As filed with the Securities and Exchange Commission on July 19, 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. 106 | [X] |
and/or | |
Registration Statement Under the Investment Company Act of 1940 | [ ] |
Amendment No. 106 | [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)
[X] on July 20, 2018 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 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. 106
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 | FCTR | Cboe BZX |
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
Management Fees | 0.65% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses (1) | 0.00% |
Total Annual Fund Operating Expenses | 0.65% |
(1) | “Other Expenses” is an estimate based on the expenses the Fund expects to incur for the current fiscal year. |
1 Year | 3 Years |
$66 | $208 |
• | Momentum is the statistical measurement of the price performance of a security versus a market average, another security or a universe of securities. |
• | Value is the statistical measurement of a security’s price relative to the fundamental value of that security which is determined using book value to price, cash flow to price and return on assets. |
• | Quality is the statistical measurement of the strength of a security’s fundamentals including primarily consistency of earnings, margins, price returns and return on equity. |
• | Volatility is the statistical measurement of the magnitude of up and down price fluctuations over time for a security. |
1. | The selection universe of the Index begins with eight sub-indices, two for each of the four factors described above. Each sub-index is comprised of 50 securities from the Nasdaq US 500 Large Cap Index. For each factor, there is one sub-index exhibiting a high amount of characteristics of that factor, and one sub-index exhibiting a low amount. The eight sub-indices are: |
i. | Nasdaq Factor Family US Momentum Index: The Nasdaq Factor Family US Momentum Index seeks to select a portfolio of securities exhibiting high momentum characteristics. The index selects 50 securities from the Nasdaq US 500 Large Cap Index based on a Momentum Score that evaluates the average of the trailing 12-month, 9-month, 6-month, 3-month and 1-month returns. |
ii. | Nasdaq Factor Laggard US Momentum Index: The Nasdaq Factor Laggard US Momentum Index seeks to select a portfolio of securities exhibiting low momentum characteristics. The index selects 50 securities from the Nasdaq US 500 Large Cap Index based on a Momentum Score that evaluates the average of the trailing 12-month, 9-month, 6-month, 3-month and 1-month returns. |
iii. | Nasdaq Factor Family US Value Index: The Nasdaq Factor Family US Value Index seeks to select a portfolio of securities exhibiting the highest scores for valuation characteristics. The index selects 50 securities from the Nasdaq US 500 Large Cap Index based on a Value Score that evaluates several factors including book value to price, sales enterprise value and earnings to price. |
iv. | Nasdaq Factor Laggard US Value Index: The Nasdaq Factor Laggard US Value Index seeks to select a portfolio of securities exhibiting the lowest scores for valuation characteristics. The index selects 50 securities from the Nasdaq US 500 Large Cap Index based on a Value Score that evaluates several factors including book value to price, sales enterprise value and earnings to price. |
v. | Nasdaq Factor Family US Quality Index: The Nasdaq Factor Family US Quality Index seeks to select a portfolio of securities exhibiting high quality characteristics. The index selects 50 securities from the Nasdaq US 500 Large Cap Index based on a Quality Score that evaluates several factors including earnings per share, operating margin, sales growth and return on equity. |
vi. | Nasdaq Factor Laggard US Quality Index: The Nasdaq Factor Laggard US Quality Index seeks to select a portfolio of securities exhibiting low quality characteristics. The index selects 50 securities from the Nasdaq US 500 Large Cap Index based on a Quality Score that evaluates several factors including earnings per share, operating margin, sales growth and return on equity. |
vii. | Nasdaq Factor Family US Low Volatility Index: The Nasdaq Factor Family US Low Volatility Index seeks to select a portfolio of securities exhibiting low volatility characteristics. The index selects 50 securities from the Nasdaq US 500 Large Cap Index based on a Volatility Score which evaluates realized volatility over trailing 12-month, 9-month, 6-month, 3-month and 1-month time periods. |
viii. | Nasdaq Factor Laggard US Low Volatility Index: The Nasdaq Factor Laggard US Low Volatility Index seeks to select a portfolio of securities exhibiting high volatility characteristics. The index selects 50 securities from the Nasdaq US 500 Large Cap Index based on a Volatility Score which evaluates realized volatility over trailing 12-month, 9-month, 6-month, 3-month and 1-month time periods. |
2. | The Index Provider applies proprietary, risk-adjusted relative strength rules to each pair of Nasdaq factors to determine which side ( i.e. high or low) is believed to offer the greatest potential to outperform. The “Risk-Adjusted Score” is the return per unit of risk of the sub-index, measured as the standard deviation of returns over the course of the prior 12 months. |
3. | The Index Provider selects the highest ranked side ( i.e. high or low) of each of the four factors for inclusion in the Index. The selection is binary for each pair with either the high or low sub-index being selected for inclusion. |
4. | The Index is evaluated on a monthly basis on the final trading day of each month. The Index will invest in the underlying equity securities of the sub-indices selected in step (3) at the end of each month. Sub-indices selected in step (3) that are already included in the Index (if any) remain unchanged and the aggregate weight of the sub-indices that are removed is redistributed equally to the new sub-indices. |
• | 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. |
• | The price return Index (LFR) is ordinarily calculated without regard to cash dividends on Index securities. |
• | The total return Index (LFRT) reinvests cash dividends on the ex-date. |
• | The net total return Index (LFRN) reinvests cash dividends on the ex-date based on the securities incorporation withholding rate. |
First Trust
Exchange-Traded Fund |
FUND NAME |
TICKER
SYMBOL |
EXCHANGE | ||
First Trust Lunt U.S. Factor Rotation ETF | FCTR | 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 concentrated 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. |
(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. |
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) | 155 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) | 155 Portfolios | None |
Thomas R. Kadlec
1957 |
Trustee |
• Indefinite term
• Since inception |
President, ADM Investor Services, Inc. (Futures Commission Merchant) | 155 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) | 155 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) | 155 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 | $1,774 | $414,011 |
Thomas R. Kadlec | $1,761 | $403,267 |
Robert F. Keith | $1,761 | $403,163 |
Niel B. Nielson | $1,747 | $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 | 106 ($48,423,594,064) | 33 ($1,166,007,195) | 1691 ($560,800,961) |
David McGarel | 106 ($48,423,594,064) | 33 ($1,166,007,195) | 1691 ($560,800,961) |
Jon Erickson | 106 ($48,423,594,064) | 33 ($1,166,007,195) | 1691 ($560,800,961) |
Roger Testin | 106 ($48,423,594,064) | 33 ($1,166,007,195) | 1691 ($560,800,961) |
Stan Ueland | 100 ($47,543,268,170) | 32 ($1,110,079,061) | N/A |
Chris Peterson | 106 ($48,423,594,064) | 13 ($857,099,198) | 1691 ($560,800,961) |
(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)
(6) Investment Management Agreement dated July 17, 2018. (23)
(e) | (1) Distribution Agreement dated October 12, 2010. (15) |
(2) Amendment to Exhibit A of the Distribution Agreement. (23)
(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. (23)
(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)
(5) Amendment to Exhibit A of the Administration and Accounting Agreement. (23)
(6) Amendment to Exhibit A of the Transfer Agency Agreement. (23)
(7) Form of Participant Agreement. (23)
(i) | (1) Opinion and Consent of Morgan, Lewis & Bockius LLP. (23) |
(2) Opinion and Consent of Chapman and Cutler LLP. (23)
(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. (23)
(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) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-125751) filed on April 11, 2018. |
(23) | Filed herewith. |
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 it meets all of the requirements for effectiveness of this Registration Statement under rule 485(b) under the Securities Act and 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 19th day of July, 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 |
July 19, 2018 | |
James M. Dykas | |||
/s/ Donald P. Swade |
Treasurer, Chief Financial Officer
and Chief Accounting Officer |
July 19, 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 |
|
) | July 19, 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
(d) | (6) Investment Management Agreement dated July 17, 2018 |
(e) | (2) Amendment to Exhibit A of the Distribution Agreement |
(g) | (2) Amendment to Schedule II of the Custody Agreement |
(h) | (4) Sublicense Agreement by and between First Trust Lunt U.S. Factor Rotation ETF and First Trust Advisors L.P. |
(5) Amendment to Exhibit A of the Administration and Accounting Agreement
(6) Amendment to Exhibit A of the Transfer Agency Agreement
(7) Form of Participant Agreement
(i) | (1) Opinion and Consent of Morgan, Lewis & Bockius LLP |
(2) Opinion and Consent of Chapman and Cutler LLP
(m) | (2) Amendment to Exhibit A of the 12b-1 Service Plan |
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT made this 17th day of July 2018, by and between FIRST TRUST EXCHANGE-TRADED FUND, a Massachusetts business trust (the "Trust"), and FIRST TRUST ADVISORS L.P., an Illinois limited partnership (the "Adviser").
WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company;
WHEREAS, the Trust is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets;
WHEREAS, the Trust intends to offer shares in series as set forth on Schedule A attached hereto and any other series as to which this Agreement may hereafter be made applicable and set forth on Schedule A, which may be amended from time to time (each such series being herein referred to as a "Fund," and collectively as the "Funds"); and
WHEREAS, the Trust desires to retain the Adviser as investment adviser, to furnish certain investment advisory and portfolio management services to the Trust with respect to the Funds, and the Adviser is willing to furnish such services.
WITNESSETH:
In consideration of the mutual covenants hereinafter contained, it is hereby agreed by and between the parties hereto as follows:
1. The Trust hereby engages the Adviser to act as the investment adviser for, and to set the overall investment strategy and manage the investment and reinvestment of the assets of, each Fund in accordance with each Fund's investment objectives and policies and limitations, and to administer each Fund's affairs to the extent requested by and subject to the supervision of the Board of Trustees of the Trust for the period and upon the terms herein set forth. The investment of each Fund's assets shall be subject to the Fund's policies, restrictions and limitations with respect to investments as set forth in the Fund's then current registration statement under the l940 Act, and all applicable laws and the regulations of the Securities and Exchange Commission relating to the management of registered open-end management investment companies.
The Adviser accepts such employment and agrees during such period to render such services, to furnish office facilities and equipment and clerical, bookkeeping and administrative services (other than such services, if any, provided by the Funds' transfer agent, administrator or other service providers) for the Funds, to permit any of its officers or employees to serve without compensation as trustees or officers of the Trust if elected or appointed to such positions, and to assume the obligations herein set forth for the compensation herein provided. The Adviser shall at its own expense furnish all
executive and other personnel, office space, and office facilities required to render the investment management and administrative services set forth in this Agreement. In the event that the Adviser pays or assumes any expenses of a Fund not required to be paid or assumed by the Adviser under this Agreement, the Adviser shall not be obligated hereby to pay or assume the same or similar expense in the future; provided, that nothing contained herein shall be deemed to relieve the Adviser of any obligation to a Fund under any separate agreement or arrangement between the parties.
2. The Adviser shall, for all purposes herein provided, be deemed to be an independent contractor and, unless otherwise expressly provided or authorized, shall neither have the authority to act for nor represent the Trust in any way, nor otherwise be deemed an agent of the Trust.
3. For the services and facilities described in Section 1, each Fund will pay to the Adviser, at the end of each calendar month, and the Adviser agrees to accept as full compensation therefore, an investment management fee equal to the annual rate of each Fund's average daily net assets as set forth on Schedule A.
For the month and year in which this Agreement becomes effective, or terminates, there shall be an appropriate proration on the basis of the number of days that the Agreement shall have been in effect during the month and year, respectively. The services of the Adviser to the Trust under this Agreement are not to be deemed exclusive, and the Adviser shall be free to render similar services or other services to others so long as its services hereunder are not impaired thereby.
4. During the term of this Agreement, the Adviser shall pay all of the expenses of each Fund of the Trust (including the cost of transfer agency, sub-advisory, custody, fund administration, legal, audit and other services and license fees, if any) but excluding the fee payment under this Agreement, interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions (such as dividend and distribution expenses from securities sold short and/or other investment related costs), distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses.
5. The Adviser shall arrange for suitably qualified officers or employees of the Adviser to serve, without compensation from the Trust, as Trustees, officers or agents of the Trust, if duly elected or appointed to such positions, and subject to their individual consent and to any limitations imposed by law.
