AS FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION
ON OR ABOUT FEBRUARY 6, 2007
REGISTRATION NOS. 333-__________
811-21774
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________________________________________
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] PRE-EFFECTIVE AMENDMENT NO. ___ [ ] POST-EFFECTIVE AMENDMENT NO. ___
FIRST TRUST EXCHANGE-TRADED FUND
(Exact Name of Registrant as Specified in Charter)
__________________________________________
1001 WARRENVILLE ROAD
SUITE 300
LISLE, ILLINOIS 60532
(Address of Principal Executive Offices) (Zip Code)
(630) 241-4141
(Registrant's Area Code and Telephone Number)
W. SCOTT JARDINE
FIRST TRUST PORTFOLIOS L.P.
1001 WARRENVILLE ROAD, SUITE 300
LISLE, ILLINOIS 60532
(Name and Address of Agent for Service)
__________________________________________
WITH COPIES TO:
ERIC F. FESS
CHAPMAN AND CUTLER LLP
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
__________________________________________
TITLE OF SECURITIES BEING REGISTERED:
Shares of beneficial interest ($0.01 par value per share) of the First Trust
Value Line(R) 100 Exchange-Traded Fund, a Series of the Registrant.
THIS REGISTRATION STATEMENT WILL BECOME EFFECTIVE ON MARCH 8, 2007 PURSUANT TO
RULE 488.
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of this Registration Statement.
No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.
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FIRST TRUST VALUE LINE(R) 100 FUND
A Message from the Fund's Chairman and Chief Executive Officer
_________, 2007
Dear Shareholder:
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(R)
100 Fund ("FVL"). Enclosed is a combined proxy statement and prospectus
seeking your approval of a proposal at a Special Meeting of Shareholders
of FVL (the "Meeting").
Like many closed-end funds, shares of FVL have historically traded at
market prices that are below their net asset value. Since
FVL's inception, FVL's Board of Trustees has regularly monitored the
trading discount and considered a variety of alternatives to reduce or
eliminate the discount. In addition, management of FVL has been seeking
to develop a viable approach to address the discount while maintaining
FVL's disciplined investment strategy. After considerable efforts by
the Board of Trustees and management of FVL and other closed-end funds
in the First Trust family of funds, we are pleased to present to
shareholders for approval at the Meeting, a proposal that the Board and
management believe has the potential to significantly reduce or
eliminate the discount while maintaining FVL's disciplined investment
strategy. The proposal involves the reorganization (the
"Reorganization") of FVL with and into First Trust Value Line(R) 100
Exchange-Traded Fund ("FVL ETF"), a newly created, diversified series of
First Trust Exchange-Traded Fund, an exchange-traded investment company
("First Trust ETF"). Exchange-traded funds ("ETFs") are investment
companies that seek investment results that correspond generally to the
performance of a given securities index. Due to the ETF structure,
shares of ETFs have historically traded at or very close to their net
asset values. FVL ETF is managed by First Trust Advisors L.P., the same
investment adviser that manages FVL, and will seek to replicate (before
expenses) the performance of the Value Line(R) 100 Index, which is
sponsored and maintained by Value Line(R) Publishing, Inc. (the
"Index"). The Index's stock selection methodology is similar to FVL's
investment strategy. As explained in greater detail in the
Prospectus/Proxy Statement, the principal difference between the two is
that the securities included in FVL are adjusted on a weekly basis and
the Index is reconstituted monthly. Because of the similarities between
FVL's objective, rule-based investment process and the Index's stock
selection methodology, FVL is uniquely situated to make this opportunity
available to its shareholders.
Through the Reorganization, your shares of FVL would be exchanged, on a
tax-free basis for federal income tax purposes, for shares of FVL ETF
with an equal aggregate net asset value, and you will become a
shareholder of FVL ETF.
In determining to recommend approval of this proposal, the Trustees of
FVL considered the following factors, among others:
o the Reorganization should significantly reduce or eliminate the
discount to net asset value at which shares of FVL have historically
traded;
o FVL ETF will have a lower management fee and lower total fund operating
expense ratio than FVL for at least two years following the
Reorganization (after expense waivers); and
o ETFs have favorable tax attributes and provide intra-day liquidity to
investors.
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The Board of Trustees of FVL has unanimously approved the Agreement and
Plan of Reorganization (the "Plan") 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
Prospectus/Proxy Statement.
Included in this booklet are the following materials concerning the
upcoming Meeting:
o A Notice of Special Meeting of Shareholders, which summarizes the
proposal for which you are being asked to provide voting instructions;
and
o A Prospectus/Proxy Statement, which provides detailed information on
FVL ETF, the specific proposal being considered at the Meeting and why
the proposal is being made, including the differences between your
shares of FVL and the shares of FVL ETF that you will receive as a
result of the Reorganization.
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 telephone. 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 telephone. A postage-
paid envelope is enclosed for mailing, and telephone voting instructions
are listed at the top of your proxy card.
Your vote is very important. As a shareholder, you are entitled to cast
one vote for each share of FVL that you own. Please take a few moments
to read the enclosed materials and then cast your vote.
We appreciate your participation in this important Meeting. Thank you.
Sincerely yours,
James A. Bowen
Chairman of the Board of Trustees,
Chief Executive Officer and President
First Trust Value Line(R) 100 Fund
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IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE PROPOSED
REORGANIZATION OR HOW TO VOTE YOUR SHARES, CALL (800) 761-6707 WEEKDAYS
FROM 9:00 A.M. TO 10:00 P.M. EASTERN STANDARD TIME.
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BECAUSE SHARES OF FVL ETF WILL NOT BE CERTIFICATED, SHAREHOLDERS WHO
HOLD FVL SHARES DIRECTLY AND NOT IN "STREET NAME" THROUGH A BROKER-
DEALER WILL NEED TO DESIGNATE A BROKERAGE ACCOUNT THAT WILL HOLD THE
REORGANIZATION SHARES BY OR BEFORE. IF A SHAREHOLDER DOES NOT DESIGNATE A
BROKERAGE ACCOUNT, SUCH SHAREHOLDER MAY BE LIMITED IN THE ABILITY TO SELL
THE REORGANIZATION SHARES IN THE SECONDARY MARKET UNTIL SUCH ACCOUNT IS
DESIGNATED.
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Page ii
Questions and Answers
regarding the
Reorganization of
First Trust Value Line(R) 100 Fund
with and into
First Trust Value Line(R) 100 Exchange-Traded Fund
Q. What is happening?
A. Shareholders are being asked to approve an Agreement and Plan of
Reorganization (the "Plan") at a special meeting of shareholders (the
"Meeting") whereby all of the assets of First Trust Value Line(R) 100
Fund, a closed-end investment company ("FVL"), would be transferred in a
tax-free reorganization (the "Reorganization") to First Trust Value
Line(R) 100 Exchange-Traded Fund ("FVL ETF"), an "exchange-traded fund"
or "ETF" that is a newly created, diversified series of First Trust
Exchange-Traded Fund ("First Trust ETF"), an open-end investment
company, pursuant to which shareholders of FVL would become shareholders
of FVL ETF. Like FVL, FVL ETF is managed by First Trust Advisors L.P.
("First Trust" or the "Adviser").
After carefully reviewing the proposal, FVL's Board of Trustees has
determined that the proposed Plan is in the best interests of FVL. THE
BOARD RECOMMENDS THAT YOU VOTE FOR THE PLAN AND THE REORGANIZATION
CONTEMPLATED THEREBY.
Q. Why has this Reorganization been proposed for FVL?
A. Shares of closed-end funds often trade at a discount from their net
asset value. Shares of FVL have historically traded at a discount from
their net asset value (including a discount of ____% on the date FVL's
Board of Trustees approved the Reorganization). The Board of Trustees
and management of FVL have worked to develop a viable approach to
address the discount. The Board of Trustees and management believe that
the Reorganization has the potential to significantly reduce or
eliminate the discount while maintaining FVL's disciplined investment
strategy. Through the Reorganization, FVL's shareholders would receive
FVL ETF shares with an aggregate net asset value equal to the aggregate
net asset value of their FVL shares as of the Closing Date referred to
in the Plan. FVL ETF, which will have no operations prior to the
Reorganization, [has applied] to list and trade its common shares on the
American Stock Exchange ("AMEX"). Although the trading prices of FVL
ETF shares on the AMEX may differ from the daily net asset value of FVL
ETF's shares, shares of exchange-traded funds ("ETFs") typically trade
very close to their net asset value, in part due to the creation unit
and redemption features of an ETF. Therefore, immediately after the
Reorganization, shares of FVL ETF are anticipated to trade at or close
to the net asset value of FVL shares immediately prior to the
Reorganization. The Reorganization should effectively eliminate the
discount at which FVL shares have historically traded.
In addition, FVL ETF will pay a lower management fee than FVL, and First
Trust has agreed to waive all or a portion of its fees and/or reimburse
or pay FVL ETF's operating expenses to the extent necessary to maintain
FVL ETF's total operating expenses (excluding interest expense,
brokerage commissions and other trading expenses, taxes and
extraordinary expenses) at 0.70% of average daily net assets per year
Page i
for at least two years following the Reorganization. Consequently, FVL
ETF will have a lower total operating expense ratio than FVL for at
least two years following the Reorganization.
Q. Will my shares continue to be listed on the AMEX?
A. FVL shares are currently listed and trading on the AMEX. FVL ETF
[has applied] to list and trade its shares on the AMEX.
Q. What is the difference between a closed-end fund and an ETF?
Closed-end Funds ETFs
- ------------------------------------------------------ ------------------------------------------------------------------------
Closed-end funds, like FVL, generally do not redeem Open-end funds (known generally as mutual funds), in general, issue
their outstanding shares or engage in the continuous shares that can be redeemed or sold back to the fund at the fund's net
sale of new shares. Shares of closed-end investment asset value per share (less any applicable redemption fee or contingent
companies typically are traded on a securities deferred sales charge, neither of which will be charged by FVL ETF).
exchange. Thus, persons wishing to buy or sell Unlike conventional mutual funds, ETFs, like FVL ETF, trade their shares
closed-end fund shares generally must do so through a on a securities exchange, and persons wishing to buy or sell shares
broker-dealer and pay or receive the market price per generally must do so through a broker-dealer and pay and receive the
share (plus or minus any applicable commissions). market price per share (plus or minus any applicable brokerage
The market price may be more (a premium) or less (a commissions). Unlike a closed-end fund, ETFs issue and redeem shares on
discount) than the net asset value per share of the a continuous basis, at net asset value, in large blocks consisting of a
closed-end fund. Closed-end funds have greater specified number of shares, referred to as a "Creation Unit." Creation
flexibility than ETFs to make certain types of Units of FVL ETF will be issued and redeemed principally in-kind for
investments, and to use certain investment securities included in the Value Line(R) 100 Index (the "Index").
strategies, such as financial leverage and Except when aggregated in Creation Units ("Creation Unit Aggregations"),
investments in illiquid securities. FVL ETF shares are not redeemable securities of FVL ETF. 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 ETF
generally will not lead to a tax event for FVL ETF or its 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. As a result, shares of FVL ETF will be traded on the AMEX to
provide liquidity for purchasers of FVL ETF shares in amounts less
than the size of a Creation Unit Aggregation. The market price of FVL
ETF shares on the AMEX may be equal to, more or less than the net
asset value, but shares of ETFs typically trade in a range closer to
net asset value per share than do shares of closed-end funds.
Page ii
Q. Are the investment objectives and strategies of FVL ETF and FVL
similar?
A. The investment objectives and strategies of FVL ETF and FVL are
similar, but have some important distinctions. FVL ETF will seek
investment results that correspond generally (before fees and expenses)
to an equity index called the Value Line(R) 100 Index. FVL generally
has followed an investment strategy similar to the methodology of the
Index but is not required to replicate an index, as is the case with FVL
ETF, which will normally invest at least 90% of its total assets in
common stocks that comprise the Index. The principal difference between
FVL and FVL ETF is that the securities included in FVL are adjusted on a
weekly basis and the Index is reconstituted monthly.
Q. Will I have to pay taxes as a result of the proposed Reorganization?
A. The Reorganization is expected to be a tax-free reorganization for
federal income tax purposes and will not occur unless FVL's counsel
provides a tax opinion to that effect. If you choose to sell your
shares before the Reorganization, the sale will generate taxable gain or
loss; therefore, you may wish to consult a tax advisor before doing so.
Of course, you also may be subject to periodic capital gains as a result
of the normal operations of FVL whether or not the proposed
Reorganization occurs.
FVL intends to pay a dividend of any realized undistributed net
investment income and capital gains, which may be substantial,
immediately prior to the closing of the Reorganization. The amount of
any dividend 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
liquidation of securities between the date of the Meeting and the
closing of the Reorganization.
Q. Under the proposed Reorganization, will the value of my investment
change?
A. While the entity in which you own shares will change as a result of
the Reorganization of FVL into FVL ETF, the aggregate net asset value of
your FVL ETF shares immediately following the Reorganization will be the
same as the aggregate net asset value, rather than market value, of your
FVL shares immediately prior to the Reorganization. In addition, it is
likely that the number of shares you own will not change as a result of
the Reorganization because your shares of FVL will be exchanged at the
net asset value per share of FVL ETF, which will probably be equal to
the net asset value per share of FVL at the time of the Reorganization.
Q. What vote is required to approve the proposed Reorganization?
A. Approval of the proposed Reorganization requires the affirmative vote
of the holders of a majority of FVL's outstanding voting securities, as
such term is defined in the Investment Company Act of 1940. A "majority
of the outstanding voting securities" means the lesser of (i) 67% of the
shares of FVL represented at a meeting at which more than 50% of the
outstanding shares of FVL are represented or (ii) more than 50% of the
outstanding shares of FVL.
Q. When would the proposed Reorganization be effective?
A. If approved, the Reorganization is expected to occur no later than
June 25, 2007 or as soon as reasonably practicable after shareholder
approval is obtained. Shortly after completion of the Reorganization,
shareholders of FVL will receive notice indicating that the
Reorganization was approved.
Page iii
Q. Will FVL pay for the normal proxy solicitation and legal costs
associated with this solicitation?
A. No. First Trust will pay for the normal costs of the
Reorganization, such as proxy solicitation and legal costs; however, any
extraordinary costs will be paid by FVL.
Q. How can I vote?
A. You can vote in any one of three ways:
o By telephone, with a toll-free call to the number listed on your
proxy card;
o By mail, by sending the enclosed proxy card, signed and dated,
to us in the enclosed envelope; or
o In person, by attending the shareholder Meeting.
We encourage you to vote by telephone by following the instructions that
appear on your proxy card. Whichever method you choose, please take the
time to read the full text of the enclosed Prospectus/Proxy Statement
before you vote.
Q. Will I be able to continue to track my fund's performance in the
newspaper and on the Internet?
A. Yes. While the entity in which you own shares will change as a
result of the Reorganization, you will be able to track the performance
of FVL ETF through these means.
Q. If I hold FVL shares directly and not in "street name" through a
broker-dealer, how will I receive Reorganization Shares?
A. Because shares of FVL ETF will not be certificated, you will need to
establish a brokerage account that will hold your Reorganization Shares.
If you do not designate a brokerage account, you may be limited in your
ability to sell your Reorganization Shares in the secondary market until
such account is designated.
Q. Whom should I call for additional information about this
Prospectus/Proxy Statement?
A. Please call The Altman Group, your fund's proxy solicitor, at 1-800-
761-6707.
Page iv
FIRST TRUST VALUE LINE(R) 100 FUND
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on _________, 2007
_________, 2007
To the Shareholders of First Trust Value Line(R) 100 Fund:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of First Trust Value Line(R) 100 Fund ("FVL"), a
Massachusetts business trust, will be held at the offices of First Trust
Advisors L.P., 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532,
on _________, 2007, at [8:00 a.m.] Central time, to consider the
following (the "Proposal"):
To approve an Agreement and Plan of Reorganization and the
transactions it contemplates, including the transfer of all of the
assets of FVL to First Trust Value Line(R) 100 Exchange-Traded Fund
("FVL ETF"), in exchange for shares of FVL ETF, the assumption by FVL
ETF of all of the liabilities of FVL and the distribution of such FVL
ETF shares, on a tax-free basis for federal income tax purposes, pro
rata to the shareholders of record of FVL in complete liquidation,
dissolution and termination of FVL.
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.
Holders of record of shares of FVL at the close of business on
_________, 2007 are entitled to notice of and to vote at the Meeting and
at any adjournments or postponements thereof.
By order of the Board of Trustees,
W. Scott Jardine
Secretary
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SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE REQUESTED TO
PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED
ENVELOPE WHICH DOES NOT REQUIRE POSTAGE IF MAILED IN THE CONTINENTAL
UNITED STATES. INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXIES ARE SET
FORTH ON THE NEXT PAGE. IF YOU NEED ANY ASSISTANCE, OR HAVE ANY
QUESTIONS REGARDING THE PROPOSAL OR HOW TO VOTE YOUR SHARES, CALL (800)
761-6707 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN TIME.
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Page i
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance
to you and avoid the time and expense 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 on
the proxy card.
3. All Other Accounts: The capacity of the individual signing the
proxy card should be indicated unless it is reflected in the form of
registration. For example:
Registration Valid Signature
Corporate Accounts
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. c/o John Doe, Treasurer John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Director
Partnership Accounts
(1) The XYZ Partnership Jane B. Smith, Partner
(2) Smith and Jones, Limited Partnership Jane B. Smith, General Partner
Trust Accounts
(1) ABC Trust Account Jane B. Doe, Director
(2) Jane B. Doe, Trustee u/t/d 12/28/78 Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust. f/b/o John B. Smith Jr.
UGMA/ UTMA John B. Smith
(2) Estate of John B. Smith John B. Smith, Jr., Executor
Page ii
IMPORTANT INFORMATION FOR SHAREHOLDERS OF
FIRST TRUST VALUE LINE(R) 100 FUND
This document contains a Prospectus/Proxy Statement 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
telephone), 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 Trustees' recommendation on the cover of
the Prospectus/Proxy Statement.
We urge you to review the Prospectus/Proxy Statement carefully and
either fill out your proxy card and return it to us by mail or vote by
telephone. Your prompt return of the enclosed proxy card (or your
voting by telephone) may save the necessity and expense of further
solicitations.
We want to know how you would like to vote and welcome your comments.
Please take a few minutes to read these materials and return your proxy
card to us.
If you have any questions, please call The Altman Group, FVL's proxy
solicitor, at the special toll-free number we have set up for you (1-800-
761-6707).
Page iii
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PROSPECTUS/PROXY STATEMENT
_________, 2007
This Prospectus/Proxy Statement is being furnished in connection with a
Special Meeting of Shareholders (the "Meeting") called by the Board of
Trustees of the First Trust Value Line(R) 100 Fund, a Massachusetts
business trust that is a closed-end investment company ("FVL"). At the
Meeting, you will be asked to approve the proposed Agreement and Plan of
Reorganization (the "Plan") and the transactions it contemplates, as
described in a concise manner in this Prospectus/Proxy Statement. This
Prospectus/Proxy Statement explains what you should know before voting
on the proposal described in this Prospectus/Proxy Statement or
investing in First Trust Value Line(R) 100 Exchange-Traded Fund ("FVL
ETF"), an exchange-traded "index fund" that is a newly created,
diversified series of First Trust Exchange-Traded Fund ("First Trust
ETF"), an open-end management investment company. Please read it
carefully and keep it for future reference. Under the Plan, all of the
assets and liabilities of FVL would be transferred in a tax-free
reorganization (the "Reorganization") to FVL ETF. The transactions
contemplated by the Plan are described in further detail elsewhere
herein. The principal business address and phone number for both FVL
and First Trust ETF is 1001 Warrenville Road, Suite 300, Lisle, Illinois
60532 and 1-630-241-4141. FVL ETF and FVL are referred to herein
collectively as the "Funds," and each is referred to herein individually
as a "Fund."
