As filed with the Securities and Exchange Commission on April 11, 2018
1933 Act Registration No. 333-125751
1940 Act Registration No. 811-21774
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-1A
Registration Statement Under the Securities Act of 1933 | [ ] |
Pre-Effective Amendment No. __ | [ ] |
Post-Effective Amendment No. 102 | [X] |
and/or | |
Registration Statement Under the Investment Company Act of 1940 | [ ] |
Amendment No. 102 | [X] |
First Trust Exchange-Traded Fund
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, including Area Code: (800) 621-1675
W. Scott Jardine, Esq., Secretary
First Trust Exchange-Traded Fund
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(Name and Address of Agent for Service)
Copy to:
Eric F. Fess, Esq.
Chapman and Cutler LLP
111 West Monroe Street
Chicago, Illinois 60603
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment.
Contents of Post-Effective Amendment No. 102
This Registration Statement comprises the following papers and contents:
The Facing Sheet
Part A - Prospectus for First Trust Lunt U.S. Factor Rotation ETF
Part B - Statement of Additional Information for First Trust Lunt U.S. Factor Rotation ETF
Part C - Other Information
Signatures
Index to Exhibits
Exhibits
First Trust
Exchange-Traded Fund |
FUND NAME | TICKER SYMBOL | EXCHANGE |
First Trust Lunt U.S. Factor Rotation ETF | ______ | Cboe BZX |
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
Management Fees | _.__% |
Distribution and Service (12b-1) Fees (1) | 0.00% |
Other Expenses (2) | 0.00% |
Total Annual Fund Operating Expenses | _.__% |
(1) | Although the Fund has adopted a 12b-1 plan that permits it to pay up to 0.25% per annum, it will not pay 12b-1 fees at any time before _________, 20__. |
(2) | “Other Expenses” is an estimate based on the expenses the Fund expects to incur for the current fiscal year. |
1 Year | 3 Years |
$_____ | $_____ |
1. | The selection universe of the Index begins with eight sub-indices (listed below). Each sub-index is comprised of 100 securities from the S&P 500 that exhibit the greatest or least characteristics of that factor. |
i. | S&P 500 Momentum Index: The index is designed to measure the performance of the 100 stocks in the S&P 500 that exhibit the most persistence in their relative performance. |
ii. | S&P 500 Momentum – Lowest Quintile Index: The index is designed to measure the performance of the 100 stocks in the S&P 500 that exhibit the least persistence in their relative performance. |
iii. | S&P 500 Enhanced Value Index: The index is designed to measure the performance of the 100 highest ranked stocks in the S&P 500 based on their value score, which is calculated based on three fundamental measures: book value-to-price, earnings-to-price, and sales-to-price. |
iv. | S&P 500 Enhanced Value – Lowest Quintile Index: The index is designed to measure the performance of the 100 lowest ranked stocks in the S&P 500 based on their value score, which is calculated based on three fundamental measures: book value-to-price, earnings-to-price, and sales-to-price. |
v. | S&P 500 Quality Index: The index is designed to measure the performance of the 100 highest ranked stocks in the S&P 500 based on their quality score, which is calculated based on three fundamental measures: return on equity, accruals ratio and financial leverage ratio. |
vi. | S&P 500 Quality – Lowest Quintile Index: The index is designed to measure the performance of the 100 lowest ranked stocks in the S&P 500 based on their quality score, which is calculated based on three fundamental measures: return on equity, accruals ratio and financial leverage ratio. |
vii. | S&P 500 Volatility – Highest Quintile Index: The index is designed to measure the performance of the 100 most volatile stocks in the S&P 500. Volatility is defined as the standard deviation of the security’s daily price returns over the past year. |
viii. | S&P 500 Low Volatility Index: The index is designed to measure the performance of the 100 least volatile stocks in the S&P 500. Volatility is defined as the standard deviation of the security’s daily price returns over the past year. |
2. | The Index Provider then ranks the sub-indices using a risk-adjusted relative strength index methodology. The risk-adjusted relative strength score is the return per unit of risk measured as the standard deviation of returns over the course of the prior 12 months for each sub-index. |
3. | The Index Provider then selects the top two ranking sub-indices for inclusion in the Index. Each sub-index holds a 50% weight in the Index at the time of inclusion. Sub-indices of the same factor cannot be selected during the same monthly period ( i.e. , high quality and low quality). |
4. | The Index is evaluated on a monthly basis on the final trading day of each month. |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
• | Mr. Lindquist is Chairman of the Investment Committee and presides over Investment Committee meetings. Mr. Lindquist is responsible for overseeing the implementation of the Fund’s investment strategy. Mr. Lindquist was a Senior Vice President of First Trust and FTP from September 2005 to July 2012 and is now a Managing Director of First Trust and FTP. |
• | Mr. Erickson joined First Trust in 1994 and is a Senior Vice President of First Trust and FTP. As the head of First Trust’s Equity Research Group, Mr. Erickson is responsible for determining the securities to be purchased and sold by funds that do not utilize quantitative investment strategies. |
• | Mr. McGarel is the Chief Investment Officer, Chief Operating Officer and a Managing Director of First Trust and FTP. As First Trust’s Chief Investment Officer, Mr. McGarel consults with the other members of the Investment Committee on market conditions and First Trust’s general investment philosophy. Mr. McGarel was a Senior Vice President of First Trust and FTP from January 2004 to July 2012. |
• | Mr. Testin is a Senior Vice President of First Trust and FTP. Mr. Testin is the head of First Trust’s Portfolio Management Group. Mr. Testin has been a Senior Vice President of First Trust and FTP since November 2003. |
• | Mr. Ueland joined First Trust as a Vice President in August 2005 and has been a Senior Vice President of First Trust and FTP since September 2012. At First Trust, he plays an important role in executing the investment strategies of each portfolio of exchange-traded funds advised by First Trust. |
• | Mr. Peterson is a Senior Vice President and head of First Trust’s strategy research group. He joined First Trust in January of 2000. Mr. Peterson is responsible for developing and implementing quantitative equity investment strategies. Mr. Peterson received his B.S. in Finance from Bradley University in 1997 and his M.B.A. from the University of Chicago Booth School of Business in 2005. He has over 19 years of financial services industry experience and is a recipient of the Chartered Financial Analyst designation. |
First Trust
Exchange-Traded Fund |
FUND NAME |
TICKER
SYMBOL |
EXCHANGE | ||
First Trust Lunt U.S. Factor Rotation ETF | _______ | Cboe BZX |
(1) | The Fund may not issue senior securities, except as permitted under the 1940 Act. |
(2) | The Fund may not borrow money, except as permitted under the 1940 Act. |
(3) | The Fund will not underwrite the securities of other issuers except to the extent the Fund may be considered an underwriter under the Securities Act of 1933, as amended (the “1933 Act” ), in connection with the purchase and sale of portfolio securities. |
(4) | The Fund will not purchase or sell real estate or interests therein, unless acquired as a result of ownership of securities or other instruments (but this shall not prohibit the Fund from purchasing or selling securities or other instruments backed by real estate or of issuers engaged in real estate activities). |
(5) | The Fund may not make loans to other persons, except through (i) the purchase of debt securities permissible under the Fund's investment policies, (ii) repurchase agreements, or (iii) the lending of portfolio securities, provided that no such loan of portfolio securities may be made by the Fund if, as a result, the aggregate of such loans would exceed 33⅓% of the value of the Fund's total assets. |
(6) | The Fund may not purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options, futures contracts, forward contracts or other derivative instruments, or from investing in securities or other instruments backed by physical commodities). |
(7) | The Fund may not invest 25% or more of the value of its total assets in securities of issuers in any one industry or group of industries, except to the extent that the Fund’s Index is based on concentrations in an industry or a group of industries. This restriction does not apply to obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities, or securities of other investment companies. |
