Filed pursuant to Rule 433(d)
Registration Statement No. 333-130051
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KEYnotes > Frequently Asked Questions
Essential. Defining. Accessible.
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GENERAL
WHAT ARE KEYnotes?
KEYnotes are exchange traded notes (ETNs), which are designed to provide
investors with a convenient way to participate in the returns of a specific
market or strategy.
ESSENTIAL: KEYnotes provide a simple mechanism to efficiently gain exposure to
market segments encompassing a wide range of asset classes, market
capitalizations, styles and sectors.
DEFINING: KEYnotes are linked to indexes that maintain consistent exposure to
specific asset classes captured by the indexes or strategies over
time.
ACCESSIBLE: KEYnotes provide a convenient way for investors to gain exposure to
markets and/or strategies that might otherwise be difficult to
enter. Because KEYnotes are eligible to be listed on major U.S.
securities exchanges, KEYnotes may be bought and sold in one trade,
through a financial representative.
WHAT ARE ETNs?
ETNs are senior, unsecured debt obligations of an issuer unaffiliated with
First Trust that are generally designed to track the performance of a
specific index, strategy, commodity or currency. ETNs are not equity
securities or mutual funds and do not represent a holding in a specific
portfolio of investments and do not reflect equity ownership in any
underlying assets.
HOW ARE ETNs SIMILAR TO ETFs?
There are several similarities:
1. Purchase and sale. ETNs and ETFs can both be bought and sold on a U.S.
exchange. Specialists or market makers generally make markets in both
products.
2. Performance. ETNs and ETFs are both generally designed to track the
performance of an index.
HOW ARE ETNs DIFFERENT THAN ETFs?
There are several differences:
1. Holdings. An ETF shareholder owns a fraction of the underlying
securities in a portfolio. An ETN holder owns an unsecured debt security
and does not own a portion of underlying securities.
2. Investment Company Act Registration. Generally, an ETF is registered
under the Investment Company Act of 1940 while an ETN is not.The
investment Company Act of 1940 regulates the organization of companies,
including mutual funds, that engage primarily in investing, re-investing
and trading in securities, and whose own securities are offered to the
investing public. As a result, ETFs have the benefit of certain
protections provided by the Investment Company Act.
3. Credit Risk. ETN holders are exposed to an issuer's credit risk, which
does not affect ETF holders.
DO ETNs HAVE A NET ASSET VALUE?
No, ETNs are not mutual funds, and therefore, an NAV is not calculated.
Instead, an indicative value of the ETN is calculated at the end of each
trading day.
DO ETNs HAVE AN INTRADAY INDICATIVE VALUE CALCULATED?
No, however there is generally an intraday indicative value(1) of the
index. ETNs linked to certain asset classes such as commodities or
currencies,may have an intraday indicative value calculated.
IS THERE A PRINCIPAL GUARANTEE AS IN OTHER DEBT SECURITIES?
No, ETNs are not principal protected and there is no guarantee related to
an investor's original principal. The ETN does provide a return, less
investor fees, that is linked to the performance of a particular index. As
a result of the investor fees, the value of the index must increase more
than the aggregate investor fees to get the full amount of the investment
back. Also, any return of principal is subject to the credit risk of the
issuer.
ARE ETNs INDIVIDUALLY RATED?
No, ETNs rely on the rating of the applicable issuer. A credit rating
reflects the creditworthiness of the particular issuer and is not a
recommendation to buy, sell or hold securities, and it may be subject to
revision or withdrawal at any time by the assigning rating organization.
TRADING
HOW DO I PURCHASE ETNs?
ETNs are bought on exchanges in the same manner as other exchange traded
products.
IS THERE A MINIMUM PURCHASE REQUIREMENT?
No, ETNs trade on an exchange and can be bought and sold through a broker.
HOW DO I SELL ETNs?
1. ETNs can be sold on exchanges in the same manner as other exchange
traded products.
2. Additionally, a holder of an ETN may generally request the issuer to
repurchase it for cash, subject to compliance with applicable size and
procedural requirements.
3. An investor can choose to hold the ETN until maturity - generally 15 to
30 years from original inception date, and receive a payment at maturity
from the issuer pursuant to the formula described in the applicable
prospectus.
CAN ETNs BE SHORTED?
Yes, ETNs can be shorted on an up or down-tick.
DO ETNs TRADE CLOSE TO THEIR INTRADAY VALUE?
The market value of ETNs may fluctuate between the date you purchase them
and the applicable valuation date with respect to maturity or an early
repurchase.You may also sustain a significant loss if you sell the ETNs in
the secondary market. Several factors generally influence the market value
of the ETNs.Generally, the value of the applicable index on any day will
affect the value of the ETNs more than any other single factor.The value of
the ETNs may be affected by a number of other factors that may either
offset or magnify each other, including the composition of the index and
changes in index components; a variety of economic, financial, political,
regulatory or judicial events; and the creditworthiness of the applicable
issuer, including actual or anticipated downgrades in the credit ratings of
the applicable issuer.