FVL ETF [has applied] to list and trade shares of FVL ETF on the
American Stock Exchange ("AMEX"). Shares of FVL ETF are not redeemable
individually and therefore liquidity for individual shareholders of FVL
ETF will be realized only through a sale on the AMEX at market prices
that may differ to some degree from the net asset value of the FVL ETF
shares. Reports, proxy materials and other information concerning the
Funds can be inspected at the AMEX.
The Board of Trustees of FVL has unanimously approved the Plan and the
Reorganization contemplated thereby as being in the best interests of
FVL and recommends that you vote FOR the approval of the Plan.
The securities offered by this Prospectus/Proxy Statement have not been
approved or disapproved by the Securities and Exchange Commission
("SEC"), nor has the SEC passed upon the accuracy or adequacy of this
Prospectus/Proxy Statement. Any representation to the contrary is a
criminal offense.
Additional information about FVL ETF has been filed with the SEC. This
information, including the Reorganization SAI (as defined below), dated
_________, 2007, and the FVL ETF SAI (as defined below), is available
upon oral or written request at no charge by contacting 1-800-988-5891
or First Trust Portfolios L.P., 1001 Warrenville Road, Suite 300, Lisle,
Illinois 60532.
FVL's most recent annual and semi-annual reports are available upon
request, without charge, by writing to First Trust Advisors L.P. ("First
Trust" or the "Adviser") at 1001 Warrenville Road, Suite 300, Lisle,
Illinois 60532 or by calling (800) 988-5891.
The following documents have been filed with the SEC and are
incorporated into this Prospectus/Proxy Statement by reference:
(i) the prospectus of FVL ETF, dated _________, 2007, relating to
shares of FVL ETF, a copy of which is attached to this Prospectus/Proxy
Statement;
Page i
(ii) the Statement of Additional Information relating to the proposed
Reorganization, dated __________, 2007 (the "Reorganization SAI");
(iii) the Statement of Additional Information of FVL ETF, dated
__________, 2007, a copy of which is included with the Reorganization SAI
(the "FVL ETF SAI"); and
(iv) the financial statements and related independent registered public
accounting firm's report included in FVL's Annual Report to Shareholders for
the year ended __________, 2006.
Shareholders may receive free copies of FVL's annual reports, semi-
annual reports, or the Reorganization SAI, request other information
about FVL or make shareholder inquiries by calling FVL at 1-800-988-5891.
Both Funds are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith
are required to file reports and other information with the SEC.
Reports, proxy materials and other information concerning FVL ETF and
FVL may be inspected at the offices of the AMEX, 86 Trinity Place, New
York, New York 10006. You may review and copy information about the
Funds, including the prospectuses and the statements of additional
information, at the SEC's public reference room at 100 F Street, NE,
Washington, DC 20549. You may call the SEC at 1-202-942-8090 for
information about the operation of the public reference room. You may
obtain copies of this information, with payment of a duplication fee, by
electronic request at the following e-mail address: publicinfo@sec.gov,
or by writing the SEC's Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, DC 20549-0102. You may also access reports and other
information about the Funds on the EDGAR database on the SEC's Internet
website at http://www.sec.gov.
Page ii
TABLE OF CONTENTS
INTRODUCTION 1
PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION 4
A. Synopsis 4
B. Investment Objectives and Risk Factors 12
C. Other Comparisons Between the Funds 17
D. Information About the Proposed Reorganization 22
ADDITIONAL INFORMATION 29
OTHER MATTERS TO COME BEFORE THE MEETING 31
Exhibit A. FORM OF AGREEMENT AND PLAN OF REORGANIZATION A-1
Exhibit B. FURTHER DISCLOSURE REGARDING FVL B-1
Appendix I. PROSPECTUS FOR FVL ETF
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INTRODUCTION
This Prospectus/Proxy Statement, along with the Notice of Special
Meeting of Shareholders and the proxy card, is being mailed to
shareholders of FVL on or about __________, 2007. Much of the
information is required to be disclosed under rules of the Securities
and Exchange Commission (the "SEC"); some of it is technical. If there
is anything you don't understand, please contact The Altman Group, FVL's
proxy solicitor, at 1-800-761-6707.
The Altman Group ("Altman") has been engaged to assist in the
solicitation of proxies for FVL, at an estimated cost to First Trust of
approximately $__________, plus expenses. As the Meeting date
approaches, certain shareholders of FVL may receive a telephone call
from a representative of Altman if their votes have not yet been
received. Authorization to permit Altman 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 Trustees believe 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 Altman
representative 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 Altman 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 Altman, then the
Altman 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 Altman 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 Prospectus/Proxy Statement.
Altman 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 Altman
immediately if his or her instructions are not correctly reflected in
the confirmation.
Please see the instructions on your proxy card for telephone touch-tone
voting. Shareholders will have an opportunity to review their voting
instructions and make any necessary changes before submitting their
voting instructions and terminating their telephone call.
If the enclosed proxy card is properly executed and returned in time to
be voted at the Meeting, the shares represented thereby will be voted in
accordance with the instructions marked thereon. If no instructions are
marked on the enclosed proxy card, the shares represented thereby will
be voted at the discretion of the persons named on the proxy card.
Accordingly, unless instructions to the contrary are marked thereon, a
proxy will be voted FOR the approval of the Plan and FOR or AGAINST any
other matters as deemed appropriate. Any shareholder 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 submitting a letter of revocation or a later-dated proxy to FVL at
the above address. Shareholders who intend to attend the Meeting will
need to show valid identification and proof of share ownership to be
admitted to the Meeting.
Under the By-Laws of FVL, a quorum for the transaction of business is
constituted by the presence in person or by proxy of the holders of
thirty-three and one-third percent (33-1/3%) of the voting power of
the outstanding shares of the Fund entitled to vote at the Meeting. For
Page 1
the purposes of establishing whether a quorum is present, all shares
present 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.
Whether or not a quorum is present, the chair of the Meeting may adjourn
the Meeting from time to time until a quorum is present, or to allow
more time for the solicitation of proxies. In the event that a quorum
is present but sufficient votes in favor of the Proposal have not been
received, upon motion of the chair of the Meeting, the question of
adjournment may be submitted to a vote of the shareholders of FVL, and
in that case, any adjournment must be approved by the vote of holders
of a majority of the shares of FVL present and entitled to vote with
respect to the matter to be adjourned. 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 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 proposed
Reorganization and the election of Trustees. The New York Stock
Exchange (the "NYSE") has taken the position that broker-dealers that
are members of the NYSE 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 proposed
Reorganization. A signed proxy card or other authorization by a
beneficial owner of shares that does not specify how the beneficial
owner's shares are to be voted on the proposed Reorganization will be
voted at the discretion of the persons named on the proxy card and may
be voted by such persons FOR approval of the Plan.
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 Investment Company Act
of 1940, as amended (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.
For purposes of determining the approval of the Plan, abstentions and
broker non-votes will have the effect of a vote against the Proposal.
Proxy solicitations will be made, beginning on or about __________,
2007, primarily by mail, but such solicitations may also be made by
telephone or personal interviews conducted by (i) officers of FVL; (ii)
The Altman Group, FVL's proxy solicitor that will provide proxy
solicitation services in connection with the Plan; (iii) First Trust,
the investment adviser of the Funds; (iv) PFPC Inc. ("PFPC"), the
administrator, accounting agent and transfer agent of FVL and a
subsidiary of The PNC Financial Services Group Inc.; or (v) any
affiliates of those entities.
The normal expenses associated with the preparation of the Proposal and
of the proxy solicitation activities with respect thereto, including the
costs incurred in connection with the preparation of this
Prospectus/Proxy Statement and its enclosures, will be paid by First
Trust. First Trust will also reimburse brokerage firms and others for
their expenses in forwarding solicitation material to the beneficial
owners of Fund shares. The amount of these expenses is expected to be
approximately $__________.
Page 2
The close of business on __________, 2007 has been fixed as the record
date (the "Record Date") for the determination of shareholders entitled
to notice of and to vote at the Meeting and any adjournments or
postponements thereof. On the Record Date, 17,490,000 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. On the
Record Date, FVL ETF had no shares outstanding.
Page 3
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
It is proposed that all of the assets of FVL, a closed-end fund, be
transferred in a tax-free reorganization to FVL ETF, a newly created,
diversified series of First Trust ETF, in exchange for (a) the issuance
and delivery to FVL of shares of FVL ETF in Creation Unit Aggregations
(as defined below), with a value equal to the value of FVL's assets net
of liabilities and (b) the assumption by FVL ETF of all liabilities of
FVL.
As a result of the proposed Reorganization, each shareholder of FVL will
receive a number of shares of FVL ETF equal in net asset value as of the
Valuation Time (defined below) to the total net asset value of such
shareholder's FVL shares. Following the consummation of the
Reorganization, the legal existence of FVL will be terminated.
Like shares of FVL, shares of FVL ETF 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.
A. Synopsis
The responses to the questions that follow provide an overview of key
points typically of concern to shareholders considering a proposed
reorganization of investment companies. These responses are qualified
in their entirety by the remainder of this Prospectus/Proxy Statement,
which you should read carefully because it contains additional
information and further details regarding the proposed Reorganization.
1. What is being proposed?
The Trustees of FVL are recommending that shareholders approve the Plan
(as described below in Part D and the form of which is attached hereto
as Exhibit A) and the transactions contemplated by the Plan, which are
referred to as a "Reorganization" of FVL with and into FVL ETF. If
approved by shareholders of FVL, all of the assets of FVL will be
transferred to FVL ETF in exchange for (a) the issuance and delivery to
FVL of shares of FVL ETF ("Reorganization Shares") in "Creation Unit"
aggregations of ________ shares of FVL ETF, for purposes of the
Reorganization only, with an aggregate value equal to the value of FVL's
assets net of liabilities and (b) the assumption by FVL ETF of all of
the liabilities of FVL. Following the Reorganization, a Creation Unit
of FVL ETF shall consist of aggregations of 50,000 shares. Immediately
following the transfer, the Reorganization Shares received by FVL will
be distributed by FVL or its agent pro rata, on a tax-free basis for
federal income tax purposes, to each of FVL's shareholders of record as
of the valuation time, which is expected to be [4:00 p.m.] Eastern Time
on __________, 2007, or such other date and time as may be agreed upon
by the parties (the "Valuation Time") in complete dissolution,
liquidation and termination of FVL.
2. What will happen to my shares of FVL as a result of the
Reorganization?
As a result of the Reorganization, your shares of FVL, a closed-end
fund, will be exchanged for shares of FVL ETF, an exchange-traded "index
fund," with an equal aggregate net asset value as of the Valuation Time.
As a shareholder of FVL ETF as a result of the Reorganization, it is
anticipated that you will still be able to sell your shares of FVL ETF on
the AMEX, and because ETFs generally trade at or very close to net asset
value, you should be able to sell your FVL ETF shares at or close to net
asset value.
Page 4
3. What is the difference between a closed-end fund and an ETF?
Closed-end Funds ETFs
- ----------------------------------------------------- ------------------------------------------------------------------------
Closed-end funds, like FVL, generally do not redeem Open-end funds (known generally as mutual funds), in general, issue
their outstanding shares or engage in the continuous shares that can be redeemed or sold back to the fund at the fund's net
sale of new shares. Shares of closed-end investment asset value per share (less any applicable redemption fee or contingent
companies typically are traded on a securities deferred sales charge). Unlike conventional mutual funds, ETFs, like
exchange. Thus, persons wishing to buy or sell FVL ETF, trade their shares on a securities exchange, and persons
closed-end fund shares generally must do so through a wishing to buy or sell shares generally must do so through a broker-
broker-dealer and pay or receive the market price per dealer and pay and receive the market price per share (plus or minus any
share (plus or minus any applicable commissions). applicable commissions). Unlike a closed-end fund, like FVL, ETFs issue
The market price may be more (a premium) or less (a and redeem shares on a continuous basis, at net asset value, in large
discount) than the net asset value per share of the blocks consisting of a specified number of shares, referred to as a
closed-end fund. Closed-end funds, like FVL, have "Creation Unit." Creation Units of FVL ETF will be issued and redeemed
greater flexibility than ETFs to make certain types principally in-kind for securities included in the Index (as defined on
of investments, and to use certain investment page __). Except when aggregated in Creation Units, FVL ETF shares are
strategies, such as financial leverage and not redeemable securities of FVL ETF. As a practical matter, only
investments in illiquid securities. broker-dealers, or large institutional investors with creation and
redemption agreements, called "Authorized Participants," can purchase or
redeem these Creation Units. As a result, shares of FVL ETF will be
traded on the AMEX to provide liquidity for purchasers of FVL ETF shares
in amounts less than the size of a Creation Unit. The market price of
FVL ETF shares on the AMEX may be equal to, more or less than the net
asset value, but shares of ETFs typically trade in a range closer to net
asset value per share than do shares of closed-end funds.
These ETF features are designed to protect ongoing shareholders from
adverse effects that could arise from frequent cash creation and
redemption transactions often subject to occurrence 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 ETF generally will not lead to a tax event
for FVL ETF or its ongoing shareholders. Unlike a closed-end fund, if
an ETF experiences material cash inflows, an ETF may be unable to
satisfy the qualified dividend income holding period requirements for
a portion of its dividends and may subject investors to increased tax
liability.
Page 5
4. Why have the Trustees of FVL recommended that I approve the Plan
and the Reorganization it contemplates?
The Trustees considered the following factors, among others, in
determining to recommend that shareholders of FVL approve the Plan and
the Reorganization it contemplates:
o FVL shares have historically traded at a discount from net asset value
(including a discount of ____% at the close of trading on the date
FVL's Board of Trustees approved the Reorganization and a discount of
____% at the close of trading on the Record Date). FVL shareholders
would receive FVL ETF shares with an aggregate net asset value equal to
the aggregate net asset value of their FVL shares as of the Valuation
Time pursuant to the Reorganization. Shares of exchange-traded funds,
such as FVL ETF, typically trade at or very close to their net asset
value.
o FVL ETF will have a lower management fee than FVL and FVL ETF's
investment adviser has agreed to cap expenses so that FVL ETF will have
a lower total fund operating expense ratio than FVL for at least two
years following the Reorganization.
o ETFs have favorable tax attributes and provide the intra-day liquidity
to investors also provided by closed-end funds.
o First Trust would bear all normal expenses associated with the
Reorganization.
The Trustees of FVL recommend approval of the Plan and the
Reorganization it contemplates and have concluded that: (1) the
Reorganization is in the best interests of FVL and (2) the interests of
the existing shareholders of FVL will not be diluted as a result of the
Reorganization.
5. How do the investment goals, policies and restrictions of FVL and
FVL ETF compare?
The investment goals, policies and restrictions of FVL and FVL ETF are
similar, but have some important distinctions. FVL ETF seeks investment
results that correspond generally (before fees and expenses) to an
equity index called the Value Line(R) 100 Index (the "Index"). FVL
primarily utilizes an investment strategy that is similar to the
methodology of the Index to invest its portfolio but is not required to
replicate an index, as is the case with FVL ETF, each as discussed and
summarized below. The principal difference between FVL and FVL ETF is
that the securities included in FVL are adjusted on a weekly basis and
the Index is reconstituted monthly. You should also note that the
investment objective of each Fund is fundamental and, as a result, can
only be changed with a vote of the majority of outstanding voting
securities of that Fund. A majority of the outstanding voting
securities for each Fund is the lesser of (i) 67% 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.
Page 6
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
FVL FVL ETF
- ------------------------------------------------------ ----------------------------------------------------------------------
FVL's investment objective is to provide capital The investment objective of FVL ETF is to seek investment results
appreciation. The Fund seeks to outperform the that correspond generally to the price and yield (before the Fund's
Standard & Poor's 500 Composite Stock Price Index (the fees and expenses) of the Index.
"S&P 500 Index") by adhering to a disciplined strategy FVL ETF will normally invest at least 90% of its total assets in
of investing in a diversified portfolio of the 100 common stocks that comprise the Index. First Trust, as investment
common stocks ranked #1 in the Value Line(R) adviser to the Fund, will seek to match the performance of the Index
Timeliness(TM) Ranking System. (before fees and expenses).
The Value Line(R) Timeliness(TM) Ranking System was FVL ETF's investment objective is a fundamental policy and may not
introduced in its present form in 1965. Each week, be changed without the approval of a "majority of the outstanding
Value Line(R) screens a wide array of data, using a voting securities" of FVL ETF. A "majority of the outstanding voting
series of proprietary calculations to rank each of the securities" means the lesser of (i) 67% of the shares represented at a
approximately 1,700 stocks in the Value Line(R) meeting at which more than 50% of the outstanding shares are
universe from #1 (highest) to #5 (lowest) based on represented or (ii) more than 50% of the outstanding shares. Please
their expected price performance relative to the other also see Part B - Investment Objectives and Risk Factors - below for a
stocks in the universe over the following 6 to 12 more detailed comparison of the Funds' investment policies and
months. At any one time, only 100 stocks are ranked #1 restrictions.
in the Value Line(R) Timeliness(TM) Ranking System. FVL ETF's complete portfolio holdings as of the end of each semi-
The Fund invests substantially all, but in no event annual period will be sent to you as part of the Semi-Annual Report
less than 80%, of its net assets in the stocks that are and Annual Report of FVL ETF. FVL ETF's complete portfolio holdings
ranked #1 in the Value Line(R) Timeliness(TM) Ranking as of the end of the first and third fiscal quarters will be filed on
System. Form N-Q with the SEC. The FVL ETF SAI includes a description of the
FVL's investment objective is a fundamental policy and Fund's policies and procedures with respect to the disclosure of its
may not be changed without the approval of a "majority portfolio holdings.
of the outstanding voting securities" of FVL. A Please also see Part B - Investment Objectives and Risk Factors -
"majority of the outstanding voting securities" of FVL below for a more detailed comparison of the Funds' investment policies
means the lesser of (i) 67% of the shares represented and restrictions.
at a meeting at which more than 50% of the outstanding
shares are represented or (ii) more than 50% of the
outstanding shares. Please also see Part B - Investment
Objectives and Risk Factors - below for a more detailed
comparison of the Funds' investment policies and
restrictions.
Page 7
6. How do the management fees and expense ratios of FVL and FVL ETF
compare, and what are they estimated to be following the Reorganization?
The following tables summarize the comparative fees and expenses you may
pay when investing in FVL and the pro forma estimated expense ratios of
FVL ETF after consummation of the proposed Reorganization, based upon
First Trust's estimate of expenses that are expected to occur.
SHAREHOLDER FEES
(FEES THAT ARE PAID DIRECTLY FROM YOUR INVESTMENT)
FVL ETF
FVL Common Shares Common Shares
----------------- -------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of the
offering price) None (1) None (2)
(1) As a closed-end fund, FVL trades on the AMEX and does not charge a sales
load or a redemption fee. When buying or selling Fund shares, investors
will incur customary brokerage commissions and charges.
(2) As an ETF, FVL ETF trades on the AMEX and does not charge a sales load or
a redemption fee on individual Fund shares. When buying or selling Fund
shares investors will incur customary brokerage commissions and charges.
Purchasers of Creation Units of FVL ETF and shareholders redeeming
Creation Units of FVL ETF must pay a standard creation or redemption
transaction fee of $500, as applicable. However, if a Creation Unit is
purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee of up to four
times the standard creation or redemption transaction fee (i.e., up to
$2,000) will be charged.
The annual management fee for FVL is 0.65% of average daily net assets
and the annual management fee for FVL ETF is 0.50% of average daily net
assets. As shown below, the proposed Reorganization is expected to result
in a lower total expense ratio for shareholders of FVL who become
shareholders of FVL ETF as a result of the Reorganization. First Trust
has contractually agreed to waive fees and/or pay FVL ETF's operating
expenses to the extent necessary to prevent the operating expenses of FVL
ETF (excluding interest expense, brokerage commissions and other trading
expenses, taxes and extraordinary expenses) from exceeding 0.70% of
average daily net assets per year for at least two years following the
Reorganization. However, there can be no assurance that the
Reorganization will result in expense savings.