Fund | Index |
First Trust Lunt U.S. Factor Rotation ETF | Lunt Capital U.S. Large Cap Multi-Factor Rotation Index |
(1) | The Fund may invest in U.S. government securities, including bills, notes and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. government agencies or instrumentalities. U.S. government securities include securities that are issued or guaranteed by the U.S. Treasury, by various agencies of the U.S. government, or by various instrumentalities that have been established or sponsored by the U.S. government. U.S. Treasury securities are backed by the “full faith and credit” of the United States. Securities issued or guaranteed by federal agencies and U.S. government-sponsored instrumentalities may or may not be backed by the full faith and credit of the United States. Some of the U.S. government agencies that issue or guarantee securities include the Export-Import Bank of the United States, the Farmers Home Administration, the Federal Housing Administration, the Maritime Administration, the Small Business Administration and The Tennessee Valley Authority. An instrumentality of the U.S. government is a government agency organized under federal charter with government supervision. Instrumentalities issuing or guaranteeing securities include, among others, the Federal Home Loan Banks, the Federal Land Banks, the Central Bank for Cooperatives, Federal Intermediate Credit Banks and the Federal National Mortgage Association ( “Fannie Mae” ). In the case of those U.S. government securities not backed by the full faith and credit of the United States, the investor must look principally to the agency or instrumentality issuing or guaranteeing the security for ultimate repayment and may not be able to assert a claim against the United States itself in the event that the agency or instrumentality does not meet its commitment. The U.S. government, its agencies and instrumentalities do not guarantee the market value of their securities; consequently, the value of such securities may fluctuate. |
(2) | The Fund may invest in certificates of deposit issued against funds deposited in a bank or savings and loan association. Such certificates are for a definite period of time, earn a specified rate of return and are normally negotiable. If such certificates of deposit are non-negotiable, they will be considered illiquid securities and be subject to the Fund's 15% restriction on investments in illiquid securities. Pursuant to the certificate of deposit, the issuer agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon. Under current FDIC regulations, the maximum insurance payable as to any one certificate of deposit is $250,000; therefore, certificates of deposit purchased by the Fund may not be fully insured. The Fund may only invest in certificates of deposit issued by U.S. banks with at least $1 billion in assets. |
(3) | The Fund may invest in bankers’ acceptances, which are short-term credit instruments used to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then “accepted” by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an asset or it may be sold in the secondary market at the going rate of interest for a specific maturity. |
(4) | The Fund may invest in repurchase agreements, which involve purchases of debt securities with counterparties that are deemed by the Advisor to present acceptable credit risks. In such an action, at the time the Fund purchases the security, it simultaneously agrees to resell and redeliver the security to the seller, who also simultaneously agrees to buy back the security at a fixed price and time. This assures a predetermined yield for the Fund during its holding period since the resale price is always greater than the purchase price and reflects an agreed-upon market rate. Such actions afford an opportunity for the Fund to invest temporarily available cash. The Fund may enter into repurchase agreements only with respect to obligations of the U.S. government, its agencies or instrumentalities, certificates of deposit or bankers’ acceptances in which the Fund may invest. Repurchase agreements may be considered loans to the seller, collateralized by the underlying securities. The risk to the Fund is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the event of default, the repurchase agreement provides that the affected Fund is entitled to sell the underlying collateral. If the value of the collateral declines after the agreement is entered into, however, and if the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price, the Fund could incur a loss of both principal and interest. The portfolio managers monitor the value of the |
collateral at the time the action is entered into and at all times during the term of the repurchase agreement. The portfolio managers do so in an effort to determine that the value of the collateral always equals or exceeds the agreed-upon repurchase price to be paid to the Fund. If the seller were to be subject to a federal bankruptcy proceeding, the ability of the Fund to liquidate the collateral could be delayed or impaired because of certain provisions of the bankruptcy laws. | |
(5) | The Fund may invest in bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest. There may be penalties for the early withdrawal of such time deposits, in which case the yields of these investments will be reduced. |
(6) | The Fund may invest in commercial paper, which are short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between the Fund and a corporation. There is no secondary market for the notes. However, they are redeemable by the Fund at any time. The Fund's portfolio managers will consider the financial condition of the corporation ( e.g. , earning power, cash flow and other liquidity ratios) and will continuously monitor the corporation’s ability to meet all of its financial obligations, because the Fund's liquidity might be impaired if the corporation were unable to pay principal and interest on demand. The Fund may invest in commercial paper rated at the day of purchase “Prime-1” by Moody’s Investors Service, Inc. or “A-1+” or “A-1” by Standard & Poor’s Ratings Group, Inc., or, if unrated, of comparable quality as determined by First Trust. |
(7) | The Fund may invest in shares of money market funds, as consistent with its investment objective and policies. Shares of money market funds are subject to management fees and other expenses of those funds. Therefore, investments in money market funds will cause the Fund to bear proportionately the costs incurred by the money market funds’ operations. At the same time, the Fund will continue to pay its own management fees and expenses with respect to all of its assets, including any portion invested in the shares of other investment companies. It is possible for the Fund to lose money by investing in money market funds. |
Fund | Index | Index Provider |
First Trust Lunt U.S. Factor Rotation ETF | Lunt Capital U.S. Large Cap Multi-Factor Rotation Index | Lunt Capital Management, Inc. |
Name and
Year of Birth |
Position
and Offices with Trust |
Term of
Office and Year First Elected or Appointed |
Principal Occupations
During Past 5 Years |
Number of
Portfolios in the First Trust Fund Complex Overseen by Trustee |
Other
Trusteeships or Directorships Held by Trustee During the Past 5 Years |
TRUSTEE WHO IS AN INTERESTED PERSON OF THE TRUST | |||||
James A. Bowen
(1)
1955 |
Chairman of the Board and Trustee |
• Indefinite term
• Since inception |
Chief Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) | ___ Portfolios | None |
INDEPENDENT TRUSTEES | |||||
Richard E. Erickson
1951 |
Trustee |
• Indefinite term
• Since inception |
Physician and Officer, Wheaton Orthopedics; Limited Partner, Gundersen Real Estate Limited Partnership (June 1992 to December 2016); Member, Sportsmed LLC (April 2007 to November 2015) | ___ Portfolios | None |
Thomas R. Kadlec
1957 |
Trustee |
• Indefinite term
• Since inception |
President, ADM Investor Services, Inc. (Futures Commission Merchant) | ___ Portfolios | Director of ADM Investor Services, Inc., ADM Investor Services International, Futures Industry Association, and National Futures Association |
Robert F. Keith
1956 |
Trustee |
• Indefinite term
• Since inception |
President, Hibs Enterprises (Financial and Management Consulting) | ___ Portfolios | Director of Trust Company of Illinois |
Niel B. Nielson
1954 |
Trustee |
• Indefinite term
• Since inception |
Managing Director and Chief Operating Officer (January 2015 to present), Pelita Harapan Educational Foundation (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Dew Learning LLC (Educational Products and Services) | ___ Portfolios |
Director of Covenant Transport Inc.
