVD for each share of FVL, based on the net asset values of FVD shares and
FVL shares as of December 31, 2019.
|
|
(3)
|
FVL carries forward all of its net realized losses from investment transactions to FVD. Realized capital losses are historically
allowed to be carried forward for eight tax years. Limitations under the applicable tax regulations will apply to Reorganization
losses.
|
|
(4)
|
Includes the impact of estimated indirect Reorganization costs of $11,000 for FVL.
|
Description of the Shares to be Issued
by FVD
General. As a general matter,
the shares of FVL and FVD have the same voting rights and the same rights with respect to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up of the affairs of their respective Fund and have no rights to cumulative
voting. Holders of whole shares of each Fund are entitled to one vote per share on any matter on which the shares are entitled
to vote, while each fractional share is entitled to a proportionate fractional vote. Furthermore, FVL and FVD are governed by the
same Declaration (as hereinafter defined) and by-laws (the “By-Laws”), which constitute the Funds’ charter documents.
See “Additional Information About FVL and FVD – Charter Documents” below for additional discussion of each Fund’s
charter documents.
Under the charter documents of FVL,
shareholders of FVL are not entitled to dissenter’s rights of appraisal with respect to the reorganization of FVL into FVD.
Shareholders of FVL, however, may sell their shares on the NYSE Arca until the closing date of the Reorganization. After the Reorganization,
FVL shareholder will hold shares of FVD, which may also be sold on the NYSE Arca, as described in FVD’s prospectus.
The shares of FVL are currently listed
and traded on the NYSE Arca under the symbol FVL. If the Reorganization is consummated, FVL shares will no longer be listed on
the NYSE Arca and FVL will be dissolved, liquidated and terminated as provided in the Plan. The shares of FVD are currently listed
and traded on NYSE Arca under the symbol FVD. Reports, proxy materials and other information concerning FVL and FVD may be inspected
at the offices of the NYSE Arca.
The FVD shares, when issued in the Reorganization,
will be fully paid and non-assessable and have no rights to cumulative voting. Shareholders of FVD have no preference, preemptive,
conversion or exchange rights, except as the Trustees may determine from time to time.
Distributions and Dividend Reinvestment
Plan. Each of FVL and FVD distributes its net investment income quarterly and its net realized capital gains at least annually,
if any. FVD has a higher common share distribution rate than FVL. FVD has not established a dividend reinvestment plan, but dividends
may be reinvested automatically in additional FVD shares if the broker through whom you hold such shares makes this 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 brokerage commissions charged by the broker.
Comparative Fees and Expenses
The following table sets forth the fees
and expenses of investing in shares of FVL and FVD and the estimated pro forma fees and expenses of FVD after giving effect to
the Reorganization. Actual expenses of the combined Fund may be higher.
|
FVL
|
FVD
|
FVD
Pro Forma Combined Fund
|
Shareholder Fees (fees paid directly from your investment)
|
|
|
|
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
|
None
|
None
|
None
|
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
|
|
|
Management Fees
|
0.50%
|
0.50%
|
0.50%
|
Distribution and Service (12b-1) Fees
|
0.00%
|
0.00%
|
0.00%
|
Other Expenses
|
0.35%
|
0.21%
|
0.21%
|
Total Annual Fund Operating Expenses
|
0.85%
|
0.71%
|
0.71%
|
Fee Waiver and Expense Reimbursement
|
0.15%(1)
|
0.01%(2)
|
0.01%(2)
|
Net Annual Fund Operating Expenses
|
0.70%
|
0.70%
|
0.70%
|
________________
(1)
|
|
First Trust, FVL’s investment advisor, has agreed to waive fees and/or reimburse
Fund expenses to the extent that the operating expenses of FVL (excluding interest expense, brokerage commissions and other trading
expenses, acquired fund fees and expenses, taxes and extraordinary expenses) exceed 0.70% of its average daily net assets per
year at least through April 30, 2021. Expenses reimbursed and fees waived under such agreement are subject to recovery by FVL’s
investment advisor for up to three years from the date the fee was waived or expense was incurred, but no reimbursement payment
will be made by FVL if it results in FVL exceeding (i) the applicable expense limitation in place for the most recent fiscal year
for which such expense limitation was in place, (ii) the applicable expense limitation in place at the time the fees were waived,
or (iii) the current expense limitation. The agreement may be terminated by the Trust, on behalf of FVL, at any time and by FVL’s
investment advisor only after April 30, 2021 upon 60 days’ written notice.
|
(2)
|
|
First Trust, FVD’s investment advisor, has agreed to waive fees and/or reimburse
Fund expenses to the extent that the operating expenses of FVD (excluding interest expense, brokerage commissions and other trading
expenses, acquired fund fees and expenses, taxes and extraordinary expenses) exceed 0.70% of its average daily net assets per
year at least through April 30, 2021. Expenses reimbursed and fees waived under such agreement are subject to recovery by FVD’s
investment advisor for up to three years from the date the fee was waived or expense was incurred, but no reimbursement payment
will be made by the Fund if it results in the Fund exceeding (i) the applicable expense limitation in place for the most recent
fiscal year for which such expense limitation was in place, (ii) the applicable expense limitation in place at the time the fees
were waived, or (iii) the current expense limitation. The agreement may be terminated by the Trust, on behalf of FVD, at any time
and by FVD’s investment advisor only after April 30, 2021 upon 60 days’ written notice.
|
Example
The following example is intended to
help you compare the costs of investing in the shares of FVD on a pro forma basis following the Reorganization with the costs of
investing in FVL and FVD without the Reorganization. An investor would pay the following expenses on a $10,000 investment that
is held for the time periods provided in the table, assuming that all dividends and other distributions are reinvested and that
operating expenses remain the same. The example also assumes a 5% annual return and that FVD’s investment advisor’s
agreement to waive fees and/or pay FVD’s expenses to the extent necessary to prevent the operating expenses of FVD (excluding
interest expense, brokerage commissions and other trading expenses, taxes, and extraordinary expenses) from exceeding 0.70% of
average daily net assets per year will be terminated following April 30, 2021. The example should not be considered a representation
of future expenses or returns. Actual expenses may be greater or lesser than those shown.
|
1 Year
|
3 Years
|
5 Years
|
10 Years
|
FVL
|
$72
|
$256
|
$457
|
$1,035
|
FVD
|
$72
|
$226
|
$394
|
$882
|
FVD (pro forma)
|
$72
|
$226
|
$394
|
$882
|
Distributions
Each of FVL and FVD distributes its
net investment income quarterly, and each Fund distributes its net realized capital gains at least annually, if any. Neither FVL
nor FVD have established a dividend reinvestment plan, but dividends may be reinvested automatically in additional FVL or FVD shares,
respectively, if the broker through whom you hold such shares makes this 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 brokerage commissions charged by the
broker.
Federal Income Tax Consequences
As a condition to each Fund’s
obligation to consummate the Reorganization, each Fund will receive a tax opinion from Chapman and Cutler LLP (which opinion
would be based on certain factual representations and certain customary assumptions), to the effect that, on the basis of the existing
provisions of the Code, current administrative rules and court decisions, for federal income tax purposes:
(a) the
transfer of all FVL’s assets to FVD in exchange solely for FVD shares and the assumption by FVD of all the liabilities of
FVL immediately followed by the pro rata, by class, distribution to FVL shareholders of all FVD shares received by FVL in complete
liquidation of FVL and the termination of FVL as soon as practicable thereafter will constitute a “reorganization”
within the meaning of Section 368(a) of the Code and FVD and FVL will each be a “party to a reorganization,” within
the meaning of Section 368(b) of the Code, with respect to the Reorganization;
(b) no
gain or loss will be recognized by FVD upon the receipt of all the assets of FVL solely in exchange for FVD shares and the assumption
by FVD of all the liabilities of FVL;
(c) no
gain or loss will be recognized by FVL upon the transfer of all FVL’s assets to FVD solely in exchange for FVD shares and
the assumption by FVD of all the liabilities of FVL or upon the distribution (whether actual or constructive) of such FVD shares
to FVL shareholders solely in exchange for such shareholders’ shares of FVL in complete liquidation of FVL;
(d) no
gain or loss will be recognized by FVL shareholders upon the exchange of their FVL shares solely for FVD shares in the Reorganization;
(e) the
aggregate basis of FVD shares received by each FVL shareholder pursuant to the Reorganization will be the same as the aggregate
basis of the FVL shares exchanged therefor by such shareholder. The holding period of the FVD shares received by each FVL shareholder
in the Reorganization will include the period during which the FVL shares exchanged therefor were held by such shareholder, provided
such FVL shares are held as capital assets at the time of the Reorganization; and
(f) the
basis of FVL’s assets transferred to FVD will be the same as the basis of such assets in the hands of FVL immediately before
the effective time of the Reorganization. The holding period of the assets of FVL received by FVD will include the period during
which such assets were held by FVL.
No opinion
will be expressed as to (1) the effect of the Reorganization on FVL, FVD or any FVL Shareholder with respect to any asset
(including, without limitation, any stock held in a passive foreign investment company as defined in Section 1297(a) of the
Code) as to which any unrealized gain or loss is required to be recognized under federal income tax principles (a) at the
end of a taxable year (or on the termination thereof) or (b) upon the transfer of such asset regardless of whether such transfer
would otherwise be a non-taxable transaction under the Code, or (2) any other federal tax issues (except those set
forth above) and all state, local or foreign tax issues of any kind.
While FVL shareholders are not expected
to recognize any gain or loss upon the exchange of their shares in the Reorganization, differences in the Funds’ portfolio
turnover rates, net investment income and net realized capital gains may result in future taxable distributions to shareholders
arising indirectly from the Reorganization.
If the Proposal presented herein is
approved by the shareholders of FVL, FVL will declare a distribution to its shareholders of all undistributed realized net investment
income (computed without regard to the deduction for dividends paid) prior to the closing of the Reorganization, and such distributions
will be taxable to shareholders of FVL. Such distributions are estimated as of the date hereof to be between approximately $0.016
and $0.077 per share of realized net investment income. As of the date hereof, the Fund does not anticipate that it will have any
capital gains to distribute prior to the closing of the Reorganization.
FVL may reposition its portfolio prior
to the Reorganization. It is estimated that 87% of FVL’s portfolio will be sold in such repositioning and that such portfolio
repositioning will result in transaction costs payable by FVL in advance of the Reorganization of approximately $11,000, or 0.03%
of its net assets, based on average costs normally incurred in such transactions.
FVL has $10.6 million of net realized
losses from investment transactions, none of which will expire by FVL’s next fiscal year end, which it will carry forward
to FVD. FVL has no estimated built-in gain limitations and has an estimated built-in annual loss limitation of $487,857. FVD has
$66.2 million of net realized losses from investment transactions, none of which will expire by FVD’s next fiscal year end.
FVD has no estimated built-in loss limitations and no estimated built-in gain limitations.
This description of the federal income
tax consequences of the Reorganization is made without regard to the particular facts and circumstances of any shareholder. Shareholders
are urged to consult their own tax advisors as to the specific consequences to them of the Reorganization, including the applicability
and effect of state, local, non-U.S. and other tax laws.
Further Information Regarding the Reorganization
Each Fund’s Board of Trustees
has determined that the proposed Reorganization is in the best interests of its Fund. Accordingly, the Board of Trustees of FVL
recommends that FVL shareholders vote FOR approval of the Plan and the Reorganization it contemplates.
The affirmative vote of a majority of
the outstanding voting securities of FVL is required to approve the Plan. The “vote of a majority of the outstanding voting
securities” is defined in the 1940 Act as the vote of the lesser of (i) 67% or more of the shares of the Fund present
at the Meeting, if the holders of more than 50% of such outstanding shares are present in person or represented by proxy; or (ii) more
than 50% of such outstanding shares of the Fund.
If the Reorganization is approved by
shareholders of FVL, FVL shareholders will receive confirmation of the approval after the Reorganization is completed, indicating
the number of shares of FVD such FVL shareholders are receiving as a result of the Reorganization. Otherwise, FVL shareholders
will be notified in the next shareholder report of FVL. If the Reorganization is completed, the number of shares owned by an FVL
shareholder will change following the Reorganization, as the shareholder will own shares in a different entity. However, the shareholders
of FVL will receive a number of FVD shares equal in aggregate net asset value to the aggregate net asset value of the FVL shares
held as of the Valuation Time.
D. Additional
Information About the Investment Policies
General Comparison of FVL and FVD
The investment strategies of FVL and
FVD are similar, but have some important distinctions. FVL and FVD are index-based ETFs whose primary investment objective is to
achieve investment results that correspond generally to the price and yield (before fees and expenses) of their respective index.
FVL will seek to achieve its investment
objective by normally investing at least 90% of its net assets (including investment borrowings) in the common stocks and depositary
receipts that comprise the FVL Index. The FVL Index seeks to to measure the performance of the 100 highest ranked securities according
to Value Line Publishing, LLC (the “Index Provider”) proprietary Value Line Timeliness Ranking System. FVD will seek
to achieve its investment objective by normally investing at least 90% of its net assets (including investment borrowings) in the
common stocks and depositary receipts that comprise the FVD Index. The FVD Index seeks to measure the performance of the securities
ranked #1 and #2 according to the Index Provider’s proprietary Value Line® Safety™ Ranking System.
Both FVL and FVD have elected to be
classified as diversified funds. With certain exceptions, a diversified fund may not, with respect to 75% of its total assets,
invest more than 5% of total assets in the securities of a single issuer or invest in more than 10% of the outstanding voting securities
of such issuer.
Similar to most ETFs, FVL and FVD trade
their shares on a securities exchange, and persons wishing to buy or sell shares generally may do so through a broker-dealer and
pay and receive the market price per share (plus or minus any applicable commissions). ETFs also issue and redeem shares on a continuous
basis, at net asset value, in Creation Units. Creation Units of FVL and FVD will generally be issued and redeemed in-kind for securities
in which FVL and FVD invest, respectively. Except when aggregated in Creation Units, FVL and FVD shares are not redeemable securities.