Page 8
ANNUAL FUND OPERATING EXPENSES(1)
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Distribution/ Total Annual Less Expense Net Annual
Management Service (12b-1) Other Fund Operating Waiver/ Fund Operating
Fee Fees Expenses Expenses Reimbursements Expenses
FVL
Common shares 0.65% 0% ___% ___% 0.00% ___%
FVL ETF
Common shares 0.50% 0% (2) ___%(4) ___% ___%(3) 0.70%(3)
FVL ETF
(Pro forma combined)
Common shares 0.50% 0%(2) ___%(4) ___% ___%(3) 0.70%(3)
- ------------------
<FN>
(1) Expressed as a percentage of average daily net assets.
(2) FVL ETF has adopted a distribution and service (12b-1) plan pursuant to
which FVL ETF may bear a 12b-1 fee not to exceed 0.25% per annum of FVL
ETF's average daily net assets. However, no such fee is currently paid by
FVL ETF and FVL ETF does not currently anticipate paying 12b-1 fees.
(3) First Trust has agreed to waive fees and/or pay expenses of FVL ETF to the
extent necessary to prevent the annual operating expenses of FVL ETF
(excluding interest expense, brokerage commissions and other trading
expenses, taxes, and extraordinary expenses) from exceeding 0.70% of
average daily net assets (the "Expense Cap") for at least two years
following the Reorganization. Expenses borne by First Trust are subject to
reimbursement by FVL ETF up to three years from the date the fee or
expense was incurred, but no reimbursement payment will be made by FVL ETF
if it would result in FVL ETF exceeding its Expense Cap.
(4) FVL ETF has not fully commenced operations as of the date of this
Prospectus/Proxy Statement. The "Other Expenses" listed in the table are
estimates based on the expenses FVL ETF expects to incur for its full
fiscal year.
</FN>
The tables are provided to help you understand the expenses of investing
in each Fund and your share of the operating expenses that each Fund
incurs and that First Trust expects FVL ETF to incur in the first year
following the Reorganization.
Examples
The following examples translate the expenses shown in the preceding
table into dollar amounts. By doing this, you can more easily compare
the costs of investing in the Funds. The examples make certain
assumptions. They assume that you invest $10,000 in a Fund for the time
periods shown and reinvest all dividends and distributions. They also
assume a 5% return on your investment each year and that a Fund's
operating expenses remain the same. The examples are hypothetical; your
actual costs may be higher or lower.
1 Year 3 Years 5 Years 10 Years
FVL
Common shares $__ $__ $__ $__
FVL ETF
Common shares (1) $__ $__ $__ $__
FVL ETF
(Pro forma combined)
Common shares(1) $__ $__ $__ $__
(1) Includes one year of capped expenses in the "1 Year" period and two years
of capped expenses in the "3 Years," "5 Years" and "10 Years" periods.
Page 9
7. What are the federal income tax consequences of the proposed
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 capital gains realized prior to the Reorganization
will be distributed to FVL's shareholders as capital gain dividends (to
the extent of net realized long-term capital gains distributed) and/or
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. For more information,
please see "Information About the Proposed Reorganization - Federal
Income Tax Consequences" below.
8. Will my dividends be affected by the Reorganization?
FVL currently pays dividends from net investment income monthly and
distributes realized capital gains, if any, to shareholders semi-
annually. FVL ETF expects to pay net investment income dividends on a
semi-annual basis and realized capital gains, if any, annually. FVL ETF
will not establish a dividend reinvestment plan such as the one that FVL
currently has in place, but dividends may be reinvested automatically in
additional FVL ETF 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.
9. Do the procedures for purchasing, selling or redeeming shares of
the two Funds differ?
Yes. Shares of FVL are traded and listed on the AMEX and investors may
purchase or sell FVL shares on the AMEX. FVL shareholders who
become shareholders of FVL ETF as a result of the Reorganization may
also trade their FVL ETF shares on the AMEX. Unlike conventional mutual
funds, ETFs, like FVL ETF, issue and redeem shares on a continuous basis,
at net asset value, only in "Creation Units," i.e. large specified
blocks of shares (each a "Creation Unit Aggregation"). Creation Units
of FVL ETF will be issued and redeemed principally in-kind for
securities included in the Index. Following the Reorganization, a
Creation Unit Aggregation of FVL ETF shall consist of 50,000 shares.
Except in Creation Unit Aggregations, FVL ETF shares are not
individually redeemable securities of FVL ETF and shareholders of FVL
ETF owning fewer shares than a Creation Unit Aggregation will be unable
to redeem their shares. Liquidity for such individual shareholders of
FVL ETF will be realized only through a sale of FVL ETF shares on the
AMEX. First Trust Portfolios L.P. will serve as the principal
underwriter of Creation Unit Aggregations of FVL ETF. The procedures
for purchasing and redeeming a Creation Unit Aggregation of FVL ETF may be
found in the FVL ETF Prospectus dated __________, 2007, incorporated by
reference into this Prospectus/Proxy Statement, and attached hereto as
Appendix I.
10. How will I be notified of the outcome of the Reorganization?
If the Reorganization is approved by shareholders of FVL, you will
receive confirmation after the Reorganization is completed, indicating
the number of shares of FVL ETF you are receiving as a result of the
Reorganization. Otherwise, you will be notified in the next shareholder
report of FVL.
Page 10
11. Will the number of shares I own change?
While you will not own shares in the same entity, the number of shares
you own will most likely not change. In addition, the total value of
the shares of FVL ETF you receive as a result of the Reorganization will
equal the total value of the shares of FVL that you hold at the
Valuation Time.
12. What percentage vote is required to approve the proposed
Reorganization?
Approval of the Reorganization will require the affirmative vote of the
holders of a majority of the outstanding voting securities of FVL, i.e.,
the lesser of (i) 67% 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.
13. If I hold FVL shares directly and not in "street name" through a
broker-dealer, how will I receive Reorganization Shares?
Because shares of FVL ETF will not be certificated, you will need to
designate a brokerage account that will hold your Reorganization Shares.
If you do not designate a brokerage account, you may be limited in the
ability to sell your Reorganization Shares in the secondary market until
such account is designated.
The Trustees of FVL believe that the proposed Reorganization is in the
best interests of FVL. Accordingly, the Trustees recommend that
shareholders vote FOR approval of the Plan and the Reorganization it
contemplates.
Page 11
B. Investment Objectives and Risk Factors
What are the main investment strategies and related risks of FVL ETF and
how do they compare with those of FVL?
Investment Objectives and Policies. As noted above, the investment
goals of FVL ETF are similar to those of FVL, but have some important
distinctions. Please note that despite the differences in investment
objectives of FVL ETF and FVL, the Funds' investment approaches are
similar. The investment objectives of FVL ETF and FVL are set forth
below.
INVESTMENT OBJECTIVES AND POLICIES
FVL FVL ETF
- -------------------------------------------------------- -----------------------------------------------------------------------
FVL's investment objective is to provide capital The investment objective of FVL ETF is to seek investment results
appreciation. The Fund seeks to outperform the that correspond generally to the price and yield (before the Fund's
Standard & Poor's 500 Composite Stock Price Index (the fees and expenses) of an equity index called the Value Line(R) 100
"S&P 500 Index") by adhering to a disciplined strategy Index. The Index seeks to outperform the S&P 500 Index. The Index
of investing in a diversified portfolio of the 100 is sponsored and maintained by Value Line(R) Publishing, Inc. ("Value
common stocks ranked #1 in the Value Line(R) Line(R)"), which is not affiliated with First Trust, FVL ETF or FVL.
Timeliness(TM) Ranking System. Value Line(R) has licensed to First Trust the right to use the Index
The Value Line(R) Timeliness(TM) Ranking System was and certain Value Line(R) trademarks, trade names and Value Line(R)
introduced in its present form in 1965. Each week, systems. First Trust in turn has sublicensed these rights to FVL
Value Line(R) screens a wide array of data, using a ETF. There can be no assurance that FVL ETF's investment objective
series of proprietary calculations to rank each of the will be achieved.
approximately 1,700 stocks in the Value Line(R) FVL ETF, using an "indexing" investment approach, attempts to
universe from #1 (highest) to #5 (lowest) based on replicate, before expenses, the performance of the Index. The Index
their expected price performance relative to the other is designed to objectively identify and select those stocks from the
stocks in the universe over the following 6 to 12 universe of stocks of which Value Line(R) gives a Timeliness(TM)
months. At any one time, only 100 stocks are ranked #1 Ranking of #1. First Trust seeks a correlation of 0.95 or better
in the Value Line(R) Timeliness(TM) Ranking System. (before expenses) between FVL ETF's performance and the performance
The Fund invests substantially all, but in no event of the Index; a figure of 1.00 would represent perfect correlation.
less than 80%, of its net assets in the stocks that First Trust will regularly monitor its tracking accuracy and will use
are ranked #1 in the Value Line(R) Timeliness(TM) the investment techniques described below in seeking to maintain an
Ranking System. appropriate correlation. FVL generally has followed an investment
Each week, the Fund makes portfolio adjustments to strategy similar to the methodology of the Index but is not required
match any changes that are made by Value Line(R) - to replicate an index, as is the case with FVL ETF, which will
those stocks that are no longer ranked #1 by Value normally invest at least 90% of its total assets in common stocks
Line(R) will be sold from the Fund's portfolio and the that comprise the Index. Accordingly, First Trust, as FVL's
sale proceeds will be used to purchase the stocks that investment adviser, has more discretion when building FVL's portfolio
have been newly added to the Value Line(R) #1 ranking than when acting as investment adviser to FVL ETF. There can be no
category. The Fund's portfolio is rebalanced on or assurance that FVL ETF's investment strategy will be successful.
Page 12
about the last Friday of each calendar quarter so that FVL ETF will normally invest at least 90% of its total assets in
each stock will be equally weighted as of such date. common stocks that comprise the Index. First Trust, as investment
There can be no assurance that the Fund's investment adviser of the Fund, will seek to match the performance of the Index.
strategy will be successful or that the Fund will In seeking to achieve FVL ETF's objective, FVL ETF generally will
achieve its investment objective. invest in all of the stocks comprising the Index in proportion to
FVL may invest in cash and cash equivalents when their weightings in the Index. However, under various circumstances,
determined by First Trust that such investments are it may not be possible or practicable to purchase all of those stocks
appropriate. FVL may also use derivatives and other in those weightings. In those circumstances, FVL ETF may purchase a
transactions for the purpose of hedging its exposure sample of stocks in the Index. First Trust may choose to overweight
to an increase in the price of a security prior to its certain stocks in the Index, purchase securities not in the Index
anticipated purchase or a decrease in the price of a which First Trust believes are appropriate to substitute for certain
security prior to its anticipated sale. FVL may also securities in the Index or utilize various combinations of the above
lend its portfolio securities to banks and brokers to techniques or futures or other derivative instruments in seeking to
receive additional return. track the Index. FVL ETF may sell stocks that are represented in the
Index in anticipation of their removal from the Index or purchase
stocks not represented in the Index in anticipation of their addition
to the Index.
FVL ETF's Index Construction. First Trust is responsible for
implementing FVL ETF's overall investment strategy, including the
allocation and periodic reallocation of FVL ETF's net assets among the
common stocks in which FVL ETF invests in order to replicate and
correlate to the Index as discussed above. In this capacity, First
Trust will generally seek to invest FVL ETF's net assets in the common
stocks of companies included in the Index.
The Index is a modified equal-dollar weighted index comprised of 100 U.S.
exchange-listed securities of companies that are ranked #1 by the
Timeliness(TM) Ranking System. The composition of the Index is
reconstituted on a monthly basis to match any changes in those stocks
ranked #1 by the Timeliness(TM) Ranking System. Those stocks that are no
longer ranked #1 in the Timeliness(TM) Ranking System by Value Line(R)
will be removed from the Index and replaced with any newly added stocks.
The Index will be rebalanced on or about the last Friday of each calendar
quarter so that each stock will be equally weighted as of such date.
The inception date of the Index was January __, 2007. The Timeliness(TM)
Ranking System was introduced in its present form in 1965. Each week,
Value Line(R) screens a wide array of data, using a series of proprietary
calculations, such as long-term earnings and price trends, recent company
earnings and price performance and earnings relative to expectations, to
rank each of the approximately 1,700 stocks in the Value Line(R) universe
from #1 (highest) to #5 (lowest) based on their expected price
performance relative to the other stocks in the universe over the
following 6 to 12 months. At any one time, only 100 stocks are ranked #1
in the Timeliness(TM) Ranking System.
Unlike FVL, the Index, and accordingly FVL ETF, will only
make such adjustments on a monthly basis. As a result, the Index and FVL
ETF will continue to include for the remainder of a given month stocks
that Value Line(R) no longer gives a Timeliness(TM) Ranking of #1. The
Index divisor was initially determined to yield a benchmark value of
1000.00 at the close of trading on __________. FVL ETF expects to make
changes to its portfolio on a monthly basis to replicate changes to the
Page 13
Index. The holdings of FVL ETF and the composition and compilation
methodology of the Index will be available on FVL ETF's website at
www.ftportfolios.com. Value Line's(R) updated rankings are released
weekly on its website at www.valueline.com.
Value Line(R) is not affiliated with FVL, FVL ETF or with First Trust.
FVL ETF is entitled to use the Index pursuant to a sublicensing
arrangement with First Trust, which in turn has a licensing agreement
with Value Line(R).
VALUE LINE PUBLISHING, INC.'S ("VLPI") ONLY RELATIONSHIP TO FIRST TRUST
ADVISORS L.P. ("FTA") IS VLPI'S LICENSING TO FTA OF CERTAIN VLPI
TRADEMARKS AND TRADE NAMES AND THE VALUE LINE(R) 100 INDEX (THE
"INDEX"), WHICH IS COMPOSED BY VLPI WITHOUT REGARD TO FTA, THE FIRST
TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (THE "PRODUCT") OR ANY
INVESTOR. VLPI HAS NO OBLIGATION TO TAKE THE NEEDS OF FTA OR ANY
INVESTOR IN THE PRODUCT INTO CONSIDERATION IN COMPOSING THE INDEX. THE
PRODUCT RESULTS MAY DIFFER FROM THE HYPOTHETICAL OR PUBLISHED RESULTS OF
THE INDEX. VLPI IS NOT RESPONSIBLE FOR HOW FTA MAKES USE OF INFORMATION
SUPPLIED BY VLPI. VLPI IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED
IN THE DETERMINATION OF THE PRICES AND COMPOSITION OF THE PRODUCT OR THE
TIMING OF THE ISSUANCE FOR SALE OF THE PRODUCT OR IN THE CALCULATION OF
THE EQUATIONS BY WHICH THE PRODUCT IS TO BE CONVERTED INTO CASH. VLPI
MAKES NO WARRANTY CONCERNING THE INDEX, EXPRESS OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR ANY PERSON'S INVESTMENT PORTFOLIO, OR ANY
IMPLIED WARRANTIES ARISING FROM USAGE OF TRADE, COURSE OF DEALING OR
COURSE OF PERFORMANCE, AND VLPI MAKES NO WARRANTY AS TO THE POTENTIAL
PROFITS OR ANY OTHER BENEFITS THAT MAY BE ACHIEVED BY USING THE INDEX OR
ANY INFORMATION OR MATERIALS GENERATED THEREFROM. VLPI DOES NOT WARRANT
THAT THE INDEX WILL MEET ANY REQUIREMENTS OR BE ACCURATE OR ERROR-FREE.
VLPI ALSO DOES NOT GUARANTEE ANY USES, INFORMATION, DATA OR OTHER
RESULTS GENERATED FROM THE INDEX OR PRODUCT. VLPI HAS NO OBLIGATION OR
LIABILITY (I) IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR
TRADING OF THE PRODUCT; OR (II) FOR ANY LOSS, DAMAGE, COST OR EXPENSE
SUFFERED OR INCURRED BY ANY INVESTOR OR OTHER PERSON OR ENTITY IN
CONNECTION WITH THIS PRODUCT, AND IN NO EVENT SHALL VLPI BE LIABLE FOR
ANY LOST PROFITS OR OTHER CONSEQUENTIAL, SPECIAL, PUNITIVE, INCIDENTAL,
INDIRECT OR EXEMPLARY DAMAGES IN CONNECTION WITH THE INDEX OR THE PRODUCT.
VALUE LINE IS A REGISTERED TRADEMARK OF VALUE LINE, INC. OR VALUE LINE
PUBLISHING, INC. THAT ARE LICENSED TO FIRST TRUST ADVISORS L.P. THE
PRODUCT IS NOT SPONSORED, RECOMMENDED, SOLD OR PROMOTED BY VALUE LINE
PUBLISHING, INC., VALUE LINE, INC., VALUE LINE SECURITIES, INC. OR ANY
OF THEIR AFFILIATES. FIRST TRUST ADVISORS L.P. IS NOT AFFILIATED WITH
ANY VALUE LINE COMPANY.
Diversification Status. FVL and FVL ETF have both elected to be
classified as diversified funds. With certain exceptions, a diversified
fund may not, with respect to 75% of total assets, invest more than 5%
Page 14
of its total assets in the securities of a single issuer or invest in more
than 10% of the outstanding voting securities of such issuer.
Tax Efficient Product Structure. Unlike many conventional mutual funds,
shares of FVL ETF are traded throughout the day on the AMEX whereas
shares of mutual funds are typically only bought and sold or redeemed back
to the fund at the fund's closing net asset value per share. The shares
of FVL ETF have been designed to be tradable in the secondary market on
the AMEX on an intra-day basis, and to be created and redeemed
principally in-kind in Creation Units at each day's next calculated net
asset value. These arrangements are designed to protect ongoing
shareholders from adverse effects on FVL ETF that could arise from
frequent cash creation and redemption transactions. In a conventional
mutual fund, redemptions can have an adverse tax impact on taxable
shareholders because of the mutual fund's 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 FVL ETF shares' in-kind redemption mechanism generally will not lead
to a tax event for FVL ETF or its ongoing shareholders. Unlike a closed-
end fund, if an ETF experiences material cash inflows, an ETF may be
unable to satisfy the qualified dividend income holding period
requirements for a portion of its dividends and may subject investors to
increased tax liability.
Please see the FVL ETF Prospectus incorporated by reference and included
herein as Appendix I for additional information regarding FVL ETF's
investment policies and strategies, and for further information
regarding the Index.
Risk Factors
Risk is inherent in all investing. As investment companies following
similar trading strategies, many of the risks applicable to an
investment in FVL are also applicable to an investment in FVL ETF.
Shares of each Fund will change in value, and you could lose money by
investing in a 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 any fund of equity securities traded on
an exchange. The following specific factors have been identified as the
principal risks of investing in FVL ETF.
Market Risk
One of the principal risks of investing in a Fund is market risk.
Market risk is the risk that a particular stock owned by FVL ETF or
stocks in general may fall in value. Shares of FVL ETF are subject to
market fluctuations caused by such factors as economic, political,
regulatory or market developments, changes in interest rates and
perceived trends in stock prices. Overall, stock values could decline
or could underperform other investments.
Index Tracking Risk
You should anticipate that the value of the shares of FVL ETF will
decline, more or less, in correlation with any decline in the value of
the Index.
Page 15
Non-Correlation Risk
FVL ETF's return may not match the return of the Index for a number of
reasons. For example, FVL ETF incurs operating expenses not applicable
to the Index, and may incur costs in buying and selling securities,
especially when rebalancing FVL ETF's securities holdings to reflect
changes in the composition of the Index. In addition, FVL ETF's
portfolio holdings may not exactly replicate the securities included in
the Index or the ratios between the securities included in the Index.