6. For purposes of this Agreement, brokerage commissions paid by a Fund upon the purchase or sale of a Fund's portfolio securities or other assets shall be considered a cost of the securities or assets of the Fund and shall be paid by the Fund.
7. The Adviser is authorized to select the brokers, dealers, futures commission merchants, banks, or any other agent or counterparty that will execute the purchases and sales of a Fund's portfolio investments on behalf of the Fund, and is directed to use its commercially reasonable efforts to obtain best execution, which includes most favorable net results and execution of the Fund's orders, taking into account all appropriate factors, including price, dealer spread or commission, size and difficulty of the transaction and research
or other services provided. Subject to approval by the Trust's Board of Trustees and to the extent permitted by and in conformance with applicable law and the rules and regulations thereunder (including Rule 17e-1 under the 1940 Act), the Adviser may select brokers, dealers, futures commission merchants or other persons affiliated with the Adviser. It is understood that the Adviser will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust, or be in breach of any obligation owing to the Trust under this Agreement, or otherwise, solely by reason of its having caused the Fund to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Fund in excess of the amount of commission another member of an exchange, broker or dealer would have charged if the Adviser determined in good faith that the commission paid was reasonable in relation to the brokerage or research services provided by such member, broker or dealer, viewed in terms of that particular transaction or the Adviser's overall responsibilities with respect to its accounts, including the Fund, as to which it exercises investment discretion.
In addition, the Adviser may, to the extent permitted by applicable law and the rules and regulations thereunder, aggregate purchase and sale orders of portfolio investments with similar orders being made simultaneously for other accounts managed by the Adviser or its affiliates, if in the Adviser's reasonable judgment such aggregation shall result in an overall economic benefit to a Fund, taking into consideration the selling or purchase price, brokerage commissions and other expenses. In the event that a purchase or sale of an asset of a Fund occurs as part of any aggregate sale or purchase orders, the objective of the Adviser and any of its affiliates involved in such transaction shall be to allocate the securities or other assets so purchased or sold, as well as expenses incurred in the transaction, among the Fund and other accounts in an equitable manner. Nevertheless, each Fund acknowledges that under some circumstances, such allocation may adversely affect the Fund with respect to the price or size of the portfolio investments obtainable or salable. Whenever a Fund and one or more other investment advisory clients of the Adviser have available funds for investment, investments suitable and appropriate for each will be allocated in a manner believed by the Adviser to be equitable to each, although such allocation may result in a delay in one or more client accounts being fully invested that would not occur if such an allocation were not made. Moreover, it is possible that due to differing investment objectives or for other reasons, the Adviser and its affiliates may purchase securities or other instruments of an issuer for one client and at approximately the same time recommend selling or sell the same or similar types of securities, assets or instruments for another client.
The Adviser will not arrange purchases or sales of portfolio investments between a Fund and other accounts advised by the Adviser or its affiliates unless (a) such purchases or sales are in accordance with applicable law and the rules and regulations thereunder (including Rule 17a-7 under the 1940 Act) and the Trust's policies and procedures, (b) the Adviser determines the purchase or sale is in the best interests of each Fund, and (c) the Trust's Board of Trustees has approved these types of transactions.
To the extent a Fund seeks to adopt, amend or eliminate any objectives, policies, restrictions or procedures in a manner that modifies or restricts Adviser's authority regarding the execution of the Fund's portfolio transactions, the Fund agrees to use reasonable commercial efforts to consult with the Adviser regarding the modifications or restrictions prior to such adoption, amendment or elimination.
The Adviser will communicate to the officers and Trustees of the Trust such information relating to transactions for the Funds as they may reasonably request. In no instance will portfolio investments be purchased by or sold to the Adviser or any affiliated person of either the Trust or the Adviser, except as may be permitted under the 1940 Act, the rules and regulations thereunder or any applicable exemptive orders.
The Adviser further agrees that it:
(a) will use the same degree of skill and care in providing such services as it uses in providing services to fiduciary accounts for which it has investment responsibilities;
(b) will (i) conform in all material respects to all applicable rules and regulations of the Securities and Exchange Commission and Commodity Futures Trading Commission, (ii) comply in all material respects with all policies and procedures adopted by the Board of Trustees for the Trust and communicated to the Adviser, and (iii) conduct its activities under this Agreement in all material respects in accordance with any applicable regulations of any governmental authority pertaining to its investment advisory, commodity pool operator and commodity trading advisory activities;
(c) will report regularly to the Board of Trustees of the Trust (generally on a quarterly basis) and will make appropriate persons available for the purpose of reviewing with representatives of the Board of Trustees on a regular basis at reasonable times the management of each Fund, including, without limitation, review of the general investment strategies of each Fund, the performance of each Fund's investment portfolio in relation to relevant standard industry indices and general conditions affecting the marketplace and will provide various other reports from time to time as reasonably requested by the Board of Trustees of the Trust; and
(d) will prepare and maintain such books and records with respect to each Fund's securities and other transactions as required under applicable law and will prepare and furnish the Trust's Board of Trustees such periodic and special reports as the Board of Trustees may reasonably request. The Adviser further agrees that all records which it maintains for each Fund are the property of the Fund and the Adviser will surrender promptly to the Fund any such records upon the request of the Fund (provided, however, that Adviser shall be permitted to retain copies thereof); and shall be permitted to retain originals (with copies to the Fund) to the extent required under Rule 204-2 of the Investment Advisers Act of 1940 or other applicable law.
8. Subject to applicable statutes and regulations, it is understood that
officers, Trustees, or agents of the Trust are, or may be, interested persons
(as such term is defined in the 1940 Act and rules and regulations thereunder)
of the Adviser as officers, directors, agents, shareholders or otherwise, and
that the officers, directors, shareholders and agents of the Adviser may be
interested persons of the Trust otherwise than as Trustees, officers or agents.
9. The Adviser shall not be liable for any loss sustained by reason of the purchase, sale or retention of any asset, whether or not such purchase, sale or retention shall have been based upon the investigation and research made by any other individual, firm or corporation, if such recommendation shall have been selected with due care and in good faith, except loss resulting from willful misfeasance, bad faith, or gross negligence on the part of the Adviser in the performance of its obligations and duties, or by reason of its reckless disregard of its obligations and duties under this Agreement.
10. Subject to obtaining the initial and periodic approvals required under
Section 15 of the 1940 Act (after taking into effect any exemptive order,
no-action assurances or other relief, rule or regulation upon which the
respective Fund may rely), the Adviser may retain one or more sub-advisers at
the Adviser's own cost and expense for the purpose of furnishing one or more of
the services described in Section 1 hereof with respect to a Fund. In addition,
the Adviser may adjust from time to time the duties delegated to any
sub-adviser, the portion of portfolio assets of the Fund that the sub-adviser
shall manage and the fees to be paid to the sub-adviser pursuant to any
sub-advisory agreement or other arrangement entered into in accordance with this
Agreement, subject to the approvals set forth in Section 15 of the 1940 Act if
required after taking into account any exemptive order, no-action assurances or
other relief, rule or regulation upon which the respective Fund may rely.
Retention of one or more sub-advisers shall in no way reduce the
responsibilities or obligations of the Adviser under this Agreement and the
Adviser shall be responsible to a Fund for all acts or omissions of any
sub-adviser in connection with the performance of the Adviser's duties
hereunder. In addition, to the extent the respective Fund is relying on an
exemptive order or an amendment thereto permitting the Fund to hire one or more
sub-advisers or amend a sub-advisory agreement without shareholder approval, the
Adviser agrees to comply with any terms and conditions provided in such
exemptive order or amendment applicable to it.
11. The Trust acknowledges that the Adviser now acts, and intends in the future to act, as an investment adviser to other managed accounts and as investment adviser or sub-investment adviser to one or more other investment companies that are not a series of the Trust. In addition, the Trust acknowledges that the persons employed by the Adviser to assist in the Adviser's duties under this Agreement will not devote their full time to such efforts. It is also agreed that the Adviser may use any supplemental research obtained for the benefit of the Trust in providing investment advice to its other investment advisory accounts and for managing its own accounts.
12. This Agreement shall be effective on the date provided on Schedule A for each respective Fund, provided it has been approved in the manner required by the 1940 Act (after taking into effect any exemptive order, no action assurances, or other relief, rule or regulation upon which the Trust may rely). This Agreement shall continue in effect until the two-year anniversary of the date of its effectiveness as to a Fund, unless and until terminated by either party as hereinafter provided, and shall continue in force from year to year thereafter, but only as long as such continuance is specifically approved, at least annually, in the manner required by the 1940 Act (after taking into effect any exemptive order, no action assurances, or other relief, rule or regulation upon which the Trust may rely).
This Agreement shall automatically terminate in the event of its assignment, and may be terminated at any time without the payment of any penalty by a Fund or by the Adviser upon sixty (60) days' written notice to the other party. Each Fund may effect termination by action of the Board of Trustees or by vote of a majority of the outstanding voting securities of the Fund, accompanied by appropriate notice. This Agreement may be terminated, at any time, without the payment of any penalty, by the Board of Trustees of the Trust, or by vote of a majority of the outstanding voting securities of the Trust, in the event that it shall have been established by a court of competent jurisdiction that the Adviser, or any officer or director of the Adviser, has taken any action which results in a breach of the material covenants of the Adviser set forth herein. Termination of this Agreement shall not affect the right of the Adviser to receive payments on any unpaid balance of the compensation, described in Section 3, earned prior to such termination and for any additional period during which the Adviser serves as such for the Fund, subject to applicable law. The terms "assignment" and "vote of the majority of outstanding voting securities" shall have the same meanings set forth in the 1940 Act and the rules and regulations thereunder.
13. This Agreement may be amended or modified only by a written instrument executed by both parties.
14. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule, or otherwise, the remainder shall not be thereby affected.
15. Any notice under this Agreement shall be in writing, addressed and delivered or mailed, postage prepaid, to the other party at such address as such other party may designate for receipt of such notice.
16. All parties hereto are expressly put on notice of the Trust's Declaration of Trust and all amendments thereto, a copy of which is on file with the Secretary of the Commonwealth of Massachusetts, and the limitation of shareholder and trustee liability contained therein. This Agreement is executed on behalf of the Trust by the Trust's officers as officers and not individually and the obligations imposed upon the Trust or a Fund by this Agreement are not binding upon any of the Trust's Trustees, officers or shareholders individually but are binding only upon the assets and property of the respective Fund, and persons dealing with the Trust must look solely to the assets of such Fund for the enforcement of any claims.
17. This Agreement shall be construed in accordance with applicable federal law and (except as to Section 16 hereof which shall be construed in accordance with the laws of Massachusetts) the laws of the State of Illinois.
18. None of the provisions of this Agreement shall be for the benefit of, or enforceable by, any person or entity that is not a party hereto.
19. Any action brought on or with respect to this Agreement or any other document executed in connection herewith or therewith by a party to this Agreement against another party to this Agreement shall be brought only in a court of competent jurisdiction in Chicago, Cook County, Illinois, or if venue does not lie in any such court only in a court of competent jurisdiction within
the State of Illinois (the "Chosen Courts"). Each party to this Agreement (a)
consents to jurisdiction in the Chosen Courts; (b) waives any objection to venue
in any of the Chosen Courts; and (c) waives any objection that any of the Chosen
Courts is an inconvenient forum. In any action commenced by a party hereto
against another party to the Agreement, there shall be no right to a jury trial.
THE RIGHT TO A TRIAL BY JURY IS EXPRESSLY WAIVED TO THE FULLEST EXTENT PERMITTED
BY LAW.
IN WITNESS WHEREOF, the Trust and the Adviser have caused this Agreement to be executed on the day and year above written.
FIRST TRUST EXCHANGE-TRADED FUND
By: /s/ Donald P. Swade --------------------------- Name: Donald P. Swade Title: Treasurer and CFO ATTEST: /s/ Patrick M. D'Onofrio ------------------------------ Name: atrick M. D'Onofrio Title: Assistant General Counsel |
FIRST TRUST ADVISORS L.P.
