UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FILE NO. 812-14070
In the Matter of:
First Trust Exchange-Traded Fund
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 AlphaDEX(R) Fund
First Trust Exchange-Traded AlphaDEX(R) Fund II
First Trust Series Fund
First Defined Portfolio Fund, LLC
First Trust Variable Insurance Trust and
First Trust Advisors L.P.
Amendment No. 1 to an Application under Section 6(c) of the Investment Company
Act of 1940, as amended (the "1940 Act"), for an exemption from: (i) Section
15(a) of the 1940 Act and Rule 18f-2 thereunder, and (ii) certain disclosure
requirements under various Rules and Forms.
All communications and orders to:
First Trust Exchange-Traded Fund Eric F. Fess
First Trust Exchange-Traded Fund II Felice R. Foundos
First Trust Exchange-Traded Fund III Suzanne M. Russell
First Trust Exchange-Traded Fund IV Chapman and Cutler LLP
First Trust Exchange-Traded Fund V 111 West Monroe
First Trust Exchange-Traded Fund VI Chicago, IL 60603
First Trust Exchange-Traded Fund VII
First Trust Exchange-Traded AlphaDEX(R) Fund
First Trust Exchange-Traded AlphaDEX(R) Fund II
First Trust Series Fund
First Defined Portfolio Fund, LLC
First Trust Variable Insurance Trust
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
Attn: W. Scott Jardine
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Page 1 of 43 sequentially numbered pages (including exhibits).
As filed with the Securities and Exchange Commission on February 19, 2013.
TABLE OF CONTENTS
PAGE
I. INTRODUCTION...........................................................3
II. BACKGROUND.............................................................4
A. The Companies..................................................4
B. The Advisor....................................................5
C. The Sub-Advisers and the Manager of Managers Structure.........6
D. The Requested Relief...........................................9
III. EXEMPTIVE RELIEF REQUESTED AND APPLICABLE LAW..........................9
A. Shareholder Voting.............................................9
1. Applicable Law.........................................10
2. Discussion.............................................11
B. Disclosure of Sub-Advisers' Fees..............................19
1. Applicable Law.........................................19
2. Discussion.............................................20
C. Precedent.....................................................22
IV. CONDITIONS FOR RELIEF.................................................22
V. CONCLUSION............................................................24
VI. PROCEDURAL MATTERS....................................................24
VII. SCHEDULE 1............................................................28
VIII. AUTHORIZATIONS AND SIGNATURES.........................................31
IX. VERIFICATIONS OF APPLICATION AND STATEMENTS OF FACT...................34
Page 2 of 43
I. INTRODUCTION
First Trust Exchange-Traded Fund, 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 AlphaDEX(R) Fund and First
Trust Exchange-Traded AlphaDEX(R) Fund II (each an "ETF Trust"), First Trust
Series Fund (the "Series Trust"), First Defined Portfolio Fund, LLC ("First
Defined"), First Trust Variable Insurance Trust ("VIT" and, together with each
ETF Trust, the Series Trust, and First Defined, each a "Company" and together,
the "Companies")(1) and First Trust Advisors L.P. ("First Trust" and, together
with the Companies, the "Applicants") hereby submit this amended application
(this "Application") for an order from the U.S. Securities and Exchange
Commission (the "Commission") on behalf of (i) the Companies and all existing
and future series of the Companies (the "Funds"); (ii) all other existing or
future open-end management investment companies or series thereof that (a) are
advised by First Trust or any entity controlling, controlled by or under common
control with First Trust or its successors(2) (each such entity included in the
term "Advisor"), (b) are registered under the 1940 Act, (c) use the "Manager of
Managers Structure" (as described in this Application and defined below) and (d)
comply with the terms and conditions in this Application (each such investment
company or series thereof included in the term "Funds"); and (iii) any
Advisor.(3)
Applicants hereby file this Application pursuant to Section 6(c) of the
1940 Act for an order exempting Applicants from Section 15(a) of the 1940 Act
and Rule 18f-2 thereunder to permit the Advisor, subject to the approval of the
boards of trustees of the Companies (hereafter referred to as the "Board")(4),
to do the following without obtaining shareholder approval: (a) select certain
unaffiliated investment sub-advisers (each, a "Sub-Adviser")(5) to manage all or
a portion of the assets of any of the Funds pursuant to an investment
sub-advisory agreement with a Sub-Adviser ("Sub-Advisory Agreement") and (b)
materially amend Sub-Advisory Agreements with the Sub-Advisers. Such relief
(1) As used herein, when appropriate, "Company" shall also be read to include
any other existing or future open-end management investment company
registered with the Commission and advised by the Advisor (as defined
below).
(2) For the purposes of the requested order, "successor" is limited to an
entity that results from a reorganization into another jurisdiction or a
change in the type of business organization.
(3) Every existing registered open-end management investment company that
currently intends to rely on the requested order is named as an Applicant.
Each Fund and each Sub-Adviser (as defined below) that currently intends
to rely on the requested order is identified on Schedule 1 to this
Application. Any existing or future entity that relies on the order in the
future will do so only in accordance with the terms and conditions in this
Application.
(4) The term "Board" also includes the board of trustees or directors of a
future Fund.
(5) If the Advisor wishes to use an investment sub-adviser that would be an
"affiliated person" (as defined in Section 2(a)(3) of the 1940 Act) of a
Company, a Fund or of the Advisor (other than by reason of serving as a
sub-adviser to one or more of the Funds) ("Affiliated Sub-Advisers"),
shareholder approval of the sub-advisory agreement with any Affiliated
Sub-Adviser will be obtained. The requested relief will not apply with
respect to Affiliated Sub-Advisers.
Page 3 of 43
would include, without limitation, the replacement or reinstatement of any
Sub-Adviser with respect to which a Sub-Advisory Agreement has automatically
terminated as a result of an "assignment" within the meaning of Section 2(a)(4)
of the 1940 Act. Applicants also apply for an order of the Commission under
Section 6(c) of the 1940 Act exempting the Funds from certain disclosure
obligations under the following rules and forms: (i) Item 19(a)(3) of Form N-1A;
(ii) Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8), and 22(c)(9) of Schedule 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
(iii) Section 6-07(2)(a), (b), and (c) of Regulation S-X under the Securities
Act of 1933, as amended (the "1933 Act").
The requested orders referred to above are sometimes referred to
collectively as the "Order" in this Application.
Applicants are seeking this exemption to enable the Advisor and the Board
to obtain for the Funds the services of one or more Sub-Advisers believed by the
Board and the Advisor to be particularly well-suited to manage a Fund without
the delay and expense of convening a special meeting of shareholders. Under a
management approach that utilizes Sub-Advisers (the "Manager of Managers
Structure"), the Advisor will evaluate, allocate assets to and oversee the
Sub-Advisers, and make recommendations about their hiring, termination and
replacement to the Board, at all times subject to the authority of the Board.(6)
The requested exemptions will also permit the Advisor and the Companies to
make material amendments to Sub-Advisory Agreements believed by the Advisor and
the Board to be appropriate without the delay and expense of convening a special
meeting of shareholders for that purpose.(7) Applicants believe that without
this relief, the Companies may be precluded from promptly and timely materially
amending, or may be subject to the delays and additional expense of proxy
solicitation when materially amending, Sub-Advisory Agreements when considered
appropriate by the Advisor and the Board. In addition, Applicants are seeking
relief from certain disclosure requirements concerning fees paid to
Sub-Advisers.
If the name of any Fund relying on the requested relief contains the name
of a Sub-Adviser, the name of the Advisor that serves as the primary adviser to
that Fund, or a trademark or trade name owned by that Advisor, will precede the
name of the Sub-Adviser.
II. BACKGROUND
A. The Companies
Each ETF Trust is organized as a Massachusetts business trust and is or
will be registered under the 1940 Act as an open-end management investment
company offering separate series of shares. The ETF Trusts have received or may
rely on exemptive relief to offer series that sell their shares on a national
(6) The "Board," as used herein, also oversees each individual Fund.
(7) Applicants expect that no Fund is or will be required to hold annual
shareholder meetings.
Page 4 of 43
securities exchange at negotiated prices.(8) Each such series represents a
separate investment portfolio and has its own investment objective(s), policies
and restrictions. As of the date of the filing of this Application, each ETF
Trust other than First Trust Exchange-Traded Fund V and First Trust
Exchange-Traded Fund VII has series with publicly outstanding shares.
The Series Trust is organized as a Massachusetts business trust and is
registered under the 1940 Act as an open-end management investment company. As
of the date of the filing of this Application, the Series Trust has three
existing series which are currently offered and sold pursuant to its
Registration Statement on Form N-1A. The Series Trust may offer additional
series in the future.
First Defined is organized as a Delaware limited liability company and is
registered under the 1940 Act as an open-end management investment company. As
of the date of the filing of this Application, First Defined has eight existing
series which are currently offered and sold pursuant to its Registration
Statement on Form N-1A. First Defined may offer additional series in the future.
VIT is organized as a Massachusetts business trust and is registered under
the 1940 Act as an open-end management investment company. As of the date of the
filing of this Application, VIT has one existing series which is currently
offered and sold pursuant to its Registration Statement on Form N-1A. VIT may
offer additional series in the future.
B. The Advisor
First Trust, an Illinois limited partnership with its principal office
located at 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, currently
serves as investment adviser to the Funds. First Trust is registered under
Section 203 of the Investment Advisers Act of 1940, as amended (the "Advisers
Act").(9) First Trust has one limited partner, Grace Partners of DuPage L.P.,
and one general partner, The Charger Corporation.
(8) Pursuant to relief previously obtained, the ETF Trusts may, in general
terms, operate actively managed exchange-traded funds (a) that invest
primarily in equity securities (In the Matter of First Trust Advisors
L.P., et al., Investment Company Act Release Nos. 28421 (Sept. 29, 2008)
(notice) and 28468 (Oct. 27, 2008) (order)) or (b) that invest in fixed
income securities or in a combination of equity securities and fixed
income securities (In the Matter of First Trust Exchange-Traded Fund, et
al., Investment Company Act Release Nos. 29983 (Mar. 15, 2012) and 30029
(Apr. 10, 2012) (order)). In addition, pursuant to relief previously
obtained, the ETF Trusts may, in general terms, operate exchange-traded
funds that invest primarily in equity securities selected to correspond
generally to the price and yield performance of a specified domestic or
international equity securities index. In the Matter of First Trust
Exchange-Traded Fund, et al., Investment Company Act Release Nos. 27051
(Aug. 26, 2005) (notice) and 27068 (Sept. 20, 2005) (order), as amended by
In the Matter of First Trust Exchange-Traded Fund, et al., Investment
Company Act Release Nos. 27772 (Mar. 30, 2007) (notice) and 27784 (Apr.
25, 2007) (order).
(9) Any Advisor will be registered under the Advisers Act.
Page 5 of 43
The Advisor, subject to the oversight and authority of the Board, is, in
general terms, responsible for managing the investment of each Fund's assets
pursuant to an investment advisory agreement with the applicable Company, on
behalf of such Fund (an "Advisory Agreement").(10) Under the terms of the
applicable Advisory Agreement, the Advisor, subject to the oversight of the
Board, generally furnishes a continuous investment program for each Fund (as
described more specifically in the particular Advisory Agreement for the Fund).