FVL ETF may not be fully invested at times, either as a result of cash
flows into FVL ETF or reserves of cash held by FVL ETF to meet
redemptions and expenses. If FVL ETF utilizes a sampling approach or
invests in futures or other derivative positions, its return may not
correlate as well with the return of the Index, as would be the case if
it purchased all of the stocks in the Index with the same weightings as
the Index. While First Trust seeks to have a correlation of 0.95 or
better, before expenses, between FVL ETF's performance and the
performance of the Index, there can be no assurance that First Trust
will be able to achieve such a correlation. Accordingly, FVL ETF's
performance may correlate to a lesser extent and may possibly vary
substantially from the performance of the Index.
Replication Management Risk
FVL ETF is also exposed to additional market risk due to its policy of
investing principally in the securities included in the Index. As a
result of this policy, securities held by FVL ETF will generally not be
bought or sold in response to market fluctuations and the securities may
be issued by companies concentrated in a particular industry. As a
result of this policy, FVL ETF would generally not sell a stock because
the stock's issuer is in financial trouble, unless that stock is removed
or is anticipated to be removed from the Index.
Small Cap and Mid-Cap Company Risk
FVL ETF may invest in small capitalization and mid-capitalization
companies. Such companies may be more vulnerable to adverse general
market or economic developments, and their securities may be less liquid
and may experience greater price volatility than larger, more
established companies as a result of several factors, including limited
trading volumes, products or financial resources, management
inexperience and less publicly available information. Accordingly, such
companies are generally subject to greater market risk than larger, more
established companies.
Concentration
FVL ETF will be concentrated in the securities of a given industry if
the Index is concentrated in such industry. A concentration makes FVL
ETF more susceptible to any single occurrence affecting the industry or
sector and may subject FVL ETF to greater market risk than more
diversified funds.
Non-U.S. Securities Risk
FVL ETF may invest in the securities of issuers domiciled in
jurisdictions other than the United States and such stocks may be
denominated in currencies other than the U.S. dollar. These securities
are either in the form of American Depositary Receipts ("ADRs") or are
directly listed on a U.S. securities exchange. Investments in securities
of non-U.S. issuers involve special risks not presented by investments
in securities of U.S. issuers, including: (i) there may be less publicly
available information about non-U.S. issuers or markets due to less
Page 16
rigorous disclosure or accounting standards or regulatory practices;
(ii) many non-U.S. markets are smaller, less liquid and more volatile
than the U.S. market; (iii) potential adverse effects of fluctuations in
currency exchange rates or controls on the value of FVL ETF's
investments; (iv) the economies of non-U.S. countries may grow at slower
rates than expected or may experience a downturn or recession; (v) the
impact of economic, political, social or diplomatic events; (vi) certain
non-U.S. countries may impose restrictions on the ability of non-U.S.
issuers to make payments of principal and interest to investors located
in the U.S., due to blockage of non-U.S. currency exchanges or
otherwise; and (vii) withholding and other non-U.S. taxes may decrease
FVL ETF's return.
Tax Risk
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 Proposed Reorganization - Federal Income Tax Consequences" on
page __. 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 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 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 FVL ETF resulting in
gain recognition to 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. 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.
See the FVL ETF Prospectus (incorporated herein by reference and
attached hereto as Appendix I) for additional information regarding risks.
C. Other Comparisons Between the Funds
The following information provides shareholders of FVL with more
information about FVL ETF and how FVL ETF compares with FVL.
Adviser and Portfolio Managers. First Trust is the investment adviser
for each Fund. Under the supervision of the Board of Trustees of each
Fund, First Trust, with headquarters at 1001 Warrenville Road, Suite
300, Lisle, Illinois 60532, makes each Fund's investment decisions.
First Trust also is responsible for selecting brokers and dealers and
for negotiating brokerage commissions and dealer charges.
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
Page 17
with one general partner, The Charger Corporation, and a number of
limited partners. The Charger Corporation is an Illinois corporation
controlled by the Robert Donald Van Kampen family.
First Trust serves as adviser or sub-adviser for ___ mutual fund
portfolios, ___ exchange-traded fund portfolios and ___ closed-end fund
portfolios and is also the portfolio supervisor of certain unit
investment trusts sponsored by First Trust Portfolios L.P. ("FTP"), 1001
Warrenville Road, Lisle, Illinois 60532. FTP specializes in the
underwriting, trading and distribution of unit investment trusts and
other securities. FTP is the principal underwriter of FVL ETF.
Most of the members of the advisory team at First Trust who are
responsible for the portfolio management of FVL ETF are also responsible
for the portfolio management of FVL. Specifically, Stan Ueland is a
member of the advisory team that manages the portfolio of FVL ETF, but he
is not a member of the advisory team that manages the portfolio of FVL.
There is no one individual primarily responsible for portfolio management
decisions for FVL ETF. Investments are made under the direction of a
committee (the "Investment Committee"). The Investment Committee consists
of Daniel J. Lindquist, Robert F. Carey, Jon C. Erickson, David G.
McGarel, Roger F. Testin and Mr. Ueland. Mr. Lindquist re-joined First
Trust over two years ago after serving as Chief Operating Officer of Mina
Capital Management LLC and Samaritan Asset Management LLC from 2000 to
2003 and is a Senior Vice President of First Trust and FTP. Mr. Lindquist
is Chairman of the Investment Committee and presides over Investment
Committee meetings and began working at First Trust on April 26, 2004.
Mr. Carey is the Chief Investment Officer and Senior Vice President of
First Trust and Senior Vice President of FTP and began working at First
Trust on September 27, 1991. As First Trust's Chief Investment Officer,
Mr. Carey consults with the Investment Committee on market conditions and
First Trust's general investment philosophy. Mr. Erickson is a Senior
Vice President of First Trust and FTP and began working at First Trust on
March 21, 1994. As the head of First Trust's Equity Research Group, Mr.
Erickson is responsible for determining the securities to be purchased
and sold by funds that do not utilize quantitative investment strategies.
Mr. McGarel is a Senior Vice President of First Trust and FTP and began
working at First Trust on August 15, 1997. As the head of First Trust's
Strategy Research Group, Mr. McGarel is responsible for developing and
implementing quantitative investment strategies for those funds that have
investment policies that require them to follow such strategies. Mr.
Testin is a Senior Vice President of First Trust and began working at
First Trust on August 27, 2001. Prior to joining First Trust, Mr. Testin
was an analyst for Dolan Capital Management. As the head of First Trust's
Portfolio Management Group, Mr. Testin is responsible for executing the
instructions of the Strategy Research Group and Equity Research Group in
each Fund's portfolio. Mr. Ueland has been a Vice President of First
Trust and FTP since August 2005. At First Trust, he plays an important
role in executing the investment strategies of each portfolio of ETFs
advised by First Trust. Before joining First Trust, Mr. Ueland was vice
president of sales at BondWave LLC from May 2004 through August 2005, an
account executive for Mina Capital Management LLC and Samaritan Asset
Management LLC from January 2003 through May 2004, and a sales consultant
at Oracle Corporation from January 1997 through January 2003. For
additional information concerning First Trust, including a description of
the services provided to FVL ETF, see the FVL ETF SAI. In addition, the
FVL ETF SAI provides additional information about the compensation of
members of the Investment Committee, other accounts managed by members of
the Investment Committee and the ownership of securities of members of
the Investment Committee in FVL ETF.
First Trust will receive annual investment advisory fees from FVL ETF
equal to 0.50% of FVL ETF's average daily net assets, and currently
receives annual investment advisory fees from FVL equal to 0.65% of
FVL's average daily net assets.
Page 18
FVL ETF is responsible for all of its expenses, including the investment
advisory fees, costs of transfer agency, custody, fund administration, legal,
audit and other services, interest, taxes, brokerage commissions and other
expenses connected with the execution of portfolio transactions, paying for its
sublicensing fees related to the Index, any distribution fees or expenses, and
extraordinary expenses. First Trust has agreed to waive fees and/or pay FVL
ETF's expenses to the extent necessary to prevent the operating expenses of FVL
ETF (excluding interest expense, brokerage commissions and other trading
expenses, taxes and extraordinary expenses) from exceeding 0.70% of average
daily net assets per year (the "Expense Cap") for at least two years following
the Reorganization. Expenses borne by First Trust are subject to reimbursement
by FVL ETF up to three years from the date the fee or expense was incurred, but
no reimbursement payment will be made by FVL ETF if it would result in FVL ETF
exceeding its Expense Cap.
Distribution and Service Fees. FVL shares are not subject to any 12b-1
distribution and service fees, nor are any 12b-1 fees currently being
paid by FVL ETF.
The Board of Trustees of First Trust ETF, of which FVL ETF is a series,
has adopted a Distribution and Service Plan pursuant to Rule 12b-1 under
the 1940 Act. In accordance with its Rule 12b-1 plan, FVL ETF is
authorized to pay an amount up to 0.25% of its average daily net assets
each year to reimburse FTP for amounts expended to finance activities
primarily intended to result in the sale of Creation Units or the
provision of investor services. FTP may also use this amount to
compensate securities dealers or other persons that are 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 ETF, and there are no plans to
impose these fees. However, in the event 12b-1 fees are charged in the
future, because these fees are paid out of FVL ETF's assets, over time
these fees would increase the cost of your investment and may cost you
more than certain other types of sales charges.
Trustees and Officers. The Trustees of First Trust ETF (of which FVL
ETF is a series) are the same as those of FVL. The following
individuals comprise the Board of Trustees of both First Trust ETF and
FVL: James A. Bowen, Richard E. Erickson, Thomas R. Kadlec, Robert F.
Keith and Niel B. Nielson. The Board of Trustees is responsible for the
management of the Funds, including supervision of the duties performed
by the Adviser. In addition, the officers of First Trust ETF are the
same as those of FVL.
Independent Registered Public Accounting Firm ("Auditor"). Deloitte &
Touche LLP serves as Auditor for both FVL ETF and FVL.
Charter Documents. FVL is organized as a Massachusetts business trust
governed by Massachusetts law. FVL ETF is a diversified series of First
Trust ETF, a Massachusetts business trust governed by Massachusetts law.
FVL is governed by a Declaration of Trust, dated as of April 18, 2003.
First Trust ETF is governed by a Declaration of Trust, dated as of
August 8, 2003. Each charter document is sometimes referred to herein
as the Declaration. Additional information about each of the
Declarations is provided below.
Shareholders of FVL and FVL ETF have a number of rights in common.
Except with respect to the differences described below, the Declarations
are substantially identical. Shares of beneficial interest of each Fund
entitle their holders to one vote per share and fractional shares
entitle their holders to a proportional fractional vote. Unlike FVL,
Page 19
First Trust ETF is permitted to have more than one series, and currently
there are ___ series existing in addition to FVL ETF. In some
circumstances all of the series vote together, but a separate vote will
be taken by the shareholders of FVL ETF on matters affecting FVL ETF as
a series when so required under the 1940 Act. If a matter affects only
a particular series of First Trust ETF and does not affect FVL ETF, only
the required vote by that applicable series shall be required. For
example, a change in a fundamental investment policy for FVL ETF would
be voted upon only by shareholders of FVL ETF.
Shareholder meetings of First Trust ETF and FVL must be called when
required by the 1940 Act to elect Trustees. Shareholder meetings of FVL
also may be called by the Chairman of the Board of Trustees or the
President and may be called upon written request of at least 66-2/3% of
the Trustees. Shareholder meetings of FVL ETF also may be called by a
majority of the Trustees. Shareholder meetings of both FVL and FVL ETF
also shall be called by any Trustee upon written request, which shall
specify the purpose or purposes for which such meeting is to be called,
of shareholders holding shares representing in the aggregate not less
than (i) 50%, in the case of FVL, and (ii) one-third, in the case of FVL
ETF, of the voting power of the outstanding shares entitled to vote on
the matters specified in such written request. Because of AMEX rules,
FVL is required to hold annual shareholder meetings at which Trustees of
FVL are elected. FVL ETF is not subject to the same annual meeting
requirement.
Neither Fund's common shares have preemptive rights. 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). Unlike conventional mutual funds, ETFs like FVL ETF issue and
redeem shares on a continuous basis, at net asset value, only in large
specified blocks of shares (each a "Creation Unit Aggregation.")
Creation Units of FVL ETF will be issued and redeemed principally in-
kind for securities included in the Index. Following the
Reorganization, a Creation Unit Aggregation of FVL ETF shall consist of
50,000 shares. Except in Creation Unit Aggregations, FVL ETF shares are
not individually redeemable securities of FVL ETF. Shares of FVL ETF
will be listed and traded on the AMEX under the ticker symbol "FVL" to
provide liquidity for individual shareholders of FVL ETF shares in
amounts less than the size of a Creation Unit Aggregation. As closed-
end fund shareholders, FVL shareholders have no similar right to redeem
shares of FVL, but shares of FVL also are listed on the AMEX and may be
purchased or sold on that exchange.
The Declaration of FVL authorizes the issuance of an unlimited number of
common shares. The common shares have a par value of $0.01 per share
and have equal rights to the payment of dividends and the distribution
of assets upon liquidation. The common shares have no conversion rights
(except as may otherwise be determined by the Trustees in their sole
discretion) or rights to cumulative voting. Shareholders of FVL ETF are
entitled to dividends as declared by its Trustees, and if First Trust
ETF were liquidated, each shareholder of FVL ETF would be entitled to
receive pro rata the distributable assets of First Trust ETF
attributable to shares of FVL ETF. FVL's present policy is to distribute
at least annually all, or substantially all, of its net investment income
as dividends and its net realized capital gains annually, if any. FVL ETF
intends to distribute its net investment income semi-annually and its
realized capital gains, annually, if any.
Under Massachusetts law, shareholders could, in certain circumstances,
be held personally liable for the obligations of a Fund. However, each
of the Declarations contains an express disclaimer of shareholder
liability for debts or obligations of the Funds 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. Each
of the Declarations further provides for indemnification for all claims
Page 20
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 a Fund.
As noted above, unlike FVL, First Trust ETF issues its shares in more
than one series. All consideration received by FVL ETF for the issue or
sale of shares of FVL ETF, 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 First Trust ETF, subject only to the rights of creditors
of FVL ETF, and belong irrevocably to FVL ETF for all purposes.
Additional series of First Trust ETF may be established by the Trustees
from time to time. Shares of FVL ETF may be issued in classes, with
such relative rights and preferences as may be determined by the
Trustees from time to time.
In general, each Declaration provides that reorganizations,
consolidations, or sales, leases or exchanges of all or substantially
all of the assets of a Fund requires the affirmative vote of the holders
of two-thirds of all the votes entitled to be cast on the matter;
provided, however, that if such transaction has already been authorized
by the affirmative vote of two-thirds of the Trustees, then the
affirmative vote of the "majority of the outstanding voting securities"
in accordance with the 1940 Act, as described above, is required. Each
Declaration also permits such action without the vote of shareholders,
if prior to such reorganization, consolidation or sale, the acquiring
fund is not an operating entity.
The Declaration of FVL specifically authorizes the issuance of preferred
shares, and if such shares are issued, they may be senior to the common
shares as to rights to dividends and distributions and upon termination,
and have separate voting rights on certain matters as required by the
1940 Act. The Declaration of First Trust ETF (of which FVL ETF is a
series) permits the issuance of shares in classes, but such classes are
not entitled to the preferences granted to preferred shares in the
Declaration of FVL. However, the Declaration of First Trust ETF
authorizes the issuance of series of shares, of which FVL ETF is one,
while the Declaration of FVL only authorizes the issuance of classes of
shares.
The amendment procedures contained in both Declarations are
substantially similar, except that amendments to First Trust ETF's
Declaration require the approval of the requisite percentage vote of all
series or classes of First Trust ETF, rather than the requisite
percentage vote of shares of FVL ETF only.
Certain provisions of FVL's Declaration could have the effect of limiting
the ability of other entities or persons to acquire control of FVL. The
affirmative vote or consent of the holders of 66-2/3% of the shares of
FVL is required to authorize certain transactions, including under
certain circumstances a conversion into an open-end company or a merger
or consolidation of FVL with or into another entity unless the
transaction is approved by two-thirds of the Trustees. These provisions
would make it more difficult to change the management of FVL and could
have the effect of depriving shareholders of an opportunity to sell their
shares at a premium over prevailing market prices by discouraging a third
party from seeking to obtain control of FVL in a tender offer or similar
transaction. Currently, FVL's Board members serve concurrent annual terms
of office. However, FVL's By-Laws permit Board members to serve staggered
terms. If the Reorganization is not approved, it is anticipated that
FVL's Board will be divided into three classes with each class being
elected to serve until the third succeeding annual shareholder meeting
subsequent to their election or thereafter in each case until their
successors are duly elected and qualified. FVL ETF's By-Laws do not
include a similar provision. This provision may affect the ability of FVL
shareholders to quickly change the composition of the Board.
Page 21
Except as required by the 1940 Act, AMEX rules or as described above,
the Trustees of FVL and of First Trust ETF (of which FVL ETF is a
series) need not call meetings of the shareholders for the election or
re-election of Trustees. Subject to the limits of the 1940 Act, these
vacancies may be filled by a majority of the standing Trustees. The
Declarations provide that, subject to the limits of the 1940 Act, any
Trustee of First Trust ETF or FVL may be removed from office with or
without cause by (a) three-quarters of the Trustees then in office or
(b) a vote of two-thirds of the outstanding shares of FVL or First Trust
ETF, as applicable.
Quorum for a shareholder meeting of First Trust ETF (of which FVL ETF is
a series) and FVL 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 outstanding shares entitled to vote of that series
or class 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
Declarations governing FVL and FVL ETF. It is qualified in its entirety
by reference to the charter documents themselves.
D. Information About the Proposed Reorganization
General. The shareholders of FVL are being asked to approve a
Reorganization of FVL with and into FVL ETF pursuant to the proposed
Agreement and Plan of Reorganization between FVL and First Trust ETF on
behalf of its series, FVL ETF (the "Plan"), the form of which is
attached to this Prospectus/Proxy Statement as Exhibit A.
The Reorganization is structured as a transfer of all of the assets of
FVL to FVL ETF in exchange for the assumption by FVL ETF of all of the
liabilities of FVL and for the issuance and delivery to FVL of
Reorganization Shares (as defined in the Plan) equal in aggregate value
to the net value of the assets transferred to FVL ETF.
After the receipt of the Reorganization Shares in Creation Unit
Aggregations of _______ shares (for purposes of the Reorganization
only), FVL or its agent will distribute the Reorganization Shares to its
shareholders of record, on a pro rata basis, in proportion to their
existing shareholdings as of the Valuation Time, in complete liquidation
of FVL, and the legal existence of FVL will be terminated. Each
shareholder of FVL will receive a number of full or fractional
Reorganization Shares equal in value at the Valuation Time to the
aggregate value of the shareholder's FVL shares. Because shares of FVL
ETF will not be certificated, shareholders who hold FVL shares directly
and not in "street name" through a broker-dealer will need to designate
a brokerage account that will hold their Reorganization Shares by or
before ____________, 2007. If a shareholder does not designate a
brokerage account, such shareholder may be limited in the ability to
sell their Reorganization Shares in the secondary market until such
account is designated. Following the Reorganization, a Creation Unit
Aggregation shall consist of 50,000 shares of FVL ETF.
Prior to the date of the Reorganization, FVL may have to sell certain of
its investments that are not consistent with the current constituents of
the Index and 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 and net realized capital
gains, if any, through the date of 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. As of _____________, First
Trust did not believe that any securities held by FVL were inconsistent
with the Index.
Page 22
The Trustees of FVL have voted to approve the Plan and the proposed
Reorganization contemplated thereby and to recommend that shareholders
of FVL also approve the Plan. The Plan and the Reorganization described
therein will be consummated only if approved by the holders of the lesser
of (i) 67% of FVL's shares represented at the Meeting, if more than 50%
of the outstanding shares of FVL are represented at the Meeting or (ii)
more than 50% of FVL's outstanding shares.
In the event that the Reorganization does not receive the required
shareholder vote to approve the Plan, FVL will continue to be managed
and operated as a separate closed-end fund in accordance with its
current investment objective and policies, and the Trustees of FVL may
consider such alternatives as may be in the best interests of FVL,
including the possible liquidation of FVL.