By: /s/ James M. Dykas --------------------------- Name: James M. Dykas Title: Chief Financial Officer ATTEST: /s/ Patrick M. D'Onofrio ------------------------------ Name: Patrick M. D'Onofrio Title: Assistant General Counsel |
SCHEDULE A
(as of July 17, 2018)
FUNDS
ANNUAL RATE OF AVERAGE EFFECTIVE Series DAILY NET ASSETS DATE -------------------------------------------- ---------------- ------------- First Trust Lunt U.S. Factor Rotation ETF 0.65% July 20, 2018 |
EXHIBIT A
INDEX SERIES OF THE FUND
NAME OF FUND EFFECTIVE DATE --------------------------------------------------------------------- ---------------- First Trust Dow Jones Select MicroCap Index(SM) Fund October 12, 2010 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund October 12, 2010 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund October 12, 2010 First Trust NASDAQ-100-Technology Sector Index(SM) Fund October 12, 2010 First Trust US Equity Opportunities Fund October 12, 2010 First Trust NYSE Arca Biotechnology Index Fund October 12, 2010 First Trust Capital Strength ETF October 12, 2010 First Trust Dow Jones Internet Index(SM) Fund October 12, 2010 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund October 12, 2010 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund October 12, 2010 First Trust Total US Market AlphaDEX ETF October 12, 2010 First Trust Value Line(R) Dividend Fund October 12, 2010 First Trust S&P REIT Index Fund October 12, 2010 First Trust Natural Gas ETF October 12, 2010 First Trust Water ETF October 12, 2010 First Trust Chindia ETF October 12, 2010 First Trust Value Line(R) 100 Exchange-Traded Fund October 12, 2010 First Trust NASDAQ(R) ABA Community Bank Index Fund October 12, 2010 First Trust Dorsey Wright People's Portfolio ETF August 1, 2012 First Trust Dow 30 Equal Weight ETF July 20, 2017 First Trust Lunt U.S. Factor Rotation ETF July 20, 2018 |
SCHEDULE II
First Trust Dow Jones Select MicroCap Index(SM) Fund
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
First Trust NASDAQ-100-Technology Sector Index(SM) Fund
First Trust US Equity Opportunities ETF (fka US IPO)
First Trust NYSE Arca Biotechnology Index Fund
First Trust Capital Strength Index Fund
First Trust Dow Jones Internet Index(SM) Fund
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund
First Trust NASDAQ(R) ABA Community Bank Index Fund
First Trust Value Line(R) 100 Exchange-Traded Fund
First Trust Value Line(R) Dividend Fund
First Trust S&P REIT Index Fund
First Trust Natural Gas ETF
First Trust Water ETF
First Trust Chindia ETF
First Trust Total US Market AlphaDEX ETF
First Trust Dorsey Wright People's Portfolio ETF (fka VIXH)
First Trust Dow 30 Equal Weight ETF
First Trust Lunt U.S. Factor Rotation ETF
July 2018
SUBLICENSE AGREEMENT
This Sublicense Agreement (the "Sublicense Agreement"), dated as of April 10, 2018, is made by and among First Trust Exchange-Traded Fund, on behalf of its series, First Trust Lunt U.S. Factor Rotation ETF (the "Sublicensee") and First Trust Advisors L.P. ("First Trust" or "Sublicensor").
W I T N E S S E T H :
WHEREAS, pursuant to that certain License Agreement, dated as of April 10, 2018, by and between Licensor and First Trust ("License Agreement"), Lunt Capital Management, Inc. ("Licensor") has granted First Trust a license to use an Index and certain copyright, trademark and proprietary rights and trade secrets of Licensor (as further described in the License Agreement, the "Intellectual Property") in connection with the issuance, sale, marketing and/or promotion of certain financial products (as further defined in the License Agreement, the "Products");
WHEREAS, Sublicensee wishes to issue, sell, market and/or promote the Products and to use and refer to the Intellectual Property in connection therewith; and
WHEREAS, all capitalized terms used herein shall have the meanings assigned to them in the License Agreement unless otherwise defined herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto agree as follows:
1. License. Sublicensor hereby grants to Sublicensee a non-exclusive and non-transferable sublicense to use the Intellectual Property in connection with the issuance, distribution, marketing and/or promotion of the Products (as modified by Appendix A hereto, if applicable).
2. The Sublicensee acknowledges that it has received and read a copy of the License Agreement (excluding the Schedule setting forth the license fees) and agrees to be bound by all the provisions thereof, including, without limitation, those provisions imposing any obligations on First Trust.
3. Sublicensee agrees that its obligations under the License Agreement pursuant to Section 2 of this Sublicense Agreement are as principal and shall be unaffected by any defense or claim that First Trust may have against Licensor.
4. It is the intent of the parties that the substantive law of the State of Illinois govern this Agreement and not the law of any other jurisdiction incorporated through choice of law or conflicts of law principles. Each party agrees that any legal action, proceeding, controversy or claim between the parties arising out of or relating to this Agreement may be brought and prosecuted only in the United States District Court for the Northern District of Illinois or in the Circuit Court of DuPage County, Illinois, and by execution of this Agreement each party hereto submits to the exclusive jurisdiction of such court and waives any objection it might have based upon improper venue or inconvenient forum. Each party hereto hereby waives any right it may have in the future to a jury trial in connection with any legal action, proceeding controversy or claim between the parties arising out of or relating to this Agreement.
5. Sublicensee agrees to reimburse Sublicensor for amounts paid by Sublicensor to Licensor for License Fees.
IN WITNESS WHEREOF, the parties hereto have executed this Sublicense Agreement as of the date first set forth above.
FIRST TRUST EXCHANGE-TRADED
FUND, ON BEHALF OF ITS SERIES,
FIRST TRUST LUNT U.S. FACTOR ROTATION ETF
/s/ Donald P. Swade -------------------------------------- By: Donald P. Swade Title: Treasurer and Chief Financial Officer |
FIRST TRUST ADVISORS L.P.
/s/ Andrew Roggensack -------------------------------------- By: Andrew Roggensack Title: President |
EXHIBIT A
First Trust Dow Jones Select MicroCap Index(SM) Fund
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
First Trust NASDAQ-100-Technology Sector Index(SM) Fund
First Trust US Equity Opportunities ETF (fka US IPO)
First Trust NYSE Arca Biotechnology Index Fund
First Trust Capital Strength ETF
First Trust Dow Jones Internet Index(SM) Fund
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
First Trust Total US Market AlphaDEX ETF
First Trust Value Line(R) Dividend 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 (fka VIXH) First Trust Dow 30
Equal Weight ETF First Trust Lunt U.S. Factor Rotation ETF
Updated: July 2018
EXHIBIT A
FUNDS
First Trust Dow Jones Select MicroCap Index(SM) Fund
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
First Trust NASDAQ-100-Technology Sector Index(SM) Fund
First Trust US Equity Opportunities ETF (fka US IPO)
First Trust NYSE Arca Biotechnology Index Fund
First Trust Capital Strength Index Fund
First Trust Dow Jones Internet Index(SM) Fund
First Trust NASDAQ-100 Ex-Technology Sector Index(SM)
Fund First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund
First Trust NASDAQ(R) ABA Community Bank Index Fund
First Trust Value Line(R) 100 Exchange-Traded Fund
First Trust Value Line(R) Dividend Fund
First Trust S&P REIT Index Fund
First Trust Natural Gas ETF
First Trust Water ETF
First Trust Chindia ETF
First Trust Total US Market AlphaDEX ETF
First Trust Dorsey Wright People's Portfolio ETF (fka VIXH)
First Trust Dow 30 Equal Weight ETF
First Trust Lunt U.S. Factor Rotation ETF
Updated: July 2018
PARTICIPANT AGREEMENT
This Participant Agreement (this "Agreement") is entered into between First Trust Portfolios, L.P. (the "Distributor"), ________________________ (the "Participant") and The Bank of New York Mellon (the "Transfer Agent"). The Transfer Agent serves as the Transfer Agent of of each registered open-end management investment company listed on Schedule attached hereto and incorporated herein, as the same may be amended from time to time by the Distributor (each, a "Trust" and, collectively, the "Trusts") and is an Index Receipt Agent as that term is defined in the rules of the National Securities Clearing Corporation ("NSCC"). The Distributor has been retained to provide certain services with respect to acting as principal underwriter of each Trust in connection with the sale and distribution of shares of beneficial interest, par value $0.01 per share ("Shares"), of the Series of each Trust (each a "Fund") on Schedule I attached hereto and incorporated herein, as the same may be amended from time to time. Certain Funds (each, an "International Fund") may include securities of issuers that are domiciled outside the United States and listed on the foreign equivalent of a U.S. national securities exchange (a "U.S. exchange"). The Distributor, the Transfer Agent and the Participant acknowledge and agree that each Trust and Fund shall be a third-party beneficiary of this Agreement and shall receive the benefits contemplated by this Agreement to the extent specified herein. The prospectus and statement of additional information for each Fund (collectively, the "Prospectus") are incorporated herein and included as part of the respective Trust's Registration Statement as amended on Form N-1A. Shares may be created or redeemed only in aggregations of 50,000 (or such other aggregation as is specified in the relevant Fund's Prospectus), referred to therein and herein as a "Creation Unit." Capitalized terms not otherwise defined herein are used herein as defined in the relevant Fund's Prospectus. All references to "cash" shall refer to U.S. dollars.
This Agreement is intended to set forth certain premises and the procedures by which the Participant may create and/or redeem Creation Units (i) through the Continuous Net Settlement ("CNS") clearing processes of NSCC as such processes have been enhanced to effect creations and redemptions of Creation Units, such processes being referred to herein as the "Trusts' Clearing Process," or (ii) outside the Trusts' Clearing Process (e.g., through the facilities of the Depository Trust Company ("DTC")).
This Agreement supersedes any prior Participant Agreement entered into by the parties with respect to the Trusts and any Fund from and after the date hereof. Any and all prior Participant Agreements entered into by the parties are deemed terminated upon execution of this Agreement.
The parties hereto in consideration of the premises and of the agreements contained herein agree as follows:
SECTION 1. STATUS OF PARTICIPANT.
The Participant hereby represents, covenants and warrants that (i) with respect to orders for the creation or redemption of Creation Units by means of the Trusts' Clearing Process, it is a member of NSCC and a participant in the CNS System of NSCC (as defined in the Prospectus, a "Participating Party"); and
(ii) with respect to orders for the creation or redemption of Creation Units outside the Trusts' Clearing Process, it is a DTC Participant. The Participant may place orders for the creation or redemption of Creation Units (a "Creation Order" and "Redemption Order," respectively) either through the Trusts' Clearing Process or outside the Trusts' Clearing Process, subject to the procedures for creation and redemption referred to in Section 2 of this Agreement ("Execution of Orders") and the procedures described in Attachment A attached hereto and incorporated herein and made a part hereof, as the same may be amended from time to time ("Attachment A"). Any change in the foregoing status of the Participant shall terminate this Agreement, and the Participant shall give immediate notice to the Distributor and the Transfer Agent of such change.
The Participant further represents that it is a broker-dealer registered with the Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority. ("FINRA") or is exempt from or otherwise not required to be licensed as a broker-dealer or a member of FINRA. The Participant is qualified as a broker or dealer, or otherwise, under all applicable state laws where it is required to do so in order that Shares may be sold in such states where the Participant intends to sell such Shares. The Participant agrees to conform to the rules of FINRA and the securities laws of any jurisdiction in which it sells, directly or indirectly, Shares, to the extent such laws, rules and regulations relate to the Participant's transactions in, and activities with respect to, the Shares.
The Participant understands and acknowledges that the proposed method by which Creation Units of Shares will be purchased and traded may raise certain issues under applicable securities laws. For example, because new Creation Units of Shares may be issued and sold by the Trusts and their respective Funds on an ongoing basis, the offer and sale of Shares to investors may involve a "distribution," as such term is used in the Securities Act of 1933 (the "Securities Act"). The Participant understands and acknowledges that its offer and sale of Shares to investors, depending on the circumstances, may result in its being deemed a participant in a distribution in a manner which could render it a statutory underwriter and subject it to the prospectus delivery and liability provisions of the Securities Act. The Participant also understands and acknowledges that dealers who are not "underwriters" but are effecting transactions in Shares, whether or not participating in the distribution of Shares, may be required to deliver a prospectus.