The Advisor periodically reviews investment policies and strategies of each Fund
and based on the need of a particular Fund may recommend changes to the
investment policies and strategies of the Fund for consideration by its Board.
The terms of the Advisory Agreement for any Fund that will use sub-advisers also
permit or will permit the Advisor, subject to the approval of the applicable
Board, including a majority of the Independent Trustees (as defined below), and
the approval of the shareholders of the Fund (to the extent required by
applicable law), to delegate portfolio management responsibilities of all or a
portion of the assets of the Fund to one or more sub-advisers.
For the investment management services that it provides to each Fund, the
Advisor receives the fee specified in the Advisory Agreement from each Fund
based on the Fund's average daily net assets. In the interest of limiting the
expenses of the Funds, the Advisor may from time to time waive some or all of
its investment advisory fees or reimburse other fees or expenses for any of the
Funds. In this regard, the Advisor has contractually agreed and may, in the
future, contractually agree, to waive advisory fees or waive or reimburse other
fees or expenses on behalf of certain Funds.
The terms of each Advisory Agreement comply with Section 15(a) of the 1940
Act. Each Advisory Agreement was approved by the Board, including a majority of
the trustees who are not "interested persons" (as defined in Section 2(a)(19) of
the 1940 Act) of the Companies or the Advisor (the "Independent Trustees"), and
was approved by the shareholder(s) of each Fund in the manner required by
Sections 15(a) and (c) of the 1940 Act and Rule 18f-2 thereunder. With respect
to new Funds offered in the future, the Advisory Agreement will be approved by
the Board, including a majority of the Independent Trustees, and by the initial
shareholder of the Fund in the manner required by Sections 15(a) and (c) of the
1940 Act and Rule 18f-2 thereunder. Applicants are not seeking any exemptions
from the provisions of the 1940 Act with respect to any Advisory Agreement.
C. The Sub-Advisers and the Manager of Managers Structure
With respect to certain existing series of the Companies, the Advisor has
entered into Sub-Advisory Agreements with Sub-Advisers to provide investment
advisory services and may, in the future, enter into Sub-Advisory Agreements(11)
(10) Each future investment advisory agreement between an Advisor and a Fund is
also included in the term "Advisory Agreement."
(11) Each existing Sub-Advisory Agreement (i) was approved by the Board,
including a majority of the Independent Trustees, and the shareholders of
the applicable Fund in accordance with Sections 15(a) and 15(c) of the
1940 Act and Rule 18f-2 thereunder and (ii) complies fully with the
requirements of Section 15(a) of the 1940 Act.
Page 6 of 43
with other Sub-Advisers for one or more of the series of the Companies.(12) Each
Sub-Adviser employed by the Advisor is or will be an "investment adviser," as
defined in Section 2(a)(20)(B) of the 1940 Act, to the Fund the Sub-Adviser
serves, and each Sub-Adviser is or will be registered as an investment adviser
under the Advisers Act or not subject to such registration.
The Advisor will select additional Sub-Advisers based on the Advisor's
evaluation of the Sub-Advisers' skills in managing assets, and recommend their
hiring to the Board. The Advisor will engage in an on-going analysis of the
continued advisability of retaining these Sub-Advisers and make recommendations
to the Board as needed. The Advisor will also negotiate and potentially
renegotiate the terms of Sub-Advisory Agreements, including the sub-advisory
fees, with the Sub-Advisers, and will make recommendations with respect thereto
to the Board as needed. Although the Advisor may recommend, from time to time,
that the services of a Sub-Adviser be terminated, the Advisor, in general, does
not expect to make frequent changes in Sub-Advisers.
With respect to Funds utilizing the Manager of Managers Structure, subject
to the issuance of the relief requested in this Application, and subject to
approval of the Manager of Managers Structure by the Board and by a majority of
each Fund's outstanding voting securities, as that term is defined in Section
2(a)(42) of the 1940 Act, the primary responsibility for management of the Funds
-- including, in particular, the selection and supervision of the Sub-Advisers
-- will be vested in the Advisor, subject to general oversight and approval by
the Board. Thus, the Advisor will (1) set each Fund's overall investment
strategies; (2) evaluate, select, and recommend to the Board Sub-Advisers needed
to manage all or part of the assets within the Funds; (3) monitor and evaluate
each Sub-Adviser's investment programs and results as well as the performance of
Sub-Advisers; and (4) review each Fund's compliance with its investment
objective(s), policies and restrictions. The Advisor will also recommend to the
Board whether Sub-Advisory Agreements should be renewed, modified or terminated.
Each Sub-Adviser is and will be responsible, subject to the general
supervision of the Advisor and the Board, for, among other things, the purchase
and sale of securities for the investment portfolio of the applicable Fund.
Neither the Advisor nor the Board evaluates or will evaluate the investment
merits of each individual investment decision made by a Sub-Adviser on behalf of
a Fund. The Advisor and the Board may terminate any Sub-Advisory Agreement and,
pursuant to and subject to the terms of the particular Advisory Agreement, the
Advisor would assume responsibility for determining what investments shall be
purchased, held, sold or exchanged and all other investment management functions
for any Fund.
The Advisor, under and subject to the terms of the relevant Advisory
Agreement and Sub-Advisory Agreements, may employ multiple Sub-Advisers for the
Funds. In such cases, the Advisor will allocate and, when appropriate,
reallocate the Fund's assets among Sub-Advisers. Each Sub-Adviser will have
(12) It is expected that the number of Funds employing a Sub-Adviser and the
number of Sub-Advisers employed by a particular Fund could change over
time.
Page 7 of 43
discretionary authority to invest that portion of a Fund's assets assigned to
it. The Advisor will seek to achieve each Fund's objective(s) by selecting one
or more Sub-Advisers who have particular skill and experience in managing that
type of assets.
Under the Manager of Managers Structure, Sub-Adviser evaluation on both a
quantitative and qualitative basis will be an ongoing process. The Advisor
periodically will gather and analyze certain performance information regarding
the Funds. If a particular Fund fails to track its relevant index (as
applicable) or underperforms over time, or if the Advisor has other concerns
about a Fund or its Sub-Adviser (such as a departure from the Fund's disclosed
investment style, a change in management of the Sub-Adviser, or concerns about
compliance and operational capabilities), the Advisor will assess the continued
ability of the Sub-Adviser to meet the Fund's investment objective(s). The
Advisor will assess possible replacement Sub-Advisers for a Fund so that any
transition can be recommended to the Board and, if approved, can be effected on
a timely basis should a Sub-Adviser change be warranted. Absent exemptive
relief, however, replacing a Sub-Adviser would necessitate a proxy solicitation,
which would involve additional expenses and could delay the implementation of
the change.
The Sub-Advisory Agreement with each Sub-Adviser will be initially
approved by the Board, including a majority of the Independent Trustees, in the
manner required by Sections 15(a) and (c) of the 1940 Act. In addition, the
terms of each Sub-Advisory Agreement will comply fully with the requirements of
Section 15(a). A Company's series will not rely on the requested Order if the
operation of the series in the manner described in this Application has not been
approved as provided in condition 1 set out in Section IV below.(13) The
prospectus for each Fund whose shareholders have approved the Manager of
Managers Structure will contain the disclosure required by condition 2 set out
in Section IV below at all times subsequent to obtaining such approval.
For the investment advisory services it provides to a Fund, each
Sub-Adviser will receive annual fees from the Advisor or the Fund, calculated at
an annual rate based on the average daily net assets of the Fund or the portion
of the Fund's assets allocated to such Sub-Adviser. Each Sub-Adviser will bear
its own expenses of providing sub-advisory services to the applicable Fund.
Where the Advisor is responsible for paying sub-advisory fees to the
Sub-Adviser, the Advisor will compensate the Sub-Adviser(s) for a Fund out of
the fee paid to the Advisor under that Fund's Advisory Agreement; in other
words, such Sub-Advisers will be compensated by the Advisor out of the advisory
fees the Advisor receives pursuant to the relevant Advisory Agreement (or out of
the Advisor's other assets) and not by the Funds directly. In the alternative,
Funds will be responsible for paying sub-advisory fees directly to the
Sub-Advisers. Currently, all Sub-Advisers are compensated by the Adviser. In the
future, however, subject to the terms of the applicable Advisory Agreement and
Sub-Advisory Agreement, a Fund may pay sub-advisory fees directly to the
Sub-Advisers. Where the Sub-Advisers are paid directly by the Funds, Applicants
acknowledge that, after the requested Order is issued, shareholder approval will
still be sought for any amendment to a Sub-Advisory Agreement that would
increase the total management and advisory fees payable by a Fund.
(13) Each Fund will be required to obtain shareholder approval before relying
on the requested Order.
Page 8 of 43
D. The Requested Relief
Applicants seek relief from the requirements of Section 15(a) of the 1940
Act and Rule 18f-2 thereunder, as well as from certain disclosure requirements
applicable to sub-advisory fees, to facilitate the selection and retention of,
and making of material changes in Sub-Advisory Agreements with, Sub-Advisers in
connection with operating the Funds. Under the requested relief, Applicants will
obtain the approval of the Board, including a majority of the Independent
Trustees, when Sub-Adviser changes are made or when material changes in
Sub-Advisory Agreements are made, but approval by shareholders of the affected
Fund will not be sought or obtained.(14)
If the requested Order is granted, each Sub-Advisory Agreement will comply
with the following requirements of Section 15(a) of the 1940 Act: (1) it will
precisely describe all compensation to be paid thereunder; (2) it will continue
in effect for more than two years only so long as such continuance is
specifically approved at least annually by the Board at the times and in the
manner required by Section 15(c) of the 1940 Act; (3) it will provide for
termination at any time, without the payment of any penalty, by the Advisor, the
Board or by shareholders of the affected Fund on not more than sixty days'
written notice to the Sub-Adviser; and (4) it will provide for its automatic
termination in the event of its assignment.
Each Fund offers shares, and with respect to the new Funds offered in the
future, will offer shares, pursuant to a prospectus that is intended to satisfy
the requirements of the 1933 Act and that describes the advisory services
provided to the Fund. Each prospectus contains and will contain information
concerning the management and operation of the Fund, including, if applicable to
a particular Fund, a description of the Sub-Advisers and the services they
provide. In addition, each Fund utilizing the Manager of Managers Structure will
hold itself out to investors as employing such structure and will prominently
disclose in its prospectus that the Advisor has the ultimate responsibility
(subject to oversight by the Board) to oversee Sub-Advisers and to recommend
their hiring, termination and replacement.
Each Fund utilizing the Manager of Managers Structure will be required to
obtain shareholder approval of that structure prior to relying on the requested
relief. At all times following that approval, the Fund will disclose that it
operates pursuant to the terms and conditions set forth in this Application.
Thus, all shareholders of the Funds will be informed: (a) of the means by which
the Funds obtain advisory services, including a description of the Advisor, the
Sub-Advisers, and their agreements with respect to the relevant Fund; and (b)
that new Sub-Advisers can be employed without shareholder approval.