For more information on the procedures for purchasing and redeeming Creation Units of FVD, please see “Purchase, Redemption
and Pricing of Shares” in the Reorganization SAI.
These ETF features are designed to protect
ongoing shareholders from adverse effects that could arise from frequent cash creation and redemption transactions such as those
that occur in a conventional mutual fund. In conventional mutual funds, redemptions can have an adverse tax impact on taxable shareholders
because of a mutual fund’s frequent need to sell portfolio securities to obtain cash to meet fund redemptions. These sales
may generate taxable gains for the shareholders of the mutual fund, whereas the in-kind Creation Unit redemption mechanism of FVL
and FVD generally will not lead to a tax event for the Funds or their ongoing shareholders. As a practical matter, only broker-dealers
or large institutional investors with creation and redemption agreements, called “Authorized Participants,” can purchase
or redeem these Creation Units. Shares of FVL and FVD are traded on the NYSE Arca to provide liquidity for purchasers of FVL or
FVD shares in amounts less than the size of a Creation Unit. The market price of FVL and FVD shares on the NYSE Arca may be equal
to, more or less than the net asset value per share, but shares of ETFs typically trade in a range close to net asset value per
share.
FVL and FVD shares are not currently
subject to any 12b-1 distribution and service fees. The Board of Trustees of the Trust, of which FVL and FVD are series, have adopted
Distribution and Service Plans pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plans, FVL and FVD
are authorized to pay an amount up to 0.25% of their average daily net assets each year, respectively, 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 authorized participants for providing distribution
assistance, including broker-dealer and shareholder support and educational and promotional services. No 12b-1 fees are currently
paid by FVL or FVD, and FVL and FVD will not impose these fees prior to April 30, 2021. However, in the event 12b-1 fees are charged
in the future, because these fees are paid out of FVL’s and FVD’s assets, respectively, over time these fees would
increase the cost of an investment in FVL or FVD and may cost shareholders more than certain other types of sales charges.
Principal Investment Strategies of FVD
FVD will normally invest at least 90%
of its net assets (including investment borrowings) in the common stocks and depositary receipts that comprise the FVD Index. FVD,
using an indexing investment approach, attempts to replicate, before fees and expenses, the performance of the FVD Index. FVD’s
investment advisor seeks a correlation of 0.95 or better (before fees and expenses) between FVD’s performance and the performance
of the FVD Index; a figure of 1.00 would represent perfect correlation. The FVD Index is developed by the Index Provider and calculated
by NYSE Arca.
The FVD Index seeks to measure the performance
of the securities ranked #1 or #2 according to the Index Provider’s proprietary Value Line® SafetyTM
Ranking System (the “Safety Ranking System”) that are also still expected to provide above-average dividend yield.
According to information published by Value Line, the Safety Ranking System seeks to measure the total risk of a security relative
to the total risk of the approximately 1,700 securities comprising the FVD Index’s initial universe. The initial universe
of 1,700 U.S.-listed equity securities accounts for approximately 90% of the market capitalization of all stocks traded on U.S.
securities exchanges and is intended to provide broad industry coverage. According to information published by Value Line, the
companies selected by Value Line for the initial universe are chosen based on the following criteria: (i) a market capitalization
of at least $500 million; (ii) a share price of at least $10; and (iii) a float of at least 10 million shares.
On a weekly basis, the Safety Ranking
System assigns a rank of #1 (safest) to #5 (riskiest) to each of the securities in the initial universe based on each security’s
expected total risk relative to the other securities in the universe. According to information published by Value Line, the Safety
Rank is derived from two equally weighted measurements, a security’s “price stability rank” and “financial
strength rating.” A security’s “price stability rank” is based on the standard deviation of weekly percent
changes in the price of the security over the last five years. A company’s “financial strength rating” is the
Index Provider’s measure of a company’s financial condition. The FVD Index excludes all securities that are not assigned
a Safety Rank of #1 or #2. The FVD Index also excludes all securities issued by companies with a market capitalization of less
than $1 billion and those companies with a lower than average dividend yield, as compared to the indicated dividend yield of the
S&P 500 Index. The remaining securities are selected for inclusion in the FVD Index and are equally weighted. Because the Safety
Ranking System assigns ranks weekly and the Index reconstitutes monthly, the Index may, for the remainder of any given monthly
period, contain securities that are no longer assigned a Safety Rank of #1 or #2. The FVD Index may contain the securities of small,
mid and large capitalization companies.
The FVD Index is rebalanced and reconstituted
monthly and FVD will make corresponding changes to its portfolio shortly after the FVD Index changes are made public. FVD will
be concentrated in an industry or a group of industries to the extent that the FVD Index is so concentrated. As of March 31, 2020,
the FVD Index was composed of 196 securities and the Fund had significant investments in financial companies and utilities companies,
although this may change from time to time. To the extent the Fund invests a significant portion of its assets in a given jurisdiction
or investment sector, the Fund may be exposed to the risks associated with that jurisdiction or investment sector.
Principal Investments of FVD
Equity Securities. FVD invests
in equity securities, including common stocks and depositary receipts. Common stock represents an equity ownership interest in
issuers. Holders of common stock are entitled to the income and increase in the value of the assets and business of the issuers
after all debt obligations and obligations to preferred stockholders are satisfied. Depositary receipts are certificates typically
issued by a bank or trust company that represent ownership interests in securities of non-U.S. companies. Depositary receipts may
or may not be jointly sponsored by the underlying issuer.
Principal Investment Strategies of FVL
FVL will normally invest at least 90% of its
net assets (including investment borrowings) in the common stocks and depositary receipts that comprise the FVL Index. FVL, using
an indexing investment approach, attempts to replicate, before fees and expenses, the performance of the FVL Index. FVL’s
investment advisor seeks a correlation of 0.95 or better (before fees and expenses) between FVL’s performance and the performance
of the FVL Index; a figure of 1.00 would represent perfect correlation. The FVL Index is developed by the Index Provider and
calculated by NYSE Arca.
The FVL Index seeks to measure the performance
of the 100 highest ranked securities according to the Index Provider’s proprietary Value Line Timeliness Ranking System (the “Timeliness
Ranking System”). According to information published by Value Line, the Timeliness Ranking System seeks to predict relative
price performance of the approximately 1,700 securities comprising the Value Line Investment Survey universe during the next six
to twelve months. The initial universe of 1,700 U.S.-listed equity securities accounts for approximately 90% of the market capitalization
of all stocks traded on U.S. securities exchanges and is intended to provide broad industry coverage.
On a weekly basis, the Timeliness Ranking
System employs an algorithm that utilizes a wide array of data to assign a Timeliness Rank from #1 (highest) to #5 (lowest) to
each of the securities in the initial universe based on each security’s expected price performance relative to the other
securities in the universe over the following six to twelve months. According to published reports, some of the information utilized
in determining a company’s Timeliness Rank include a company’s earnings growth, earnings growth over the past ten years
in relation to the recent price performance of the company’s stock relative to all of the securities comprising the initial
universe, recent quarterly earnings performance and reporting of results that are significantly better or worse than market expectations.
The 100 securities determined by the algorithm to be most likely to outperform the initial universe over the next six to twelve
months are assigned a #1 ranking. The 100 securities ranked #1 at the time of the Index reconstitution are selected for inclusion
in the Index and are equally weighted. Because the Timeliness Ranking System assigns ranks weekly and the FVL Index reconstitutes
monthly, the FVL Index may, for the remainder of any given monthly period, contain securities that are no longer assigned a Timeliness
Rank of #1. The FVL Index may contain the securities of small, mid and large capitalization companies.
The FVL Index is rebalanced and reconstituted
quarterly and FVL will make corresponding changes to its portfolio shortly after the FVL Index changes are made public. FVL will
be concentrated in an industry or a group of industries to the extent that the FVL Index is so concentrated. As of March 31, 2020,
the Index was composed of 96 securities. To the extent the Fund invests a significant portion of its assets in a given jurisdiction
or investment sector, the Fund may be exposed to the risks associated with that jurisdiction or investment sector.
Principal Investments of FVL
Equity Securities. FVL invests in equity securities, including
common stocks and depositary receipts. Common stock represents an equity ownership interest in issuers. Holders of common stock
are entitled to the income and increase in the value of the assets and business of the issuers after all debt obligations and obligations
to preferred stockholders are satisfied. Depositary receipts are certificates typically issued by a bank or trust company that
represent ownership interests in securities of non-U.S. companies. Depositary receipts may or may not be jointly sponsored by the
underlying issuer.
Investment Advisers and Portfolio Managers
First Trust Advisors L.P., 120 East Liberty
Drive, Wheaton, Illinois 60187, is the investment adviser to the Funds. In this capacity, First Trust provides certain clerical,
bookkeeping and other administrative services to each Fund as well as fund reporting services. In addition to the foregoing, First
Trust is also responsible for the selection and ongoing monitoring of the portfolio securities for the Funds. Following the Reorganization,
First Trust will continue in its capacity as the investment adviser of FVD.
First Trust is a limited partnership
with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. Grace Partners of DuPage
L.P. is a limited partnership with one general partner, The Charger Corporation, and a number of limited partners. The Charger
Corporation is an Illinois corporation controlled by James A. Bowen, the Chief Executive Officer of First Trust. First Trust discharges
is responsibilities subject to the policies of the Board of Trustees of the Funds.
As of April 15, 2020, First Trust served
as investment advisor to eight mutual funds, ten exchange-traded funds consisting of 153 series and 15 closed-end funds. It is
also the portfolio supervisor of certain unit investment trusts sponsored by First Trust Portfolios L.P., an affiliate of First
Trust, 120 East Liberty Drive, Wheaton, Illinois 60187 (“FTP”). FTP specializes in the underwriting, trading and distribution
of unit investment trusts and other securities. As of March 31, 2020, First Trust collectively managed or supervised approximately
$115 billion through unit investment trusts, exchange traded funds, closed-end funds, mutual funds and separate managed accounts.
First Trust is the supervisor of the First Trust unit investment trusts, while FTP is the sponsor. FTP is also a distributor of
mutual fund shares and exchange-traded fund creation units. First Trust and FTP are based in Wheaton, Illinois.
There is no one individual primarily
responsible for portfolio management decisions for FVL or FVD. Investments are made under the direction of the Investment Committee
of First Trust with daily decisions being made jointly by Investment Committee members. The Investment Committee consists of Daniel
J. Lindquist, Jon C. Erickson, David G. McGarel, Roger F. Testin, Stan Ueland and Chris A. Peterson.
Mr. Lindquist is Chairman of the Investment
Committee and presides over Investment Committee meetings. Mr. Lindquist is responsible for overseeing the implementation of the
Fund’s investment strategy. Mr. Lindquist joined First Trust as a Vice President in April 2004 and was a Senior Vice President
of First Trust and FTP from September 2005 to July 2012. Mr. Lindquist has been a Managing Director of First Trust and FTP since
2012.
Mr. Erickson has been a Senior Vice
President of First Trust and FTP since 2001. 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 the Chief Investment
Officer, Chief Operating Officer and a Managing Director of First Trust and FTP. As First Trust’s Chief Investment Officer,
Mr. McGarel consults with the other members of the Investment Committee on market conditions and First Trust’s general investment
philosophy. As Chief Operating Officer, Mr. McGarel is responsible for First Trust and FTP operations, including information systems,
trust administration and First Trust administration. Mr. McGarel was a Senior Vice President of First Trust and FTP from January
2004 to July 2012.
Mr. Testin has been a Senior Vice President
of First Trust and FTP since 2003. Mr. Testin is the head of First Trust’s Portfolio Management Group.
Mr. Ueland joined First Trust as a Vice
President in August 2005 and has been a Senior Vice President of First Trust and FTP since September 2012. At First Trust, he plays
an important role in executing the investment strategies of each portfolio of exchange-traded funds advised by First Trust.
Mr. Peterson is a Senior Vice President
and head of First Trust’s strategy research group. He joined First Trust in January of 2000. Mr. Peterson is responsible
for developing and implementing quantitative equity investment strategies. Mr. Peterson received his B.S. in Finance from Bradley
University in 1997 and his M.B.A. from the University of Chicago Booth School of Business in 2005. He has over 20 years of financial
services industry experience and is a recipient of the Chartered Financial Analyst designation.
Pursuant to the Investment Management Agreement between First Trust
and The Trust, on behalf of FVL and FVD, First Trust is paid an annual management fee of 0.50% of FVL and FVD’s respective
average daily net assets. FVL and FVD are responsible for paying all of their own expenses of operation. First Trust has agreed
to waive fees and/or reimburse FVL and FVD for expenses to the extent necessary to prevent their operating expenses (excluding
interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) from exceeding (as a percentage
of average daily net assets) 0.70%.
Proposal
The Proposal to be submitted to the
shareholders of First Trust Value Line® 100 Exchange-Traded Fund at the Meeting is as follows:
To approve an Agreement and Plan of Reorganization by and
between the First Trust Exchange-Traded Fund, on behalf of First Trust Value Line® 100 Exchange-Traded Fund, and
First Trust Exchange-Traded Fund, on behalf of First Trust Value Line® Dividend Index Fund, pursuant to which First
Trust Value Line® 100 Exchange-Traded Fund would (i) transfer all of its assets to First Trust Value Line®
Dividend Index Fund in exchange solely for newly issued shares of First Trust Value Line® Dividend Index Fund and
First Trust Value Line® Dividend Index Fund’s assumption of all of the liabilities of First Trust Value Line®
100 Exchange-Traded Fund and (ii) immediately distribute such newly issued shares of First Trust Value Line® Dividend
Index Fund to First Trust Value Line® 100 Exchange-Traded Fund shareholders (collectively, the “Reorganization”).
