CHAPMAN AND CUTLER LLP 111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
July 5, 2016
VIA EDGAR CORRESPONDENCE
Karen Rossotto, Esq.
Kathy Churko
Division of Investment Management
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Re: First Trust Exchange-Traded Fund VI
File No. 333-211163
-------------------------------------------
Dear Ms. Rossotto and Ms. Churko:
We received your oral comments via telephonic conference on May 17, 2016
and June 6, 2016 regarding the Registration Statement on Form N-14 (the
"Registration Statement") for First Trust Exchange-Traded Fund VI (the "Trust")
filed with respect to its series, First Trust High Income ETF ("FTHI") filed on
May 5, 2016. Capitalized terms used but not defined herein have the meanings
ascribed to such terms in the Registration Statement. We are submitting via
EDGAR this letter on behalf of the Trust, which is intended to respond to your
comments, and a revised, marked draft of the Registration Statement is included
for your review and convenience.
DISCLOSURE COMMENTS
COMMENT 1
In the Dear Shareholder letter, revise and clarify the sentence in the
second paragraph regarding the role of First Trust as adviser to both FAV and
FTHI and Chartwell as the subadviser to FAV as to the equity portion of the
portfolio of FAV.
RESPONSE TO COMMENT 1
The Registration Statement has been revised as requested.
Division of Investment Management
July 5, 2016
Page 2
COMMENT 2
Also in the Dear Shareholder letter, in the lead in to the bullet points
on p. ii of the letter (and elsewhere in the Registration Statement where
similar language occurs), eliminate the phrase "each of" with reference to the
Boards of Trustees of FAV and FTHI as they are the same Board.
RESPONSE TO COMMENT 2
The Registration Statement has been revised as requested.
COMMENT 3
Also in the Dear Shareholder letter, in the second bullet point on p. ii
(and elsewhere in the Registration Statement where similar language occurs),
revise the language regarding "eliminating the discount to net asset value at
which shares of FAV have historically traded" as FAV will no longer exist
subsequent to the Merger.
RESPONSE TO COMMENT 3
The Registration Statement has been revised as requested.
COMMENT 4
In the Dear Shareholder letter, in the last bullet point regarding Board
considerations, further explain supplementally in your response letter and
revise the disclosure later in the Registration Statement regarding how the
increase in the number of shares is expected to help the trading profile for
FTHI.
RESPONSE TO COMMENT 4
Management of FTHI has indicated to us that the expected increase in the
number of shares outstanding may lead to greater liquidity of FTHI shares, and
as a result an increase in analyst coverage and overall demand for FTHI shares.
Additionally, the Registration Statement has been revised to expand the
disclosure regarding the trading profile where appropriate.
COMMENT 5
In the Questions and Answers discussion regarding "How will the Merger be
effected," simplify the explanation of the Merger transaction and move the
discussion of the Merger Sub and the technical legal steps that constitute the
Merger to later in the Registration Statement.
Division of Investment Management
July 5, 2016
Page 3
RESPONSE TO COMMENT 5
The Registration Statement has been revised as requested.
COMMENT 6
In the Questions and Answers discussion of "Why is the Merger being
recommended" on p. 2, there is discussion of eliminating the discount that
should be conformed to the earlier comment and clarification that the survivor
in the Merger is FTHI which is an ETF and therefore its shares are expected to
trade at or near NAV.
RESPONSE TO COMMENT 6
The Registration Statement has been revised as requested.
COMMENT 7
In the Questions and Answers discussion of "Will shareholders of the Funds
have to pay any fees or expenses in connection with the Merger," disclose that
FAV and ultimately its shareholders are expected to bear substantially all of
the expenses due to the relative sizes of the Funds and the cost sharing
agreement between the Funds.
RESPONSE TO COMMENT 7
The Registration Statement has been revised as requested.