Background and Trustees' Considerations Relating to the Proposed
Reorganization. The Trustees of FVL had, at each regularly scheduled
Board meeting beginning in December 2003, discussed the discount to net
asset value at which FVL shares, and shares of closed-end funds in
general, have traded. They reviewed the investment performance of FVL,
shareholder activity in FVL shares and possible methods to reduce or
eliminate the discount at which FVL shares have traded. On January 10,
2007, the Trustees were notified of a filing with the Securities and
Exchange Commission by Doliver Capital Advisors, Inc. ("Doliver"),
disclosing that Doliver had acquired beneficial ownership of 10.8% of
FVL's outstanding shares, and that this would be an agenda item for
their January 17, 2007 special Board meeting. At the meeting,
representatives of First Trust informed the Trustees that they had
determined to propose the Reorganization, noting that First Trust's
recommendation was based in part on the Board's familiarity with this
possible response to the discount due to extensive discussions that had
been held on similar proposals for two other closed-end funds managed by
First Trust that also had been trading at a discount, and which also
were based on Value Line(R) indices. The First Trust representatives
indicated that they also had determined to propose the Reorganization
because of First Trust's and the Board's knowledge of prior actions of
Doliver associates with respect to another First Trust closed-end fund
that First Trust and the Board had determined were not in the best
interests of that fund.
The First Trust representatives discussed the terms and conditions of
the proposed Reorganization with the Trustees of FVL, noting that they
were essentially identical to the terms and conditions of two
reorganizations that the Board had recently approved for two other First
Trust closed-end funds. They reviewed with the Trustees the
reorganization of the First Trust Value Line(R) Dividend Fund ("FVD")
into an ETF, which had occurred in December 2006. In light of the
persistent discount, the discussions between Fund counsel and the staff
of the SEC (the "Staff") concerning reorganizations for FVD and another
First Trust closed-end fund that also had traded at a discount, the
substantial similarity between the proposed Reorganization and the FVD
reorganization, and the recent filing by Doliver, First Trust had
determined to submit the proposed Reorganization to the Trustees for
approval at this meeting. As they had at previous Board meetings, at
the January 17, 2007 meeting, the Trustees discussed the discount to net
asset value at which FVL shares have historically traded. In addition,
the Trustees considered the prior actions by Doliver and its associates
with respect to other closed-end funds, including another closed-end
fund advised by First Trust.
Based upon the foregoing and the considerations discussed below, the
Trustees of FVL, including all of the Trustees who are not "interested
persons" of FVL (as defined in the 1940 Act) (the "Independent
Trustees"), approved the proposed Reorganization and recommended its
approval to shareholders. In determining to recommend that the
shareholders of FVL vote to approve the Reorganization, the Trustees
considered, among others, the factors described below:
Page 23
o Reduction of Discount. The proposed Reorganization may have the
effect of producing a reduction of FVL's discount (for
shareholders of record who become shareholders of FVL ETF as a
result of the Reorganization). The Trustees noted that FVL's
shares have historically traded at a discount from their net
asset value. The Trustees considered that if the Reorganization
is approved, FVL shareholders would receive FVL ETF shares with
an aggregate net asset value equal to the net asset value of
their FVL shares held as of the Valuation Time (as defined
below). The Trustees considered that ETFs historically trade at
or very close to their net asset value, and noted that after the
Reorganization, current shareholders of FVL who become
shareholders of FVL ETF as part of the Reorganization should be
able to sell their Reorganization Shares at or close to the NAV
of their previously held FVL shares, thus effectively reducing
or eliminating FVL's discount.
o Comparison of Fees and Expense Ratios. The Trustees considered
comparative expense information of FVL and FVL ETF, including
comparisons between the current expense ratio for FVL and the
estimated pro forma operating expense ratio of FVL ETF, and
between the estimated operating expense ratio of FVL ETF and the
current expense ratios of other ETFs comparable to the proposed
FVL ETF. The Trustees in particular noted that the management
fee of FVL ETF would be lower than FVL's management fee and that
the estimated operating expense ratio of FVL ETF is expected to
be lower than the current expense ratio of FVL.
o Fee Waiver/Expense Cap. The Trustees noted that First Trust has
agreed to waive all or a portion of its management fees and/or
reimburse or pay operating expenses of FVL ETF to the extent
necessary to maintain FVL ETF's total operating expenses at
0.70% of average daily net assets per year, for at least two
years following the Reorganization, excluding interest expense,
brokerage commissions and other trading expenses, taxes and
extraordinary expenses.
o Benefits of the ETF Structure. The Trustees considered the
favorable tax attributes of ETFs, that shareholders of FVL who
become shareholders of FVL ETF as a result of the Reorganization
will continue to receive the benefit of intra-day liquidity and
that ETFs can generally remain fully invested because they do
not redeem individual shares and typically redeem Creation Units
Aggregations on an in-kind basis.
o Expenses of the Reorganization. The Trustees noted that First
Trust would bear all normal costs of the Reorganization, and
that FVL would bear any extraordinary costs of the
Reorganization.
o Avoidance of Proxy Contest and Related Expenses. The Trustees
considered the costs and expenses to FVL of a proxy contest that
might be brought by Doliver or its associates, given Doliver's
history of engaging in proxy contests to acquire the assets of
other closed-end funds, and in light of the proxy contest
initiated with respect to another First Trust closed-end fund by
the brother-in-law of Doliver's portfolio manager.
Page 24
In addition to the foregoing, the Trustees of FVL also considered the
following:
o The terms and conditions of the Reorganization and whether the
Reorganization would result in the dilution of the interests of
FVL's existing shareholders in light of the basis on which
shares of FVL ETF will be issued to FVL in Creation Unit
Aggregations as contemplated in the Reorganization;
o The compatibility of FVL's and FVL ETF's investment objectives,
policies and restrictions and the composition of the current FVL
portfolio and the expected FVL ETF portfolio; and
o The tax consequences of the Reorganization on FVL and its
shareholders; the Reorganization is expected to be a tax-free
reorganization for federal income tax purposes and the receipt
by FVL shareholders of shares of FVL ETF as a result of the
Reorganization is expected to be a tax-free transaction.
Based upon all of the foregoing considerations, the Trustees approved
the proposed Plan and the Reorganization contemplated thereby and
determined that the proposed Reorganization would be in the best
interests of FVL. The Trustees also determined that the interests of
FVL's existing shareholders would not be diluted as a result of the
transactions contemplated by the Reorganization. The Trustees of FVL,
including the Independent Trustees, unanimously recommend that
shareholders of FVL approve the Reorganization.
Agreement and Plan of Reorganization. The proposed Reorganization will
be governed by the Plan, the form of which is attached hereto as Exhibit A.
The Plan provides that FVL ETF will acquire all of the assets of FVL in
exchange for the assumption by FVL ETF of all liabilities of FVL and for
the issuance of Creation Units representing the Reorganization Shares
equal in value to the value of the transferred assets net of assumed
liabilities. The Creation Units representing the Reorganization Shares
will be issued immediately after the Valuation Time (which is expected
to be [4:00 p.m.] Eastern time on _________, 2007, or such other date
and time as may be agreed upon by the parties) (the "Closing Date").
The following discussion of the Plan is qualified in its entirety by
reference to the full text of the Plan.
FVL will transfer all of its assets to FVL ETF, and in exchange, FVL ETF
will assume all liabilities of FVL, including without limitation FVL's
indemnification obligations to its trustees and officers, and deliver to
FVL a number of Creation Units representing the Reorganization Shares
having an aggregate net asset value equal to the value of the assets of
FVL attributable to common shares of FVL, less the value of the
liabilities of FVL assumed by FVL ETF attributable to common shares of
FVL. Immediately following the transfer of assets on the Closing Date,
FVL or its agent will distribute pro rata to its shareholders of record
as of the Valuation Time the Reorganization Shares received by FVL. As
a result of the Reorganization, each shareholder of FVL will receive a
number of Reorganization Shares equal in aggregate value as of the
Valuation Time to the value of the FVL common shares surrendered by the
shareholder. This distribution will be accomplished by the
establishment of accounts on the share records of FVL ETF in the name of
such FVL shareholders of record, each account representing the
respective number of Reorganization Shares due to the respective
shareholder. No certificates for Reorganization Shares will be issued.
The Trustees of FVL and the Trustees of First Trust ETF, of which FVL
ETF is a series (who are the same individuals), have determined that the
Page 25
proposed Reorganization is in the best interests of their respective
Fund and that the interests of their respective Fund's existing
shareholders will not be diluted as a result of the transactions
contemplated by the Reorganization.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan. The Plan may be terminated and the Reorganization
abandoned (i) by mutual agreement of FVL ETF and FVL, (ii) by either
party if the Reorganization shall not have occurred on or before
__________, 200_ unless such date has been extended by mutual agreement
of the parties or (iii) by either party if the other party shall have
materially breached its obligations under the Plan or made a material
and intentional misrepresentation therein or in connection therewith.
If shareholders of FVL approve the Reorganization, both Funds agree to
coordinate their respective portfolios from the date of the Plan up to
and including the Closing Date in order that the investments of FVL as
of the time of the Reorganization will meet as closely as practicable
the investment objective, policies and restrictions of FVL ETF.
The normal costs of the Reorganization including legal expenses, proxy
printing and proxy solicitation expenses will be borne by First Trust.
Any extraordinary costs of the Reorganization will be borne by FVL.
Extraordinary costs are those costs that are neither foreseen nor
normally associated with a reorganization.
First Trust (but not FVL) has entered into a [Corporate Finance Services
and Consulting Agreement] with A.G. Edwards & Sons, Inc. ("A.G.
Edwards") and has agreed to pay from its own assets a fee to A.G.
Edwards relating to FVL. This fee is payable quarterly at the annual
rate of 0.15% of FVL's average daily net assets. A.G. Edwards provides
information and research under this agreement. First Trust does not
intend to pay such a fee to A.G. Edwards in connection with FVL ETF and,
therefore, the Reorganization may represent a cost savings to First
Trust if approved.
Description of the Reorganization Shares. The Reorganization Shares
will be issued to FVL in Creation Unit Aggregations in accordance with
the Plan as described above. Reorganization Shares will thereafter be
distributed to FVL's shareholders by FVL or its agent in accordance with
the Plan as described above. The Reorganization Shares will be shares
of beneficial interest, $0.01 par value per share, of FVL ETF.
The common shares of FVL are currently listed and traded on the AMEX
under the symbol FVL. If the Reorganization is approved, FVL shares
will no longer be listed on the AMEX and FVL will be dissolved,
liquidated and terminated as provided in the Plan. FVL ETF has applied
to list and trade its shares on the AMEX, subject to notice of issuance.
Reports, proxy materials and other information concerning FVL ETF and FVL
may be inspected at the offices of the AMEX, 86 Trinity Place, New York,
New York 10006.
For more information on the characteristics of the Reorganization
Shares, please see the FVL ETF prospectus, a copy of which is included
with this Prospectus/Proxy Statement as Appendix I.
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:
Page 26
(i) the acquisition by FVL ETF of all of the assets of FVL
solely in exchange for Creation Units representing Reorganization
Shares and the assumption by FVL ETF of all of the liabilities of
FVL, followed by the distribution by FVL to its shareholders of
Reorganization Shares in complete liquidation of FVL, all pursuant
to the Plan, constitutes a reorganization within the meaning of
Section 368(a) of the Code, and FVL and FVL ETF will each be a
"party to a reorganization" within the meaning of Section 368(b) of
the Code;
(ii) under Section 361 of the Code, FVL will not recognize gain
or loss upon the transfer of FVL's assets to FVL ETF in exchange for
Reorganization Shares and the assumption of FVL's liabilities by FVL
ETF, and FVL will not recognize gain or loss upon the distribution
to FVL's shareholders of the Reorganization Shares in liquidation of
FVL;
(iii) under Section 354 of the Code, shareholders of FVL will
not recognize gain or loss on the receipt of Reorganization Shares
solely in exchange for FVL shares;
(iv) under Section 358 of the Code, the aggregate basis of the
Reorganization Shares received by each shareholder of FVL will be
the same as the aggregate basis of FVL shares exchanged therefor;
(v) under Section 1223(1) of the Code, the holding period of the
Reorganization Shares received by each FVL shareholder will include
the holding periods of FVL shares exchanged therefor, provided that
the FVL shareholder held the FVL shares at the time of the
Reorganization as a capital asset;
(vi) under Section 1032 of the Code, FVL ETF will not recognize
gain or loss upon the receipt of assets of FVL in exchange for
Reorganization Shares and the assumption by FVL ETF of all of the
liabilities of FVL;
(vii) under Section 362(b) of the Code, the basis of the assets
of FVL transferred to FVL ETF in the Reorganization will be the same
in the hands of FVL ETF as the basis of such assets in the hands of
FVL immediately prior to the transfer;
(viii) under Section 1223(2) of the Code, the holding periods of
the assets of FVL transferred to FVL ETF in the Reorganization in
the hands of FVL ETF will include the periods during which such
assets were held by FVL; and
(ix) FVL ETF will succeed to and take into account the items of
FVL described in Section 381(c) of the Code, subject to the
conditions and limitations specified in Sections 381, 382, 383 and
384 of the Code and the regulations thereunder.
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 Plan is approved by shareholders of FVL, FVL will declare a
distribution to its shareholders of all undistributed realized net
Page 27
investment income (computed without regard to the deduction for
dividends paid) and undistributed realized net capital gains (after
reduction by any capital loss carryforwards) prior to the Closing (as
defined in the Plan), and such distributions will be taxable to
shareholders of FVL.
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.
Capitalization. The following table sets forth the unaudited
capitalization of each Fund as of _________, 2007 and of FVL ETF on a
pro forma basis, giving effect to the proposed acquisition of assets at
net asset value as of that date:(1)
FVL FVL ETF Pro Forma FVL ETF Pro
Adjustments Forma Combined
Net Assets:
Common Shares $_________ $0 $0 $_________
Total Net assets $_________ $0 $0 $_________
Shares outstanding:
Common Shares _________ 0 0 _________
Net Asset Value per share:
Common Shares $_________ $0 $0 $_________
- ----------
<FN>
(1) Assumes the Reorganization had been consummated on __________,
200_, and is for information purposes only. No assurance can be
given as to how many shares of FVL ETF 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 FVL ETF that actually will be received on or after such
date.
</FN>
The Board of Trustees of FVL, including the Independent Trustees,
unanimously recommends that shareholders of FVL vote to approve the
Reorganization by voting FOR approval of the Plan.
Page 28
ADDITIONAL INFORMATION
Investment Adviser and Administrator. First Trust Advisors L.P., 1001
Warrenville Road, Suite 300, Lisle, Illinois 60532, serves as FVL's
investment adviser.
PFPC acts as FVL's transfer agent, administrator and accounting agent
and is located at 4400 Computer Drive, Westborough, Massachusetts 01581.
PFPC is a leading provider of full service mutual fund shareholder and
record keeping services. In addition to its mutual fund transfer agent
and record keeping services, PFPC provides other services through its
own subsidiary business units. PFPC Trust Company, 301 Bellevue
Parkway, Wilmington, Delaware 19809, is the custodian of the assets of FVL.
Calculation Agent. First Trust has entered into an agreement with AMEX
pursuant to which AMEX will serve as the calculation agent for the
Index. As the calculation agent, AMEX will be responsible for the
management of the day-to-day operations of the Index on behalf of Value
Line(R) including calculating the value of the Index every 15 seconds,
widely disseminating the Index value every 15 seconds and tracking
corporate actions resulting in Index adjustments.
Share Ownership of FVL and FVL ETF. Based solely on information First
Trust obtained from filings available on the SEC's EDGAR website, the
following persons owned beneficially or of record 5% or more of FVL's
shares.
Number of Shares
Name and Address Beneficially Owned Percentage of Ownership
As of _________, 200_, the Trustees and executive officers as a group
beneficially owned _________ shares of FVL, which is less than 1% of
FVL's outstanding shares. No shares of FVL ETF are outstanding.
Shareholder Proposals. FVL's By-Laws require that in order to nominate
persons to FVL's Board or to present any other permitted proposal for
action by shareholders at an annual meeting of shareholders, a
shareholder must provide advance written notice to the Secretary of FVL,
which notice must be delivered to or mailed and received at FVL's
principal executive offices not later than the close of business on the
45th day nor earlier than the close of business on the 60th day prior to
the first anniversary date of the date of the release of the proxy
statement for the preceding year's annual meeting of shareholders;
provided that in the event that the date of the annual meeting to which
such shareholder's notice relates is more than 30 days before or more
than 30 days after such anniversary date, for notice by the shareholder
to be timely it must be so delivered not later than the close of
business on the later of the 45th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date
of such annual meeting is first made by FVL. The shareholder's notice
Page 29
must contain detailed information specified in FVL's By-Laws. The date
of the release of this combined Prospectus/Proxy Statement is expected
to be on or about __________, 2007.
As a general matter, FVL ETF does not intend to hold regular annual or
special meetings of its shareholders. To be considered for presentation
at FVL's 2007 annual meeting, a shareholder proposal submitted pursuant
to Rule 14a-8 of the 1934 Act must be received at the offices of the
Fund at 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532, no
later than the time specified in Rule14a-8. However, if the
Reorganization is approved, FVL will be dissolved and will no longer
hold shareholder meetings.
Timely submission of a proposal does not mean that such proposal will be
included in FVL's proxy statement.
Shareholder Communications. Shareholders of FVL who want to communicate
with the Board of Trustees or any individual Trustee should write to the
attention of FVL's Secretary, W. Scott Jardine, First Trust Portfolios
L.P., 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532. The
letter should indicate that you are an FVL shareholder. 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 FVL ETF is December 31.
Annual Report Delivery. Annual reports will be sent to shareholders of
record of FVL ETF or, if the Reorganization is not approved, 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 1001
Warrenville Road, Suite 300, Lisle, Illinois 60532 or by calling (800)
988-5891.
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 FVL at the address and phone
number set forth above. Pursuant to a request, a separate copy will be
delivered promptly.
General. A list of shareholders of FVL entitled to be present and to vote at
the Meeting will be available at the offices of FVL, 1001 Warrenville
Road, Suite 300, Lisle, Illinois 60532, for inspection by any
shareholder during regular business hours beginning two days after the
date of the Notice of Special Meeting of Shareholders included with this
Prospectus/Proxy Statement.
Failure of a quorum to be present at the Meeting will necessitate
adjournment and will subject FVL to additional expense. The chair of
the Meeting may call for an adjournment of the Meeting to permit further
solicitation of proxies with respect to the proposal if he or she
determines that adjournment and further solicitation is reasonable and
in the best interests of the shareholders.
Page 30
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
OR HOW TO VOTE YOUR SHARES, CALL (800) 761-6707 WEEKDAYS FROM 9:00 A.M.
TO 10:00 P.M. EASTERN TIME.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
BECAUSE SHARES OF FVL ETF WILL NOT BE CERTIFICATED, SHAREHOLDERS WHO
HOLD FVL SHARES DIRECTLY AND NOT IN "STREET NAME" THROUGH A BROKER-
DEALER WILL NEED TO DESIGNATE A BROKERAGE ACCOUNT THAT WILL HOLD THE
REORGANIZATION SHARES. IF A SHAREHOLDER DOES NOT DESIGNATE A BROKERAGE
ACCOUNT, SUCH SHAREHOLDER MAY BE LIMITED IN THE ABILITY TO SELL THE
REORGANIZATION SHARES IN THE SECONDARY MARKET UNTIL SUCH ACCOUNT IS
DESIGNATED.