For the forgoing reasons, the Board
of Trustees of FVL recommends that FVL shareholders vote FOR approval of the Plan and the Reorganization it contemplates.
* * * *
ADDITIONAL INFORMATION
ABOUT FVL AND FVD
Charter Documents.
Each of FVL and FVD is a diversified
series of the Trust, a Massachusetts business trust governed by Massachusetts law. The Trust is governed by an Amended and Restated
Declaration of Trust, dated as of June 12, 2017 (the “Declaration”) and By-Laws. Additional information about the Declaration
and By-Laws is provided below.
Shares of beneficial interest of each
Fund entitle their holders to one vote per share and fractional shares entitle their holders to a proportionate fractional vote.
The Trust is permitted to have more than one series, and currently there are 19 series of the Trust existing in addition to FVL
and FVD. In some circumstances, all of the series vote together, but a separate vote will be taken by the shareholders of FVL and
FVD on matters affecting FVL and FVD, respectively, as a series when so required under the 1940 Act or when the Board of Trustees
of FVL and FVD has determined that the matter affects only the interests of the shareholders of FVL or FVD, respectively. If a
matter affects only a particular series of the Trust and does not affect FVL or FVD, only the required vote by that applicable
series shall be required. For example, a change in a fundamental investment policy for FVL would be voted upon only by shareholders
of FVL.
Neither Fund is required to hold annual
meetings of shareholders under its Declaration and By-Laws. Shareholder meetings of the Trust must be called when required by the
1940 Act to elect Trustees. Shareholder meetings of FVL and FVD may be called by a majority of the Trustees of the Trust. Shareholder
meetings of FVL and FVD shall be called by the Secretary of the Trust, upon the order of the Trustees of the Trust upon the written
request of the shareholders holding shares of FVL or FVD, respectively, representing in the aggregate not less than one-third of
the voting power of the outstanding shares of FVL or FVD, respectively, entitled to vote on the matters specified in such written
request provided that (i) such request shall state the purposes of such meeting and the matters proposed to be acted on, and (ii)
the shareholders of FVL or FVD requesting such meeting shall have paid to the Trust the reasonably estimated cost of preparing
and mailing the notice thereof, which the Secretary shall determine and specify to such shareholders.
Neither Fund’s shares have preemptive
rights. However, under the Declaration, the Trustees have the power to authorize from time to time, such preference, preemptive,
conversion or exchange rights as the Trustees may determine. Mutual funds, in general, issue shares that can be redeemed or sold
back to the fund at the fund’s net asset value per share (less any applicable redemption fee or sales charge). Unlike conventional
mutual funds, ETFs like FVL and FVD issue and redeem shares on a continuous basis, at net asset value, only in Creation Units.
Creation Units of FVL and FVD will generally be issued and redeemed in-kind for securities in which FVL or FVD, respectively, invest.
A Creation Unit of FVL and FVD consists of 50,000 shares. FVL and FVD shares are not individually redeemable securities of FVL
and FVD, respectively, except when aggregated as Creation Units. Shares of FVL and FVD are listed and traded on NYSE Arca under
the ticker symbols “FVL” and “FVD,” respectively, to provide liquidity for individual shareholders of FVL
and FVD shares in amounts less than the size of a Creation Unit.
Shareholders of FVL and FVD are entitled
to dividends as declared by the Trustees, and if the Trust were liquidated, each shareholder of FVL and FVD would be entitled to
receive pro rata the distributable assets of the Trust attributable to shares of FVL and FVD, respectively. Each of FVL and FVD
distribute their net investment income quarterly and their net realized capital gains at least annually, if any.
Under Massachusetts law, shareholders
of a Massachusetts business trust could, in certain circumstances, be held personally liable for the obligations of a Fund. However,
the Declaration contains an express disclaimer of shareholder liability for any debts, liability or obligation or expense incurred
by, contracted for, or otherwise existing with respect to the respective Fund and requires that notice of such limited liability
be given in each agreement, obligation or instrument entered into or executed by the Funds or the Trustees. The Declaration further
provides for indemnification for all claims and liabilities of any shareholder held personally liable for the obligations of a
Fund solely by reason of being or having been a shareholder of the Fund.
As noted above, the Trust issues its
shares in more than one series. The Declaration authorizes the issuance of classes of shares. All consideration received by FVL
or FVD for the issue or sale of shares of FVL or FVD, respectively, together with all assets in which such consideration is invested
or reinvested, and all income, earnings, profits and proceeds, including proceeds from the sale, exchange or liquidation of assets,
are held and accounted for separately from the other assets of the Trust, subject only to the rights of creditors of FVL or FVD,
respectively, and belong irrevocably to FVL or FVD for all purposes. Additional series of the Trust may be established by the Trustees
of the Trust from time to time. Shares of FVL or FVD may be issued in classes, with such relative rights and preferences as may
be determined by the Trustees from time to time.
In general, the Declaration of the Trust
requires a shareholder vote on those matters where the 1940 Act requires a vote of shareholders and also with respect to (i) the
removal of Trustees, (ii) the termination of the Trust under certain circumstances, (iii) certain amendments to the Declaration
of Trust, (iv) mergers, consolidations, or sale of assets involving the Trust or a series, except where the Trust or a series is
the surviving entity, and (v) to the same extent as the stockholders of a Massachusetts business corporation as to whether or not
a court action, proceeding, or claim should or should not be brought or maintained derivatively or as a class action on behalf
of the Trust or the shareholders.
The Trust is not required to hold annual
meeting of shareholders, and each Trustee is elected to serve until the next meeting of shareholders is called for the purpose
of considering the election or re-election of such Trustee or of a successor Trustee. Except as required by the 1940 Act or NYSE
Arca rules or as described above, the Declaration does not require the Trustees of the Trust to call meetings of the shareholders
for the election or re-election of Trustees. Subject to the limits of the 1940 Act, any vacancies on the Board of Trustees may
be filled by a majority of the Trustees then in office. The Declaration provides that, subject to the limits of the 1940 Act and
with the exception of certain limited circumstances, any Trustee of the Trust may be removed from office only (i) by action of
at least two-thirds of the outstanding shares of the respective Fund, or (ii) by the action of at least two-thirds of the remaining
Trustees.
Quorum for a shareholder meeting of
the Trust is the presence in person or by proxy of 33-1/3% of the voting power of the outstanding shares entitled to vote or, when
a matter requires a separate vote by series or class, then 33-1/3% of the voting power of the aggregate number of outstanding shares
of that series or class entitled to vote shall constitute a quorum as to the matter being voted upon by that series or class.
The foregoing is a very general summary
of certain provisions of the Charter Documents governing FVD and FVL. Please see the charter documents themselves for additional
information.
Independent Registered Public Accounting
Firm (“Auditor”)
Deloitte & Touche LLP serves as
Auditor for both FVL and FVD.
Fund Service Providers
The Bank of New York Mellon, 240 Greenwich
Street, New York, New York 10007, acts as the administrator, accounting agent, custodian and transfer agent to FVL and FVD. Chapman
and Cutler LLP, 111 West Monroe Street, Chicago, Illinois 60603, serves as legal counsel to both FVL and FVD.
Net Asset Value
FVD’s net asset value is determined
as of the close of trading (normally 4:00 p.m., Eastern time) on each day the New York Stock Exchange is open for business. Net
asset value is calculated for FVD by taking the market price of FVD’s total assets, including interest or dividends accrued
but not yet collected, less all liabilities, and dividing such amount by the total number of shares outstanding. The result, rounded
to the nearest cent, is the net asset value per share. All valuations are subject to review by the Board of Trustees of FVD or
its delegate.
FVD’s investments are valued daily
at market value or, in the absence of market value with respect to any portfolio securities, at fair value, in accordance with
valuation procedures adopted by the Board of Trustees and in accordance with the 1940 Act. Portfolio securities listed on any exchange
other than Nasdaq Stock Market (“Nasdaq”) and the London Stock Exchange Alternative Investment Market (“AIM”)
are valued at the last sale price on the business day as of which such value is being determined. Securities listed on Nasdaq or
the AIM are valued at the official closing price on the business day as of which such value is being determined. If there has been
no sale on such day, or no official closing price in the case of securities traded on Nasdaq or the AIM, the securities are fair
valued at the mean of the most recent bid and ask prices on such day. Portfolio securities traded on more than one securities exchange
are valued at the last sale price or official closing price, as applicable, on the business day as of which such value is being
determined at the close of the exchange representing the principal market for such securities. Portfolio securities traded in the
over-the-counter market, but excluding securities trading on Nasdaq or the AIM, are fair valued at the mean of the most recent
bid and asked price, if available, and otherwise at the closing bid price. Short-term investments that mature in less than 60 days
when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discount, provided First Trust’s
Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific
conditions existing at the time of the determination. Net asset value may change on days when investors may not sell or redeem
Fund shares.
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, First Trust’s
Pricing Committee, at fair value. The use of fair value pricing by FVD is governed by valuation procedures adopted by the Board
of Trustees and in accordance with the provisions of the 1940 Act. These securities generally include, but are not limited to,
certain restricted securities (securities which may not be publicly sold without registration under the Securities Act 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 or fair value price is not available from a pre-established pricing source; a security with respect to
which an event has occurred that is likely to materially affect the value of the security after the market has closed but before
the calculation of FVD’s net asset value or make it difficult or impossible to obtain a reliable market quotation; and a
security whose price, as provided by the pricing service, does not reflect the security’s fair value. As a general principle,
the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security
upon its current sale. When fair value prices are used generally they will differ from the current market valuations.
GENERAL
INFORMATION
Voting Process
This Proxy Statement/Prospectus, along
with the Notice of Special Meeting of Shareholders and the proxy card, is being mailed to shareholders of FVL on or about [ ],
2020. Much of the information is required to be disclosed under rules of the SEC. If there is anything you don’t understand,
please contact AST Fund Solutions LLC, proxy solicitor for the Funds, at [ ].
Shareholders of record of FVL as of
the close of business on [_______], 2020 (the “Record Date”) are entitled to notice of and to vote at the Meeting and
any and all adjournments or postponements thereof. If you are unable to attend the Meeting or any adjournment or postponement thereof,
the Board of Trustees requests that you vote your shares by completing and returning the enclosed proxy card or by recording your
voting instructions by telephone or via the Internet. On the matters coming before the Meeting as to which a choice has been specified
by shareholders on the accompanying proxy card, the shares will be voted accordingly where such proxy card is properly executed
and not properly revoked. If a proxy is returned and no choice is specified, the shares will be voted FOR the Proposal.
Shareholders who execute proxies or provide voting instructions by telephone or by Internet may revoke them at any time before
a vote is taken on the Proposal by filing with FVL a written notice of revocation, by delivering a duly executed proxy bearing
a later date, or by attending the Meeting and voting in person. A prior proxy can also be revoked prior to its exercise by voting
again through the toll-free number or the Internet address listed in the proxy card. Merely attending the Meeting, however, will
not revoke any previously submitted proxy. Shareholders who intend to attend the Meeting will need to show valid identification
and proof of share ownership to be admitted to the Meeting.
AST Fund Solutions LLC has been engaged
to assist in the solicitation of proxies for FVL. As the date of the Meeting approaches, certain shareholders of FVL may receive
a telephone call from a representative of AST Fund Solutions LLC if their votes have not yet been received. Authorization to permit
AST Fund Solutions LLC to execute proxies may be obtained by telephonic instructions from shareholders of FVL. Proxies that are
obtained telephonically will be recorded in accordance with the procedures described below. The Board of Trustees believes that
these procedures are reasonably designed to ensure that both the identity of the shareholder casting the vote and the voting instructions
of the shareholder are accurately determined.
In all cases where a telephonic proxy
is solicited, the representative of AST Fund Solutions LLC is required to ask for each shareholder’s full name and address,
or zip code, or both, and to confirm that the shareholder has received the proxy materials in the mail. If the shareholder is a
corporation or other entity, the representative is required to ask for the person’s title and confirmation that the person
is authorized to direct the voting of the shares. If the information solicited agrees with the information provided to AST Fund
Solutions LLC, then the representative has the responsibility to explain the process, read the Proposal on the proxy card, and
ask for the shareholder’s instructions on the Proposal. Although the representative is permitted to answer questions about
the process, he or she is not permitted to recommend to the shareholder how to vote, other than to read any recommendation set
forth in this Proxy Statement/Prospectus. AST Fund Solutions LLC will record the shareholder’s instructions on the proxy
card. Within 72 hours, the shareholder will be sent a letter or mailgram to confirm his or her vote and asking the shareholder
to call AST Fund Solutions LLC immediately if the shareholder’s instructions are not correctly reflected in the confirmation.
Please see the instructions on your
proxy card for voting by phone or via the Internet. Shareholders will have an opportunity to review their voting instructions and
make any necessary changes before submitting their voting instructions by phone or via the Internet.
Under the By-Laws of the Trust, a quorum
for the transaction of business at the Meeting is constituted by the presence in person or by proxy of the holders of at least
thirty-three and one-third percent (33-1/3%) of the voting power of the outstanding shares of FVL entitled to vote at the Meeting.
For purposes of establishing whether a quorum is present, all shares present in person or by properly submitted proxy and entitled
to vote, including abstentions and broker non-votes (i.e., shares held by brokers or nominees as to which (i) instructions
have not been received from the beneficial owners or the persons entitled to vote and (ii) the broker or nominee does not
have discretionary voting power on a particular matter), are counted.
If a quorum is not present, the chair
of the Meeting or person presiding thereat, as applicable, may adjourn the Meeting from time to time until a quorum is present.