COMMENT 8
In the Questions and Answers discussion of "Will shareholders of the Funds
have to pay any fees or expenses in connection with the Merger" and elsewhere in
the Registration Statement where applicable, disclose the amount of leverage
employed by FAV.
RESPONSE TO COMMENT 8
The Registration Statement has been revised as requested.
COMMENT 9
In the Questions and Answers discussion of "How will the Merger affect
distribution rates," quantify and disclose the expected reduction in yield FAV
shareholders would realize based on the current relative yields of the two
Funds.
Division of Investment Management
July 5, 2016
Page 4
RESPONSE TO COMMENT 9
The Registration Statement has been revised as requested.
COMMENT 10
In the Questions and Answers discussion of "Will the shares held by FAV
shareholders continue to be listed on the NYSE following the Merger," revise the
disclosure to clarify that FAV shares will be delisted from the NYSE following
the completion of the Merger.
RESPONSE TO COMMENT 10
The Registration Statement has been revised as requested.
COMMENT 11
In the side by side discussion of key differences in the Questions and
Answers discussion of "What are some of the key differences between a closed-end
fund and an ETF," revise the disclosure to summarize and simplify the
information presented.
RESPONSE TO COMMENT 11
The Registration Statement has been revised as requested.
COMMENT 12
In the Questions and Answers discussion of "Do the Funds have similar
investment objectives, strategies and risks," eliminate the initial response of
"Yes" and revise the disclosure accordingly. Include an explanation of
investment structure risks between CEFs and ETFs.
RESPONSE TO COMMENT 12
The Registration Statement has been revised as requested.
COMMENT 13
In the Questions and Answers discussion of "Do the Funds have similar
investment objectives, strategies and risks," expand the discussion of the
similarities in investment strategies between the Funds.
RESPONSE TO COMMENT 13
The Registration Statement has been revised as requested.
Division of Investment Management
July 5, 2016
Page 5
COMMENT 14
In the Questions and Answers discussion of "Do the Funds have similar
investment objectives, strategies and risks," add the phrase "dividend paying"
in front of the phrase "equity securities" appearing in the first sentence of
the fourth paragraph thereunder.
RESPONSE TO COMMENT 14
The Registration Statement has been revised as requested.
COMMENT 15
In the Questions and Answers discussion of "Will the Merger constitute a
taxable event for FAV shareholders," clarify the disclosure in the first
sentence of the second paragraph regarding any proposed disposition of assets
that do not conform to FTHI's investment objectives.
RESPONSE TO COMMENT 15
The Registration Statement has been revised as requested
COMMENT 16
Please confirm supplementally in your response letter that all material
items considered by the Board in approving the Merger have been disclosed in the
Registration Statement.
RESPONSE TO COMMENT 16
The Funds have informed us that all material items considered by the Board
in approving the Merger have been disclosed in the Registration Statement.
COMMENT 17
In the discussion of the Board Considerations Relating to the Proposed
Merger on p. 5, in the third bullet point, confirm or revise the disclosure that
both Funds "primarily" invest in equity securities.
RESPONSE TO COMMENT 17
The Registration Statement has been revised as requested.
Division of Investment Management
July 5, 2016
Page 6
COMMENT 18
Clarify in the disclosure that all debt securities held by FAV are
expected to be sold prior to the Merger and identify any issues with liquidating
or transitioning to FTHI any illiquid or restricted securities held by FAV.
RESPONSE TO COMMENT 18
Management of FAV has indicated to us that none of the securities held by
FAV are illiquid. The Registration Statement has been revised accordingly.
COMMENT 19
RISK FACTORS
Provide where applicable an indication of which risks apply to which Funds
to comply with the comparison requirement in Item 3(c) of Form N-14.
RESPONSE TO COMMENT 19
The Registration Statement has been revised as requested.
COMMENT 20
RISK FACTORS
Provide a risk factor that discloses the non-diversified nature of FTHI as
opposed to the diversified nature of FAV and describe attendant risks.