(May 2003 to May 2014) |
OFFICERS OF THE TRUST | |||||
James M. Dykas
1966 |
President and Chief Executive Officer |
• Indefinite term
• Since January 2016 |
Managing Director and Chief Financial Officer (January 2016 to present), Controller (January 2011 to January 2016), Senior Vice President (April 2007 to January 2016), First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) (January 2016 to present) | N/A | N/A |
W. Scott Jardine
1960 |
Secretary and Chief Legal Officer |
• Indefinite term
• Since inception |
General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC (Software Development Company) and Secretary, Stonebridge Advisors LLC (Investment Advisor) | N/A | N/A |
Daniel J. Lindquist
1970 |
Vice President |
• Indefinite term
• Since inception |
Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P. | N/A | N/A |
Kristi A. Maher
1966 |
Chief Compliance Officer and Assistant Secretary |
• Indefinite term
• CCO since January 2011, Assistant Secretary since Inception |
Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P. | N/A | N/A |
(1) | Mr. Bowen is deemed an “interested person” of the Trust due to his position as Chief Executive Officer of First Trust, investment advisor of the Fund. |
Name of Trustee |
Estimated Compensation
from the Fund (1) |
Total Compensation
from the First Trust Fund Complex (2) |
Richard E. Erickson | $ | $414,011 |
Name of Trustee |
Estimated Compensation
from the Fund (1) |
Total Compensation
from the First Trust Fund Complex (2) |
Thomas R. Kadlec | $ | $403,267 |
Robert F. Keith | $ | $403,163 |
Niel B. Nielson | $ | $392,987 |
(1) | The estimated compensation to be paid by the Fund to the Independent Trustees for one fiscal year for services to the Fund. |
(2) | The total compensation paid to the Independent Trustees for the calendar year ended December 31, 2017 for services to the 151 portfolios existing in 2016, which consisted of 7 open-end mutual funds, 16 closed-end funds and 128 exchange-traded funds. |
Trustee |
Dollar Range of
Equity Securities in the Fund (Number of Shares Held) |
Aggregate Dollar Range of
Equity Securities in All Registered Investment Companies Overseen by Trustee in the First Trust Fund Complex |
Interested Trustee | ||
James A. Bowen | None | Over $100,000 |
Independent Trustees | ||
Richard E. Erickson | None | Over $100,000 |
Thomas R. Kadlec | None | Over $100,000 |
Robert F. Keith | None | Over $100,000 |
Niel B. Nielson | None | Over $100,000 |
Name |
Position with
First Trust |
Length of Service
with First Trust |
Principal Occupation During Past Five Years |
Daniel J. Lindquist |
Chairman of the
Investment Committee and Managing Director |
Since 2004 |
Managing Director (2012 to present), Senior Vice
President (2005 to 2012), First Trust Advisors L.P. and First Trust Portfolios L.P. |
Jon C. Erickson | Senior Vice President | Since 1994 |
Senior Vice President, First Trust Advisors L.P. and
First Trust Portfolios L.P. |
David G. McGarel |
Chief Operating Officer
Chief Investment Officer and Managing Director |
Since 1997 |
Chief Operating Officer (2016 to present),
Chief Investment Officer (2012 to present), Managing Director (2012 to present), Senior Vice President (2005 to 2012), First Trust Advisors L.P. and First Trust Portfolios L.P. |
Roger F. Testin | Senior Vice President | Since 2001 |
Senior Vice President, First Trust Advisors L.P. and
First Trust Portfolios L.P. |
Stan Ueland | Senior Vice President | Since 2005 |
Senior Vice President (2012 to present), Vice
President (2005 to 2012), First Trust Advisors L.P. and First Trust Portfolios L.P. |
Chris A. Peterson | Senior Vice President | Since 2000 |
Senior Vice President, First Trust Advisors L.P. and
First Trust Portfolios L.P. |
Investment Committee Member |
Registered
Investment Companies Number of Accounts ($ Assets) |
Other Pooled
Investment Vehicles Number of Accounts ($ Assets) |
Other Accounts
Number of Accounts ($ Assets) |
Dan Lindquist | __ ($_____________) | __ ($_____________) | __ ($_____________) |
David McGarel | __ ($_____________) | __ ($_____________) | __ ($_____________) |
Jon Erickson | __ ($_____________) | __ ($_____________) | __ ($_____________) |
Roger Testin | __ ($_____________) | __ ($_____________) | __ ($_____________) |
Stan Ueland | __ ($_____________) | __ ($_____________) | __ ($_____________) |
Chris Peterson | __ ($_____________) | __ ($_____________) | __ ($_____________) |
Fund | Index Provider |
First Trust Lunt U.S. Factor Rotation ETF | Lunt Capital Management, Inc. |
(1) | Common stocks, real estate investment trusts and other equity securities listed on any national or foreign exchange other than The Nasdaq Stock Market LLC ( "Nasdaq" ) and the London Stock Exchange Alternative Investment Market ( “AIM” ) will be valued at the last sale price on the exchange on which they are principally traded, or the official closing price for Nasdaq and AIM securities. Portfolio securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, on the Business Day as of which such value is being determined at the close of the exchange representing the principal market for such securities. |
(2) | Shares of open-end funds are valued at fair value which is based on NAV per share. |
(3) | Securities traded in the OTC market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. |
(4) | Exchange-traded options and futures contracts are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, they will be fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. OTC options and futures contracts are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. |
(5) | Forward foreign currency contracts are fair valued at the current day’s interpolated foreign exchange rate, as calculated using the current day’s spot rate, and the 30-, 60-, 90- and 180-day forward rates provided by an independent pricing service or by certain independent dealers in such contracts. |
(1) | Fixed-income securities, convertible securities, interest rate swaps, credit default swaps, total return swaps, currency swaps, currency-linked notes, credit-linked notes and other similar instruments will be fair valued using a pricing service. |
(2) | Fixed-income and other debt securities having a remaining maturity of 60 days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following: |
(i) | the credit conditions in the relevant market and changes thereto; |
(ii) | the liquidity conditions in the relevant market and changes thereto; |
(iii) | the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates); |
(iv) | issuer-specific conditions (such as significant credit deterioration); and |
(v) | any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost. |
(3) | Repurchase agreements will be valued as follows. Overnight repurchase agreements will be fair valued at cost when it represents the best estimate of fair value. Term repurchase agreements ( i.e. , those whose maturity exceeds seven days) will be fair valued by the Advisor's Pricing Committee at the average of the bid quotations obtained daily from at least two recognized dealers. |
➤ | General Recommendation: Generally vote for director nominees, except under the following circumstances: |
Independence |
• | Independent directors comprise 50 percent or less of the board; |
• | The non-independent director serves on the audit, compensation, or nominating committee; |
• | The company lacks an audit, compensation, or nominating committee so that the full board functions as that committee; or |
• | The company lacks a formal nominating committee, even if the board attests that the independent directors fulfill the functions of such a committee. |
• | Medical issues/illness; |
• | Family emergencies; and |
• | Missing only one meeting (when the total of all meetings is three or fewer). |
• | Sit on more than five public company boards; or |
• | Are CEOs of public companies who sit on the boards of more than two public companies besides their own — withhold only at their outside boards 3 . |
• | The board failed to act on a shareholder proposal that received the support of a majority of the shares cast in the previous year. Factors that will be considered are: |
➤ | Disclosed outreach efforts by the board to shareholders in the wake of the vote; |
1 | In general, companies with a plurality vote standard use “Withhold” as the contrary vote option in director elections; companies with a majority vote standard use “Against”. However, it will vary by company and the proxy must be checked to determine the valid contrary vote option for the particular company. |
2 | New nominees who served for only part of the fiscal year are generally exempted from the attendance policy. |
3 | Although all of a CEO’s subsidiary boards will be counted as separate boards, ISS will not recommend a withhold vote for the CEO of a parent company board or any of the controlled (>50 percent ownership) subsidiaries of that parent, but may do so at subsidiaries that are less than 50 percent controlled and boards outside the parent/subsidiary relationships. |
➤ | Rationale provided in the proxy statement for the level of implementation; |
➤ | The subject matter of the proposal; |
➤ | The level of support for and opposition to the resolution in past meetings; |
➤ | Actions taken by the board in response to the majority vote and its engagement with shareholders; |
➤ | The continuation of the underlying issue as a voting item on the ballot (as either shareholder or management proposals); and |
➤ | Other factors as appropriate. |
• | The board failed to act on takeover offers where the majority of shares are tendered; |
• | At the previous board election, any director received more than 50 percent withhold/against votes of the shares cast and the company has failed to address the issue(s) that caused the high withhold/against vote. |
• | The company’s previous say-on-pay received the support of less than 70 percent of votes cast. Factors that will be considered are: |
➤ | The company's response, including: |
➤ | Disclosure of engagement efforts with major institutional investors, including the frequency and timing of engagements and the company participants (including whether independent directors participated); |
➤ | Disclosure of the specific concerns voiced by dissenting shareholders that led to the say-on-pay opposition; |
➤ | Disclosure of specific and meaningful actions taken to address shareholders' concerns; |
➤ | Other recent compensation actions taken by the company; |
➤ | Whether the issues raised are recurring or isolated; |
➤ | The company's ownership structure; and |
➤ | Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness. |
• | The board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received the plurality of votes cast. |
• | The company has a poison pill that was not approved by shareholders 5 . However, vote case-by-case on nominees if the board adopts an initial pill with a term of one year or less, depending on the disclosed rationale for the adoption, and other factors as relevant (such as a commitment to put any renewal to a shareholder vote). |
• | The board makes a material adverse modification to an existing pill, including, but not limited to, extension, renewal, or lowering the trigger, without shareholder approval. |