In the event that a quorum is present but sufficient votes in favor of the Proposal have not been received, the Meeting may, by
motion of the person presiding thereat, be adjourned when such adjournment is approved by the vote of holders of shares of FVL
representing a majority of the voting power of the shares of FVL present and entitled to vote with respect to the matter to be
adjourned, and voting on the adjournment. Unless a proxy is otherwise limited in this regard, any shares of FVL present and entitled
to vote at the Meeting that are represented by broker non-votes may, at the discretion of the proxies named therein, be voted in
favor of adjournment.
Broker-dealer firms holding shares of
FVL in “street name” for the benefit of their customers and clients will request the instructions of such customers
and clients on how to vote their shares on the Proposal. Pursuant to NYSE Rule 452, broker-dealers that are members of the NYSE
Arca and that have not received instructions from a customer prior to the date specified in the broker-dealer’s request for
voting instructions may not vote such customer’s shares on the Proposal being considered at the Meeting. Broker-dealers who
are not members of the NYSE Arca may be subject to other rules, which may or may not permit them to vote customer shares without
instruction.
The affirmative vote of a majority of
the outstanding voting securities of FVL is required to approve the Proposal relating to the Plan as set forth on the cover of
this Proxy Statement/Prospectus. The “vote of a majority of the outstanding voting securities” is defined in the 1940
Act as the vote of the lesser of (i) 67% or more of the shares of FVL present at the Meeting, if the holders of more than
50% of such outstanding shares are present in person or represented by proxy; or (ii) more than 50% of such outstanding shares
of FVL. For purposes of determining the approval of the Plan and the Reorganization it contemplates by FVL shareholders, abstentions
and broker non-votes will have the effect of a vote against the Proposal.
Proxy solicitations will be made, beginning
on or about [ ],
2020, primarily by mail, but such solicitations may also be made by telephone or personal interviews conducted by (i) officers
of FVL, as applicable; (ii) AST Fund Solutions LLC, FVL’ proxy solicitor that will provide proxy solicitation services
in connection with the Proposal set forth herein; (iii) First Trust, the investment adviser of the Funds; (iv) the Bank of
New York Mellon, the administrator, accounting agent, custodian and transfer agent of FVL ; or (v) any affiliates of
those entities.
The direct expenses of the Reorganization
and of the proxy solicitation activities with respect thereto, including the costs incurred in connection with the preparation
of this Proxy Statement/Prospectus and its enclosures, will be paid by First Trust.
The indirect expenses of the Reorganization,
primarily relating to the repositioning of the assets of FVL, will be borne by FVL and are estimated to be approximately $11,000,
or 0.03% of its net assets, based on average costs normally incurred in such transactions.
As of the Record Date, [ ] shares of
FVL were outstanding. Shareholders of record on the Record Date are entitled to one vote for each share of FVL the shareholder
owns.
Share Ownership of FVL and FVD
Based solely on information First Trust
obtained from filings available on the SEC’s EDGAR website, the following tables provide information regarding persons who
owned beneficially or of record 5% or more of shares of FVL and FVD and, on a pro forma basis, FVD on a post-Reorganization basis.
Neither First Trust nor FVL have any knowledge regarding the identities of the ultimate beneficiaries of any of the shares referenced
below.
FVL
Name and Address
|
Number
of Shares Beneficially Owned(1)
|
Percentage of Ownership(1)
|
Wells Fargo Clearing Services, LLC
2801 Market Street H006-09B
St. Louis, MO 63103
|
213,512
|
13.03%
|
National Financial Services LLC
499 Washington Boulevard
Jersey City, NJ 07310
|
162,716
|
9.93%
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated/8862 MLPF
F&S TS SUB
4804 Deer lake Dr E
Jacksonville, FL 32246
|
160,260
|
9.78%
|
TD Ameritrade Clearing, Inc.
200 S. 108th Ave.
Omaha, NE 68154
|
159,876
|
9.76%
|
Morgan Stanley Smith Barney LLC
1300 Thames St., 6th Floor
Baltimore, MD 21231
|
102,559
|
6.26%
|
Edward Jones
201 Progress Parkway
Maryland Heights, MO 63043-3042
|
98,411
|
6.01%
|
Charles Schwab & Co., Inc.
2423 E Lincoln Dr.
Phoenix, AZ 85016
|
97,294
|
5.94%
|
BOFA Securities, Inc.
4804 Deer lake Dr E
Jacksonville, FL 32246
|
96,680
|
5.90%
|
(1)
|
|
This information is based solely on the information provided on such shareholder’s
filings with the SEC and First Trust. FVD and FVL disclaim any responsibility as to the accuracy of such information.
|
FVD
Name and Address
|
Number
of Shares Beneficially Owned(1)
|
Percentage of Ownership(1)
|
Morgan Stanley Smith Barney LLC
1300 Thames St., 6th Floor
Baltimore, MD 21231
|
44,491,906
|
15.68%
|
LPL Financial Corporation
1055 LPL Way
Fort Mill, SC 29715
|
26,678,366
|
9.40%
|
National Financial Services LLC
499 Washington Boulevard
Jersey City, NJ 07310
|
25,985,332
|
9.16%
|
Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, FL 33716
|
24,524,208
|
8.64%
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated/8862 MLPF
F&S TS SUB
4804 Deer lake Dr E
Jacksonville, FL 32246
|
22,071,880
|
7.78%
|
American Enterprise Investment Services Inc.
901 3rd Avenues South
Minneapolis, MN 55474
|
20,752,366
|
7.31%
|
Pershing LLC
One Pershing Plaza
Jersey City, NJ 07399
|
18,490,218
|
6.51%
|
Wells Fargo Clearing Services, LLC
2810 Market Street H006-09B
St. Louis, MO 63103
|
18,079,652
|
6.37%
|
TD Ameritrade Clearing, Inc.
200 S. 108th Ave.
Omaha, NE 68154
|
15,038,278
|
5.30%
|
Charles Schwab & Co., Inc.
2423 E Lincoln Dr.
Phoenix, AZ 85016
|
14,894,504
|
5.25%
|
(1)
|
|
This information is based solely on the information provided on such shareholder’s
filings with the SEC and First Trust. FVD and FVL disclaim any responsibility as to the accuracy of such information.
|
As of December 31, 2019, the Trustees
and executive officers of FVL as a group beneficially owned less than 1% of FVL’s outstanding shares, and the Trustees and
executive officers of FVD as a group beneficially owned less than 1% of FVD’s outstanding shares.
Pro Forma FVD
Post Reorganization
Name and Address
|
Number
of Shares Beneficially Owned(1)
|
Percentage of Ownership(1)
|
Morgan Stanley Smith Barney LLC
1300 Thames St., 6th Floor
Baltimore, MD 21231
|
44,558,498
|
15.64%
|
LPL Financial Corporation
1055 LPL Way
Fort Mill, SC 29715
|
26,704,479
|
9.37%
|
National Financial Services LLC
499 Washington Boulevard
Jersey City, NJ 07310
|
26,090,984
|
9.16%
|
Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, FL 33716
|
24,569,522
|
8.62%
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated/8862 MLPF
F&S TS SUB
4804 Deer lake Dr E
Jacksonville, FL 32246
|
22,175,937
|
7.78%
|
American Enterprise Investment Services Inc.
901 3rd Avenues South
Minneapolis, MN 55474
|
20,762,631
|
7.29%
|
Pershing LLC
One Pershing Plaza
Jersey City, NJ 07399
|
18,527,239
|
6.50%
|
Wells Fargo Clearing Services, LLC
2810 Market Street H006-09B
St. Louis, MO 63103
|
18,218,286
|
6.39%
|
TD Ameritrade Clearing, Inc.
200 S. 108th Ave.
Omaha, NE 68154
|
15,142,086
|
5.31%
|
Charles Schwab & Co., Inc.
2423 E Lincoln Dr.
Phoenix, AZ 85016
|
14,957,677
|
5.25%
|
(1)
|
|
This information is based solely on the information provided on such shareholder’s
filings with the SEC and First Trust. FVL and FVD disclaim any responsibility as to the accuracy of such information. Such information
assumes the completion of the Reorganization and the relative net asset values of FVD common shares and FVL common shares as of
April 17, 2020.
|
Shareholder Proposals
FVL’s and FVD’s By-Laws
do not permit shareholder proposals for action by shareholders at an annual meeting of shareholders other than as required under
federal law. FVL’s and FVD’s Board of Trustees, respectively, may permit from time to time in their discretion procedures
by which shareholders may, prior to any meeting at which Trustees are to be elected, submit the names of potential candidates for
Trustee, to be considered by the Trustees, or any proper committee thereof.
As a general matter, FVL and FVD do
not intend to hold regular annual or special meetings of its shareholders.
Shareholder Communications
Shareholders of FVL or FVD who want
to communicate with the Board of Trustees or any individual Trustee should write to the attention of FVL’s and FVD’s
Secretary, W. Scott Jardine, First Trust Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187. The letter
should indicate that such shareholder is an FVL or FVD shareholder, as applicable. If the communication is intended for a specific
Trustee and so indicates, it will be sent only to that Trustee. If a communication does not indicate a specific Trustee it will
be sent to the chair of the Nominating and Governance Committee and the outside counsel to the Independent Trustees for further
distribution as deemed appropriate by such persons.
Fiscal Year
The fiscal year end for FVL is December 31.
The fiscal year end for FVD is December 31.
Legal Proceedings
There are no material pending legal
proceedings against the Funds or the Advisor.
Annual Report Delivery
Annual reports will be sent to shareholders
of record of FVD and, if the Reorganization is not consummated, to shareholders of FVL following the applicable Fund’s next
fiscal year end. The applicable Fund will furnish, without charge, a copy of its annual report and/or semi-annual report as available
upon request. Such written or oral requests should be directed to the applicable Fund at 120 East Liberty Drive, Suite 400,
Wheaton, Illinois 60187 or by calling (800) 621-1675.
Please note that only one annual report
or proxy statement may be delivered to two or more shareholders of a Fund who share an address, unless such Fund has received instructions
to the contrary. To request a separate copy of an annual report or proxy statement, or for instructions as to how to request a
separate copy of such documents or as to how to request a single copy if multiple copies of such documents are received, shareholders
should contact the applicable Fund at the address and phone number set forth above. Pursuant to a request, a separate copy will
be delivered promptly.
Other Information
Any shareholder of FVL who has given
a proxy has the right to revoke it at any time prior to its exercise either by attending the Meeting and voting his or her shares
in person, or by timely submitting a letter of revocation or a later-dated proxy to FVL at its address above. A list of shareholders
of record of FVL entitled to notice of and to be present and to vote at the Meeting will be available at the Advisor’s Wheaton,
Illinois offices, located at 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, for inspection by any shareholder of FVL
during regular business hours beginning on the second business day after notice is given of the Meeting, subject to restrictions
that may be imposed on a requesting shareholder on the use or distribution of the information contained in the list. Shareholders
will need to show valid identification and proof of share ownership of FVL to be admitted to the Meeting or to inspect the list
of shareholders.
OTHER MATTERS TO COME
BEFORE THE MEETING
No business other than the matters described
above is expected to come before the Meeting, but should any other matter requiring a vote of shareholders properly come before
the Meeting, including any question as to an adjournment or postponement of the Meeting, the persons named on the enclosed proxy
card will vote thereon according to their best judgment in the interests of FVL.
It Is Important
That Proxies Be Returned Promptly. Shareholders Who Do Not Expect To Attend The Meeting Are Therefore Urged To Complete, Sign,
Date And Return The Proxy Card As Soon As Possible In The Enclosed Postage-Paid Envelope.
If
You Need Any Assistance, Or Have Any Questions Regarding The Proposal Applicable to You Or How To Vote Your Shares, Call AST Fund
Solutions LLC at [ ] Weekdays From 9:00 a.m. To 10:00 p.m. Eastern Time.
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS
AGREEMENT AND PLAN OF REORGANIZATION (the “Agreement”) is made as of this day of ,
2020 by First Trust Exchange-Traded Fund, a Massachusetts business trust (the “Trust”), on behalf of its series, First
Trust Value Line® Dividend Index Fund (the “Acquiring Fund”),
the Trust, on behalf of its series, First Trust Value Line®
100 Exchange-Traded Fund (the “Target Fund”), and First
Trust Advisors L.P. (for purposes of Section 9.1 of the Agreement
only), the investment adviser to each of the Acquiring Fund and the Target Fund (the “Adviser”). The Acquiring Fund
and the Target Fund may each be referred to herein as a “Fund” and may collectively be referred to herein as the “Funds.”
This Agreement
is intended to be, and is adopted as, a plan of reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the “Code”), and the Treasury Regulations promulgated thereunder.
The reorganization
of the Target Fund will consist of: (i) the transfer of all the assets of the Target Fund to the Acquiring Fund in exchange
solely for shares of beneficial interest, par value $0.01 per share, of the Acquiring Fund (“Acquiring Fund Shares”)
and the assumption by the Acquiring Fund of all the liabilities of the Target Fund; and (ii) the pro rata distribution of
all the Acquiring Fund Shares to the shareholders of the Target Fund, in complete liquidation and termination of the Target Fund
as provided herein, and transactions and actions related thereto, all upon the terms and conditions set forth in this Agreement
(the “Reorganization”). The foregoing will be effected pursuant to this Agreement.
WHEREAS, the
Acquiring Fund and the Target Fund are each a series of the Trust, and are each an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the “1940 Act”);
WHEREAS, the
Target Fund owns securities that generally are assets of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, the
Acquiring Fund is authorized to issue the Acquiring Fund Shares;
WHEREAS, the
Board of Trustees of the Trust (the “Board”) has determined
that the Reorganization is in the best interests of the Acquiring Fund and that the interests of the existing shareholders of the
Acquiring Fund will not be diluted as a result of the Reorganization, and the Board has determined that the Reorganization is in
the best interests of the Target Fund and that the interests of the existing shareholders of the Target Fund will not be diluted
as a result of the Reorganization.