RESPONSE TO COMMENT 20
Upon further review, we note that the Registration Statement previously
provided this disclosure in the Risk Factor section under the heading
"Non-Diversification Risk," so the requested Risk Factor is currently included.
COMMENT 21
RISK FACTORS
Provide a risk factor explaining the investment structure risks between
CEFs and ETFs.
RESPONSE TO 21
The Registration Statement has been revised as requested.
Division of Investment Management
July 5, 2016
Page 7
COMMENT 22
MERGER SAI
On p. 19 in the Merger SAI, revise the disclosure regarding FAV having no
intention to employ leverage.
RESPONSE TO COMMENT 22
The Registration Statement has been revised as requested to remove the
reference noted.
COMMENT 23
Provide forms of Proxy Cards as Exhibits to the Registration Statement.
RESPONSE TO COMMENT 23
The Registration Statement has been revised as requested to include Proxy
Cards as Exhibits to the Registration Statement.
ACCOUNTING AND FINANCIAL COMMENTS
COMMENT 1
Please provide the required pro forma financial statements.
RESPONSE TO COMMENT 1
The Registration Statement has been revised as requested to include the
required pro forma financial statements as Appendix IV to the Merger SAI.
COMMENT 2
In the Statement of Assets and Liabilities in the pro forma financial
statements, include a line item reflecting adjustments for reorganization and
repositioning expenses borne by the Funds and a footnote describing such
expenses.
RESPONSE TO COMMENT 2
Management of FAV has informed us that, upon further review of the equity
portfolio of FAV, repositioning of the equity portfolio will not be necessary.
In addition, the costs associated with deleveraging the portfolio will be
nominal. Therefore, neither repositioning nor deleveraging will impact the pro
Division of Investment Management
July 5, 2016
Page 8
forma financial statements to an extent significant enough to be accounted for
in the pro forma adjustments. The Capitalization Table and the pro forma
financial statements, however, will include more detailed disclosures regarding
the nature of the costs and expenses included in the pro forma adjustments.
COMMENT 3
Please provide the analysis supporting the identity of the surviving fund
for accounting purposes in accordance with the Staff's position in North
American Security Trust, (pub. avail. Aug. 5, 1994).
RESPONSE TO COMMENT 3
Please see the requested analysis set forth in Exhibit A hereto.
COMMENT 4
In the discussion of the repositioning of the assets of FAV in the Q&A
section and throughout the Registration Statement, disclose the percentage of
the holdings that are deemed to be illiquid.
RESPONSE TO COMMENT 4
Management of FAV has advised us that none of the holdings of FAV are
deemed to be illiquid. The Registration Statement has been revised accordingly.
COMMENT 5
Provide the required semi-annual financial statements of FAV and FTHI.
RESPONSE TO COMMENT 5
The Registration Statement has been revised as requested by incorporating
by reference the semi-annual financial statements of FTHI.
With respect to FAV, semi-annual financial statements are not required
under Rule 3-18 of Regulation S-X unless the Registration Statement is expected
to be declared effective more than 245 days after the date of the balance sheet
of FAV provided in the Registration Statement, which is not expected.
Division of Investment Management
July 5, 2016
Page 9
COMMENT 6
The Registration Statement indicates that FAV had outstanding borrowings
of $20.8 million at November 30, 2015. Please confirm in your response that all
of these borrowings are expected to be repaid.
RESPONSE TO COMMENT 6
Management of FAV has advised us that the entire amount of outstanding
borrowings of FAV are expected to be repaid prior to the Merger.
COMMENT 7
In the Fee Table or elsewhere where appropriate, disclose the accounting
survivor in the Merger.
RESPONSE TO COMMENT 7
The Registration Statement has been revised as requested to identify FTHI
as the accounting survivor in the Merger in the Fee Table and elsewhere where
appropriate.