III. EXEMPTIVE RELIEF REQUESTED AND APPLICABLE LAW
A. Shareholder Voting
(14) As noted above, the requested relief set forth in this Application will
not extend to Affiliated Sub-Advisers.
Page 9 of 43
1. Applicable Law
Section 15(a) of the 1940 Act provides in relevant part that:
It shall be unlawful for any person to serve or act as investment
adviser of a registered investment company, except pursuant to a written
contract, which contract, whether with such registered company or with an
investment adviser of such registered company, has been approved by the
vote of a majority of the outstanding voting securities of such registered
company ....
Rule 18f-2 under the 1940 Act provides in relevant part that:
(c)(1) With respect to the submission of an investment advisory
contract to the holders of the outstanding voting securities of a series
company for the approval required by Section 15(a) of the [1940] Act, such
matter shall be deemed to be effectively acted upon with respect to any
class or series of securities of such company if a majority of the
outstanding voting securities of such class or series vote for the
approval of such matter ....
Rule 18f-2 further provides that:
(c)(2) If any class or series of securities of a series company
fails to approve an investment advisory contract in the manner required by
paragraph (c)(1) of this paragraph, the investment adviser of such company
may continue to serve or act in such capacity for the period of time
pending such required approval of such contract, of a new contract with
the same or different adviser, or other definitive action; Provided, That
the compensation received by such investment adviser during such period is
equal to no more than its actual costs incurred in furnishing investment
advisory services to such class or series or the amount it would have
received under the advisory contract, whichever is less.
Section 2(a)(20) defines an "investment adviser" as the following:
"Investment adviser" of an investment company means (A) any person
... who pursuant to contract with such company regularly furnishes advice
to such company with respect to the desirability of investing in,
purchasing or selling securities ... and (B) any other person who pursuant
to contract with a person described in clause (A) regularly performs
substantially all of the duties undertaken by such person described in
clause (A) ....
Section 15 of the 1940 Act applies to situations where, as here, a
sub-adviser contracts with an investment adviser of an investment company.
Accordingly, the Sub-Advisers are deemed to be within the statutory definition
of an "investment adviser," and the Sub-Advisory Agreements between the Advisor
and each Sub-Adviser are subject to Sections 15(a) and (c) of the 1940 Act and
Rule 18f-2 thereunder to the same extent as each Advisory Agreement. Therefore,
without the exemption applied for herein, the Funds: (a) would be prohibited
Page 10 of 43
from entering promptly into a new Sub-Advisory Agreement or amending materially
an existing contract with a Sub-Adviser; and (b) would be prohibited from
continuing the employment of an existing Sub-Adviser whose contract had been
assigned as a result of a change in "control" unless the Advisor and the
particular Fund involved were to incur the costs of convening a special meeting
of Fund shareholders to approve the Sub-Adviser's selection and/or the change in
the Sub-Advisory Agreement.
Section 6(c) of the 1940 Act provides that the Commission may exempt any
person, security, or transaction or any class or classes of persons, securities,
or transactions from any provisions of the 1940 Act, or from any rule
thereunder, if such exemption is necessary or appropriate in the public interest
and consistent with the protection of investors and the purposes fairly intended
by the policy and provisions of the 1940 Act. For the reasons and subject to the
conditions set forth below, Applicants seek an exemption under Section 6(c) of
the 1940 Act from the requirements of Section 15(a) of the 1940 Act and Rule
18f-2 thereunder to eliminate the need for the Advisor, the Companies, and any
Fund, to submit Sub-Advisory Agreements to the affected shareholders for
approval prior to selecting a Sub-Adviser or materially amending a Sub-Advisory
Agreement. Applicants believe that the requested exemptions are appropriate in
the public interest and consistent with the protection of investors, and the
purposes fairly intended by the policy and provisions of the 1940 Act.
2. Discussion
a. Necessary or Appropriate in the Public Interest
Applicants believe that the requested relief is necessary or appropriate
in the public interest. The Funds utilizing the Manager of Managers Structure
will be different from those of traditional investment companies. Under the
traditional structure, a fund's investment adviser is a single entity that
employs one or more individuals internally as portfolio managers to make
investment decisions. The adviser is free to retain or terminate those portfolio
managers without board or shareholder approval. In the case of the Funds
utilizing the Manager of Managers Structure, the Advisor will use one or more
Sub-Advisers, and the Advisor typically will not make the day-to-day investment
decisions. Instead, the Advisor will establish an investment program for a Fund
and select, supervise and evaluate the Sub-Advisers who make the day-to-day
investment decisions for the respective Fund.(15) This is a service that the
Advisor believes can add value to the investments of the Funds' shareholders
because the Advisor will be able to select those Sub-Advisers that have
distinguished themselves through successful performance in the market sectors in
which the respective Fund will invest.
The Funds utilizing the Manager of Managers Structure will hold themselves
out as investment vehicles whereby investors look to the Advisor as a
professional organization to evaluate, select and recommend to the Board the
hiring of Sub-Advisers. The Advisor will select those Sub-Advisers that are most
likely to provide investment advisory services that will achieve the investors'
(15) While the Advisor typically will not make day-to-day investment decisions
for a Fund utilizing the Manager of Managers Structure, the Advisor may do
so subject to the terms of the applicable Advisory Agreement.
Page 11 of 43
defined objectives given their investment needs and tolerance for risk. Those
Sub-Advisers will, in turn, select and oversee the selection of portfolio
investments. Under the Manager of Managers Structure, the selection or change in
a Sub-Adviser will not be an event that significantly alters the nature of the
shareholder's investment and thus does not implicate 1940 Act policy concerns
regarding shareholder approval.(16)
From the perspective of the investor, the role of the Sub-Advisers with
respect to the Funds utilizing the Manager of Managers Structure is
substantially equivalent to the role of the individual portfolio managers
employed by the traditional investment company advisory firms. Both the
portfolio managers and the Sub-Advisers are concerned principally with the
selection of portfolio investments in accordance with a Fund's investment
objective(s) and policies and have no significant supervisory, management or
administrative responsibilities with respect to that Fund or Company. Applicants
believe that shareholders look to the Advisor when they have questions or
concerns about a Fund's management or investment performance. Shareholders
expect the Advisor to select the portfolio managers or, subject to the review
and approval of the Board, the Sub-Adviser for a Fund that is best suited to
achieve the Fund's investment objective(s). Under the traditional investment
company structure, shareholders do not vote on the selection of the individual
portfolio managers or changes in their compensation. There is no compelling
policy reason why the Funds' shareholders should be required to approve the
relationships between the Sub-Advisers and a Fund when shareholders of a
traditional investment company are not required to approve the substantially
equivalent relationship between an investment adviser and its portfolio
managers.
In the absence of exemptive relief from Section 15(a) of the 1940 Act,
when a new Sub-Adviser is proposed for retention by a Fund or a Company on
behalf of one or more of the Funds, shareholders would be required to approve
the Sub-Advisory Agreement with that Sub-Adviser. Similarly, if an existing
Sub-Advisory Agreement were to be amended in any material respect (e.g., an
increase in the sub-advisory fee), approval by the shareholders of the affected
Fund would be required. In addition, a Fund would be prohibited from continuing
to retain an existing Sub-Adviser whose Sub-Advisory Agreement had been
"assigned" as a result of a change of control of the Sub-Adviser unless
shareholder approval had been obtained. In all of these cases, the need for
shareholder approval would require a Company or a Fund to call and hold a
shareholder meeting, create and distribute proxy materials, and solicit votes
from shareholders on behalf of the Fund. This process would be time-intensive,
costly and slow and, in the case of a poorly performing Sub-Adviser or one whose
management team or portfolio managers had left, potentially harmful to a Fund
and its shareholders.
Applicants believe that permitting the Advisor to perform those duties for
which the shareholders of the Funds are paying the Advisor (i.e., the selection,
supervision and evaluation of Sub-Advisers) without incurring unnecessary delay
or expense will be appropriate in the interests of Fund shareholders and will
allow each Fund to operate more efficiently. Without the delay inherent in
holding shareholder meetings (and the attendant difficulty of obtaining the
(16) Protecting Investors: A Half-Century of Investment Company Regulation,
Division of Investment Management, United States Securities and Exchange
Commission, May 1992, Ch. 7, Part III(D)(2).
Page 12 of 43
necessary quorum), the Funds will be able to act more quickly and with less
expense to replace Sub-Advisers when the Board and the Advisor believe that a
change would benefit the Fund. Without the requested relief, a Fund may, for
example, be left in the hands of a Sub-Adviser who would be unable to manage the
Fund's assets diligently because of diminished capabilities resulting from a
loss of personnel or decreased motivation resulting from an impending
termination of the Sub-Advisory Agreement. Also, in that situation, or where
there has been an unexpected Sub-Adviser resignation or change in control -
events beyond the control of the Advisor, the Companies and the Funds - the
affected Fund may be forced to operate without a Sub-Adviser or with less than
the optimum number of Sub-Advisers. The sudden loss of the Sub-Adviser could be
highly disruptive to the operations of a Fund.
Applicants recognize that this Application is unusual insofar as it seeks
exemptions for open-end investment companies, the shares of which are traded on
an Exchange (as defined below) ("ETFs"), to use a Manager of Managers Structure
("Manager of Manager Exemptions"). Applicants acknowledge that, in the past, the
Commission has granted Manager of Managers Exemptions almost exclusively to
registered open-end investment companies that operated as traditional mutual
funds.(17) However, Applicants note that the requested relief is substantially
identical to relief recently granted by the Commission to other ETFs.(18) The
Advisor and the ETF Trusts believe that the requested relief is equally
appropriate for ETFs as for mutual funds, and that the operations of the Funds
under the requested Order address the concerns historically considered by the
Commission when granting identical relief to mutual funds. Such Applicants note
that the requested relief is not broader in scope than the relief previously
granted to mutual funds.
The Advisor and the ETF Trusts understand that these prior Manager of
Managers Exemptions were based in part on the notion that shareholders of the
mutual funds obtaining such exemptions could "vote with their feet" by redeeming
their individual shares at net asset value ("NAV") if they did not approve of a
change in sub-adviser or sub-advisory agreement. As discussed in the ETF Trusts'
applications for ETF Orders ("ETF Applications"),(19) the Funds that are ETFs
("ETF Funds") do not issue individually redeemable shares; accordingly, ETF Fund
shareholders - unlike traditional mutual fund shareholders - cannot tender
individual ETF shares to the ETF Funds for redemption at NAV. Instead, as
described in the ETF Applications, ETF Fund shareholders are generally able to
redeem ETF Fund shares ("Shares") at NAV only in large aggregations of Shares
(17) See, e.g., Pax World Funds Series Trust I and Pax World Management LLC,
Investment Company Act Release Nos. 29751 (Aug. 10, 2011) (notice) and
29783 (Sept. 7, 2011) (order). Cf. Liberty All-Star Equity Fund, et al.,
Investment Company Act Rel. Nos. 27741 (Feb. 27, 2007) (notice) and 27769
(Mar. 27, 2007) (order) (example of unique multi-manager relief for
exchange-listed closed-end fund).