SECTION 2. EXECUTION OF ORDERS.
All orders for the creation or redemption of Creation Units shall be handled in accordance with the terms of the respective Fund's Prospectus, and the procedures described in Attachment A to this Agreement. In the event the procedures include the use of recorded telephone lines, the Participant hereby consents to such use. Each Trust reserves the right to issue additional or other procedures relating to the manner of creating or redeeming Creation Units (and the procedures for the Trusts may, but need not be, identical), and the Participant, the Distributor and the Transfer Agent agree to comply with such procedures as may be issued from time to time, upon reasonable notice thereof.
The Participant understands and agrees that Creations Orders and Redemption Orders may be submitted only on days that the U.S. exchange where the Shares are principally listed (as specified in the Prospectus) is open for trading or business.
SECTION 3. NSCC.
Solely with respect to orders for the creation or redemption of Creation Units through the Trusts' Clearing Process, the Participant as a Participating Party hereby authorizes the Transfer Agent to transmit to NSCC on behalf of the Participant such instructions, including share and cash amounts as are necessary with respect to the creation and redemption of Creation Units consistent with the instructions issued by the Participant to the Trust telephone representative identified in Attachment A hereto (the "Trust Telephone Representative"). The Participant agrees to be bound by the terms of such instructions issued by the Transfer Agent, as the case may be, and reported to NSCC as though such instructions were issued by the Participant directly to NSCC.
With respect to any Redemption Order, the Participant also acknowledges and agrees to use its best efforts to return to the applicable Fund any dividend, distribution or other corporate action paid to it or to the party for which it is acting in respect of any Deposit Securities that are transferred to the Participant or any party for which it is acting that, based on the valuation of such Deposit Securities at the time of transfer, should have been paid to the Fund. With respect to any Redemption Order, the Participant also acknowledges and agrees that the applicable Fund is entitled to reduce the amount of money or other proceeds due to the Participant or any party for which it is acting that, based on the valuation of such Deposit Securities at the time of transfer, should be paid to the Fund. With respect to any Creation Order, the Distributor shall cause the applicable Fund's Custodian to return to the Participant or any party for which it is acting any dividend, distribution or other corporate action paid to the Fund in respect of any Deposit Securities that are transferred to a Fund that, based on the valuation of such Deposit Securities at the time of transfer, should have been paid to the Participant or any party for which it is acting.
SECTION 4. DEPOSIT SECURITIES.
The Participant understands that the number and names of the designated portfolio of securities (each, a "Deposit Security" and, collectively, the "Deposit Securities") and relevant cash amounts (the "Cash Component") to be deposited in connection with the purchase of a Creation Unit (the current "Fund Deposit") for each Fund will be made available each day that the New York Stock Exchange (the "NYSE") is open for trading through the facilities of the NSCC. The Participant will not be responsible for errors in the information relating to the Deposit Securities to be included in the current Fund Deposit to be transmitted through the facilities of the NSCC in connection with Redemption Orders and Creation Orders that are caused by the applicable Trust or Fund, the Distributor or the Transfer Agent.
Under certain circumstances, a Trust may, in its discretion, permit or require, with respect to one or more Funds, a Participant to substitute cash in lieu of depositing some or all of the requisite Deposit Securities. A Trust may additionally permit, in its discretion, with respect to one or more
International Funds under certain circumstances, a Participant to substitute a different security in lieu of depositing some or all of the Deposit Securities. Substitution of cash or a different security might be permitted or required, for example, because one or more Deposit Securities may be unavailable, may not be available in the quantity needed, or may not be eligible for trading by the Participant (or any party on whose behalf the Participant is acting) due to local trading restrictions (including, for example, requirements that securities be traded only for cash in local currency) or other circumstances.
SECTION 5. ROLE OF PARTICIPANT.
The Participant shall have no authority in any transaction to act as agent of the Distributor, the Transfer Agent, any Trust or any Fund.
(a) The Participant agrees (i) subject to any privacy obligations or other obligations arising under the federal or state securities laws it may have to it customers, to assist the Distributor in ascertaining certain information regarding sales of Shares made by or through Participant upon the request of a Trust or Fund or the Distributor necessary for the applicable Trust or Fund to comply with its obligation to distribute information to its shareholders as may be required from time to time under applicable state or federal securities laws, or (ii) in lieu thereof, and at the option of the Participant, the Participant may undertake to deliver Prospectuses, as may be amended or supplemented from time to time, proxy material, annual and other reports of a Fund or other similar information that the applicable Trust or Fund is obligated to deliver to its shareholders to the Participant's customers that custody Fund Shares with the Participant, after receipt from the applicable Trust or Fund or the Distributor of sufficient quantities to allow mailing thereof to such customers. The expenses associated with such transmissions shall be borne by the Distributor or the applicable Trust or Fund in accordance with usual custom and practice in respect of such communications. None of the Distributor, the applicable Trust or Fund or any of their respective affiliates shall use the names and addresses and other information concerning Participant's customers for any purpose except in connection with the performance of their duties and responsibilities hereunder and except for servicing and informational mailings described in this clause (a) of Section 5, or as may otherwise be required by applicable law.
(b) The Participant certifies that it has policies, procedures and internal controls in place that are reasonably designed to comply with all applicable anti-money laundering laws and regulations, including applicable provisions of the USA Patriot Act of 2001 and the regulations administered by the U.S. Department of the Treasury's Office of Foreign Assets Control as the same may in effect from time to time.
SECTION 6. PARTICIPANT REPRESENTATIONS.
(a) The Participant represents, warrants and agrees that it will not make any representations concerning any Fund, the applicable Trust, the Creation Units or the Shares other than those consistent with the Fund's then current Prospectus or any promotional or sales literature furnished to the Participant
by the Distributor or the applicable Trust or Fund, or any such materials permitted by clause (b) of this Section 6.
(b) The Participant agrees not to furnish or cause to be furnished by Participant or its employees to any person or to display or publish any information or materials relating to a Trust or any Fund (including, without limitation, promotional materials and sales literature, advertisements, press releases, announcements, statements, posters, signs or other similar materials, but not including any materials prepared and used for Participant's internal use only, any brokerage communications between employees of Participant and customers or any communications prepared and directed to registered broker-dealers) ("Marketing Materials"), except (i) such Marketing Materials as may be furnished to the Participant by the Distributor or the applicable Trust or Fund and (ii) such other Marketing Materials as are consistent with the applicable Fund's then current Prospectus or otherwise approved by the Distributor or the Trust; provided that such Marketing Materials clearly indicate that such Marketing Materials are prepared and distributed by Participant and, upon request, a copy is forwarded to the Distributor as soon as practicable.
(c) Notwithstanding anything to the contrary in this Agreement, Participant and its affiliates may prepare and circulate in the regular course of their businesses (i) research reports that include information, opinions or recommendations relating to Shares; and (ii) without reference to a Fund or its Prospectus, data and information relating to the various indices to which the Funds are benchmarked.
SECTION 7. SUBCUSTODIAN ACCOUNTS.
The Participant understands and agrees that in the case of an International Fund, the relevant Trust has caused The Bank of New York Mellon acting in its capacity as the Trust's custodian ("Custodian") to maintain with one or more applicable subcustodians (each, a "Subcustodian") for such International Fund an account in the relevant foreign jurisdiction(s) to which the Participant shall deliver or cause to be delivered in connection with the purchase of a Creation Unit the securities and any other cash amounts (or the cash value of all or a part of such securities, in the case of a permitted or required cash purchase or "cash in lieu" amount) on behalf of itself or any party for which it is acting (whether or not a customer), with any appropriate adjustments as advised by the Trust or such International Fund, in accordance with the terms and conditions applicable to such account in such foreign jurisdiction.
SECTION 8. TITLE TO SECURITIES: RESTRICTED SHARES.
The Participant represents that upon delivery of a portfolio of Deposit Securities to a Fund's custodian, the Fund will acquire good and unencumbered title to such securities, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims, including, without limitation, any special restriction upon the sale or transfer of such securities imposed by (i) any agreement or arrangement entered into by the Participant or any party for which it is acting in connection with a Creation Order or (ii) any provision of the Securities Act, and any regulations thereunder (except that portfolio securities of issuers other than U.S. issuers shall not be required to
have been registered under the Securities Act if exempt from such registration), or of the applicable laws or regulations of any other applicable jurisdiction.
SECTION 9. FEES.
In connection with the creation or redemption of Creation Units, the Transfer Agent shall charge, and the Participant agrees to pay to the Transfer Agent, (i) the Creation Transaction Fee or Redemption Transaction Fee (each also sometimes referred to individually herein as the "Transaction Fee") prescribed in the relevant Fund's Prospectus applicable to creations or redemptions through the Trusts' Clearing Process, or (ii) the applicable Creation Transaction Fee or Redemption Transaction Fee plus, in each case, such additional variable amounts as may be prescribed in the relevant Fund's Prospectus for (a) creations or redemptions outside the Trusts' Clearing Process and (b) creations through the Trusts' Clearing Process where the cash equivalent value of one or more Deposit Securities is being deposited in lieu of the inclusion of such Deposit Securities in the securities portion of the Fund Deposit. The Transaction Fee may be waived or otherwise adjusted from time to time subject to the provisions relating thereto and any limitations as prescribed in the relevant Fund's Prospectus. With respect to International Funds (for which creations and redemptions are processed outside the Trusts' Clearing Process), such additional variable amounts may include any expenses incurred by a Fund in the transfer of Deposit Securities to the Fund in connection with a creation of Creation Units, and in the transfer of Deposit Securities to the Participant in connection with a redemption of Creation Units; such expenses may include operational processing and brokerage costs, transfer fees, stamp taxes and the like. When an International Fund permits a Participant to substitute cash or a different security in lieu of depositing one or more of the requisite Deposit Securities, the Participant may be assessed a higher Transaction Fee on the substitute security portion of its investment to cover the cost of purchasing the Deposit Securities and/or disposing of the substituted securities, including operational processing and brokerage costs, transfer fees, stamp taxes, and part or all of the spread between the expected bid and offer side of the market related to such Deposit Securities and/or substitute securities.
SECTION 10. AUTHORIZED PERSONS.
Concurrently with the execution of this Agreement and from time to time thereafter, the Participant shall deliver to the Distributor and the Transfer Agent, duly certified as appropriate by its secretary or other duly authorized person, a certificate setting forth the names and signatures of all persons authorized to give instructions relating to activity contemplated hereby or any other notice, request or instruction on behalf of the Participant (each, an "Authorized Person"). Such certificate may be accepted and relied upon by the Distributor and the Transfer Agent as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until delivery to the Distributor and the Transfer Agent of a superseding certificate bearing a subsequent date. The Transfer Agent shall issue to each Authorized Person a unique personal identification number ("PIN Number") by which such Authorized Person and the Participant shall be identified and instructions issued by the Participant hereunder shall be authenticated. Upon the termination or revocation of authority of such Authorized Person by the Participant, the Participant shall
give prompt written notice of such fact to the Distributor and the Transfer Agent and such notice shall be effective upon receipt by both the Distributor and the Transfer Agent.
SECTION 11. REDEMPTION.
The Participant represents and warrants that it will not obtain a Submission Number (as defined in Attachment A) from the Transfer Agent for the purpose of redeeming a Creation Unit unless it first ascertains that (a) it or its customer, as the case may be, owns outright or has full legal authority and legal beneficial right to tender for redemption the requisite number of Shares of any Fund to be redeemed, and the entire proceeds of the redemption, (b) the delivery of such Shares to the Transfer Agent in accordance with the Prospectus or as otherwise required by the Trust or Fund would not be precluded as the result of their being subject to or the subject of a loan, repurchase agreement, securities lending agreement or other arrangement and (c) upon delivery to the Fund's custodian, the Shares will be free and clear of all liens.
A Trust may make redemptions in cash in lieu of transferring one or more Deposit Securities if the Trust or Fund determines, in its discretion, that such method is warranted because a Participant who has placed the Redemption Order is restrained by regulation or policy from transacting in the Deposit Securities, delivery of the Deposit Securities is not permissible under applicable law or foreign stock exchange regulations, or for other reasons.