4 | A “new nominee” is any current nominee who has not already been elected by shareholders and who joined the board after the problematic action in question transpired. If ISS cannot determine whether the nominee joined the board before or after the problematic action transpired, the nominee will be considered a “new nominee” if he or she joined the board within the 12 months prior to the upcoming shareholder meeting. |
5 | Public shareholders only, approval prior to a company’s becoming public is insufficient. |
• | A classified board structure; |
• | A supermajority vote requirement; |
• | Either a plurality vote standard in uncontested director elections, or a majority vote standard in contested elections; |
• | The inability of shareholders to call special meetings; |
• | The inability of shareholders to act by written consent; |
• | A multi-class capital structure; and/or |
• | A non-shareholder-approved poison pill. |
• | The board's rationale for adopting the bylaw/charter amendment without shareholder ratification; |
• | Disclosure by the company of any significant engagement with shareholders regarding the amendment; |
• | The level of impairment of shareholders' rights caused by the board's unilateral amendment to the bylaws/charter; |
• | The board's track record with regard to unilateral board action on bylaw/charter amendments or other entrenchment provisions; |
• | The company's ownership structure; |
• | The company's existing governance provisions; |
• | The timing of the board's amendment to the bylaws/charter in connection with a significant business development; and, |
• | Other factors, as deemed appropriate, that may be relevant to determine the impact of the amendment on shareholders. |
• | Classified the board; |
• | Adopted supermajority vote requirements to amend the bylaws or charter; or |
• | Eliminated shareholders' ability to amend bylaws. |
• | The level of impairment of shareholders' rights; |
• | The disclosed rationale; |
• | The ability to change the governance structure (e.g., limitations on shareholders’ right to amend the bylaws or charter, or supermajority vote requirements to amend the bylaws or charter); |
• | The ability of shareholders to hold directors accountable through annual director elections, or whether the company has a classified board structure; |
• | Any reasonable sunset provision; and |
• | Other relevant factors. |
• | The company’s governing documents impose undue restrictions on shareholders’ ability to amend the bylaws. Such restrictions include, but are not limited to: outright prohibition on the submission of binding shareholder proposals, or share ownership requirements or time holding requirements in excess of SEC Rule 14a-8. Vote against on an ongoing basis. |
• | The non-audit fees paid to the auditor are excessive; |
• | The company receives an adverse opinion on the company’s financial statements from its auditor; or |
• | There is persuasive evidence that the Audit Committee entered into an inappropriate indemnification agreement with its auditor that limits the ability of the company, or its shareholders, to pursue legitimate legal recourse against the audit firm. |
• | Poor accounting practices are identified that rise to a level of serious concern, such as: fraud; misapplication of GAAP; and material weaknesses identified in Section 404 disclosures. Examine the severity, breadth, chronological sequence, and duration, as well as the company’s efforts at remediation or corrective actions, in determining whether withhold/against votes are warranted. |
• | There is a significant misalignment between CEO pay and company performance (pay for performance) (see Primary Evaluation Factors for Executive Pay); |
• | The company maintains significant problematic pay practices (see Problematic Pay Practices); or |
• | The board exhibits a significant level of poor communication and responsiveness (see Compensation Committee Communications and Responsiveness) to shareholders. |
• | The company fails to include a Say on Pay ballot item when required under SEC provisions, or under the company’s declared frequency of say on pay; or |
• | The company fails to include a Frequency of Say on Pay ballot item when required under SEC provisions. |
• | The presence of an anti-pledging policy, disclosed in the proxy statement, that prohibits future pledging activity; |
• | The magnitude of aggregate pledged shares in terms of total common shares outstanding, market value, and trading volume; |
• | Disclosure of progress or lack thereof in reducing the magnitude of aggregate pledged shares over time; |
• | Disclosure in the proxy statement that shares subject to stock ownership and holding requirements do not include pledged company stock; and |
• | Any other relevant factors. |
• | Material failures of governance, stewardship, risk oversight 6 , or fiduciary responsibilities at the company; |
• | Failure to replace management as appropriate; or |
• | Egregious actions related to a director’s service on other boards that raise substantial doubt about his or her ability to effectively oversee management and serve the best interests of shareholders at any company. |
➤ | General Recommendation: In cases where companies are targeted in connection with public “vote-no” campaigns, evaluate director nominees under the existing governance policies for voting on director nominees in uncontested elections. Take into consideration the arguments submitted by shareholders and other publicly available information. |
Proxy Contests/Proxy Access — Voting for Director Nominees in Contested Elections | |
➤ | General Recommendation: Vote case-by-case on the election of directors in contested elections, considering the following factors: |
• | Long-term financial performance of the company relative to its industry; |
• | Management’s track record; |
• | Background to the contested election; |
• | Nominee qualifications and any compensatory arrangements; |
• | Strategic plan of dissident slate and quality of the critique against management; |
• | Likelihood that the proposed goals and objectives can be achieved (both slates); and |
• | Stock ownership positions. |
➤ | General Recommendation: Generally vote for shareholder proposals requiring that the chairman’s position be filled by an independent director, taking into consideration the following: |
• | The scope of the proposal; |
• | The company's current board leadership structure; |
• | The company's governance structure and practices; |
• | Company performance; and |
• | Any other relevant factors that may be applicable. |
6 | Examples of failure of risk oversight include, but are not limited to: bribery; large or serial fines or sanctions from regulatory bodies; significant adverse legal judgments or settlement; or hedging of company stock. |
➤ | General Recommendation: Generally vote for management and shareholder proposals for proxy access with the following provisions: |
• | Ownership threshold: maximum requirement not more than three percent (3%) of the voting power; |
• | Ownership duration: maximum requirement not longer than three (3) years of continuous ownership for each member of the nominating group; |
• | Aggregation: minimal or no limits on the number of shareholders permitted to form a nominating group; |
• | Cap: cap on nominees of generally twenty-five percent (25%) of the board. |
➤ | General Recommendation: Vote for proposals to increase the number of authorized common shares where the primary purpose of the increase is to issue shares in connection with a transaction on the same ballot that warrants support. |
• | Past Board Performance: |
➤ | The company's use of authorized shares during the last three years |
• | The Current Request: |
➤ | Disclosure in the proxy statement of the specific purposes of the proposed increase; |
➤ | Disclosure in the proxy statement of specific and severe risks to shareholders of not approving the request; and |
➤ | The dilutive impact of the request as determined relative to an allowable increase calculated by ISS (typically 100 percent of existing authorized shares) that reflects the company's need for shares and total shareholder returns. |
A. | Most companies: 100 percent of existing authorized shares. |
B. | Companies with less than 50 percent of existing authorized shares either outstanding or reserved for issuance: 50 percent of existing authorized shares. |
C. | Companies with one- and three-year total shareholder returns (TSRs) in the bottom 10 percent of the U.S. market as of the end of the calendar quarter that is closest to their most recent fiscal year end: 50 percent of existing authorized shares. |
D. | Companies at which both conditions (B and C) above are both present: 25 percent of existing authorized shares. |
➤ | General Recommendation: Vote case-by-case on mergers and acquisitions. Review and evaluate the merits and drawbacks of the proposed transaction, balancing various and sometimes countervailing factors including: |
• | Valuation - Is the value to be received by the target shareholders (or paid by the acquirer) reasonable? While the fairness opinion may provide an initial starting point for assessing valuation reasonableness, emphasis is placed on the offer premium, market reaction, and strategic rationale. |
• | Market reaction - How has the market responded to the proposed deal? A negative market reaction should cause closer scrutiny of a deal. |
• | Strategic rationale - Does the deal make sense strategically? From where is the value derived? Cost and revenue synergies should not be overly aggressive or optimistic, but reasonably achievable. Management should also have a favorable track record of successful integration of historical acquisitions. |
• | Negotiations and process - Were the terms of the transaction negotiated at arm's-length? Was the process fair and equitable? A fair process helps to ensure the best price for shareholders. Significant negotiation "wins" can also signify the deal makers' competency. The comprehensiveness of the sales process (e.g., full auction, partial auction, no auction) can also affect shareholder value. |
• | Conflicts of interest - Are insiders benefiting from the transaction disproportionately and inappropriately as compared to non-insider shareholders? As the result of potential conflicts, the directors and officers of the company may be more likely to vote to approve a merger than if they did not hold these interests. Consider whether these interests may have influenced these directors and officers to support or recommend the merger. The CIC figure presented in the "ISS Transaction Summary" section of this report is an aggregate figure that can in certain cases be a misleading indicator of the true value transfer from shareholders to insiders. Where such figure appears to be excessive, analyze the underlying assumptions to determine whether a potential conflict exists. |
• | Governance - Will the combined company have a better or worse governance profile than the current governance profiles of the respective parties to the transaction? If the governance profile is to change for the worse, the burden is on the company to prove that other issues (such as valuation) outweigh any deterioration in governance. |