(18) See IndexIQ Advisors LLC and IndexIQ Active ETF Trust, Investment Company
Act Release Nos. 30130 (July 9, 2012) (notice) and 30161 (Aug. 3, 2012)
(order) ("IndexIQ"); WisdomTree Asset Management, Inc. and WisdomTree
Trust, Investment Company Act Release Nos. 29380 (Aug. 13, 2010) (notice)
and 29412 (Sept. 8, 2010) (order) ("WisdomTree"); and Grail Advisors, LLC
and Grail Advisors ETF Trust, Investment Company Act Release Nos. 28900
(Sept. 14, 2009) (notice) and 28944 (Oct. 8, 2009) (order) ("Grail").
(19) The Funds of the ETF Trusts are commonly referred to as exchange-traded
funds or ETFs, and operate pursuant to exemptive orders previously granted
by the Commission. See supra note 8.
Page 13 of 43
("Creation Units") and, therefore, only shareholders with the financial
wherewithal to accumulate such Creation Unit(s) are able to "vote with their
feet" by tendering Shares to an ETF Fund for redemption at NAV. Due to the
arbitrage mechanism that has been and will be implemented for each ETF Fund,
however, as described in the ETF Applications, every ETF Fund shareholder will
effectively retain the right to "vote with their feet" because every ETF Fund
shareholder is able to sell individual Shares in the secondary market at
negotiated prices that do not vary materially from the relevant ETF Fund's NAV.
The Advisor and the ETF Trusts are confident that each ETF Fund's
arbitrage mechanism will continue to work to keep the market price of Shares
tracking their NAV because each ETF Fund's portfolio is transparent. As
represented in the ETF Applications, before the opening of trading every day
that the ETF Funds are open for business, including as required by Section 22(e)
of the 1940 Act ("Business Day"), information concerning portfolio securities
held by each ETF Fund will be made available. The Commission itself has
acknowledged that such portfolio transparency facilitates arbitrage in ETF
Shares, and the Advisor and the ETF Trusts believe that efficient arbitrage will
continue to minimize the premium or discount to NAV at which Shares trade in the
secondary market.(20)
Because of the efficiency with which the ETF Funds' arbitrage mechanism is
designed to operate, the Advisor and the ETF Trusts do not believe that a change
of Sub-Adviser(s) would affect the market price of Shares. The Advisor and the
ETF Trusts understand that there might be a concern that market sentiment
regarding an incoming and/or outgoing Sub-Adviser could affect the market price
- though not the NAV - of an ETF Fund's Shares.(21) However, the Advisor and the
ETF Trusts believe this concern is misplaced. The daily NAV and market price are
based on the value of an ETF Fund's portfolio holdings, not sentiments about
potential future value. The Advisor and the ETF Trusts believe, however, that
such market sentiment, if it exists, would not affect the market price for
Shares in any lasting or meaningful way, because any deviation in the market
price from NAV would immediately create transparent arbitrage opportunities for
investors, permitting them, when an ETF Fund's per Share NAV is less than market
price, to purchase Creation Units of Shares and sell them on the open market for
a profit or, when an ETF Fund's per Share NAV is greater than market price, to
redeem Creation Units of Shares for a profit.
Furthermore, the functioning of existing index based and actively managed
ETFs suggests that any change by an ETF Fund of Sub-Advisers should not
negatively impact the arbitrage mechanism or otherwise lead to a material
difference between an ETF Fund's NAV and the market price of its Shares. In this
regard, the Advisor and the ETF Trusts believe that it is appropriate for the
(20) See Exchange-Traded Funds, Investment Company Act Release No. 28193 (Mar.
11, 2008); SEC Concept Release: Actively Managed Exchange-Traded Funds,
Investment Company Act Release No. 25258 (Nov. 8, 2001). To date the
Commission has granted exemptive relief to permit the operation of ETFs
whose structures have enabled efficient arbitrage in recognition of the
fact that efficient arbitrage minimizes the premium and/or discount to NAV
at which their shares will trade in the secondary market. See Transcript
of the Open Meeting of the Commission on Exchange-Traded Funds (Mar. 4,
2008).
(21) Because an ETF's NAV, like a traditional mutual fund's NAV, is based
purely on its portfolio holdings, a change of sub-adviser(s) should not
affect the NAV of an ETF Fund.
Page 14 of 43
Commission to consider existing ETFs for which portfolio managers play the same
role as Sub-Advisers do for the ETF Funds. Currently, investors may purchase
shares of an ETF, particularly an actively managed ETF, out of a belief in the
skill of an ETF's portfolio manager (just as investors may purchase Fund Shares
out of a belief in the skill of a Sub-Adviser) and may decide to sell those
shares if the portfolio manager (or Sub-Adviser) discontinues managing the
portfolio. Nevertheless, the Commission's orders for actively managed ETFs do
not preclude an ETF adviser from terminating a portfolio manager due to concerns
that such a change of portfolio manager would disrupt the arbitrage mechanism
and cause secondary market transactions to occur at a price that materially
deviates from NAV. Indeed, such an ETF adviser can terminate a portfolio manager
and merely provide shareholders with notice of such change in a supplement to
the ETF's prospectus. In this respect the Commission's actively managed ETF
orders suggest, and indicate that the Commission has concluded, that an ETF
adviser's termination of a portfolio manager would not meaningfully harm the
arbitrage mechanism and, as a result, retail investors and others who transact
in Shares on the secondary market should be able to transact at a market price
that closely tracks the relevant ETF Fund's NAV. With respect to index based
ETFs, the Advisor and the ETF Trusts believe that investors place even less
importance on the portfolio manager or sub-adviser, and would not expect any
disruption resulting from a change of sub-adviser. For the same reasons and
based on the same analysis, the Commission can and should also conclude here
that the Manager of Managers Exemption requested would not harm the ETF
arbitrage mechanism and is appropriate under Section 6(c).
b. Consistent with the Protection of Investors
Applicants believe that the requested relief is consistent with the
protection of investors. Under the Manager of Managers Structure, primary
responsibility for management of the Funds, including the selection and
supervision of the Sub-Advisers, is vested in the Advisor, subject to the
oversight of the Board. Each Advisory Agreement is and will remain fully subject
to the requirements of Section 15(a) of the 1940 Act and Rule 18f-2 thereunder,
including the requirement for approval by shareholders. Applicants believe that
it is consistent with the protection of investors to vest the selection and
supervision of the Sub-Advisers in the Advisor in light of the management
structure of the Funds, as well as the shareholders' expectation that the
Advisor will use its expertise to select the most able Sub-Advisers. Within this
structure, the Advisor is in a better position to make an informed selection of
a Sub-Adviser than are individual shareholders.
In evaluating the services that a Sub-Adviser will provide to a Fund, the
Advisor considers certain information, including, but not limited to, the
following:
(1) the advisory services provided by the Sub-Adviser, including
the Sub-Adviser's investment management philosophy and technique and the
Sub-Adviser's methods, to ensure compliance with the investment
objective(s), policies and restrictions of the Fund;
Page 15 of 43
(2) a description of the various personnel furnishing such
services, including their duties and qualifications, the amount of time
and attention they will devote to the Fund, and the ability of the
Sub-Adviser to attract and retain capable personnel;
(3) reports setting forth the financial condition and stability of
the Sub-Adviser; and
(4) reports setting forth the Sub-Adviser's investment performance
during recent periods in light of its stated objectives and current market
conditions, including to the extent relevant, comparisons with
broadly-based unmanaged indices and other accounts managed by the
Sub-Adviser and having similar investment objectives, and other funds
having similar investment objectives and asset sizes.
In addition, the Advisor and the Board will consider the reasonableness of
the Sub-Adviser's compensation with respect to each Fund for which the
Sub-Adviser will provide portfolio management services. The Sub-Adviser's fee
directly bears on the amount and reasonableness of the Advisor's fee payable by
the Fund. Accordingly, the Advisor and the Board will analyze the fees paid to
Sub-Advisers in evaluating the reasonableness of the overall arrangements. In
conducting this analysis, the Advisor and the Board will consider certain
information, including, but not limited to, the following:
(1) a description of the proposed method of computing the fees;
(2) comparisons of the proposed sub-advisory fees with fees charged
by the Sub-Adviser for managing comparable accounts and with fees charged
by other organizations for managing similar funds, especially funds and
accounts having similar investment objectives; and
(3) data with respect to the projected expense ratios of each Fund
and comparisons with similar funds.
If the requested relief is granted, shareholders of each Fund utilizing
the Manager of Managers Structure will receive adequate information about the
Sub-Advisers. Except as modified by the requested Order to permit Aggregate Fee
Disclosure (as defined below), the prospectus and statement of additional
information ("SAI") for each Fund will include all required information
concerning each applicable Sub-Adviser. In addition to a Fund prospectus and, if
requested, the SAI, shareholders of the Funds will be provided with other
information about any then-current Sub-Adviser(s). If a new Sub-Adviser is
retained, or an existing Sub-Advisory Agreement is materially amended, the
relevant Company will supplement each affected Fund's prospectus pursuant to
Rule 497(e) under the 1933 Act, or file a post-effective amendment to its
registration statement to the extent necessary to reflect changes in
Sub-Advisers. Furthermore, if a new Sub-Adviser is retained in reliance on the
requested Order, the applicable Fund will inform shareholders of the hiring of a
new Sub-Adviser pursuant to the following procedures ("Modified Notice and
Access Procedures"): (a) within 90 days after a new Sub-Adviser is hired for any
Fund, that Fund will furnish to its shareholders either a Multi-manager Notice
Page 16 of 43
or a Multi-manager Notice and Multi-manager Information Statement;(22) and (b)
the Fund will make the Multi-manager Information Statement available on the
website identified in the Multi-manager Notice no later than when the
Multi-manager Notice (or Multi-manager Notice and Multi-manager Information
Statement) is first sent to shareholders, and will maintain it on that website
for at least 90 days. In the circumstances described in this Application, a
proxy solicitation to approve the appointment of new Sub-Advisers provides no
more meaningful information to shareholders than the proposed Multi-manager
Information Statement. Moreover, the Board would comply with the requirements of
Sections 15(a) and 15(c) of the 1940 Act before entering into or amending a
Sub-Advisory Agreement.
In order to deliver a Multi-manager Notice (or Multi-manager Notice and
Multi-manager Information Statement) to beneficial owners of Shares of the ETF
Funds, Applicants would expect to rely on the same processes currently used by
traditional open-end funds that are not directly sold and by ETFs, which
processes are implicitly accepted by the Commission, to deliver proxy statements
to shareholders. Applicants understand that certain ETFs have employed such
processes to conduct a proxy solicitation.(23) As part of such processes, it is
Applicants' understanding that an ETF Fund would send the Multi-manager Notice
(or Multi-manager Notice and Multi-manager Information Statement) to DTC with a
reference to the CUSIP number to which it pertained. DTC, in turn, would
electronically send a notice of the Multi-manager Notice (or Multi-manager
Notice and Multi-manager Information Statement) to record holders of the ETF
Fund ("Holders") on its Participant Terminal Service and request from such
Holders the number of Multi-manager Notices (or Multi-manager Notices and
Multi-manager Information Statements) required for delivery to beneficial
owners. At the same time, the ETF Fund could enlist the services of a
third-party service provider such as Broadridge Financial Solutions, Inc.
