First Trust Exchange-Traded Fund - Definitive materials filed by investment companies. (497)
November 08 2007 - 2:03PM
Edgar (US Regulatory)
1933 Act File Number 333-125751
Rule 497(e)
SUPPLEMENT DATED NOVEMBER 8, 2007
TO THE PROSPECTUS OF THE FOLLOWING SERIES
OF THE FIRST TRUST EXCHANGE-TRADED FUND:
FIRST TRUST IPOX-100 INDEX FUND DATED MAY 1, 2007
The "Index Construction" section in the Prospectus is hereby deleted
and replaced with the following:
INDEX CONSTRUCTION
The IPOX-100 U.S. Index (the "Index") is developed, maintained and sponsored by
IPOX Schuster LLC ("IPOX" or the "Index Provider"). The Index is a modified
value-weighted price index measuring the performance of the top U.S. companies
ranked quarterly by market capitalization in the IPOX Global Composite Index.
The Index utilizes a 10% capping on all constituents and includes the 100
largest, typically best performing and most liquid initial public offerings
("IPOs") of the U.S. companies in the IPOX Global Composite Index. The Index is
derived by ranking the applicable stocks by total market capitalization, which
is the total number of shares outstanding times closing price. The inception
date of the Index is January 3, 1989.
The IPOX Global Composite Index is a fully market capitalization-weighted index
that is dynamically rebalanced and is constructed and managed to provide a broad
and objective view of global aftermarket performance of IPOs and spin-offs in
all world countries (emerging and developed). After applying initial screens,
all eligible constituents enter on the close of the sixth trading day and remain
in the IPOX Global Composite Index for a pre-determined 1000 trading days or
approximately four years thereafter. The criteria applied to select
constituents of the former IPOX Composite U.S. Index are now the criteria
applied to select the U.S. constituents of the IPOX Global Composite Index.
See "Additional Index Information" for additional information regarding the
Index.
The "Additional Index Information" section in the Prospectus is hereby
deleted and replaced with the following:
ADDITIONAL INDEX INFORMATION
IPOX Schuster is the creator of the IPOX-100 U.S. Index. The Index is a modified
value-weighted price index measuring the performance of the top 100 U.S.
companies ranked quarterly by market capitalization in the IPOX Global Composite
Index. The Index measures the performance of the top 100 companies representing
on average around 80% of the total market capitalization in the IPOX Global
Composite Index.
The IPOX Global Composite Index is a fully market capitalization-weighted index
which is dynamically rebalanced and is constructed and managed to providing a
broad and objective view of global aftermarket performance of IPOs and spin-offs
in all world countries (emerging and developed).
o After applying initial screens, all eligible constituents enter on the
close of the sixth trading day and remain in the index for a
pre-determined 1000 trading days or approximately four years
thereafter.
o On any given day, the value of the IPOX Global Composite Index is the
quotient of the total market capitalization of its constituents and
its divisor. Continuity in the values of the IPOX Global Composite
Index is maintained by adjusting the divisor for all changes in the
constituents share capital after the base date. This includes
additions and deletions to the index, rights issues, share buybacks
and issuances, and spin-offs, etc. The divisor's time series is, in
effect, a chronological summary of all changes affecting the base
capital of the IPOX Global Composite Index. The divisor is adjusted
such that the value of the IPOX Global Composite Index at an instant
just prior to a change in base capital equals the value at an instant
immediately following that change.
With its fixed number of constituents stocks, the Index pooled approximately
$560.6 billion of U.S. stock market capitalization, as of November 7, 2007. The
Index typically includes large IPOs. The Index is reconstituted quarterly to
reflect changes in stock market values of the IPOX Global Composite Index
constituents and IPO activity during the past quarter with potential new
companies entering the Index while other companies reach 1,000 days in the Index
and automatically drop out. To ensure that certain diversification requirements
are met, the weighting of the largest Index constituents is capped at 10% at the
quarterly reconstitution event.
The Index provides average, rather than median, exposure to the performance of
IPOs, once companies are public. This is interesting because of the well-known
skewedness of the distribution of long-run IPO returns. The underlying and
well-reported empirical features in IPOs make products benchmarked against the
Index interesting for a number of market participants with varying investment
horizons, such as the retail buy-and-hold community and high-net worth
individuals seeking average IPO exposure, arbitrageurs, traders or index
spreaders.
Information regarding the methodology for calculating the Index is also found on
the IPOX Schuster website (www.ipoxschuster.com).
IPOX Schuster publishes the changes to the Index and posts the changes on its
website at www.ipoxschuster.com two days prior to the effective date of any such
change. All replacement companies are selected based on the selection criteria
set forth herein.
The updated values of the Index are distributed by Standard & Poor's and NYSE
Arca or ArcaEx during trading hours (8:30 a.m. to 3:15 p.m.) every 15 seconds
through their quotation network to a variety of data vendors, such as Bloomberg,
CGI Group Inc. and DTN. In addition, delayed quotations of the Index are
available on ww.ipoxschuster.com every five minutes during regular trading
hours. Standard & Poor's acts as the calculation agent for the IPOX indices.
The Index is quarterly reviewed according to March, June, September and December
Options and Futures Expiration Cycles. Specifically, on the close of the second
Wednesday in the quarter, the constituents of the IPOX Global Composite Index
are ranked by full market capitalization. The top 100 U.S constituents ranked by
full market capitalization in the IPOX Global Composite Index trading within
their 1,000th trading day anniversary on the stock market at the time of the
forthcoming quarterly expiration are then declared new Index constituents. The
newly adjusted Index membership list takes effect on the Monday following the
third Friday of every quarter until the next reconstitution process.
The Fund will make changes to its portfolio shortly after changes to the Index
are released to the public. Investors are able to access the holdings of the
Fund and the composition and compilation methodology of the Index through the
Fund's website at www.ftportfolios.com.
In the event that IPOX Schuster no longer calculates the Index, the Index
license is terminated or the identity or character of the Index is materially
changed, the Board will seek to engage a replacement index. However, if that
proves to be impracticable, the Board will take whatever action it deems to be
in the best interests of the Fund. The Board will also take whatever actions it
deems to be in the best interests of the Fund if the Shares are delisted.
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