COMMENT 8
Under "Comparative Fees and Expenses," in the Example under the Fee Table,
provide estimated fees based on a $10,000 investment instead of a $1,000
investment.
RESPONSE TO COMMENT 8
The Registration Statement has been revised as requested.
COMMENT 9
With respect to the Capitalization table, supplementally provide a
calculation of the number of shares of FTHI to be outstanding on a pro forma
basis following the Merger.
RESPONSE TO COMMENT 9
Please see the requested calculation as set forth in Exhibit B hereto.
COMMENT 10
In the Capitalization table, please provide footnote disclosure of the net
asset value per share of each of FAV and FTHI used in the calculations that
result in the amounts presented therein.
Division of Investment Management
July 5, 2016
Page 10
RESPONSE TO COMMENT 10
The Registration Statement has been revised as requested.
COMMENT 11
In the Capitalization table, please confirm the amounts of the pro forma
adjustments and include a footnote providing more detail regarding the
components of the pro forma adjustments.
RESPONSE TO COMMENT 11
The Registration Statement has been revised as requested.
COMMENT 12
Footnote 3 to the Capitalization table indicates that limitations to tax
loss carry forwards will apply to Merger losses and these limitations are
expected to be substantial. Include this discussion earlier in the Registration
Statement.
RESPONSE TO COMMENT 12
Upon further review of the application of tax loss carry forwards
discussion in the Registration Statement, Management of FAV has advised us that
a portion of the tax loss carry forwards available to FAV will expire upon the
earlier of the completion of the Merger or the fiscal year end of FAV.
Management of FAV has concluded, therefore, that the impact of the Merger with
respect to the application of the tax loss carry forwards is not material in
amount or potential application; however, the disclosure relating thereto in the
Registration Statement has been revised.
TANDY ACKNOWLEDGEMENT
In connection with the Registration Statement, the Trust has advised us
that it acknowledges that:
o the Trust is responsible for the adequacy and accuracy of the
disclosure in the filing;
o staff comments or changes to disclosure in response to staff comments
in the filings reviewed by the staff do not foreclose the Securities
and Exchange Commission (the "Commission") from taking any action with
respect to the filing; and
o the Trust may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
Division of Investment Management
July 5, 2016
Page 11
Please call me at (312) 845-2978 or Bill Hermann at (312) 845-3895 if you
have additional comments or wish to discuss any of the foregoing responses.
Thank you.
Very truly yours,
CHAPMAN AND CUTLER LLP
By: /s/ Jonathan A. Koff
---------------------------
Jonathan A. Koff
cc: W. Scott Jardine
EXHIBIT A
ACCOUNTING SURVIVOR ANALYSIS
First Trust Exchange-Traded Fund VI (the "Registrant") believes that its
series, the First Trust High Income ETF ("FTHI"), is the accounting survivor
following the Merger. According to a no-action letter to North American Security
Trust ("NAST"),(1) in order to determine which fund should be the accounting
survivor, the attributes of the new combined fund and the predecessor funds
should be compared to determine which predecessor fund most closely resembles
the new combined fund. In making this determination, the below factors are
generally considered. Each of the factors, along with the relevant analysis, are
discussed below:
(i) Comparison of investment advisers. FTHI's investment advisory
agreement is with First Trust Advisors, L.P. ("FTA"). As advisor FTA
provides day-to-day management of FTHI's managed assets. First Trust
Dividend and Income Fund ("FAV") has an investment advisory agreement with
FTA. FAV is also a party to an investment sub-advisor agreement with
Chartwell Investment Partners, LLC ("Chartwell"). Chartwell provides
day-to-day management of the equity portion of FAV's investment strategy
(including equity securities and the option strategy), which constituted
78.2% of FAV's managed assets as of March 31, 2016. The remainder of FAV's
managed assets, the senior loan/high yield debt securities component of
FAV's investment strategy, is managed by FTA. FTHI does not currently
invest in senior loan/high yield securities and will not do so
post-Merger. Subsequent to the Merger, FTA will continue to manage FTHI's
investment portfolio with the same portfolio managers as prior to the
Merger. Chartwell will not be involved in the management of FTHI
post-Merger in any respect.