("Broadridge") and provide Broadridge with copies of the Multi-manager Notices
(or Multi-manager Notices and Multi-manager Information Statements). Holders
could then opt either to receive Multi-manager Notices (or Multi-manager Notices
and Multi-manager Information Statements) from the ETF Fund for direct mailing
to beneficial owners or to provide Broadridge with mailing information or
account identifiers (through which Broadridge could retrieve mailing
information) for beneficial owners. To the extent that a Holder opted to receive
(22) A "Multi-manager Notice" will be modeled on a Notice of Internet
Availability as defined in Rule 14a-16 under the Exchange Act, and
specifically will, among other things: (a) summarize the relevant
information regarding the new Sub-Adviser; (b) inform shareholders that
the Multi-manager Information Statement is available on a website; (c)
provide the website address; (d) state the time period during which the
Multi-manager Information Statement will remain available on that website;
(e) provide instructions for accessing and printing the Multi-manager
Information Statement; and (f) instruct the shareholder that a paper or
e-mail copy of the Multi-manager Information Statement may be obtained,
without charge, by contacting the Funds. A "Multi-manager Information
Statement" will meet the requirements of Regulation 14C, Schedule 14C and
Item 22 of Schedule 14A under the Exchange Act for an information
statement, except as modified by the requested Order to permit Aggregate
Fee Disclosure (as defined below). Multi-manager Information Statements
will be filed electronically with the Commission via the EDGAR system.
(23) See SEC Accession No. 0000891554-01-505661 (2001 proxy solicitation by
iShares Trust to elect board of trustees) and SEC Accession No.
0001193125-05-114026 (2005 proxy solicitation by iShares Trust and
iShares, Inc. to, among other things, approve advisory agreement of ETF).
Page 17 of 43
Multi-manager Notices (or Multi-manager Notices and Multi-manager Information
Statements) for mailing to beneficial owners, the responsibility for completing
such mailing would fall to the Holder. To the extent that a Holder opted to
provide mailing information or account identifiers to Broadridge, the
responsibility for carrying out such mailing would fall to Broadridge.
Applicants include a standard condition in this Application that each Fund
would disclose in its prospectus the existence, substance and effect of the
requested Order. Each Fund that is an ETF Fund intends to ensure that
shareholders who purchase its Shares in the secondary market receive a
prospectus and that Applicants' prospectus delivery obligation is satisfied by
relying on the same mechanisms, which are currently used by traditional open-end
funds that are not directly sold and by other ETFs, and which are implicitly
accepted by the Commission, to deliver disclosure documents to secondary market
purchasers.(24) In this regard, among other things, the ETF Trusts will provide
each applicable ETF Fund's prospectus (and/or summary prospectus) and SAI to the
applicable national securities exchange, as defined in Section 2(a)(26) of the
1940 Act (an "Exchange"), thereby satisfying their prospectus delivery
obligation to any Exchange member in connection with a transaction on the
Exchange.(25) To the extent that the Exchange member to whom the ETF Fund will
effectively deliver a prospectus in connection with a sale on the Exchange is
not the beneficial owner of the Shares purchased, the obligation to deliver a
prospectus to such beneficial owner will fall to the Exchange member and the
introducing broker. The ETF Trusts, of course, cannot ensure that the Exchange
member or broker will deliver a prospectus as required. Because not doing so,
however, will result in a violation of the federal securities laws, the ETF
Trusts believe that it is reasonable for them to rely on the Exchange member and
broker to deliver the requisite prospectus.(26)
Applicants recognize that, pursuant to the requested Order, the prospectus
of each Fund would need, at all times following shareholder approval of the
Manager of Managers Structure, to disclose the existence, substance and effect
of the Order. Applicants acknowledge that this is a qualitative change in the
disclosure required in a Fund's prospectus under the Order and will ensure that
each such Fund's disclosures satisfy this requirement.
c. Consistent with the Policy and Provisions of the 1940 Act
Applicants believe the requested relief is consistent with the policy and
provisions of the 1940 Act. The purpose of the requirement that shareholders
approve new advisory agreements may be inferred from the 1940 Act. The identity
of a registered investment company's investment adviser, together with the
company's investment objective, policies and restrictions, are the features that
distinguish one investment company from another. The framers of the 1940 Act
(24) Each Fund's prospectus is posted on the website of First Trust Portfolios
L.P., the Funds' distributor.
(25) Rule 153 under the 1933 Act. The ETF Trusts note that prospectus delivery
will not be required in certain instances, including in connection with
unsolicited brokers' transactions and purchases of Shares by an investor
who has previously received a prospectus (unless such prospectus has been
updated or supplemented in the interim).
(26) The ETF Trusts understand that, due to the requirement that a prospectus
precede or accompany the investment, it is a standard practice among
brokers to send a prospectus with every trade confirmation.
Page 18 of 43
believed that if an investment company is to be managed by an adviser different
from the adviser shareholders selected at the time of investment, the successor
adviser should be approved by shareholders. The exemptive relief being requested
would be fully consistent with this public policy.
Each Fund's Advisory Agreement will continue to be subject to the
shareholder approval requirement of Section 15(a) of the 1940 Act and Rule 18f-2
thereunder. If the Advisor determines to utilize the Manager of Managers
Structure for a Fund, shareholder approval of the Manager of Managers Structure
will first be obtained. The prospectus of each Fund utilizing the Manager of
Managers Structure will disclose at all times following such approval that the
Advisor is the primary provider of investment advisory services to the Fund,
that the Advisor may hire or change Sub-Advisers for the Fund, as appropriate,
and that the Advisor has the ultimate responsibility to oversee Sub-Advisers and
recommend to the Board their hiring, termination and replacement. In a
traditionally structured investment company, no shareholder approval is required
for the investment adviser to change a portfolio manager or revise the portfolio
manager's salary or conditions of employment, because shareholders of the
investment company are relying on the investment adviser for the investment
company's investment results and overall management services. For those same
reasons, shareholder approval should not be required in the circumstances
described herein with respect to a change of Sub-Adviser by the Advisor and the
Board, including a majority of its Independent Trustees. Eliminating the
requirement of shareholder approval in such a case would be consistent with the
policies and provisions of the 1940 Act and would eliminate unnecessary expenses
and delays associated with conducting a formal proxy solicitation. In the
circumstances described in this Application, a proxy solicitation to approve the
appointment of new Sub-Advisers provides no more meaningful information to
shareholders than the proposed Multi-manager Information Statement. A Fund also
will promptly supplement its prospectus if a new Sub-Adviser is appointed or a
material amendment is made to a Sub-Advisory Agreement. Additionally, if a
shareholder of a particular Fund is dissatisfied with the Advisor's selection of
a Sub-Adviser or a material change in a Sub-Advisory Agreement, the shareholder
may redeem his or her shares or, in the case of the ETF Funds, sell them on the
open market.
B. Disclosure of Sub-Advisers' Fees
1. Applicable Law
Form N-1A is the registration statement used by open-end investment
companies. Item 19(a)(3) of Form N-1A requires a registered investment company
to disclose in its statement of additional information the method of calculating
the "advisory fee payable" by the investment company, including the total dollar
amounts that the investment company "paid to the adviser ... under the
investment advisory contract for the last three fiscal years."
Rule 20a-1 under the 1940 Act requires proxies solicited with respect to a
registered investment company to comply with Schedule 14A under the Exchange
Act. Item 22 of Schedule 14A sets forth the information that must be included in
a registered investment company proxy statement. Such information is also
required to be included in an information statement in accordance with Schedule
14C under the Exchange Act. Item 22(c)(1)(ii) requires a proxy statement for a
Page 19 of 43
shareholder meeting at which action will be taken on an investment advisory
agreement to describe the terms of the advisory agreement, "including the rate
of compensation of the investment adviser." Item 22(c)(1)(iii) requires a
description of the "aggregate amount of the investment adviser's fee and the
amount and purpose of any other material payments" by the investment company to
the investment adviser, or any affiliated person of the investment adviser
during the last fiscal year. Item 22(c)(8) requires a description of "the terms
of the contract to be acted upon, and, if the action is an amendment to, or a
replacement of, an investment advisory contract, the material differences
between the current and proposed contract." Finally, Item 22(c)(9) requires a
proxy statement for a shareholder meeting at which a change in the advisory fee
will be sought to state (i) the aggregate amount of the investment adviser's fee
during the last year; (ii) the amount that the adviser would have received had
the proposed fee been in effect; and (iii) the difference between (i) and (ii)
stated as a percentage of the amount in (i). Together, these provisions may
require a Fund to disclose the fees paid to a Sub-Adviser in proxy statements
for shareholder meetings at which sub-advisory fees would be established or
increased or action would be taken on a sub-advisory contract.
Regulation S-X sets forth the requirements for financial statements
required to be included as part of a registered investment company's
registration statement and shareholder reports filed with the Commission.
Section 6-07(2)(a), (b) and (c) of Regulation S-X require a registered
investment company to include in its financial statement information about the
investment advisory fees. These provisions could require a Fund's financial
statements to disclose information concerning fees paid to a Sub-Adviser, the
nature of a Sub-Adviser's affiliations, if any, with the Advisor, and the names
of any Sub-Adviser accounting for 5% or more of the aggregate fees paid to the
Advisor.
For the reasons and subject to the conditions below, Applicants seek an
Order under Section 6(c) of the 1940 Act, to the extent described herein, to
permit each sub-advised Fund to disclose (as a dollar amount and a percentage of
a Fund's net assets) only (i) the aggregate fees paid to the Advisor and any
Affiliated Sub-Advisers, and (ii) the aggregate fees paid to Sub-Advisers other
than Affiliated Sub-Advisers (collectively, the "Aggregate Fee Disclosure") in
lieu of disclosing the fees paid to each Sub-Adviser pursuant to Item 19(a)(3)
of Form N-1A, Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and 22(c)(9) of
Schedule 14A of the Exchange Act (including to the extent such provisions are
incorporated into Schedule 14C of the Exchange Act), and Section 6-07(2)(a), (b)
and (c) of Regulation S-X. For a Fund that employs an Affiliated Sub-Adviser,
the Fund will provide separate disclosure of any fees paid to such Affiliated
Sub-Adviser.
2. Discussion
Applicants believe that relief from the foregoing disclosure requirements
is necessary or appropriate in the public interest, consistent with the
protection of investors and consistent with the purposes fairly intended by the
policy and provisions of the 1940 Act, and should be granted for the following
reasons: (1) the Advisor will operate the Funds using the services of one or
more Sub-Advisers in a manner different from that of traditional investment
companies such that disclosure of the fees that the Advisor pays to each
Sub-Adviser does not serve any meaningful purpose; (2) the relief would benefit
shareholders by enabling the Funds to operate in a more efficient manner; and
Page 20 of 43
(3) Applicants would consent to a number of conditions that adequately address
disclosure concerns.