NOW, THEREFORE,
in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree
as follows:
ARTICLE I
TRANSFER
OF ASSETS OF THE TARGET FUND IN EXCHANGE FOR ACQUIRING FUND SHARES AND THE ASSUMPTION OF THE TARGET FUND LIABILITIES AND TERMINATION
AND LIQUIDATION OF THE TARGET FUND
1.1 THE
EXCHANGE. Subject to the terms and conditions contained herein and on the basis of the representations and warranties contained
herein, and in accordance with Massachusetts law, the Target Fund agrees to transfer all of its assets, as set forth in Section 1.2,
to the Acquiring Fund. In consideration therefor, the Acquiring Fund agrees: (i) to issue and deliver to the Target Fund the
number of full and fractional Acquiring Fund Shares, computed in the manner set forth in Section 2.3; and (ii) to assume
all the liabilities of the Target Fund, as set forth in Section 1.3. All Acquiring Fund Shares delivered to the Target Fund
shall be delivered at net asset value without a sales load, commission, creation fee or other similar fee being imposed. Such transactions
shall take place at the closing provided for in Section 3.1 (the “Closing”).
1.2 ASSETS
TO BE TRANSFERRED. The Target Fund shall transfer all of its assets to the Acquiring Fund, including, without limitation, all cash,
securities, commodities, interests in futures, dividends or interest receivables owned by the Target Fund and any deferred or prepaid
expenses shown as an asset on the books of the Target Fund as of the Closing.
The Target
Fund will, within a reasonable period of time before the Closing Date, as such term is defined in Section 3.1, furnish the
Acquiring Fund with a list of the Target Fund’s portfolio securities and other investments. The Acquiring Fund will, within
a reasonable period of time before the Closing Date, furnish the Target Fund with a list of the securities, if any, on the Target
Fund’s list referred to above that do not conform to the Acquiring Fund’s investment objective, policies, and restrictions.
The Target Fund, if requested by the Acquiring Fund, will dispose of securities on the list provided by the Acquiring Fund before
the Closing. In addition, if it is determined that the portfolios of the Target Fund and the Acquiring Fund, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon the Acquiring Fund with respect to such investments,
the Target Fund, if requested by the Acquiring Fund, will dispose of a sufficient amount of such investments as may be necessary
to avoid violating such limitations as of the Closing. Notwithstanding the foregoing, nothing herein will require the Target Fund
to dispose of any investments or securities if, in the reasonable judgment of the Board or the Adviser, such disposition would
adversely affect the status of the Reorganization as a “reorganization” as such term is used in the Code or would otherwise
not be in the best interests of the Target Fund.
1.3 LIABILITIES
TO BE ASSUMED. The Target Fund will endeavor to discharge all of its known liabilities and obligations to the extent possible before
the Closing Date. Notwithstanding the foregoing, any liabilities not so discharged shall be assumed by the Acquiring Fund, which
assumed liabilities shall include all of the Target Fund’s liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not arising in the ordinary course of business, whether
or not determinable at the Closing, and whether or not specifically referred to in this Agreement.
1.4 LIQUIDATING
DISTRIBUTION. As of the Closing, as such term is defined in Section 3.1, the Target Fund will distribute in complete liquidation
of the Target Fund the Acquiring Fund Shares received pursuant to Section 1.1 to its shareholders of record, determined as
of the time of such distribution (each a “Target Fund Shareholder” and collectively, the “Target Fund Shareholders”),
on a pro rata basis. All issued and outstanding shares of the Target Fund will simultaneously be cancelled on the books of the
Target Fund and retired. The Acquiring Fund shall not issue certificates representing Acquiring Fund Shares in connection with
such transfers, except for any global certificate or certificates required by a securities depositary in connection with the establishment
of book-entry ownership of the shares.
1.5 OWNERSHIP
OF SHARES. Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund’s transfer agent. Acquiring
Fund Shares will be issued to the Target Fund, in an amount computed in the manner set forth in Section 2.3, to be distributed
to the Target Fund Shareholders.
1.6 TRANSFER
TAXES. Any transfer taxes payable upon the issuance of Acquiring Fund Shares to a Target Fund Shareholder pursuant to Section 1.4
that result from such issuance being made to an account in a name other than the registered holder of such Target Fund shares on
the books of the Target Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom
such Acquiring Fund Shares are to be issued and transferred.
1.7 LIQUIDATION
AND TERMINATION. The Target Fund shall completely liquidate and be dissolved, terminated and have its affairs wound up promptly
following the Closing and the making of all distributions pursuant to Section 1.4, but in no event later than 12 months following
the Closing Date.
1.8 REPORTING.
Any reporting responsibility of the Target Fund, including, without limitation, the responsibility for filing of regulatory
reports, tax returns or other documents with the Securities and Exchange Commission (the “Commission”) or other regulatory
authority, the exchange on which the Target Fund’s shares are listed or any state securities commission and any federal,
state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the Target
Fund or its duly appointed agent.
1.9 BOOKS
AND RECORDS. The Target Fund shall have arranged for the availability prior to, and the transfer as soon as practicable
following, the Closing Date to the Acquiring Fund, or its designated agent, of the Target Fund’s books and records required
to be maintained under the 1940 Act, and the rules and regulations thereunder.
ARTICLE II
VALUATION
2.1 VALUATION
OF ASSETS. The value of the Target Fund’s net assets and liabilities and the value of the Acquiring Fund’s net assets
shall be computed as of the close of regular trading on the New York Stock Exchange on the business day immediately prior to the
Closing Date (such time and date being hereinafter called the “Valuation Time”), using the valuation procedures of
the First Trust exchange-traded funds adopted by the Board (in effect as of the Closing Date) or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION
OF SHARES. The net asset value per share of Acquiring Fund Shares shall be the net asset value per share computed as of the Valuation
Time, using the valuation procedures set forth in Section 2.1.
2.3 SHARES
TO BE ISSUED. The number of Acquiring Fund Shares to be issued (including fractional shares, if any) in consideration for the Target
Fund’s net assets as described in Article I, shall be determined by dividing the value of the assets (net of liabilities)
of the Target Fund determined in accordance with Section 2.1 by the net asset value of an Acquiring Fund Share determined
in accordance with Section 2.2. Shareholders of record of the Target Fund at the Closing will be credited with full and fractional
shares of the Acquiring Fund.
2.4 EFFECT
OF SUSPENSION IN TRADING. In the event that on the Closing Date, either: (a) the NYSE Arca Exchange (“NYSE Arca”)
or another primary exchange on which the portfolio securities of the Acquiring Fund or the Target Fund are purchased or sold shall
be closed to trading or trading on such exchange shall be restricted; or (b) trading or the reporting of trading on the NYSE
Arca or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Target
Fund is impracticable, the Closing Date shall be postponed until at least the first business day when trading is fully resumed
and reporting is restored or such later time as the parties may agree pursuant to Section 3.1.
ARTICLE III
CLOSING AND
CLOSING DATE
3.1 CLOSING.
The Closing shall occur at on , 2020 or such other date as the parties may agree (the “Closing Date”).
Unless otherwise provided, all acts taking place at the Closing shall be deemed to take place as of immediately after the Valuation
Time. The Closing shall be held as of the close of business on the Closing Date at the offices of Chapman and Cutler LLP in Chicago,
Illinois or at such other time and/or place as the parties may agree.
3.2 CUSTODIAN’S
CERTIFICATE. The Target Fund shall cause its custodian to deliver to the Acquiring Fund at the Closing a certificate of an authorized
officer stating that: (a) the Target Fund’s portfolio securities, cash, and any other assets shall have been delivered
in proper form to the Acquiring Fund’s custodian on behalf of the Acquiring Fund on the Closing Date; and (b) all necessary
taxes, including all applicable federal and state stock transfer stamps, if any, shall have been paid, or provision for payment
shall have been made, in conjunction with the delivery of portfolio securities by the Target Fund.
3.3 CERTIFICATES
OF TRANSFER AGENT.
(a) The Target
Fund shall cause its transfer agent to deliver to the Acquiring Fund at the Closing a certificate of an authorized officer stating
that such transfer agent’s records contain the names and addresses of all the Target Fund Shareholders, and the number and
percentage ownership of outstanding shares owned by each such Target Fund Shareholder as of the Closing.
(b) The Acquiring
Fund shall cause its transfer agent to issue and deliver to the Target Fund a confirmation evidencing the Acquiring Fund Shares
to be credited at the Closing to the Trust or provide evidence satisfactory to the Target Fund that such Acquiring Fund Shares
have been credited to the Target Fund’s account on the books of the Acquiring Fund.
3.4 DELIVERY
OF ADDITIONAL ITEMS. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, share
certificates, receipts and other documents, if any, as such other party or its counsel may reasonably request to effect the transactions
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES
4.1 REPRESENTATIONS
OF THE TARGET FUND. The Trust, on behalf of the Target Fund, represents and warrants as follows:
(a) The
Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts.
(b) The
Target Fund is a separate series of the Trust duly authorized in accordance with the applicable provisions of the Trust’s
Declaration of Trust.
(c)
The Trust is registered as an open-end management investment company under the 1940 Act, and such registration is in
full force and effect.
(d) The
Target Fund is not, and the execution, delivery, and performance of this Agreement (subject to shareholder approval) will not result
in, the violation of any provision of the Trust’s Declaration of Trust or By-Laws or of any material agreement,
indenture, instrument, contract, lease, or other undertaking to which the Target Fund is a party or by which it is bound.
(e) There
are no contracts outstanding to which the Target Fund is a party that have not been disclosed in writing to the Acquiring Fund.
Except as otherwise disclosed in writing to and accepted by the Acquiring
Fund, the Target Fund has no material contracts or other commitments that will be terminated with liability to the Target Fund.
(f) No
litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or to
its knowledge threatened against the Target Fund or any of its properties or assets, which, if adversely determined, would materially
and adversely affect the Target Fund’s financial condition, the conduct of its business, or the ability of the Target Fund
to carry out the transactions contemplated by this Agreement. The Target Fund knows of no facts that might form the basis for the
institution of such proceedings and is not a party to or subject to the provisions of any order, decree, or judgment of any court
or governmental body that materially and adversely affects its business or its ability to consummate the transactions contemplated
herein.
(g) The
financial statements of the Target Fund as of December 31, 2019, and for the year then ended have been prepared in accordance
with generally accepted accounting principles and have been audited by an independent registered public accounting firm, and such
statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Target Fund
as of December 31, 2019, and there are no known liabilities, contingent or otherwise, of the Target Fund as of such date that
are not disclosed in such statements.
(h) Since
the date of the financial statements referred to in subsection (g) above, there have been no material adverse changes in the
Target Fund’s financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of
business) and there are no known contingent liabilities of the Target Fund arising after such date. Before the Closing Date,
the Target Fund will advise the Acquiring Fund of all material liabilities, contingent or otherwise, incurred by it subsequent
to December 31, 2019, whether or not incurred in the ordinary course of business. For
the purposes of this subsection (h), a decline in the net asset value of the Target Fund shall not constitute a material adverse
change.
(i) All
federal, state, local and other tax returns and reports of the Target Fund required by law to be filed by it (taking into account
permitted extensions for filing) have been timely filed and are complete and correct in all material respects. All federal, state,
local and other taxes of the Target Fund required to be paid (whether or not shown on any such return or report) have been paid,
or provision shall have been made for the payment thereof and any such unpaid taxes, as of the date of the financial statements
referred to above, are properly reflected thereon. To the best of the Target Fund’s knowledge, no tax authority is currently
auditing or preparing to audit the Target Fund, and no assessment for taxes, interest, additions to tax or penalties has been asserted
against the Target Fund.
(j) All
issued and outstanding shares of the Target Fund are, and as of the Closing will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Target Fund. All the issued and outstanding shares of the Target Fund will, at the time
of the Closing, be held by the persons and in the amounts set forth in the records of the Target Fund’s transfer agent as
provided in Section 3.3. The Target Fund has no outstanding options, warrants or other rights to subscribe for or purchase
any shares of the Target Fund, and has no outstanding securities convertible into shares of the Target Fund.
(k) At
the Closing, the Target Fund will have good and marketable title to the Target Fund’s assets to be transferred to the Acquiring
Fund pursuant to Section 1.2, and full right, power, and authority to sell, assign, transfer, and deliver such assets free
and clear of any liens, encumbrances and restrictions on transfer, except those liens, encumbrances and restrictions for which
the Acquiring Fund has received written notice of prior to the Closing and not objected to, and the Acquiring Fund will acquire
good and marketable title thereto, subject to no other restrictions on the full transfer thereof, including such restrictions as
might arise under the Securities Act of 1933, as amended (the “1933 Act”).
(l) The
execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Target
Fund, including the determinations of the Board required by Rule 17a-8 under the 1940 Act. This Agreement constitutes a valid and
binding obligation of the Target Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors’ rights and to general equity principles.
(m) The
information to be furnished by the Target Fund for use in no-action letters, applications for orders, registration statements,
proxy materials and other documents that may be necessary in connection with the transactions contemplated herein shall be accurate
and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations.
(n) From
the effective date of the Registration Statement (as defined in Section 5.7), through the time of the meeting of the Target
Fund Shareholders and on the Closing Date, any written information furnished by the Trust with respect to the Target Fund for use
in the Registration Statement, Proxy Materials (as defined in Section 5.7) and any supplement or amendment thereto or to the
documents included or incorporated by reference therein, or any other materials provided in connection with the Reorganization,
does not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated or
necessary to make the statements, in light of the circumstances under which such statements were made, not misleading.
(o)
No consent, approval, authorization, or order of any court, governmental authority,
or any stock exchange on which shares of the Target Fund are listed is required for the consummation by the Target Fund of the
transactions contemplated herein, except such as have been or will be obtained.