In connection with an International Fund, a Participant must maintain appropriate securities broker-dealer, bank or other custody arrangements to which account Deposit Securities will be delivered in connection with a redemption. If a redeeming Participant, or any party on whose behalf the Participant is acting, does not have appropriate arrangements to take delivery of the Deposit Securities in the relevant foreign jurisdiction(s) and it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Deposit Securities in such foreign jurisdiction(s) and in certain other circumstances, the Trust or Fund may in its discretion redeem Shares for cash, and the redeeming Participant, on behalf of itself or any part for which it is acting, will be required to receive redemption proceeds in cash. In such case, the Participant will receive a cash payment equal to the net asset value (next determined after receipt of the Redemption Order) times the number of Shares in a Creation Unit of the relevant International Fund, minus the Transaction Fee and other costs specified in Section 9.
In the case of a beneficial owner of an International Fund who is a resident of Australia or New Zealand, the Participant understands and agrees that such beneficial owner is only entitled to receive cash upon its redemption of Creation Units. In a Redemption Order, the Participant will be required to confirm that an in-kind redemption request has not been submitted on behalf of a beneficial owner who is an Australian or New Zealand resident.
SECTION 12. FUND'S TAX BASIS.
The Participant represents and warrants to the Distributor and each Trust and Fund that with respect to any Creation Units it shall only deliver or transfer, or cause to be delivered or transferred, Deposit Securities (or contracts therefor) that, should Section 351 of the Internal Revenue Code of
1986, as amended, apply to such delivery or transfer, will have a tax basis in the hands of the Fund receiving the Deposit Securities equal to the closing market price of such Deposit Securities on the date the Creation Order with respect thereto is Deemed Received (as such term is defined in Attachment A hereto). Such representation and warranty shall be deemed repeated with respect to each Creation Order.
SECTION 13. INDEMNIFICATION.
(a) The Participant hereby agrees to indemnify and hold harmless the
Distributor in its capacity as principal underwriter, each Trust, each Fund, the
Transfer Agent, their respective affiliates, directors, officers, employees and
agents, and each person, if any, who controls such persons within the meaning of
Section 15 of the Securities Act (each, for purposes of this paragraph, an
"Indemnified Party") from and against any loss, liability, cost and expense
(including reasonable attorneys' fees) incurred by such Indemnified Party as a
result of (i) any breach by the Participant of any provision of this Agreement
that relates to the Participant; (ii) any failure on the part of the Participant
to perform any of its obligations set forth in this Agreement; (iii) any failure
by the Participant to comply with applicable laws, including rules and
regulations of self-regulatory organizations in relation to the sales, trading
or marketing of Shares and the creation or redemption of or investment in a Fund
or Funds, except that the Participant shall not be required to indemnify an
Indemnified Party to the extent that such failure was caused by Participant's
adherence to instructions given or representations made by the Distributor, the
Transfer Agent or any Indemnified Party, as applicable; or (iv) actions of such
Indemnified Party in reliance upon any instructions issued or representations
made in accordance with Attachment A (as it may be amended from time to time)
reasonably believed by the Distributor or the Transfer Agent, as applicable, to
be genuine and to have been given by the Participant except to the extent that
the Participant had previously revoked a PIN Number used in giving such
instructions or representations (where applicable) and such revocation was given
by the Participant and received by the Distributor and the Transfer Agent in
accordance with the terms of Section 10 hereto. The Participant and the
Distributor understand and agree that each Trust and Fund as a third party
beneficiary of this Agreement is entitled and intends to proceed directly
against the Participant in the event that the Participant fails to honor any of
its obligations pursuant to this Agreement that benefit each such Trust and
Fund.
(b) The Distributor hereby agrees to indemnify and hold harmless the Participant, its respective subsidiaries, affiliates, directors, officers, employees and agents, and each person, if any, who controls such persons within the meaning of Section 15 of the Securities Act (each, for purposes of this paragraph, an "Indemnified Party") from and against any loss, liability, cost and expense (including reasonable attorneys' fees) incurred by such Indemnified Party as a result of (i) any breach by the Distributor of any provision of this Agreement that relates to the Distributor; (ii) any failure on the part of the Distributor to perform any of its obligations set forth in this Agreement; (iii) any failure by the Distributor to comply with applicable laws, including rules and regulations of self-regulatory organizations in relation to its role as Distributor of the Funds; or (iv) actions of such Indemnified Party in reliance upon any instructions issued or representations made in accordance with Attachment A (as it may be amended from time to time) reasonably believed by the Participant to be genuine and to have been given by the Distributor or the Transfer Agent.
(c) Each of the Distributor and Participant agrees to jointly and severally indemnify Transfer Agent and hold Transfer Agent harmless from and against any and all losses sustained or incurred by or asserted against Transfer Agent by reason of or as a result of any action or inaction, or arising out of Transfer Agent's performance hereunder, including reasonable fees and expenses of counsel incurred by Transfer Agent in a successful defense of claims by the Distributor and/or Participant; provided however, Distributor and/or Participant shall not indemnify Transfer Agent for those losses arising out of Transfer Agent's own negligence or willful misconduct or that of its employees. This indemnity shall be a continuing obligation of the Distributor and/or Participant, and their respective successors and assigns, notwithstanding the termination of this Agreement.
(d) Except to the extent that the Transfer Agent is to be indemnified as provided in this Section 13, no party to this Agreement shall be liable to the other party or to any other person for any damages arising out of mistakes or errors in data provided to such Indemnified Party by a third party, or out of interruptions or delays of electronic means of communications with the Indemnified Parties.
SECTION 14. STANDARD OF CARE.
Transfer Agent shall have no responsibility and shall not be liable for any loss or damage unless such loss or damage is caused by its own negligence or willful misconduct or that of its employees, or its breach of any of its obligations hereunder. In no event shall the Transfer Agent be liable for special, indirect or consequential damages regardless of the form of action and even if the same were foreseeable.
SECTION 15. FORCE MAJEURE.
Transfer Agent shall establish and maintain a disaster recovery plan and back-up system at all times satisfying the requirements of all laws, rules and regulations (the "Disaster Recovery Plan and Back-Up System") applicable to the Transfer Agent for providing services as such. Transfer Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its control which are not a result of its negligence, including without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; epidemics; riots; interruptions, loss or malfunctions of utilities, transportation, computer (hardware or software) or communications service; accidents; labor disputes; acts of civil or military authority; governmental actions; or inability to obtain labor, material, equipment or transportation, provided that Transfer Agent has established and is maintaining the Disaster Recovery Plan and Back-Up System, or if not, that such delay or failure would have occurred even if Transfer Agent had established and was maintaining the Disaster Recovery Plan and Back-Up System. Upon the occurrence of any such delay or failure, Transfer Agent shall use commercially reasonable best efforts to resume performance as soon as practicable under the circumstances.
SECTION 16. ACKNOWLEDGMENT.
The Participant acknowledges receipt of each relevant Fund's Prospectus and represents it has reviewed such document and understands the terms thereof.
SECTION 17. NOTICES.
Except as otherwise specifically provided in this Agreement, all notices required or permitted to be given pursuant to this Agreement shall be given in writing and delivered by personal delivery or by postage prepaid registered or certified United States first class mail, return receipt requested, or facsimile or similar means of same day delivery (with a confirming copy by mail as provided herein). Unless otherwise notified in writing, all notices to the Transfer Agent shall be given or sent as follows: The Bank of New York Mellon, 101 Barclay Street, New York, New York 10286, Attn: ETF Services Group. All notices to the Participant and the Distributor shall be directed to the address, telephone or facsimile indicated below the signature line of such party.
SECTION 18. TERMINATION.
This Agreement shall become effective in this form as of the date accepted
by the Transfer Agent and may be terminated at any time by any party upon thirty
(30) days prior notice to the other parties (i) unless earlier terminated by the
Transfer Agent in the event of a breach of this Agreement or the procedures
described herein by the Participant or (ii) in the event that a Trust is
terminated pursuant to its Declaration of Trust. This Agreement supersedes any
prior Participant Agreement entered into by the parties. Any and all prior
Participant Agreements entered into by the parties are deemed terminated upon
execution of this Agreement.
SECTION 19. PROSPECTUS.
(a) The Distributor will provide to the Participant copies of the then current Prospectus for each Fund and any printed supplemental information in reasonable quantities upon request. The Distributor represents, warrants and agrees that it will notify the Participant when a revised, supplemented or amended Prospectus for any Shares is available and deliver or otherwise make available to the Participant copies of such revised, supplemented or amended Prospectus at such time and in such numbers as to enable the Participant to comply with any obligation it may have to deliver such Prospectus to customers. As a general matter, the Distributor will make such revised, supplemented or amended Prospectus available to the Participant no later than its effective date. The Distributor shall be deemed to have complied with this Section 19 when the Participant has received such revised, supplemented or amended Prospectus by email at _______________________, in printable form, with such number of hard copies as may be agreed from time to time by the parties promptly thereafter.
(b) Distributor represents and warrants that (i) the registration statement(s) for the respective Trust(s) on Form N-1A and the Prospectus(es) contained therein conform in all material respects to the requirements of the Securities Act, and the rules and regulations of the Securities and Exchange
Commission thereunder and do not and will not, as of the applicable effective date as to the registration statement and any amendment thereto and as of the applicable filing date as to the respective Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) the sale and distribution of the Shares as contemplated herein will not conflict with or result in a breach or violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Trusts, any Fund or the Distributor; and (iii) no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares, except the registration under the Securities Act of the Shares.
SECTION 20. COUNTERPARTS.
This Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all shall constitute but one and the same instrument.
SECTION 21. NO WAIVER.
Each and every right granted to any party hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of any party hereto to exercise, and no delay in exercising, any right will operate as a waiver thereof, nor will any single or partial exercise by any party hereto of any right preclude any other or future exercise thereof or the exercise of any other right.
SECTION 22. ENFORCEABILITY; AMENDMENT.
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
thereby. This Agreement may not be amended or modified in any manner except by a
written agreement executed by the parties hereto, except that any amendment to
Schedule I approved in writing by the Distributor (upon which written approval
the Transfer Agent may conclusively rely) and any amendment to Attachment A
hereto need be signed only by the Transfer Agent. The Transfer Agent shall
provide the Participant a copy of any such amendment in the manner provided in
Section 17. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by any party without the written consent
of the others.
SECTION 23. GOVERNING LAW; CONSENT TO JURISDICTION.
This Agreement shall be construed in accordance with the substantive laws of the State of New York, without regard to conflicts of laws principles thereof. The parties hereby consent to the jurisdiction of a state or federal
court situated in New York City, New York in connection with any dispute arising hereunder. Each party hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an inconvenient forum. Each party hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement.
SECTION 24. STATUS OF FUND
The Distributor hereby represents that each Series of the Trust(s) are registered open ended investment companies operating in accordance with the exemptive order granted under 812-13000 and I.C. Release No. 27068 dated September 20, 2005, as the same may be amended from time to time, and I.C. Release No. 27051 dated August 26, 2005 and any additional I.C. Releases related to such amendments.
FIRST TRUST PORTFOLIOS, L.P.
By ------------------------------------- Name: ------------------------------- Title: ------------------------------- Address: 120 E. Liberty Drive, Suite 400 Wheaton, Illinois 60187 Telephone: (630) 765-8798 Facsimile: (630) 517-7437 |
[PARTICIPANT]
THE BANK OF NEW YORK MELLON, as Transfer Agent By ------------------------------------- Name: ------------------------------- Title: ------------------------------- Address: 101 Barclay Street New York, New York 10286 Telephone: (212) 815-5031 Facsimile: (212) 815-2889 |
SCHEDULE I
SERIES OF FIRST TRUST EXCHANGE-TRADED FUND (ALL SERIES)
SERIES OF FIRST TRUST EXCHANGE-TRADED FUND II (ALL SERIES)
SERIES OF FIRST TRUST EXCHANGE-TRADED FUND IV
First Trust North American Energy Infrastructure Index Fund
First Trust Tactical High Yield ETF
First Trust Senior Load Fund
First Trust Enhanced Short Maturity ETF
First Trust Strategic Income ETF
First Trust Low Duration Opportunities ETF
SERIES OF FIRST TRUST EXCHANGE-TRADED FUND VIII (ALL SERIES)
SERIES OF FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND (ALL SERIES)
Sch.I
ATTACHMENT A
PROCEDURES FOR PROCESSING
PURCHASE ORDERS AND REDEMPTION ORDERS
Subject to the terms and conditions of the attached Participant Agreement, this document supplements the Prospectuses for Exchange-Traded Funds listed on Schedule I and is an attachment to, and incorporated into and made a part of, the Participant Agreement with respect to the procedures to be used by (i) the Transfer Agent in processing an order for the creation of Shares, and (ii) the Transfer Agent in processing a request for the redemption of Shares, and (iii) the Participants and the Transfer Agent in delivering or arranging for the delivery of requisite cash payments, Fund Deposit or Shares, as the case may be, in connection with the submission of orders for creation or requests for redemption. Capitalized terms not otherwise defined have the meaning assigned to them in the Participant Agreement.