As noted above, the Advisor will operate the Funds utilizing the Manager
of Managers Structure in a manner different from a traditional investment
company. By investing in a Fund, shareholders will be hiring the Advisor to
manage the Fund's assets by evaluating, monitoring and recommending Sub-Advisers
and allocating assets of the Fund among Sub-Advisers rather than by hiring its
own employees to manage the assets directly. The Advisor, under the supervision
of the Board, will be responsible for overseeing the Sub-Advisers and
recommending their hiring, termination and replacement. In return, the Advisor
will receive an advisory fee from each Fund. Pursuant to the relevant
Sub-Advisory Agreement, the Advisor may compensate the Sub-Adviser out of this
fee, or the Fund may compensate the Sub-Adviser directly.(27) Disclosure of the
individual fees that the Advisor or Fund would pay to a Sub-Adviser will not
serve any meaningful purpose since investors will pay the Advisor to monitor and
evaluate each Sub-Adviser. Indeed, in a more conventional arrangement, the fees
negotiated between the Advisor and the Sub-Advisers would be the functional
equivalent of requiring single adviser investment companies to disclose the
salaries of individual portfolio managers employed by that investment adviser.
In the case of a single adviser or traditional investment company, disclosure is
made of the compensation paid to the investment adviser, but shareholders are
not told or asked to vote on the salary paid by the investment adviser to
individual portfolio managers. Similarly, in the case of a Fund using the
Manager of Managers Structure, the shareholders will have chosen to employ the
Advisor and to rely upon the Advisor's expertise in monitoring the Sub-Advisers,
recommending the Sub-Advisers' selection and termination (if necessary), and
negotiating the compensation of the Sub-Advisers, all subject to Board approval.
There are no policy reasons that require shareholders of the sub-advised Funds
to be told the individual Sub-Adviser's fees any more than shareholders of a
traditional investment company (single investment adviser) would be told of the
particular investment adviser's portfolio managers' salaries.(28)
The requested relief would benefit shareholders of the sub-advised Funds
because it would improve the Advisor's ability to negotiate the fees paid to
Sub-Advisers. The Advisor's ability to negotiate with the various Sub-Advisers
would be adversely affected by public disclosure of fees paid to each
Sub-Adviser. If the Advisor is not required to disclose the Sub-Advisers' fees
(27) Under the requested Order, for Funds that pay fees to a Sub-Adviser
directly from Fund assets, any change to a Sub-Advisory Agreement that
would not result in an increase in the total management and advisory fees
payable by the Fund would not need to be submitted to affected
shareholders for approval.
(28) The relief would be consistent with the Commission's disclosure
requirements applicable to fund portfolio managers that were previously
adopted. See Investment Company Act Release No. 26533 (Aug. 23, 2004).
Under these disclosure requirements, a fund would be required to include
in its SAI, among other matters, a description of the structure of and the
method used to determine the compensation structure of its "portfolio
managers." Applicants state that with respect to each Fund utilizing the
Manager of Managers Structure, the SAI will describe the structure and
method used to determine the compensation received by a portfolio manager
employed by a Sub-Adviser. In addition to this disclosure with respect to
portfolio managers, Applicants state that with respect to each Fund
utilizing the Manager of Managers Structure, the SAI will describe the
structure of, and method used to determine, the compensation received by a
Sub-Adviser.
Page 21 of 43
to the public, the Advisor may be able to negotiate rates that are below a
Sub-Adviser's "posted" amounts. Moreover, if one Sub-Adviser is aware of the
advisory fee paid to another Sub-Adviser, the Sub-Adviser is unlikely to
decrease its advisory fee below that amount. The relief will also encourage
Sub-Advisers to negotiate lower sub-advisory fees with the Advisor if the lower
fees are not required to be made public.
C. Precedent
The Advisor and the ETF Trusts are aware of three other ETF complexes that
have previously sought or obtained similar exemptions.(29)
Applicants note that substantially the same exemptions requested herein
with respect to relief from Section 15(a) and Rule 18f-2 have been granted
previously by the Commission to open-end investment companies that do not
operate as ETFs. See, e.g., Pax World Funds Series Trust I and Pax World
Management LLC, Investment Company Act Release Nos. 29751 (Aug. 10, 2011)
(notice) and 29783 (Sept. 7, 2011) (order) ("Pax"); Sterling Capital Funds and
Sterling Capital Management LLC, Investment Company Act Release Nos. 29713 (July
1, 2011) (notice) and 29738 (July 26, 2011) (order) ("Sterling"); Highland
Capital Management, L.P. and Highland Funds I, Investment Company Act Release
Nos. 29445 (Sept. 27, 2010) (notice) and 29488 (Oct. 26, 2010) (order)
("Highland"); Northern Lights Fund Trust, et al., Investment Company Act Release
Nos. 29208 (Apr. 16, 2010) (notice) and 29267 (May 12, 2010) (order) ("Northern
Lights"); CLS Investments, LLC and AdvisorOne Funds, Investment Company Act
Release Nos. 28894 (Aug. 31, 2009) (notice) and 28932 (Sept. 28, 2009) (order);
Phoenix Equity Trust, et al., Investment Company Act Release Nos. 28375 (Sept.
3, 2008) (notice) and 28410 (Sept. 29, 2008) (order); Aberdeen Asset Management
Inc. and Aberdeen Funds, Investment Company Act Release Nos. 28364 (Aug. 25,
2008) (notice) and 28385 (Sept. 22, 2008) (order) ("Aberdeen").
Applicants also note that the Commission has granted substantially the
same relief from the disclosure requirements of the rules and forms discussed
herein to the applicants in Pax, Sterling, Highland, Northern Lights and
Aberdeen.
IV. CONDITIONS FOR RELIEF
Applicants agree that any Order granting the requested relief will be
subject to the following conditions:
1. Before a Fund may rely on the requested Order, the operation of
the Fund in the manner described in the Application will be approved by a
majority of the Fund's outstanding voting securities, as defined in the
1940 Act or, in the case of a Fund whose public shareholders purchase
shares on the basis of a prospectus containing the disclosure contemplated
(29) See IndexIQ, Grail and WisdomTree, supra note 18. WisdomTree did not
include relief from the disclosure requirements of the rules and forms
discussed herein.
Page 22 of 43
by condition 2 below, by the initial shareholder(s) before offering shares
of that sub-advised Fund to the public.
2. The prospectus for each Fund relying on the requested Order
will disclose the existence, substance, and effect of any Order granted
pursuant to this Application. Each Fund relying on the requested Order
will hold itself out to the public as utilizing the Manager of Managers
Structure described in this Application. The prospectus will prominently
disclose that the Advisor has ultimate responsibility (subject to
oversight by the Board) to oversee the Sub-Advisers and recommend their
hiring, termination, and replacement.
3. Funds will inform shareholders of the hiring of a new
Sub-Adviser within 90 days of the hiring of the new Sub-Adviser pursuant
to the Modified Notice and Access Procedures.
4. The Advisor will not enter into a sub-advisory agreement with
any Affiliated Sub-Adviser without such agreement, including the
compensation to be paid thereunder, being approved by the shareholders of
the applicable Fund.
5. At all times, at least a majority of the Board will be
Independent Trustees, and the nomination of new or additional Independent
Trustees will be placed within the discretion of the then-existing
Independent Trustees.
6. Whenever a sub-adviser change is proposed for a Fund with an
Affiliated Sub-Adviser, the Board, including a majority of the Independent
Trustees, will make a separate finding, reflected in the applicable Board
minutes, that such change is in the best interests of the Fund and its
shareholders, and does not involve a conflict of interest from which the
Advisor or the Affiliated Sub-Adviser derives an inappropriate advantage.
7. Whenever a sub-adviser is hired or terminated, the Advisor will
provide the Board with information showing the expected impact on the
profitability of the Advisor.
8. The Advisor will provide general management services to each
Fund that is sub-advised, including overall supervisory responsibility for
the general management and investment of the Fund's assets, and, subject
to review and approval of the Board, will: (i) set each Fund's overall
investment strategies; (ii) evaluate, select and recommend Sub-Advisers to
manage all or a part of a Fund's assets; (iii) allocate and, when
appropriate, reallocate a Fund's assets among one or more Sub-Advisers;
(iv) monitor and evaluate the performance of Sub-Advisers; and (v)
implement procedures reasonably designed to ensure that the Sub-Advisers
comply with the relevant Fund's investment objective(s), policies and
restrictions.
9. No trustee or officer of a Company, or director, manager or
officer of the Advisor, will own, directly or indirectly (other than
through a pooled investment vehicle that is not controlled by such
person), any interest in a Sub-Adviser, except for (a) ownership of
Page 23 of 43
interests in the Advisor or any entity that controls, is controlled by, or
is under common control with the Advisor or (b) ownership of less than 1%
of the outstanding securities of any class of equity or debt of any
publicly traded company that is either a Sub-Adviser or an entity that
controls, is controlled by or is under common control with a Sub-Adviser.
10. Each Fund will disclose in its registration statement the
Aggregate Fee Disclosure.
11. In the event the Commission adopts a rule under the 1940 Act
providing substantially similar relief to that in the Order requested in
the Application, the requested Order will expire on the effective date of
that rule.
12. The Advisor will provide the Board, no less frequently than
quarterly, with information about the profitability of the Advisor on a
per Fund basis. The information will reflect the impact on profitability
of the hiring or termination of any sub-adviser during the applicable
quarter.
13. Independent Legal Counsel, as defined in Rule 0-1(a)(6) under
the 1940 Act, will be engaged to represent the Independent Trustees. The
selection of such counsel will be within the discretion of the
then-existing Independent Trustees.
14. For Funds that pay fees to a Sub-Adviser directly from Fund
assets, any changes to a Sub-Advisory Agreement that would result in an
increase in the total management and advisory fees payable by a Fund will
be required to be approved by the shareholders of the Fund.
V. CONCLUSION
For the foregoing reasons, Applicants request that the Commission issue an
Order under Section 6(c) of the 1940 Act granting the relief sought in this
Application. Applicants submit that the exemption is necessary or appropriate in
the public interest, consistent with the protection of investors, and consistent
with the purposes fairly intended by the policy and provisions of the 1940 Act.
VI. PROCEDURAL MATTERS
Applicants file this Application in accordance with Rule 0-2 under the
1940 Act, and state that their address is printed on the Application's facing
page and that they request that all written communications concerning the
Application be directed to the person(s) and address(es) printed on the
Application's facing page. Also, Applicants have included in Section IX the
required verifications.
In accordance with Rule 0-2(c) under the 1940 Act, Applicants state that
all actions necessary to authorize the execution and filing of this Application
have been taken, and the persons signing and filing this document are authorized
to do so on behalf of the Applicants.
Page 24 of 43
In accordance with Rule 0-5 under the 1940 Act, Applicants request that
the Commission issue the requested Order without holding a hearing.
Page 25 of 43
Based on the facts, analysis, and conditions in this Application,
Applicants respectfully request that the Commission issue an Order under Section
6(c) of the 1940 Act granting the relief requested by this Application.