- -----------------------------------------------------------------------------
Page 31
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this ___ day of __________, 2007, by and among First Trust Exchange-
Traded Fund, a Massachusetts business trust (the "Acquiring Trust"), on
behalf of its series, First Trust Value Line(R) 100 Exchange-Traded Fund
(the "Acquiring Fund"), First Trust Value Line(R) 100 Fund, a
Massachusetts business trust (the "Acquired Fund" and, together with the
Acquiring Fund, each a "Fund" and collectively the "Funds"), and, for
purposes of Section 10.2 of the Agreement only, First Trust Advisors
L.P. ("First Trust"), an Illinois limited partnership. The principal
place of business of the Acquiring Trust, the Acquired Fund and First
Trust is 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of
all of the assets of the Acquired Fund to the Acquiring Fund in exchange
for shares of beneficial interest (par value $0.01 per share) of the
Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund and the
distribution of the Acquiring Fund Shares received by the Acquired Fund
pro rata to the shareholders of record of the Acquired Fund in complete
liquidation, dissolution and termination of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth
in this Agreement.
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 1. Acquiring Fund Shares, the Transfer of All Acquired
Fund Assets, the Assumption of All Acquired Fund
Liabilities and the Liquidation, Dissolution and
Termination of the Acquired Fund
Section 1.1 Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained herein, the
Acquired Fund agrees to transfer to the Acquiring Fund all of the
Acquired Fund's assets as set forth in Section 1.2, and the Acquiring
Fund agrees in consideration therefor (i) to deliver to the Acquired
Fund, either directly or through its agent, that number of Acquiring
Fund Shares determined by dividing the value of the Acquired Fund's
assets net of any liabilities of the Acquired Fund with respect to the
common shares of the Acquired Fund, computed in the manner and as of the
time and date set forth in Section 2.1, by the net asset value of one
Acquiring Fund Share, computed in the manner and as of the time and date
set forth in Section 2.2; and (ii) to assume all of the liabilities of
the Acquired Fund, including without limitation the Acquired Fund's
indemnification obligations to its trustees and officers. Acquiring
Fund Shares shall be delivered to the Acquired Fund in "Creation Unit"
aggregations only ("Creation Units"), meaning specified blocks of
_________ Acquiring Fund Shares ("Creation Unit Aggregations"). The
Acquired Fund directly or through an agent will distribute the Acquiring
Page A-1
Fund Shares received by the Acquired Fund pro rata to the Acquired Fund
shareholders of record as of the Valuation Time (as defined below). All
Acquiring Fund Shares delivered to the Acquired Fund shall be delivered
at net asset value without a sales load, commission, transaction fee or
other similar fee being imposed. Such transactions shall take place at
the closing provided for in Section 3.1 (the "Closing").
Section 1.2 The assets of the Acquired Fund to be acquired by the
Acquiring Fund (the "Assets") shall consist of all assets, including,
without limitation, all cash, cash equivalents, securities, commodities
and futures interests and dividends or interest or other receivables
that are owned by the Acquired Fund and any deferred or prepaid expenses
shown on the unaudited statement of assets and liabilities of the
Acquired Fund prepared as of the effective time of the Closing in
accordance with accounting principles generally accepted in the United
States of America ("GAAP") applied consistently with those of the
Acquired Fund's most recent audited statement of assets and liabilities.
Section 1.3 The Acquired Fund will endeavor, to the extent practicable,
to discharge all of its liabilities and obligations that are accrued
prior to the Closing Date as defined in Section 3.1.
Section 1.4 On or as soon as practicable prior to the Closing Date as
defined in Section 3.1, the Acquired Fund will declare and pay to its
shareholders of record one or more dividends and/or other distributions
so that it will have distributed substantially all of its investment
company taxable income (computed without regard to any deduction for
dividends paid) and realized net capital gain, if any, for the current
taxable year through the Closing Date.
Section 1.5 Immediately after the transfer of Assets provided for in
Section 1.1, the Acquired Fund will distribute to the Acquired Fund's
shareholders of record (the "Acquired Fund Shareholders") determined as
of the Valuation Time (as defined in Section 2.1), on a pro rata basis,
the Acquiring Fund Shares received by the Acquired Fund pursuant to
Section 1.1 and will completely liquidate, dissolve and terminate. The
Funds may appoint an agent to assist the Acquiring Fund and/or the
Acquired Fund in the distribution of the Acquiring Fund Shares received
by the Acquired Fund in Creation Unit Aggregations to the Acquired Fund
Shareholders. The distribution, liquidation, dissolution and
termination referenced in this Section 1.5 will be accomplished with
respect to the common shares of the Acquired Fund by the transfer of the
Acquiring Fund Shares received by the Acquired Fund in Creation Unit
Aggregations then credited to the account of the Acquired Fund on the
books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders. The
Acquiring Fund shall have no obligation to inquire as to the validity,
propriety or correctness of such records, but shall assume that such
transaction is valid, proper and correct. The aggregate net asset value
of Acquiring Fund Shares to be so credited to the Acquired Fund
Shareholders shall be equal to the aggregate net asset value of the
Acquired Fund common shares owned by such Acquired Fund Shareholders as
of the Valuation Time. All issued and outstanding common shares of the
Acquired Fund, and certificates representing such shares, if any, will
simultaneously be cancelled on the books of the Acquired Fund. The
Acquiring Fund will not issue certificates representing Acquiring Fund
Shares.
Page A-2
Section 1.6 Ownership of Acquiring Fund Shares will be shown on the books
of the Acquiring Fund. Shares of the Acquiring Fund will be issued in
the manner described in the Acquiring Fund's then-current prospectus and
statement of additional information.
Section 1.7 Any reporting responsibility of the Acquired Fund including,
without limitation, the responsibility for filing of regulatory reports,
tax returns, or other documents with the Securities and Exchange
Commission (the "Commission"), 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 Acquired Fund.
Section 1.8 All books and records of the Acquired Fund, including all
books and records required to be maintained under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, shall be available to the Acquiring Fund from and after the
Closing Date and shall be turned over to the Acquiring Fund as soon as
practicable following the Closing Date.
Article 2. Valuation
Section 2.1 The value of the Assets and the liabilities of the Acquired
Fund shall be computed as of the close of regular trading on The New
York Stock Exchange (the "NYSE") on the Closing Date, as defined in
Section 3.1 (the "Valuation Time"), after the declaration and payment of
any dividends and/or other distributions on or before that date, using
the valuation procedures approved by the Board of Trustees of the
Acquiring Trust and set forth in the Acquiring Fund's then-current
prospectus or statement of additional information, copies of which have
been or will be delivered to the Acquired Fund prior to the Closing Date.
Section 2.2 The net asset value of an Acquiring Fund Share shall be the
net asset value per share computed as of the Valuation Time using the
valuation procedures referred to in Section 2.1. Notwithstanding
anything to the contrary contained in this Agreement, in the event that,
as of the Valuation Time, there are no Acquiring Fund Shares issued and
outstanding, then, for purposes of this Agreement, the per share net
asset value of Acquiring Fund Shares shall be equal to the net asset
value of a common share of the Acquired Fund.
Section 2.3 The number of Acquiring Fund Shares to be issued in
consideration for the Assets shall be determined by dividing the value
of the Assets net of liabilities with respect to common shares of the
Acquired Fund, determined in accordance with Section 2.1, by the net
asset value of an Acquiring Fund Share as determined in accordance with
Section 2.2. Such Acquiring Fund Shares shall be issued to the Acquired
Fund only in Creation Unit Aggregations of __________ Acquiring Fund
Shares, or in multiples thereof.
Section 2.4 All computations of value hereunder shall be made by or under
the direction of each Fund's respective pricing agent, if applicable, in
accordance with its regular practice and the requirements of the 1940
Act and shall be subject to confirmation by each Fund's Independent
Registered Public Accounting Firm upon the reasonable request of the
other Fund.
Page A-3
Article 3. Closing and Closing Date
Section 3.1 The Closing of the transactions contemplated by this
Agreement shall be _____________, 2007, or such later date as the
parties may agree in writing (the "Closing Date"). All acts taking
place at the Closing shall be deemed to take place simultaneously as of
5:00 p.m., Central time, on the Closing Date, unless otherwise agreed to
by the parties. The Closing shall be held at the offices of counsel to
the Acquiring Fund, or at such other place and time as the parties may
agree.
Section 3.2 The Acquired Fund shall deliver to the Acquiring Fund on the
Closing Date a schedule of Assets.
Section 3.3 The Acquired Fund shall cause PFPC Trust Company ("PFPC Trust
Co."), custodian for the Acquired Fund, to deliver at the Closing a
certificate of an authorized officer stating that (a) the Assets shall
have been delivered in proper form to The Bank of New York ("BONY"),
custodian for the Acquiring Fund, at or prior to the Closing Date and
(b) all necessary taxes in connection with the delivery of the Assets,
including all applicable federal and state stock transfer stamps, if
any, have been paid or provision for payment has been made. The
Acquired Fund's portfolio securities represented by a certificate or
other written instrument shall be presented by the custodian for the
Acquired Fund to the custodian for the Acquiring Fund for examination no
later than five business days preceding the Closing Date and transferred
and delivered by the Acquired Fund as of the Closing Date by the
Acquired Fund for the account of Acquiring Fund duly endorsed in proper
form for transfer in such condition as to constitute good delivery
thereof. The Acquired Fund's portfolio securities and instruments
deposited with a securities depository, as defined in Rule 17f-4 under
the 1940 Act, shall be delivered as of the Closing Date by book entry in
accordance with the customary practices of such depositories and the
custodian for the Acquiring Fund. The cash to be transferred by the
Acquired Fund shall be delivered by wire transfer of federal funds on
the Closing Date.
Section 3.4 PFPC Inc. (or its designee) ("PFPC Inc."), as transfer agent
for the Acquired Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and
addresses of the Acquired Fund Shareholders and the number and
percentage ownership (to three decimal places) of outstanding Acquired
Fund common shares owned by each such Acquired Fund Shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Acquired Fund or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have
been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other
such bills of sale, checks, assignments, share certificates, if any,
receipts or other documents as such other party or its counsel may
reasonably request to effect the transactions contemplated by this
Agreement. The cash to be transferred by the Acquiring Fund shall be
delivered by wire transfer of federal funds on the Closing Date.
Section 3.5 In the event that immediately prior to the Valuation Time (a)
the NYSE or another primary trading market for portfolio securities of
the Acquiring Fund or the Acquired Fund shall be closed to trading or
Page A-4
trading thereupon shall be restricted, or (b) trading or the reporting
of trading on such Exchange or elsewhere shall be disrupted so that, in
the judgment of the Board members of either party to this Agreement,
accurate appraisal of the value of the common shares of the Acquired
Fund is impracticable, the Closing Date shall be postponed until the
first business day after the day when trading shall have been fully
resumed and reporting shall have been restored.
Section 3.6 The liabilities of the Acquired Fund to be assumed by the
Acquiring Fund shall include all of the Acquired 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 Date, and whether or not specifically referred to in this
Agreement, including, without limitation, the Acquired Fund's
indemnification obligations to its trustees and officers.
Article 4. Representations and Warranties
Section 4.1 The Acquired Fund represents and warrants to the Acquiring
Trust, on behalf of the Acquiring Fund, as follows:
(a) The Acquired Fund is a Massachusetts business trust duly
organized and validly existing under the laws of the Commonwealth of
Massachusetts with power under the Acquired Fund's Declaration of Trust
to own all of its properties and assets and to carry on its business as
it is now being conducted and, subject to approval of the shareholders of
the Acquired Fund, to carry out the Agreement. The Acquired Fund is
qualified to do business in all jurisdictions in which it is required to
be so qualified, except jurisdictions in which the failure to so qualify
would not have a material adverse effect on the Acquired Fund. The
Acquired Fund has all material federal, state and local authorizations
necessary to own all of its properties and assets and to carry on its
business as now being conducted, except authorizations which the failure
to so obtain would not have a material adverse effect on the Acquired
Fund;
(b) The Acquired Fund is registered with the Commission as a
closed-end management investment company under the 1940 Act, and such
registration is in full force and effect and the Acquired Fund is in
compliance in all material respects with the 1940 Act and the rules and
regulations thereunder;
(c) No consent, approval, authorization, or order of any
court or governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated herein, except such as
have been obtained under the Securities Act of 1933, as amended (the
"1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934
Act"), the 1940 Act, the American Stock Exchange ("AMEX") and such as may
be required by state securities laws;
(d) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement by the Acquired Fund will not result (i) in
violation of Massachusetts law or of the Acquired Fund's Declaration of
Trust or By-Laws, (ii) in a violation or breach of, or constitute a
Page A-5
default under, any material agreement, indenture, instrument, contract,
lease or other undertaking to which the Acquired Fund is a party or by
which it is bound, and the execution, delivery and performance of this
Agreement by the Acquired Fund will not result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which the
Acquired Fund is a party or by which it is bound, or (iii) in the
creation or imposition of any lien, charge or encumbrance on any property
or assets of the Acquired Fund;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquired Fund or any
properties or assets held by it. The Acquired Fund knows of no facts
which might form the basis for the institution of such proceedings which
would materially and adversely affect its business and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated;
(f) The Statements of Assets and Liabilities, Operations, and
Changes in Net Assets, the Financial Highlights, and the Investment
Portfolio of the Acquired Fund at and for the year ended December 31,
2006, have been audited by Deloitte & Touche LLP, Independent Registered
Public Accounting Firm, and are in accordance with GAAP consistently
applied, and such statements (a copy of each of which has been furnished
to the Acquiring Fund) present fairly, in all material respects, the
financial position of the Acquired Fund as of such date in accordance
with GAAP and there are no known contingent liabilities of the Acquired
Fund required to be reflected on the Statement of Assets and Liabilities
(including the notes thereto) in accordance with GAAP as of such date not
disclosed therein;
(g) Since December 31, 2006, there has not been any material
adverse change in the Acquired Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by the Acquired Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred except as otherwise disclosed to and accepted in writing by
the Acquiring Fund. For purposes of this subsection (g), a decline in net
asset value per common share of the Acquired Fund due to declines in the
market values of securities in the Acquired Fund's portfolio or the
discharge of Acquired Fund liabilities shall not constitute a material
adverse change;
(h) At the date hereof and at the Closing Date, all federal
and other tax returns and reports of the Acquired Fund required by law to
have been filed by such dates (including any extensions) shall have been
filed and are or will be correct in all material respects, and all
federal and other taxes shown as due or required to be shown as due on
said returns and reports shall have been paid or provision shall have
been made for the payment thereof, and, to the best of the Acquired
Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(i) For each taxable year of its operation (including the
taxable year ending on the Closing Date), the Acquired Fund has met the
requirements of Subchapter M of the Code for qualification as a regulated
Page A-6
investment company and has elected to be treated as such, has been
eligible to and has computed its federal income tax under Section 852 of
the Code, and will have distributed all of its investment company taxable
income and net capital gain (as defined in the Code) that has accrued
through the Closing Date;
(j) All issued and outstanding common shares of the Acquired
Fund (i) have been offered and sold in every state and the District of
Columbia in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws, (ii)
are, and on the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable and not subject to preemptive
or dissenter's rights, and (iii) will be held at the time of the Closing
by the persons and in the amounts set forth in the records of PFPC Inc.,
as provided in Section 3.4. The Acquired Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any of
the Acquired Fund common shares, nor is there outstanding any security
convertible into any of the Acquired Fund common shares;
(k) At the Closing Date, the Acquired Fund will have good and
valid title to the Acquired 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 hereunder
free of any liens or other encumbrances, except those liens or
encumbrances as to which the Acquiring Fund has received notice at or
prior to the Closing, and upon delivery and payment for such Assets, the
Acquiring Fund will acquire good and valid title thereto, subject to no
restrictions on the full transfer thereof, including such restrictions as
might arise under the 1933 Act and the 1940 Act, except those
restrictions as to which the Acquiring Fund has received notice and
necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all necessary
action on the part of the Board members of the Acquired Fund (including
the determinations required by Rule 17a-8(a) under the 1940 Act), and,
subject to the approval of the shareholders of the Acquired Fund, this
Agreement will constitute a valid and binding obligation of the Acquired
Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(m) The information to be furnished by the Acquired Fund for
use in applications for orders, registration statements or proxy
materials or for use in any other document filed or to be filed with any
federal, state or local regulatory authority (including any national
securities exchange or the NASD, Inc. (the "NASD")), which may be
necessary in connection with the transactions contemplated hereby, shall
be accurate and complete in all material respects and shall comply in all
material respects with federal securities and other laws and regulations
applicable thereto;
(n) During the offering of the Acquired Fund's common shares,
the prospectus and statement of additional information of the Acquired
Fund conformed in all material respects to the applicable requirements of
the 1933 Act and the 1940 Act and the rules and regulations of the
Page A-7
Commission thereunder and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) The Registration Statement referred to in Section 5.7,
only insofar as it relates to the Acquired Fund, will, on the effective
date of the Registration Statement and on the Closing Date, (i) comply in
all material respects with the provisions and regulations of the 1933
Act, the 1934 Act and the 1940 Act, as applicable, and (ii) not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements are
made, not materially misleading; provided, however, that the
representations and warranties in this Section shall not apply to
statements in or omissions from the Registration Statement made in
reliance upon and in conformity with information that was furnished or
should have been furnished by the Acquiring Trust on behalf of the
Acquiring Fund for use therein.
Section 4.2 The Acquiring Trust, on behalf of the Acquiring Fund,
represents and warrants to the Acquired Fund as follows:
(a) The Acquiring Trust is a Massachusetts business trust duly organized
and validly existing under the laws of the Commonwealth of Massachusetts
with power under the Acquiring Trust's Declaration Trust to own all of
its properties and assets and to carry on its business as it is now
being conducted and to carry out the Agreement. The Acquiring Fund is a
separate series of t he Acquiring Trust duly designated in accordance
with the applicable provisions of the Acquiring Trust's Declaration of
Trust. The Acquiring Trust and Acquiring Fund are qualified to do
business in all jurisdictions in which they are required to be so
qualified, except jurisdictions in which the failure to so qualify would
not have a material adverse effect on the Acquiring Trust or Acquiring
Fund. The Acquiring Fund has all material federal, state and local
authorizations necessary to own all of its properties and assets and to
carry on its business as now being conducted, except authorizations
which the failure to so obtain would not have a material adverse effect
on the Acquiring Fund;
(b) The Acquiring Trust is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration
is in full force and effect, the Acquiring Trust is in compliance in all
material respects with the 1940 Act and the rules and regulations
thereunder, and the Acquiring Trust (solely with respect to the
Acquiring Fund) and the Acquiring Fund will at the Closing Date be in
compliance in all material respects with the 1940 Act and the rules and
regulations thereunder;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the tra nsactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act, the 1940 Act, the AMEX and
such as may be required by state securities laws;
Page A-8
(d) The Acquiring Trust is not, and the execution, delivery
and performance of this Agreement by the Acquiring Trust will not result
(i) in violation of Massachusetts law or of the Acquiring Trust's
Declaration of Trust or By-Laws, (ii) in a violation or breach of, or
constitute a default under, any material agreement, indenture, exemptive
order, instrument, contract, lease or other undertaking to which the
Acquiring Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquiring Fund will not
result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquiring Fund is a party or by which it
is bound, or (iii) in the creation or imposition of any lien, charge or
encumbrance on any property or assets of the Acquiring Fund;
(e) No material litigation or 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
properties or assets held by it. The Acquiring Fund knows of no facts
which might form the basis for the institution of such proceedings which
would materially and adversely affect its business and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated;
(f) Since December 31, 2006, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by the Acquiring Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred except as otherwise disclosed to and accepted in writing by
the Acquired Fund. For purposes of this subsection (f), a decline in net
asset value per share of the Acquiring Fund, the discharge of Acquiring
Fund liabilities, or the redemption of Acquiring Fund shares by Acquiring
Fund shareholders shall not constitute a material adverse change;
(g) At the date hereof and at the Closing Date, all federal
and other tax returns and reports of the Acquiring Fund required by law
to have been filed by such dates (including any extensions) shall have
been filed and are or will be correct in all material respects, and all
federal and other taxes shown as due or required to be shown as due on
said returns and reports shall have been paid or provision shall have
been made for the payment thereof, and, to the best of the Acquiring
Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(h) For each taxable year of its operation, the Acquiring
Fund has met the requirements of Subchapter M of the Code for
qualification as a regulated investment company and has elected to be
treated as such, 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
including the Closing Date;
(i) All issued and outstanding shares of the Acquiring Fund
(i) have been offered and sold in every state and the District of
Columbia in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws and
(ii) are, and on the Closing Date will be, duly and validly issued and
Page A-9
outstanding, fully paid and non-assessable, and not subject to preemptive
or dissenter's rights. The Acquiring Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of the
Acquiring Fund shares, nor is there outstanding any security convertible
into any of the Acquiring Fund shares;
(j) The Acquiring Fund Shares to be issued and delivered to
the account of the Acquired Fund on the books of the Acquiring Fund, for
the accounts on the share records of the Acquiring Fund in the names of
the Acquired Fund Shareholders, pursuant to the terms of this Agreement,
will at the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued and outstanding Acquiring
Fund shares, and will be fully paid and non-assessable;
(k) At the Closing Date, the Acquiring Fund will have good
and valid title to the Acquiring Fund's assets, free of any liens or
other encumbrances;
(l) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all necessary
action on the part of the Board members of the Acquiring Trust (including
the determinations required by Rule 17a-8(a) under the 1940 Act), and
this Agreement will constitute a valid and binding obligation of the
Acquiring Trust, on behalf of the Acquiring Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles;
(m) The information to be furnished by the Acquiring Fund for
use in applications for orders, registration statements or proxy
materials or for use in any other document filed or to be filed with any
federal, state or local regulatory authority (including any national
securities exchange or the NASD), which may be necessary in connection
with the transactions contemplated hereby, shall be accurate and complete
in all material respects and shall comply in all material respects with
federal securities and other laws and regulations applicable thereto;
(n) At the Closing Date, the current prospectus and statement
of additional information of the Acquiring Fund will conform in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations of the Commission thereunder and
will not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not materially misleading;
(o) The Registration Statement referred to in Section 5.7,
only insofar as it relates to the Acquiring Trust and the Acquiring Fund,
will, on the effective date of the Registration Statement and on the
Closing Date, (i) comply in all material respects with the provisions and
regulations of the 1933 Act, the 1934 Act, and the 1940 Act and (ii) not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
Page A-10
statements were made, not materially misleading; provided, however, that
the representations and warranties in this Section shall not apply to
statements in or omissions from the Registration Statement made in
reliance upon and in conformity with information that was furnished or
should have been furnished by the Acquired Fund for use therein; and
(p) The Acquiring Fund agrees to use all reasonable efforts
to obtain the approvals and authorizations required by the 1933 Act, the
1940 Act and such of the state securities laws as may be necessary in
order to continue its operations after the Closing Date.