As a result, this factor strongly suggests that FTHI should be
the accounting survivor.
(ii) Comparison of investment structure, objectives and policies.
FAV is a diversified, closed-end management company under the Investment
Company Act of 1940, as amended (the "1940 Act"). FTHI is a non-
diversified, open-end management company under the 1940 Act operating as
an exchange-traded fund. FTHI, the fund that will continue subsequent to
the Merger, will continue to operate as a non-diversified, exchange-traded
fund post-Merger.
Under Massachusetts law, FAV will be merged with and into
Merger Sub (an entity wholly-owned by FTHI) and will cease to exist.
Immediately thereafter, Merger Sub will liquidate and all of its assets
will be distributed to FTHI. FTHI, from a legal perspective, will be the
only fund in existence after the Merger. Additionally, under U.S.
------------------------------
(1) See North American Security Trust, SEC No-Action Letter (Aug. 5, 1994).
A-1
generally accepted accounting principles, FTHI will be the accounting
survivor after the Merger.
The primary investment objective of FAV is to seek a high
level of current income. The primary investment objective of FTHI is to
provide current income. Each fund has a secondary investment objective to
provide capital appreciation. There will be no change to FTHI's investment
objectives following the Merger.
FAV seeks to achieve its objectives by investing at least 80% of its
managed assets in a diversified portfolio of dividend paying multi-cap
equity securities, debt securities and senior secured floating rate loans
that offer the potential for attractive income and/or capital
appreciation. FAV's portfolio consists of two components: (i) the "Equity
Component," which consists primarily of equity securities of both U.S. and
non-U.S. issuers of any market capitalization that are readily traded on a
registered U.S. national securities exchange, and (ii) the "Senior
Loan/High Yield Debt Component," which primarily consists of (a) senior
loans and (b) debt securities that are rated below investment grade (i.e.,
"junk bonds") or unrated at the time of purchase and deemed to be of
comparable credit quality. In addition, FAV also may write (sell) call
options on equity indices and/or equity securities.
FTHI pursues its objectives by investing in equity securities listed
on U.S. exchanges and by utilizing an "options strategy" consisting of
writing (selling) U.S. exchange-traded call options on the Standard &
Poor's 500(R) Index (the "Index").
The principal differences between the investment strategies of FAV
and FTHI are as follows: (i) in addition to writing call options on the
Index, FAV may further write call options on other equity indices as well
as on individual U.S. exchange traded equity securities; (ii) in addition
to investing in equity securities, FAV invests in debt securities and
senior secured floating rate loans as a principal part of its investment
strategy; and (iii) FAV may, and in fact does, employ leverage through
borrowings. FTHI does not invest in debt securities or senior loans and
will not do so following the Merger. FTHI will continue its current
investment objectives, policies and restrictions following the Merger
without modification or addition.
These factors strongly suggest that FTHI should be the accounting
survivor.
(iii) Comparison of Expense Structure and Size.
The table below sets forth a comparison of the expense
structure of FAV and FTHI as well as the expense structure of the combined
fund (which will be same as FTHI prior to the Merger):
A-2
POST-MERGER COMBINED
FAV FTHI FUND
------------------ --------------- ----------------------
Management Fees 1.00%(1) 0.85%(3) 0.85%(3)
Dividend Reinvestment Plan Fees None None None
Interest Payments on Borrowed Funds 0.20% 0.00% 0.00%
Other Expenses(2) 0.64% 0.00% 0.00%
------------------ --------------- ----------------------
Total Annual Fund Operating Expenses 1.84% 0.85% 0.85%
------------------ --------------- ----------------------
$92,407,080 $6,968,319 $80,975,399
Total Assets(4)
Total Assets Applicable to Common Stock(4) $74,007,080 $6,968,319 $80,975,399
----------------
<FN>
(1) The management fee of FAV is based on the managed assets of FAV, which is
the average daily gross asset value of the Fund (including assets
attributable to the Fund's borrowings), minus the sum of the Fund's
accrued and unpaid dividends on any outstanding preferred shares and
accrued liabilities (other than the principal amount of any borrowings
incurred, commercial paper or notes issued by FAV).