Dated: February 19, 2013
FIRST TRUST EXCHANGE-TRADED FUND
By: /s/ Mark R. Bradley
---------------------------------
Name: Mark R. Bradley
Title: President
|
FIRST TRUST EXCHANGE-TRADED FUND II
By: /s/ Mark R. Bradley
---------------------------------
Name: Mark R. Bradley
Title: President
|
FIRST TRUST EXCHANGE-TRADED FUND III
By: /s/ Mark R. Bradley
---------------------------------
Name: Mark R. Bradley
Title: President
|
FIRST TRUST EXCHANGE-TRADED FUND IV
By: /s/ Mark R. Bradley
---------------------------------
Name: Mark R. Bradley
Title: President
|
FIRST TRUST EXCHANGE-TRADED FUND V
By: /s/ Mark R. Bradley
---------------------------------
Name: Mark R. Bradley
Title: President
|
FIRST TRUST EXCHANGE-TRADED FUND VI
By: /s/ Mark R. Bradley
---------------------------------
Name: Mark R. Bradley
Title: President
|
Page 26 of 43
FIRST TRUST EXCHANGE-TRADED FUND VII
By: /s/ W. Scott Jardine
---------------------------------
Name: W. Scott Jardine
Title: Sole Initial Trustee
|
FIRST TRUST EXCHANGE-TRADED AlphaDEX(R)
FUND
By: /s/ Mark R. Bradley
---------------------------------
Name: Mark R. Bradley
Title: President
|
FIRST TRUST EXCHANGE-TRADED AlphaDEX(R)
FUND II
By: /s/ Mark R. Bradley
---------------------------------
Name: Mark R. Bradley
Title: President
|
FIRST TRUST SERIES FUND
By: /s/ Mark R. Bradley
---------------------------------
Name: Mark R. Bradley
Title: President
|
FIRST DEFINED PORTFOLIO FUND, LLC
By: /s/ Mark R. Bradley
---------------------------------
Name: Mark R. Bradley
Title: President
|
FIRST TRUST VARIABLE INSURANCE TRUST
By: /s/ Mark R. Bradley
---------------------------------
Name: Mark R. Bradley
Title: President
|
FIRST TRUST ADVISORS L.P.
By: /s/ James A. Bowen
---------------------------------
Name: James A. Bowen
Title: Chief Executive Officer
|
Page 27 of 43
VII. SCHEDULE 1
Funds and Sub-Advisers that currently expect to rely on the
requested Order are listed below. Except as otherwise provided, the Fund
does not currently have a sub-adviser.
FIRST TRUST EXCHANGE-TRADED FUND
First Trust Dow Jones Internet Index(SM) Fund
First Trust Dow Jones Select MicroCap Index(SM) Fund
First Trust ISE Chindia Index Fund
First Trust ISE Water Index Fund
First Trust ISE-Revere Natural Gas Index Fund
First Trust Morningstar Dividend Leaders Index(SM) Fund
First Trust NASDAQ(R) ABA Community Bank Index Fund
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
First Trust NASDAQ-100-Technology Sector Index(SM) Fund
First Trust NYSE Arca Biotechnology Index Fund
First Trust S&P REIT Index Fund
First Trust Strategic Value Index Fund
First Trust US IPO Index Fund
First Trust Value Line(R) 100 Exchange-Traded Fund
First Trust Value Line(R) Dividend Index Fund
First Trust Value Line(R) Equity Allocation Index Fund
First Trust CBOE S&P 500 VIX Tail Hedge Fund
FIRST TRUST EXCHANGE-TRADED FUND II
First Trust BICK Index Fund
First Trust Dow Jones Global Select Dividend Index Fund
First Trust STOXX(R) European Select Dividend Index Fund
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
First Trust ISE Global Copper Index Fund
First Trust ISE Global Engineering and Construction Index Fund
First Trust ISE Global Platinum Index Fund
First Trust ISE Global Wind Energy Index Fund
First Trust NASDAQ CEA Smartphone Index Fund
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund
First Trust NASDAQ Global Auto Index Fund
First Trust ISE Cloud Computing Index Fund
Page 28 of 43
FIRST TRUST EXCHANGE-TRADED FUND III
First Trust Preferred Securities and Income ETF(30)
FIRST TRUST EXCHANGE-TRADED FUND IV
First Trust North American Energy Infrastructure Fund(31)
FIRST TRUST EXCHANGE-TRADED FUND VI
Multi-Asset Diversified Income Index Fund
First Trust NASDAQ Technology Dividend Index Fund
FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND
First Trust Consumer Discretionary AlphaDEX(R) Fund
First Trust Consumer Staples AlphaDEX(R) Fund
First Trust Energy AlphaDEX(R) Fund
First Trust Financials AlphaDEX(R) Fund
First Trust Health Care AlphaDEX(R) Fund
First Trust Industrials/Producer Durables AlphaDEX(R) Fund
First Trust Large Cap Core AlphaDEX(R) Fund
First Trust Large Cap Growth AlphaDEX(R) Fund
First Trust Large Cap Value AlphaDEX(R) Fund
First Trust Materials AlphaDEX(R) Fund
First Trust Mid Cap Core AlphaDEX(R) Fund
First Trust Multi Cap Growth AlphaDEX(R) Fund
First Trust Multi Cap Value AlphaDEX(R) Fund
First Trust Small Cap Core AlphaDEX(R) Fund
First Trust Technology AlphaDEX(R) Fund
First Trust Utilities AlphaDEX(R) Fund
First Trust Mid Cap Growth AlphaDEX(R) Fund
First Trust Mid Cap Value AlphaDEX(R) Fund
First Trust Small Cap Growth AlphaDEX(R) Fund
First Trust Small Cap Value AlphaDEX(R) Fund
First Trust Mega Cap AlphaDEX(R) Fund
FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II
First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund
First Trust Europe AlphaDEX(R) Fund
First Trust Latin America AlphaDEX(R) Fund
First Trust Brazil AlphaDEX(R) Fund
(30) The Fund's current sub-adviser is Stonebridge Advisors LLC, an Affiliated
Sub-Adviser. Accordingly, the requested relief will not extend to such
sub-adviser.
(31) The Fund's current sub-adviser is Energy Income Partners, LLC, an
Affiliated Sub-Adviser. Accordingly, the requested relief will not extend
to such sub-adviser.
Page 29 of 43
First Trust China AlphaDEX(R) Fund
First Trust Japan AlphaDEX(R) Fund
First Trust South Korea AlphaDEX(R) Fund
First Trust Developed Markets Ex-US AlphaDEX(R) Fund
First Trust Emerging Markets AlphaDEX(R) Fund
First Trust Germany AlphaDEX(R) Fund
First Trust Canada AlphaDEX(R) Fund
First Trust Australia AlphaDEX(R) Fund
First Trust United Kingdom AlphaDEX(R) Fund
First Trust Taiwan AlphaDEX(R) Fund
First Trust Hong Kong AlphaDEX(R) Fund
First Trust Switzerland AlphaDEX(R) Fund
First Trust Emerging Markets Small Cap AlphaDEX(R) Fund
First Trust Developed Markets ex-U.S. Small Cap AlphaDEX(R) Fund
FIRST DEFINED PORTFOLIO FUND, LLC
First Trust Target Focus Four Portfolio
Global Dividend Target 15 Portfolio
The Dow(R) DART 10 Portfolio
The Dow(R) Target Dividend Portfolio
NASDAQ(R) Target 15 Portfolio
S&P Target 24 Portfolio
Target Managed VIP Portfolio
Value Line(R) Target 25 Portfolio
FIRST TRUST VARIABLE INSURANCE TRUST
First Trust/Dow Jones Dividend & Income Allocation Portfolio
FIRST TRUST SERIES FUND
First Trust Preferred Securities and Income Fund(32)
First Trust/Confluence Small Cap Value Fund(33)
First Trust Short Duration High Income Fund
(32) The Fund's current sub-adviser is Stonebridge Advisors LLC, an Affiliated
Sub-Adviser. Accordingly, the requested relief will not extend to such
sub-adviser.
(33) The Fund's current Sub-Adviser is Confluence Investment Management LLC.
Page 30 of 43
VIII. AUTHORIZATIONS AND SIGNATURES
In accordance with Rule 0-2(c) under the 1940 Act, the Applicant states
that all actions necessary to authorize the execution and filing of this
Application have been taken, and the person signing and filing this document is
authorized to do so on behalf of First Trust Advisors L.P. James A. Bowen is
authorized to sign and file this document on behalf of First Trust Advisors L.P.
pursuant to the general authority vested in him as Chief Executive Officer.
FIRST TRUST ADVISORS L.P.
By: /s/ James A. Bowen
---------------------------------------
Name: James A. Bowen
Title: Chief Executive Officer
|
Dated as of: February 19, 2013
Page 31 of 43
In accordance with Rule 0-2(c) under the 1940 Act, the Applicants state
that all actions necessary to authorize the execution and filing of this
Application have been taken, and the person signing and filing this document is
authorized to do so on behalf of First Trust Exchange-Traded Fund, First Trust
Exchange-Traded Fund II, First Trust Exchange-Traded Fund III, First Trust
Exchange-Traded Fund IV, First Trust Exchange-Traded Fund V ("Trust V"), First
Trust Exchange-Traded Fund VI, First Trust Exchange-Traded AlphaDEX(R) Fund,
First Trust Exchange-Traded AlphaDEX(R) Fund II, First Trust Series Fund, First
Defined Portfolio Fund, LLC and First Trust Variable Insurance Trust
(collectively, the "Companies"). Mark R. Bradley is authorized to sign and file
this document on behalf of the Companies pursuant to (a) the general authority
vested in him as President and (b)(1) for the Companies other than Trust V,
resolutions adopted by the respective Boards of Trustees, which are attached
hereto as Appendix A-1, and (2) for Trust V, resolutions set forth in the
written consent of the initial trustee, which are attached hereto as Appendix
A-2.
FIRST TRUST EXCHANGE-TRADED FUND
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 ALPHADEX(R)
FUND
FIRST TRUST EXCHANGE-TRADED ALPHADEX(R)
FUND II
FIRST TRUST SERIES FUND
FIRST DEFINED PORTFOLIO FUND, LLC
FIRST TRUST VARIABLE INSURANCE TRUST
By: /s/ Mark R. Bradley
--------------------------------------
Name: Mark R. Bradley
Title: President
|
Dated as of: February 19, 2013
Page 32 of 43
In accordance with Rule 0-2(c) under the 1940 Act, the Applicant states
that all actions necessary to authorize the execution and filing of this
Application have been taken, and the person signing and filing this document is
authorized to do so on behalf of First Trust Exchange-Traded Fund VII. W. Scott
Jardine is authorized to sign and file this document on behalf of First Trust
Exchange-Traded Fund VII pursuant to resolutions set forth in the written
consent of the initial trustee, which are attached hereto as Appendix A-3.