1. | Maintain appropriate pay-for-performance alignment, with emphasis on long-term shareholder value: This principle encompasses overall executive pay practices, which must be designed to attract, retain, and appropriately motivate the key employees who drive shareholder value creation over the long term. It will take into consideration, among other factors, the link between pay and performance; the mix between fixed and variable pay; performance goals; and equity-based plan costs; |
2. | Avoid arrangements that risk “pay for failure”: This principle addresses the appropriateness of long or indefinite contracts, excessive severance packages, and guaranteed compensation; |
3. | Maintain an independent and effective compensation committee: This principle promotes oversight of executive pay programs by directors with appropriate skills, knowledge, experience, and a sound process for compensation decision-making (e.g., including access to independent expertise and advice when needed); |
4. | Provide shareholders with clear, comprehensive compensation disclosures: This principle underscores the importance of informative and timely disclosures that enable shareholders to evaluate executive pay practices fully and fairly; |
5. | Avoid inappropriate pay to non-executive directors: This principle recognizes the interests of shareholders in ensuring that compensation to outside directors is reasonable and does not compromise their independence and ability to make appropriate judgments in overseeing managers’ pay and performance. At the market level, it may incorporate a variety of generally accepted best practices. |
➤ | General Recommendation: Vote case-by-case on ballot items related to executive pay and practices, as well as certain aspects of outside director compensation. |
Vote against Advisory Votes on Executive Compensation (Say-on-Pay or “SOP”) if: |
• | There is a significant misalignment between CEO pay and company performance (pay for performance) (see Primary Evaluation Factors for Executive Pay); |
• | The company maintains significant problematic pay practices (see Problematic Pay Practices); |
• | The board exhibits a significant level of poor communication and responsiveness (see Compensation Committee Communications and Responsiveness) to shareholders. |
• | There is no SOP on the ballot, and an against vote on an SOP is warranted due to pay-for-performance misalignment, problematic pay practices, or the lack of adequate responsiveness on compensation issues raised previously, or a combination thereof; |
• | The board fails to respond adequately to a previous SOP proposal that received less than 70 percent support of votes cast; |
• | The company has recently practiced or approved problematic pay practices, including option repricing or option backdating; or |
• | The situation is egregious. |
➤ | The degree of alignment between the company's annualized TSR rank and the CEO's annualized total pay rank within a peer group, each measured over a three-year period. |
➤ | The rankings of CEO total pay and company financial performance within a peer group, each measured over a three-year period. |
➤ | The multiple of the CEO's total pay relative to the peer group median in the most recent fiscal year. |
7 | The Russell 3000E Index includes approximately 4,000 of the largest U.S. equity securities. |
8 | The revised peer group is generally comprised of 14-24 companies that are selected using market cap, revenue (or assets for certain financial firms), GICS industry group, and company's selected peers' GICS industry group, with size constraints, via a process designed to select peers that are comparable to the subject company in terms of revenue/assets and industry, and also within a market-cap bucket that is reflective of the company's. For Oil, Gas & Consumable Fuels companies, market cap is the only size determinant. |
2. | Absolute Alignment 9 – the absolute alignment between the trend in CEO pay and company TSR over the prior five fiscal years – i.e. , the difference between the trend in annual pay changes and the trend in annualized TSR during the period. |
• | The ratio of performance- to time-based equity awards; |
• | The overall ratio of performance-based compensation; |
• | The completeness of disclosure and rigor of performance goals; |
• | The company's peer group benchmarking practices; |
• | Actual results of financial/operational metrics, such as growth in revenue, profit, cash flow, etc., both absolute and relative to peers; |
• | Special circumstances related to, for example, a new CEO in the prior FY or anomalous equity grant practices (e.g., bi-annual awards); |
• | Realizable pay 10 compared to grant pay; and |
• | Any other factors deemed relevant. |
• | Problematic practices related to non-performance-based compensation elements; |
• | Incentives that may motivate excessive risk-taking; and |
• | Options backdating. |
• | Repricing or replacing of underwater stock options/SARS without prior shareholder approval (including cash buyouts and voluntary surrender of underwater options); |
• | Extraordinary perquisites or tax gross-ups, including any gross-up related to a secular trust or restricted stock vesting, or lifetime perquisites; |
• | New or extended agreements that provide for: |
➤ | Excessive CIC payments (generally exceeding 3 times base salary and average/target/most recent bonus); |
➤ | CIC severance payments without involuntary job loss or substantial diminution of duties ("single" or "modified single" triggers); |
➤ | CIC payments with excise tax gross-ups (including "modified" gross-ups); |
➤ | Multi-year guaranteed awards that are not at risk due to rigorous performance conditions; |
➤ | Liberal CIC definition combined with any single-trigger CIC benefits; |
• | Insufficient executive compensation disclosure by externally-managed issuers (EMIs) such that a reasonable assessment of pay programs and practices applicable to the EMI's executives is not possible; |
• | Any other provision or practice deemed to be egregious and present a significant risk to investors. |
• | Multi-year guaranteed awards; |
• | A single or common performance metric used for short- and long-term incentives; |
9 | Only Russell 3000 Index companies are subject to the Absolute Alignment analysis. |
10 | ISS research reports include realizable pay for S&P1500 companies. |
• | Lucrative severance packages; |
• | High pay opportunities relative to industry peers; |
• | Disproportionate supplemental pensions; or |
• | Mega equity grants that provide overly large upside opportunity. |
• | Reason and motive for the options backdating issue, such as inadvertent vs. deliberate grant date changes; |
• | Duration of options backdating; |
• | Size of restatement due to options backdating; |
• | Corrective actions taken by the board or compensation committee, such as canceling or re-pricing backdated options, the recouping of option gains on backdated grants; and |
• | Adoption of a grant policy that prohibits backdating, and creates a fixed grant schedule or window period for equity grants in the future. |
• | Failure to respond to majority-supported shareholder proposals on executive pay topics; or |
• | Failure to adequately respond to the company's previous say-on-pay proposal that received the support of less than 70 percent of votes cast, taking into account: |
➤ | The company's response, including: |
➤ | Disclosure of engagement efforts with major institutional investors, including the frequency and timing of engagements and the company participants (including whether independent directors participated); |
➤ | Disclosure of the specific concerns voiced by dissenting shareholders that led to the say-on-pay opposition; |
➤ | Disclosure of specific and meaningful actions taken to address shareholders’ concerns; |
➤ | Other recent compensation actions taken by the company; |
➤ | Whether the issues raised are recurring or isolated; |
➤ | The company's ownership structure; and |
➤ | Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness. |
➤ | General Recommendation: Vote case-by-case on certain equity-based compensation plans 11 depending on a combination of certain plan features and equity grant practices, where positive factors may counterbalance negative factors, and vice versa, as evaluated using an "equity plan scorecard" (EPSC) approach with three pillars: |
• | Plan Cost: The total estimated cost of the company’s equity plans relative to industry/market cap peers, measured by the company's estimated Shareholder Value Transfer (SVT) in relation to peers and considering both: |
➤ | SVT based on new shares requested plus shares remaining for future grants, plus outstanding unvested/unexercised grants; and |
➤ | SVT based only on new shares requested plus shares remaining for future grants. |
• | Plan Features: |
➤ | Discretionary or automatic single-triggered award vesting upon a change in control (CIC); |
11 | Proposals evaluated under the EPSC policy generally include those to approve or amend (1) stock option plans for employees and/or employees and directors, (2) restricted stock plans for employees and/or employees and directors, and (3) omnibus stock incentive plans for employees and/or employees and directors; amended plans will be further evaluated case-by-case. |
➤ | Discretionary vesting authority; |
➤ | Liberal share recycling on various award types; |
➤ | Lack of minimum vesting period for grants made under the plan; |
➤ | Dividends payable prior to award vesting. |
• | Grant Practices: |
➤ | The company’s three year burn rate relative to its industry/market cap peers; |
➤ | Vesting requirements in most recent CEO equity grants (3-year look-back); |
➤ | The estimated duration of the plan (based on the sum of shares remaining available and the new shares requested, divided by the average annual shares granted in the prior three years); |
➤ | The proportion of the CEO's most recent equity grants/awards subject to performance conditions; |
➤ | Whether the company maintains a claw-back policy; |
➤ | Whether the company has established post exercise/vesting share-holding requirements. |
• | Awards may vest in connection with a liberal change-of-control definition; |
• | The plan would permit repricing or cash buyout of underwater options without shareholder approval (either by expressly permitting it — for NYSE and Nasdaq listed companies — or by not prohibiting it when the company has a history of repricing — for non-listed companies); |
• | The plan is a vehicle for problematic pay practices or a significant pay-for-performance disconnect under certain circumstances; or |
• | Any other plan features are determined to have a significant negative impact on shareholder interests. |
➤ | General Recommendation: Generally vote case-by-case, taking into consideration whether implementation of the proposal is likely to enhance or protect shareholder value, and in addition the following will also be considered: |
• | If the issues presented in the proposal are more appropriately or effectively dealt with through legislation or government regulation; |