In order to place a Purchase Order, an Authorized Participant is required to have signed an Authorized Participant Agreement. Upon acceptance of the Authorized Participant Agreement and execution thereof by the Trust and in connection with the initial Purchase Order submitted by the Authorized Participant, the Transfer Agent will assign a PIN Number to each Authorized Person authorized to act for an Authorized Participant. This will allow an Authorized Participant, through its Authorized Person(s), to place a Purchase Order or Redemption Order with respect to the purchase or redemption of Creation Units of Shares of the Trust.
Attachment - 1
ATTACHMENT A - PART I
TO PLACE A PURCHASE ORDER FOR CREATION UNIT(S)
OF SHARES OF ONE OR MORE FUNDS OF FIRST TRUST ADVISORS L.P.
SECTION 1. PLACING A PURCHASE ORDER
The Authorized Participant ("AP") submitting an order to create shall submit such orders containing the information required to the Transfer Agent in the following manner: (a) by telephone to the BNYM ETF Order Desk Administrator followed up with the faxed order form (within 15 minutes of the verbal phone order) according to the procedures set forth below, or (b) through the BNYM ETF Center Interface (electronic order entry system portal), as such may be made available and constituted from time to time, the use of which shall be subject to the terms and conditions of the Electronic Services Agreement incorporated herein by reference. The order so transmitted (either orally and in writing, or electronic form) is hereinafter referred to as the "Submission" or the "Purchase Order" as applicable, and the Business Day on which a Submission is made is hereinafter referred to as the "Transmittal Date".
NOTE THAT WHEN THE TELEPHONIC METHOD OF SUBMITTING ORDERS IS USED, THE TELEPHONE CALL IN WHICH THE ORDER NUMBER IS ISSUED INITIATES THE ORDER PROCESS BUT DOES NOT ALONE CONSTITUTE THE ORDER. AN ORDER OR REQUEST IS ONLY COMPLETED AND PROCESSED UPON RECEIPT OF THE FAXED ORDER FORM SUBMISSION.
To begin a Purchase Order by phone, the Authorized Participant
("AP") must telephone the BNYM ETF Order Desk Administrator at (718)
315-7500 or other number that BNYM designates in writing to the AP. This
telephone call must be made by an Authorized Person of the AP and answered
by the BNYM ETF Order Desk before the established cut-off time of the
Fund(s) (Eastern Standard Time "Listing Exchange Closing Time or Order
Cutoff Time," as applicable). Upon verifying the authenticity of the AP
(as determined by the use of the appropriate PIN Number), the BNYM ETF
Order Desk Administrator will request that the AP place the Purchase
Order. To do so, the AP must provide the appropriate ticker symbols when
referring to each Fund. After the AP has placed the Purchase Order, the
BNYM ETF Order Desk Administrator will read the Purchase Order back to the
AP. The AP then must confirm that the Purchase Order has been taken
correctly by the BNYM ETF Order Desk Administrator. If the AP confirms
that the Purchase Order has been taken correctly, the BNYM ETF Order Desk
Administrator will issue an order number to the AP. Most orders may also
be placed by the AP via the BNYM ETF Center Interface by the times
described above.
Purchase Orders for select funds (T-1 (T minus 1) Next Day International Market Orders, are to be placed after the Listing Exchange Closing Time of 4:00 PM and before the Fund's established T-1 order window cut-off time, the latest being 5:30 PM Eastern Standard Time on any
Attachment - 2
Business Day. Such Purchase Orders, if accepted, will receive the next Business Day's NAV per Creation Unit. The Transfer Agent's telephone number for all T- l orders is 718-315-7501.
PLEASE NOTE: A PURCHASE ORDER IS NOT COMPLETE UNTIL AN ORDER NUMBER IS ISSUED BY THE BNYM ETF ORDER DESK ADMINISTRATOR. WITH RESPECT TO EACH FUND, AN ORDER CAN NOT BE CANCELED BY THE AP AFTER THE FUND'S ORDER WINDOW CUT-OFF TIME. INCOMING TELEPHONE CALLS ARE QUEUED AND WILL BE HANDLED IN THE SEQUENCE RECEIVED. ACCORDINGLY THE AP SHOULD NOT HANG UP AND REDIAL. CALLS THAT ARE IN PROGRESS AT THE CUTOFF TIME ARE VALID AND THE ORDER WILL BE TAKEN. PLEASE NOTE THAT "IN PROGRESS" IS DEFINED AS AN AP ACTUALLY SPEAKING WITH A BNYM ETF ORDER DESK ADMINISTRATOR. FOR CALLS THAT ARE PLACED BEFORE THE CUTOFF TIME THAT ARE IN THE HOLDING QUEUE UNANSWERED AT OR AFTER THE CUTOFF WILL BE VERBALLY DENIED. INCOMING CALLS THAT ARE RECEIVED AFTER THE CUTTOFF TIME WILL NOT BE ANSWERED BY THE BNYM ETF ORDER DESK. ALL TELEPHONE CALLS WILL BE RECORDED.
SECTION 2. RECEIPT OF TRADE CONFIRMATION
Subject to the conditions that a properly completed Purchase Order
has been placed by the AP not later than the Order Cutoff Time and that
the Distributor finds no cause to reject such Purchase Order for the
reason(s) listed in Section 3 below, the Distributor will accept the
Purchase Order on behalf of the Trust and will confirm in writing to the
AP that its Purchase Order has been accepted within 45 minutes after the
designated Order Cutoff Time on the Order Date (e.g., 4:45 PM ET or 6:15
PM ET, as appropriate). Once the Purchase Order has been approved by the
Distributor, the Distributor signs the written Purchase Order (indicating
the time of its signature) and transmits that Purchase Order to the BNYM
ETF Order Desk Administrator, IF NOT APPROVING THE ORDER(S) ON-LINE VIA
THE ETF CENTER INTERFACE.
Until such time as the Distributor confirms acceptance thereof, any Purchase Order remains subject to rejection by the Trust for any reason(s) listed in Section 3 below.
SECTION 3. REJECTING OR SUSPENDING PURCHASE ORDERS
The Trust and the Distributor reserve the absolute right to reject acceptance of a Purchase Order for the following reasons: (i) the order is not in proper form as determined by the Trust, the BNYM ETF Order Desk Administrator or the Distributor; (ii) subject to Section 4 of this Attachment A - Part I , the portfolio of Deposit Securities (and/or cash in lieu of names that the AP is not able to deliver in physical form) delivered is not as specified by the Distributor, (iii) the investor(s), upon obtaining the Shares ordered, would own 80% or more of the currently outstanding Shares of such Fund; (iv) acceptance of the Deposit Securities
Attachment - 3
would have certain adverse tax consequences to the Trust or any Fund; (v) the acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; or (vi) circumstances outside the control of Trust, the
Distributor or the Transfer Agent make it impossible to process a Purchase Order. The Distributor shall notify the AP of a rejection of any Purchase Order. The Distributor and the Trust are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall either of them incur any liability for the failure to give any such notification.
The Trust acknowledges its agreement to return to the AP or any party for which it is acting any dividend, distribution or other corporate action paid to the Trust in respect of any Deposit Security that is transferred to the Trust that, based on the valuation of such Deposit Security at the time of transfer, should have been paid to the AP or any party for which it is acting.
SECTION 4. CONTRACTUAL SETTLEMENT
(a) Through the CNS Clearing Process:
(1) Except as provided below, Deposit Securities of any Domestic
Fund must be delivered through the NSCC to a DTC account maintained at the
Custodian on or before the Domestic Contractual Settlement Date (defined
below). The AP must also make available on or before the Contractual
Settlement Date, by means satisfactory to the Trust, immediately available
or same day funds estimated by the Trust to be sufficient to pay the Cash
Component next determined after acceptance of the Purchase Order, together
with the applicable purchase Transaction Fee. Any excess funds will be
returned following settlement of the issue of the Creation Unit of Shares
of the Trust. The "Domestic Contractual Settlement Date" is the earlier of
(i) the date upon which all of the required Deposit Securities, the Cash
Component and any other cash amounts which may be due are delivered to the
Trust and (ii) the trade date plus two (T +2) Business Days. Except as
provided in the next two paragraphs, a Creation Unit of Shares of any Fund
will be issued through the CNS system and the payment of the Cash
Component and the purchase Transaction Fee through CNS in accordance with
the terms, conditions and guarantees as set forth in CNS agreements to
which the Custodian and AP have entered into.
(2) The Trust reserves the right to permit or require the substitution of an amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash Component to replace any Deposit Security with respect to any Domestic Fund which may not be available in sufficient quantity for delivery or which may not be eligible for transfer through the CNS Clearing Process, or which may not be eligible for transfer through the systems of DTC and hence not eligible for transfer through the CNS Clearing Process (discussed below). Additional cost, if any, to acquire the omitted securities will be at the expense of the Participant.
Attachment - 4
(3) Any settlement outside the CNS Clearing Process is subject to additional requirements and fees as discussed in the Prospectus.
(b) Outside the CNS Clearing Process:
(1) Except as provided below, Deposit Securities must be delivered
to an account maintained at the applicable local Subcustodian on or before
the International Contractual Settlement Date (defined below). The AP must
also make available on or before the International Contractual Settlement
Date, by means satisfactory to the Trust, immediately available or same
day funds estimated by the Trust to be sufficient to pay the Cash
Component next determined after acceptance of the Purchase Order, together
with the applicable purchase Transaction Fee (as described in the
Prospectus). Any excess funds will be returned following settlement of the
issue of the Creation Unit of Shares. The "International Contractual
Settlement Date" with respect to each International Fund is the earlier of
(i) the date upon which all of the required Deposit Securities, the Cash
Component and any other cash amounts which may be due are delivered to the
Trust and (ii) the latest day for settlement on the customary settlement
cycle in the jurisdiction(s) where any of the securities of such
International Fund are customarily traded.
(2) Except as provided in the next two paragraphs, a Creation Unit of Shares in any International Fund will not be issued until the transfer of good title to the Trust of the portfolio of Deposit Securities and the payment of the Cash Component and the purchase Transaction Fee have been completed. When the Subcustodian confirms to the Custodian that the required securities included in the Fund Deposit (or, when permitted in the sole discretion of the Trust, the cash value thereof) have been delivered to the account of the relevant Subcustodian, the Custodian shall will cause the delivery of the Creation Unit of Shares.
(3) The Trust may in its sole discretion permit or require the substitution of an amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash Component to replace any Deposit Security which may not be available in sufficient quantity for delivery or for other similar reasons. If the Trust notifies the Distributor that a "cash in lieu" amount will be accepted, the Distributor will notify the AP and the Transfer Agent and the AP shall deliver, on behalf of itself or the party on whose behalf it is acting, the "cash in lieu" amount, with any appropriate adjustments as advised by the Trust which may include any difference between the actual cost to the Trust to acquire an omitted security and the value of the security had the security been delivered in kind. Additional amounts, if any, shall be included in the calculation of the Cash Component to be received, any excess amounts will be returned to the AP following settlement of the issue of the Creation Unit of Shares.