(2) Other expenses generally consists of administrative, audit and tax,
printing, transfer agent, custodian, trustees', financial reporting and
legal fees.
(3) The management fee of FTHI is based on the Fund's average daily net
assets. This fee is a unitary fee, which includes the management fee of
FTA and which also covers various expenses of FTHI, including the cost of
transfer agency, custody, fund administration, legal, audit and other
services, but excludes interest, taxes, brokerage commissions and other
expenses connected with the execution of portfolio transactions,
distribution and service fees payable pursuant to a Rule 12b-1 plan, if
any, and extraordinary expenses.
(4) As of March 31, 2016, assuming no redemption of shares of the post-Merger
combined fund post-Merger. For FAV, the difference between total assets
and total assets applicable to common stock represents assets attributable
to leverage.
</FN>
The fee and expense structure of FTHI will continue for the
combined fund after the Merger. Although FAV is larger, the expense
structure of FTHI will carry forward and as a result the investor
experience will mirror that of FTHI. As a result, this factor
strongly supports that FTHI should be the accounting survivor.
(iv) Comparison of Portfolio Composition. As of March 31, 2016, FAV
and FTHI's respective portfolios consisted of:
FAV FTHI
Equity 78.4% Equity 99.7%
Fixed Income 18.7% Other 0.3%
Other 2.9% -----
----- 100%
100%
FTHI will be managed post-Merger on a basis consistent with
its pre-Merger management by the same portfolio managers that
currently manage FTHI.
A-3
The Trust strongly believes that FTHI is the accounting survivor. An
analysis of the factors considered when applying NAST clearly demonstrates that
the post-Merger combined fund more closely resembles FTHI. While FAV has a
larger asset base, all other factors considered in the NAST analysis strongly
indicate FTHI is the accounting survivor. In addition, as a result of the change
in structure it is possible that after the transaction there will be large share
redemptions as a result of sales of shares by former FAV shareholders, which
would mitigate the size factor.
A-4
EXHIBIT B
CALCULATION OF OUTSTANDING SHARES OF FTHI POST-MERGER
Pursuant to Section 2.3 of the Agreement and Plan of Merger (the form of
which is included in the Registration Statement, the "Plan of Merger"), each
outstanding FAV share shall be converted into a number of FTHI shares equal to
one multiplied by the quotient of the net asset value of a FAV share divided by
the net asset value of a FTHI share, each as of the Valuation Time under the
Plan of Merger). For illustration purposes only, and as presented in the
Capitalization Table in the Registration Statement, as of March 31, 2016, the
NAV of FAV was $8.96022 and, as adjusted for the estimated Merger costs and
expenses allocated to FAV, would have been $8.92440, and the NAV of FTHI was
$19.90937 and, as adjusted for the estimated Merger costs and expenses allocated
to FTHI, would have been $19.82577. The Plan of Merger calculation under Section
2.3 based on these amounts therefore would be as follows:
1 x (8.92440 (division) 19.82577) = .450141 (the "Allocation Factor")
The Allocation Factor is then applied to the number of outstanding shares
of FAV of 8,259,517 and results in 3,717,947 shares of FTHI to be issued to
former shareholders of FAV. Together with the 350,002 shares of FTHI currently
outstanding, 4,067,949 shares of FTHI would be outstanding post-Merger.
.450141 x 8,259,517 = 3,717,947
3,717,947 + 350,002 = 4,067,949
B-1