(p) For
each taxable year of its operations (including the taxable year ending on the Closing Date), the Target Fund (i) has elected
to qualify, and has qualified or will qualify (in the case of the taxable year ending on the Closing Date), as a “regulated
investment company” under the Code (a “RIC”); (ii) has been eligible to compute and has computed its federal
income tax under Section 852 of the Code, and on or prior to the Closing Date will have declared and paid a distribution with
respect to all of its investment company taxable income (determined without regard to the deduction for dividends paid), and its
net capital gain (after reduction for any available capital loss carryforward) (as such terms are defined in the Code) that has
accrued or will accrue on or prior to the Closing Date; and (iii) has been, and will be (in the case of the taxable year ending
on the Closing Date), treated as a separate corporation for federal income tax purposes pursuant to Section 851(g) of the
Code.
4.2 REPRESENTATIONS
OF THE ACQUIRING FUND. The Trust, on behalf of the Acquiring Fund, represents and warrants as follows:
(a) The
Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts.
(b) The
Acquiring Fund is a separate series of the Trust duly authorized in accordance with the applicable provisions of the Trust’s
Declaration of Trust.
(c) The
Trust is registered as an open-end management investment company under the 1940 Act, and such registration is in full
force and effect.
(d) The
Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in a violation of the Trust’s
Declaration of Trust or By-Laws or of any material agreement, indenture, instrument, contract, lease, or other undertaking
to which the Acquiring Fund is a party or by which it is bound.
(e) No
litigation, administrative proceeding or investigation of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any of its properties or assets, which, if adversely determined, would materially
and adversely affect the Acquiring Fund’s financial condition, the conduct of its business or the ability of the Acquiring
Fund to carry out the transactions contemplated by this Agreement. The Acquiring Fund knows of no facts that might form the basis
for the institution of such proceedings and it is not a party to or subject to the provisions of any order, decree, or judgment
of any court or governmental body that materially and adversely affects its business or its ability to consummate the transaction
contemplated herein.
(f) The
financial statements of the Acquiring Fund as of December 31, 2019 and for the fiscal year then ended have been prepared in accordance
with generally accepted accounting principles and have been audited by an independent registered public accounting firm, and such
statements (copies of which have been furnished to the Target Fund) fairly reflect the financial condition of the Acquiring Fund
as of December 31, 2019, and there are no known liabilities, contingent or otherwise, of the Acquiring Fund as of such date that
are not disclosed in such statements.
(g) Since
the date of the financial statements referred to in subsection (f) above, there have been no material adverse changes in the
Acquiring Fund’s financial condition, assets, liabilities or business (other than changes occurring in the ordinary course
of business) and there are no known contingent liabilities of the Acquiring Fund arising after such date. Before the Closing
Date, the Acquiring Fund will advise the Target Fund of all material liabilities, contingent or otherwise, incurred by it subsequent
to December 31, 2019, whether or not incurred in the ordinary course of business. For
the purposes of this subsection (g), a decline in the net asset value of the Acquiring Fund shall not constitute a material
adverse change.
(h) All
federal, state, local and other tax returns and reports of the Acquiring Fund required by law to be filed by it (taking into account
permitted extensions for filing) have been timely filed and are complete and correct in all material respects. All federal, state,
local and other taxes of the Acquiring Fund required to be paid (whether or not shown on any such return or report) have been paid
or provision shall have been made for their payment and any such unpaid taxes, as of the date of the financial statements referred
to above, are properly reflected thereon. To the best of the Acquiring Fund’s knowledge, no tax authority is currently auditing
or preparing to audit the Acquiring Fund, and no assessment for taxes, interest, additions to tax or penalties has been asserted
against the Acquiring Fund.
(i) All
issued and outstanding shares of the Acquiring Fund are, and, as of the Closing will be, duly and validly issued and outstanding,
fully paid and non-assessable by the Acquiring Fund. The Acquiring Fund has no outstanding options, warrants, or other
rights to subscribe for or purchase any shares of the Acquiring Fund, and has no outstanding securities convertible into shares
of the Acquiring Fund.
(j) The
execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Acquiring
Fund, including the determinations of the Acquiring Fund Board required by Rule 17a-8 under the 1940 Act. This Agreement constitutes
a valid and binding obligation of the Acquiring Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium, and other laws relating to or affecting creditors’ rights and to general equity principles.
(k) The
Acquiring Fund Shares to be issued and delivered to the Target Fund for the account of the Target Fund Shareholders pursuant to
the terms of this Agreement will, at the time of the Closing, have been duly authorized. When so issued and delivered, such shares
will be duly and validly issued shares of the Acquiring Fund, and will be fully paid and non-assessable (recognizing
that under Massachusetts law, Acquiring Fund shareholders, under certain circumstances, could be held personally liable for the
obligations of the Acquiring Fund).
(l) The
information to be furnished by the Acquiring Fund for use in no-action letters, applications for orders, registration
statements, proxy materials, and other documents that may be necessary in connection with the transactions contemplated herein
shall be accurate and complete in all material respects and shall comply in all material respects with federal securities laws
and other laws and regulations.
(m) From
the effective date of the Registration Statement (as defined in Section 5.7), through the time of the meeting of the Target
Fund shareholders and on the Closing Date, any written information furnished by the Trust with respect to the Acquiring Fund for
use in the Registration Statement, Proxy Materials and any supplement or amendment thereto or to the documents included or incorporated
by reference therein, or any other materials provided in connection with the Reorganization, does not and will not contain any
untrue statement of a material fact or omit to state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which such statements were made, not misleading.
(n) For
each taxable year of its operations, including the taxable year that includes the Closing Date, the Acquiring Fund (i) has
elected to qualify, has qualified or will qualify (in the case of the year that includes the Closing Date) and intends to continue
to qualify as a RIC under the Code; (ii) has been eligible to and has computed its federal income tax under Section 852
of the Code, and will do so for the taxable year that includes the Closing Date; and (iii) has been, and will be (in the case
of the taxable year that includes the Closing Date), treated as a separate corporation for federal income tax purposes pursuant
to Section 851(g) of the Code.
(o)
No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have been or will be obtained.
ARTICLE V
COVENANTS
OF THE FUNDS
5.1 OPERATION
IN ORDINARY COURSE. Subject to Sections 1.2 and 7.3, each of the Acquiring Fund and the Target Fund will operate its respective
business in the ordinary course between the date of this Agreement and the Closing, it being understood that such ordinary course
of business will include customary dividends and distributions, any other distribution necessary or desirable to avoid federal
income or excise taxes, and shareholder purchases and redemptions.
5.2 APPROVAL
OF SHAREHOLDERS. The Trust will call a special meeting of the Target Fund Shareholders to consider and act upon this Agreement
(and the transactions contemplated thereby) and to take all other appropriate action necessary to obtain approval of the transactions
contemplated herein.
5.3 INVESTMENT
REPRESENTATION. The Target Fund covenants that the Acquiring Fund Shares to be issued pursuant to this Agreement are not being
acquired for the purpose of making any distribution, other than in connection with the Reorganization and in accordance with the
terms of this Agreement.
5.4 ADDITIONAL
INFORMATION. The Target Fund will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Target Fund’s shares.
5.5 FURTHER
ACTION. Subject to the provisions of this Agreement, each Fund will take or cause to be taken all action and do or cause to be
done all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date. The Acquiring Fund agrees to use all reasonable efforts
to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act, and any state securities laws as it may deem
appropriate in order to continue its operations after the Closing Date.
5.6 STATEMENT
OF EARNINGS AND PROFITS. As promptly as practicable, but in any case within 60 days after the Closing Date, the Target Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund and which shall be certified by the
Trust’s Controller or Treasurer, a statement of the earnings and profits of the Target Fund for federal income tax purposes,
as well as any net operating loss carryovers and capital loss carryovers, that will be carried over to the Acquiring Fund pursuant
to Section 381 of the Code.
5.7 PREPARATION
OF REGISTRATION STATEMENT AND PROXY MATERIALS. The Trust will prepare and file with the Commission a registration statement on Form N-14 relating
to the Acquiring Fund Shares to be issued to the Target Fund for distribution to Target Fund Shareholders (the “Registration
Statement”). The Registration Statement shall include a proxy statement of the Target Fund and a prospectus of the Acquiring
Fund relating to the transactions contemplated by this Agreement. The Registration Statement shall be in compliance with the 1933
Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act, as applicable. Each party will provide the other party
with the materials and information necessary to prepare the proxy statement and related materials (the “Proxy Materials”),
for inclusion therein, in connection with the meeting of the Target Fund’s shareholders to consider the approval of this
Agreement and the transactions contemplated herein.
5.8 TAX
STATUS OF REORGANIZATION. The intention of the parties is that the Reorganization will qualify as a reorganization within the meaning
of Section 368(a) of the Code. None of the Target Fund, the Acquiring Fund or the Trust shall take any action, or cause any
action to be taken (including, without limitation, the filing of any tax return), that is inconsistent with such treatment or results
in the failure of the transaction to qualify as a reorganization within the meaning of Section 368(a) of the Code. At or prior
to the Closing, the Target Fund, the Acquiring Fund and the Trust will take such action, or cause such action to be taken, as is
reasonably necessary to enable counsel to render the tax opinion contemplated in Section 8.7 herein.
ARTICLE VI
CONDITIONS
PRECEDENT TO OBLIGATIONS OF THE TARGET FUND
The obligations
of the Target Fund to consummate the transactions provided for herein shall be subject to the fulfillment or waiver of the following
conditions:
6.1 All
representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects
as of the date hereof and as of the Closing, with the same force and effect as if made on and as of the Closing. The Acquiring
Fund shall have delivered to the Target Fund a certificate executed in the Acquiring Fund’s name by the Acquiring Fund’s
(i) President or Vice President and (ii) Treasurer, in form and substance satisfactory to the Target Fund and dated as
of the Closing Date, to such effect and as to such other matters as the Target Fund shall reasonably request.
6.2 The
Acquiring Fund shall have performed and complied in all material respects with all terms, conditions, covenants, obligations, agreements
and restrictions required by this Agreement to be performed or complied with by the Acquiring Fund prior to or at the Closing.
ARTICLE VII
CONDITIONS
PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations
of the Acquiring Fund to consummate the transactions provided for herein shall be subject to the fulfillment or waiver of the following
conditions:
7.1 All
representations and warranties of the Target Fund contained in this Agreement shall be true and correct in all material respects
as of the date hereof and as of the Closing, with the same force and effect as if made on and as of the Closing. The Target Fund
shall have delivered to the Acquiring Fund a certificate executed in the Target Fund’s name by the Target Fund’s (i) President
or Vice President and (ii) Treasurer, in form and substance satisfactory to the Acquiring Fund and dated as of the Closing
Date, to such effect and as to such other matters as the Acquiring Fund shall reasonably request.
7.2 The
Target Fund shall have delivered to the Acquiring Fund a statement of the Target Fund’s assets and liabilities, together
with a list of the Target Fund’s portfolio securities showing the tax basis of such securities by lot and the holding periods
of such securities, as of the Closing, certified by the Controller or Treasurer of the Trust.
7.3 The
Target Fund shall have declared and paid prior to the Valuation Time a dividend or dividends which, together with all previous
such dividends, shall have the effect of distributing to its shareholders at least all of the Target Fund’s investment company
taxable income for all taxable periods ending on or before the Closing Date (computed without regard to any deduction for dividends
paid), if any, plus all of its net capital gains realized in all taxable periods ending on or before the Closing Date (after reduction
for any available capital loss carry forward and excluding any net capital gain on which the Target Fund paid tax under Section 852(b)(3)(A)
of the Code).
7.4 The
Target Fund shall have performed and complied in all material respects with all terms, conditions, covenants, obligations, agreements
and restrictions required by this Agreement to be performed or complied with by the Target Fund prior to or at the Closing.
7.5 The
Target Fund shall have delivered to the Acquiring Fund such records, agreements, certificates, instruments and such other documents
as the Acquiring Fund shall reasonably request.
ARTICLE VIII
FURTHER CONDITIONS
PRECEDENT
The obligations
of the Target Fund and the Acquiring Fund to consummate the transactions provided for herein shall also be subject to the fulfillment
(or waiver by the affected parties) of the following conditions:
8.1 This
Agreement and the transactions contemplated herein, with respect to the Target Fund, shall have been approved by the requisite
vote of the holders of the outstanding shares of the Target Fund in accordance with applicable law and the provisions of the Trust’s
Declaration of Trust and By-Laws. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the
Target Fund may waive the conditions set forth in this Section 8.1.
8.2 As
of the Closing, the Commission shall not have issued an unfavorable report under Section 25(b) of the 1940 Act, or instituted
any proceeding seeking to enjoin the consummation of the transactions contemplated by this Agreement under Section 25(c) of
the 1940 Act. Furthermore, no action, suit or other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with this Agreement or the
transactions contemplated herein.
8.3 All
required consents of other parties and all other consents, orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state securities authorities, including any necessary “no-action” positions
and exemptive orders from such federal and state authorities) to permit consummation of the transactions contemplated herein shall
have been obtained.
8.4 The
Registration Statement shall have become effective under the 1933 Act, and no stop orders suspending the effectiveness thereof
shall have been issued. To the best knowledge of the parties to this Agreement, no investigation or proceeding for that purpose
shall have been instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The
Target Fund shall have received on the Closing Date an opinion from Chapman and Cutler LLP and/or an opinion from Morgan, Lewis
& Bockius LLP, dated as of the Closing Date, substantially to the effect that:
(a)
The Trust is a validly existing voluntary association with shares of beneficial interest commonly referred to as a “Massachusetts
business trust,” and is existing under the laws of the Commonwealth of Massachusetts.
(b) The
execution and delivery of the Agreement by the Trust, on behalf of the Acquiring Fund, did not, and the issuance of Acquiring Fund
Shares pursuant to the Agreement will not, violate the Trust’s Declaration of Trust or By-Laws.