• | If the company has already responded in an appropriate and sufficient manner to the issue(s) raised in the proposal; |
• | Whether the proposal's request is unduly burdensome (scope or timeframe) or overly prescriptive; |
• | The company's approach compared with any industry standard practices for addressing the issue(s) raised by the proposal; |
• | If the proposal requests increased disclosure or greater transparency, whether or not reasonable and sufficient information is currently available to shareholders from the company or from other publicly available sources; and |
• | If the proposal requests increased disclosure or greater transparency, whether or not implementation would reveal proprietary or confidential information that could place the company at a competitive disadvantage. |
➤ | General Recommendation: Generally vote for resolutions requesting that a company disclose information on the financial, physical, or regulatory risks it faces related to climate change on its operations and investments or on how the company identifies, measures, and manages such risks, considering: |
• | Whether the company already provides current, publicly-available information on the impact that climate change may have on the company as well as associated company policies and procedures to address related risks and/or opportunities; |
• | The company’s level of disclosure compared to industry peers; and |
• | Whether there are significant controversies, fines, penalties, or litigation associated with the company’s climate change-related performance. |
• | The company already discloses current, publicly-available information on the impacts that GHG emissions may have on the company as well as associated company policies and procedures to address related risks and/or opportunities; |
• | The company's level of disclosure is comparable to that of industry peers; and |
• | There are no significant, controversies, fines, penalties, or litigation associated with the company's GHG emissions. |
• | Whether the company provides disclosure of year-over-year GHG emissions performance data; |
• | Whether company disclosure lags behind industry peers; |
• | The company's actual GHG emissions performance; |
• | The company's current GHG emission policies, oversight mechanisms, and related initiatives; and |
• | Whether the company has been the subject of recent, significant violations, fines, litigation, or controversy related to GHG emissions. |
➤ | General Recommendation: Generally vote for requests for reports on a company's efforts to diversify the board, unless: |
• | The gender and racial minority representation of the company’s board is reasonably inclusive in relation to companies of similar size and business; and |
• | The board already reports on its nominating procedures and gender and racial minority initiatives on the board and within the company. |
• | The degree of existing gender and racial minority diversity on the company’s board and among its executive officers; |
• | The level of gender and racial minority representation that exists at the company’s industry peers; |
• | The company’s established process for addressing gender and racial minority board representation; |
• | Whether the proposal includes an overly prescriptive request to amend nominating committee charter language; |
• | The independence of the company’s nominating committee; |
• | Whether the company uses an outside search firm to identify potential director nominees; and |
• | Whether the company has had recent controversies, fines, or litigation regarding equal employment practices. |
➤ | General Recommendation: Generally vote case-by-case on requests for reports on a company's pay data by gender, or a report on a company’s policies and goals to reduce any gender pay gap, taking into account: |
• | The company's current policies and disclosure related to both its diversity and inclusion policies and practices and its compensation philosophy and fair and equitable compensation practices; |
• | Whether the company has been the subject of recent controversy, litigation, or regulatory actions related to gender pay gap issues; and |
• | Whether the company's reporting regarding gender pay gap policies or initiatives is lagging its peers. |
➤ | General Recommendation: Vote case-by-case on proposals requesting the disclosure or implementation of data security, privacy, or information access and management policies and procedures, considering: |
• | The level of disclosure of company policies and procedures relating to data security, privacy, freedom of speech, information access and management, and Internet censorship; |
• | Engagement in dialogue with governments or relevant groups with respect to data security, privacy, or the free flow of information on the Internet; |
• | The scope of business involvement and of investment in countries whose governments censor or monitor the Internet and other telecommunications; |
• | Applicable market-specific laws or regulations that may be imposed on the company; and |
• | Controversies, fines, or litigation related to data security, privacy, freedom of speech, or Internet censorship. |
➤ | General Recommendation: Vote case-by-case on proposals requesting information on a company’s lobbying (including direct, indirect, and grassroots lobbying) activities, policies, or procedures, considering: |
• | The company’s current disclosure of relevant lobbying policies, and management and board oversight; |
• | The company’s disclosure regarding trade associations or other groups that it supports, or is a member of, that engage in lobbying activities; and |
• | Recent significant controversies, fines, or litigation regarding the company’s lobbying-related activities. |
➤ | General Recommendation: Generally vote for proposals requesting greater disclosure of a company's political contributions and trade association spending policies and activities, considering: |
• | The company's policies, and management and board oversight related to its direct political contributions and payments to trade associations or other groups that may be used for political purposes; |
• | The company's disclosure regarding its support of, and participation in, trade associations or other groups that may make political contributions; and |
• | Recent significant controversies, fines, or litigation related to the company's political contributions or political activities. |
First Trust Exchange-Traded Fund
Part C – Other Information
Item 28. | Exhibits |
Exhibit No. Description
(a) | Declaration of Trust of the Registrant. (1) |
(b) | By-Laws of the Registrant, as amended and restated on September 20, 2010 (15) |
(c) | (1) Establishment and Designation of Series dated June 10, 2005. (1) |
(2) Amended and Restated Establishment and Designation of Series, dated October 6, 2017. (22)
(d) | (1) Investment Management Agreement dated December 6, 2010. (15) |
(2) Expense Reimbursement, Fee Waiver and Recovery Agreement dated December 6, 2010. (15)
(3) Amendment to Schedule A of the Investment Management Agreement. (19)
(4) Amendment of Exhibit A of the Expense Reimbursement letter. (21)
(5) Fee Waiver Agreement, dated December 6, 2010. (15)
(e) | (1) Distribution Agreement dated October 12, 2010. (15) |
(2) Amendment to Exhibit A of the Distribution Agreement. (19)
(f) | Not Applicable. |
(g) | (1) Custody Agreement between the Registrant and The Bank of New York. (2) |
(2) Amendment to Schedule II of the Custody Agreement. (19)
(h) | (1) Transfer Agency Agreement between the Registrant and The Bank of New York. (2) |
(2) Administration and Accounting Agreement between the Registrant and The Bank of New York. (2)
(3) Subscription Agreement. (2)
(4) Sublicense Agreement by and between First Trust Lunt U.S. Factor Rotation ETF and First Trust Advisors L.P. (23)
(25) Amendment to Exhibit A of the Administration and Accounting Agreement. (19)
(26) Amendment to Exhibit A of the Transfer Agency Agreement. (19)
(i) | Not Applicable. |
(j) | Not Applicable. |
(k) | Not Applicable. |
(l) | Not Applicable. |
(m) | (1) 12b-1 Service Plan. (2) |
(2) Amendment to Exhibit A of the 12b-1 Service Plan. (16)
(3) Letter Agreement regarding 12b-1 fees, dated February 9, 2017. (21)
(n) | Not Applicable. |
(o) | Not Applicable. |
(p) | (1) First Trust Advisors L.P., First Trust Portfolios L.P. Code of Ethics, amended on July 1, 2013. (17) |
(2) First Trust Funds Code of Ethics, amended on October 30, 2013. (17)
(q) | Powers of Attorney for Messrs. Bowen, Erickson, Kadlec, Keith and Nielson authorizing W. Scott Jardine, James M. Dykas, Kristi A. Maher and Eric F. Fess to execute the Registration Statement. (20) |
__________________
(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 April 13, 2006. |
(5) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on April 25, 2006. |
(6) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on June 23, 2006. |
(7) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on July 11, 2006. |
(8) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on October 13, 2006. |
(9) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on February 14, 2007. |
(10) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on March 21, 2007. |
(11) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on April 27, 2007. |
(12) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on May 11, 2007. |
(13) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on June 25, 2009. |
(14) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on May 3, 2010). |
(15) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on April 27, 2011. |
(16) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on August 16, 2012. |
(17) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on April 30, 2014. |
(18) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on January 7, 2015. |
(19) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on April 23, 2015. |
(20) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on April 27, 2016. |
(21) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on April 28, 2017. |
(22) | Filed herewith. |
(23) | To be filed by amendment. |
Item 29. | Persons Controlled by or under Common Control with Registrant |
Not applicable.
Item 30. | Indemnification |
Section 5.3 of the Registrant’s Declaration of Trust provides as follows:
Section 5.3. Mandatory Indemnification. (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.
Item 31. | Business and Other Connections of the Investment Adviser |
First Trust Advisors L.P. (“First Trust”), investment adviser to the Registrant, serves as adviser or sub-adviser to various other open-end and closed-end management investment companies and is the portfolio supervisor of certain unit investment trusts. The principal business of certain of First Trust’s principal executive officers involves various activities in connection with the family of unit investment trusts sponsored by First Trust Portfolios L.P. (“FTP”). The principal address for all these investment companies, First Trust, FTP and the persons below is 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187.