(4) In the event that a Fund Deposit is incomplete on the settlement date for a Creation Unit of Shares because certain or all of the Deposit Securities are missing, the Trust may issue a Creation Unit of Shares notwithstanding such deficiency in reliance on the undertaking of the AP to deliver the missing Deposit Securities as soon as possible, which
Attachment - 5
undertaking shall be secured by such the AP's delivery and maintenance of collateral consisting of cash having a value at least equal to 115% of the value of the missing Deposit Securities. The parties hereto agree that the delivery of such collateral shall be made in accordance with the Cash Collateral Settlement Procedures, which such procedures shall be provided to the AP by the Transfer Agent upon request. The parties hereto further agree that the Trust, acting in good faith, may purchase the missing Deposit Securities at any time and the AP agrees to accept liability for any shortfall between the cost to the Trust of purchasing such securities and the value of the collateral, which may be sold by the Trust at such time, and in such manner, as the Trust may determine in its sole discretion.
SECTION 5. CASH PURCHASES
When, in the sole discretion of the Trust, cash purchases of Creation Units of Shares are available or specified for a Fund, such purchases shall be affected in essentially the same manner as in-kind purchases thereof. In the case of a cash purchase or where the cash equivalent value of one or more Deposit Securities is being deposited in lieu of such Deposit Security, the AP must pay the cash equivalent of the Deposit Securities it would otherwise be required to provide through an in-kind purchase, plus the same Cash Component required to be paid by an in-kind purchaser. In addition, to offset the Trust's brokerage, transaction, and other costs associated with using the cash to purchase the requisite Deposit Securities, the AP may be required to pay and additional Transaction Fee or adjustment as advised by the Trust which may include any difference between the actual cost to the Trust to acquire the Deposit Securities and the value of the Deposit Securities had the Deposit Securities been delivered. Such Transaction Fees and additional amounts, if any, shall be included in the calculation of the Cash Component to be received. Any excess amounts will be returned to the AP following settlement of the issue of the Creation Unit of Shares.
SECTION 6. CUSTOM BASKETS
The Trust has developed procedures for Creations and Redemptions using baskets of Deposit Securities that differ from that published by NSCC as the then-existing portfolio basket for the Fund (a "Custom Basket"). In order for an AP to deliver or receive a Custom Basket to the Distributor or Transfer Agent and the Trust in connection with a purchase or redemption order rather than the basket of Deposit Securities published by NSCC together with the Cash Amount, any cash in lieu amounts and any other cash fees, the Distributor, the Funds' investment adviser, or Trust must notify the AP that the Fund would like to effect the purchase or redemption through a Custom Basket and identify the contents of the Custom Basket on or prior to the time the AP calls with its Purchase Order and the AP must agree to deliver the Custom Basket in connection with the purchase. Prior to trade date, the Transfer Agent must notify NSCC of the Deposit Securities in the custom creation basket.
Attachment - 6
ATTACHMENT A - PART II
TO PLACE A REDEMPTION ORDER FOR
CREATION UNIT(S) OF SHARES OF ONE OR MORE FUNDS OF
FIRST TRUST ADVISORS LP
SECTION 1. PLACING A REDEMPTION ORDER
The Authorized Participant ("AP") submitting an order to redeem shall submit such orders containing the information required to the Transfer Agent in the following manner: (a) by telephone to the BNYM ETF Order Desk Administrator followed up with the faxed order form (within 15 minutes of the verbal phone order) according to the procedures set forth below, or (b) through the BNYM ETF Center Interface (electronic order entry system portal), as such may be made available and constituted from time to time, the use of which shall be subject to the terms and conditions of the ELECTRONIC SERVICES AGREEMENT INCORPORATED HEREIN BY REFERENCE. The order so transmitted (either orally and in writing, or electronic form) is hereinafter referred to as the "Submission" or the "Redemption Order" as applicable, and the Business Day on which a Submission is made is hereinafter referred to as the "Transmittal Date".
NOTE THAT WHEN THE TELEPHONIC METHOD OF SUBMITTING ORDERS IS USED, THE TELEPHONE CALL IN WHICH THE ORDER NUMBER IS ISSUED INITIATES THE ORDER PROCESS BUT DOES NOT ALONE CONSTITUTE THE ORDER. AN ORDER OR REQUEST IS ONLY COMPLETED AND PROCESSED UPON RECEIPT OF THE FAXED ORDER FORM SUBMISSION.
To begin a Redemption Order by phone, the Authorized Participant
("AP") must telephone the BNYM ETF Order Desk Administrator at (718)
315-7500 or other number that BNYM designates in writing to the AP. This
telephone call must be made by an Authorized Person of the AP and answered
by the BNYM ETF Order Desk before the established cut-off time of the
Fund(s) (Eastern Standard Time "Listing Exchange Closing Time or Order
Cutoff Time," as applicable). Upon verifying the authenticity of the AP
(as determined by the use of the appropriate PIN Number), the BNYM ETF
Order Desk Administrator will request that the AP place the Redemption
Order. To do so, the AP must provide the appropriate ticker symbols when
referring to each Fund. After the AP has placed the Redemption Order, the
BNYM ETF Order Desk Administrator will read the Redemption Order back to
the AP. The AP then must confirm that the Redemption Order has been taken
correctly by the BNYM ETF Order Desk Administrator. If the AP confirms
that the Redemption Order has been taken correctly, the BNYM ETF Order
Desk Administrator will issue an order number to the AP. Most orders may
also be placed by the AP via the BNYM ETF Center Interface by the times
described above.
Attachment - 7
Redemption Orders for select funds (T-1 (T minus 1 ) Next Day International Market Orders, are to be placed after the Listing Exchange Closing Time of 4:00 PM and before the Fund's established T-1 order window cut-off time, the latest being 5:30 PM Eastern Standard Time on any Business Day. Such Redemption Orders, if accepted, will receive the next Business Day's NAV per Creation Unit. The Transfer Agent's telephone number for all T-1 orders is (718) 315-7501.
PLEASE NOTE: A REDEMPTION ORDER IS NOT COMPLETE UNTIL AN ORDER NUMBER IS ISSUED BY THE BNYM ETF ORDER DESK ADMINISTRATOR. WITH RESPECT TO EACH FUND, AN ORDER CAN NOT BE CANCELED BY THE AP AFTER THE FUND'S ORDER WINDOW CUTOFF TIME. INCOMING TELEPHONE CALLS ARE QUEUED AND WILL BE HANDLED IN THE SEQUENCE RECEIVED. ACCORDINGLY, THE AP SHOULD NOT HANG UP AND REDIAL. CALLS THAT ARE IN PROGRESS AT THE CUTOFF TIME ARE VALID AND THE ORDER WILL BE TAKEN. PLEASE NOTE THAT "IN PROGRESS" IS DEFINED AS AN AP ACTUALLY SPEAKING WITH A BNYM ETF ORDER DESK ADMINISTRATOR. FOR CALLS THAT ARE PLACED BEFORE THE CUTOFF TIME THAT ARE IN THE HOLDING QUEUE UNANSWERED BY STAFF AT OR AFTER THE CUTOFF TIME, WILL BE VERBALLY DENIED. INCOMING CALLS THAT ARE RECEIVED AFTER THE CUTOFF TIME WILL NOT BE ANSWERED BY THE BNYM ETF ORDER DESK. ALL TELEPHONE CALLS WILL BE RECORDED.
SECTION 2. RECEIPT OF TRADE CONFIRMATION
Subject to the conditions that a properly completed Redemption Order
has been placed by the AP not later than the Order Cutoff Time and that
the Distributor finds no cause to reject such Purchase Order for the
reason(s) listed in Section 3 below, the Distributor will accept the
Purchase Order on behalf of the Trust and will confirm in writing to the
AP that its Purchase Order has been accepted within 45 minutes after the
designated Order Cutoff Time on the Order Date (e.g., 4:45 PM ET or 6:15
PM ET, as appropriate). Once the Redemption Order has been approved by the
Distributor, the Distributor signs the written Redemption Order
(indicating the time of its signature) and transmits that Redemption Order
to the BNYM ETF Order Desk Administrator, IF NOT APPROVING THE ORDER(S)
ON-LINE VIA THE ETF CENTER INTERFACE.
Until such time as the Distributor confirms acceptance thereof, any Redemption Order remains subject to rejection by the Trust for any reason(s) listed in Section 3 below.
SECTION 3. REJECTING OR SUSPENDING REDEMPTION ORDERS
The right of redemption may be suspended or the date of payment postponed with respect to a Fund: (i) for any period during which the Listing Exchange is closed (other than customary weekend and holiday closings); (ii) for any period during which trading on the Listing
Attachment - 8
Exchange is suspended or restricted; (iii) for any period during which an emergency exists as a result of which disposal of the shares of such Fund or determination of such Fund's NAV is not reasonably practicable; or (iv) in such other circumstances as permitted by the SEC.
SECTION 4. TAKING DELIVERY OF DEPOSIT SECURITIES
The Deposit Securities constituting in-kind redemption proceeds will be delivered to the appropriate account, which must be indicated in the AP's Standing Redemption Instructions. An Authorized Person of the AP may amend the AP's Standing Redemption Instructions from time to time by writing to the BNYM ETF Order Desk Administrator and the Trust in a form approved by the Trust. A redeeming Beneficial Owner or the AP acting on behalf of such Beneficial Owner must maintain an appropriate securities broker-dealer, bank or other custody arrangements to which account such Deposit Securities will be delivered. Redemptions of Shares for Deposit Securities will be subject to compliance with applicable U.S. federal and state securities laws.
SECTION 5. CONTRACTUAL SETTLEMENT
(a) Through the CNS Clearing Process:
(1) Except as provided below, Deposit Securities of any Domestic
Fund must be delivered through the NSCC to a DTC account maintained at the
Custodian on or before the Domestic Contractual Settlement Date (defined
below). The AP must also make available on or before the Contractual
Settlement Date, by means satisfactory to the Trust, immediately available
or same day funds estimated by the Trust to be sufficient to pay the Cash
Component next determined after acceptance of the Purchase Order, together
with the applicable purchase Transaction Fee. Any excess funds will be
returned following settlement of the issue of the Creation Unit of Shares
of the Trust. The "Domestic Contractual Settlement Date" is the earlier of
(i) the date upon which all of the required Deposit Securities, the Cash
Component and any other cash amounts which may be due are delivered to the
Trust and (ii) the trade date plus two (T +2) Business Days. Except as
provided in the next two paragraphs, a Creation Unit of Shares of any Fund
will be issued through the CNS system and the payment of the Cash
Component and the purchase Transaction Fee through CNS in accordance with
the terms, conditions and guarantees as set forth in CNS agreements to
which the Custodian and AP have entered into.
(2) The Trust reserves the right to permit or require the substitution of an amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash Component to replace any Deposit Security with respect to a Fund which may not be available in sufficient quantity for delivery or which may not be eligible for transfer through the CNS Clearing Process, or which may not be eligible for transfer through the systems of DTC and hence not eligible for transfer through the CNS Clearing Process (discussed below) and will be at the expense of the Fund and will affect the value of all Shares of such Fund; but the Trust, subject to the
Attachment - 9
approval of the Board, may adjust the Transaction Fee within the parameters described below to protect ongoing shareholders. Any settlement outside the CNS Clearing Process is subject to additional requirements and fees as discussed in the Prospectus.
(3) In the event that the number of Shares is insufficient on the settlement date for Creation Unit(s) of Shares, the Trust may deliver the Deposit Securities notwithstanding such deficiency in reliance on the AP's undertaking to deliver the missing Shares as soon as possible, which undertaking shall be secured by such AP's delivery and maintenance of collateral consisting of cash having a value at least equal to 115% of the value of the missing Shares. The parties hereto agree that the delivery of such collateral shall be made in accordance with the Cash Collateral Settlement procedures, which such procedures shall be provided to the AP by the BNYM ETF Order Desk Administrator upon request. The parties hereto further agree that the Trust, acting in good faith, may purchase the missing Shares at any time and the AP agrees to accept liability for any shortfall between the cost to the Trust of purchasing such Shares and the value of the collateral, which may be sold by the Trust at such time, and in such manner, as the Trust may determine in its sole discretion.