(c) To
the knowledge of such counsel, and without any independent investigation, (i) the Trust is registered with the Commission
as an open-end management investment company under the 1940 Act, and such registration under the 1940 Act is in full
force and effect and is not subject to any stop order; and (ii) no regulatory consents, authorizations, orders, approvals
or filings are required to be obtained or made by the Acquiring Fund under the federal laws of the United States of America or
the laws of the Commonwealth of Massachusetts for the issuance of Acquiring Fund Shares and the performance of its obligations
pursuant to the Agreement, except such as may be required under any Massachusetts securities law, rule, or regulation, about which
we express no opinion.
Insofar as
the opinions expressed above relate to or are dependent upon matters that are governed by the laws of the Commonwealth of Massachusetts,
Chapman and Cutler LLP may rely on the opinions of Morgan, Lewis & Bockius LLP.
8.6 The
Acquiring Fund shall have received on the Closing Date an opinion from Chapman and Cutler LLP and/or an opinion from Morgan, Lewis
& Bockius LLP, dated as of the Closing Date, substantially to the effect that:
(a) The
Trust is a validly existing voluntary association with shares of beneficial interest commonly referred to as a “Massachusetts
business trust,” and is existing under the laws of the Commonwealth of Massachusetts.
(b) The
execution and delivery of the Agreement by the Trust, on behalf of the Target Fund, did not, and the exchange of the Target Fund’s
assets for Acquiring Fund Shares pursuant to the Agreement will not, violate the Trust’s Declaration of Trust or By-Laws.
(c) To
the knowledge of such counsel, and without any independent investigation, (i) the Trust is registered with the Commission
as an open-end management investment company under the 1940 Act, and such registration under the 1940 Act is in full
force and effect and is not subject to any stop order; and (ii) no regulatory consents, authorizations, orders, approvals
or filings are required to be obtained or made by the Target under the federal laws of the United States of America or the laws
of the Commonwealth of Massachusetts for the transfer of the Target Fund’s assets and liabilities in exchange for Acquiring
Fund Shares and the performance of its obligations pursuant to the Agreement except such as may be required under any Massachusetts
securities law, rule, or regulation, about which such counsel expresses no opinion, and except for filings with the Secretary of
the Commonwealth of Massachusetts and the Clerk of the City of Boston in connection with the termination of the Target Fund as
a series of the Trust.
Insofar as
the opinions expressed above relate to or are dependent upon matters that are governed by the laws of the Commonwealth of Massachusetts,
Chapman and Cutler LLP may rely on the opinions of Morgan, Lewis & Bockius LLP.
8.7 The
Funds shall have received on the Closing Date an opinion of Chapman and Cutler LLP addressed to the Acquiring Fund and the Target
Fund substantially to the effect that for federal income tax purposes:
(a) The
transfer of all the Target Fund’s assets to the Acquiring Fund in exchange solely for Acquiring Fund Shares and the assumption
by the Acquiring Fund of all the liabilities of the Target Fund immediately followed by the pro rata, by class, distribution to
the Target Fund Shareholders of all the Acquiring Fund Shares received by the Target Fund in complete liquidation of the Target
Fund and the termination of the Target Fund as soon as practicable thereafter will constitute a “reorganization” within
the meaning of Section 368(a) of the Code and the Acquiring Fund and the Target Fund will each be a “party to a reorganization,”
within the meaning of Section 368(b) of the Code, with respect to the Reorganization.
(b) No
gain or loss will be recognized by the Acquiring Fund upon the receipt of all the assets of the Target Fund solely in exchange
for Acquiring Fund Shares and the assumption by the Acquiring Fund of all the liabilities of the Target Fund.
(c) No
gain or loss will be recognized by the Target Fund upon the transfer of all the Target Fund’s assets to the Acquiring Fund
solely in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of all the liabilities of the Target Fund
or upon the distribution (whether actual or constructive) of such Acquiring Fund Shares to the Target Fund Shareholders solely
in exchange for such shareholders’ shares of the Target Fund in complete liquidation of the Target Fund.
(d) No
gain or loss will be recognized by the Target Fund Shareholders upon the exchange of their Target Fund shares solely for Acquiring
Fund Shares in the Reorganization.
(e) The
aggregate basis of the Acquiring Fund Shares received by each Target Fund Shareholder pursuant to the Reorganization will be the
same as the aggregate basis of the Target Fund shares exchanged therefor by such shareholder. The holding period of the Acquiring
Fund Shares received by each Target Fund Shareholder in the Reorganization will include the period during which the Target Fund
shares exchanged therefor were held by such shareholder, provided such Target Fund shares are held as capital assets at the time
of the Reorganization.
(f) The
basis of the Target Fund’s assets transferred to the Acquiring Fund will be the same as the basis of such assets in the hands
of the Target Fund immediately before the effective time of the Reorganization. The holding period of the assets of the Target
Fund received by the Acquiring Fund will include the period during which such assets were held by the Target Fund.
No opinion
will be expressed as to (1) the effect of the Reorganization on the Target Fund, the Acquiring Fund or any Target Fund Shareholder
with respect to any asset (including, without limitation, any stock held in a passive foreign investment company as defined in
Section 1297(a) of the Code) as to which any unrealized gain or loss is required to be recognized under federal income tax
principles (a) at the end of a taxable year (or on the termination thereof) or (b) upon the transfer of such asset regardless
of whether such transfer would otherwise be a non-taxable transaction under the Code, or (2) any other federal tax
issues (except those set forth above) and all state, local or foreign tax issues of any kind.
Such opinion
shall be based on certain factual representations, reasonable assumptions and such other representations as Chapman and Cutler
LLP may request of the Funds, and the Target Fund and the Acquiring Fund will cooperate to make and certify the accuracy of such
representations. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Target Fund may waive the
conditions set forth in this Section 8.7.
ARTICLE IX
EXPENSES
9.1 The
Adviser will pay the expenses incurred by each Fund in connection with the Reorganization (as described below, the “Reorganization
Expenses”). Reorganization Expenses include, without limitation: (a) expenses associated with the preparation and filing
of the Registration Statement and other Proxy Materials; (b) postage; (c) printing; (d) accounting fees; (e) legal
fees; (f) solicitation costs of the transaction; and (g) other related administrative or operational costs; provided,
however, that the Target Fund will be responsible for the expenses relating to the disposition or acquisition of securities
of the Target Fund in connection with the Reorganization.
9.2 Each
Fund represents and warrants to the other Fund that there is no person or entity entitled to receive any broker’s fees or
similar fees or commission payments in connection with the transactions provided for herein.
9.3 Notwithstanding
the foregoing, Reorganization Expenses will in any event be paid by the party directly incurring such Reorganization Expenses if
and to the extent that the payment by another party of such Reorganization Expenses would result in the disqualification of the
Target Fund or the Acquiring Fund, as the case may be, as a RIC under the Code.
ARTICLE X
ENTIRE AGREEMENT
10.1 The
parties agree that no party has made to the other parties any representation, warranty and/or covenant not set forth herein, and
that this Agreement constitutes the entire agreement between and among the parties.
ARTICLE XI
TERMINATION
11.1 This
Agreement may be terminated by the mutual agreement of the parties and such termination may be effected by the President or any
Vice President of the Target Fund or the Acquiring Fund, respectively, without further action by the Board. In addition, either
Fund may, at its option, terminate this Agreement at or before the Closing due to:
(a) a
breach by any other party of any representation, warranty, or agreement contained herein to be performed at or before the Closing,
if not cured within 30 days of notification to the breaching party and prior to the Closing;
(b) a
condition precedent to the obligations of the terminating party that has not been met or waived and it reasonably appears that
it will not or cannot be met; or
(c) a
determination by the Board that the consummation of the transactions contemplated herein is not in the best interests of the Target
Fund or Acquiring Fund, respectively.
11.2 In
the event of any such termination, in the absence of willful default, there shall be no liability for damages on the part of the
Trust.
ARTICLE XII
AMENDMENTS
12.1 This
Agreement may be amended, modified, or supplemented in such manner as may be mutually agreed upon in writing by the officers of
the Trust as specifically authorized by the Board; provided, however, that following the meeting of the Target Fund Shareholders
called by the Target Fund pursuant to Section 5.2 of this Agreement, no such amendment, modification or supplement may have
the effect of changing the provisions for determining the number of Acquiring Fund Shares to be issued to the Target Fund Shareholders
under this Agreement to the detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS;
COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The
article and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.
13.2 This
Agreement may be executed in any number of counterparts, each of which shall be deemed an original.
13.3 This
Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.
13.4 This
Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but, except as
provided in this section, no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party
without the written consent of the other parties. Nothing herein expressed or implied is intended or shall be construed to confer
upon or give any person, firm, or corporation, other than the parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
13.5 All
parties hereto are expressly put on notice of the Declaration of Trust of the
Trust and all amendments thereto, a copy of each of which is on file with the Secretary of the Commonwealth of Massachusetts,
and the limitations of shareholder and trustee liability contained therein. This Agreement has been executed and delivered by the
trustees or officers of the Trust, on behalf of the Acquiring Fund
and on behalf of the Target Fund, in each case acting as trustees or officers and not individually, and it is expressly agreed
that the obligations of the Funds hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents,
or employees of the Trust individually, or impose any liability
on any of them personally, but shall bind only the property of the Acquiring Fund and the Target Fund, as provided in the applicable
Declaration of Trust, and persons dealing with a Fund must look solely to the assets of such Fund for the enforcement of any claims.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF,
the parties have duly executed this Agreement, all as of the date first written above.
First
Trust Exchange-Traded Fund, on behalf of First Trust Value Line® Dividend Index Fund
By:___________________________
Name:___________________________
Title:___________________________
First
Trust Exchange-Traded Fund, on behalf of First Trust Value Line® 100 Exchange-Traded Fund
By:___________________________
Name:___________________________
Title:___________________________
The undersigned is a party to
this Agreement for the purposes of Section 9.1 only:
FIRST TRUST ADVISORS L.P.
By:___________________________
Name:___________________________
Title:___________________________
[Signature Page to the Agreement and
Plan of Reorganization]
EXHIBIT B
Form of Proxy Card for First Trust Value Line® 100 Exchange-Traded Fund
SUBJECT TO COMPLETION, DATED
APRIL 30, 2020
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.
STATEMENT OF ADDITIONAL
INFORMATION
RELATING TO THE REORGANIZATION
TRANSACTION INVOLVING
First
Trust Value Line® 100 Exchange-Traded Fund (FVL),
A SERIES OF
FIRST TRUST EXCHANGE-TRADED
FUND
AND
First Trust Value Line® Dividend Index Fund
(FVD),
A SERIES OF
FIRST TRUST EXCHANGE-TRADED FUND
(Exact
Name of Registrant as Specified in Charter)
120
East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(630) 765-8000
This Statement of Additional Information
is not a prospectus but should be read in conjunction with the Proxy Statement/Prospectus dated [__________], 2020 that is being
furnished to shareholders of First Trust Value Line® 100 Exchange-Traded Fund (“FVL”), an exchange-traded
fund organized as a separate series of First Trust Exchange-Traded Fund, an open-end management investment company (the “Trust”),
and First Trust Value Line® Dividend Index Fund (“FVD” and together with FVL, each a “Fund”), an exchange-traded
fund organized as a separate series of the Trust, in connection with a Special Meeting of Shareholders (the “Meeting”)
called by the Board of Trustees of FVL (the “Board of Trustees”) to be held at the offices of the Funds, 120 E.
Liberty Drive, Suite 400, Wheaton, Illinois 60187, on [_______], 2020, at [___ p.m.] Central time. The time, date and location
of the Meeting may be subject to change, or the Meeting may be held remotely, in light of the COVID-19 pandemic. Any change to
the time, date or location of the Meeting will be included in a supplement to the accompanying Proxy Statement/Prospectus and a
press release. At the Meeting, shareholders of FVL will be asked to approve an Agreement and Plan of Reorganization between FVL
and FVD, pursuant to which FVL would reorganize into FVD, and shareholders of FVL would become shareholders of FVD (the “Reorganization”).
Copies of the Proxy Statement/Prospectus may be obtained at no charge by writing FVL and FVD at the address shown above or by calling
(800) 621-1675.
Unless otherwise indicated, capitalized
terms used herein and not otherwise defined have the same meanings as are given to them in the Proxy Statement/Prospectus.
This Statement of Additional Information
incorporates by reference the following documents, which have each been filed with the Securities and Exchange Commission and will
be sent to any shareholder requesting this Statement of Additional Information:
(i) Statement of Additional
Information, dated May 1, 2019, for FVD;
(ii) Statement of Additional
Information, dated May 1, 2019, for FVL
(iii) the financial statements
of FVD for its most recent fiscal year ending December 31, 2019;
(iv) the financial statements
of FVL for its most recent fiscal year ending December 31, 2019.
Please note that since the net asset
value of FVL does not exceed ten percent of FVD’s net asset value, pro forma financial statements need not be prepared for
this transaction under Item 14(2) of Form N-14.
The date of this Statement of Additional
Information is [__________], 2020.