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KEYnotes > Frequently Asked Questions
Essential. Defining. Accessible.
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WHAT ARE SOME OF THE RISK CONSIDERATIONS?
An investment in ETNs involves risks, including possible loss of principal. Each
ETN offering will differ in characteristics and involve risks not associated
with conventional debt securities.You should refer to the relevant prospectus,
which describes the risks in detail. Listed below is a summary of some of the
potential risks that may be associated with an ETN.
YOUR INVESTMENT MAY RESULT IN A LOSS
The return on each ETN is linked to the performance of its underlying market
measure, which, in turn, is linked to the prices of the components underlying
such market measure.These prices may change unpredictably, affecting the value
of the underlying index market measure and, consequently, the value of your ETN
may perform in unexpected ways.
INVESTOR FEE
The amount received upon repurchase or maturity of the ETN is based on the value
of the index and is reduced by the applicable investor fee. You will lose some
or all of your investment if the value of the underlying index or reference
asset on the applicable valuation date is less than its value on the inception
date or if such value increases by less than the aggregate investor fee.
NO INTERIM DISTRIBUTIONS
ETNs generally do not pay any interest during the life of the ETN.You should
review the relevant prospectus to determine whether distributions apply to the
ETN and, if so, at what rate.
ISSUER RISK
ETNs are senior unsecured obligations of the issuer.The repayment of the
principal and any applicable return at maturity or upon repurchase by the issuer
are dependent on that issuer's ability to pay.
TAX CONSEQUENCES(2)
Significant aspects of the tax treatment of ETNs are uncertain. We urge you to
consult your tax advisors concerning the significance, and the potential impact,
of the tax considerations and about your own tax situation.
A TRADING MARKET MAY NOT DEVELOP; AN ISSUER'S OBLIGATION TO REPURCHASE ETNS IS
SUBJECT TO SUBSTANTIAL RESTRICTIONS
The issuer will make an application for listing ETNs on an exchange. The issuer
may engage in limited purchase and resale transactions in the notes although
they are not required to do so.The issuer is not required to maintain any
listing of offered notes on an exchange.However, holders may elect to exercise
their right to have the issuer repurchase their notes, but such repurchase is
subject to compliance with applicable size and procedural requirements.
POTENTIAL CONFLICTS
The issuer and its affiliates play a variety of roles in connection with the
issuance of ETNs, including acting as note calculation agent, and may have
economic interests that are adverse to your interests as a holder of ETNs.
DELISTING
If the applicable index calculation agent discontinues disclosure of the
intraday indicative value of the applicable index, the ETNs may become delisted
from the relevant exchange.
SUITABILITY
ETNs may not be suitable for all investors. Investment suitability must be
determined individually for each investor.This information is not intended to
provide and should not be relied upon as providing accounting, legal, regulatory
or tax advice. Investors should consult with their own advisors as to these
matters.
(1) The intraday indicative calculation of the level of an index will be
provided for reference purposes only. Published index value calculations from a
calculation agent may occasionally be subject to delay or postponement. Any such
delays or postponements will affect the current index value and therefore the
value of the notes in the secondary market.The intraday indicative value of an
index is generally published every 15 seconds and will be based on the intraday
prices of the components constituting the index.The intraday indicative value of
an index may not be equal to the level of such index that is used to calculate
the payment at maturity or the payment upon early repurchase, sale, repurchase
or termination of your ETNs, nor will it reflect hedging or transaction costs,
market liquidity, investor fees or bid-offer spread.
(2) First Trust and any issuer of ETNs do not provide tax advice. These
materials are not intended or written to be used, and cannot be used, by any
taxpayer for the purpose of avoiding tax penalties that may be imposed upon the
taxpayer. Each taxpayer should seek advice from an independent tax adviser
regarding the matter based on the taxpayer's particular circumstances.There is
no limitation on the disclosure of the tax treatment or tax structure of the
matter.
Each issuer will have filed a registration statement (including a prospectus)
with the Securities and Exchange Commission, or SEC, for the offering to which
this communication relates. Before you invest, you should read the prospectus in
that registration statement and the other documents relating to the offering
that the issuer has filed with the SEC for more complete information about the
issuer and the offering of any securities. You may get these documents without
cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, the
issuer, any agent or any dealer participating in an offering will arrange to
send you the prospectus, each prospectus supplement, and any other document
related to the offering if you so request by calling toll-free 866-848-9727.
First Trust and KEYnotes are trademarks of First Trust Advisors L.P.
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FIRST TRUST
1001 Warrenville Road
Lisle, Illinois 60532
1-866-848-9727
www.ftportfolios.com
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NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
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