(b) Outside the CNS Clearing Process:
(1) Except as provided below, the Shares must be delivered to an account maintained at the Custodian on or before the Business Day immediately following the date on which the NAV of the redemption was calculated. The Trust will also make available on the International Contractual Settlement Date, immediately available or same day funds sufficient to pay the Cash Component next determined after acceptance of the Redemption Order, less the applicable Transaction Fee (as described in the Prospectus). The "International Contractual Settlement Date" of an International Fund is the earlier of (i) the date upon which all of the Deposit Securities are delivered to the AP and (ii) the latest day for settlement on the customary settlement cycle in the jurisdiction(s) where the any of the securities of such International Fund are customarily traded.
(2) Deliveries of redemption proceeds by a Fund generally will be made within TWO (2) BUSINESS DAYS. Due to the schedule of holidays in certain countries, however, the delivery of in-kind Deposit Securities of International Funds may take longer than TWO (2) BUSINESS DAys after the day on which the Redemption Order is placed.
(3) Except as provided in the next two paragraphs, the Deposit Securities will not be delivered until the transfer of good title to the Trust of the required Creation Unit(s) of Shares has been completed. When the Custodian confirms that the required Shares or, when permitted in the sole discretion of the Trust, the cash collateral has been received by the account, the Custodian will cause the delivery of the Deposit Securities.
Attachment - 10
(4) The Trust may in its sole discretion permit or require the substitution of an amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash Component to replace any Deposit Security which may not be available in sufficient quantity for delivery or for other similar reasons. If the Trust notifies the Distributor that a "cash in lieu" amount will be delivered, the Distributor will notify the AP and the AP shall receive the "cash in lieu" amount, with any appropriate adjustments as advised by the Trust. The AP may also elect to replace any Deposit Securities with a "cash in lieu" amount to the extent that the AP is not authorized to purchase the particular Deposit Securities from the Fund or is not able to sell the particular Deposit Securities in the secondary market, consistent with restrictions in applicable law or the AP's internal policies and procedures.
(5) In the event that the number of Shares is insufficient on the settlement date for Creation Unit(s) of Shares (Order Date +1), the Trust may deliver the Deposit Securities notwithstanding such deficiency in reliance on the AP's undertaking to deliver the missing Shares as soon as possible, which undertaking shall be secured by such AP's delivery on Order Date +1 and subsequent maintenance of collateral consisting of cash having a value at least equal to 115% of the value of the missing Shares. The parties hereto agree that the delivery of such collateral shall be made in accordance with the Cash Collateral Settlement procedures, which such procedures shall be provided to the AP by the BNYM ETF Order Desk Administrator upon request. The parties hereto further agree that the Trust, acting in good faith, may purchase the missing Shares at any time and the AP agrees to accept liability for any shortfall between the cost to the Trust of purchasing such Shares and the value of the collateral, which may be sold by the Trust at such time, and in such manner, as the Trust may determine in its sole discretion.
SECTION 6. CASH REDEMPTIONS
In the event that, in the sole discretion of the Trust, cash redemptions are permitted or required by the Trust, proceeds will be paid to the AP redeeming Shares on behalf of the redeeming investor as soon as practicable after the date of redemption.
SECTION 7. TELEPHONE AND FACSIMILE
EACH TRUST LISTED ON SCHEDULE I:
Telephone: (630) 765-8000
Facsimile: (630) 517-7509
TRANSFER AGENT:
Telephone: (212) 815-2793
Facsimile: (212) 667-9549
PARTICIPANT:
Attachment - 11
FIRST TRUST PORTFOLIOS, L.P.
[INSERT PARTICIPANT]
ACCEPTED BY:
THE BANK OF NEW YORK MELLON,
as Transfer Agent
Attachment - 12
July 19, 2018
First Trust Exchange-Traded Fund
120 E. Liberty Street
Wheaton, Illinois 60187
Chapman and Cutler LLP
111 West Monroe Street
Chicago, IL 60603
Re: First Trust Exchange-Traded Fund
Ladies and Gentlemen:
We have acted as special Massachusetts counsel to First Trust Exchange-Traded Fund (the "Trust") on behalf of its series First Trust Lunt U. S. Factor Rotation ETF (the "Fund") in connection with the Trust's Post-Effective Amendment to its Registration Statement on Form N-1A to be filed with the Securities and Exchange Commission on or about July 19, 2018 (as so amended, the "Registration Statement") with respect to the Fund's shares of beneficial interest, par value $.01 per share (the "Shares"). You have requested that we deliver this opinion to you in connection with the Trust's filing of such Registration Statement.
In connection with the furnishing of this opinion, we have examined the following documents:
(a) a certificate of the Secretary of the Commonwealth of Massachusetts as to the existence of the Trust;
(b) a copy of the Trust's Amended and Restated Declaration of Trust, dated as of June 12, 2017, as filed with the Secretary of the Commonwealth of Massachusetts on June 16, 2017 (the "Declaration");
(c) a copy of Trust's Amended and Restated Establishment and Designation of Series of Shares of Beneficial Interest, as filed with the Secretary of the Commonwealth of Massachusetts on October 18, 2017 (the "Designation");
(d) a certificate executed by an Assistant Secretary of the Trust, certifying as to, and attaching copies of, the Trust's Declaration, Designation, By-Laws, and minutes of the meeting of the Trust's Board of Trustees held on December 10-11, 2017 (the "Resolutions"); and
(e) a draft of the Registration Statement received on July 16, 2018.
First Trust Exchange-Traded Fund
Chapman and Cutler LLP
July 19, 2018
In such examination, we have assumed the genuineness of all signatures, the conformity to the originals of all of the documents reviewed by us as copies, the authenticity and completeness of all original documents reviewed by us in original or copy form and the legal competence of each individual executing any document. We have also assumed that the Registration Statement, as filed with the Securities and Exchange Commission, will be in substantially the form of filing referred to in paragraph (e) above. We have further assumed that the Trust's Declaration will be duly filed with the office of the Secretary of the Commonwealth of Massachusetts, and that the Trust's Declaration, Designation, By-Laws and the Resolutions will not have been amended, modified or withdrawn with respect to matters relating to the Shares and will be in full force and effect on the date of the issuance of such Shares.
This opinion is based entirely on our review of the documents listed above and such investigation of law as we have deemed necessary or appropriate. We have made no other review or investigation of any kind whatsoever, and we have assumed, without independent inquiry, the accuracy of the information set forth in such documents.
As to any opinion below relating to the formation or existence of the Trust under the laws of the Commonwealth of Massachusetts, our opinion relies entirely upon and is limited by the certificate of public officials referred to in (a) above.
This opinion is limited solely to the internal substantive laws of the Commonwealth of Massachusetts, as applied by courts located in Massachusetts (other than Massachusetts securities laws, as to which we express no opinion), to the extent that the same may apply to or govern the transactions referred to herein. No opinion is given herein as to the choice of law which any tribunal may apply to such transaction. In addition, to the extent that the Trust's Declaration, Designation or By-Laws refer to, incorporate or require compliance with the Investment Company Act of 1940, as amended, or any other law or regulation applicable to the Trust, except for the internal substantive laws of the Commonwealth of Massachusetts, as aforesaid, we have assumed compliance by the Trust with such Act and such other laws and regulations.
We understand that all of the foregoing assumptions and limitations are acceptable to you.
Based upon and subject to the foregoing, please be advised that it is our opinion that:
1. The Trust has been formed and is existing under the Trust's Declaration of Trust and the laws of the Commonwealth of Massachusetts as a voluntary association with transferable shares of beneficial interest commonly referred to as a "Massachusetts business trust."
First Trust Exchange-Traded Fund
Chapman and Cutler LLP
July 19, 2018
2. The Shares, when issued and sold in accordance with the Resolutions and for the consideration described in the Registration Statement, will be validly issued, fully paid and nonassessable, except that, as set forth in the Registration Statement, shareholders of the Trust may under certain circumstances be held personally liable for its obligations.
This opinion is given as of the date hereof and we assume no obligation to update this opinion to reflect any changes in law or any other facts or circumstances which may hereafter come to our attention. We hereby consent to your reliance on this opinion in connection with your opinion to the Trust with respect to the Shares and to the filing of this opinion as an exhibit to the Registration Statement. In rendering this opinion and giving this consent, we do not concede that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ MORGAN, LEWIS & BOCKIUS LLP MORGAN, LEWIS & BOCKIUS LLP |
CHAPMAN AND CUTLER LLP 111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
July 19, 2018
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Ladies and Gentlemen:
We have served as counsel for the First Trust Exchange-Traded Fund (the "Trust"), which proposes to offer and sell shares of its series (the "Shares") First Trust Lunt U.S. Factor Rotation ETF (the "Fund"), in the manner and on the terms set forth in Amendment No. 106 and Post-Effective Amendment No. 106 to its Registration Statement on Form N-1A filed on or about July 19, 2018 (the "Amendment") with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended, respectively.
In connection therewith, we have examined such pertinent records and documents and matters of law, including the opinion of Morgan, Lewis & Bockius LLP issued to the Trust or Trust's counsel upon which we have relied as they relate to the laws of the Commonwealth of Massachusetts, as we have deemed necessary in order to enable us to express the opinion hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
The Shares of the Fund may be issued from time to time in accordance with the Trust's Amended and Restated Declaration of Trust dated June 12, 2017 and the Trust's By-Laws, and subject to compliance with the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and applicable state laws regulating the sale of securities and the receipt by the Fund of the purchase price of not less than the net asset value per Share, and such Shares, when so issued and sold by the Fund, will be legally issued, fully paid and non-assessable, except that, as set forth in the Amendment, shareholders of the Fund may under certain circumstances be held personally liable for its obligations.
July 19, 2018
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement (File No. 333-125751) relating to the Shares referred to above, to the use of our name and to the reference to our firm in said Registration Statement.
Respectfully submitted,
/s/ CHAPMAN AND CUTLER LLP ----------------------------- CHAPMAN AND CUTLER LLP |
EXHIBIT A
(AS OF JULY 20, 2018)
FUNDS EFFECTIVE DATE ----------------------------------------------------------- ------------------ First Trust Dow Jones Select MicroCap Index(SM) Fund September 24, 2005 ----------------------------------------------------------- ------------------ First Trust Morningstar(R) Dividend Leaders(SM) Index Fund March 15, 2006 ----------------------------------------------------------- ------------------ First Trust NASDAQ-100 Equal Weighted Index(SM) Fund April 25, 2006 ----------------------------------------------------------- ------------------ First Trust NASDAQ-100-Technology Sector Index(SM) Fund April 25, 2006 ----------------------------------------------------------- ------------------ First Trust US Equity Opportunities ETF (was US IPO Fund) April 13, 2006 ----------------------------------------------------------- ------------------ First Trust NYSE Arca Biotechnology Index Fund June 23, 2006 ----------------------------------------------------------- ------------------ First Trust Dow Jones Internet Index(SM) Fund June 23, 2006 ----------------------------------------------------------- ------------------ First Trust Capital Strength ETF July 11, 2006 ----------------------------------------------------------- ------------------ First Trust Total US Market AlphaDEX ETF October 13, 2006 ----------------------------------------------------------- ------------------ First Trust Value Line(R) Dividend Index Fund October 13, 2006 ----------------------------------------------------------- ------------------ First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund February 14, 2007 ----------------------------------------------------------- ------------------ First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund February 14, 2007 ----------------------------------------------------------- ------------------ First Trust S&P REIT Index Fund May 4, 2007 ----------------------------------------------------------- ------------------ First Trust Natural Gas ETF May 7, 2007 ----------------------------------------------------------- ------------------ First Trust Water ETF May 7, 2007 ----------------------------------------------------------- ------------------ First Trust Chindia ETF May 7, 2007 ----------------------------------------------------------- ------------------ First Trust Value Line(R) 100 Exchange-Traded Fund March 21, 2007 ----------------------------------------------------------- ------------------ First Trust NASDAQ ABA Community Bank Index Fund June 1, 2009 ----------------------------------------------------------- ------------------ First Trust Dorsey Wright People's Portfolio ETF (was VIXH) August 1, 2012 ----------------------------------------------------------- ------------------ First Trust Dow 30 Equal Weight ETF July 20, 2017 ----------------------------------------------------------- ------------------ First Trust Lunt U.S. Factor Rotation ETF July 20, 2018 ----------------------------------------------------------- ------------------ |