Article 5. Covenants of the Acquiring Fund and the Acquired Fund
Section 5.1 The Acquiring Fund and the Acquired Fund each covenants to
operate its business in the ordinary course between the date hereof and
the Closing Date, it being understood that (a) such ordinary course of
business will include (i) the declaration and payment of customary
dividends and other distributions and (ii) such changes as are
contemplated by the Funds' normal operations; and (b) each Fund shall
retain exclusive control of the composition of its portfolio until the
Closing Date. No party shall take any action that would, or reasonably
would be expected to, result in any of its representations and
warranties set forth in this Agreement being or becoming untrue in any
material respect. The Acquired Fund and Acquiring Fund covenant and
agree to coordinate the respective portfolios of the Acquired Fund and
Acquiring Fund from the date of the Agreement up to and including the
Closing Date in order that, at Closing, when the Assets are transferred
to the Acquiring Fund and added to the Acquiring Fund's portfolio, the
resulting portfolio will meet the Acquiring Fund's investment objective,
policies and restrictions, as set forth in the Acquiring Fund's
prospectus, a copy of which has been or will be, at or prior to the
Closing Date, delivered to the Acquired Fund.
Section 5.2 Upon reasonable notice, the Acquiring Trust's officers and
agents shall have reasonable access to the Acquired Fund's books and
records necessary to maintain current knowledge of the Acquired Fund and
to ensure that the representations and warranties made by the Acquired
Fund in this Agreement are accurate.
Section 5.3 The Acquired Fund covenants to call a meeting of the Acquired
Fund shareholders entitled to vote thereon to consider and act upon this
Agreement and to take all other reasonable action necessary to obtain
approval of this Agreement and the transactions contemplated herein.
Section 5.4 The Acquired Fund covenants that the Acquiring Fund Shares to
be issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this
Agreement.
Section 5.5 The Acquired Fund covenants that it will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably
requests concerning the beneficial ownership of the Acquired Fund common
shares.
Page A-11
Section 5.6 Subject to the provisions of this Agreement, the Acquiring
Fund and the Acquired Fund will each take, or cause to be taken, all
actions, and do or cause to be done, all things reasonably necessary,
proper, and/or advisable to consummate and make effective the
transactions contemplated by this Agreement.
Section 5.7 Each Fund covenants to prepare in compliance with the 1933
Act, the 1934 Act and the 1940 Act a registration statement on Form N-14
(the "Registration Statement") in connection with the meeting of the
Acquired Fund shareholders to consider approval of this Agreement and
the transactions contemplated herein. The Acquiring Trust will file the
Registration Statement, including a proxy statement, with the
Commission. The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a proxy
statement which will be part of a prospectus of the Acquiring Fund, all
to be included in the Registration Statement, in compliance in all
material respects with the 1933 Act, the 1934 Act and the 1940 Act.
Section 5.8 The Acquired Fund covenants that it will, from time to time,
as and when reasonably requested by the Acquiring Fund, execute and
deliver or cause to be executed and delivered all such assignments and
other instruments, and will take or cause to be taken such further
action as the Acquiring Fund may reasonably deem necessary or desirable
in order to vest in and confirm the Acquiring Fund's title to and
possession of all the Assets and otherwise to carry out the intent and
purpose of this Agreement.
Section 5.9 The Acquiring Fund covenants to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the
1934 Act and 1940 Act, and such of the state securities laws as may be
necessary in order to continue its operations after the Closing Date and
to consummate the transactions contemplated herein; provided, however,
that the Acquiring Fund may take such actions it reasonably deems
advisable after the Closing Date as circumstances change.
Section 5.10 The Acquiring Fund covenants that it will, from time to
time, as and when reasonably requested by the Acquired Fund, execute and
deliver or cause to be executed and delivered all such assignments,
assumption agreements, releases, and other instruments, and will take or
cause to be taken such further action, as the Acquired Fund may
reasonably deem necessary or advisable in order to (i) vest and confirm
to the Acquired Fund title to and possession of all Acquiring Fund
Shares to be transferred to the Acquired Fund pursuant to this Agreement
and (ii) assume the liabilities as provided in Section 3.6 from the
Acquired Fund.
Section 5.11 As soon as reasonably practicable after the Closing, the
Acquired Fund shall make a liquidating distribution to its shareholders
consisting of the Acquiring Fund Shares received at the Closing.
Section 5.12 The Acquiring Fund and the Acquired Fund shall each use its
reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to effect the transactions contemplated by this
Agreement as promptly as practicable.
Page A-12
Section 5.13 The intention of the parties is that the transaction will
qualify as a reorganization within the meaning of Section 368(a) of the
Code. Neither the Acquiring Trust, the Acquiring Fund nor the Acquired
Fund 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 Date, the Acquiring Trust, the
Acquiring Fund and the Acquired Fund will take such action, or cause
such action to be taken, as is reasonably necessary to enable Chapman
and Cutler LLP to render the tax opinion contemplated herein in Section
8.5.
Section 5.14 At or immediately prior to the Closing, the Acquired Fund
will declare and pay to its shareholders a dividend or other
distribution in an amount large enough so that it will have distributed
substantially all (and in any event not less than 98%) of its investment
company taxable income (computed without regard to any deduction for
dividends paid) and realized net capital gain, if any, for the current
taxable year through the Closing Date.
Article 6. Conditions Precedent to Obligations of the Acquired Fund
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the
performance by the Acquiring Fund of all the obligations to be performed
by it hereunder on or before the Closing Date, and, in addition thereto,
the following further conditions:
Section 6.1 All representations and warranties of the Acquiring Trust, on
behalf of the Acquiring Fund, contained in this Agreement shall be true
and correct in all material respects as of the date hereof and, except
as they may be affected by the transactions contemplated by this
Agreement, as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date; and there shall be (i) no pending or
threatened litigation brought by any person (other than the Acquired
Fund, its adviser or any of their affiliates) against the Acquiring Fund
or its investment adviser(s), Board members or officers arising out of
this Agreement and (ii) no facts known to the Acquiring Fund which the
Acquiring Fund reasonably believes might result in such litigation.
Section 6.2 The Acquiring Fund shall have delivered to the Acquired Fund
on the Closing Date a certificate executed in its name by the Acquiring
Trust's President or a Vice President, in a form reasonably satisfactory
to the Acquired Fund and dated as of the Closing Date, to the effect
that the representations and warranties of the Acquiring Trust made in
this Agreement are true and correct on and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquired Fund shall
reasonably request.
Section 6.3 The Acquired Fund shall have received on the Closing Date
opinions of Chapman and Cutler LLP and Bingham McCutchen LLP, as
applicable, in a form reasonably satisfactory to the Acquired Fund, and
dated as of the Closing Date, to the effect that:
Page A-13
(a) the Acquiring Trust has been formed and is legally
existing as a Massachusetts business trust;
(b) the Acquiring Fund is a separate series of the Acquiring
Trust and has been duly designated in accordance with applicable
provisions of the Acquiring Trust's Declaration of Trust;
(c) the Acquiring Trust has the power as a business trust to
carry on its business as presently conducted in accordance with the
description thereof in the Registration Statement referred to in Section
5.7;
(d) the Agreement has been duly authorized, executed and
delivered by the Acquiring Trust, on behalf of the Acquiring Fund, and
constitutes a valid and legally binding obligation of the Acquiring
Trust, on behalf of the Acquiring Fund, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to
or affecting creditors' rights and to general equity principles;
(e) the execution and delivery of the Agreement did not, and
the issuance and delivery to the Acquired Fund of Acquiring Fund Shares
pursuant to the Agreement will not, violate the Acquiring Trust's
Declaration of Trust or By-Laws; and
(f) to the knowledge of such counsel, and without any
independent investigation, (i) the Acquiring Fund is not subject to any
litigation or other proceedings that might have a materially adverse
effect on the operations of the Acquiring Fund, (ii) the Acquiring Trust
is duly registered as an investment company with the Commission and is
not subject to any stop order, and (iii) all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
the Acquiring Fund under the federal laws of the United States or the
laws of the Commonwealth of Massachusetts for the issuance of Acquiring
Fund Shares pursuant to the Agreement have been obtained or made.
The delivery of such opinion is conditioned upon receipt by either
Chapman and Cutler LLP or Bingham McCutchen LLP, as the case may be, of
customary representations it shall reasonably request of each of the
Acquiring Trust and the Acquired Fund.
Section 6.4 The Acquiring Fund shall have performed all of the covenants
and complied with all of the provisions required by this Agreement to be
performed or complied with by the Acquiring Fund on or before the
Closing Date.
Section 6.5 The Acquiring Trust, on behalf of the Acquiring Fund, shall
have entered into an investment management agreement calling for an
annual fee of 0.50% of average daily net assets, and entered into an
expense cap agreement with First Trust limiting the annual expenses of
the Acquiring Fund to 0.70% of average daily net assets for a two-year
period commencing upon the Closing Date in a form reasonably
satisfactory to the Acquired Fund.
Page A-14
Article 7. Conditions Precedent to Obligations of the Acquiring Fund
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the
performance by the Acquired Fund of all of the obligations to be
performed by it hereunder on or before the Closing Date and, in addition
thereto, the following further conditions:
Section 7.1 All representations and warranties of the Acquired Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date,
with the same force and effect as if made on and as of the Closing Date;
and there shall be (i) no pending or threatened litigation brought by
any person (other than the Acquiring Fund, its adviser or any of their
affiliates) against the Acquired Fund or its investment adviser(s),
Board members or officers arising out of this Agreement and (ii) no
facts known to the Acquired Fund which the Acquired Fund reasonably
believes might result in such litigation.
Section 7.2 The Acquired Fund shall have delivered to the Acquiring Fund
a statement of the Acquired Fund's assets and liabilities as of the
Closing Date, certified by the Treasurer of the Acquired Fund.
Section 7.3 The Acquired Fund shall have delivered to the Acquiring Fund
on the Closing Date a certificate executed in its name by the Acquired
Fund's President or a Vice President, in a form reasonably satisfactory
to the Acquiring Trust, on behalf of the Acquiring Fund, and dated as of
the Closing Date, to the effect that the representations and warranties
of the Acquired Fund made in this Agreement are true and correct on and
as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably request.
Section 7.4 The Acquiring Fund shall have received on the Closing Date
opinions of Chapman and Cutler LLP and Bingham McCutchen LLP, as
applicable, in a form reasonably satisfactory to the Acquiring Fund, and
dated as of the Closing Date, to the effect that:
(a) the Acquired Fund has been formed and is legally existing
as a Massachusetts business trust;
(b) the Acquired Fund has the power to carry on its business
as presently conducted in accordance with the description thereof in the
Acquired Fund's registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and
delivered by the Acquired Fund, and constitutes a valid and legally
binding obligation of the Acquired Fund, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to
or affecting creditors' rights and to general equity principles;
Page A-15
(d) the execution and delivery of the Agreement did not, and
the transfer of the Assets to the Acquiring Fund in exchange for
Acquiring Fund Shares pursuant to the Agreement will not, violate the
Acquired Fund's Declaration of Trust or By-Laws; and
(e) to the knowledge of such counsel, and without any
independent investigation, (i) the Acquired Fund is not subject to any
litigation or other proceedings that might have a materially adverse
effect on the operations of the Acquired Fund, (ii) the Acquired Fund is
duly registered as an investment company with the Commission and is not
subject to any stop order, and (iii) all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
the Acquired Fund under the federal laws of the United States or the laws
of the Commonwealth of Massachusetts for the exchange of the Acquired
Fund's Assets for Acquiring Fund Shares and the assumption of the
Acquired Fund liabilities by the Acquiring Fund pursuant to the Agreement
have been obtained or made.
The delivery of such opinion is conditioned upon receipt by either
Chapman and Cutler LLP or Bingham McCutchen LLP, as the case may be, of
customary representations it shall reasonably request of each of the
Acquiring Trust and the Acquired Fund.
Section 7.5 The Acquired Fund shall have performed all of the covenants
and complied with all of the provisions required by this Agreement to be
performed or complied with by the Acquired Fund on or before the Closing
Date.
Article 8. Further Conditions Precedent to Obligations of the Acquiring
Fund and the Acquired Fund
If any of the conditions set forth below have not been met on or before
the Closing Date with respect to the Acquired Fund or the Acquiring
Fund, the other party to this Agreement shall, at its option, not be
required to consummate the transactions contemplated by this Agreement:
Section 8.1 This Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the
outstanding common shares of the Acquired Fund in accordance with the
provisions of the Acquired Fund's Declaration of Trust and By-Laws,
applicable Massachusetts law, the rules of the AMEX and the 1940 Act,
and certified copies of the resolutions evidencing such approval shall
have been delivered to the Acquiring Fund. Notwithstanding anything
herein to the contrary, neither the Acquiring Fund nor the Acquired Fund
may waive the conditions set forth in this Section 8.1.
Section 8.2 On the Closing Date, no action, suit or other proceeding
shall be pending or to its knowledge threatened before any court or
governmental agency in which it is sought to restrain or prohibit, or
obtain material damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
Section 8.3 All consents of other parties and all other consents, orders
and permits of federal, state and local regulatory authorities and the
AMEX deemed necessary by the Acquiring Fund or the Acquired Fund to
permit consummation, in all material respects, of the transactions
Page A-16
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Acquiring
Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
Section 8.4 The Registration Statement referred to in Section 5.7 shall
have become effective under the 1933 Act and no stop orders suspending
the effectiveness thereof shall have been issued and, to the best
knowledge of the parties hereto, no investigation or proceeding for that
purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act.
Section 8.5 The parties shall have received an opinion of Chapman and
Cutler LLP addressed to each of the Acquiring Fund and the Acquired
Fund, in a form reasonably satisfactory to each such party to this
Agreement, substantially to the effect that, based upon certain facts,
assumptions and representations of the parties, for federal income tax
purposes: (i) the acquisition by Acquiring Fund of all of the Assets of
Acquired Fund solely in exchange for Acquiring Fund Shares and the
assumption by Acquiring Fund of all of the liabilities of Acquired Fund,
followed by the distribution by Acquired Fund to its shareholders of
Acquiring Fund Shares in complete liquidation of Acquired Fund, all
pursuant to the Agreement, constitutes a reorganization within the
meaning of Section 368(a) of the Code, and Acquiring Fund and Acquired
Fund will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) under Section 361 of the Code, Acquired
Fund will not recognize gain or loss upon the transfer of its Assets to
Acquiring Fund in exchange for Acquiring Fund Shares and the assumption
of the Acquired Fund liabilities by Acquiring Fund, and Acquired Fund
will not recognize gain or loss upon the distribution to its
shareholders of the Acquiring Fund Shares in liquidation of Acquired
Fund; (iii) under Section 354 of the Code, shareholders of Acquired Fund
will not recognize gain or loss on the receipt of Acquiring Fund Shares
solely in exchange for Acquired Fund shares; (iv) under Section 358 of
the Code, the aggregate basis of the Acquiring Fund Shares received by
each shareholder of Acquired Fund will be the same as the aggregate
basis of Acquired Fund shares exchanged therefor; (v) under Section
1223(1) of the Code, the holding period of the Acquiring Fund Shares
received by each Acquired Fund Shareholder will include the holding
period of Acquired Fund shares exchanged therefor, provided that the
Acquired Fund Shareholder held the Acquired Fund shares at the time of
the Reorganization as a capital asset; (vi) under Section 1032 of the
Code, Acquiring Fund will not recognize gain or loss upon the receipt of
Assets of Acquired Fund in exchange for Acquiring Fund Shares and the
assumption by Acquiring Fund of all of the liabilities of Acquired Fund;
(vii) under Section 362(b) of the Code, the basis of the Assets of
Acquired Fund transferred to Acquiring Fund in the Reorganization will
be the same in the hands of Acquiring Fund as the basis of such Assets
in the hands of Acquired Fund immediately prior to the transfer; (viii)
under Section 1223(2) of the Code, the holding periods of the Assets of
Acquired Fund transferred to Acquiring Fund in the Reorganization in the
hands of Acquiring Fund will include the periods during which such
Assets were held by Acquired Fund; and (ix) Acquiring Fund will succeed
to and take into account the items of Acquired Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified
in Sections 381, 382, 383 and 384 of the Code and the regulations
thereunder. The delivery of such opinion is conditioned upon receipt by
Page A-17
Chapman and Cutler LLP of representations it shall request of each of
the Acquiring Trust and Acquired Fund. Notwithstanding anything herein
to the contrary, neither the Acquiring Fund nor the Acquired Fund may
waive the condition set forth in this Section 8.5.
Section 8.6 The Assets shall constitute at least 90% of the fair market
value of the net assets, and at least 70% of the fair market value of the
gross assets, held by the Acquired Fund immediately before the Closing
(excluding for these purposes assets used to pay the dividends and other
distributions paid pursuant to Section 1.4).
Article 9. Indemnification
Section 9.1 The Acquiring Trust, on behalf of the Acquiring Fund, agrees
to indemnify and hold harmless the Acquired Fund and each of the
Acquired Fund's Board members and officers from and against any and all
losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquired Fund or any
of its Board members or officers may become subject, insofar as any such
loss, claim, damage, liability or expense (or actions with respect
thereto) arises out of or is based on any breach by the Acquiring Trust
or the Acquiring Fund of any of their representations, warranties,
covenants or agreements set forth in this Agreement.