TABLE OF CONTENTS
FUND HISTORY
|
1
|
DESCRIPTION OF INVESTMENT OBJECTIVES, POLICIES AND RISKS OF THE FUNDS
|
1
|
MANAGEMENT OF THE FUNDS
|
2
|
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
|
2
|
INVESTMENT ADVISORY AND OTHER SERVICES
|
4
|
PORTFOLIO MANAGERS
|
4
|
BROKERAGE ALLOCATION AND OTHER PRACTICES
|
4
|
TAXATION OF THE FUNDS
|
5
|
CAPITAL STOCK; SHARE PURCHASE, REDEMPTION AND PRICING; DISTRIBUTOR
|
5
|
FINANCIAL STATEMENTS
|
6
|
FUND HISTORY
This Statement of Additional Information
relates to an Agreement of Plan and Reorganization between First Trust Exchange-Traded Fund (the “Trust”), on behalf
of its series First Trust Value Line® 100 Exchange-Traded Fund (“FVL”), and the Trust, on behalf of
its series First Trust Value Line® Dividend Index Fund (“FVD” and together with FVL, the “Funds”
and each individually a “Fund”), pursuant to which FVL would reorganize into FVD, and shareholders of FVL would become
shareholders of FVD (the “Reorganization”). FVD is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended (the “1940 Act”). For further information concerning FVD in general see
the headings “General Description of the Trust and the Funds” in FVD’s Statement of Additional Information as
it relates to FVD. For further information concerning FVL in general see the headings “General Description of the Trust and
the Fund” in FVL’s Statement of Additional Information as it related to FVL.
DESCRIPTION OF INVESTMENT
OBJECTIVES, POLICIES AND RISKS OF THE FUNDS
FVD
Investment Objective and Risks
For a discussion of FVD’s investment
objective and techniques and related investment policies, see the heading “Investment Objective and Policies” and “Investment
Strategies” in FVD’s Statement of Additional Information as it relates to FVD. For a discussion of the risks associated
with an investment in FVD, see the heading “Investment Risks” in FVD’s Statement of Additional Information as
it relates to FVD. For a discussion of the fundamental and nonfundamental investment policies of FVD adopted by the Trust’s
Board of Trustees, see heading “Investment Objective and Policies” in FVD’s Statement of Additional Information
as it relates to FVD.
FVL
Investment Objective and Risks
For a discussion of FVL’s investment
objective and techniques and related investment policies, see the heading “Investment Objective and Policies” and “Investment
Strategies” in FVL’s Statement of Additional Information as it relates to FVL. For a discussion of the risks associated
with an investment in FVL, see the heading “Investment Risks” in FVL’s Statement of Additional Information as
it relates to FVL. For a discussion of the fundamental and nonfundamental investment policies of FVL adopted by the Trust’s
Board of Trustees, see heading “Investment Objective and Policies” in FVL’s Statement of Additional Information
as it relates to FVL.
MANAGEMENT OF THE FUNDS
Management
of FVD
For a disclosure of the names and a
brief occupational biography of each of the FVD’s trustees and officers, identifying those who are interested persons of
FVD, see the heading “Management of the Funds” in FVD’s Statement of Additional Information.
As of December 31, 2019, the officers
and trustees, in the aggregate, owned less than 1% of the shares of FVD.
Management
of FVL
For a disclosure of the names and a
brief occupational biography of each of FVL’s trustees and officers, identifying those who are interested persons of FVL,
see the heading “Management of the Fund” in FVL’s Statement of Additional Information.
As
of December 31, 2019, the officers and trustees, in the aggregate, owned less than 1% of the shares of FVL.
CONTROL PERSONS AND
PRINCIPAL HOLDERS OF SECURITIES
FVD
For
a discussion of the persons who control FVD, persons who own beneficially 5% or more of FVD’s outstanding equity securities
and percentages of the Fund’s equity securities owned by all officers, trustees, and members of any advisory board of the
Trust as a group, see the heading
“Management of the Funds” and “Exhibit A – Principal Holders Table” in FVD’s Statement
of Additional Information.
To
the knowledge of the Board of Trustees, as of March 31, 2020, no single shareholder or “group” (as that term is used
in Section 13(d) of the Securities Exchange Act of 1934 (the “1934 Act”)) beneficially owned more than 5% of FVD’s
outstanding Shares, except as described in the following table. A control person is one who owns, either directly or indirectly,
more than 25% of the voting securities of the Fund or acknowledges the existence of control. A party that controls the Fund may
be able to significantly affect the outcome of any item presented to shareholders for approval. Information as to beneficial ownership
of Shares, including percentage of outstanding Shares beneficially owned, is based on securities position listing reports as of
the Record Date and reports filed with the Securities and Exchange Commission (“SEC”) by shareholders. The Fund does
not have any knowledge of the identity of the ultimate beneficiaries of the Shares listed below.
FVD
Beneficial Ownership of Shares
Name and Address of Beneficial Owner
|
Shares Beneficially Owned
|
% of Outstanding Shares Beneficially Owned
|
Morgan Stanley Smith Barney LLC
1300 Thames St., 6th Floor
Baltimore, MD 21231
|
44,491,906
|
15.68%
|
LPL Financial Corporation
1055 LPL Way
Fort Mill, SC 29715
|
26,678,366
|
9.40%
|
National Financial Services LLC
499 Washington Boulevard
Jersey City, NJ 07310
|
25,985,332
|
9.16%
|
Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, FL 33716
|
24,524,208
|
8.64%
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated/8862 MLPF
4804 Deer lake Dr E
Jacksonville, FL 32246
|
22,071,880
|
7.78%
|
American Enterprise Investment Services Inc.
901 3rd Avenues South
Minneapolis, MN 55474
|
20,752,366
|
7.31%
|
Pershing LLC
One Pershing Plaza
Jersey City, NJ 07399
|
18,490,218
|
6.51%
|
Wells Fargo Clearing Services, LLC
2810 Market Street H006-09B
St. Louis, MO 63103
|
18,079,652
|
6.37%
|
TD Ameritrade Clearing, Inc.
200 S. 108th Ave.
Omaha, NE 68154
|
15,038,278
|
5.30%
|
Charles Schwab & Co., Inc.
2423 E Lincoln Dr.
Phoenix, AZ 85016
|
14,894,504
|
5.25%
|
INVESTMENT ADVISORY
AND OTHER SERVICES
Investment
Advisory and Other Services of FVD
For a discussion of FVD’s advisory
and management-related services agreements and plans of distribution, see the headings “Management of the Funds” and
“Custodian, Administrator, Fund Accountant, Transfer Agent, Distributor, Index Providers and Exchanges,” in FVD’s
Statement of Additional Information.
Investment
Advisory and Other Services of FVL
For
a discussion of FVL’s advisory and management-related services agreements and plans of distribution, see the headings “Management
of the Fund” and “Custodian, Administrator, Fund Accountant, Transfer Agent, Distributor, Index Providers and Exchanges,”
in FVL’s Statement of Additional Information.
PORTFOLIO MANAGERS
Portfolio
Managers of FVD
For a discussion of portfolio manager’s
management activities, compensation and ownership of securities in FVD, see heading “Management of the Funds” in FVD’s
Statement of Additional Information as it relates to FVD.
Portfolio
Managers of FVL
For a discussion of portfolio manager’s
management activities, compensation and ownership of securities in FVL, see heading “Management of the Fund” in FVL’s
Statement of Additional Information as it related to FVL.
BROKERAGE ALLOCATION
AND OTHER PRACTICES
Brokerage
Allocation and Other Practices of FVD
For a discussion of FVD’s brokerage
policy, see the heading “Brokerage Allocations” in FVD’s Statement of Additional Information.
Brokerage
Allocation and Other Practices of FVL
For a discussion of FVL’s brokerage
policy, see the heading “Brokerage Allocations” in FVL’s Statement of Additional Information.
TAXATION OF THE FUNDS
Taxation
of FVD
For a discussion of any tax information
relating to ownership of FVD’s shares, see the heading “Federal Tax Matters” in FVD’s Statement of Additional
Information.
Taxation
of FVL
For a discussion of any tax information
relating to ownership of FVL’s shares, see the heading “Federal Tax Matters” in FVL’s Statement of Additional
Information.
CAPITAL STOCK; SHARE
PURCHASE, REDEMPTION AND PRICING; DISTRIBUTOR
FVD
For a discussion of FVD’s authorized
securities and the characteristics of the Fund’s shares of beneficial interest, see the headings “General Description
of the Trust and the Funds” and “Additional Information” in FVD’s Statement of Additional Information.
For a description of the purchase and
redemption procedures for FVD’s shares and a discussion of FVD’s valuation and pricing procedures, see the headings
“Creation and Redemption of Creation Unit Aggregations” and “Determination of Net Asset Value” in FVD’s
Statement of Additional Information.
For a discussion of FVD’s distributor,
see the heading “Custodian, Administrator, Fund Accountant, Distributor, Transfer Agent, Index Providers and Exchanges”
in FVD’s Statement of Additional Information.
FVL
For a discussion of FVL’s authorized
securities and the characteristics of the Fund’s shares of beneficial interest, see the headings “General Description
of the Trust and the Fund” and “Additional Information” in FVL’s Statement of Additional Information.
For a description of the purchase and
redemption procedures for FVL’s shares and a discussion of FVL’s valuation and pricing procedures, see the headings
“Creation and Redemption of Creation Unit Aggregations” and “Determination of Net Asset Value” in FVL’s
Statement of Additional Information.
For a discussion of FVL’s distributor,
see the heading “Custodian, Administrator, Fund Accountant, Distributor, Transfer Agent, Index Providers and Exchanges”
in FVL’s Statement of Additional Information.
FINANCIAL STATEMENTS
Financial Highlights
of FVD
For the Audited financial statements
for FVD for its most recent fiscal year, and the report thereon by Deloitte & Touche LLP, independent auditor for FVD, see
the heading “Financial Highlights” in FVD’s Prospectus.
Financial Highlights of
FVL
For the Audited financial statements for FVL
for its most recent fiscal year, and the report thereon by Deloitte & Touche LLP, independent auditor for FVL, see the heading
“Financial Highlights” in FVL’s Prospectus.
PART C: OTHER INFORMATION
ITEM 15: INDEMNIFICATION
Section 9.5 of the Registrant’s
Declaration of Trust provides as follows:
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 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.
Insofar as indemnification for liability
arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant
to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 16: EXHIBITS
The following exhibits are filed herewith
as part of this Registration Statement or incorporated herein by reference.
(b) Amended
and Restated Establishment and Designation of Series. (6)
(b) Amendment
to Schedule A of the Investment Management Agreement. (3)
(c) Expense
Reimbursement, Fee Waiver and Recovery Agreement. (2)
(d) Amendment
of Exhibit A of the Expense Reimbursement Letter. (8)
(b)
Amended Exhibit A of the Distribution
Agreement. (7)
(b) Amended
Schedule II of the Custody Agreement. (7)
(b)
Exhibit A to 12b-1 Service Plan.
(7)
(c)
12b-1 Plan Extension Letter
Agreement. (8)
|
(11)
|
Opinion and Consent of Morgan, Lewis & Bockius LLP dated April 30, 2020. (9)
|
|
(12)
|
Opinion and Consent of Chapman and Cutler LLP dated April 30, 2020. (9)
|
|
(14)
|
(a) Consent of Independent Registered Public Accounting Firm for First Trust Value Line® 100 Exchange-Traded
Fund. (9)
|
(b) Consent of Independent Registered
Public Accounting Firm for First Trust Value Line® Dividend Index Fund. (9)
|
(16)
|
Powers of Attorney for Messrs. Bowen, Erickson, Kadlec, Keith and Nielson authorizing James A. Bowen, W. Scott Jardine, James
M. Dykas, Kristi A. Maher and Eric F. Fess to execute the Registration Statement. (9)
|
_______________
|
(1)
|
Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on September
26, 2005.
|
|
(2)
|
Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed
on April 27, 2011.
|
|
(3)
|
Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed
on April 23, 2015.
|
|
(4)
|
Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed
on July 24, 2017.
|
|
(5)
|
Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed
on July 28, 2017.
|
|
(6)
|
Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed
on April 11, 2018.
|
|
(7)
|
Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed
on July 19, 2018.
|
|
(8)
|
Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on April
29, 2019.
|
ITEM 17: UNDERTAKINGS
(1) The
undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus
which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c) of the Securities Act [17 CFR 230.145c], the reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The
undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment
to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under
the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein,
and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them.
SIGNATURES
As required by the Securities Act of
1933, this Registration Statement has been signed on behalf of the Registrant, in the City of Wheaton and State of Illinois, on
the 30th day of April, 2020.
First
Trust Exchange-Traded Fund
By: /s/ James M. Dykas
James M. Dykas, President and Chief
Executive Officer
As required by the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the capacities and on the date indicated:
Signature
|
|
|
Date
|
/s/ James M. Dykas
|
President and Chief Executive
|
|
|
James M. Dykas
|
Officer
|
|
April 30, 2020
|
|
|
|
|
/s/ Donald P. Swade
|
Treasurer, Chief Financial
|
|
|
Donald P. Swade
|
Officer and Chief Accounting Officer
|
|
April 30, 2020
|
|
|
|
|
|
|
)
|
|
|
James A. Bowen*
|
Trustee
|
)
|
|
|
|
|
)
|
|
|
|
|
)
|
|
|
Richard E. Erickson*
|
Trustee
|
)
|
|
|
|
|
)
|
|
|
|
|
)
|
By:
|
/s/ W. Scott Jardine
|
Thomas R. Kadlec*
|
Trustee
|
)
|
|
W. Scott Jardine
|
|
|
)
|
|
Attorney-In-Fact
|
|
|
)
|
|
April 30, 2020
|
Robert F. Keith*
|
Trustee
|
)
|
|
|
|
|
)
|
|
|
|
|
)
|
|
|
Niel B. Nielson*
|
Trustee
|
)
|
|
|
|
|
)
|
|
|
|
*
|
Original powers of attorney authorizing James A. Bowen, W. Scott Jardine, James M. Dykas, Kristi A. Maher 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, are filed herewith.
|
EXHIBIT
INDEX
(b) Consent of Independent Registered Public Accounting Firm for First Trust Value Line® Dividend Index Fund.
Grafico Azioni First Trust Value Line 1... (AMEX:FVL)
Storico
Da Ago 2024 a Set 2024
Grafico Azioni First Trust Value Line 1... (AMEX:FVL)
Storico
Da Set 2023 a Set 2024