FIRST TRUST EXCHANGE-TRADED FUND VII
By: /s/ W. Scott Jardine
----------------------------------
Name: W. Scott Jardine
Title: Sole Initial Trustee
|
Dated as of: February 19, 2013
Page 33 of 43
IX. VERIFICATIONS OF APPLICATION AND STATEMENTS OF FACT
VERIFICATION OF APPLICATION AND STATEMENT OF FACT
In accordance with Rule 0-2(d) under the 1940 Act, the undersigned, states
that he has duly executed the attached Application for an Order, for and on
behalf of FIRST TRUST EXCHANGE-TRADED FUND, 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 AlphaDEX(R) FUND, FIRST TRUST EXCHANGE-TRADED AlphaDEX(R) FUND
II, FIRST TRUST SERIES FUND, FIRST DEFINED PORTFOLIO FUND, LLC and FIRST TRUST
VARIABLE INSURANCE TRUST; that he is President of each such company; and that
all actions taken by shareholders, directors, trustees and the other persons
necessary to authorize the undersigned to execute and file such instrument have
been taken. The undersigned further states that he is familiar with such
instrument, and the contents thereof, and that the facts therein set forth are
true to the best of his knowledge, information and belief.
By: /s/ Mark R. Bradley
-------------------------------------
Name: Mark R. Bradley
Title: President
|
Page 34 of 43
VERIFICATION OF APPLICATION AND STATEMENT OF FACT
In accordance with Rule 0-2(d) under the 1940 Act, the undersigned, states
that he has duly executed the attached Application for an Order, for and on
behalf of FIRST TRUST ADVISORS L.P.; that he is Chief Executive Officer of the
company; and that all actions taken by shareholders, directors, trustees and the
other persons necessary to authorize the undersigned to execute and file such
instrument have been taken. The undersigned further states that he is familiar
with such instrument, and the contents thereof, and that the facts therein set
forth are true to the best of his knowledge, information and belief.
By: /s/ James A. Bowen
-------------------------------------
Name: James A. Bowen
Title: Chief Executive Officer
|
Page 35 of 43
VERIFICATION OF APPLICATION AND STATEMENT OF FACT
In accordance with Rule 0-2(d) under the 1940 Act, the undersigned states
that he has duly executed the attached Application for an order, for and on
behalf of FIRST TRUST EXCHANGE-TRADED FUND VII; that he is the Sole Initial
Trustee of such company; and that all actions taken by the stockholders,
directors and other bodies necessary to authorize the undersigned to execute and
file such instrument have been taken. The undersigned further states that he is
familiar with such instrument, and the contents thereof, and that the facts
therein set forth are true to the best of his knowledge, information and belief.
By: /s/ W. Scott Jardine
-------------------------------------
Name: W. Scott Jardine
Title: Sole Initial Trustee
|
Page 36 of 43
APPENDIX A-1
THE BOARDS OF TRUSTEES OF EACH OF THE FIRST TRUST FUNDS LISTED ON SCHEDULE 1
HERETO (COLLECTIVELY, THE "FUNDS") EACH ADOPTED THE FOLLOWING RESOLUTIONS
WHEREAS, Section 15(a) of the Investment Company Act of 1940, as
amended (the "1940 Act"), generally makes it unlawful for any person to
act as an investment adviser (including as a sub-adviser) to a registered
investment company except pursuant to a written contract which has been
approved by the vote of a majority of the outstanding voting securities of
such registered investment company, and Rule 18f-2 under the 1940 Act
generally requires that such approval be obtained on a series-specific
basis for "series companies" as defined therein; and
WHEREAS, registered investment companies are required to disclose
information pertaining to fees paid to sub-advisers under the provisions
of various forms prescribed by, and regulations promulgated by, the
Securities and Exchange Commission (the "Commission"); and
WHEREAS, First Trust Advisors L.P., the investment adviser to the
Funds and their series, recommends that the Funds be authorized to seek an
order of exemption from the Commission that grants relief from the
foregoing shareholder approval and disclosure requirements.
NOW THEREFORE BE IT:
RESOLVED, that Mark R. Bradley and any other appropriate officer of
each Fund be, and each hereby is, authorized to prepare, execute and
submit to the Commission, on behalf of the respective Fund and in its
name, an application or applications in such form as such officer, or any
one of them, deems necessary or appropriate seeking, pursuant to Section
6(c) of the 1940 Act, an order of exemption from Section 15(a) of the 1940
Act and Rule 18f-2 thereunder, and from certain disclosure requirements
under various rules and forms, to permit, among other things, as described
in such application or applications, the hiring and retention of
sub-advisers and amendments to sub-advisory contracts on behalf of each
such Fund and its respective series without shareholder approval (any such
application, an "Exemptive Application" and such order of exemption, the
"Order of Exemption"); and it is
FURTHER RESOLVED, that Mark R. Bradley and any other any appropriate
officer of the respective Fund be, and each hereby is, authorized and
directed to take such additional actions and to execute and deliver on
behalf of the respective Fund such other documents or instruments as he or
she deems necessary or appropriate in furtherance of the above resolution,
including, without limitation, the preparation, execution and filing of
any necessary or appropriate amendment(s) or supplement(s) to the
above-described Exemptive Application(s), his or her authority therefor to
Page 37 of 43
be conclusively evidenced by the taking of any such actions or the
execution or delivery of any such document; and it is
FURTHER RESOLVED, that upon issuance of an Order of Exemption by the
Commission in accordance with the terms and conditions of any Exemptive
Application described above, the respective Fund is authorized to act in
accordance with the provisions of such Exemptive Application and the
related Order of Exemption.
Page 38 of 43
SCHEDULE 1
First Trust Exchange-Traded Fund
First Trust Exchange-Traded Fund II
First Trust Exchange-Traded Fund III
First Trust Exchange-Traded Fund IV
First Trust Exchange-Traded Fund VI
First Trust Exchange-Traded AlphaDEX(R) Fund
First Trust Exchange-Traded AlphaDEX(R) Fund II
First Trust Series Fund
First Defined Portfolio Fund, LLC
First Trust Variable Insurance Trust
Page 39 of 43
APPENDIX A-2
THE INITIAL TRUSTEE OF FIRST TRUST EXCHANGE-TRADED FUND V ADOPTED THE
FOLLOWING RESOLUTIONS
The following resolutions were adopted by the written consent of the sole
initial trustee and remain in full force and effect.
WHEREAS, Section 15(a) of the Investment Company Act of 1940, as
amended (the "1940 Act"), generally makes it unlawful for any person to
act as an investment adviser (including as a sub-adviser) to a registered
investment company except pursuant to a written contract which has been
approved by the vote of a majority of the outstanding voting securities of
such registered investment company, and Rule 18f-2 under the 1940 Act
generally requires that such approval be obtained on a series-specific
basis for "series companies" as defined therein; and
WHEREAS, registered investment companies are required to disclose
information pertaining to fees paid to sub-advisers under the provisions
of various forms prescribed by, and regulations promulgated by, the
Securities and Exchange Commission (the "Commission"); and
WHEREAS, the First Trust Exchange-Traded Fund V (the "Fund") wishes
to seek an order of exemption from the Commission that grants relief from
the foregoing shareholder approval and disclosure requirements.
NOW THEREFORE BE IT:
RESOLVED, that Mark R. Bradley and any other appropriate officer of
the Fund be, and each hereby is, authorized to prepare, execute and submit
to the Commission, on behalf of the Fund and in its name, an application
or applications in such form as such officer, or any one of them, deems
necessary or appropriate seeking, pursuant to Section 6(c) of the 1940
Act, an order of exemption from Section 15(a) of the 1940 Act and Rule
18f-2 thereunder, and from certain disclosure requirements under various
rules and forms, to permit, among other things, as described in such
application or applications, the hiring and retention of sub-advisers and
amendments to sub-advisory contracts on behalf of the Fund and its series
without shareholder approval (any such application, an "Exemptive
Application" and such order of exemption, the "Order of Exemption"); and
it is
FURTHER RESOLVED, that Mark R. Bradley and any other any appropriate
officer of the Fund be, and each hereby is, authorized and directed to
take such additional actions and to execute and deliver on behalf of the
Fund such other documents or instruments as he or she deems necessary or
appropriate in furtherance of the above resolution, including, without
limitation, the preparation, execution and filing of any necessary or
appropriate amendment(s) or supplement(s) to the above-described Exemptive
Page 40 of 43
Application(s), his or her authority therefor to be conclusively evidenced
by the taking of any such actions or the execution or delivery of any such
document; and it is
FURTHER RESOLVED, that upon issuance of an Order of Exemption by the
Commission in accordance with the terms and conditions of any Exemptive
Application described above, the Fund is authorized to act in accordance
with the provisions of such Exemptive Application and the related Order of
Exemption.
Page 41 of 43
APPENDIX A-3
THE INITIAL TRUSTEE OF FIRST TRUST EXCHANGE-TRADED FUND VII ADOPTED THE
FOLLOWING RESOLUTIONS
The following resolutions were adopted by the written consent of the sole
initial trustee and remain in full force and effect.
WHEREAS, Section 15(a) of the Investment Company Act of 1940, as
amended (the "1940 Act"), generally makes it unlawful for any person to
act as an investment adviser (including as a sub-adviser) to a registered
investment company except pursuant to a written contract which has been
approved by the vote of a majority of the outstanding voting securities of
such registered investment company, and Rule 18f-2 under the 1940 Act
generally requires that such approval be obtained on a series-specific
basis for "series companies" as defined therein; and
WHEREAS, registered investment companies are required to disclose
information pertaining to fees paid to sub-advisers under the provisions
of various forms prescribed by, and regulations promulgated by, the
Securities and Exchange Commission (the "Commission"); and
WHEREAS, the First Trust Exchange-Traded Fund VII (the "Fund")
wishes to seek an order of exemption from the Commission that grants
relief from the foregoing shareholder approval and disclosure
requirements.
NOW THEREFORE BE IT:
RESOLVED, that the Initial Trustee and any officer of the Fund that
he may designate be, and each hereby is, authorized to prepare, execute
and submit to the Commission, on behalf of the Fund and in its name, an
application or applications in such form as they, or any one of them,
deems necessary or appropriate seeking, pursuant to Section 6(c) of the
1940 Act, an order of exemption from Section 15(a) of the 1940 Act and
Rule 18f-2 thereunder, and from certain disclosure requirements under
various rules and forms, to permit, among other things, as described in
such application or applications, the hiring and retention of sub-advisers
and amendments to sub-advisory contracts on behalf of the Fund and its
series without shareholder approval (any such application, an "Exemptive
Application" and such order of exemption, the "Order of Exemption"); and
it is
FURTHER RESOLVED, that the Initial Trustee and any officer of the
Fund that he may designate be, and each hereby is, authorized and directed
to take such additional actions and to execute and deliver on behalf of
the Fund such other documents or instruments as he or she deems necessary
or appropriate in furtherance of the above resolution, including, without
limitation, the preparation, execution and filing of any necessary or
Page 42 of 43
appropriate amendment(s) or supplement(s) to the above-described Exemptive
Application(s), his or her authority therefor to be conclusively evidenced
by the taking of any such actions or the execution or delivery of any such
document; and it is
FURTHER RESOLVED, that upon issuance of an Order of Exemption by the
Commission in accordance with the terms and conditions of any Exemptive
Application described above, the Fund is authorized to act in accordance
with the provisions of such Exemptive Application and the related Order of
Exemption.
Page 43 of 43
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