Section 9.2 The Acquired Fund agrees to indemnify and hold harmless the
Acquiring Trust and the Acquiring Fund and each of the Acquiring Trust's
Board members and officers from and against any and all losses, claims,
damages, liabilities or expenses (including, without limitation, the
payment of reasonable legal fees and reasonable costs of investigation)
to which jointly and severally, the Acquiring Fund, the Acquiring Trust
or any of the Acquiring Trust's Board members or officers may become
subject, insofar as any such loss, claim, damage, liability or expense
(or actions with respect thereto) arises out of or is based on any
breach by the Acquired Fund of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
Article 10. Fees and Expenses
Section 10.1 Each of the Acquiring Trust, on behalf of the Acquiring
Fund, and the Acquired Fund represents and warrants to the other that it
has no obligations to pay any brokers or finders fees in connection with
the transactions provided for herein.
Section 10.2 First Trust will bear the normal expenses associated with
the Reorganization. The Acquired Fund will bear any transaction costs
payable by the Acquired Fund in connection with sales of certain of its
assets, if any, as designated by the Acquiring Fund, in anticipation of
the Reorganization, and any extraordinary expenses associated with the
Reorganization.
Page A-18
Article 11. Entire Agreement
The Acquiring Trust, on behalf of the Acquiring Fund, and the Acquired
Fund agree that neither party has made any representation, warranty or
covenant not set forth herein and that this Agreement constitutes the
entire agreement between the parties.
Article 12. Termination
This Agreement may be terminated and the transactions contemplated
hereby may be abandoned (i) by mutual agreement of the parties, or (ii)
by either party if the Closing shall not have occurred on or before June
30, 2007, unless such date is extended by mutual agreement of the
parties, or (iii) by either party if the other party or the Acquiring
Fund shall have materially breached its obligations under this Agreement
or made a material and intentional misrepresentation herein or in
connection herewith. In the event of any such termination, this
Agreement shall become void and there shall be no liability hereunder on
the part of any party or their respective Board members or officers,
except under Section 10.2 and except for any such material breach or
intentional misrepresentation, as to each of which all remedies at law
or in equity of the party adversely affected shall survive.
Article 13. Amendments
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by any authorized officer of
the Acquired Fund and any authorized officer of the Acquiring Trust on
behalf of the Acquiring Fund; provided, however, that following the
meeting of the Acquired Fund shareholders called by the Acquired Fund
pursuant to Section 5.3 of this Agreement, no such amendment may have
the effect of changing the provisions for determining the number of the
Acquiring Fund Shares to be issued to the Acquired Fund Shareholders
under this Agreement to the detriment of such shareholders without their
further approval.
Article 14. Notices
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed
duly given if delivered by hand (including by Federal Express or similar
express courier) or transmitted by facsimile or three days after being
mailed by prepaid registered or certified mail, return receipt
requested, addressed to the Acquired Fund and the Acquiring Fund, 1001
Warrenville Road, Suite 300, Lisle, Illinois 60532, Attn: W. Scott
Jardine, with a copy to Chapman and Cutler LLP, 111 West Monroe Street,
Chicago, Illinois 60603, Attn: Eric F. Fess, or to any other address
that the Acquired Fund or the Acquiring Fund shall have last designated
by notice to the other party.
Page A-19
Article 15. Headings; Counterparts; Assignment; Limitation of Liability
Section 15.1 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.
Section 15.2 This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
Section 15.3 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but 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
party. 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 the shareholders of the Acquiring Fund and
the Acquired Fund and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement.
Section 15.4 Notwithstanding anything to the contrary contained in this
Agreement, the obligations, agreements, representations and warranties
with respect to the Acquiring Fund shall constitute the obligations,
agreements, representations and warranties of the Acquiring Fund only
(the "Obligated Fund"), and in no event shall any other series of the
Acquiring Trust or the assets of any such series be held liable with
respect to the breach or other default by the Obligated Fund of its
obligations, agreements, representations and warranties as set forth
herein. All parties hereto are expressly put on notice of each of the
Acquired Fund and the Acquiring Trust's Declaration of 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 is
executed on behalf of each of the Acquired Fund and the Acquiring Trust,
on behalf of the Acquiring Fund, by each of the Acquired Fund's and
Acquiring Trust's officers as officers and not individually and the
obligations imposed upon each of the Acquired Fund and the Acquiring
Trust by this Agreement are not binding upon any of the Acquired Fund or
the Acquiring Trust's Board members, officers or shareholders
individually but are binding only upon the assets and property of the
respective Funds, and persons dealing with the Funds must look solely to
the assets of the respective Funds and those assets belonging to the
subject Fund, for the enforcement of any claims.
Section 15.5 This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the Commonwealth of
Massachusetts, without regard to its principles of conflicts of laws.
[Remainder of page left intentionally blank.
Signature page follows.]
Page A-20
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as of the date first referenced above by an authorized
officer and attested by its Secretary or Assistant Secretary.
Attest: FIRST TRUST EXCHANGE-TRADED FUND, on
behalf of First Trust Value Line(R) 100
Exchange-Traded Fund
- --------------------------- --------------------------------------
Secretary By: James A. Bowen
Its: President
Attest: FIRST TRUST VALUE LINE(R) 100 FUND
- --------------------------- --------------------------------------
Secretary By: James A. Bowen
Its: President
Attest: FIRST TRUST ADVISORS L.P.
(for purposes of Section 10.2 only)
- --------------------------- --------------------------------------
Secretary By: James A. Bowen
Its: President
This page intentionally left blank.
EXHIBIT B
FURTHER DISCLOSURE REGARDING FVL
Per Share Price Data. For FVL, the following table sets forth, on a
quarterly basis, the high and low net asset values of the shares, the
high and low sales prices of the shares, and the high and low
discount/premium to net asset value for the periods indicated.
Premium
(Discount) as % of
Market Price Net Asset Value Net Asset Value
---------------- ---------------- ----------------
Period (Calendar Year) High Low High Low High Low
- ------------------------ ---- --- ---- --- ---- ---
[TO COME]
FVL's common shares have historically traded at an amount less than
their net asset value.
As of _____________, FVL's net asset value was $____ per share, and the
closing price of its shares on the AMEX was $____ per share (reflecting
a ____% discount). Recently FVL's market discount has narrowed.
Management believes that this is attributable to market activity
following the announcement of the proposed Reorganization. Should the
Reorganization not occur, the discount at which FVL's shares have tended
to trade is likely to return to more typical levels. The discount level
of FVL shares at the time of the Reorganization cannot be predicted.
This page intentionally left blank.
APPENDIX I
CURRENT FUND PROSPECTUS FOR FVL ETF
[TO COME]
Preliminary Statement of Additional Information
Dated February 6, 2007
Subject to Completion
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND,
A SERIES OF THE
FIRST TRUST EXCHANGE-TRADED FUND
POSTALCODESTREET1001 WARRENVILLE ROAD, SUITE 300
POSTALCODELISLE, POSTALCODEILLINOIS POSTALCODE60532
TELEPHONE: (630) 241-4141
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus/Proxy Statement dated __________, 2007
of First Trust Value Line(R) 100 Exchange-Traded Fund (the "Fund") for use in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
First Trust Value Line(R) 100 Fund, to be held on __________, 2007. At the
Special Meeting, shareholders of First Trust Value Line(R) 100 Fund will be
asked to approve the reorganization of First Trust Value Line(R) 100 Fund, a
closed-end fund, with and into the Fund, a series of First Trust Exchange-Traded
Fund (the "Reorganization") as described in the Prospectus/Proxy Statement.
Copies of the Prospectus/Proxy Statement may be obtained at no charge by writing
the Fund at the address shown above or by calling 1-800-988-5891.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Prospectus/Proxy
Statement.
A Statement of Additional Information for the Fund dated _________ has been
filed with the Securities and Exchange Commission and is attached hereto as
Appendix I which is incorporated herein by this reference. Financial statements
of First Trust Value Line(R) 100 Fund for its most recent fiscal year are
attached hereto as Appendix II and are incorporated herein by this reference.
The date of this Statement of Additional Information is __________, 2007.
INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OF SALE IS NOT PERMITTED.
TABLE OF CONTENTS
FUND HISTORY..................................................................1
DESCRIPTION OF THE FUND AND ITS INVESTMENT OBJECTIVES AND RISKS...............1
MANAGEMENT OF THE FUND........................................................1
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................1
INVESTMENT ADVISORY AND OTHER SERVICES........................................1
PORTFOLIO MANAGERS............................................................1
BROKERAGE ALLOCATION AND OTHER PRACTICES......................................2
CAPITAL STOCK AND OTHER SECURITIES............................................2
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................2
TAXATION OF THE FUND..........................................................2
UNDERWRITERS..................................................................2
FINANCIAL STATEMENTS..........................................................2
APPENDIX I -- First Trust Value Line(R) 100 Exchange-Traded
Fund Statement of Additional Information
dated __________, 2007.
APPENDIX II -- First Trust Value Line(R) 100 Fund
Financial Statements dated December 31, 2006
as included in its Annual Report. Only the
financial statements included therein shall
be incorporated by reference.
FUND HISTORY
This Statement of Additional Information relates to First Trust Value
Line(R) 100 Exchange-Traded Fund, a series of the First Trust Exchange-Traded
Fund. The Fund 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 the Fund in general see the headings "General Description
of the Trust and the Fund" in the Statement of Additional Information attached
hereto as Appendix I.
DESCRIPTION OF THE FUND AND ITS INVESTMENT OBJECTIVES AND RISKS
For a discussion of the Fund's investment objectives and techniques and
related investment policies, see heading "Investment Objective and Policies" in
the Fund's Statement of Additional Information attached hereto as Appendix I.
For a discussion of the fundamental and nonfundamental investment policies of
the Fund adopted by the Fund's Board of Trustees, see heading "Investment
Objective and Policies" in the Fund's Statement of Additional Information
attached hereto as Appendix I.
MANAGEMENT OF THE FUND
For a disclosure of the names and a brief occupational biography of each of
the Fund's trustees and officers, identifying those who are interested persons
of the Fund, see heading "Fund Management" in the Fund's Statement of Additional
Information attached hereto as Appendix I.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
For a discussion of the persons who control the Fund, persons who own
beneficially 5% or more of the Fund's outstanding equity securities and
percentage of the Fund's equity securities owned by all officers, directors, and
members of any advisory board of the Fund as a group, see heading "Control
Persons and Principal Holders of Securities" in the Fund's Statement of
Additional Information attached hereto as Appendix I.
INVESTMENT ADVISORY AND OTHER SERVICES
For a discussion of the Fund's advisory and management-related services
agreements and plans of distribution, see headings "Fund Management" and
"Custodian, Transfer Agent and Fund Accounting Agent; Distributor and Index
Provider," in the Fund's Statement of Additional Information attached hereto as
Appendix I.
PORTFOLIO MANAGERS
For a discussion of Portfolio Managers' management activities, compensation
and ownership of securities in the Fund, see heading "Fund Management" in the
Fund's Statement of Additional Information attached hereto as Appendix I.
BROKERAGE ALLOCATION AND OTHER PRACTICES
For a discussion of the Fund's brokerage policy, see heading "Creation and
Redemption of Creation Unit Aggregations" in the Fund's Statement of Additional
Information attached hereto as Appendix I.
CAPITAL STOCK AND OTHER SECURITIES
For a discussion of the Fund's authorized securities and the
characteristics of the Fund's shares of beneficial interest, see headings
"General Description of the Trust and the Fund" and "Additional Information" in
the Fund's Statement of Additional Information attached hereto as Appendix I.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For a description of the purchase and redemption procedures for the Fund's
shares and a discussion of the Fund's valuation and pricing procedures, see
headings "Creation and Redemption of Creation Unit Aggregations" and "Net Asset
Value" in the Fund's Statement of Additional Information attached hereto as
Appendix I.
TAXATION OF THE FUND
For a discussion of any tax information relating to ownership of the Fund's
shares, see heading "Federal Tax Matters" in the Fund's Statement of Additional
Information attached hereto as Appendix I.
UNDERWRITERS
For a discussion of the Fund's underwriters, see heading "Custodian,
Transfer Agent and Fund Accounting Agent; Distributor and Index Provider" in the
Fund's Statement of Additional Information attached hereto as Appendix I.
FINANCIAL STATEMENTS
Financial information is not presented for the Fund, as the Fund currently
has no material assets and will not commence a public offering of its shares
until the Reorganization has been consummated. Audited financial statements for
First Trust Value Line(R) 100 Fund for its most recent fiscal year, and the
report thereon by Deloitte & Touche LLP, independent auditors, are attached
hereto as Appendix II and are incorporated by reference herein. Pro forma
financial statements are not presented as First Trust Value Line(R) 100 Fund is
being reorganized with and into the newly created Fund, which does not have
material assets or liabilities.
- 4 -
APPENDIX I -- First Trust Value Line(R) 100 Exchange-Traded Fund Statement
of Additional Information dated ___________, 2007.
[TO COME]
APPENDIX II -- First Trust Value Line(R) 100 Fund Financial Statements
dated December 31, 2006 as included in the Fund's Annual Report. Only the
financial statements included therein shall be incorporated by reference.
[TO COME]
- 5 -
PART C: OTHER INFORMATION
ITEM 15: INDEMNIFICATION
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) every person who is or has been a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person")
shall be indemnified by the Trust against all liability and
against all expenses reasonably incurred or paid by him or her
in connection with any claim, action, suit or proceeding in
which that individual becomes involved as a party or otherwise
by virtue of being or having been a Trustee or officer and
against amounts paid or incurred by that individual in the
settlement thereof;
(ii) the words "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits or proceedings
(civil, criminal, administrative or other, including appeals),
actual or threatened; and the words "liability" and "expenses"
shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement or compromise, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) against any liability to the Trust or the Shareholders
by reason of a final adjudication by the court or other body
before which the proceeding was brought that the Covered
Person engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of that individual's office;
(ii) with respect to any matter as to which the Covered
Person shall have been finally adjudicated not to have acted
in good faith in the reasonable belief that that individual's
action was in the best interest of the Trust; or
(iii) in the event of a settlement involving a payment by a
Trustee or officer or other disposition not involving a final
adjudication as provided in paragraph (b)(i) or (b)(ii) above
resulting in a payment by a Covered Person, unless there has
been either a determination that such Covered Person did not
engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
that individual's office by the court or other body approving
the settlement or other disposition or by a reasonable
determination, based upon a review of readily available facts
(as opposed to a full trial-type inquiry) that that individual
did not engage in such conduct:
(A) by vote of a majority of the
Disinterested Trustees (as defined below) acting on
the matter (provided that a majority of the
Disinterested Trustees then in office act on the
matter); or
(B) by written opinion of (i) the
then-current legal counsel to the Trustees who are
not Interested Persons of the Trust or (ii) other
legal counsel chosen by a majority of the
Disinterested Trustees (or if there are no
Disinterested Trustees with respect to the matter in
question, by a majority of the Trustees who are not
Interested Persons of the Trust) and determined by
them in their reasonable judgment to be independent.
(c) 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 a Covered Person and shall inure to the benefit of the heirs,
executors and administrators of such person. Nothing contained herein
shall limit the Trust from entering into other insurance arrangements
or affect any rights to indemnification to which Trust personnel,
including Covered Persons, may be entitled by contract or otherwise
under law.
(d) Expenses of preparation and presentation of a defense to any
claim, action, suit, or proceeding of the character described in
paragraph (a) of this Section 5.3 shall be advanced by the Trust prior
to final disposition thereof upon receipt of an undertaking by or on
behalf of the Covered Person to repay such amount if it is ultimately
determined that the Covered Person is not entitled to indemnification
under this Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some
other appropriate security or the Trust shall be insured
against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees
then in office act on the matter) or legal counsel meeting the
requirement in Section 5.3(b)(iii)(B) above in a written
opinion, shall determine, based upon a review of readily
available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one
(i) who is not an "Interested Person" of the Trust (including
anyone who has been exempted from being an "Interested Person"
by any rule, regulation or order of the Commission), and (ii)
against whom none of such actions, suits or other proceedings
or another action, suit or other proceeding on the same or
similar grounds is then or had been pending.
(e) With respect to any such determination or opinion referred to
in clause (b)(iii) above or clause (d)(ii) above, a rebuttable
presumption shall be afforded that the Covered Person has not engaged
in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered
Person's office in accordance with pronouncements of the Commission.
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 Securities Act
of 1933 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 Securities
Act of 1933 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.
(1) Declaration of Trust of Registrant. (1)
(2) By-Laws of the Registrant. (2)
(3) Not applicable.
(4) Form of Agreement and Plan of Reorganization (included in the
Prospectus/Proxy Statement as Exhibit A thereto). (5)
(5) Amended and Restated Establishment and Designation of Series dated
January 17, 2007. (6)
(6)(i) Investment Management Agreement dated September 24, 2005, as amended.
(3)
(ii) Expense Reimbursement, Fee Waiver and Recovery Agreement. (6)
(iii) Amendment to Schedule A of the Investment Management Agreement. (6)
(7)(i) Distribution Agreement dated September 24, 2005, as amended. (3)
(ii) Amendment to Exhibit A of the Distribution Agreement. (6)
(8) Not Applicable.
(9)(i) Custody Agreement between the Registrant and The Bank of New York.
(2)
(ii) Amendment to Schedule II of the Custody Agreement. (6)
(10)(i) 12b-1 Service Plan. (2)
(ii) Amendment to Exhibit A of the 12b-1 Service Plan. (6)
(11)(i) Opinion and Consent of Chapman and Cutler LLP dated __________. (6)
(ii) Opinion and Consent of Bingham McCutchen LLP dated __________. (6)
(12) Opinion and Consent of Chapman and Cutler LLP dated __________. (6)
(13) Not applicable.
(14) Consent of Independent Registered Public Accounting Firm. (6)
(15) Power of attorney pursuant to which the name of any person has been
signed to the registration statement. (4)
(16) Form of Proxy Card. (5)
- ----------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A (File No. 333-125751) filed on June 13, 2005.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A (File No. 333-125751) filed on September 26, 2005.
(3) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A (File No. 333-125751) filed on March 15, 2006.
(4) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A (File No. 333-125751) filed on February 6, 2007.
(5) Filed herewith.
(6) To be filed by amendment.
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 230.15c], 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 Lisle, and State of
Illinois, on the 6th day of February, 2007.
FIRST TRUST EXCHANGE-TRADED FUND
By: /s/ James A. Bowen
--------------------------------
James A. Bowen, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
SIGNATURE DATE
/s/ Mark R. Bradley Treasurer, Controller and Chief
- -------------------- Financial and Accounting Officer February 6, 2007
Mark R. Bradley
/s/ James A. Bowen President, Chief Executive
- --------------------- Officer, Chairman and Trustee February 6, 2007
James A. Bowen
*/s/ Richard E. Erickson Trustee )
- ------------------------ )
Richard E. Erickson )
)
*/s/ Thomas R. Kadlec Trustee )
- ------------------------ ) By: /s/ James A. Bowen
Thomas R. Kadlec ) ---------------------
) James A. Bowen
*/s/ Robert F. Keith Trustee ) Attorney-In-Fact
- ------------------------ ) February 6, 2007
Robert F. Keith
)
*/s/ Niel B. Nielson Trustee )
- ------------------------ )
Niel B. Nielson )
* Original powers of attorney authorizing James A. Bowen, W. Scott Jardine
and Eric F. Fess to execute Registrant's Registration Statement and
Amendments thereto, for each of the trustees of the Registrant on whose
behalf this Registration Statement is filed, were previously executed and
filed as an Exhibit to the Registrant's Registration Statement on Form N-1A
(File No. 333-125751) on February 6, 2007 and are incorporated by reference
herein.
INDEX TO EXHIBITS
(16) Form of Proxy Card