A description of any business, profession, vocation or employment of a substantial nature in which the officers of First Trust who serve as officers or trustees of the Registrant have engaged during the last two years for his or her account or in the capacity of director, officer, employee, partner or trustee appears under “Management of the Fund” in the Statement of Additional Information. Such information for the remaining senior officers of First Trust appears below:
Name and Position with First Trust | Employment During Past Two Years |
Andrew S. Roggensack, President | Managing Director and President, First Trust |
R. Scott Hall, Managing Director | Managing Director, First Trust |
Ronald D. McAlister, Managing Director | Managing Director, First Trust |
David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director | Managing Director; Senior Vice President, First Trust |
Kathleen Brown, Chief Compliance Officer and Senior Vice President | Chief Compliance Officer and Senior Vice President, First Trust |
Brian Wesbury, Chief Economist and Senior Vice President | Chief Economist and Senior Vice President, First Trust |
Item 32. | Principal Underwriter |
(a) FTP serves as principal underwriter of the shares of the Registrant, First Trust Exchange-Traded Fund II, First Trust Exchange-Traded Fund III, First Trust Exchange-Traded Fund IV, First Trust Exchange-Traded Fund V, First Trust Exchange Traded Fund VI, First Trust Exchange-Traded Fund VII, First Trust Exchange-Traded Fund VIII, First Trust Exchange-Traded AlphaDEX ® Fund, First Trust Exchange-Traded AlphaDEX ® Fund II, First Trust Variable Insurance Trust and First Trust Series Fund. FTP serves as principal underwriter and depositor of the following investment companies registered as unit investment trusts: the First Trust Combined Series, FT Series (formerly known as the First Trust Special Situations Trust), the First Trust Insured Corporate Trust, the First Trust of Insured Municipal Bonds and the First Trust GNMA.
(b) Positions and Offices with Underwriter.
(c) Not Applicable.
Item 33. | Location of Accounts and Records |
First Trust, 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, maintains the Registrant’s organizational documents, minutes of meetings, contracts of the Registrant and all advisory material of the investment adviser.
The Bank of New York Mellon Corporation (“BONY”), 101 Barclay Street, New York, New York 10286, maintains all general and subsidiary ledgers, journals, trial balances, records of all portfolio purchases and sales, and all other requirement records not maintained by First Trust.
BONY also maintains all the required records in its capacity as transfer, accounting, dividend payment and interest holder service agent for the Registrant.
Item 34. | Management Services |
Not Applicable
Item 35. | Undertakings |
Not Applicable
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Wheaton, and State of Illinois, on the 11th day of April, 2018.
First Trust Exchange-Traded Fund | ||
By: | /s/ James M. Dykas | |
James M. Dykas, President and
Chief Executive Officer |
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 | Title | Date | |
/s/ James M. Dykas |
President and Chief Executive
Officer |
April 11, 2018 | |
James M. Dykas | |||
/s/ Donald P. Swade |
Treasurer, Chief Financial Officer
and Chief Accounting Officer |
April 11, 2018 | |
Donald P. Swade | |||
James A. Bowen* |
)
Trustee ) |
||
) | |||
Richard E. Erickson* |
)
Trustee ) |
||
) | |||
Thomas R. Kadlec* |
)
Trustee ) |
||
) | By: | /s/ W. Scott Jardine | |
Robert F. Keith* |
)
Trustee ) |
W. Scott Jardine
Attorney-In-Fact |
|
) | April 11, 2018 | ||
Niel B. Nielson * |
)
Trustee ) |
||
) |
* | Original powers of attorney authorizing James A. Bowen, W. Scott Jardine, James M. Dykas, Eric F. Fess and Kristi A. Maher 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, have been previously filed and are incorporated by reference herein. |
Index to Exhibits
(c) | Amended and Restated Establishment and Designation of Series, dated October 6, 2017. |
FIRST TRUST EXCHANGE-TRADED FUND
AMENDED AND RESTATED
ESTABLISHMENT AND DESIGNATION OF SERIES OF SHARES OF BENEFICIAL
INTEREST (EFFECTIVE AS OF OCTOBER 6, 2017)
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration of Trust dated as of August 8, 2003 (the "Declaration"), of First Trust Exchange-Traded Fund, a Massachusetts business trust (the "Trust"), the Initial Trustee of the Trust, on the 10th day of June, 2005, established and designated one series of Shares (as defined in the Declaration), First Trust Dow Jones Select MicroCap Index(SM) Fund, to have the special and relative rights described in such Establishment and Designation of Series;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 12th day of December, 2005, by a majority vote, designated two additional series to be named: First Trust Value Line(R) Arithmetic Index Fund and First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, and on January 23, 2006, by a majority vote, designated three additional series to be named: First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100-Technology Sector Index(SM) Fund and First Trust IPOX-100 Index Fund, and the Trustees amended and restated the Establishment and Designation of Series of Shares of Beneficial Interest (the "Establishment and Designation of Series") in order to reflect the designation of such additional series as of January 23, 2006;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 13th day of March, 2006, by a majority vote, designated four additional series to be named: First Trust Ibbotson Core U.S. Equity Allocation Index Fund, First Trust AMEX(R) Biotechnology Index Fund, First Trust DB Strategic Value Index Fund (the "Strategic Value Fund") and First Trust Dow Jones Internet Index(SM) Fund, and the Trustees amended and restated the Establishment and Designation of Series in order to reflect the designation of such additional series as of March 13, 2006;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 12th day of June, 2006, by a majority vote, designated one additional series to be named: First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, and the Trustees amended and restated the Establishment and Designation of Series in order to reflect the designation of such additional series as of June 12, 2006;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 26th day of July, 2006, by a majority vote, designated three additional series to be named: First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund, First Trust Value Line(R) Equity Allocation Index Fund and First Trust Value Line(R) Dividend Index Fund, and the Trustees amended and restated the Establishment and Designation of Series in order to reflect the designation of such additional series as of July 26, 2006;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 11th day of December, 2006, by a majority vote, designated one additional series to be named: First Trust S&P REIT Index Fund,
and the Trustees amended and restated the Establishment and Designation of Series in order to reflect the designation of such additional series as of December 11, 2006;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 17th day of January, 2007, by a majority vote, designated four additional series to be named: First Trust ISE-Revere Natural Gas Index Fund, First Trust ISE Water Index Fund, First Trust ISE Chindia Index Fund and First Trust Value Line(R) 100 Exchange-Traded Fund, and the Trustees amended and restated the Establishment and Designation of Series in order to reflect the designation of such additional series as of January 17, 2007;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 15th day of December, 2008, by a majority vote, renamed the series First Trust IPOX-100 Index Fund as First Trust US IPO Index Fund effective March 2, 2009, and the Trustees amended and restated the Establishment and Designation of Series in order to reflect the new name of such series as of March 2, 2009;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 20th day of January, 2009, by a majority vote, renamed the series First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund as First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, and the Trustees amended and restated the Establishment and Designation of Series in order to reflect the new name of such series as of January 20, 2009;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 11th day of May, 2009, by a majority vote, designated an additional series to be named First Trust NASDAQ(R) ABA Community Bank Index Fund, and the Trustees amended and restated the Establishment and Designation of Series in order to reflect the designation of such additional series as of May 11, 2009;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 30th day of June, 2009, by unanimous written consent, renamed the series First Trust Amex(R) Biotechnology Index Fund as First Trust NYSE Arca Biotechnology Index Fund, and the Trustees amended and restated the Establishment and Designation of Series in order to reflect the new name of such series as of June 30, 2009;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 18th day of June, 2010, by a majority vote, renamed the series First Trust DB Strategic Value Index Fund as First Trust Strategic Value Index Fund, and the Trustees amended and restated the Establishment and Designation of Series in order to reflect the new name of such series as of June 18, 2010;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 19th day of September, 2011, by a majority vote, designated an additional series to be named First Trust S&P 500 VIX Tail Hedge Index Fund;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 9th of November, 2011, by a majority vote, renamed the series First Trust S&P 500 VIX Tail Hedge Index Fund as First Trust CBOE VIX Tail Hedge Index Fund;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 12th day of March, 2012, by a majority vote, designated an additional series to be named First Trust Hedge Fund Manager Holdings Index Fund;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 16th day of July, 2012, by a majority vote, renamed the series First Trust CBOE VIX Tail Hedge Index Fund as First Trust CBOE S&P 500 VIX Tail Hedge Fund;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 11th of March, 2013, by a majority vote, renamed the series First Trust Strategic Value Index Fund as First Trust Capital Strength ETF;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 16th day of September, 2013 terminated the First Trust Value Line(R) Arithmetic Index Fund, First Trust Ibbotson Core U.S. Equity Allocation Index Fund and the First Trust Hedge Fund Manager Holdings Index Fund;
WHEREAS, the Trust filed on December 18, 2013 with the Commonwealth of Massachusetts an Establishment and Designation of Series, as amended, which by clerical error omitted First Trust Capital Strength ETF as a series of the Trust and now desires to correct such clerical error through this amendment and restatement;
WHEREAS, First Trust Capital Strength ETF has since March 11, 2013 been and continues to be from that date, a duly established and designated Series of the Trust;
WHEREAS, on the 25th day of April, 2014, the Establishment and Designation of Series was amended and restated in its entirety to correct certain clerical errors contained therein;
WHEREAS, on the 15th day of September, 2014, the Trustees of the Trust by majority vote changed the name of each of the following series of the trust, as indicated:
EXISTING NAME NEW NAME First Trust Dow Jones Select First Trust Dow Jones Select MicroCap Index(SM) Fund MicroCap Index Fund First Trust Morningstar(R) Dividend First Trust Morningstar Dividend Leaders(SM) Index Fund Leaders Index Fund First Trust NASDAQ-100 Equal First Trust NASDAQ-100 Equal Weighted Index(SM) Fund Weighted Index Fund First Trust NASDAQ-100-Technology First Trust NASDAQ-100-Technology Sector Index(SM) Fund Sector Index Fund First Trust Dow Jones First Trust Dow Jones Internet Internet Index(SM) Fund Index Fund First Trust NASDAQ-100 Ex-Technology First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund Sector Index Fund First Trust CBOE S&P 500 VIX First Trust CBOE(R) S&P 500(R) Tail Hedge Fund VIX(R) Tail Hedge Fund; |
WHEREAS, on the 15th day of September, 2014, the Trustees of the Trust by majority vote changed the name of the series First Trust Value Line(R) Equity Allocation Index Fund to First Trust Total U.S. Market AlphaDEX ETF, with the effectiveness of such name change to occur concurrently with certain other changes to the series approved at that time;
WHEREAS, on the 12th day of December, 2016, the Trustees of the Trust by majority vote changed the name of each of the following series of the trust, as indicated:
EXISTING NAME NEW NAME First Trust ISE-Revere Natural First Trust Natural Gas ETF Gas Index Fund First Trust ISE Chindia Index Fund First Trust Chindia ETF First Trust ISE Water Index Fund First Trust Water ETF First Trust US IPO Index Fund First Trust US Equity Opportunities ETF; |
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 17th day of January, 2017, by a majority vote, designated an additional series to be named First Trust Dow 30 Equal Weight ETF;
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 18th day of August, 2017, by a majority vote, renamed the series First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund as First Trust Dorsey Wright People's Portfolio ETF; amd
WHEREAS, pursuant to Section 6.2 of Article VI of the Declaration, the Trustees of the Trust, on the 6th day of October, 2017, by a majority vote, designated an additional series to be named First Trust Lunt U.S. Factor Rotation ETF.
NOW THEREFORE, effective as of the 6th day of October, 2017, the Establishment and Designation of Series is amended and restated in its entirety as follows:
1. The Trust consists of the following 21 series of Shares (each, a "Fund" and collectively, the "Funds") that have been established and designated by the Board of Trustees:
First Trust Dow Jones Select MicroCap Index Fund
First Trust Morningstar Dividend Leaders Index Fund
First Trust NASDAQ-100 Equal Weighted Index Fund
First Trust NASDAQ-100-Technology Sector Index Fund
First Trust US Equity Opportunities ETF
First Trust NYSE Arca Biotechnology Index Fund
First Trust Capital Strength ETF
First Trust Dow Jones Internet Index Fund
First Trust NASDAQ-100 Ex-Technology Sector Index Fund
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
First Trust Total U.S. Market AlphaDEX ETF
First Trust Value Line(R) Dividend Index Fund
First Trust S&P REIT Index Fund
First Trust Natural Gas ETF
First Trust Water ETF
First Trust Chindia ETF
First Trust Value Line(R) 100 Exchange-Traded Fund
First Trust NASDAQ(R) ABA Community Bank Index Fund
First Trust Dorsey Wright People's Portfolio ETF
First Trust Dow 30 Equal Weight ETF
First Trust Lunt U.S. Factor Rotation ETF
2. Each Fund shall be authorized to hold cash, invest in securities, instruments and other property and use investment techniques as from time to time described in the Trust's then currently effective registration statement under the Securities Act of 1933 to the extent pertaining to the offering of Shares of the respective Fund (the "Registration Statement"). Each Share of each Fund shall be entitled to one vote (or fraction thereof in respect of a fractional share) on matters on which shareholders of that Fund may vote in accordance with the Declaration, shall represent a pro rata beneficial interest in the assets allocated or belonging to the respective Fund, and shall be entitled to receive its pro rata share of the net assets of such Fund upon liquidation of the applicable Fund, all as provided in the Declaration. The Shares of each Fund shall be offered to the public in aggregations of Shares ("Creation Units") in amounts as described in the Trust's Registration Statement pertaining to the respective Fund and such Creation Units shall be redeemable.
3. Shareholders of each Fund shall vote either separately as a series on any matter to the extent required by, and any matter shall be deemed to have been effectively acted upon with respect to such Fund as provided in, Rule 18f-2, as from time to time in effect, under the Investment Company Act of 1940, as amended (the "1940 Act"), or any successor rules, and by the Declaration.
4. Unless otherwise provided in the Declaration or a resolution of the Trustees, the assets and liabilities of the Trust shall be allocated among each Fund and any other series of Shares that may be established from time to time as set forth below:
(a) All consideration received by the Trust for the issue or sale of Shares of a particular series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the sale may be, shall irrevocably belong to that series for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of the Trust. Such consideration, assets, income, earnings, profits and proceeds, including any proceeds derived from the sale, exchange or liquidation of such assets and any funds or payments derived from any reinvestment of such proceeds, in whatever form the same may be, together with any General Items (as hereinafter defined) allocated to that series as provided in the following sentence, are herein referred to as "assets belonging to" that series. In the event that there are any assets, income, earnings, profits or proceeds thereof, funds or payments which are not readily identifiable as belonging to any particular series (collectively "General Items"), the Trustees shall allocate such General Items to and among any one or more of the series created from time to time in such manner and on such basis as they, in their sole discretion, deem fair and equitable; and any General Items allocated to a particular series shall belong to that series. Each such allocation by the Trustees shall be conclusive and binding upon the Shareholders of all series for all purposes.
(b) The assets belonging to a particular series shall be charged with the liabilities of the Trust in respect of that series and with all expenses, costs, charges and reserves attributable to that series and shall be so recorded upon the books of the Trust. Liabilities, expenses, costs, charges and reserves charged to a particular series, together with any General Liabilities (as hereinafter defined) allocated to that series as provided in the following sentence, are herein referred to as "liabilities belonging to" that series. In the event there are any general liabilities, expenses, costs, charges or reserves of the Trust which are not readily identifiable as belonging to any particular series (collectively "General Liabilities"), the Trustees shall allocate and charge such General Liabilities to and among any one or more of the series created from time to time in such manner and on such basis as the Trustees in their sole discretion deem fair and equitable; and any General Liabilities so allocated and charges to a particular series shall belong to that series. Each such allocation by the Trustees shall be conclusive and binding upon the Shareholders of all series for all purposes.
5. The designation of each Fund hereby shall not impair the power of the Trustees from time to time to designate additional series of Shares of the Trust.
6. Subject to the applicable provisions of the 1940 Act and the Declaration, the Trustees shall have the right at any time and from time to time to reallocate assets and expenses or to change the designation of each Fund now or hereafter created, or to otherwise change the special relative rights of each Fund designated hereby without any action or consent of the shareholders.
7. Each Fund may be terminated by the Trustees at any time by written notice to shareholders of the respective Fund.
IN WITNESS WHEREOF, the undersigned, being the Secretary of the Trust, has executed this instrument as of this 6th day of October, 2017.
/s/ W. Scott Jardine --------------------------------- W. Scott Jardine, Secretary |
STATE OF ILLINOIS ) ) SS. COUNTY OF DUPAGE ) |
Then personally appeared the above-named person who is known to me to be the Secretary of the Trust whose name and signature are affixed to the foregoing Amended and Restated Establishment and Designation of Series of Shares of Beneficial Interest and who acknowledged the same to be his free act and deed, before me this 6th day of October, 2017.
/s/ Sandra Kim Streit ------------------------------------ Notary Public My Commission Expires: 5/28/2021 |